NewCardio 10Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

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. Employer
Incorporation 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

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

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Class		Shares Outstanding at August 3, 2009
Common Stock, $0.001 Par Value		23,862,779

NEWCARDIO, INC.

INDEX

PART I		Financial Information	Page Number

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets – June 30, 2009 (Unaudited) and December 31, 2008	3

		Unaudited Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2009 and June 30, 2008 and from the period September 7, 2004 (date of inception) to June 30, 2009	4

		Unaudited Condensed Consolidated Statements of Stockholders (Deficit) Equity for the period from September 7, 2004 (date of inception) to June 30, 2009	5

		Unaudited Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2009 and June 30, 2008 and from the period September 7, 2004 (date of inception) to June 30, 2009	14

		Notes to Unaudited Condensed Consolidated Financial Statements	15

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

	Item 4.	Controls and Procedures	39

PART II		Other Information

	Item 1A.	Risk Factors	40

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 6.	Exhibits	40

SIGNATURES			42

EX-31.1

EX-31.2

EX-32.1

EX-32.2

PART I.

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,			December 31,
	2009			2008
	Unaudited
ASSETS
Current assets:
Cash	$	1,366,619		$	2,324,793
Short term investment		-			2,143,457
Prepaid expenses		59,954			118,454
Total current assets		1,426,573			4,586,704

Property, plant and equipment, net of accumulated depreciation of $42,516 and $19,208 as of June 30, 2009 and December 31, 2008, respectively		185,779			110,718

Other assets:
Deposits		22,600			22,600

	$	1,634,952		$	4,720,022

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	679,014		$	842,510
Note payable, related party, current portion		-			10,316
Put liability		744,280			744,280
Total current liabilities		1,423,294			1,597,106

Stockholders' equity
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 shares issued and outstanding as of June 30, 2009 and December 31, 2008		16			16
Common stock, $0.001 par value, 99,000,000 shares authorized; 23,832,779 and 22,335,595 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively		23,833			22,336
Additional paid in capital		27,230,887			25,194,639
Deficit accumulated during development stage		(27,043,078	)		(22,094,075	)
Total stockholders' equity		211,658			3,122,916

	$	1,634,952		$	4,720,022

The accompanying notes to these unaudited condensed consolidated financial statements

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


													From September 7, 2004
	Three months ended June 30,						Six months ended June 30,						(date of inception) through
	2009			2008			2009			2008			June 30, 2009
Operating expenses:
Selling, general and administrative	$	1,863,584		$	1,169,250		$	3,399,265		$	1,906,217		$	12,665,186
Depreciation		14,054			5,446			23,308			6,546			42,516
Research and development		749,549			321,531			1,542,421			606,637			4,827,531
Total operating expenses		2,627,187			1,496,227			4,964,994			2,519,400			17,535,233

Loss from operations		(2,627,187	)		(1,496,227	)		(4,964,994	)		(2,519,400	)		(17,535,233	)

Other income (expense)
Loss on change in fair value of warrant liability		-			(14,684,154	)		-			(26,876,459	)		(5,012,875	)
Interest, net		8,042			49,044			22,933			102,338			(915,990	)

Net loss before income taxes		(2,619,145	)		(16,131,337	)		(4,942,061	)		(29,293,521	)		(23,464,098	)

Provision for income taxes		130			-			6,942			-			6,942

Net loss		(2,619,275	)		(16,131,337	)		(4,949,003	)		(29,293,521	)		(23,471,040	)

Preferred stock dividend		-			(205,000	)		-			(419,112	)		(3,572,038	)

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(2,619,275	)	$	(16,336,337	)	$	(4,949,003	)	$	(29,712,633	)	$	(27,043,078	)

Net loss-basic and fully diluted	$	(0.11	)	$	(0.80	)	$	(0.21	)	$	(1.46	)

Weighted average number of shares-basic and fully diluted		23,803,867			20,388,689			23,467,046			20,312,462

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance, September 7, 2004	-	$ -	-	$ -	-	$ -	$ -	$ -	$ -	$ -
Adjustment of recapitalization
Common stock issued to founders at $0.001 per share in September 2004	-	-	-	-	3,176,642	3,177	-	-	-	3,177
Common stock issued for intellectual property at $0.001 per share in September 2004	-	-	-	-	260,152	260	-	-	-	260
Common stock issued in connection with options exercised at $0.001 per share in November 2004	-	-	-	-	300,000	300	-	-	-	300
Series 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	-	-	263
Net loss	-	-	-	-	-	-	-	-	(172,343)	(172,343)
Balance, December 31, 2004	4,563,206	$ 456	-	$ -	3,736,794	$ 3,737	$ 45,439	$ -	$ (172,343)	$ (122,711)

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance 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	-	-	44,558
Fair value of warrants issued in conjunction with issuance of Series A-2 preferred stock	-	-	-	-	-	-	232,502	-	-	232,502
Net 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	-	-	27,838
Fair value of options issued in July 2006	-	-	-	-	-	-	60,082	-	-	60,082
Fair value of warrants issued in conjunction with convertible debenture	-	-	-	-	-	-	1,572	-	-	1,572
Fair value of options issued in September 2006	-	-	-	-	-	-	9,729	-	-	9,729
Common stock issued at $0.10 per share for services rendered in October 2006	-	-	-	-	75,000	75	7,425	-		7,500
Fair value of options issued in October 2006	-	-	-	-	-	-	7,006	-	-	7,006
Net 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 unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)


	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance 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	-	-	4,141
Fair value of options for services rendered	-	-	-	-	-	-	201,424	-	-	201,424
Common stock subscription received in June 2007	-	-	-	-	-	-	-	84,000	-	84,000
Common 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)	-	336,000
Common stock issued in connection with options exercised at $0.01 per share in June 2007	-	-	-	-	137,500	138	1,237	-	-	1,375
Common stock issued in connection with options exercised at $0.001 per share in July 2007	-	-	-	-	100,000	100	-	-	-	100
Common stock issued in connection with options exercised at $0.01 per share in July 2007	-	-	-	-	204,000	204	1,836	-	-	2,040
Common stock subscription received in September 2007	-	-	-	-	-	-	-	29,513	-	29,513
Common 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)	-	118,050
Common stock issued in connection with options exercised at $0.001 per share in October 2007	-	-	-	-	300,000	300	-	-	-	300
Common stock issued in connection with options exercised at $0.01 per share in December 2007	-	-	-	-	110,000	110	990	-	-	1,100
Subtotal	4,563,206	$ 456	-	$ -	10,617,300	$ 10,618	$ 1,207,388	$ -	$ (1,155,257)	$ 63,205

The accompanying notes to these unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance forward	4,563,206	$ 456	-	$ -	10,617,300	$ 10,618	$ 1,207,388	$ -	$ (1,155,257)	$ 63,205
Common stock issued in connection with options exercised at $0.02 per share in December 2007	-	-	-	-	50,000	50	950	-	-	1,000
Effect 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	-	-	259,200
Effective with the merger, the conversion of convertible debentures inclusive of interest to common shares at December 27, 2007	-	-	-	-	267,900	268	196,691	-	-	196,959
Common stock issued as beneficial conversion feature in conjunction with settlement of convertible debentures	-	-	-	-	592,131	592	425,742	-	-	426,334
Fair value of warrants issued as compensation for financing	-	-	-	-	-	-	355,034	-	-	355,034
Fair value of warrants issued in conjunction with convertible debentures	-	-	-	-	-	-	598,693	-	-	598,693
Beneficial conversion feature of preferred stock	-	-	-	-	-	-	2,817,710	-	-	2,817,710
Dividend 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 unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

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

The accompanying notes to these unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance forward	-	$ -	-	$ -	20,618,767	$ 20,619	$ 9,248,577	$ -	$ (7,158,108)	$ 2,111,088
Common 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	-	-	9,750
Common stock issued in connection with options exercised at $0.01 per share in July 2008	-	-	-	-	31,000	31	279	-	-	310
Common stock issued in connection with options exercised at $0.01 per share in August 2008	-	-	-	-	72,021	72	648	-	-	720
Common stock issued in connection with options exercised at $0.22 per share in August 2008	-	-	-	-	8,333	8	1,825	-	-	1,833
Common stock issued in connection with conversion of preferred stock in August 2008	-	-	-	-	25,000	25	6,012	-	-	6,037
Common stock issued in connection with conversion of preferred stock in September 2008	-	-	-	-	241,119	241	57,989	-	-	58,230
Common 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 unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance forward	-	$ -	-	$ -	21,947,744	$ 21,948	$ 9,324,128	$ -	$ (7,158,108)	$ 2,187,968
Common stock issued in connection with options exercised at $0.01 per share in October 2008	-	-	-	-	12,917	13	116	-	-	129
Common stock issued in October 2008 at $1.85 per share for services rendered	-	-	-	-	10,000	10	18,490	-	-	18,500
Common stock issued in connection with options exercised at $0.01 per share in November 2008	-	-	-	-	23,750	24	213	-	-	237
Common stock issued in connection with options exercised at $0.02 per share in November 2008	-	-	-	-	7,500	7	143	-	-	150
Common stock issued in November 2008 in connection with conversion of redeemable preferred stock	-	-	-	-	333,684	334	80,250	-	-	80,584
Preferred Series B stock issued in exchange redeemable Series A preferred stock	-	-	9,665	10	-	-	3,490,676	-	-	3,490,686
Preferred Series B stock issued in settlement of Series A preferred stock dividend	-	-	134	-	-	-	127,816	-	-	127,816
Exercise of warrants subject to redemption in exchange for Series B preferred stock	-	-	2,267	2	-	-	2,925,743	-	-	2,925,745
Warrants exchanged for Series B preferred stock	-	-	4,369	4	-	-	2,074,452	-	-	2,074,456
Modification of terms of warrants subject to redemption to equity instrument	-	-	-	-	-	-	6,815,112	-	-	6,815,112
Amortization of deferred compensation	-	-	-	-	-	-	337,500	-	-	337,500
Dividend 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 unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance forward	-	$ -	16,435	$ 16	22,335,595	$ 22,336	$ 25,194,639	$ -	$ (22,094,075)	$ 3,122,916
Dividend on preferred stock	-	-	-	-	3,973	4	4,839	-	-	4,843
Fair value of vested options issued for services rendered	-	-	-	-	-	-	1,728,563	-	-	1,728,563
Fair value of vested warrants issued for services rendered	-	-	-	-	-	-	181,409	-	-	181,409
Common stock issued in January 2009 at $1.60 per share for services rendered	-	-	-	-	2,500	2	3,998	-	-	4,000
Common Stock issued in connection with options exercised at $0.01 per share in February 2009	-	-	-	-	69,792	70	628	-	-	698
Exercise of warrants on a cashless basis	-	-	-	-	1,305,000	1,305	(1,305)	-	-	-
Common Stock issued in connection with options exercised at $0.01 per share in March 2009	-	-	-	-	26,250	26	236	-	-	262
Common stock issued in connection with options exercised at $0.02 per share in March 2009	-	-	-	-	9,174	9	175	-	-	184
Common stock issued in connection with options exercised at $0.22 per share in March 2009	-	-	-	-	12,495	13	2,736	-	-	2,749
Subtotal	-	$ -	16,435	$ 16	23,764,779	$ 23,765	$ 27,115,918	$ -	$ (22,094,075)	5,045,624

The accompanying notes to these unaudited condensed consolidated financial statements

NEWCARDIO, INC
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
From September 7, 2004 (date of inception) through June 30, 2009
(unaudited)

	Preferred								Deficit
	Preferred Series A		Preferred Series B		Common		Additional	Common stock	accumulated during
	Stock	Amount	Stock	Amount	Stock	Amount	Paid in Capital	Subscriptions	development stage	Total
Balance forward	-	$ -	16,435	$ 16	23,764,779	$ 23,765	$ 27,115,918	$ -	$ (22,094,075)	$ 5,045,624
Common stock issued in connection with options exercised at $0.02 per share in April 2009	-	-	-	-	25,000	25	475	-	-	500
Exercise of warrants on a cashless basis	-	-	-	-	30,000	30	(30)	-	-	-
Common stock issued in connection with options exercised at $0.22 per share in June 2009	-	-	-	-	13,000	13	2,847	-	-	2,860
Fair value of vested restricted stock units issued for services rendered	-	-	-	-	-	-	105,000	-	-	105,000
Change in fair value of re-priced vested options	-	-	-	-	-	-	6,677	-	-	6,677
Net loss	-	-	-	-	-	-	-	-	(4,949,003)	(4,949,003)
Balance, June 30, 2009	-	$ -	16,435	$ 16	23,832,779	$ 23,833	$ 27,230,887	$ -	$ (27,043,078)	$ 211,658

The accompanying notes to these unaudited condensed consolidated financial statements

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


								From September 7, 2004
		Six months ended June 30,						(date of inception) through
		2009			2008			June 30, 2009
Cash flows from operating activities:
Net loss for the period		$	(4,949,003	)	$	(29,293,521	)	$	(23,471,040	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			23,308			6,546			42,516
Amortization of deferred compensation			-			43,750			337,500
Common stock issued to founders for services rendered			-			-			3,177
Common stock issued for intellectual property			-			-			260
Common stock issued for services rendered			4,000			28,150			549,788
Common stock issued as beneficial conversion feature in conjunction with settlement of convertible debentures			-			-			426,334
Series A-Preferred stock issued to founders for services rendered			-			-			45,632
Series A-2-Preferred stock issued for services rendered			-			-			180,121
Series B-Preferred stock issued in connection with conversion of Series A-Preferred stock			-			-			1,551,044
Notes payable issued in conjunction with services rendered			-			-			10,316
Options converted for services rendered			-			3,300			3,300
Fair value of options issued for services rendered			1,728,563			691,837			4,312,195
Fair value of warrants issued as compensation for services			181,409			92,274			663,264
Fair value of restricted stock units issued for services rendered			105,000			-			105,000
Change in fair value of re-priced vested options			6,677			-			6,677
Fair value of warrants issued in conjunction with issuance of Series A-2 preferred stock			-			-			232,502
Change in fair value of warrants issued in conjunction with issuance of Series A redeemable preferred stock			-			26,876,459			5,012,875
Fair value of warrants issued in settlement of convertible debentures			-			-			598,692
Amortization of debt discount attributable to subordinated convertible debt			-			-			5,713
(Increase) decrease in:
Prepaid expenses			58,500			(46,658	)		(59,954	)
Deposits			-			(12,600	)		(22,600	)
Decrease in:
Accounts payable and accrued liabilities			(158,653	)		(472,308	)		542,473
Net cash (used in) operating activities			(3,000,199	)		(2,082,771	)		(8,924,215	)

Cash flows from investing activities:
Purchase of property plant and equipment	��		(98,369	)		(81,506	)		(228,295	)
Proceeds from short term investment			2,143,457			904,161			-
Net cash provided by (used in) investing activities			2,045,088			822,655			(228,295	)

Cash flows from financing activities:
Payments on notes payable			(10,316	)		-			(10,316	)
Proceeds from exercise of common stock options			7,253			261			17,108
Proceeds from exercise of warrants						-			2,799,745
Proceeds from the sale of Series A-2 preferred stock			-			-			79,079
Proceeds from sale of Series A preferred stock			-			-			7,342,500
Proceeds from sale of common stock			-			-			113,513
Proceeds from convertible debt, net			-			-			177,500
Net cash (used in)provided by financing activities			(3,063	)		261			10,519,129

Net (decrease) increase in cash and cash equivalents			(958,174	)		(1,259,855	)		1,366,619
Cash and cash equivalents at beginning of period			2,324,793			1,476,625			-

Cash and cash equivalents at end of period		$	1,366,619		$	216,770		$	1,366,619

Supplemental disclosures of cash flow information:
Taxes paid		$	6,942		$	-		$	6,942
Interest paid		$	1,117		$	-		$	1,117

Non cash financial activities:
Fair value of warrants issued with redeemable preferred stock		$	-		$	-		$	4,802,973
Fair value of warrants issued as compensation for financing		$	-		$	-		$	355,034
Beneficial conversion feature of redeemable preferred stock		$	-		$	-		$	2,817,710
Preferred stock dividend		$	-		$	419,112		$	3,572,038

The accompanying notes to these unaudited condensed consolidated financial statements

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

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

General

The accompanying unaudited condensed consolidated financial statements of NewCardio, Inc., (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results from operations for the three and six month periods ended June 30, 2009, are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

Basis and business presentation

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

The Company was incorporated under the laws of the State of Delaware in September 2004 and is in the development stage, as defined by Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") with its efforts principally devoted to developing cardiac diagnostics tools and equipment in the United States and Europe. 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 June 30, 2009, the Company has accumulated losses of $27,043,078 attributable to common stockholders.

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 unaudited condensed consolidated 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.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Reverse Merger and Corporate Restructure (continued)

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.

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 9 for further discussion regarding fair valuation.

Debt and Equity Securities

The Company follows the provisions of Statement 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.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Debt and Equity Securities (continued)

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.

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 to 5 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.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

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 have 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 44,400,504 and 41,424,050 for the three month period ended June 30, 2009 and 2008, respectively; and 44,063,683 and 41,347,823 for the six month period ended June 30, 2009 and 2008, respectively.

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 7 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 175,000 and 1,230,000 shares of common stock during the six month period ended June 30, 2009 and 2008, respectively, to employees and directors of the Company under the 2004 Equity Incentive Plan.

As of June 30, 2009, there were outstanding employee stock options to purchase 7,280,000 shares of common stock, 2,607,568 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 $749,549 and $1,542,421 for the three and six month periods ended June 30, 2009; $321,531 and $606,637 for the three and six month period ended June 30, 2008 and $4,827,531 from September 7, 2004 (date of inception) through June 30, 2009, respectively.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

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 unaudited condensed consolidated financial statements, the Company incurred loss from operations of $17,535,233 from its inception on September 7, 2004 through June 30, 2009.

Recent accounting pronouncements

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. The adoption of SFAS No. 141R in 2009 did not have a material effect 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. The adoption of SFAS No. 160 in 2009 did not have a material effect 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 adoption of EITF 07-1in 2009 did not have a material effect 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 adoption of SFAS No. 161 did not have a material effect on its consolidated financial position, results of operations or cash flows.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

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 January 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 adoption of FSP No. FAS 142-3 did not have a material effect on its consolidated financial position, results of operations or cash flows.

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 adoption of FSP APB 14-1 did not have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. The Company does not expect the adoption of SFAS 163 to have a material effect on its consolidated financial statements.

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 adoption of FSP EITF No. 03-6-1 did not 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 adoption of EITF 07-05 did not have a material effect on its consolidated financial position, results of operations or cash flows.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption had no impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by SFAS 157. The Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its consolidated financial statements.

In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities. The FSP requires extensive additional disclosure by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with variable interest entities (VIEs), including sponsors that have a variable interest in a VIE. This FSP became effective for the first reporting period ending after December 15, 2008 and did not have any material impact on the Company's consolidated financial statements.

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

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.

NOTE 2 – GOING CONCERN MATTERS

The accompanying unaudited condensed consolidated 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 unaudited condensed consolidated financial statements during six months ended June 30, 2009, the Company incurred operating losses of $4,964,994 and used $8,924,215 in cash for operating activities from its inception through June 30, 2009. 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.

NOTE 3 – NOTES PAYABLE-RELATED PARTY

Notes payable related party is comprised of a promissory note totaling $10,316, due November 15, 2008 with interest at 4.9% per annum due upon maturity to a former director of the Company. The note was paid in January 2009.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 4 – 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.

On April 7, 2009, the period related to the Put was extended to June 30, 2009 and on June 17, 2009; the period of the Lockup was extended through December 31, 2009, and the period related to the Put was extended to July 31, 2009. See also Note 10 relating to a subsequent extension.

NOTE 5 - 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.

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 ended December 31, 2008 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. 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.

During the three and six months ended June 30, 2008, the Company incurred $14,684,154 and $26,876,459 charge to current period operations for the change in fair value of the warrant liability. As discussed above, as of December 1, 2008; the warrant liability was reclassified to equity.

NOTE 6 – 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.

On May 12, 2009 the Company canceled the Series A Convertible Preferred Stock authorization.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 6 – STOCKHOLDERS EQUITY (continued)

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.

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

Refer to Note 4 above regarding put liability and lock out period relating to certain issuances of Series B 0% convertible non-voting preferred stock.

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.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 6 – STOCKHOLDERS EQUITY (continued)

Common Stock (continued)

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.

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.

In January 2009, the Company issued an aggregate of 3,973 shares of common stock as a dividend due to holders of the Series A shares in the amount of $4,843.

In January 2009, the Company issued 2,500 shares of common stock for services rendered at approximately $1.60 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.

NOTE 7 -STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes in warrants outstanding and related prices for the shares of the Company’s common stock issued to shareholders at June 30, 2009:

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 7 -STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

				Warrants Outstanding Weighted Average						Warrants Exercisable
				Remaining		Weighted				Weighted
		Number		Contractual		Average		Number		Average
Exercise Price		Outstanding		Life (years)		Exercise price		Exercisable		Exercise Price

$	0.10		1,166,667		0.97	$	0.10		1,166,667	$	0.10
	0.50		25,000		2.15		0.50		25,000		0.50
	0.95		120,842		3.49		0.95		120,842		0.95
	0.96		203,385		3.00		0.96		203,385		0.96
	1.14		5,178,948		3.49		1.14		5,178,948		1.14
	1.15		162,709		3.00		1.15		162,709		1.15
	1.50		250,000		4.53		1.50		104,176		1.50
	2.00		300,000		1.92		2.00		295,840		2.00
	4.00		300,000		1.92		4.00		295,840		4.00
Total			7,707,551		3.00				7,553,407

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

	Number of Shares			Weighted Average Price Per Share

Outstanding at December 31, 2007		17,718,627		$	1.06
Issued		600,000			3.00
Exercised		(9,435,743	)		1.27
Canceled or expired		-			-
Outstanding at December 31, 2008		8,882,884			0.95
Issued		250,000			1.50
Exercised		(1,425,333	)		0.10
Canceled or expired		-			-
Outstanding at June 30 2009		7,707,551		$	1.13

For the six month period ended June 30, 2009, warrants totaling 250,000 were issued in connection with services rendered. The warrants vest over a twelve month period and are exercisable for five years from the date of issuance at an exercise price of $1.50 per share. The vesting portions of the warrants were valued using the Black Scholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 137.50% to 143.28% and risk free rate from 1.67% to 2.54%.

The Company recorded the vested portion of warrants as a charge to operations of $78,308 and $181,409 in the three and six month periods ended June 30, 2009.

During the six month period ended June 30, 2009, warrant holders exercised 1,425,333 warrants on a cashless basis in exchange for 1,335,000 shares of the Company’s common stock.

Non-Employee Stock Options

The following table summarizes in options outstanding and the related prices for the shares of the Company's common stock issued to non employees at June 30, 2009:

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 7 -STOCK OPTIONS AND WARRANTS (continued)

Non-Employee Stock Options (continued)

		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted
				Remaining		Average				Average
	Exercise	Number		Contractual Life		Exercise		Number		Exercise
	Prices	Outstanding		(Years)		Price		Exercisable		Price

$	0.01		144,146		5.24	$	0.01		120,010	$	0.01
	0.02		178,326		6.76		0.02		130,720		0.02
	0.22		76,172		8.61		0.22		17,630		0.22
	0.80		434,000		9.12		0.80		94,042		0.80
	2.00		400,000		9.45		2.00		-		2.00
	2.25		150,000		8.68		2.25		46,875		2.25
	Total		1,382,644		8.43				409,277

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

	Number of Shares			Weighted Average Price Per Share

Outstanding at December 31, 2007:		766,959		$	0.07
Granted		854,000			2.32
Exercised		(205,521	)		(0.03	)
Canceled or expired		(7,083	)		(0.01	)
Outstanding at December 31, 2008:		1,408,355			1.44
Granted		130,000			0.80
Exercised		(155,711	)		(0.05	)
Canceled or expired		-
Outstanding at June 30, 2009:		1,382,644		$	1.09

During the six month period ended June 30, 2009, the Company granted an aggregate of 130,000 non employee stock options in connection services rendered at the exercise price of $0.80.

The fair values of the vesting non employee options were determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:	-0-%
Volatility	127.77%
Risk free rate:	3.17% to 3.53%

During the six month period ended June 30, 2009, the Company re-priced certain non employee options initially with exercise prices from $1.58 to $4.72 to $0.80 per share with other terms remaining the same. The fair value of the vested portion of the re-priced options of $2,862 was charged to current period operations.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 7 -STOCK OPTIONS AND WARRANTS (continued)

Non-Employee Stock Options (continued)

The fair values of the vesting re-priced non employee options were determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:	-0-%
Volatility	118.36%
Risk free rate:	2.82%

The fair value of all non-employee options vesting during the six month periods ended June 30, 2009 and 2008 of $88,120 and $253,273, respectively was charged to current period operations.

Employee Stock Options

The following table summarizes the 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 June 30, 2009:

		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted
				Remaining		Average				Average
	Exercise	Number		Contractual Life		Exercise		Number		Exercise
	Prices	Outstanding		(Years)		Price		Exercisable		Price

$	0.001		100,000		4.54	$	0.001		100,000	$	0.001
	0.01		300,000		7.03		0.01		232,292		0.01
	0.02		880,000		7.69		0.02		880,000		0.02
	0.22		1,750,000		8.40		0.22		944,443		0.22
	0.80		4,250,000		9.07		0.80		450,833		0.80
	Total		7,280,000		8.60				2,607,568

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

	Number of Shares		Weighted Average Price Per Share

Outstanding at December 31, 2007:		3,030,000	$	0.14
Granted		4,075,000		3.06
Exercised		-		-
Canceled or expired		-		-
Outstanding at December 31, 2008:		7,105,000		1.81
Granted		175,000		0.80
Exercised		-		-
Canceled or expired		-		-
Outstanding at June 30, 2009:		7,280,000	$	0.53

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 7 -STOCK OPTIONS AND WARRANTS (continued)

Employee Stock Options (continued)

During the six month period ended June 30, 2009, the Company granted 175,000 stock options with an exercise price of $0.80 (after effect of re-pricing, see below) expiring ten years from issuance. The fair values were determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:		-0-	%
Volatility	114.10% to 136.21		%
Risk free rate:	2.49% to 3.17		%

During the six month period ended June 30, 2009, the Company re-priced certain employee options initially with exercise prices from $1.60 to $5.00 to $0.80 per share with other terms remaining the same. The fair value of the fully vested re-priced options of $3,815 was charged to current period operations.

The fair values of the fully vested re-priced employee options were determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:	-0-%
Volatility	118.36%
Risk free rate:	2.82%

The fair value of all employee options vesting in the six month periods ended June 30, 2009 and 2008 of $831,261 and $438,564, respectively, was charged to current period operations.

NOTE 8-RESTRICTED STOCK UNITS

On April 15, 2009, the Company established 2009 Equity Compensation Plan for key employees and consultants. A maximum of 8,000,000 shares were earmarked under the plan.

During the six month period ended June 30, 2009 the Company issued Restricted Stock Units (“RSU”) for key employees and non employees under the 2009 Equity Compensation Plan. Each RSU vests with a 24 month cliff with certain acceleration clauses due to a change of control (as defined by the 2009 Equity Compensation Plan)

Employees

A summary of RSU stock unit activity, related to employees, for the Company during the six months ended June 30, 2009, is as follows:

	Number of Shares		Weighted Average Price Per Share

Outstanding at December 31, 2007:		-	$	-
Granted		-		-
Exercised		-		-
Canceled or expired		-		-
Outstanding at December 31, 2008:		-		-
Granted		1,470,000		0.80
Exercised		-		-
Canceled or expired		-		-
Outstanding at June 30, 2009:		1,470,000	$	0.80

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 8-RESTRICTED STOCK UNITS (continued)

Employees (continued)

As of June 30, 2009, there was $1,078,000 of total unrecognized compensation cost related to non vested restricted stock units granted to employees under the 2009 Stock Plan, which is expected to be recognized ratably over a weighted-average period of 2 years.

The fair value of all employees RSU vesting during the six month period ended June 30, 2009 of $98,000 was charged to current period operations.

Non employees

A summary of RSU stock unit activity, related to non employees, for the Company during the six months ended June 30, 2009, is as follows:

	Number of Shares		Weighted Average Price Per Share

Outstanding at December 31, 2007:		-	$	-
Granted		-		-
Exercised		-		-
Canceled or expired		-		-
Outstanding at December 31, 2008:		-		-
Granted		105,000		0.80
Exercised		-		-
Canceled or expired		-		-
Outstanding at June 30, 2009:		105,000	$	0.80

As of June 30, 2009, there was $77,000 of total unrecognized compensation cost related to non vested restricted stock units granted under the 2009 Stock Plan granted to non employees based on the fair value of the Company’s common stock at reporting date. The fair value is expected to be recognized based on the fair value of the Company’s common stock over a weighted-average period of 2 years.

The fair value of all non employees RSU vesting during the six month period ended June 30, 2009 of $7,000 was charged to current period operations.

NOTE 9 — 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:

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 9 — FAIR VALUE (continued)

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 condensed financial statements consisted of the following items as of June 30, 2009:

Total

Quoted

Prices in

Active

Markets for

Identical

Instruments

Level 1

Significant

Other

Observable

Inputs

Level 2

Significant

Unobservable

Inputs

Level 3 (A)

Assets:

None

Total

Liabilities

None

Total

(A)	Fair value is estimated based on internally-developed models or methodologies utilizing significant inputs that are unobservable from objective sources.

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.

NEWCARDIO, INC

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

NOTE 10 – SUBSEQUENT EVENTS

On July 30, 2009, the Company entered into a $3 million credit line arrangement (the “Credit Line”), pursuant to a Securities Purchase Agreement (the “SPA”), with purchasers signatory to the SPA, pursuant to which the purchasers will purchase 12% Secured Revolving Debentures Due March 31, 2011 and, in connection therewith, will be issued (x) 750,000 five year common stock purchase warrants with an exercise price of $0.01 per share, and (y) upon each draw down under the Credit Line, for each $1.00 advanced under the Credit Line, additional five year common stock purchase warrants exercisable at a price equal to 100% of the average VWAPs for the prior five trading days (the “Draw Down Warrants”). The Draw Down Warrants will have full-ratchet price protection with respect to future Draw Down Warrants issued under the Credit Line and future issuances of equity securities by the Company (subject to certain specific exceptions). The warrants will have cashless exercise provisions and be subject to forced cashless exercise in the event that the Company’s common stock is trading at three times the VWAP for the 20 trading days prior to issuance of the warrants. All interest under the Debentures will accrue and be payable upon maturity. Forms of the warrants and the debenture are exhibits to the SPA.

In connection with the Credit Line, and as a condition to the purchasers’ obligation to advance funds thereunder, Platinum-Montaur Life Sciences (“Platinum”) entered into a Fourth Amendment to the Securities Purchase Agreement dated as of December 27, 2007 with the Company, pursuant to which the period during which the Company may complete a financing transaction or Platinum would be permitted to exercise its “put” is extended until June 30, 2010.

In July, the Company issued 30,000 shares of its common stock in connection with the exercise of warrants.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Management’s Discussion and Analysis 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 our Annual Report on Form 10-K for the year ended December 31, 2008 and Item 1A below 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. Until we are able to generate sufficient liquidity from operations, if we are not able to raise sufficient additional capital, it 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.

Overview

Significant highlights for the second quarter of 2009 were as follows:

Our activity and spending continued at levels similar to the first quarter of 2009. For the second quarter of 2009, our net cash used in operating activities was just over $1.4 million; spending was at a relatively constant rate. We continue to fund our operations from the proceeds of our December 27, 2007 financing, and the December 2008 exercise of $2.8 million in warrants related to this financing. See also our liquidity discussion concerning a going concern opinion and the access to a $3 million credit facility beginning in September 2009.

As we near the launch of the initial release of QTinno™, our automated cardiac safety solution, we have accelerated customer interactions, focusing on large Contract Research Organizations (CRO’s), ECG Core Labs, Clinical Pharmacology Units (Phase 1), and Pharmaceutical Companies (Pharma) in order to increase the awareness of the solution in the marketplace and facilitate the evaluation for use by the potential early adopters. The interactions are both indirect, with attendance and/or presentations at key industry trade shows and conferences, and direct, with the key decision makers at the potential early adopters. The feedback from these interactions, particularly on the underlying technology and the clinical validation results, has been very favorable and has led to several tactical and strategic research collaboration opportunities. The most significant advantage of this collaboration has been the ability to extend the clinical validation of QTinno™ with ECG datasets from previously conducted cardiac safety Total QT (TQT)/QT studies, continuously delivering results which match or exceed the original core lab in terms of accuracy and variability, while being done in a much more efficient manner. In addition, we have had the opportunity to present QTinno™ to the FDA and believe that both the technology and our clinical validation results were viewed favorably indicating that the FDA would accept data processed by QTinno™ in a prospective TQT study for review. Ultimately, the most important result from these collaborations/interactions will be our ability to turn them into revenue generating customers in getting them to adopt QTinno™ to replace the current cardiac safety manual and/or semi-automatic methodologies for their TQT/QT studies, and to that end we have been able to secure the following::

A Top 5 Pharma has selected QTinno™ as its exclusive provider of automated cardiac safety solution, with the plan to mandate their preferred ECG core labs to utilize QTinno™ as they move away from the current manual and/or semi-automated methodologies currently employed by the ECG core labs. This is expected to have a significant impact on the timing of the adoption of QTinno™ by major ECG core labs.

o	Dedicate Phase 1, an innovative, Phoenix, Arizona-based provider of clinical research services, has entered into a master services agreement in order to extend the current scope of services that they can provide in delivering TQT/QT studies to its sponsor customers.

·	The progress made to date in securing customer commitments is expected to keep us on track; our 2009 targets are 2 to 4 customers initiating 4 to 8 TQT/QT studies.

We have completed all of the key tasks in our commercialization plan for the initial release of QTinno™ (Release 1.0), thereby achieving organizational readiness to support our customers in the implementation and utilization of QTinno™ in their TQT/QT studies. As such, we have officially launched QTinno™ Release 1.0 for use by our customers in production environments for their TQT/QT studies in healthy volunteers in early phase drug development effective August 2009.

Clinical Development – QTinno™

QTinno™ has been clinically validated at this time with both internal and external studies as previously reported. Results showed that QTinno™’s automated determination and the “gold standard” manual measurement were virtually identical (less than 1 millisecond difference), and individual measurements showed a high degree of precision (standard deviation of well under 10 milliseconds between the two approaches).

·	During the quarter ended June 30, 2009, we completed the development and the software verification of QTinno™, in support of the commercialization plan.

We submitted the results of our first research proposal to the Cardiac Safety Research Consortium (CSRC) and submitted the second research proposal to CSRC seeking to perform automated analysis of ECGs from another (blinded) drug clinical study submitted to the U.S. Food and Drug Administration (FDA) and stored in the FDA’s “warehouse” of digital ECGs.

·	In addition, we obtained, analyzed, and submitted results to the one of five top Pharma sponsor a large (blinded) digital data set that included moxiflaxacin and placebo arms.

·	Also, we performed the analysis of approximately 30,000 ECGs from one of the largest CRO’s. This analysis has been submitted to the CRO; results are pending.

During the quarter ended June 30, 2009, we showcased QTinno™ and Visual3Dx™, the first two solutions which will be commercialized from the 3D platform technology, at the Heart Rhythm Society (HRS) Annual Conference. Two posters that summarized data obtained using Visual3Dx™ technology were presented at the HRS. QTinno™ results, technical details and new cardiac safety marker concepts were presented at both the Drug Information Association (DIA) Conference and at the International Society of Computerized Electrocardiology (ISCE) Conference.

Internal Research Project – Visual3Dx™

We continue to study internally Visual3Dx™’s performance in ECGs from patients undergoing evaluation for acute chest pain. The focus is in the emergency room. Our objective continues to be the collection of data to help us refine the product and prepare it for an external clinical trial to support a filing for clearance with the FDA, which we currently plan to complete next year. We believe that Visual3Dx™ is eligible for 510(k) premarket notification clearance procedure as a Class II device. This belief is supported by specific sections of 21 Code of Federal Regulations Part 870, identifying programmable diagnostic computers (21 CFR 870.1425), electrocardiographs (21 CFR 870.2340), vectorcardiographs (21 CFR 870.2400), and electrocardiographic monitoring devices (21 CFR 870.1425), as Class II devices.

·	Our focus for Visual3Dx™ is to create a software product that shows improvements in both sensitivity and specificity compared to the results of traditional ECGs that do not use our 3D platform.

During the second quarter of 2009, we submitted to the IEEE Engineering in Medicine and Biology Annual International Conference (EMBC) our first technical paper on the performance of Visual3Dx™. The IEEE-EMBC has accepted the paper for oral presentation. The paper includes our preliminary results from two studies that analyzed the sensitivity of Visual3Dx™ in detecting acute coronary syndrome.

Internal Research Project – CardioBip™

We have had 40 prototype CardioBip™ units operating in Belgrade, Serbia, collecting 3D ECG data and wirelessly transmitting them to a 24-hour on-call cardiology center for review. Approximately 2,300 successful ECG data transmissions from more than 60 patients have been completed to-date. We plan to summarize the goals and the results of this pilot project to determine next steps. This solution will target the chronic care market as a wireless data collection, transmission and interpretation platform expected to provide results and analyses otherwise only available from a traditional 12-lead ECG machine. The timeline and budget for this product development project has not been established at this time.

During the second quarter of 2009, as part of the Belgrade pilot project, we have achieved our first CardioBip™ wireless remote monitoring of atrial fibrillation in an 85-year-old patient with prescribed change in Antiarrhythmic medication. Given that the patient lived in a remote area of Belgrade, daily in-hospital follow-up was not feasible. The patient was able to easily learn how to transmit his ECG data to the hospital on-call center. Daily transmissions of atrial fibrillation rhythms were reliably achieved.

·	In addition to continuing our studies involved with atrial fibrillation remote monitoring, we expect to expand the Belgrade pilot project and study the feasibility of using CardioBip™ for wireless remote monitoring of patients in need of care for coronary conditions.

Commercialization Efforts: QTinno™:

We have completed our initial commercialization plan, which focused on organizational readiness to effectively support our customers in their implementation and use of QTinno™ Release 1.0, as noted above. The plan consisted of an integrated series of activities by all functional groups, some internally focused, some external, which ensure that we deliver robust, quality products and solutions to the market, from product management through development, validation, professional services, customer support, marketing and sales all supported by quality management systems which ensure regulatory compliance. This approach is intended to provide our customers with evidence that are investing in an organization that can fully support their requirements, thereby enabling them to maximize their expected return in the implementation of the solution. The accomplishments, as part of the commercialization plan are as follows:

Quality Management System (QMS) – implemented the core processes, procedures and systems necessary to ensure 21 CFR 11 compliance. At the same time our QMS has been structured to provide the foundation to support the FDA 510(k) and/or PMA submission and approval process for subsequent products/solutions including Visual3Dx™ and CardioBip™.

o	Software Quality Assurance – implemented automated test management, software solution, supported by the required processes, procedures and test plan architecture to efficiently manage the software verification and validation process.

Information Technology – completed the installation and validation of the corporate (hosted) data center, to include the installation and validation of the hardware, software and network infrastructure required to support the internal operations, which includes software development and validation, quality assurance, and office automation, as well as the external operations, specifically, the support of our customers in their use of the QTinno™ solution as Software as a Service (SaaS).

Product Management – established the structure to ensure the effective collaboration of the Medical/Scientific, Technical, Operational, Industry and Customer resources in the definition and execution of our strategic solution strategies. The current focus is defining the requirements for the next release of QTinno™, Release 1.1, tentatively scheduled for the first half of 2010.

o	Customer Service – defined the services methodology and infrastructure, which includes supporting tools and kits, for the effective implementation and support of the QTinno™ solution.

o	Marketing – defined the company and solution messaging for the NewCardio 3D platform technology which includes company and solution brochures as well as a trade show booth in order to drive industry awareness.

o	Business Development – developed the going to market strategies for the initial release of QTinno™, to include market segmentation, value proposition, pricing, and scope of services, in order to ensure that we achieve our customer and study targets for 2009 and 2010.

Comparison of Results of Operations for the Three Months Ended June30, 2009 to June 30, 2008

Selected results of operations for the three and six months ended June 30, 2009 and June 30, 2008 were as follows:

Financial Condition and Results of Operations

	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Operating expenses:
Selling, general and administrative	$	1,863,584		$	1,169,250		$	3,399,265		$	1,906,217
Depreciation		14,054			5,446			23,308			6,546
Research and development		749,549			321,531			1,542,421			606,637
Total operating expenses		2,627,187			1,496,227			4,964,994			2,519,400
Net loss from operations		(2,627,187	)		(1,496,227	)		(4,964,994	)		(2,519,400	)
Other income (expense)
Loss on change in fair value of warrant liability		-			(14,684,154	)		-			(26,876,459	)
Interest, net		8,042			49,044			22,933			102,338
Net loss before income taxes		(2,619,145	)		(16,131,337	)		(4,942,061	)		(29,293,521	)
Provision for income taxes		130			-			6,942			-
Net loss		(2,619,275	)		(16,131,337	)		(4,949,003	)		(29,293,521	)
Preferred stock dividend		-			(205,000			-			(419,112	)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(2,619,275	)	$	(16,336,337	)	$	(4,949,003	)	$	(29,712,633	)

Quarter ended June 30, 2009 and 2008

Selected results of operations for the three months ended June 30, 2009 and June 30, 2008 were as follows:

We continue to operate in 2009 as a development stage company and, as such, we have limited capital and limited capital resources and no revenues. We signed our first Master Service Agreement in July and are on track for revenues in the second half of 2009.

As of June 30, 2009, we have $1.4 million in cash, the balance remaining from the financing we completed in December 2007, including the December 2008 related warrant exercise. We supplemented these funds with a $3 million working capital credit facility in July 2009, that will be available to us beginning September 2009. Any monies borrowed hereunder would be due and payable March 31, 2011.

Our net cash used in operating activities has grown in 2009. In the second quarter of 2008 we spent $878,000 and this increased to $1,412,000 in the second quarter of 2009. The primary increase is in headcount and related costs as we have grown from 3 employees last year to 10 employees now. See also the review of our operating expenses which follows.

Selling, general and administrative expenses grew 59% to $1,864,000 for the quarter ended June 30, 2009, an increase of $695,000 from $1,169,000 in 2008. The increase is made up of both cash and stock-based compensation to key consultants and executives. Stock based compensation, primarily the cost of vesting stock options, totaled $721,000 in the quarter ended June 30, 2009, up $317,000 from $404,000 a year ago. $65,000 of the increase represents Restricted Stock Units. The cost of the re-pricing of options to market ($0.80 per share) was $5,000. The balance of the spending is primarily for human resources, both employees and consultants, and related travel expenses. In the quarter ended June 30, 2009 these administrative expenses, including corporate, finance/investor relations and business development approximated $636,000, slightly down from $689,000 in 2008. Other administrative expenses totaled $144,000 in the quarter ended June 30, 2009, compared to $76,000 in 2008. In addition, we invested approximately $409,000 in the start of our commercialization efforts. This commercialization effort had not started at this time in 2008.

Research and development expenses grew 133% to $750,000 for the quarter ended June 30, 2009, an increase of $428,000 from $322,000 in 2008. Stock based compensation totaled $343,000 in the quarter ended June 30, 2009, up $143,000 from $200,000 a year ago. $40,000 of the increase represents Restricted Stock Units. The cost of the re-pricing of options to market ($0.80 per share) was $2,000. Spending increased 236% to $407,000 in the quarter ended June 30, 2009, up $286,000 from $121,000 a year ago. We have hired a Chief Medical Officer, a Chief Technology Officer and a software director reporting to the CTO since last year. This accounts for almost all of the increase in spending. We are productizing the QTinno™ code in accordance with software guidelines. QTinno™ must be compliant with substantial portions of 21 CFR, particularly 21 CFR Part 11 regulating collection and submission of electronic data to the FDA. This work is essentially complete at the end of the second quarter of 2009, on schedule for its third quarter release. We also continue the development work on Visual3Dx™ as well early research on CardioBip™. Spending on these next products from our 3D platform is a function of our current financial resources. Efforts in these areas are continuing on a limited basis at this time.

Our equity compensation agreements with non-employees are 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." We compensate non-employee consultants for services using equity or cash or a combination of both. Further, stock options are an element of employee compensation. Total stock based compensation as discussed above is expected to have a material effect on our results of operations during the next 12 months, however, the impact of the replacement grants issued in April 2009 was minimal ($3,000 in the quarter ended June 30, 2009.) On the administrative side, we use stock and stock option grants for consultants primarily in support of our investor relation programs providing public market information. On the research side, we use consultants for both the technical development of our products and also for support of our clinical development process.

The loss on change in the fair value of our warrant liability in 2008 relates to the accounting for the warrants issued in the December 2007 financing. For the quarter ended June 30, 2008, we marked the value of these warrants to market on June 30, 2008 and, based on the June 30, 2008 market price of our common stock compared to March 31, 2008, the value and, thus, warrant liability increased substantially. On December 1, 2008, all of these warrants that had contained a provision requiring a cash settlement were exercised or terms modified to exclude such provision. As such, the fair value of the warrant liability at the time of the exercise or term modification was reclassified to equity and no balance remains at December 31, 2008 or thereafter.

The preferred dividend of $205,000 is the 10% dividend on the Series A Preferred Stock payable for the quarter ended June 30, 2008. On December 1, 2008, the Preferred A stock was restructured into a non-dividend Preferred B stock and there was no dividend in 2009.

Six months ended June 30, 2009 and 2008

Selected results of operations for the six months ended June 20, 2009 and June 30, 2008 were as follows:

Selling, general and administrative expenses grew 78% to $3,399,000 for the six months ended June 30, 2009, an increase of $1,493,000 from $1,906,000 in 2008. The increase is made up of both cash and stock-based compensation to key consultants and executives. In the first six months of 2009, approximately $1,381,000 was non-cash expense, compare to $607,000 in 2008. This corresponds to the overall growth in the spending in this area as we began our commercialization efforts in the latter half of 2008 and into this year. For the first six months of 2009, general and administrative expense spending, primarily for human resources-related costs (we are a software company) totaled $1,196,000 compared to $1,299,000 in 2008. The balance of the spending of $822,000 is commercializing costs. We are on track to commercialize QTinno™, our first product, in the second half of 2009.

Research and development expenses grew 154% to $1,542,000 for the six months ended June 30, 2009, an increase of $935,000 from $607,000 in 2008. We have now staffed up the research and development team, a process begun in the latter part of 2008 and are close to completing our first product, QTinno™ as discussed above. For the six months ended June 30, 2009, approximately $644, 000 was stock-based compensation, up from $249,000 in the same period a year ago. The balance of the expenses was primarily human resource-related, totaling approximately $898,000 in the first six months of 2009, an increase of $540,000 from $358,000 in the six months ended June 30, 2008.

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 on June 30, 2008 and at the current market price of our common stock, the value and thus warrant liability increased substantially. The warrant liability at June 30, 2008 is $31.7 million and expense for the six months ended June 30, 2008 related to this warrant liability is $26.9 million. On December 1, 2008, all of these warrants that had contained a provision requiring a cash settlement were exercised or terms modified to exclude such provision. As such, the fair value of the warrant liability at the time of the exercise or term modification was reclassified to equity and no balance remains at December 31, 2008 or thereafter.

The preferred dividend of $419,000 is the 10% dividend on the $8.2 million in Series A Preferred Stock payable for from inception (approximately the first of 2008) through June 30, 2008. On December 1, 2008, the Preferred A stock was restructured into a non-dividend Preferred B stock and there was no dividend in 2009.

Liquidity and Capital Resources

As a development stage company, we have limited capital and limited capital resources. We have incurred a net loss of $23.4 million from our inception in September 2004 through June 30, 2009 of which $8.9 million represents cash used in operating activities.

As of June 30, 2009, we had working capital of approximately $3,000. We believe that we will continue to incur net losses and negative cash flow from operating activities into 2011. 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 established a $3 million credit facility after quarter end and believe this $3 million credit facility will sufficiently fund our operations and business plan into the second half of 2010.

Until we are able to generate sufficient liquidity from operations, we intend to continue to fund operations from cash on-hand, through private debt or equity placements of our securities, and from revenues – which are expected in the second half of 2009. 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 beyond the credit facility.

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.

The credit facility represents our external source 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 additional 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 breakeven but we cannot guarantee that we will be able to obtain such investments. Further 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.

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.

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 2007 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. At December 31, 2008 there is no warrant liability.

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 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Items recorded or measured at fair value on a recurring basis in our accompanying financial statements consisted of the following items as of June 30, 2009:

Total

Quoted

prices in

active

markets for

identical

instruments

Level 1

Significant

other

observable

inputs

Level 2

Significant

unobservable

inputs

Level 3

Assets:

Short term investment

Total

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 adopted the provisions of SFAS No. 157 prospectively as of the beginning of Fiscal 2009. The adoption of SFAS No. 157, including SFAS No. 157-2, did not have a material impact on our financial position or results of operations.

There were no Level 1 short term investments at June 30, 2009 as the Certificate of Deposit matured at the end of this quarter.

Inflation

Our opinion is that inflation has not had a material effect on our operation.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures were effective as of March 31, 2009.

Disclosure controls and procedures and other procedures are designed to ensure that information required to be disclosed in our reports or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and financial officer as appropriate, to allow timely decisions regarding required disclosure.

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.

PART II.

OTHER INFORMATION

Item 1A.

Risk Factors .

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds .

In May 2009, the Company issued 30,000 shares in connection with the exercise of 33,333 warrants to purchase the Company’s common stock at $0.10 per share. The warrants were exercised on a cashless basis.

Item 6.

Exhibits.

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).
4.9	Second Amendment to Securities Purchase Agreement, made as of April 7, 2009, incorporated by reference to Exhibit No. 10.32 of Registrant's Form 8-K filed on April 8, 2009.
4.10	Third Amendment to Securities Purchase Agreement, made as of June 17, 2009, incorporated by reference to Exhibit No. 10.33 of Registrant's Form 8-K filed on June 22, 2009.
4.11	Fourth Amendment to Securities Purchase Agreement, made as of July 30, 2009, incorporated by reference to Exhibit No. 10.32 of Registrant's Form 8-K filed on July 30, 2009.
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.
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).
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.
10.32	2009 Equity Compensation Plan of the Company, incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8, filed with the SEC on June 16, 2009.
10.33	Form of Restricted Stock Unit Grant Notice and Attachment, incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-8, filed with the SEC on June 19, 2009.
10.34	Securities Purchase Agreement, dated July 30, 2009, incorporated by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K, filed by the Company with the SEC on July 30, 2009.

31.1	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

SIGNATURES

Pursuant to the requirements 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.

Date: August 14, 2009	By:	/s/Richard D. Brounstein
		Richard D. Brounstein
		Executive Vice President and Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

NewCardio (NWCI) Inactive 10-Q2009 Q2 Quarterly report

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