UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K





(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, 2008.





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: 333-149166




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





Delaware
                  
                  20-1826789(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




Branislav
Vajdic


Chief
Executive Officer


NewCardio,
Inc.


2350
Mission College Boulevard, Suite 1175


Santa
Clara, California 95054


(408)
516-5000


(Name,
address and telephone number of agent for service)




Copies of
all communications to:


Marc
Ross, Esq.


Andrew
Smith, Esq.


Sichenzia
Ross Friedman Ference LLP


61
Broadway, 32nd
Floor


New York,
New York 10006


Phone:
(212) 930-9700


Fax:
(212) 930-9725




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




Securities
Registered Pursuant to Section 12(g) of the Act: Common Stock: NONE




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.    x














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 “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              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, 2008, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the
registrant:  $24,025,587








The number of shares of the
registrant’s common stock outstanding as of March 16, 2009 was
23,764,779.


2


TABLE OF
CONTENTS





PART
      I
                                                                          4Item
      1.
                                                                          Business
                                                                          4Item1A.
                                                                          Risk
      Factors
                                                                          15Item1B.
                                                                          Unresolved
      Staff Comments
                                                                          21Item
      2.
                                                                          Properties
                                                                          22Item
      3.
                                                                          Legal  Proceedings
                                                                          22Item
      4.
                                                                          Submission
      of Matters to a Vote of Security Holders
                                                                          22PART
      II
                                                                          23Item
      5.
                                                                          Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                                          23Item
      6.
                                                                          Selected
      Financial Data
                                                                          24Item
      7.
                                                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                          24Item7A.
                                                                          Quantitative
      and Qualitative Disclosures about Market Risk
                                                                          31Item
      8.
                                                                          Financial
      Statements and Supplementary Data
                                                                          31Item
      9.
                                                                          Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                          31Item9A.
                                                                          Controls
      and Procedures
                                                                          32Item9B.
                                                                          Other
      Information
                                                                          3333PART
      IIIItem10.
                                                                          Directors,
      Executive Officers and Corporate Governance
                                                                          34Item11.
                                                                          Executive
      Compensation
                                                                          37Item12.
                                                                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                                          41Item13.
                                                                          Certain
      Relationships and Related Transactions and Director
      Independence
                                                                          43PART
      IVItem14.
                                                                          Principal
      Accountant Fees and Services
                                                                          44Item15.
                                                                          Exhibits,
      Financial Statement Schedules
                                                                          45SIGNATURES
                                                                          48EX-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 products and services for the non-invasive
diagnosis and monitoring of cardiovascular disease (“CVD”), as well as the
cardiac safety assessment of new drugs under development.  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 for periods prior to December 28,
2007, 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




NewCardio,
as a developer of cardiovascular diagnostic technologies focused specifically on
the ECG, initially intends to compete in two large segments of the CVD
diagnostic market: (1) cardiac safety services for drug development, and
(2) CVD diagnostics.




The
12-lead electrocardiograph, ECG, is cardiology’s most frequently used screening
and diagnostic tool, primarily due to the fact that it is a non-invasive,
inexpensive, and highly versatile test which provides immediate availability for
diagnosing arrhythmia, heart muscle diseases, or increased susceptibility to
sudden cardiac arrest.  Our opportunity in the CVD diagnostic test
market is based on our proprietary 3D platform technology ability to provide
significantly enhanced diagnostic information which allows for faster, more
accurate and less expensive assessment of cardiac status, and difficult to
diagnose conditions, without changing any of the established ECG
practices.




According
to our current market estimates, there are more than 250 million ECGs taken
annually in the developed countries of the world, be it in drug development,
emergency rooms, ambulatory monitoring, hospitals, office visits, stress tests,
etc.    Our opportunities in this market are twofold; the
first being our ability to add value to the current use of ECG as a diagnostic
tool based on our ability to provide more accurate and timely diagnosis than is
available today. The second is our ability to advance the use of the ECG as a
diagnostic tool in replacing much more costly, and sometimes risky, diagnostic
tests with a more cost effective and accurate procedure. We believe this could
increase the number of ECGs performed annually.




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 become 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 15,000 - 50,000 ECGs, 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 20,000 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.




5




While
advanced CVD diagnostic testing (such as cardiac magnetic resonance imaging and
multi-detector 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 sub-segments of the CVD
diagnostic market:




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 drug development companies, 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 digital ECG files and calculate numerical results.




QTinnoTM can be
installed and used on any Windows-based personal computer.  It does
not require a dedicated computer and no special hardware is required to operate
the software.  In addition, there is no requirement for any new or
unique procedures for capturing ECGs, as our customers will continue to use
their current ECG hardware and processes to obtain standard ECG
recordings.  They will simply extract the digital files of these ECG
recordings in order to import into the 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.




6




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.





VisualECGTM





VisualECGTM is a
set of algorithms and tools that provide a comprehensive method to assess
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. 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 VisualECGTM to
assess potentially fatal diseases and conditions, including acute coronary
syndrome, with far greater accuracy than possible by standard ECG.




Importantly,
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, 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 VisualECGTM by the
medical community.




VisualECGTM
is in development and not available for sale in the US.





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.


7


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.  The results from this study have been accepted for
presentation at the 58th Annual
Scientific Sessions of the American College of Cardiology, March 28-31, 2009,
and for publication in the Journal of Electrocardiology in 2009.  We also
concluded our formal external validation with two additional studies totaling
approximately 9,500 ECGs with results in line with the first external study. We
expect to present additional study results at the International Society of
Computerized Electrocardiology during their annual scientific conference in
April 2009 and plan further peer reviewed publications.





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 VisualECGTMin 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 84% of patients.  No material negative results
were found.


8


VisualECGTM- Planned External
Studies




VisualECGTM Markers of Ischemia in Emergency
Department Patients with Chest Pain. In 2008, we completed patient
enrollment and data collection in an internal study of about 550 patients
presenting to the University of Kansas Emergency Department with chest pain from
various causes.   During 2009, we will be using 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.  In the second half of 2009, we intend to initiate a study in about
600 patients presenting to two different Boston-area Emergency Departments with
chest pain.  In this latter study, we intend to test the novel ischemia
markers developed in the University of Kansas study, to determine how their use
enhances sensitivity, specificity and predictive values beyond that obtained
with the standard 12-lead ECG.  We expect to complete top-level data
analysis of this study for purposes of filing for 510(k) clearance of this
product in 2010.




Marketing
and Sales




QTinnoTM





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




●
            diagnostic
      speed, requiring
      only about several hours 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 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.




Our
initial target customers will be CROs, pharmaceutical sponsors and core ECG
central labs.




We have hired an experienced team to
drive the commercialization of the 3-D platform technology, focusing initially
on QTinnoTM, and its application in solving the challenges of accuracy,
reproducibility and cost in TQT Cardiac Safety studies. The team has a
background in IT services, client services and product management in the cardiac
safety industry and is focusing on ensuring organizational readiness in the
marketing, sale, delivery and support of QTinnoTM for use in TQT studies. We are
building a sales network and have started interacting with potential customers
that we believe will lead to achieving our first milestone – our first customer,
first study, and first revenues in the second half of 2009.




We intend to use traditional and
advanced methods to enter the market, supporting both a direct and indirect
sales effort with an integrated marketing plan to raise product and service
awareness to assist in generating sales leads.




Research
and Development




We plan
to focus our short and medium term development efforts on solutions for Cardiac
Safety and Efficacy, Urgent Care and Chronic Care markets. 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.




Cardiac
Safety: The first commercial version of our QTinnoTM Solution is focused on
addressing Thorough QT (TQT) and Phase 1 studies. The solution is expected to be
delivered as Software as a Service (SaaS) in order to minimize
implementation/validation timelines at our customer’s end. We are focused on a
aggressive release strategy that will include enhancement, maintenance and
upgrade releases. Such releases will address customers’ needs for full database
functionality and for scalable architectures.  Ease of integration into
customers’ internal infrastructures will be among key benefits of our future
solution. The second version of the QTinnoTM solution will also enhance the
functionality required to support Late Phase/Routine Drug Safety
Studies.




9




Urgent
Care: We believe we have internally made significant progress in achieving
increased performance of the VisualECGTM System in detecting acute myocardial
ischemia through the analysis and review of the results obtained in our
completed validation studies. The Solution will enable emergency room physicians
to obtain superior diagnostic value when compared with the standard 12-lead ECG.
Our 2009 development efforts are focused on performance, initiating a clinical
trial that could serve as the foundation for a FDA 510(k) submission of
VisualECGTM in 2010.




Chronic
Care: While solution releases for this market are not planned during 2009, we
are assessing the health care benefits and the role the wireless monitoring
capabilities of our CardioBipTM
Solution could offer to patients and their physicians. We believe that our
solution for this market best represents the capabilities of NewCardio’s Unified
3-D Platform. CardioBipTM
specifications include an efficient chronic-care patient monitoring solution,
integrating the accuracy of fiducial point measurements from QTinnoTM with
the condition detection performance of VisualECGTM
biomarkers.




Competition




We
have many competitors for all three of our main product lines. The largest of
these competitors, GE Healthcare, Phillips Medical Systems, CardioNet, 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 adoption 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 offer 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




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.




10




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.




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
                                    1/16/
      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. 7,266,408 issued 4 Sept 2007
                                    US
      Patent Expires 01/2025
                                    Application
      for grant of additional claims (Divisional US Patent
      Application)  filed 31 August 2007PCT/
                                    US2008/
                                    009308
                                    31
      Jul 08
                                  
                                  Quantitative
      assessment of cardiac electrical events (QTinnoTM)
                                  
                                  Priority
      to US Provisional Application filed 1 Aug 07
                                    No
      Patent Office Actions yet receivedUS
      12/ 184,068
                                    31
      Jul 08
                                  
                                  Device
      and methods for evaluating cardiac
                                    electrical
      events (QTinnoTM)
                                  
                                  Priority
      to US Provisional Application filed 1 Aug 07
                                    No
      Patent Office Actions yet receivedUS
      Patent Application
                                  
                                  Systems
      and methods for accurate detection of fiducial points (QTinnoTM)
                                  
                                  In
      preparation




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.




11




Government
Regulation





Our
solutions include software, and potentially hardware, which will be used in
clinical settings including drug development and patient diagnosis 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;
  ●
              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.




12




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;
  ●
              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 there under, 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 QTinnoTM
performance and regard it as reliable before drug sponsors will accept it for
use with trial validation. In this regard, we recently joined the Cardiac Safety
Research Consortium (“CSRC”), a broad-based collaboration of medical product
safety experts from academia, industry, and the FDA. It was formed in 2005 in
response to the Critical Path Initiative, the FDA’s effort to modernize the drug
development process. The CSRC’s primary goal is to facilitate development of new
tools to improve cardiac safety assessment of medical products, especially tools
to quantify arrhythmia (abnormal heart beat) risk of new drugs in development.
With the FDA, the CSRC established a centralized ECG warehouse of ECGs obtained
from drug clinical research studies. We intend to be an active participant in
CSRC efforts, by providing expertise and technology as needed, and by conducting
targeted research and development projects, as such projects are reviewed and
approved by the CSRC’s Scientific Oversight Committee.




13




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.




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 31, 2008 we had 10 full-time employees and no part-time
employees.  Additionally, we have approximately 16 consultants who
perform various specialized services for us.  We have nine 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.


14


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 $9,324,465 during the year ended December
31, 2008 and incurred cumulative losses since our inception on September 7, 2004
through, December 31, 2008 of $12,570,239. While we have initiated the
commercialization of our first product, QTinnoTM, we 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.




Our independent auditors have
expressed substantial doubt about our ability to continue as a going
concern.





In their
audit opinion issued in connection with our consolidated balance sheets as of
December 31, 2008 and our related consolidated statements of operations,
stockholders’ equity, and cash flows for the year ended December 31, 2008, our
auditors have expressed substantial doubt about our ability to continue as a
going concern given our recurring net losses, negative cash flows from
operations, planned spending levels and the limited amount of funds on our
balance sheet.  We have prepared our financial statements on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.  The
consolidated financial statements do not include any adjustments that might be
necessary should we be unable to continue in existence.




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.




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, until we are capable of generating sufficient revenues from operations
and our capital resources are sufficient to meet future requirements, we may
have to raise funds to continue the development, commercialization, marketing
and sale of our products.




15




We
cannot be certain that funding will be available on acceptable terms, or at all.
In these current economic times, equity is not as readily available for
pre-revenue public companies as it may have been in the past. Valuations are
also under pressure. To the extent that we raise additional funds by issuing
equity securities, our stockholders may experience significant dilution. The
debt markets are most likely closed to us. 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.




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 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.




16




The
regulatory process, which includes clinical validation 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
clinical validation 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.




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 solutions could become obsolete unless we
continually innovate and expand our product solutions to demonstrate recurrence
and treatment benefit in patients treated with new therapies. If we are unable
to demonstrate the applicability of our solutions to new treatments, then sales
of our solutions could decline, which would reduce our revenues.




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
Dr. Vajdic could have a material adverse effect upon our business, financial
condition or results of operations. Dr. Vajdic currently does not any plans to
retire or leave us in the near future. We maintain $2 million in key life
insurance on Dr. Vajdic and nothing for any of our other 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, 2008,
we have incurred a net cumulative loss of $18,522,037. 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, including the current environment, 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 and/or
compliance 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.




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;
  18
  ●
              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, 2008 there was outstanding 16,435 shares of Series ‘B’ Convertible
Preferred Stock that is convertible into 16,435,000 shares of common stock,
Series ‘A’ common stock warrants to purchase an aggregate of 5,200,000 shares of
common stock at a price of $1.14 per share, other common stock warrants to
purchase an aggregate of 3,600,000 shares of common stock at an average price of
$0.61 per share, and 8,500,000 options to purchase common stock with a weighted
average exercise price of $1.75 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.




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.




19




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 there under 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.  
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, 2008. 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 2350 Mission College Boulevard, Suite
1175, Santa Clara, California, 95054, and consist of 2,000 square feet of
space.  We entered into a 38-month lease for this facility, which
commenced in March 2008, with an average cost of approximately $5,800 per month.
We also lease approximately 900 square feet of space in Princeton New Jersey in
a ‘suites’ environment.  This is a 6-month renewable lease effective
October 1, 2008 at a cost of $5000 per month. In addition, we 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.


22


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 sales prices 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 31)
                                      
                                      $
                                      2.42
                                      
                                      
                                      $
                                      1.202nd
      Quarter (from April 1 - June 30)
                                      
                                      $
                                      3.89
                                      
                                      
                                      $
                                      1.813rd
      Quarter (from July 1 - September 30)
                                      
                                      $
                                      5.08
                                      
                                      
                                      $
                                      1.814th
      Quarter (from October 1 - December 31)
                                      
                                      $
                                      2.59
                                      
                                      
                                      $
                                      0.70




There
were approximately 85 holders of record of our common stock as of March 16,
2009.




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
Transaction Involving Unregistered Securities




During
the three-month period ended December 31, 2008, we have issued the following
securities that were not registered under the Securities Act of 1933, as
amended:




On December 1, 2008, we entered into an
agreement to restructure, and closed the restructuring, of the going-forward
terms of our December 27, 2007 financing.  In connection with the
restructuring, there was an early exercise of warrants for $2.8 million for a
new Series B Convertible Preferred Stock, an exchange of outstanding Series A
10% Convertible Preferred Stock along with a one-time final dividend of 22%,
which represented both forth quarter dividends accrued and an inducement to the
investors for early conversion of their stock.  They received the new
Series B Convertible Preferred Stock and an exchange of certain outstanding
warrants for the new Series B Convertible Preferred Stock, removal of all
preferences associated with the 2007 transaction, including anti-dilution
protection and rights impacting management decisions.




The
Series B Convertible Preferred Stock is convertible into an aggregate of
16,435,000 shares of our common stock.  Holders of the non-voting
Series B Convertible Preferred Stock are not entitled to receive
dividends.   The December 1, 2008 transaction eliminated all
outstanding Series ‘J’ and ‘J-A’ warrants.




In
connection with the exercise of J warrants on December 1, 2008, we agreed to
re-acquire 1,896 shares of Series B Preferred Stock, convertible into 1, 896,000
shares of our common stock for a sum of $744,280, net of unpaid transaction
costs of $56,000 at the holder’s option for 30 days after March 2,
2009.  If the holder does not exercise this put option by April 1,
2009; the option expires.




In
October 2008, we issued 98,041 shares of our common stock, valued at $203,000,
to the accredited investors in our December 2007 private placements as a
dividend payment due to them on their shares of Series A preferred stock in a
transaction exempt from registration under the Securities Act, in reliance on
Section 4(2) and Rule 506 of Regulation D promulgated under the Securities Act
relative to sales by an issuer not involving a public offering.




23




Item
6.  Selected Financial Data.




Not
applicable.




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 Annual Report on Form 10-K.




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 Form 10-K 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.  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.




This
MD&A should also be read in conjunction with the Item 1.A. “Risk
Factors.”




24


Financial
Condition and Results of Operations
 
 Year ended December 31,20072008
                      
                      
                      Restated
                      
                      
                      Change
                      
                      
                      % changeOperating
      expenses:Selling,
      general and administrative
                      
                      $
                      7,179,767
                      
                      
                      $
                      1,729,901
                      
                      
                      $
                      5,449,866
                      
                      
                      
                      315
                      %Depreciation
                      
                      
                      18,614
                      
                      
                      
                      594
                      
                      
                      
                      18,020
                      
                      
                      
                      3034
                      %Research
      and development
                      
                      
                      2,126,084
                      
                      
                      
                      369,674
                      
                      
                      
                      1,756,410
                      
                      
                      
                      475
                      %Total
      operating expenses
                      
                      
                      9,324,465
                      
                      
                      
                      2,100,169
                      
                      
                      
                      7,224,296
                      
                      
                      
                      344
                      %Net
      loss from operations
                      
                      
                      (9,324,465
                      )
                      
                      
                      (2,100,169
                      )
                      
                      
                      (7,224,296
                      )
                      
                      
                      344
                      %Other
      income (expense)Loss
      on change in fair value of warrant liability
                      
                      
                      (5,012,875
                      )
                      
                      
                      -
                      
                      
                      
                      (5,012,875
                      )
                      
                      
                      0
                      %Interest
                      
                      
                      155,701
                      
                      
                      
                      (1,084,972
                      )
                      
                      
                      1,240,673
                      
                      
                      
                      (114
                      %)Net
      loss before income taxes
                      
                      
                      (14,181,639
                      )
                      
                      
                      (3,185,141
                      )
                      
                      
                      (10,996,498
                      )
                      
                      
                      345
                      %Provision
      for income taxes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      0
                      %Net
      loss
                      
                      
                      (14,181,639
                      )
                      
                      
                      (3,185,141
                      )
                      
                      
                      (10,996,498
                      )
                      
                      
                      345
                      %Preferred
      stock dividend
                      
                      
                      (754,328
                      )
                      
                      
                      (2,817,710
                      )
                      
                      
                      2,063,382
                      
                      
                      
                      (73
                      %)Net
      loss attributable to common shareholders
                      
                      $
                      (14,935,967
                      )
                      
                      $
                      (6,002,851
                      )
                      
                      $
                      (8,933,116
                      )
                      
                      
                      149
                      %
 
 Selected
results of operations for the years ended December 31, 2008 and 2007 were as
follows:
  We
continue to operate in 2008 and into 2009 as a development stage company and, as
such, we have limited capital and limited capital resources and no
revenues.
  As of
December 31, 2008, we have $4.5 million in cash and short term investment, the
balance remaining from the financing we completed in December 2007 and recent
exercise of $2.8 million in warrants related to this financing, of which $0.8
million of these monies are subject to a put option expiring April 1,
2009.
  25
  In 2007,
we spent $1.1 million in operating activities. In 2008, we spent $4.7 million in
operating activities, with approximately $1.7 million during the fourth quarter
as we added our commercialization team. We expect to bring our first product,
QTinnoTM, to market in the second half of 2009.
  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 have not been 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 $8.2 million plus
an additional $2.8 million from the exercise of the J warrants on December 1,
2008, which we believe will sufficiently fund our operations and business plan
into the second half of 2009. If we are not successful in generating sufficient
liquidity from operations so as to become cash flow positive or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse affect on our business, results of operations, liquidity and
financial condition.
  Selling,
general and administrative expenses grew 315% to $7,179,767 at December 31,
2008, an increase of $5,449,866 from $1,729,901 in 2007.  The primary
components of the increase include:
  1. We
began building a commercialization team in mid-2008 and invested $0.6 million in
2008 in that effort.
 2. The
general and administrative payroll grew to $1.1 million from $0.6 million as we
built out the Company’s infrastructure including the hiring of a Chief Financial
Officer in January.
 3.
Professional fees, including accounting, legal and investor relations grew to
$1.5 million in 2008 from$0.3 million in 2007 as we became a publicly traded
company in 2008.
 4.
Stock-based compensation was based on the market value of our stock as a public
company and increased to $2.2 million in 2008 from $0.6 million in
2007.
 5. We
incurred $1.5 million in financing costs related to the restructuring of the
Preferred ‘A’ stock in December 2008. Approximately $1.4 million of this is
non-cash.
  Research
and development expenses grew 475% to $2,126,084 at December 31, 2008, an
increase of  $1,756,410 from $369,674 in 2007.  The primary
components of the increase include:
  1. We
hired a Chief Technical Officer and Chief Medical Officer during the
year.  Total payroll was $0.3million in 2008 and $0.0 in
2007.
 2.
Consulting efforts increased as we continued the validation of our first
product, QTinnoTM which is now entering the commercialization phase for the
cardiac safety market.  We also continued to focus on the development
of our second product, VisualECGTM which is targeted for the emergency room.
Overall consulting expense in 2008 was $0.8 million up from approximately $0.3
million in 2007.
 3. Stock
based compensation increased to $0.9 million in 2008 from $0.1 million in 2007
due to the increase in focus on R&D and the public value for the shares in
2008.
  We plan
to increase development efforts for both QTinnoTM and VisualECGTM in 2009, with
the expectation of first revenues for QTinnoTM in the second half of
2009.  We are currently (in 2009) completing the standard software
development quality control systems, defined under 21CFR11 guidelines, for
QTinnoTM.  We expect to initiate a clinical trial for VisualECGTM in the
second half of 2009.
  We
have historically relied principally on the services of consultants and
part-time employees.  We currently have ten full-time employees and
approximately 16 consultants providing technical and clinical
support.  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.
  26
  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
income, net of $155,701 at December 31, 2008 is primarily a result of the
investment interest income on the net proceeds of the $8.2 million private
placement financing that closed December 2007.  The interest expense,
net of $1,084,972 at December 31, 2007 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.
  Loss on
change in fair value of warrant liability is due to the warrants issued in the
December 2007 financing. We marked the value of the warrants to market during
2008 and, at the current market price of our common stock, the value and, thus,
warrant expense increased substantially from 2007. The warrant liability at
December 31, 2008 is $0 as we eliminated the warrant liability in conjunction
with the restructuring of the Preferred A stock and related warrants in December
2008. The $5,012,875 loss on change in fair value of the warrant liability is
the non-cash adjustment recognized during 2008 up to the December 1, 2008
restructuring.
  The
preferred stock dividend in 2008 is the 10% dividend on the Preferred A shares
that was earned prior to the restructuring and was paid in NewCardio common
stock. In 2007 the Preferred stock dividend is a beneficial conversion feature
of $2,817,710 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 1 to our consolidated financial
statements.
  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
  At
December 31, 2007 until December 1, 2008 we may have been 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 were 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. On December 1, 2008 as a result of the
restructure, the Series A Stock was entirely converted without triggering this
event and the liability was eliminated.
  27
  Accounting
for and Classifying Warrants
  At
December 31, 2007 until December 1, 2008, the warrants we issued to the
investors in the December 2007 private placement contained 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, and
the warrant holders could 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. We made a final adjustment to fair value at December 1, 2008
when the warrants were exercised, settled or amended. The Series J and Series
J-Warrants were exercised and converted on December 1, 2008 and the Series A
Warrants were amended so that all warrants meet the EIFT 00-19 criteria for
permanent equity and the liability has been eliminated.
  In
preparing our comparative financial statements, management made a number of
assumptions in connection with the accounting and reporting the issuance of the
warrants as non-current liabilities at December 31, 2007:
  ●
                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.
  ●
              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.
  28
  ●
                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.
  No event
occurred prior to the conversion and settlement of the Series J and Series J-A
Warrants that required the net cash settlement of the warrants; we did not
reclassify the obligation to current liabilities, and on December 1, 2008 we
made a final adjustment to fair value for the liability and then reclassified
the settled warrants to equity.
  Financial
Instruments Measured at Fair Value
  SFAS No.
157 defines fair value as the price that would be received from selling an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, we considered the principal or most advantageous market in which we
would transact and considered assumptions that market participants would use
when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. SFAS No. 157
establishes three levels of inputs that may be used to measure fair
value:
  Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
  Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
  Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
  To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
  29
  Items
recorded or measured at fair value on a recurring basis in our accompanying
financial statements consisted of the following items as of December 31,
2008:
  Total
                  
                  
                  Quoted
                    prices in
                    active
                    markets for
                    identical
                    instruments
                    Level 1
                  
                  
                  Significant
                    other
                    observable
                    inputs
                    Level 2
                  
                  
                  Significant
                    unobservable
                    inputs
                    Level 3Assets:Short
      term investment
                  
                  $
                  2,143,457
                  
                  
                  $
                  2,143,457
                  
                  
                  $
                  -
                  
                  
                  $
                  -Total
                  
                  $
                  2,143,457
                  
                  
                  $
                  2,143,457
                  
                  
                  $
                  -
                  
                  
                  $
                  -
  With the
exception of assets and liabilities included within the scope of FSP FAS No.
157-2, we adopted the provisions of SFAS No. 157 prospectively effective as of
the beginning of Fiscal 2008.  For financial assets and liabilities
included within the scope of FSP FAS No. 157-2, we will be required to adopt the
provisions of SFAS No. 157 prospectively as of the beginning of Fiscal
2009.  The adoption of SFAS No. 157 did not have a material impact on
our financial position or results of operations, and we do not believe that the
adoption of FSP FAS No. 157-2 will have a material impact on our financial
position or results of operations.
  The fair
value of the assets, short term investments, at December 31, 2008 was grouped as
Level 1 valuation as the market price was readily available, and there has been
no change to the fair value of the securities at December 31, 2008.
  Liquidity
and Capital Resources
  As a
development stage company, we have limited capital and limited capital
resources.  We have incurred a net loss of $18.5 million from our
inception in September 2004 through December 31, 2008 of which $5.9 million
represents cash used in operating activities.
  As of
December 31, 2008, we had working capital of approximately $3.0 million. We
believe that we will continue to incur net losses and negative cash flow from
operating activities into 2009. We have met our cash requirements to date
through the private placement of common stock, the exercise of stock options,
the private placement of preferred stock and the issuance of convertible
notes.  We have raised a net amount of approximately $10 million since
inception, most of which was raised in our December 2007 private placement and
related 2008 warrant exercises.  We believe the working capital will
sufficiently fund our operations and business plan into the second half of 2009.
We believe that we will continue to incur net losses and negative cash flows
from operating activities beyond 2009.
  Until we
are able to generate sufficient liquidity from operations, we intend to continue
to fund operations from cash on-hand and through private placements of our
securities. Our continued operations will depend on whether we are able to
generate sufficient liquidity from operations and/or raise additional capital
through such sources as equity and debt financings, collaborative and licensing
agreements and strategic alliances. There can be no assurance that additional
capital will become available or, if it does, that it will become available on
acceptable terms, or that any additional capital we may obtain will be
sufficient to meet our long-term needs. We currently have no commitments for any
additional capital.
  30
 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 as well as those specific
to our industry.
  While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required within the next 12 months in order to meet our
current and projected cash flow deficits from operations and development. We
have sufficient funds to conduct our operations for several months, but not for
12 months or more. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all.
 
 By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits. 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.
 
 We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.
 
 We
will still need additional investments in order to continue operations to cash
flow break even but we cannot guarantee that we will be able to obtain such
investments. Financing transactions may include the issuance of equity or debt
securities, obtaining credit facilities, or other financing mechanisms. However,
the trading price of our common stock and the downturn in the U.S. stock and
debt markets could make it more difficult to obtain financing through the
issuance of equity or debt securities. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses, fail
to collect significant amounts owed to us, or experience unexpected cash
requirements that would force us to seek alternative financing. Further, if we
issue additional equity or debt securities, stockholders may experience
additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. If
additional financing is not available or is not available on acceptable terms,
we will have to curtail our operations.
 
 Our
registered independent certified public accountants have stated in their report
dated March 27, 2009, that we have incurred operating losses in the last two
years, and that we are dependent upon management's ability to develop profitable
operations. These factors among others may raise substantial doubt about our
ability to continue as a going concern.
  We had an
outstanding promissory note to a former member of our Board of Directors in the
principal amount of $10,316 that was paid in January 2009.
  Off-Balance
Sheet Arrangements
  We do not
have any off-balance sheet arrangements.
  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 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.
 31
 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.
  Item 9A.  Controls and
Procedures.
  Evaluation
of Disclosure Controls and Procedures
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation 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) under the Securities
Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2008.
Disclosure controls and procedures are those controls and procedures designed to
provide reasonable assurance that the information required to be disclosed in
our Exchange Act filings is (1) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission’s rules
and forms, and (2) accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
  Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31 2008, our disclosure controls and procedures
were effective.
  Management’s Annual Report on
Internal Control over Financial Reporting
  Management,
including our Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a –
15(f).  Management conducted an assessment as of December 31, 2008 of
the effectiveness of our internal control over financial reporting based on the
framework in Internal Control
– Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  Based on that
evaluation, management concluded that our internal control over financial
reporting was effective as of December 31, 2008, based on criteria inInternal Control – Integrated
Framework issued by the COSO.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements should they occur. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the control procedure may deteriorate.
  32
  This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report.
  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
  33
  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 16,
2009.  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.*
                      
                      55
                      
                      Chief
      Executive Officer and Director
                      
                      2004Vincent
      W. Renz, Jr.
                      
                      52
                      
                      President
      and Chief Operating Officer
                      
                      2008Mark
      W. Kroll, Ph.D., FACC, FHRS
                      
                      56
                      
                      Chairman
      of the Board of Directors
                      
                      2008Robert
      N. Blair, M. Inst. P.*
                      
                      66
                      
                      Director
                      
                      2006James
      A. Heisch
                      
                      65
                      
                      Director
                      
                      2008Jess
      Jones, M.D.
                      
                      30
                      
                      Director
                      
                      2008Patrick
      Maguire, M.D., Ph.D.
                      
                      56
                      
                      Director
                      
                      2008Richard
      D. Brounstein
                      
                      59
                      
                      Executive
      Vice President, Chief  Financial Officer and
      Secretary
                      
                      2008
  * Has
been an officer or director of NewCardio Technologies, prior to the December
2007 reverse merger with Marine Park Holdings, Inc.
  Branislav Vajdic, Ph.D.-
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 from October 2006, until
August 18, 2008, when he relinquished the title of President.  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.
  Vincent W. Renz, Jr.–
President and Chief Operating Officer since August 18, 2008. From October 2007
through mid-August 2008, Mr. Renz was the Chief Operating Officer at ClinPhone,
a United Kingdom-based clinical trial technology company recently acquired by
Parexel.  From May 1997 through February 2007 Mr. Renz was the
Executive Vice President and Chief Technology Officer at eResearch Technology,
Inc., provider of technology-based products and services to the pharmaceutical,
biotechnology and medical device industries.  Mr. Renz holds a M.B.A.
in Management Information Systems from Indiana University and a B.B.A. in
Information Systems from University of Notre Dame.
  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 the named inventor on over 280 U.S. patents as
well as numerous international patents and is the most prolific inventor of
medical devices worldwide.  He is co-author of 4 books: Implantable
Cardioverter Defibrillator Therapy, Cardiac Bioelectric Therapy, Conducted
Electrical Weapons, and Electrical Injuries as well as numerous
papers..  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. Dr. Kroll, has been named a
Fellow of both the American College of Cardiology and the Heart Rhythm Society,
and holds the positions of Distinguished Faculty at the UCLA Anderson School of
Business Creativity and Innovation annual program, Adjunct Full Professor of
Biomedical Engineering at California Polytechnic University-San Luis Obispo,
California, and Adjunct Full Professor of Biomedical Engineering at the
University of Minnesota. Dr. Kroll is also a director of Haemonetics Corporation
and Taser International, Inc.
  34
  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
has over 35 years of high technology business experience. Most recently, in 2007
he served as the Chairman and Chief Executive Officer of Mobi33, Inc., a private
internet based advertising company that he co-founded in 2007. From 1999 through
2006 he was the Chairman and Chief Executive Officer of VivoMedical Inc., a
private medical device company, which he also co-founded. 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.
  James A. Heisch –
Director.  Mr. Heisch became a member of our Board of Directors on May
14, 2008.  Mr. Heisch has more than 40 years of senior level business
experience including 17 years with Arthur Young & Company where he was an
audit partner, and later as the Chief Financial Officer for technology companies
including Atari, Businessland and Supermac Technology. Additionally, Mr. Heisch
served five years with medical device company VidaMed, Inc., initially as CFO
managing all financial and administrative functions in the United States and
United Kingdom, and then as President and CEO responsible for worldwide
operations. He later joined Worldtalk Corporation as CFO and later was promoted
to President. Worldtalk was subsequently acquired by Tumbleweed Communications
Corp. in 2000 and Mr. Heisch served as interim Chief Financial Officer during
2001.   During the past five years, Mr. Heisch has been a private
investor and served on the Board of Directors of Tumbleweed Communications, Inc.
from 2006 until it was acquired in 2008.
  Jess Jones, M.D. –Director
since December 1, 2008.  From 2006 to present Dr. Jones has worked
with Vision Capital Advisors, LLC as the Director of Healthcare Investing,
analyzing investment opportunities in the biotech, pharmaceutical, medical
technology, and medical services fields, and assisted companies in the
implementation of their business plans. From 2001 to 2007, Dr. Jones attended
Columbia College of Physicians & Surgeons, where he received his medical
degree in May 2007.  In 2005, while attending Columbia Medical School,
Dr. Jones was awarded an American Heart Association –Medical Student Research
Fellowship to study post-stroke inflammatory mediators in the Department of
Neurosurgery. Additionally, Dr. Jones earned a BA degree from the University of
Utah in 2001 and an MBA from Columbia Business School in May 2007.
  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 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.
  35
  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.   In January 2007, Mr.
Brounstein was appointed as the National Member Representative for Financial
Executives International (FEI) on the 2007 COSO Monitoring Project, which
published new guidelines for monitoring internal financial controls in February
2009.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, 2008, our Board of Directors consisted of
six directors, one was an independent Chairman of the Board of Directors and
three of the remaining five are independent directors.  By virtue of
his position as the CEO, Dr. Vajdic is not considered to be an independent
director.  The other Board member represents our largest Preferred
Series B investor. We created three standing committees of our Board of
Directors in the first half of 2008, an audit committee, a compensation
committee and a nominating committee.
  Actions
performed by our standing committees of the Board include the recent appointee
to the Board, executive 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
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, independent 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 such 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.
  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.
  36
  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.  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, 2008 (collectively, the
“Named Executives”) for the fiscal years ended December 31, 2007 and
2006.
  SUMMARY
COMPENSATION TABLE (1)
 
 Name and Principal
                                      Position
                                    
                                    Year
                                    
                                    Salary
                                      ($)
                                    
                                    
                                    Bonus
                                      ($)
                                    
                                    
                                    Stock
                                      Awards
                                    
                                    
                                    Option
                                      awards
                                      ($)
                                    
                                    
                                    Total
                                      ($)(a)
                                    
                                    (b)
                                    
                                    (c)
                                    
                                    
                                    (d)
                                    
                                    
                                    (e)(2)
                                    
                                    
                                    (f)(2)
                                    
                                    
                                    (j)Branislav
      Vajdic, Chief
                                    
                                    2008
                                    
                                    $
                                    290,000
                                    
                                    
                                    $
                                    88,000
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    233,277
                                    
                                    
                                    $
                                    611,277Executive
      Officer, Director (3)
                                    
                                    2007
                                    
                                    $
                                    217,500
                                    
                                    
                                    $
                                    97,150
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    125,532
                                    
                                    
                                    $
                                    440,182Vincent
      Renz, President and
                                    
                                    2008
                                    
                                    $
                                    101,250
                                    
                                    
                                    $
                                    32,000
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    303,084
                                    
                                    
                                    $
                                    436,334Chief
      Operating Officer (4)
                                    
                                    2007
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Richard
      Brounstein,
                                    
                                    2008
                                    
                                    $
                                    212,903
                                    
                                    
                                    $
                                    37,500
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    235,149
                                    
                                    
                                    $
                                    485,552Executive
      Vice President, Chief Financial Officer (5)
                                    
                                    2007
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Ihor
      Gussak,
                                    
                                    2008
                                    
                                    $
                                    109,687
                                    
                                    
                                    $
                                    85,000
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    292,438
                                    
                                    
                                    $
                                    487,125Chief
      Medical Officer (6)
                                    
                                    2007
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Dorin
      Panescu,
                                    
                                    2008
                                    
                                    $
                                    70,143
                                    
                                    
                                    $
                                    16,600
                                    
                                    
                                    $
                                    18,500
                                    
                                    
                                    $
                                    51,998
                                    
                                    
                                    $
                                    157,241Chief
      Technical Officer (7)
                                    
                                    2007
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
 ____________
 
 (1)
              There
      were no employees in 2006.(2)
              This
      is the dollar amount recognized for financial statement reporting purposes
      with respect to the fiscal year in accordance with FAS
      123R.  Dr. 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. Renz
      was granted options to purchase 800,000 shares of common stock at $5.00
      per share pursuant to his employment agreement dated August 18, 2008. Mr.
      Brounstein was granted options to purchase 630,000 shares of common stock
      at $2.05 per share pursuant to his employment agreement dated March 1,
      2008.  Dr. Gussak was granted options to purchase 700,000 shares
      of common stock at $4.30 per share pursuant to his employment agreement
      dated July 20, 2008.  Dr. Panescu was granted options to
      purchase 700,000 shares of common stock at $1.85 per share and a one-time
      stock award for 10,000 shares pursuant to his employment agreement dated
      October 20, 2008.
  37
  (3)
              Branislav
      Vajdic’s 2008 salary is based on his November 1, 2007 employment contract,
      and his 2008 performance-based bonus was determined by the Compensation
      Committee of the Board based on reaching certain milestones during the
      year.  The formula range was 0% to 50%. 2007 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, Dr.
      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).   Dr. 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.  Dr. 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%.(4)
              Vincent
      Renz’s 2008 salary is based on his August 18, 2008 employment agreement of
      $270,000 annually, and his 2008 performance-based bonus was determined by
      the Compensation Committee of the Board based on reaching certain
      milestones during the year.  The formula range was 0% to 45%.
      Both are pro-rated for actual time worked during 2008.(5)
              Richard
      Brounstein’s 2008 salary is based on his part-time employment agreement in
      effect for January and February of 2008 and his March 1, 2008 employment
      agreement’s annual salary of $240,000. He received a $7,500 signing bonus
      upon joining full time.  In addition, his 2008 performance-based
      bonus was determined by the Compensation Committee of the Board based on
      reaching certain milestones during the year, pro-rated for the period he
      was employed on a full-time basis.  The formula range was 0% to
      25%.(6)
              Ihor
      Gussak’s 2008 salary is based on his July 20, 2008 employment agreement of
      $260,000. At that time he received a $65,000 signing bonus; his 2008
      performance-based bonus was determined by the Compensation Committee of
      the Board based on reaching certain milestones during the
      year.  The formula range was 0% to 30%. The salary and
      performance-based bonus are pro-rated for actual time worked during
      2008.(7)
              Dorin
      Pansecu’s 2008 salary is based on his October 20, 2008 employment
      agreement of $260,000, and his 2008 performance-based bonus was determined
      by the Compensation Committee of the Board based on reaching certain
      milestones during the year.  The formula range was 0% to 35%.
      Both are pro-rated for actual time worked during
  2008.
  38
  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, 2008.
 
 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)
      (2)Branislav
      Vajdic, Chief Executive
                              
                              
                              100,000
                              (A)
                              
                              
                              -
                              
                              
                              $
                              0.001
                              
                              09/24/14Officer
      and Director
                              
                              
                              880,000
                              (B)
                              
                              
                              -
                              
                              
                              $
                              0.02
                              
                              03/09/17361,110
                              (C)
                              
                              
                              638,890
                              
                              
                              $
                              0.22
                              
                              10/31/17Vincent
      Renz
                                President
      and Chief Operating Officer
                              
                              
                              -
                              (D)
                              
                              
                              800,000
                              
                              
                              $
                              5.00
                              
                              8/17/18Richard
      Brounstein, Executive Vice President, Chief Financial
    Officer
                              
                              
                              30,000
                              (B)
                              
                              
                              -
                              
                              
                              $
                              2.05
                              
                              3/17/18112,500
                              (A)
                              
                              
                              487,500
                              
                              
                              $
                              2.05
                              
                              3/17/18Ihor
      Gussak, Chief Medical Officer
                              
                              
                              -
                              (D)
                              
                              
                              700,000
                              
                              
                              $
                              4.30
                              
                              7/29/18Dorin
      Panescu, Chief Technical Officer
                              
                              
                              -
                              (D)
                              
                              
                              700,000
                              
                              
                              $
                              1.85
                              
                              10/19/18
 ______
  (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.
 D.
                Options vest over 48 months with
      a one year cliff.
 
 (2)
                Dates
      reflect expiration 10-years after grant
dates.
  39
 
 COMPENSATION OF DIRECTORS
(1)
 Name
                      
                      Cash
                        compensation
                        (2)
                      
                      
                      Option
                        awards (3)
                        ($)
                      
                      
                      Total
                        ($)(a)
                      
                      
                      
                      
                      (d)
                      
                      
                      (j)Mark
      W. Kroll, Ph.D. FACC, FHRS, Chairman
                      
                      $
                      3,000
                      
                      
                      $
                      135,737
                      
                      
                      $
                      138,737Branislav
      Vajdic, Ph.D., CEO
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Robert
      N. Blair, M.Inst.P.                                              2008
                      
                      $
                      4,500
                      
                      
                      $
                      70,653
                      
                      
                      $
                      75,1532007
                      
                      
                      —
                      
                      
                      $
                      6,221
                      
                      
                      $
                      6,221James
      A. Heisch
                      
                      $
                      4,500
                      
                      
                      $
                      109,312
                      
                      
                      $
                      113,812Jess
      Jones
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Patrick
      Maguire, M.D., Ph. D.
                      
                      $
                      4,500
                      
                      
                      $
                      98,363
                      
                      
                      $
                      102,863
 ____________
 
 (1)
              The
      only director receiving compensation in 2007 was Robert N.
      Blair.(2)
              As
      of the December 31, 2008, effective with the May 2008 Board of Director’s
      meeting, we paid each independent director $1,500 for attending the
      quarterly Board of Directors’ meetings in-person. Directors were also
      reimbursed for their out-of-pocket travel expenses associated with their
      attendance at these Board of Directors’ meetings.(3)
              This
      is the dollar amount recognized for financial statement reporting purposes
      with respect to the fiscal year in accordance with FAS
      123R.  Dr. Kroll was granted options to purchase 400,000 shares
      of common stock at $2.05 per share on March 18, 2008. Mr. Blair was
      granted options to purchase 250,000 shares of common stock at $0.01 per
      share in 2006, and options to purchase15,000 shares at $4.72 on August 11,
      2008. Mr. Heisch was granted options to purchase 100,000 shares of common
      stock at $3.05 per share on April 1, 2008 and options to purchase15,000
      shares at $4.72 on August 11, 2008. Dr. Maguire was granted options to
      purchase 100,000 shares of common stock at $2.05 per share on March 18,
      2008 and options to purchase15, 000 shares at $4.72 on August 11,
      2008.
 
 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.
  Vincent
Renz
  Under the
terms of his employment agreement, if Vincent Renz is “terminated other than for
cause” (as that term is defined in his employment agreement), he is entitled to
six-months of his then-base salary, and Cobra benefits as
applicable
  Richard
Brounstein
  As of
March 1, 2009, under the terms of his employment agreement, if Richard
Brounstein is “terminated other than for cause” (as that term is defined in his
employment agreement), he is entitled to one year of his then-base salary, and
Cobra benefits as applicable
  40
  Ihor
Gussak
  Under the
terms of his employment agreement, if Ihor Gussak is “terminated other than for
cause” (as that term is defined in his employment agreement), he is entitled to
six-months of his then-base salary, and Cobra benefits as
applicable
  Dorin
Panescu
  Under the
terms of his employment agreement, if Dorin Panescu is “terminated other than
for cause” (as that term is defined in his employment agreement), he is entitled
to six-months of his then-base salary, and Cobra benefits as
applicable
  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
                    
                    
                    8,513,355
                    
                    
                    $
                    1.75
                    
                    
                    
                    358,730Equity
      compensation plans not approved by security holders
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    
                    8,513,355
                    
                    
                    $
                    1.75
                    
                    
                    
                    358,730
  41
  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 16, 2009 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 (1)
                      
                      
                      Percentage of
                        Common Stock
                        (2)Branislav
      Vajdic, Ph.D. (3)
                      
                      
                      8,736,275
                      
                      
                      
                      34.68
                      %Vincent
      W. Renz, Jr.
                      
                      
                      53,650
                      
                      
                      
                      *Richard
      Brounstein (4)
                      
                      
                      192,500
                      
                      
                      
                      *Mark
      W. Kroll, Ph.D., FACC, FHRS (5)
                      
                      
                      108,329
                      
                      
                      
                      *Robert
      N. Blair, M.Inst.P. (6)
                      
                      
                      707,170
                      
                      
                      
                      2.95
                      %James
      A. Heisch (7)
                      
                      
                      39,996
                      
                      
                      
                      *Jess
      Jones, M.D.
                      
                      
                      0
                      
                      
                      
                      *Patrick
      Maguire, M.D., Ph.D. (8)
                      
                      
                      42,079
                      
                      
                      
                      *Ihor
      Gussak
                      
                      
                      21,250
                      
                      
                      
                      *Dorin
      Panescu
                      
                      
                      10,000
                      
                      
                      
                      *Kenneth
      Londoner (9)
                      
                      
                      2,228,207
                      
                      
                      
                      9.24
                      %Nenad
      Macvanin (10)
                      
                      
                      2,657,000
                      
                      
                      
                      11.18
                      %Joseph
      Esposito (11)
                      
                      
                      1,844,539
                      
                      
                      
                      7.76
                      %Milic
      Petkovic
                      
                      
                      1,441,579
                      
                      
                      
                      6.07
                      %Bosko
      Bojovic
                      
                      
                      1,302,166
                      
                      
                      
                      5.48
                      %All
      officers and directors as a group (10 persons)
                      
                      
                      9,911,249
                      
                      
                      
                      38.39
                      %
 
 (1)
              Includes
      stock option grants made to officers, directors, employees and/or
      consultants under the 2004 Equity Incentive Plan.  All options
      listed in this table were granted under the 2004 Equity Incentive
      Plan.(2)
              Applicable
      percentage ownership is based on 23,764,779shares
      of common stock outstanding as of March 16, 2009, together with securities
      exercisable or convertible into shares of common stock within 60 days of
      March 16, 2009 for each stockholder. Shares of common stock that are
      currently exercisable or exercisable within 60 days of March 16, 2009 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.(3)
              Includes
      options to purchase 1,424,448 shares of common stock and warrants to
      purchase 2,000 shares of common stock.(4)
              Includes
      options to purchase 192,500 shares of common stock.(5)
              Includes
      options to purchase 108,329 shares of common stock.(6)
              Includes
      options to purchase 106,864 shares of common stock and warrants to
      purchase 135,500 shares of common stock.(7)
              Includes
      options to purchase 39,996 shares of common stock.(8)
              Includes
      options to purchase 42,079 shares of common stock.(9)
              Includes
      options to purchase 354,161 shares of common stock.(10)
              Mr.
      Macvanin has delivered to the Company, and the Company has accepted, the
      opinion of Mr. Macvanin’s counsel that notwithstanding his percentage
      ownership, he is not an affiliate of the Company.(11)
              Mr.
      Esposito holds beneficial ownership of the shares held in the name of E4,
      LLC.
  42
 
 Item
13.  Certain Relationships and Related Transactions, and Director
Independence.
  In
November 16, 2006, Peter Steiger, a former member of our board of directors,
made a loan to us in the principal amount of $10,316 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
were payable in full on the promissory note’s due date in November 15, 2008.
This principal and interest was paid in January 2009.
  In
September 2007, we entered into a three-year consulting agreement with E4, LLC.
We sold E4, LLC 1,475,631 shares of common stock valued at $0.10 per share, for
$0.02 per share for cash, or $29,513. The remaining $0.08 per share value was
issued to the consultant as compensation for services rendered, specifically
providing business guidance, and primarily in areas related to sales, marketing
and business strategy.  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, so long as the consultancy
continues.  The consultant also receives monthly cash payments of
$24,000 as part of this consulting agreement. At December 31, 2007 we owed E4,
LLC $84,000 that was subsequently paid in January 2008. There were no other
outstanding obligations under the agreement.  It remains ongoing at
this time. During the year ended December 31, 2008, the Company paid an
additional $288,000 to E4, LLC.
  Effective
January 1, 2008 the Company entered into a consulting agreement with Robert M.
Blair, a current Board member, for corporate strategy and finance
services.  He was paid $33,000 for these services and at December 31,
2008 he was owed $3,000.
  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
rules and have no direct or indirect material relationships with
us:
   ̈
                Mark
      W. Kroll, Ph.D. FACC, FHRS*
   ̈
                Patrick
      Maguire, M.D., Ph. D.*
   ̈
                James
      A. Heisch*
   ̈
                Robert
      M. Blair**
  *   Mark
Kroll, Patrick Maguire and James A. Heisch would qualify as being independent
for the Audit Committee, or any committee.
  **  Robert M. Blair has a
consulting agreement and would not qualify as independent for the Audit
Committee under the NASDAQ Stock Market LLC rules. This agreement is not however
a material agreement as defined by Item 404(a).
  In particular, the Board of Directors
has determined that these directors have no relationships, other than as
described above, that would cause them not to be independent under the specific
criteria of Section 4200(a)(15) of the NASDAQ Manual.
  43
  Item
14.  Principal Accountant Fees and Services.
  Summary
of Principal Accountant 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 2008 and
2007.
 
 Year
                              Ended
                              December
                              31, 2008
                            
                            
                            Year
                              Ended
                              December
                              31, 2007Audit
      Fees
                            
                            $
                            58,000
                            
                            
                            $
                            47,500Audit-Related
      Fees
                            
                            
                            138,640
                            
                            
                            
                            104,000Tax
      Fees
                            
                            
                            -
                            
                            
                            
                            9,025All
      Other Fees
                            
                            
                            -
                            
                            
                            
                            -$
                            196,640
                            
                            
                            $
                            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
have an independent 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 audit committee. Our audit committee has considered whether the provision of
the services described above for the fiscal year ended December 31, 2008, 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 audit committee. 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.
  44
  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).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.
  45
  10.9
              Return
      to Treasury Agreement dated December 27, 2007 between Marine Park
      Holdings, Inc. and Harborview Master Fund L.P., (incorporated herein by
      reference to The Company’s Current Report on Form 8-K filed by the Company
      with the SEC on January 4, 2008).10.10
              Return
      to Treasury Agreement dated as of December 27, 2007 between Marine Park
      Holdings, Inc. and Diverse Trading Ltd., (incorporated herein by reference
      to The Company’s Current Report on Form 8-K filed by the Company with the
      SEC on January 4, 2008).10.11
              2004
      Equity Incentive Plan of the Company (incorporated herein by reference to
      the Form S-8, filed by the Company with the SEC on March 7,
      2008).10.12
              Employment
      Agreement, dated November 1, 2007, by and between the Company and
      Branislav Vajdic (incorporated herein by reference to The Company’s
      Registration Statement on Form S-1/A (No. 2 filed by the Company with the
      SEC on May 20, 2008).10.13
              Consulting
      Agreement, dated March 1, 2007, by and between the Company and Branislav
      Vajdic (incorporated herein by reference to the Company’s Annual Report on
      Form 10-K/A, as filed with the SEC by the Company on April 4,
      2008).10.14
              Employment
      Agreement dated October 31, 2007 between NewCardio, Inc. and Kenneth
      Londoner (incorporated herein by reference to the Company’s Annual Report
      on Form 10-K/A, as filed with the SEC by the Company on April 4,
      2008).10.15
              Restricted
      Stock Purchase Agreement, dated as of June 4, 2007, by and between
      NewCardio, Inc. and Kenneth Londoner, as amended by Amendment No. 1 to
      Restricted Stock Purchase Agreement, dated as of September 15, 2007, by
      and between NewCardio, Inc. and Kenneth Londoner (incorporated herein by
      reference to the Company’s Annual Report on Form 10-K/A, as filed with the
      SEC by the Company on April 4, 2008).10.16
              Form
      of Lock Up Agreement (incorporated by reference to the Company’s
      Registration Statement on Form S-1/A (No. 1) filed on April 15,
      2008).10.17
              Escrow
      Deposit Agreement dated as of December 27, 2007, by and among Marine Park
      Holdings, Inc., Capstone Investments and Signature Bank (incorporated by
      reference to the Company’s Registration Statement on Form S-1/A (No. 1)
      filed on April 15, 2008).10.18
              Employment
      Agreement dated January 22, 2008 between NewCardio, Inc. and Richard
      Brounstein (incorporated herein by reference the Company’s Quarterly
      Report on Form 10-Q, as filed by the Company with the SEC on May 15,
      2008).10.19
              Employment
      Agreement dated as of March 1, 2008 between NewCardio, Inc. and Richard
      Brounstein (incorporated herein by reference the Company’s Quarterly
      Report on Form 10-Q, as filed by the Company with the SEC on May 15,
      2008).10.20
              Lease
      dated February 6, 2008 between NewCardio, Inc. and 2350 Mission Investors,
      LLC (incorporated herein by reference the Company’s Quarterly Report on
      Form 10-Q, as filed by the Company with the SEC on May 15,
      2008).10.21
              Settlement
      and Release Agreement, dated as of October 1, 2006, by and between Samuel
      E. George, M.D., and the Company (incorporated by reference to the
      Company's Registration Statement on Form S-1/A (No. 4) filed on July 24,
      2008).10.22
              Technology
      Assignment Agreement, dated as of September 28, 2004, by and between Bosko
      Bojovic and the Company (incorporated by reference to the Company’s
      Registration Statement on Form S-1/A (No. 3) filed on June 23,
      2008).10.23
              Consulting
      Agreement, dated as of February 22, 2008, by and between the Company and
      Robert N. Blair (incorporated by reference to the Company’s Registration
      Statement on Form S-1/A (No. 3) filed on June 23,
2008).10.24
              Consulting
      Agreement, dated as of September 13, 2007, by and between the Company and
      E4 LLC (incorporated by reference to the Company's Registration Statement
      on Form S-1/A (No. 4) filed on July 24, 2008).10.25
              Consulting
      Agreement, dated as of May 1, 2008, by and between the Company and JFS
      Investments (incorporated by reference to the Company's Registration
      Statement on Form S-1/A (No. 4) filed on July 24,
2008).10.26
              Consulting
      Agreement, dated as of June 27, 2008, by and between the Company and First
      Montauk Securities Group (incorporated by reference to the Company's
      Registration Statement on Form S-1/A (No. 4) filed on July 24,
      2008).10.27
              Waiver
      Agreement, dated as of March 13, 2008, by and between the Company and
      Vision Opportunity Master Fund, Ltd. (incorporated by reference to the
      Company's Registration Statement on Form S-1/A (No. 4) filed on July 24,
      2008).
  46
  10.28
              Employment
      Agreement dated August 18, 2008 between the Company and Vincent W. Renz,
      Jr. (incorporated by reference to the Company’s Current Report on Form 8-K
      filed by the Company with the SEC on August 21, 2008).
                10.29
      Amendment to Securities Purchase Agreement, dated as of December 1, 2008,
      incorporated by reference to Exhibit 10.29 to the Company’s Current Report
      on Form 8-K filed by the Company with the SEC on December 3,
      2008.
                10.30
      Platinum Put Letter, dated as of December 1,, 2008, incorporated by
      reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K
      filed by the Company with the SEC on December 3, 2008.
                10.31
      Management Rights Letter, dated as of December 1, 2008, incorporated by
      reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K
      filed by the Company with the SEC on December 3, 2008.10.29
              Amendment
      to Securities Purchase Agreement, dated as of December 1, 2008,
      incorporated by reference to Exhibit 10.29 to the Company’s Current Report
      on Form 8-K filed by the Company with the SEC on December 3,
      2008.10.30
              Platinum
      Put Letter dated as of December 1, 2008, incorporated by reference to
      Exhibit 10.30 to the Company’s Current Report on Form 8-K filed by the
      Company with the SEC on December 3, 2008.10.31
              Management
      Rights Letter, dated as of December 1, 2008, incorporated by reference to
      Exhibit 10.31 to the Company’s Current Report on Form 8-K filed by the
      Company with the SEC on December 3, 2008.31.1
              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
  47
  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.Chief
      Executive
Officer
  Dated:  March
27, 2009
  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.
                                                
                                                Chief
      Executive Officer and Director
                                                
                                                March
      27, 2009Branislav
      Vajdic, Ph.D./s/
      Vincent W. Renz
                                                
                                                President
      and Chief Operating Officer
                                                
                                                March
      27, 2009Vincent
      W. Renz/s/
      Richard D. Brounstein
                                                
                                                Executive
      Vice President, Chief Financial Officer and Secretary
                                                
                                                March
      27, 2009Richard
      D. Brounstein/s/
      Mark W. Kroll, Ph.D., FACC, FHRS
                                                
                                                Director
      and Chairman
                                                
                                                March
      27, 2009Mark
      W. Kroll, Ph.D., FACC, FHRS/s/
      Robert M. Blair, M.Inst.P.
                                                
                                                Director
                                                
                                                March
      27, 2009Robert
      N. Blair, M.Inst.P./s/
      James A. Heisch
                                                
                                                Director
                                                
                                                March
      27, 2009James
      A. Heisch/s/
      Jess Jones, M.D.
                                                
                                                Director
                                                
                                                March
      27, 2009Jess
      Jones, MD/s/
      Patrick Maguire, M.D., Ph.D.
                                                
                                                Director
                                                
                                                March
      27, 2009Patrick
      Maguire, M.D., Ph.D.
  48


NEWCARDIO,
INC.




INDEX
TO FINANCIAL STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
                            
                            F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                            
                            F-2Consolidated
      Statements of Operations for the year ended December 31, 2008, 2007 andfrom
      the period September 7, 2004 (date of inception) to December 31,
      2008
                            
                            F-3Consolidated
      Statement of Stockholders’ (Deficit)
      Equity for the period from September 7, 2004(date
      of inception) to December 31, 2008
                            
                            F-4
      – F-10Consolidated
      Statements of Cash Flows for the year ended December 31, 2008, 2007and
      from the period September 7, 2004 (date of inception) to December 31,
      2008
                            
                            F-11Notes
      to Consolidated Financial Statements
                            
                            F-12
      –
F-39




49





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, 2008 and 2007, and the related consolidated statements of
operations, stockholder’s (deficit) equity and cash flows for each of the two
years in the period ended December 31, 2008 and the period September 7, 2004
(date of inception) through December 31, 2008. 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. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.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 NewCardio,
Inc.  at  December 31, 2008 and 2007 and the results of its
operations  and its cash flows for the each of the
two  years  in the period ended  December 31, 2008
and the period September 7, 2004 (date of inception) through December 31, 2008
in conformity with accounting principles generally accepted in the United States
of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred significant losses
since inception. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans, with respect to these matters
are also described in Note 2 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.




As discussed in Note16, the Company has restated the
consolidatedbalance sheet as of December 31, 2007
and the related consolidatedstatement ofoperations,and cash flows for the
year  endedDecember 31, 2007and the period
September7,  2004(date
of  inception)  throughDecember 31, 2007.





/s/ RBSM
LLP


RBSM
LLP


Certified
Public Accountants





New York,
New York


March 27,
2009


F-1


NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2008 AND 2007





2008
                  
                  
                  2007(RESTATED)ASSETSCurrent
      assets:Cash
                  
                  $
                  2,324,793
                  
                  
                  $
                  1,476,625Short
      term investment
                  
                  
                  2,143,457
                  
                  
                  
                  5,000,000Prepaid
      expenses
                  
                  
                  118,454
                  
                  
                  
                  -Total
      current assets
                  
                  
                  4,586,704
                  
                  
                  
                  6,476,625Property,
      plant and equipment, net of accumulated depreciation of $19,208 and $594
      as of December 31, 2008 and  2007, respectively
                  
                  
                  110,718
                  
                  
                  
                  7,687Other
      assets:Deposits
                  
                  
                  22,600
                  
                  
                  
                  -$
                  4,720,022
                  
                  
                  $
                  6,484,312LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable and accrued expenses
                  
                  $
                  842,510
                  
                  
                  $
                  871,246Note
      payable, related party, current portion
                  
                  
                  10,316
                  
                  
                  
                  10,316Put
      liability
                  
                  
                  744,280
                  
                  
                  
                  -Total
      current liabilities
                  
                  
                  1,597,106
                  
                  
                  
                  881,562Long
      term debt:Warrant
      liability
                  
                  
                  -
                  
                  
                  
                  4,802,973Total
      liabilities
                  
                  
                  1,597,106
                  
                  
                  
                  5,684,535Commitments
      and contingenciesPreferred
      shares subject to redemption, liquidation value of $9,849,111 as of
      December 31, 2007
                  
                  
                  -
                  
                  
                  
                  2,084,493Stockholders'
      equity (deficit)Preferred
      stock, $0.001 par value; 1,000,000 shares authorized:Preferred
      stock Series B, $0.001 par value; 18,000 shares designated; 16,435 and -0-
      shares issued and outstanding as of December 31, 2008 and 2007,
      respectively
                  
                  
                  16
                  
                  
                  
                  -Common
      stock, $0.001 par value, 99,000,000 shares authorized; 22,335,595 and
      20,237,522 shares issued and outstanding as of December 31, 2008 and 2007,
      respectively
                  
                  
                  22,336
                  
                  
                  
                  20,238Additional
      paid in capital
                  
                  
                  25,194,639
                  
                  
                  
                  5,853,154Deficit
      accumulated during development stage
                  
                  
                  (22,094,075
                  )
                  
                  
                  (7,158,108
                  )Total
      stockholders' equity (deficit)
                  
                  
                  3,122,916
                  
                  
                  
                  (1,284,716
                  )$
                  4,720,022
                  
                  
                  $
                  6,484,312





The
accompanying notes to these consolidated financial statements


F-2





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENTS OF OPERATIONS





Year
      ended December 31,
                  
                  
                  From
      September 7, 20042007
                  
                  
                  (date
      of inception) through2008
                  
                  
                  Restated
                  
                  
                  December
      31, 2008Operating
      expenses:Selling,
      general and administrative
                  
                  $
                  7,179,767
                  
                  
                  $
                  1,729,901
                  
                  
                  $
                  9,265,921Depreciation
                  
                  
                  18,614
                  
                  
                  
                  594
                  
                  
                  
                  19,208Research
      and development
                  
                  
                  2,126,084
                  
                  
                  
                  369,674
                  
                  
                  
                  3,285,110Total
      operating expenses
                  
                  
                  9,324,465
                  
                  
                  
                  2,100,169
                  
                  
                  
                  12,570,239Net
      loss from operations
                  
                  
                  (9,324,465
                  )
                  
                  
                  (2,100,169
                  )
                  
                  
                  (12,570,239
                  )Other
      income (expense)Loss
      on change in fair value of warrant liability
                  
                  
                  (5,012,875
                  )
                  
                  
                  -
                  
                  
                  
                  (5,012,875
                  )Interest
                  
                  
                  155,701
                  
                  
                  
                  (1,084,972
                  )
                  
                  
                  (938,923
                  )Net
      loss before income taxes
                  
                  
                  (14,181,639
                  )
                  
                  
                  (3,185,141
                  )
                  
                  
                  (18,522,037
                  )Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  
                  (14,181,639
                  )
                  
                  
                  (3,185,141
                  )
                  
                  
                  (18,522,037
                  )Preferred
      stock dividend
                  
                  
                  (754,328
                  )
                  
                  
                  (2,817,710
                  )
                  
                  
                  (3,572,038
                  )Net
      loss attributable to common shareholders
                  
                  $
                  (14,935,967
                  )
                  
                  $
                  (6,002,851
                  )
                  
                  $
                  (22,094,075
                  )Net
      loss-basic and fully diluted
                  
                  $
                  (0.71
                  )
                  
                  $
                  (0.55
                  )Weighted
      average number of shares-basic and fully diluted
                  
                  
                  20,945,436
                  
                  
                  
                  10,953,288





The
accompanying notes to these consolidated financial statements


F-3





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance,
      September 7, 2004
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Adjustment
      of 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
                
                
                
                -
                
                
                
                -
                
                
                
                45,632-Fair
      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
                )





The
accompanying notes to these consolidated financial statements


F-4





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance
      forward
                
                
                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
                )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
                )





The
accompanying notes to these consolidated financial statements


F-5





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      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
                
                
                
                -
                
                
                
                29,513Common
      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
                
                
                
                -
                
                
                
                -
                
                
                
                1,100Subtotal
                
                
                4,563,206
                
                
                $
                456
                
                
                
                -
                
                
                $
                -
                
                
                
                10,617,300
                
                
                $
                10,618
                
                
                $
                1,207,388
                
                
                $
                -
                
                
                $
                (1,155,257
                )
                
                $
                63,205





The
accompanying notes to these consolidated financial statements


F-6





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance
      forward
                
                
                4,563,206
                
                
                $
                456
                
                
                
                -
                
                
                $
                -
                
                
                
                10,617,300
                
                
                $
                10,618
                
                
                $
                1,207,388
                
                
                $
                -
                
                
                $
                (1,155,257
                )
                
                $
                63,205Common
      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 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
                )Balance,
      December 31, 2007
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                20,237,522
                
                
                $
                20,238
                
                
                $
                5,853,154
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                (1,284,716
                )





The
accompanying notes to these consolidated financial statements


F-7





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance
      forward
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                20,237,522
                
                
                $
                20,238
                
                
                $
                5,853,154
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                (1,284,716
                )Fair
      value of vested options for services rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,260,570
                
                
                
                -
                
                
                
                -
                
                
                
                2,260,570Fair
      value of vested warrants for services rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                481,855
                
                
                
                -
                
                
                
                -
                
                
                
                481,855Common
      stock issued in settlement of preferred stock dividends
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                273,245
                
                
                
                273
                
                
                
                621,396
                
                
                
                -
                
                
                
                -
                
                
                
                621,669Common
      stock issued in connection with options exercised at $0.01 per share in
      May 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                25,000
                
                
                
                25
                
                
                
                225
                
                
                
                -
                
                
                
                -
                
                
                
                250Common
      stock issued in May 2008 at $3.50 in connection for services
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                50,000
                
                
                
                50
                
                
                
                (50
                )
                
                
                -
                
                
                
                -
                
                
                
                -Common
      stock issued in connection with options exercised at $0.001 per share in
      June 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,000
                
                
                
                10
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10Common
      stock issued in connection with options exercised at $0.22 per share in
      June 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                15,000
                
                
                
                15
                
                
                
                3,285
                
                
                
                -
                
                
                
                -
                
                
                
                3,300Common
      stock issued in June 2008 at $3.65 in connection for services
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,000
                
                
                
                5
                
                
                
                18,245
                
                
                
                -
                
                
                
                -
                
                
                
                18,250Common
      stock issued in June 2008 at $3.30 in connection for services
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                
                3
                
                
                
                9,897
                
                
                
                -
                
                
                
                -
                
                
                
                9,900Subtotal
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                20,618,767
                
                
                $
                20,619
                
                
                $
                9,248,577
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                2,111,088





The
accompanying notes to these consolidated financial statements


F-8





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance
      forward
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                20,618,767
                
                
                $
                20,619
                
                
                $
                9,248,577
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                2,111,088Common
      stock issued in June 2008 at $3.25 in connection for services
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                50,000
                
                
                
                50
                
                
                
                (50
                )
                
                
                -
                
                
                
                -
                
                
                
                -Common
      stock issued in July 2008 at $3.25 in connection with serviced
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                
                3
                
                
                
                9,747
                
                
                
                -
                
                
                
                -
                
                
                
                9,750Common
      stock issued in connection with options exercised at $0.01 per share in
      July 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                31,000
                
                
                
                31
                
                
                
                279
                
                
                
                -
                
                
                
                -
                
                
                
                310Common
      stock issued in connection with options exercised at $0.01 per share in
      August 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                72,021
                
                
                
                72
                
                
                
                648
                
                
                
                -
                
                
                
                -
                
                
                
                720Common
      stock issued in connection with options exercised at $0.22 per share in
      August 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,333
                
                
                
                8
                
                
                
                1,825
                
                
                
                -
                
                
                
                -
                
                
                
                1,833Common
      stock issued in connection with conversion of preferred stock in August
      2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                25,000
                
                
                
                25
                
                
                
                6,012
                
                
                
                -
                
                
                
                -
                
                
                
                6,037Common
      stock issued in connection with conversion of preferred stock in
      September  2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                241,119
                
                
                
                241
                
                
                
                57,989
                
                
                
                -
                
                
                
                -
                
                
                
                58,230Common
      stock issued in connection with exercise of warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                898,504
                
                
                
                899
                
                
                
                (899
                )
                
                
                -
                
                
                
                -
                
                
                
                -Subtotal
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                21,947,744
                
                
                $
                21,948
                
                
                $
                9,324,128
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                2,187,968





The
accompanying notes to these consolidated financial statements


F-9





NEWCARDIO,
INC


(a
development stage company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY


From
September 7, 2004 (date of inception) through December 31, 2008





Preferred
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                DeficitPreferred
      Series A
                
                
                Preferred
      Series B
                
                
                Common
                
                
                Additional
                
                
                Common
      stock
                
                
                accumulated
      duringStock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Stock
                
                
                Amount
                
                
                Paid
      in Capital
                
                
                Subscriptions
                
                
                development
      stage
                
                
                TotalBalance
      forward
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                21,947,744
                
                
                $
                21,948
                
                
                $
                9,324,128
                
                
                $
                -
                
                
                $
                (7,158,108
                )
                
                $
                2,187,968Common
      stock issued in connection with options exercised at $0.01 per share in
      October 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12,917
                
                
                
                13
                
                
                
                116
                
                
                
                -
                
                
                
                -
                
                
                
                129Common
      stock issued in October 2008 at $1.85 per share for services
      rendered
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,000
                
                
                
                10
                
                
                
                18,490
                
                
                
                -
                
                
                
                -
                
                
                
                18,500Common
      stock issued in connection with options exercised at $0.01 per share in
      November 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                23,750
                
                
                
                24
                
                
                
                213
                
                
                
                -
                
                
                
                -
                
                
                
                237Common
      stock issued in connection with options exercised at $0.02 per share in
      November 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,500
                
                
                
                7
                
                
                
                143
                
                
                
                -
                
                
                
                -
                
                
                
                150Common
      stock issued in November 2008 in connection with conversion of redeemable
      preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                333,684
                
                
                
                334
                
                
                
                80,250
                
                
                
                -
                
                
                
                -
                
                
                
                80,584Preferred
      Series B stock issued in exchange redeemable Series A preferred
      stock
                
                
                -
                
                
                
                -
                
                
                
                9,665
                
                
                
                10
                
                
                
                -
                
                
                
                -
                
                
                
                3,490,676
                
                
                
                -
                
                
                
                -
                
                
                
                3,490,686Preferred
      Series B stock issued in settlement of Series A preferred stock
      dividend
                
                
                -
                
                
                
                -
                
                
                
                134
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                127,816
                
                
                
                -
                
                
                
                -
                
                
                
                127,816Exercise
      of warrants subject to redemption in exchange for Series B preferred
      stock
                
                
                -
                
                
                
                -
                
                
                
                2,267
                
                
                
                2
                
                
                
                -
                
                
                
                -
                
                
                
                2,925,743
                
                
                
                -
                
                
                
                -
                
                
                
                2,925,745Warrants
      exchanged for Series B preferred stock
                
                
                -
                
                
                
                -
                
                
                
                4,369
                
                
                
                4
                
                
                
                -
                
                
                
                -
                
                
                
                2,074,452
                
                
                
                -
                
                
                
                -
                
                
                
                2,074,456Modification
      of terms of warrants subject to redemption to equity
      instrument
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,815,112
                
                
                
                -
                
                
                
                -
                
                
                
                6,815,112Amortization
      of deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                337,500
                
                
                
                -
                
                
                
                -
                
                
                
                337,500Dividend
      on preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (754,328
                )
                
                
                (754,328
                )Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (14,181,639
                )
                
                
                (14,181,639
                )Balance,
      December 31, 2008
                
                
                -
                
                
                $
                -
                
                
                
                16,435
                
                
                $
                16
                
                
                
                22,335,595
                
                
                $
                22,336
                
                
                $
                25,194,639
                
                
                $
                -
                
                
                $
                (22,094,075
                )
                
                $
                3,122,916





The
accompanying notes to these consolidated financial statements


F-10





NEWCARDIO,
INC.


(a
development stage company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year
      ended December 31,
                  
                  
                  From
      September 7, 20042007
                  
                  
                  (date
      of inception) through2008
                  
                  
                  Restated
                  
                  
                  December 31, 2008Cash
      flows from operating activities:Net
      loss for the period
                  
                  $
                  (14,181,639
                  )
                  
                  $
                  (3,185,141
                  )
                  
                  $
                  (18,522,037
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                  
                  
                  18,614
                  
                  
                  
                  594
                  
                  
                  
                  19,208Amortization
      of deferred compensation
                  
                  
                  337,500
                  
                  
                  
                  -
                  
                  
                  
                  337,500Common
      stock issued to founders for services rendered
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,177Common
      stock issued for intellectual property
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  260Common
      stock issued for services rendered
                  
                  
                  56,400
                  
                  
                  
                  454,050
                  
                  
                  
                  545,788Common
      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
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  180,121Series
      B-Preferred stock issued in connection with conversion of Series
      A-Preferred stock
                  
                  
                  1,551,044
                  
                  
                  
                  -
                  
                  
                  
                  1,551,044Notes
      payable issued in conjunction with services rendered
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,316Options
      converted for services rendered
                  
                  
                  3,300
                  
                  
                  
                  -
                  
                  
                  
                  3,300Fair
      value of options issued for services rendered
                  
                  
                  2,260,570
                  
                  
                  
                  201,424
                  
                  
                  
                  2,583,632Fair
      value of warrants issued as compensation for services
                  
                  
                  481,855
                  
                  
                  
                  -
                  
                  
                  
                  481,855Fair
      value of warrants issued in conjunction with issuance of Series A-2
      preferred stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  232,502Change
      in fair value of warrants issued in conjunction with issuance of Series A
      redeemable preferred stock
                  
                  
                  5,012,875
                  
                  
                  
                  -
                  
                  
                  
                  5,012,875Fair
      value of warrants issued in settlement of convertible
      debentures
                  
                  
                  -
                  
                  
                  
                  598,692
                  
                  
                  
                  598,692Amortization
      of debt discount attributable to subordinated convertible
    debt
                  
                  
                  -
                  
                  
                  
                  5,058
                  
                  
                  
                  5,713(Increase)
      decrease in:Prepaid
      expenses
                  
                  
                  (118,454
                  )
                  
                  
                  -
                  
                  
                  
                  (118,454
                  )Deposits
                  
                  
                  (22,600
                  )
                  
                  
                  -
                  
                  
                  
                  (22,600
                  )Increase
      (decrease) in:Accounts
      payable and accrued liabilities
                  
                  
                  (89,579
                  )
                  
                  
                  364,454
                  
                  
                  
                  701,126Net
      cash used in operating activities
                  
                  
                  (4,690,114
                  )
                  
                  
                  (1,134,535
                  )
                  
                  
                  (5,924,016
                  )Cash
      flows from investing activities:Purchase
      of property plant and equipment
                  
                  
                  (121,645
                  )
                  
                  
                  (8,281
                  )
                  
                  
                  (129,926
                  )Proceeds
      from (purchases of )short term investment
                  
                  
                  2,856,543
                  
                  
                  
                  (5,000,000
                  )
                  
                  
                  (2,143,457
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  2,734,898
                  
                  
                  
                  (5,008,281
                  )
                  
                  
                  (2,273,383
                  )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
                  
                  
                  3,639
                  
                  
                  
                  5,916
                  
                  
                  
                  9,855Proceeds
      from exercise of warrants
                  
                  
                  2,799,745
                  
                  
                  
                  -
                  
                  
                  
                  2,799,745Proceeds
      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
                  
                  
                  
                  177,500Net
      cash provided by financing activities
                  
                  
                  2,803,384
                  
                  
                  
                  7,619,429
                  
                  
                  
                  10,522,192Net
      increase  in cash and cash equivalents
                  
                  
                  848,168
                  
                  
                  
                  1,476,613
                  
                  
                  
                  2,324,793Cash
      and cash equivalents at beginning of period
                  
                  
                  1,476,625
                  
                  
                  
                  12
                  
                  
                  
                  -Cash
      and cash equivalents at end of period
                  
                  $
                  2,324,793
                  
                  
                  $
                  1,476,625
                  
                  
                  $
                  2,324,793Supplemental
      disclosures of cash flow information:Taxes
      paid
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Non
      cash financial activities: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
                  
                  $
                  754,328
                  
                  
                  $
                  2,817,710
                  
                  
                  $
                  3,572,038





The
accompanying notes to these consolidated financial statements


F-11





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





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, 2008, the Company has accumulated
losses from operations of $12,570,239.





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.





Reverse 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 Technologies, 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 the
Company representing 92% of the Company’s outstanding capital stock, after the
return to treasury and retirement of 9,445,015 shares of common stock of the
Company held by certain stockholders of the Company 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, the Company was the acquiring entity. In
substance, the Share Exchange is a recapitalization of the Company’s capital
structure rather than a business combination.




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





The
accompanying financial statements include the historical financial condition,
results of operations and cash flows of the Company prior to the Share
Exchange.




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.




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-





Estimates





The
preparation of the financial statements 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.


F-12




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Revenue
Recognition





The
Company recognizes revenue in accordance with Securities Exchange Commission
(the “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) collectability 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 collectability 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.




Fair
Values





In the
first quarter of fiscal year 2008, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS
No. 157) as amended by FASB Statement of Position (FSP) FAS 157-1 and FSP
FAS 157-2. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and enhances fair value measurement disclosure. FSP FAS
157-2 delays, until the first quarter of fiscal year 2009, the effective date
for SFAS 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). The adoption of SFAS No. 157 did
not have a material impact on the Company’s financial position or operations.
Refer to Footnote 12 for further discussion regarding fair
valuation.





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
investment consists 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.


F-13





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Debt and Equity Securities
(continued)





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.





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
anti-dilutive, or their effect is not material. Fully diluted shares outstanding
were 44,788,587 and 14,859,674 for the years ended December 31, 2008 and 2007,
respectively.


F-14




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





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 11 below, the Company granted stock options over the
years to employees of the Company under its 2004 Equity Incentive
Plan.  The Company granted non-qualified stock options to purchase
4,075,000 and 2630,000 shares of common stock during the years ended December
31, 2008 and 2007, respectively, to employees and directors of the Company under
the 2004 Equity Incentive Plan.




As of
December 31, 2008, there were outstanding employee stock options to purchase
7,105,000 shares of common stock, 2,131,736 shares of which were
vested.





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 $2,126,084, $369,674 and
$3,285,110 for the years ended December 31, 2008 and 2007 and from September 7,
2004 (date of inception) through December 31, 2008, 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 consolidated financial statements, the Company incurred net
loss from operations of $12,570,239 from its inception on September 7, 2004
through December 31, 2008.




F-15





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Recent accounting
pronouncements





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 consolidated 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 consolidated financial position results of operations or cash
flows.





In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1). EITF 07-1 defines collaborative arrangements and requires
collaborators to present the result of activities for which they act as the
principal on a gross basis and report any payments received from (made to) the
other collaborators based on other applicable authoritative accounting
literature, and in the absence of other applicable authoritative literature, on
a reasonable, rational and consistent accounting policy is to be elected.
EITF 07-1 also provides for disclosures regarding the nature and purpose of
the arrangement, the entity’s rights and obligations, the accounting policy for
the arrangement and the income statement classification and amounts arising from
the agreement.





EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company is currently evaluating
the  impact, if any on the adoption of  EITF 07-1 on
its  consolidated financial position, results of operations or cash
flows.





In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”).  SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows.  Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  The Company is currently evaluating
the impact of SFAS No. 161, if any, will have on its consolidated financial
position, results of operations or cash flows.





In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible
Assets”.  The Company is required to adopt FSP 142-3 on
September 1, 2009, earlier adoption is prohibited.  The guidance in
FSP 142-3 for determining the useful life of a recognized intangible asset shall
be applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption.  The Company is
currently evaluating the impact of FSP 142-3 on its consolidated financial
position, results of operations or cash flows.


F-16





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Recent accounting
pronouncements (continued)





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162").  SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy).  SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles."  The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
consolidated financial position, results of operations or cash
flows.





In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) " ("FSP APB 14-1").  FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate.  FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis.  The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its
consolidated financial position, results of operations or cash
flows.




In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its consolidated financial position, results of operations or cash
flows.





In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument. The provisions of EITF
Issue No. 07-5 are effective for financial statements issued for fiscal
years beginning after December 15, 2008 and will be applied retrospectively
through a cumulative effect adjustment to retained earnings for outstanding
instruments as of that date. The Company is currently evaluating the impact, if
any, adopting EITF Issue No. 07-5 will have on its financial condition or
results of operations.





In
June 2008, the FASB ratified the consensus on EITF Issue No. 08-4,
“Transition Guidance for Conforming Changes to Issue No. 98-5.” The
objective of EITF Issue No.08-4 is to provide transition guidance for conforming
changes made to EITF Issue No. 98-5, “Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios,” that result from EITF Issue No. 00-27 “Application of Issue
No. 98-5 to Certain Convertible Instruments,” and SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” The guidance provided by EITF Issue No. 08-4 is
effective for financial statements issued for fiscal years ending after
December 15, 2008. The Company’s adoption of EITF Issue No. 08-4 is
not anticipated to have a material effect on its financial condition or results
of operations.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.


F-17





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
2 – GOING CONCERN MATTERS




The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements during years ended December 31, 2008 and 2007, the Company incurred
operating losses of $12,570,239 and used $5,924,016  in cash for
operating activities   from its inception through December 31,
2008. These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
  The
Company's existence is dependent upon management's ability to develop profitable
operations. Management is devoting substantially all of its efforts to
developing its products and services  and there can be no assurance
that the Company's efforts will be successful. However, the planned principal
operations have not commenced and no assurance can be given that management's
actions will result in profitable operations or the resolution of its liquidity
problems. The accompanying statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
  During
the year ended December 31, 2008, the Company received $2,799,745 through the
exercise of previously issued common stock warrants. There can be no assurance
the Company will be successful in its effort to secure additional equity
financing.


NOTE
3 - PROPERTY, PLANT AND EQUIPMENT





Property,
plant and equipment at December 31, 2008 and 2007 are as follows:





2008
                        
                        
                        2007Computer
      equipment
                        
                        $
                        45,240
                        
                        
                        $
                        8,281Furniture
      and fixtures
                        
                        
                        61,686
                        
                        
                        
                        -Research
      equipment
                        
                        
                        23,000
                        
                        
                        
                        -Less:
      accumulated depreciation
                        
                        
                        (19,208
                        )
                        
                        
                        (594
                        )$
                        110,718
                        
                        
                        $
                        7,687





The
Company uses the straight line method of depreciation over 3 years. During the
years ended December 31, 2008 and 2007, depreciation expense charged to
operations was $18,614 and $594, respectively.





NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





The
Company has consulting agreements with independent contractors, certain of whom
are also Company stockholders plus one Board member. See Footnote 5 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, 2008 and 2007 are
comprised of trade
payables and accrued expenses.





NOTE
5 – 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.  The note was paid in January 2009.
  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. During 2008 this
consultant was paid an additional $132,000 for his services, plus travel
expenses.
  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.  At December 31, 2007 the Company owed E4, LLC
$84,000 that was subsequently paid in January 2008. During the year ended
December 31, 2008, the Company paid an additional $288,000 to E4, LLC.His services are to provide business
guidance, and primarily in areas related to sales, marketing and business
strategy.




F-18





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





NOTE
5 – RELATED PARTY TRANSACTIONS (continued)




Another
former director, who is a non-executive employee in 2008, received $40,000 as
consulting fees during the year ended December 31, 2007.




Effective
January 1, 2008 the Company entered into a consulting agreement with a current
Board member for corporate strategy and finance services.  He was paid
$33,000 for these services and at December 31, 2008 he was owed
$3,000.





NOTE
6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE





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 Footnote 7).




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





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 year ended December 31, 2007  the Company amortized and charged to
interest $917  and booked a debt discounts attributable to
subordinated convertible notes payable.


F-19


NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)
 
 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.
 
 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).
  F-20
  NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)
 
 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.
 
 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 interest, net for the year ended December 31,
2007.
  F-21
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)
 
 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%.
 
 NOTE
7 - REDEEMABLE SECURITIES
 
 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. All shares were converted during 2008.
  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.
  Until
converted, 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. As all outstanding shares were converted during
2008, there was no liquidation value as of December 31, 2008.
  In
December 2007, the Company issued 8,200 Series A shares at $1,000 per share to
accredited investors in a private placement, plus warrants. 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'. $4,802,973 was allocated to the warrants based on their
value, reducing ‘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 the Series A shares redemption requirement may be triggered by events that
are outside the Company’s control, in accordance with Emerging Issues Task Force
(“EITF”) Topic D-98, Classification and Measurement of Redeemable Securities
(“EITF Topic D-98”), the Company recorded the fair value of the outstanding
Series A shares outside of common shareholders’ equity in the accompanying
consolidated balance sheet as of December 31, 2007.
 Under
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,” the
Company considered the effect of a beneficial conversion feature of the Series A
shares issued in the December 2007 private placement. The Company has attributed
a beneficial conversion feature of $2,817,710 to the Series A shares
based upon the difference between the effective conversion price of those shares
and the fair value of the Company’s common stock on the date of issuance of the
Series A shares. The amount attributable to the beneficial conversion feature
has been recorded as a dividend to the holders of the Series A shares. Since the
redemption requirement of the Series A shares was contingent on the occurrence
of future events, the Company did not accrete the carrying value of the Series A
shares to redemption value until the occurrence of any one of those future
events becomes probable.
 F-22
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
7 - REDEEMABLE SECURITIES (continued)
 
 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 tender or exchange offer,
or
 ·
                The Company's holders of the
      common stock exchange their shares for securities or
      cash
  Accordingly,
upon the occurrence of any one of these events, the Series A shares will become
redeemable and the Company will accrete the carrying value of the Series A
shares to redemption value at that time.
 
 During
the during the year ended December 31, 2008, certain Series A 10% convertible
preferred stockholders converted 569.81458 shares of preferred stock to 599,803
shares of the Company’s common stock. On December 1, 2008, the remaining
7,630.18542 shares of preferred stock were converted to an aggregate of 8,031
shares of Series B preferred stock and 134 shares of Series B preferred stock in
settlement of accrued and unpaid dividends of $127,816.  Additionally,
the Company issued an aggregate of 1,634 shares of Series B preferred stock as
an inducement to convert from Series A convertible preferred
stock.  The fair value of the 1,634 shares issued of $1,551,044 was
charged to current period operations.
  Refer to
Footnote 10 regarding the Series B Preferred Stock.
 
 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, required 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 28, 2008. The Company
performed this obligation on August 28, 2008.
 
 As
additional consideration for the purchase of the Series A shares, the
Company granted to the holders of the Series A shares three classes of
warrants (Series A warrants entitling them to purchase 5,178,947 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; Series J
warrants entitling them to purchase 5,157,895 shares of the Company’s common
stock at the price of $1.235 per share expiring one year from issuance; and
Series J-A warrants entitling them to purchase 3,094,737 shares of the Company’s
common stock at the price of $1.425 share, contingent on the exercise of the
Series J warrants). For accounting purposes the Series J-A warrants have a
one-year life as they are linked to the exercise of the Series J warrants. If
the Series J warrants are exercised, the Series J-A warrants become 5-year
warrants with a net cashless provision. None of the warrants have registration
rights. As discussed in Footnote 11, the J and J-A warrants were exercised in
December 2008.
  NOTE 8 - WARRANT
LIABILITY
  The
Company estimated the fair value at date of issue of the 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. Until conversion and modification of the warrants in
December 2008, changes in fair value were recorded as non-operating, non-cash
income or expense at each reporting date.
 
 These
warrants originally contained 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 warrants), the warrant holders can demand net cash
settlement.
  F-23
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
8 - WARRANT LIABILITY (continued)
 
 As the
warrants contained a provision that could have required 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 met 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 charged as a reduction of the preferred stock carrying
value. Subsequent to the initial issuance date, the Company adjusted to
fair value the warrant in current period operations.
 
 In
accordance with SFAS 133 “Accounting for Derivative Instruments and Hedging
Activities,” the Company recorded a loss during the year on the change in fair
value of warrant liability of $5,012,875 until December 1, 2008 at which time
the warrants were exercised on term modification.  The fair value of
the warrants at December 1, 2008 (time of modification or conversion, see below)
was determined using the Black Scholes Option Pricing Model with the following
assumptions:  Dividend yield: -0-%, volatility: 127.56%; risk free
rate: 0.11% to 1.16%.
 
 On
December 1, 2008, all warrants that contain a provision that require a cash
settlement as described above were exercised or terms modified to exclude such
provision.  See Footnote 11 below.  As such, the fair value
of the warrant liability of $9,815,847 at the time of the exercise or term
modification was reclassified to equity.
 
 NOTE
9 – PUT LIABILITY
 
 In
connection with the exercise of J warrants in December 2008, the Company has
agreed to re-acquire 1,896 shares of Series B Preferred Stock (Put Option) for a
sum of $744,280, net of unpaid transaction costs of $56,000 at the holder’s
option for 30 days after March 2, 2009.  If the holder does not
exercise the Put Option by April 1, 2009, the option expires.
 
 NOTE
10 – 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.
 
 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.
 
 Series A – 10% Convertible
Preferred Stock
 
 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 (the “Series A
shares”) having a stated value of $1,000 per share.  8,200 shares were
issued and subsequently converted into common stock or Series B preferred
Stock.
 
 Series B – Preferred
Stock
 
 In
December 2008, the Board of Directors authorized the issuance of up to 18,000
shares of Series B 0% convertible non-voting preferred stock (the “Series B
preferred stock”).
  The
Series B preferred stock is not entitled to preference upon liquidation; not
entitled to dividends unless declared by the Board of Directors and are non
voting except the Corporation shall not, without the affirmative vote of the
holders of a majority of the then outstanding shares of the Series B preferred
stock, (a) alter or change adversely the powers, preferences or rights given to
the Series B preferred stock or alter or amend the Certificate of Designation,
(b) amend its certificate of incorporation or other charter documents in any
manner that adversely affects any rights of the Series B preferred stockholders,
(c) increase the number of authorized shares of Series B
preferred stock, or (d) enter into any agreement with respect to any of the
foregoing. Each share of Series B preferred stock is convertible, at any time at
the option of the holder, into 1000 shares of Common Stock.
  F-24
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
10 – STOCKHOLDERS EQUITY (continued)
 
 Series B – Preferred Stock
(continued)
 
 On
December 1, 2008; the Company issued 16,435 shares of Series B preferred
stock:
  1.
              An
      aggregate of 8,031 shares of Series B preferred stock in exchange for
      7,630.18542 shares of Series A Convertible preferred
  stock;
 2.
              An
      aggregate of 1,634 shares of Series B preferred stock as an inducement to
      convert Series A 10% convertible preferred stock to Series B preferred
      stock;
 3.
              An
      aggregate of 134 shares of Series B preferred stock in settlement of
      accrued and unpaid dividends on Series A 10% convertible preferred stock
      of $127,816; and
 4.
              An
      aggregate of 6,636 shares of Series B preferred stock in exchange for the
      exercise of Series J and JA warrants as more fully discussed in Footnote
      11 below.
 
 Common
Stock
 
 The
Company is authorized to issue 99,000,000 shares of common stock, par value
$0.001 per share.
 
 In
September 2004, NewCardio Technologies issued 3,436,794 shares of common stock
to founders and consultants in exchange for services and intellectual
property.  The shares of common stock were valued at $0.001 per share
at the time of issuance.
 
 In
November 2004, NewCardio Technologies issued 300,000 shares of common stock upon
the exercise of stock options at the exercise price of $0.001 per
share.
 
 In March
2006, NewCardio Technologies issued 278,375 shares of common stock for services
rendered and, in October 2006, NewCardio Technologies issued 75,000 shares of
common stock for services rendered.  The shares were valued at $0.10
per share. The valuations of common stock issued for services were 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.
 
 In June
2007, NewCardio Technologies 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.  The shares are subject to a repurchase right that
diminishes when certain events occur.  192,000 shares remain subject
to the repurchase right.
  In
September 2007, NewCardio Technologies sold 1,475,631 shares of common stock,
valued at $0.10 per share, for $0.02 per share for cash, or $29,513. The
remaining $0.08 per share value 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.  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.
 
 In April
2008, the Company issued an aggregate of 110,301 shares of common stock as
dividends due to holders of the Series A shares in the amount of
$214,112.
  In June
2008, the Company issued 100,000 shares of common stock as deferred compensation
at $3.38 per share.
 
 In June
2008, the Company issued an aggregate of 8,000 shares of common stock for
services rendered at approximately $3.52 per share.  The valuations of
common stock issued for services were 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.
  F-25
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
10 – STOCKHOLDERS EQUITY (continued)
 
 Common Stock
(continued
 
 In July
2008, the Company issued an aggregate of 3,000 shares of common stock for
services rendered at approximately $3.25 per share.  The valuations of
common stock issued for services were 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.
  In July
2008, the Company issued an aggregate of 64,903 shares of common stock as a
dividend due to holders of the Series A shares in the amount of
$205,000.
 
 In
October 2008, the Company issued an aggregate of 10,000 shares of common stock
for services rendered at approximately $1.85 per share.  The
valuations of common stock issued for services were 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.
  In
October 2008, the Company issued an aggregate of 98,041 shares of common stock
as a dividend due to holders of the Series A shares in the amount of
$202,557.
 
 NOTE
11 -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, 2008:
  Warrants Outstanding
                            Weighted Average
                          
                          
                          
                          
                          
                          
                          
                          
                          Warrants ExercisableRemaining
                          
                          
                          Weighted
                          
                          
                          
                          
                          
                          WeightedNumber
                          
                          
                          Contractual
                          
                          
                          Average
                          
                          
                          Number
                          
                          
                          AverageExercise Price
                          
                          Outstanding
                          
                          
                          Life (years)
                          
                          
                          Exercise price
                          
                          
                          Exercisable
                          
                          
                          Exercise Price$
                          0.10
                          
                          
                          2,592,000
                          
                          
                          
                          1.47
                          
                          
                          $
                          0.10
                          
                          
                          
                          2,592,000
                          
                          
                          $
                          0.100.50
                          
                          
                          25,000
                          
                          
                          
                          2.65
                          
                          
                          
                          0.50
                          
                          
                          
                          25,000
                          
                          
                          
                          0.500.95
                          
                          
                          120,842
                          
                          
                          
                          3.99
                          
                          
                          
                          0.95
                          
                          
                          
                          120,842
                          
                          
                          
                          0.950.96
                          
                          
                          203,385
                          
                          
                          
                          3.50
                          
                          
                          
                          0.96
                          
                          
                          
                          203,385
                          
                          
                          
                          0.961.14
                          
                          
                          5,178,948
                          
                          
                          
                          3.99
                          
                          
                          
                          1.14
                          
                          
                          
                          5,178,947
                          
                          
                          
                          1.141.15
                          
                          
                          162,709
                          
                          
                          
                          3.50
                          
                          
                          
                          1.15
                          
                          
                          
                          162,709
                          
                          
                          
                          1.152.00
                          
                          
                          300,000
                          
                          
                          
                          2.43
                          
                          
                          
                          2.00
                          
                          
                          
                          166,669
                          
                          
                          
                          2.004.00
                          
                          
                          300,000
                          
                          
                          
                          2.43
                          
                          
                          
                          4.00
                          
                          
                          
                          166,669
                          
                          
                          
                          4.00
  Transactions
involving the Company’s warrant issuance are summarized as follows:
 
 Number of
                      Shares
                    
                    
                    Weighted
                      Average Price
                      Per ShareOutstanding
      at December 31, 2006
                    
                    
                    2,612,000
                    
                    
                    $
                    0.11Granted
                    
                    
                    15,106,627
                    
                    
                    
                    1.22Exercised
                    
                    
                    -
                    
                    
                    
                    -Canceled
      or expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at December 31, 2007
                    
                    
                    17,718,627
                    
                    
                    
                    1.06Granted
                    
                    
                    600,000
                    
                    
                    
                    3.00Exercised
                    
                    
                    (9,435,743
                    )
                    
                    
                    1.27Canceled
      or expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at December 31, 2008
                    
                    
                    8,882,884
                    
                    
                    $
                    0.95
  F-26
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
11 -STOCK OPTIONS AND WARRANTS (continued)
  Warrants
(continued)
  For the
year ended December 31, 2007, warrants totaling 5,000 were issued in connection
with debt financing. The warrants are exercisable for five years after date of
issuance at an exercise 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 were issued in
connection with convertible debentures. The warrants are exercisable until June
27, 2012, 592,131 warrants at an exercise price of $0.96 per share and 473,705
warrants at an exercise price of $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 were issued in
connection with services rendered. The warrants are exercisable for five years
from the date of issuance at an exercise 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 were 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)
              The
      Series J-A warrants were only exercisable in the event the Series J
      warrants were exercised and carried a 1 year life for accounting purposes
      prior to exercise.
  The
Company reduced shares subject to redemption by $4,802,973 (and recorded a
warrant liability) in conjunction in the year ended December 31,
2007.  The fair value of the liability at December 1, 2008 was
reclassified to equity. See also Footnote 8.
 
 For the
year ended December 31, 2008, warrants totaling 300,000 were issued in
connection with services rendered. The warrants vest over a twelve month period
and are exercisable for three years from the date of issuance at an exercise
price of $2.00 per share.  The warrants were valued using the Black
Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility from 100.08% to 136.17%
and risk free rate from 0.76% to 3.57%.  The Company recorded the
vested portion as charge to operations of $262,407 in the year ended December
31, 2008.
 
 For the
year ended December 31, 2008, warrants totaling 300,000 were issued in
connection with services rendered. The warrants vest over a twelve month period
and are exercisable for three years from the date of issuance at an exercise
price of $4.00 per share.  The warrants were valued using the Black
Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility from 100.08% to 136.17%
and risk free rate from 0.76% to 3.57%.  The Company recorded the
vested portion as charge to operations of $219,448 in the year ended December
31, 2008.
  F-27
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
11 -STOCK OPTIONS AND WARRANTS (continued)
 
 Warrants
(continued)
 
 During
the year ended December 31, 2008, 9,435,743 warrants were
exercised:
  1.
              Warrant
      holders exercised 1,183,111 warrants on a cashless basis in exchange for
      898,504 shares of the Company’s common stock;
  and
 2.
              Warrant
      holders exercised $2.8 million or 2,267,206 Series J warrants in exchange
      for 2,267 shares of the Company’s Series B preferred stock. They also
      exercised the balance of the Series J and J-A warrants, 2,890,689 Series J
      warrants and 3,094,737 Series J-A warrants, on a cashless basis in
      exchange for 4,369 shares of the Company’s Series B preferred stock. A
      portion of this exercise is subject to a Put Liability.  See
      Footnote 9.
 
 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 at
December 31, 2008:
 
 Options Outstanding
                          
                          
                          
                          
                          
                          Options ExercisableWeighted Average
                          
                          
                          Weighted
                          
                          
                          
                          
                          
                          WeightedRemaining
                          
                          
                          Average
                          
                          
                          
                          
                          
                          AverageExercise
                          
                          Number
                          
                          
                          Contractual Life
                          
                          
                          Exercise
                          
                          
                          Number
                          
                          
                          ExercisePrices
                          
                          Outstanding
                          
                          
                          (Years)
                          
                          
                          Price
                          
                          
                          Exercisable
                          
                          
                          Price$
                          0.01
                          
                          
                          240,188
                          
                          
                          
                          5.74
                          
                          
                          $
                          0.01
                          
                          
                          
                          196,959
                          
                          
                          $
                          0.010.02
                          
                          
                          122,500
                          
                          
                          
                          7.26
                          
                          
                          
                          0.02
                          
                          
                          
                          53,439
                          
                          
                          
                          0.020.22
                          
                          
                          191,667
                          
                          
                          
                          9.11
                          
                          
                          
                          0.22
                          
                          
                          
                          116,875
                          
                          
                          
                          0.221.59
                          
                          
                          8,000
                          
                          
                          
                          9.81
                          
                          
                          
                          1.59
                          
                          
                          
                          333
                          
                          
                          
                          1.592.00
                          
                          
                          400,000
                          
                          
                          
                          9.95
                          
                          
                          
                          2.00
                          
                          
                          
                          -
                          
                          
                          
                          2.002.25
                          
                          
                          320,000
                          
                          
                          
                          9.43
                          
                          
                          
                          2.25
                          
                          
                          
                          60,001
                          
                          
                          
                          2.253.30
                          
                          
                          100,000
                          
                          
                          
                          9.72
                          
                          
                          
                          3.30
                          
                          
                          
                          12,500
                          
                          
                          
                          3.304.72
                          
                          
                          26,000
                          
                          
                          
                          9.86
                          
                          
                          
                          4.72
                          
                          
                          
                          3,667
                          
                          
                          
                          4.72
 
 Transactions
involving stock options issued to non employees are summarized as
follows:
 
 Number of
                            Shares
                          
                          
                          Weighted
                            Average
                            Price
                            Per ShareOutstanding
      at December 31, 2006:
                          
                          
                          1,322,606
                          
                          
                          $
                          0.007Granted
                          
                          
                          480,000
                          
                          
                          
                          0.16Exercised
                          
                          
                          (821,500
                          )
                          
                          
                          (0.05
                          )Canceled
      or expired
                          
                          
                          (214,147
                          )
                          
                          
                          (0.06
                          )Outstanding
      at December 31, 2007:
                          
                          
                          766,959
                          
                          
                          
                          0.07Granted
                          
                          
                          854,000
                          
                          
                          
                          2.32Exercised
                          
                          
                          (205,521
                          )
                          
                          
                          (0.03
                          )Canceled
      or expired
                          
                          
                          (7,083
                          )
                          
                          
                          (0.01
                          )Outstanding
      at December 31, 2008:
                          
                          
                          1,408,355
                          
                          
                          $
                          1.44
 
 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
Footnote 6 above).
  F-28
  NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
11 -STOCK OPTIONS AND WARRANTS (continued)
 
 Non-Employee Stock Options
(continued)
  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 ended December 31, 2008, the Company granted an aggregate of 854,000
non employee stock options in connection services rendered at the exercise price
from $1.58 to $4.72 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
                      
                      93.24%
      to 136.17
                      %Risk
      free rate:
                      
                      2.25%
      to 3.99
                      %
 
 The fair
value of all non-employee options vesting during the year ended December 31,
2008 of $457,307 was charged to current period operations.
  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,
2008:
 
 Options Outstanding
                            
                            
                            
                            
                            
                            Options ExercisableWeighted Average
                            
                            
                            Weighted
                            
                            
                            
                            
                            
                            WeightedRemaining
                            
                            
                            Average
                            
                            
                            
                            
                            
                            AverageExercise
                            
                            Number
                            
                            
                            Contractual Life
                            
                            
                            Exercise
                            
                            
                            Number
                            
                            
                            ExercisePrices
                            
                            Outstanding
                            
                            
                            (Years)
                            
                            
                            Price
                            
                            
                            Exercisable
                            
                            
                            Price$
                            0.001
                            
                            
                            100,000
                            
                            
                            
                            5.04
                            
                            
                            $
                            0.001
                            
                            
                            
                            100,000
                            
                            
                            $
                            0.0010.01
                            
                            
                            300,000
                            
                            
                            
                            7.53
                            
                            
                            
                            0.01
                            
                            
                            
                            201,042
                            
                            
                            
                            0.010.02
                            
                            
                            880,000
                            
                            
                            
                            8.19
                            
                            
                            
                            0.02
                            
                            
                            
                            880,000
                            
                            
                            
                            0.020.22
                            
                            
                            1,750,000
                            
                            
                            
                            8.90
                            
                            
                            
                            0.22
                            
                            
                            
                            652,777
                            
                            
                            
                            0.221.85
                            
                            
                            700,000
                            
                            
                            
                            9.80
                            
                            
                            
                            1.85
                            
                            
                            
                            -
                            
                            
                            
                            1.852.01
                            
                            
                            80,000
                            
                            
                            
                            9.80
                            
                            
                            
                            2.01
                            
                            
                            
                            -
                            
                            
                            
                            2.012.05
                            
                            
                            1,130,000
                            
                            
                            
                            9.21
                            
                            
                            
                            2.05
                            
                            
                            
                            236,250
                            
                            
                            
                            2.052.15
                            
                            
                            120,000
                            
                            
                            
                            9.73
                            
                            
                            
                            2.15
                            
                            
                            
                            -
                            
                            
                            
                            2.152.25
                            
                            
                            400,000
                            
                            
                            
                            9.71
                            
                            
                            
                            2.25
                            
                            
                            
                            -
                            
                            
                            
                            2.253.05
                            
                            
                            100,000
                            
                            
                            
                            9.25
                            
                            
                            
                            3.05
                            
                            
                            
                            16,667
                            
                            
                            
                            3.054.30
                            
                            
                            700,000
                            
                            
                            
                            9.58
                            
                            
                            
                            4.30
                            
                            
                            
                            -
                            
                            
                            
                            4.304.72
                            
                            
                            45,000
                            
                            
                            
                            9.61
                            
                            
                            
                            4.72
                            
                            
                            
                            45,000
                            
                            
                            
                            4.725.00
                            
                            
                            800,000
                            
                            
                            
                            9.63
                            
                            
                            
                            5.00
                            
                            
                            
                            -
                            
                            
                            
                            5.00
  F-29
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
11 -STOCK OPTIONS AND WARRANTS (continued)
 
 Employee Stock Options
(continued)
  Transactions
involving stock options issued to employees are summarized as
follows:
 
 Number of
                            Shares
                          
                          
                          Weighted
                            Average
                            Price
                            Per ShareOutstanding
      at December 31, 2006:
                          
                          
                          480,000
                          
                          
                          $
                          0.004Granted
                          
                          
                          2,630,000
                          
                          
                          
                          0.22Exercised
                          
                          
                          (80,000
                          )
                          
                          
                          (0.01
                          )Canceled
      or expired
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at December 31, 2007:
                          
                          
                          3,030,000
                          
                          
                          
                          0.14Granted
                          
                          
                          4,075,000
                          
                          
                          
                          3.06Exercised
                          
                          
                          -
                          
                          
                          
                          -Canceled
      or expired
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at December 31, 2008:
                          
                          
                          7,105,000
                          
                          
                          $
                          1.81
 
 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, 2008, the Company granted 4,075,000 stock options
with an exercise price from $1.85 to $5.00 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
                      
                      
                      93.24% to
      127.24
                      %Risk
      free rate:
                      
                      
                      3.48%
      to 3.91
                      %
 
 The fair
value of all employee options vesting in the year ended December 31, 2008 of
$1,803,263 was charged to current period operations.
  F-30
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
12 - FAIR VALUE
 
 SFAS
No. 157 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. SFAS
No. 157 establishes three levels of inputs that may be used to measure fair
value:
 
 Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
 
 Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
 
 Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
  To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
 
 Items
recorded or measured at fair value on a recurring basis in the accompanying
financial statements consisted of the following items as of December 31,
2008:
 
 Total
                        
                        
                        Quoted
                          Prices in
                          Active
                          Markets for
                          Identical
                          Instruments
                          Level 1
                        
                        
                        Significant
                          Other
                          Observable
                          Inputs
                          Level 2
                        
                        
                        Significant
                          Unobservable
                          Inputs
                          Level 3Assets:Short
      term Investment
                        
                        $
                        2,143,457
                        
                        
                        $
                        2,143,457Total
                        
                        $
                        2,143,457
                        
                        
                        $
                        2,143,457
                        
                        
                        $
                        -
                        
                        
                        
                        -
 
 With the
exception of assets and liabilities included within the scope of FSP FAS No.
157-2, the Company adopted the provisions of SFAS No. 157 prospectively
effective as of the beginning of Fiscal 2008.  For financial assets
and liabilities included within the scope of FSP FAS No. 157-2, the Company will
be required to adopt the provisions of SFAS No. 157 prospectively as of the
beginning of Fiscal 2009.  The adoption of SFAS No. 157 did not have a
material impact on our financial position or results of operations, and the
Company do not believe that the adoption of FSP FAS No. 157-2 will have a
material impact on our financial position or results of operations.
 
 The fair
value of the assets, short term investments, at December 31, 2008 was grouped as
Level 1 valuation as the market price was readily available, and there has been
no change to the fair value of the securities at December 31,
2008.
  F-31
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 13 – 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 years ending December 31, 2008 and
2007.
  Income
tax expense for the years ended December 31, 2008 and 2007 are comprised of
State taxes which primarily are not based on earnings.  No other
income taxes were recorded on the earnings in 2008 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, 2008, the significant components of the deferred tax assets
(liabilities) are summarized below:
  Net
      operating loss carry forwards expiring in 2024
                      
                      $
                      22,000,000Tax
      Asset
                      
                      
                      7,480,000Less
      valuation allowance
                      
                      
                      (7,480,000
                      )Balance
                      
                      $
                      —
 
 NOTE
14 -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.
The Company incurred $132,000 (plus travel expenses) and $376,000 ($40,000 in
cash compensation, plus the fair value of equity) in fees and expenses to these
individuals for the years ended December 31, 2008 and 2007 respectively, in a
consulting role.  They were involved in business development in 2007
and R&D in 2008 and 2007. The Agreements are generally short term and
milestones based and include cash compensation, equity compensation or a
combination thereof. The current R&D agreement has no equity
compensation.
 
 Operating Lease
Commitments
 
 The
Company leases office space in Santa Clara, California on a lease expiring April
30, 2011 at approximately $5,800 per month.  Additionally the Company
maintains a Princeton, New Jersey office at $5,000 per month with the lease
expiring March 31, 2009 and a facility in Belgrade, Serbia on a month to month
basis at $500 per month.
 
 At
December 31, 2008, future minimum lease payments are as follows:
 
 2009
                      
                      $
                      72,7062010
                      
                      
                      74,8872011
                      
                      
                      25,2072012
                      
                      
                      -Thereafter
                      
                      
                      -
 
 Total
lease rental expenses for the years ended December 31, 2008 and 2007 was $90,506
and $9,130, respectively.
  F-32
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
14 -COMMITMENTS AND CONTINGENCIES (continued)
 
 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, 2008.
 
 NOTE
15 – SUBSEQUENT EVENTS
 
 In
January 2009, the Company issued an aggregate of 3,973 shares of common stock as
a dividend due to certain holders of the Series A shares in the amount of
$4,843.
 
 In
January 2009, the Company issued 250,000 warrants to purchase the Company’s
common stock at an exercise price of $1.50 vesting over 12 months.
 
 In
January 2009, the Company paid the related party promissory note and accrued
interest.
  In
February 2009, the Company issued 1,305,000 shares in connection with the
exercise of 1,392,000 warrants to purchase the Company’s common stock at $0.10
per share.  The warrants were exercised on a cashless
basis.
 
 NOTE
16 – 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.
  F-33
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – RESTATEMENT (continued)
  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-34
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – 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-35
  NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – 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-36
  NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – 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-37
 
 NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – 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-38
  NEWCARDIO,
INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
16 – 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.
  F-39