NewCardio (NWCI) 10-K 2008 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended December 31, 2008.

OR

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

Commission File Number: 333-149166

NEWCARDIO, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-1826789
(State or other jurisdiction of	(I.R.S. 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

Branislav Vajdic

Chief Executive Officer

NewCardio, Inc.

2350 Mission College Boulevard, Suite 1175

Santa Clara, California 95054

(408) 516-5000

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

Copies of all communications to:

Marc Ross, Esq.

Andrew Smith, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

Phone: (212) 930-9700

Fax: (212) 930-9725

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

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

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

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

 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

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

 At December 31, 2008, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant:  $24,025,587

At June 30, 2008 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant: $41,112,534

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

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TABLE OF CONTENTS

PART I			4
	Item 1.	Business	4
	Item1A.	Risk Factors	15
	Item1B.	Unresolved Staff Comments	21
	Item 2.	Properties	22
	Item 3.	Legal  Proceedings	22
	Item 4.	Submission of Matters to a Vote of Security Holders	22
PART II			23
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
	Item 6.	Selected Financial Data	24
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item7A.	Quantitative and Qualitative Disclosures about Market Risk	31
	Item 8.	Financial Statements and Supplementary Data	31
	Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	31
	Item9A.	Controls and Procedures	32
	Item9B.	Other Information	33
			33
PART III
	Item10.	Directors, Executive Officers and Corporate Governance	34
	Item11.	Executive Compensation	37
	Item12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
	Item13.	Certain Relationships and Related Transactions and Director Independence	43
PART IV
	Item14.	Principal Accountant Fees and Services	44
	Item15.	Exhibits, Financial Statement Schedules	45
SIGNATURES			48
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I

Item 1.  Business.

Business Development

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

 NewCardio was incorporated in the State of Delaware on September 2, 2003, under the name EP Floors, Inc. (“EP Floors”).  NewCardio Technologies was incorporated in the State of Delaware on September 7, 2004 under the name NewCardio, Inc.  On November 16, 2006, in connection with the sale of substantially all of the shares of common stock, EP Floors ceased operations and became a shell corporation.  On November 20, 2006, EP Floor’s corporate name was changed to Marine Park Holdings, Inc. (“Marine Park”).  From November 16, 2006 through December 27, 2007, Marine Park was a shell company.  On December 27, 2007, Marine Park consummated a reverse merger by entering into a share exchange agreement with the stockholders of NewCardio Technologies (the “Share Exchange”), pursuant to which the stockholders of NewCardio Technologies exchanged all of the issued and outstanding capital stock of NewCardio Technologies for 18,682,537 shares of common stock of Marine Park, representing 92% of Marine Park’s outstanding capital stock, after the return to treasury and retirement of 9,445,015 shares of common stock of Marine Park held by certain stockholders of Marine Park made concurrently with the share exchange.  As of December 27, 2007, Marine Park’s officers and directors resigned their positions and Marine Park changed its business to NewCardio Technologies’ business.  As a result, the historical discussion and financial statements for periods prior to December 28, 2007, included in this Annual Report on Form 10-K are those of NewCardio Technologies.  On January 17, 2008, Marine Park’s corporate name was changed to NewCardio, Inc. and NewCardio’s corporate name was changed to NewCardio Technologies, resulting in the current corporate structure in which NewCardio, Inc. is the parent corporation, and NewCardio Technologies, Inc. is its wholly-owned subsidiary.

General

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

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

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

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Cardiac Safety Market for Drug Development

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

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

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

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

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

As a consequence of these developments, drug sponsors are devoting an increasing amount of time and resources to cardiac safety issues. Currently, about 2000 new drugs (referred to herein as “New Chemical Entities” or “NCE”) are being studied as discussed forth at http://newmeds.phrma.org/. Each NCE that reaches market will typically need 15,000 - 50,000 ECGs, and if the product is intended for treatment of a cardiovascular disease, possibly as many as 100,000 ECGs or more for analysis of cardiac safety. Indeed, depending upon the NCE, a single TQTS may require 20,000 ECGs or more. What is needed is a reliable, accurate, precise and fully automated method of measuring drug effects on QT intervals and other ECG indicators of cardiac risk.

CVD Diagnostics Market

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

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

Stationary Cardiac Screening and Diagnostics:

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

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

Ambulatory Cardiac Monitoring:

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

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

Principal Products and Applications

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

QTinnoTM

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

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

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

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

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

VisualECGTM

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

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

VisualECG™ is in development and not available for sale in the US.

CardioBipTM

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

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

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

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Clinical Studies

QTinnoTM - Completed Internal Studies

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

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

QTinnoTM - Completed External Studies

QTinnoTM performance in drug-induced QT prolongation. This was a re-analysis with QTinnoTM of 1963 ECGs from patients treated with a QT prolonging drug. As was the case in our internal studies, results obtained with QTinnoTM closely matched that of careful manual reads by cardiologists, yet did so in a fully automated and highly precise manner.  No material negative results were found.  The results from this study have been accepted for presentation at the 58th Annual Scientific Sessions of the American College of Cardiology, March 28-31, 2009, and for publication in the Journal of Electrocardiology in 2009.  We also concluded our formal external validation with two additional studies totaling approximately 9,500 ECGs with results in line with the first external study. We expect to present additional study results at the International Society of Computerized Electrocardiology during their annual scientific conference in April 2009 and plan further peer reviewed publications.

VisualECGTM - Completed Internal Study

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

VisualECG TM - Completed External Study

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

The study showed that the standard ECG in these patients was diagnostic of acute ischemia for about 66% of patients, whereas the VisualECGTM was diagnostic in about 84% of patients.  No material negative results were found.

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VisualECGTM - Planned External Studies

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

Marketing and Sales

QTinnoTM

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

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

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

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

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

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

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

Research and Development

We plan to focus our short and medium term development efforts on solutions for Cardiac Safety and Efficacy, Urgent Care and Chronic Care markets. In the longer term we will pursue other key markets by researching ways to apply our 3-D ECG modeling and interpretation technology to key cardiovascular conditions and disease.

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

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

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

Competition

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

Intellectual Property

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

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

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

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

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

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

App Number/ Filing Date	Brief Summary (Products Covered)	Status
PCT/ YU2004/ 00020 08/20/04	Cordless recording and telecommunication of three special ECG leads and their processing (CardioBipTM)	International Application now being examined in the US, China, Japan, Korea and the European Union (EU) First EU Patent Office Action 12/07: All 33 claims allowable EU Certificate of Patent Grant issued 2/08 EU Patent expires 08/2024
PCT/ US2005/ 001239 1/16/ 05	Visual 3-D  presentation of ECG data (VisualECGTM, QTinnoTM)	International Application now being examined in the China, Japan, Korea and the European Union (EU)
US 11/ 036,930 16 Jan 04	Visual 3-D  presentation of ECG data (VisualECGTM, QTinnoTM)	US Patent Application covering same subject matter as PCT/US2005/001239 International Application US Patent No. 7,266,408 issued 4 Sept 2007 US Patent Expires 01/2025 Application for grant of additional claims (Divisional US Patent Application)  filed 31 August 2007
PCT/ US2008/ 009308 31 Jul 08	Quantitative assessment of cardiac electrical events (QTinnoTM)	Priority to US Provisional Application filed 1 Aug 07 No Patent Office Actions yet received
US 12/ 184,068 31 Jul 08	Device and methods for evaluating cardiac electrical events (QTinnoTM)	Priority to US Provisional Application filed 1 Aug 07 No Patent Office Actions yet received
US Patent Application	Systems and methods for accurate detection of fiducial points (QTinno TM )	In preparation

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

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

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Government Regulation

Our solutions include software, and potentially hardware, which will be used in clinical settings including drug development and patient diagnosis and, thus, are subject to regulation by the FDA and other regulatory agencies. FDA regulations govern, among other things, the following activities that we perform and will continue to perform in connection with medical devices:

● product design and development;

● product testing;

● product manufacturing;

● product labeling and packaging;

● product handling, storage, and installation;

● pre-market clearance or approval;

● advertising and promotion; and

● product sales, distribution, and servicing.

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

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

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

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

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

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

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

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

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

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

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

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

● fines, injunctions, and civil penalties;

● mandatory recall or seizure of our products;

● administrative detention or banning of our products;

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

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

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

● criminal penalties.

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

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

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

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

Employees

            As of December 31, 2008 we had 10 full-time employees and no part-time employees.  Additionally, we have approximately 16 consultants who perform various specialized services for us.  We have nine consultants in Belgrade, Serbia, who perform research and development for us.  We have approximately six consultants who perform clinical and regulatory support and compliance for us.  We have one consultant who advises us on sales and marketing and the commercialization of our products.  We also engage consultants for investor relations, accounting and legal services.

Available Information

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

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Item 1A.  Risk Factors.

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

Risk Factors Related to Our Business.

We are a development stage company and may never commercialize any of our products or earn a profit.

            We are a development stage company and have incurred losses since we were formed. We have incurred operating losses of $9,324,465 during the year ended December 31, 2008 and incurred cumulative losses since our inception on September 7, 2004 through, December 31, 2008 of $12,570,239. While we have initiated the commercialization of our first product, QTinno™, we have not generated any revenue from operations and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our technology. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue or attain profitability, we will not be able to sustain operations and will have to curtail significantly or cease operations.

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

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

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

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

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

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

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

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 We cannot be certain that funding will be available on acceptable terms, or at all. In these current economic times, equity is not as readily available for pre-revenue public companies as it may have been in the past. Valuations are also under pressure. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. The debt markets are most likely closed to us. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital if required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our products, obtain funds by entering into agreements on unattractive terms or restrict or cease our operations and go out of business.

The commercial success of our products will depend on the degree of market acceptance of these products among physicians, patients, health care payors and the medical community.

The use of our heart diagnostic products has never been commercialized. Even if approved for sale by the appropriate regulatory authorities, physicians may not order diagnostic tests based on our heart diagnostic technology, in which event we may be unable to generate significant revenue or become profitable. In addition, physicians and patients may not utilize the heart diagnostic products unless third-party payors, such as managed care organizations, Medicare and Medicaid, pay a substantial portion of the test’s price.

There is significant uncertainty concerning third-party reimbursement of any test incorporating new technology. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are:

· not experimental or investigational,

· medically necessary,

· appropriate for specific patient,

· cost-effective, and

· supported by peer-reviewed publications.

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

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

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

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

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

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

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

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

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

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

If we are unable to develop products to keep pace with rapid medical and scientific change, our operating results and competitive position would be harmed. 

       In recent years, there have been numerous advances in technologies relating to the diagnosis and treatment of cardiac problems. These advances require us continuously to develop new products and enhance existing products to keep pace with evolving standards of care. Our solutions could become obsolete unless we continually innovate and expand our product solutions to demonstrate recurrence and treatment benefit in patients treated with new therapies. If we are unable to demonstrate the applicability of our solutions to new treatments, then sales of our solutions could decline, which would reduce our revenues.

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

Our success is heavily dependent on the continued active participation of our current executive officers, including Branislav Vajdic. Loss of the services of Dr. Vajdic could have a material adverse effect upon our business, financial condition or results of operations. Dr. Vajdic currently does not any plans to retire or leave us in the near future. We maintain $2 million in key life insurance on Dr. Vajdic and nothing for any of our other executive officers or other personnel. The loss of any of our senior management could significantly impact our business until adequate replacements can be identified and put in place. In addition, as we grow we will need to hire additional key personnel. We may not be able to identify and attract high quality employees or successfully assimilate new employees into our existing management structure, which could delay the development, commercialization, marketing or sales of our products.  This delay may cause a delay in revenues and profitability that may require us to restrict or cease our operations and go out of business.

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

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

Risk Factors Related to Our Stock.

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

For the operating period since inception (September 7, 2004) through December 31, 2008, we have incurred a net cumulative loss of $18,522,037. We expect to continue to incur losses as we spend additional capital to develop and market our technologies and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever earn a significant amount of revenues or profit, or if we do, that we will be able to continue earning such revenues or profit. Also, any economic weakness or global recession, including the current environment, may limit our ability to develop and ultimately market our technologies. Any of these factors could cause our stock price to decline and result in a loss of a portion or all of your investment.

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

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

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

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

● the development of a future market for our products;

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● changes in market valuations of similar companies;

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

● additions or departures of key personnel; and

● fluctuations in stock market price and volume.

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

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

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

As of December 31, 2008 there was outstanding 16,435 shares of Series ‘B’ Convertible Preferred Stock that is convertible into 16,435,000 shares of common stock, Series ‘A’ common stock warrants to purchase an aggregate of 5,200,000 shares of common stock at a price of $1.14 per share, other common stock warrants to purchase an aggregate of 3,600,000 shares of common stock at an average price of $0.61 per share, and 8,500,000 options to purchase common stock with a weighted average exercise price of $1.75 per share.  These, as well as those we may issue in the future, may result in shares of common stock being issued for consideration that is less than the trading price of our common stock at the time the shares are issued.  We may also issue shares of common stock in the future at a discount to the trading price of our common stock.  Any such below market issuances, or the potential for such issuances, could cause our stock price to decline.  Moreover, if investors holding a significant number of these shares decided to sell them in a short period of time, such sales could contribute significant downward pressure on the trading price of our stock.

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

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

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

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

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Market prices for our common stock may be influenced by a number of factors, including:

● the issuance of new equity securities;

● changes in interest rates;

● competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

● variations in quarterly operating results;

● change in financial estimates by securities analysts;

● the depth and liquidity of the market for our common stock;

● investor perceptions of our company and the technologies industries generally; and

● general economic and other national conditions.

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

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

● investors may have difficulty buying and selling or obtaining market quotations;

● market visibility for our common stock may be limited; and

● lack of visibility for our common stock may have a depressive effect on the market for our common stock.

Our common stock is a "penny stock."

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

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

Broker-dealer requirements may affect trading and liquidity.

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

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

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

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

Failure to achieve and maintain internal controls in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

We are examining and evaluating our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, as required for our Annual Report on Form 10-K for the year ending December 31, 2008. If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time; we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud.  If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.

Lawsuits and legal proceedings.

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

Item 1B.  Unresolved Staff Comments.

Not applicable.

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Item 2.  Properties.

Our principal executive offices are located at 2350 Mission College Boulevard, Suite 1175, Santa Clara, California, 95054, and consist of 2,000 square feet of space.  We entered into a 38-month lease for this facility, which commenced in March 2008, with an average cost of approximately $5,800 per month. We also lease approximately 900 square feet of space in Princeton New Jersey in a ‘suites’ environment.  This is a 6-month renewable lease effective October 1, 2008 at a cost of $5000 per month. In addition, we work with a research team in Belgrade and reimburse them for space at an approximate cost of $500 per month. We believe that our properties are adequate for our current and immediately foreseeable operating needs. We do not have any policies regarding investments in real estate, securities or other forms of property.  

Item 3.  Legal Proceedings.

None.

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

Not applicable.

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PART II

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

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

	2008
	High		Low
1st Quarter (from January 4 - March 31)	$	2.42	$	1.20
2nd Quarter (from April 1 - June 30)	$	3.89	$	1.81
3rd Quarter (from July 1 - September 30)	$	5.08	$	1.81
4th Quarter (from October 1 - December 31)	$	2.59	$	0.70

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

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

Recent Transaction Involving Unregistered Securities

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

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

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

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

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

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Item 6.  Selected Financial Data.

Not applicable.

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

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the restatement of our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K.

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

Forward-looking statements are generally identifiable by the use of terms such as “anticipate,” “will,” “expect,” “believe,” “should” or similar expressions. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including the potential risks and uncertainties set forth in Item 1A of this Form 10-K and relate to our business plan, our business strategy, development of our proprietary technology platform and our products, timing of such development, timing and results of clinical trials, level and timing of FDA regulatory clearance or review, market acceptance of our products, protection of our intellectual property, implementation of our strategic, operating and people initiatives, benefits to be derived from personnel and directors, ability to commercialize our products, our assumptions regarding cash flow from operations and cash on-hand, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure, implementation of marketing programs, our key agreements and strategic alliances, our ability to obtain additional capital as, and when, needed, and on acceptable terms and general economic conditions specific to our industry, any of which could impact sales, costs and expenses and/or planned strategies and timing.  If we are not able to generate sufficient liquidity from operations or raise sufficient additional capital, this could have a material adverse affect on our business, results of operations, liquidity and financial condition. We assume no obligation to, and do not currently intend to, update these forward-looking statements.

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

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Financial Condition and Results of Operations

	Year ended December 31,
				2007
	2008			Restated			Change			% change
Operating expenses:
Selling, general and administrative	$	7,179,767		$	1,729,901		$	5,449,866			315	%
Depreciation		18,614			594			18,020			3034	%
Research and development		2,126,084			369,674			1,756,410			475	%
Total operating expenses		9,324,465			2,100,169			7,224,296			344	%
Net loss from operations		(9,324,465	)		(2,100,169	)		(7,224,296	)		344	%
Other income (expense)
Loss on change in fair value of warrant liability		(5,012,875	)		-			(5,012,875	)		0	%
Interest		155,701			(1,084,972	)		1,240,673			(114	%)
Net loss before income taxes		(14,181,639	)		(3,185,141	)		(10,996,498	)		345	%
Provision for income taxes		-			-			-			0	%
Net loss		(14,181,639	)		(3,185,141	)		(10,996,498	)		345	%
Preferred stock dividend		(754,328	)		(2,817,710	)		2,063,382			(73	%)
Net loss attributable to common shareholders	$	(14,935,967	)	$	(6,002,851	)	$	(8,933,116	)		149	%

Selected results of operations for the years ended December 31, 2008 and 2007 were as follows:

We continue to operate in 2008 and into 2009 as a development stage company and, as such, we have limited capital and limited capital resources and no revenues. 

As of December 31, 2008, we have $4.5 million in cash and short term investment, the balance remaining from the financing we completed in December 2007 and recent exercise of $2.8 million in warrants related to this financing, of which $0.8 million of these monies are subject to a put option expiring April 1, 2009.

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In 2007, we spent $1.1 million in operating activities. In 2008, we spent $4.7 million in operating activities, with approximately $1.7 million during the fourth quarter as we added our commercialization team. We expect to bring our first product, QTinno™, to market in the second half of 2009.

As a development stage company, we have limited capital and limited capital resources.  As we have not generated any revenues from operations from our inception, we have not been able to meet our needs for cash by generating cash.  Historically, as a private company, we relied on small, short-term convertible promissory notes and private placements of our securities to fund the development of our technology and products.  As a result of our December 27, 2007, private placement, which we completed shortly after our reverse merger with a public shell corporation, we raised $8.2 million plus an additional $2.8 million from the exercise of the J warrants on December 1, 2008, which we believe will sufficiently fund our operations and business plan into the second half of 2009. If we are not successful in generating sufficient liquidity from operations so as to become cash flow positive or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse affect on our business, results of operations, liquidity and financial condition.

Selling, general and administrative expenses grew 315% to $7,179,767 at December 31, 2008, an increase of $5,449,866 from $1,729,901 in 2007.  The primary components of the increase include:

1. We began building a commercialization team in mid-2008 and invested $0.6 million in 2008 in that effort.

2. The general and administrative payroll grew to $1.1 million from $0.6 million as we built out the Company’s infrastructure including the hiring of a Chief Financial Officer in January.

3. Professional fees, including accounting, legal and investor relations grew to $1.5 million in 2008 from$0.3 million in 2007 as we became a publicly traded company in 2008.

4. Stock-based compensation was based on the market value of our stock as a public company and increased to $2.2 million in 2008 from $0.6 million in 2007.

5. We incurred $1.5 million in financing costs related to the restructuring of the Preferred ‘A’ stock in December 2008. Approximately $1.4 million of this is non-cash.

Research and development expenses grew 475% to $2,126,084 at December 31, 2008, an increase of  $1,756,410 from $369,674 in 2007.  The primary components of the increase include:

1. We hired a Chief Technical Officer and Chief Medical Officer during the year.  Total payroll was $0.3million in 2008 and $0.0 in 2007.

2. Consulting efforts increased as we continued the validation of our first product, QTinno™ which is now entering the commercialization phase for the cardiac safety market.  We also continued to focus on the development of our second product, VisualECG™ which is targeted for the emergency room. Overall consulting expense in 2008 was $0.8 million up from approximately $0.3 million in 2007.

3. Stock based compensation increased to $0.9 million in 2008 from $0.1 million in 2007 due to the increase in focus on R&D and the public value for the shares in 2008.

We plan to increase development efforts for both QTinno™ and VisualECG™ in 2009, with the expectation of first revenues for QTinno™ in the second half of 2009.  We are currently (in 2009) completing the standard software development quality control systems, defined under 21CFR11 guidelines, for QTinno™.  We expect to initiate a clinical trial for VisualECG™ in the second half of 2009.

 We have historically relied principally on the services of consultants and part-time employees.  We currently have ten full-time employees and approximately 16 consultants providing technical and clinical support.  We anticipate that it may become desirable to add additional full- and or part-time employees to discharge certain critical functions during the next 12 months.  In order for us to attract and retain quality personnel, we anticipate we will have to hire employees and offer them competitive salaries.  This projected increase in personnel could impact the speed at which we spend our current cash reserves and our ability and timing in bringing products through the research and development and commercialization stages.  As we continue to expand, we will incur additional costs for personnel.

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

Interest income, net of $155,701 at December 31, 2008 is primarily a result of the investment interest income on the net proceeds of the $8.2 million private placement financing that closed December 2007.  The interest expense, net of $1,084,972 at December 31, 2007 is primarily related to costs associated with the 5% subordinated convertible notes that were either converted to common stock or re-paid at the time of the December 2007 private placement financing.

Loss on change in fair value of warrant liability is due to the warrants issued in the December 2007 financing. We marked the value of the warrants to market during 2008 and, at the current market price of our common stock, the value and, thus, warrant expense increased substantially from 2007. The warrant liability at December 31, 2008 is $0 as we eliminated the warrant liability in conjunction with the restructuring of the Preferred A stock and related warrants in December 2008. The $5,012,875 loss on change in fair value of the warrant liability is the non-cash adjustment recognized during 2008 up to the December 1, 2008 restructuring.

The preferred stock dividend in 2008 is the 10% dividend on the Preferred A shares that was earned prior to the restructuring and was paid in NewCardio common stock. In 2007 the Preferred stock dividend is a beneficial conversion feature of $2,817,710 that we attributed to the Preferred Stock based upon the difference between the effective conversion price of those shares and the fair value of our common shares on the date of issuance.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. A summary of the critical accounting policies and the judgments that we make in the application of those policies is presented in Note 1 to our consolidated financial statements.

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

Accounting for Stock-Based Compensation

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

 Accounting for and Classifying Series A Stock

At December 31, 2007 until December 1, 2008 we may have been required to redeem the Series A shares for cash in an amount equal to the stated value of the Series A shares, plus accrued and unpaid dividends, upon the occurrence of certain events. As the Series A shares redemption requirement may be triggered by events that were outside of our control, in accordance with Emerging Issues Task Force Topic D-98, Classification and Measurement of Redeemable Securities, we recorded the fair value of the Series A shares outside of common shareholders’ equity in the consolidated balance sheet. On December 1, 2008 as a result of the restructure, the Series A Stock was entirely converted without triggering this event and the liability was eliminated.

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Accounting for and Classifying Warrants

At December 31, 2007 until December 1, 2008, the warrants we issued to the investors in the December 2007 private placement contained a “fundamental transaction” clause that if, while the warrants are outstanding, we effect a merger or consolidation, or similar transactions as defined in the warrants, and the warrant holders could demand net cash settlement. As the warrants contain a provision that could require cash settlement, pursuant to  EITF 00-19,  “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,”  the warrants were recorded as a derivative liability and valued at fair market value until we meet the criteria under EITF 00-19 for permanent equity. The net value of the warrants at the date of issuance was recorded as a warrant liability on the balance sheet in the amount of $4,802,973 and reduced the value of the shares of Series A Stock subject to redemption. Subsequent to the initial issuance date, we are required to adjust, and have been adjusting, the warrants to fair value through current period operations. We made a final adjustment to fair value at December 1, 2008 when the warrants were exercised, settled or amended. The Series J and Series J-Warrants were exercised and converted on December 1, 2008 and the Series A Warrants were amended so that all warrants meet the EIFT 00-19 criteria for permanent equity and the liability has been eliminated.

In preparing our comparative financial statements, management made a number of assumptions in connection with the accounting and reporting the issuance of the warrants as non-current liabilities at December 31, 2007:

● The Series J-A warrants are only exercisable in the event the Series J warrants are exercised.

● If the Series J warrants are exercised, the term of the Series J-A will automatically extend until December 27, 2012, which would give them a five- year term from date of issuance.

● The holders of the warrants may exercise their options to purchase our common stock at any time during the term of the warrants.  Absent specific events, described as a “Fundamental Transactions,” we are obligated to settle the warrants with unregistered shares of common stock.

● The warrant holders can demand net cash settlement if we enter into a transaction that is either:

● an all cash sale,

● a “going private transaction,” or

● a transaction involving a person or entity not traded on a national securities exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market.

●  Absent the occurrence of any of the three events described above, should the holders of the warrants exercise their warrants, we would meet the obligation by issuing shares of our unregistered common stock, not the transfer of current assets.

● Based upon the facts and circumstances available to management, management made the following estimates and assumptions in accounting and reporting of the liabilities associates with the Series J and Series J-A warrant liabilities:

●  During the foreseeable future, we have no plan to enter into a transaction that would require us to settle the Series J and Series J-A warrants with cash.

●  The holders of the Series J warrants will exercise their warrants and we will receive shares of unregistered common stock. This assumption is based upon the economic value of the warrants.

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●  As a result of the Series J warrants being exercised, the Series J-A warrants will not expire until December 27, 2012.

●  Further, if the Series J warrants are not exercised by December 27, 2008, the warrant liability for both the Series J and Series J-A warrants terminates.

●  As of the date of the second quarter 2008 financial statements, we believe an event that would create an obligation to settle the warrants in cash or other current assets is remote and have classified the obligation as a long term liability.

No event occurred prior to the conversion and settlement of the Series J and Series J-A Warrants that required the net cash settlement of the warrants; we did not reclassify the obligation to current liabilities, and on December 1, 2008 we made a final adjustment to fair value for the liability and then reclassified the settled warrants to equity.

Financial Instruments Measured at Fair Value

SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we considered the principal or most advantageous market in which we would transact and considered assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

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

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

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Items recorded or measured at fair value on a recurring basis in our accompanying financial statements consisted of the following items as of December 31, 2008:

	Total		Quoted prices in active markets for identical instruments Level 1		Significant other observable inputs Level 2		Significant unobservable inputs Level 3
Assets:
Short term investment	$	2,143,457	$	2,143,457	$	-	$	-
Total	$	2,143,457	$	2,143,457	$	-	$	-

With the exception of assets and liabilities included within the scope of FSP FAS No. 157-2, we adopted the provisions of SFAS No. 157 prospectively effective as of the beginning of Fiscal 2008.  For financial assets and liabilities included within the scope of FSP FAS No. 157-2, we will be required to adopt the provisions of SFAS No. 157 prospectively as of the beginning of Fiscal 2009.  The adoption of SFAS No. 157 did not have a material impact on our financial position or results of operations, and we do not believe that the adoption of FSP FAS No. 157-2 will have a material impact on our financial position or results of operations.

The fair value of the assets, short term investments, at December 31, 2008 was grouped as Level 1 valuation as the market price was readily available, and there has been no change to the fair value of the securities at December 31, 2008.

Liquidity and Capital Resources

As a development stage company, we have limited capital and limited capital resources.  We have incurred a net loss of $18.5 million from our inception in September 2004 through December 31, 2008 of which $5.9 million represents cash used in operating activities.

As of December 31, 2008, we had working capital of approximately $3.0 million. We believe that we will continue to incur net losses and negative cash flow from operating activities into 2009. We have met our cash requirements to date through the private placement of common stock, the exercise of stock options, the private placement of preferred stock and the issuance of convertible notes.  We have raised a net amount of approximately $10 million since inception, most of which was raised in our December 2007 private placement and related 2008 warrant exercises.  We believe the working capital will sufficiently fund our operations and business plan into the second half of 2009. We believe that we will continue to incur net losses and negative cash flows from operating activities beyond 2009.

Until we are able to generate sufficient liquidity from operations, we intend to continue to fund operations from cash on-hand and through private placements of our securities. Our continued operations will depend on whether we are able to generate sufficient liquidity from operations and/or raise additional capital through such sources as equity and debt financings, collaborative and licensing agreements and strategic alliances. There can be no assurance that additional capital will become available or, if it does, that it will become available on acceptable terms, or that any additional capital we may obtain will be sufficient to meet our long-term needs. We currently have no commitments for any additional capital.

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

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required within the next 12 months in order to meet our current and projected cash flow deficits from operations and development. We have sufficient funds to conduct our operations for several months, but not for 12 months or more. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

 We will still need additional investments in order to continue operations to cash flow break even but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Our registered independent certified public accountants have stated in their report dated March 27, 2009, that we have incurred operating losses in the last two years, and that we are dependent upon management's ability to develop profitable operations. These factors among others may raise substantial doubt about our ability to continue as a going concern.

We had an outstanding promissory note to a former member of our Board of Directors in the principal amount of $10,316 that was paid in January 2009.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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

Not Applicable.

Item 8.  Financial Statements and Supplementary Data.

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

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

 Previous independent registered public accounting firm

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

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

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

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

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

New independent registered public accounting firm

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

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

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

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

Item 9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2008. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31 2008, our disclosure controls and procedures were effective.

 Management’s Annual Report on Internal Control over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).  Management conducted an assessment as of December 31, 2008 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008, based on criteria in Internal Control – Integrated Framework issued by the COSO.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.

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This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

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

Item 9B.  Other Information.

Not applicable

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PART III

Item 10.  Directors, Executive Offices and Corporate Governance.

Directors and Executive Officers

The following table and text sets forth the names and ages of all our directors and executive officers and our key management personnel as of March 16, 2009.  All of our directors serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and are elected or appointed to serve until the next Board of Directors meeting following the annual meeting of stockholders.  Also provided is a brief description of the business experience of each director and executive officer and the key management personnel during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws.

Name of Individual	Age	Position with company and subsidiaries	Director or  officer since
Branislav Vajdic, Ph.D.*	55	Chief Executive Officer and Director	2004
Vincent W. Renz, Jr.	52	President and Chief Operating Officer	2008
Mark W. Kroll, Ph.D., FACC, FHRS	56	Chairman of the Board of Directors	2008
Robert N. Blair, M. Inst. P.*	66	Director	2006
James A. Heisch	65	Director	2008
Jess Jones, M.D.	30	Director	2008
Patrick Maguire, M.D., Ph.D.	56	Director	2008
Richard D. Brounstein	59	Executive Vice President, Chief  Financial Officer and Secretary	2008

* Has been an officer or director of NewCardio Technologies, prior to the December 2007 reverse merger with Marine Park Holdings, Inc.

Branislav Vajdic, Ph.D. - Chief Executive Officer and Director.  Dr. Vajdic is the founding stockholder of NewCardio Technologies.  He served as President and Chief Executive Officer of NewCardio Technologies from October 2006, until August 18, 2008, when he relinquished the title of President.  Prior to October 2006, Dr. Vajdic was employed for 22 years at Intel. At Intel he held various senior product development management positions. At Intel, he directed Pentium microprocessor and flash memory development teams, and was the inventor on several key flash memory design patents held by Intel. He holds a Ph.D. in electrical engineering from the University of Minnesota.

Vincent W. Renz, Jr. – President and Chief Operating Officer since August 18, 2008. From October 2007 through mid-August 2008, Mr. Renz was the Chief Operating Officer at ClinPhone, a United Kingdom-based clinical trial technology company recently acquired by Parexel.  From May 1997 through February 2007 Mr. Renz was the Executive Vice President and Chief Technology Officer at eResearch Technology, Inc., provider of technology-based products and services to the pharmaceutical, biotechnology and medical device industries.  Mr. Renz holds a M.B.A. in Management Information Systems from Indiana University and a B.B.A. in Information Systems from University of Notre Dame.

Mark W. Kroll, Ph.D., FACC, FHRS - Chairman of the Board of Directors.  Dr. Kroll became a member of our Board and Chairman of the Board of Directors on March 18, 2008.  Dr. Kroll is the named inventor on over 280 U.S. patents as well as numerous international patents and is the most prolific inventor of medical devices worldwide.  He is co-author of 4 books: Implantable Cardioverter Defibrillator Therapy, Cardiac Bioelectric Therapy, Conducted Electrical Weapons, and Electrical Injuries as well as numerous papers..  Dr. Kroll most recently served as the Senior Vice President and Chief Technology Officer for the Cardiac Rhythm Management division of St. Jude Medical Inc.  Prior to that, he served as Vice President of the Tachycardia Business division and in various senior executive roles within St. Jude from 1995 through his retirement in 2005. Dr. Kroll, has been named a Fellow of both the American College of Cardiology and the Heart Rhythm Society, and holds the positions of Distinguished Faculty at the UCLA Anderson School of Business Creativity and Innovation annual program, Adjunct Full Professor of Biomedical Engineering at California Polytechnic University-San Luis Obispo, California, and Adjunct Full Professor of Biomedical Engineering at the University of Minnesota. Dr. Kroll is also a director of Haemonetics Corporation and Taser International, Inc.

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Robert N. Blair, Member of the Institute of Physics (M.Inst.P.) - Director.  Mr. Blair served as a member of the Board of Directors of NewCardio Technologies from its inception in September 2004 through August 2005 and again since July 2006.  He was appointed Chairman of the Board of Directors in July 2006.  Mr. Blair was Chairman of the Board of Directors until his successor Dr. Kroll, Ph.D. was appointed on March 18, 2008.  Mr. Blair has over 35 years of high technology business experience. Most recently, in 2007 he served as the Chairman and Chief Executive Officer of Mobi33, Inc., a private internet based advertising company that he co-founded in 2007. From 1999 through 2006 he was the Chairman and Chief Executive Officer of VivoMedical Inc., a private medical device company, which he also co-founded. He served as the Chief Executive Officer and director of Crosspoint Solutions Inc. from 1995 through 1996. Mr. Blair served as the Chief Executive Officer and director of LSI Logic Europe PLC from 1984 until 1989. Mr. Blair has degrees in Applied Physics from the Anglia Ruskin University in the United Kingdom and from The London Institute of Physics in the United Kingdom.

James A. Heisch – Director.  Mr. Heisch became a member of our Board of Directors on May 14, 2008.  Mr. Heisch has more than 40 years of senior level business experience including 17 years with Arthur Young & Company where he was an audit partner, and later as the Chief Financial Officer for technology companies including Atari, Businessland and Supermac Technology. Additionally, Mr. Heisch served five years with medical device company VidaMed, Inc., initially as CFO managing all financial and administrative functions in the United States and United Kingdom, and then as President and CEO responsible for worldwide operations. He later joined Worldtalk Corporation as CFO and later was promoted to President. Worldtalk was subsequently acquired by Tumbleweed Communications Corp. in 2000 and Mr. Heisch served as interim Chief Financial Officer during 2001.   During the past five years, Mr. Heisch has been a private investor and served on the Board of Directors of Tumbleweed Communications, Inc. from 2006 until it was acquired in 2008.

Jess Jones, M.D. – Director since December 1, 2008.  From 2006 to present Dr. Jones has worked with Vision Capital Advisors, LLC as the Director of Healthcare Investing, analyzing investment opportunities in the biotech, pharmaceutical, medical technology, and medical services fields, and assisted companies in the implementation of their business plans. From 2001 to 2007, Dr. Jones attended Columbia College of Physicians & Surgeons, where he received his medical degree in May 2007.  In 2005, while attending Columbia Medical School, Dr. Jones was awarded an American Heart Association –Medical Student Research Fellowship to study post-stroke inflammatory mediators in the Department of Neurosurgery. Additionally, Dr. Jones earned a BA degree from the University of Utah in 2001 and an MBA from Columbia Business School in May 2007.

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

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Richard D. Brounstein – Executive Vice President, Chief Financial Officer and Secretary.  Mr. Brounstein became our principal financial officer and Secretary on a part-time basis on January 23, 2008.  He took on his current role on a full-time basis on March 1, 2008.  From June 2001 through November 2007, Mr. Brounstein held several positions at Calypte Biomedical Corporation, a publicly traded medical device company, including Chief Financial Officer and most recently, Executive Vice President.   In January 2007, Mr. Brounstein was appointed as the National Member Representative for Financial Executives International (FEI) on the 2007 COSO Monitoring Project, which published new guidelines for monitoring internal financial controls in February 2009.In March 2005, Mr. Brounstein was appointed to the SEC Advisory Committee on Smaller Public Companies.  Mr. Brounstein earned his Certified Public Accountant (CPA) certification while working at Arthur Andersen, formerly a public accounting firm.  Mr. Brounstein holds a B.A. in Accounting and an M.B.A. in Finance, both from Michigan State University.

The Board of Directors and Its Committees

Our Board of Directors directs the management of our business and affairs as provided by Delaware law and conducts its business through meetings of the full board of directors.  At December 31, 2008, our Board of Directors consisted of six directors, one was an independent Chairman of the Board of Directors and three of the remaining five are independent directors.  By virtue of his position as the CEO, Dr. Vajdic is not considered to be an independent director.  The other Board member represents our largest Preferred Series B investor. We created three standing committees of our Board of Directors in the first half of 2008, an audit committee, a compensation committee and a nominating committee.

Actions performed by our standing committees of the Board include the recent appointee to the Board, executive compensation, the hiring of our independent public accountants and the oversight of the independent auditor relationship, the review of our significant accounting policies and our internal controls.

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

Compensation of the Board

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

Limitation on Liability and Indemnification of Directors and Officers

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

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

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Code of Ethics

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

Item 11.  Executive Compensation.

Summary Compensation Table

The following table sets forth all compensation we awarded or paid to all individuals serving as our chief executive officer and those individuals who received compensation in excess of $100,000 per year for the fiscal year ended December 31, 2008 (collectively, the “Named Executives”) for the fiscal years ended December 31, 2007 and 2006.

SUMMARY COMPENSATION TABLE (1)

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards		Option awards ($)		Total ($)
(a)	(b)	(c)		(d)		(e)(2)		(f)(2)		(j)
Branislav Vajdic, Chief	2008	$	290,000	$	88,000	$	—	$	233,277	$	611,277
Executive Officer, Director (3)	2007	$	217,500	$	97,150	$	—	$	125,532	$	440,182
Vincent Renz, President and	2008	$	101,250	$	32,000	$	—	$	303,084	$	436,334
Chief Operating Officer (4)	2007	$	—	$	—	$	—	$	—	$	—
Richard Brounstein,	2008	$	212,903	$	37,500	$	—	$	235,149	$	485,552
Executive Vice President, Chief Financial Officer (5)	2007	$	—	$	—	$	—	$	—	$	—
Ihor Gussak,	2008	$	109,687	$	85,000	$	—	$	292,438	$	487,125
Chief Medical Officer (6)	2007	$	—	$	—	$	—	$	—	$	—
Dorin Panescu,	2008	$	70,143	$	16,600	$	18,500	$	51,998	$	157,241
Chief Technical Officer (7)	2007	$	—	$	—	$	—	$	—	$	—

____________

(1)

There were no employees in 2006.

(2)

This is the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R.  Dr. Vajdic was granted options to purchase 880,000 shares of common stock at $0.02 per share pursuant to a consulting agreement we had with him dated March 1, 2007 and 1,000,000 at $0.22 per share pursuant to his employment agreement dated November 1, 2007.  Mr. Renz was granted options to purchase 800,000 shares of common stock at $5.00 per share pursuant to his employment agreement dated August 18, 2008. Mr. Brounstein was granted options to purchase 630,000 shares of common stock at $2.05 per share pursuant to his employment agreement dated March 1, 2008.  Dr. Gussak was granted options to purchase 700,000 shares of common stock at $4.30 per share pursuant to his employment agreement dated July 20, 2008.  Dr. Panescu was granted options to purchase 700,000 shares of common stock at $1.85 per share and a one-time stock award for 10,000 shares pursuant to his employment agreement dated October 20, 2008.

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(3)	Branislav Vajdic’s 2008 salary is based on his November 1, 2007 employment contract, and his 2008 performance-based bonus was determined by the Compensation Committee of the Board based on reaching certain milestones during the year.  The formula range was 0% to 50%. 2007 salary includes the monthly salary of $12,000 he received from July 1, 2007 through December 27, 2007, plus compensation he earned under his employment agreement with us dated November 1, 2007.  Under his employment agreement, Dr. Vajdic earned a mandatory bonus, which we have treated as salary (because he earned it in lieu of the annual salary of $290,000 he was entitled to under his employment agreement upon the closing of our December 27, 2007 PIPE financing).   Dr. Vajdic received a lump sum payment equal to $217,500, his annual salary prorated from April 1, 2007, minus the monthly salary he received from July 1, 2007.  Dr. Vajdic also received a performance-based bonus under his employment agreement based on reaching certain milestones enumerated in his employment agreement.  The Board of Directors determined his bonus as a percentage of his base salary based on the formula set forth in his employment agreement.  His bonus equaled 33.5% of his base salary.  The bonus formula range was 0% to 37.5%.
(4)	Vincent Renz’s 2008 salary is based on his August 18, 2008 employment agreement of $270,000 annually, and his 2008 performance-based bonus was determined by the Compensation Committee of the Board based on reaching certain milestones during the year.  The formula range was 0% to 45%. Both are pro-rated for actual time worked during 2008.
(5)	Richard Brounstein’s 2008 salary is based on his part-time employment agreement in effect for January and February of 2008 and his March 1, 2008 employment agreement’s annual salary of $240,000. He received a $7,500 signing bonus upon joining full time.  In addition, his 2008 performance-based bonus was determined by the Compensation Committee of the Board based on reaching certain milestones during the year, pro-rated for the period he was employed on a full-time basis.  The formula range was 0% to 25%.
(6)	Ihor Gussak’s 2008 salary is based on his July 20, 2008 employment agreement of $260,000. At that time he received a $65,000 signing bonus; his 2008 performance-based bonus was determined by the Compensation Committee of the Board based on reaching certain milestones during the year.  The formula range was 0% to 30%. The salary and performance-based bonus are pro-rated for actual time worked during 2008.
(7)	Dorin Pansecu’s 2008 salary is based on his October 20, 2008 employment agreement of $260,000, and his 2008 performance-based bonus was determined by the Compensation Committee of the Board based on reaching certain milestones during the year.  The formula range was 0% to 35%. Both are pro-rated for actual time worked during 2008.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth information concerning equity awards granted to the Named Executive Officers that are outstanding at December 31, 2008.

Name	Number of securities underlying unexercised options (#) exercisable			Number of securities underlying unexercised options (#) unexercisable		Option Exercise Price		Option Expiration Date
(a)	(b)			(c)(1)		(e)		(f) (2)
Branislav Vajdic, Chief Executive		100,000	(A)		-	$	0.001	09/24/14
Officer and Director		880,000	(B)		-	$	0.02	03/09/17
		361,110	(C)		638,890	$	0.22	10/31/17
Vincent Renz President and Chief Operating Officer		-	(D)		800,000	$	5.00	8/17/18
Richard Brounstein, Executive Vice President, Chief Financial Officer		30,000	(B)		-	$	2.05	3/17/18
		112,500	(A)		487,500	$	2.05	3/17/18
Ihor Gussak, Chief Medical Officer		-	(D)		700,000	$	4.30	7/29/18
Dorin Panescu, Chief Technical Officer		-	(D)		700,000	$	1.85	10/19/18

______

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

A. Options vest in equal monthly increments over 48 months or 1/48 per month.

B. Options are fully vested.

C. Options vest in equal monthly increments over 36 months or 1/36 per month.

D. Options vest over 48 months with a one year cliff.

(2)  Dates reflect expiration 10-years after grant dates.

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COMPENSATION OF DIRECTORS (1)

Name	Cash compensation (2)		Option awards (3) ($)		Total ($)
(a)			(d)		(j)
Mark W. Kroll, Ph.D. FACC, FHRS, Chairman	$	3,000	$	135,737	$	138,737
Branislav Vajdic, Ph.D., CEO		—		—		—
Robert N. Blair, M.Inst.P
.                                              2008	$	4,500	$	70,653	$	75,153
2007		—	$	6,221	$	6,221
James A. Heisch	$	4,500	$	109,312	$	113,812
Jess Jones		—		—		—
Patrick Maguire, M.D., Ph. D.	$	4,500	$	98,363	$	102,863

____________

(1)	The only director receiving compensation in 2007 was Robert N. Blair.
(2)	As of the December 31, 2008, effective with the May 2008 Board of Director’s meeting, we paid each independent director $1,500 for attending the quarterly Board of Directors’ meetings in-person. Directors were also reimbursed for their out-of-pocket travel expenses associated with their attendance at these Board of Directors’ meetings.
(3)	This is the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R.  Dr. Kroll was granted options to purchase 400,000 shares of common stock at $2.05 per share on March 18, 2008. Mr. Blair was granted options to purchase 250,000 shares of common stock at $0.01 per share in 2006, and options to purchase15,000 shares at $4.72 on August 11, 2008. Mr. Heisch was granted options to purchase 100,000 shares of common stock at $3.05 per share on April 1, 2008 and options to purchase15,000 shares at $4.72 on August 11, 2008. Dr. Maguire was granted options to purchase 100,000 shares of common stock at $2.05 per share on March 18, 2008 and options to purchase15, 000 shares at $4.72 on August 11, 2008.

Potential Payments Upon Termination

Branislav Vajdic

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

Vincent Renz

Under the terms of his employment agreement, if Vincent Renz is “terminated other than for cause” (as that term is defined in his employment agreement), he is entitled to six-months of his then-base salary, and Cobra benefits as applicable

Richard Brounstein

As of March 1, 2009, under the terms of his employment agreement, if Richard Brounstein is “terminated other than for cause” (as that term is defined in his employment agreement), he is entitled to one year of his then-base salary, and Cobra benefits as applicable

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Ihor Gussak

Under the terms of his employment agreement, if Ihor Gussak is “terminated other than for cause” (as that term is defined in his employment agreement), he is entitled to six-months of his then-base salary, and Cobra benefits as applicable

Dorin Panescu

Under the terms of his employment agreement, if Dorin Panescu is “terminated other than for cause” (as that term is defined in his employment agreement), he is entitled to six-months of his then-base salary, and Cobra benefits as applicable

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

EQUITY COMPENSATION PLAN INFORMATION

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		8,513,355	$	1.75		358,730
Equity compensation plans not approved by security holders		—		—		—
Total		8,513,355	$	1.75		358,730

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of common stock beneficially owned as of March 16, 2009 by (i) those persons or groups known to us to beneficially own more than 5% of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the SEC or by information provided by such persons directly to us. Except as indicated below, each of the stockholders listed below possesses sole voting and investment power with respect to their shares and the address of each person is c/o NewCardio, Inc., 2350 Mission College Boulevard, Suite 1175, Santa Clara, California, 95054.

Name of Beneficial Owner	Common Stock Beneficially Owned (1)		Percentage of Common Stock (2)
Branislav Vajdic, Ph.D. (3)		8,736,275		34.68	%
Vincent W. Renz, Jr.		53,650		*
Richard Brounstein (4)		192,500		*
Mark W. Kroll, Ph.D., FACC, FHRS (5)		108,329		*
Robert N. Blair, M.Inst.P. (6)		707,170		2.95	%
James A. Heisch (7)		39,996		*
Jess Jones, M.D.		0		*
Patrick Maguire, M.D., Ph.D. (8)		42,079		*
Ihor Gussak		21,250		*
Dorin Panescu		10,000		*
Kenneth Londoner (9)		2,228,207		9.24	%
Nenad Macvanin (10)		2,657,000		11.18	%
Joseph Esposito (11)		1,844,539		7.76	%
Milic Petkovic		1,441,579		6.07	%
Bosko Bojovic		1,302,166		5.48	%
All officers and directors as a group (10 persons)		9,911,249		38.39	%

(1)	Includes stock option grants made to officers, directors, employees and/or consultants under the 2004 Equity Incentive Plan.  All options listed in this table were granted under the 2004 Equity Incentive Plan.
(2)	Applicable percentage ownership is based on 23,764,779shares of common stock outstanding as of March 16, 2009, together with securities exercisable or convertible into shares of common stock within 60 days of March 16, 2009 for each stockholder. Shares of common stock that are currently exercisable or exercisable within 60 days of March 16, 2009 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(3)	Includes options to purchase 1,424,448 shares of common stock and warrants to purchase 2,000 shares of common stock.
(4)	Includes options to purchase 192,500 shares of common stock.
(5)	Includes options to purchase 108,329 shares of common stock.
(6)	Includes options to purchase 106,864 shares of common stock and warrants to purchase 135,500 shares of common stock.
(7)	Includes options to purchase 39,996 shares of common stock.
(8)	Includes options to purchase 42,079 shares of common stock.
(9)	Includes options to purchase 354,161 shares of common stock.
(10)	Mr. Macvanin has delivered to the Company, and the Company has accepted, the opinion of Mr. Macvanin’s counsel that notwithstanding his percentage ownership, he is not an affiliate of the Company.
(11)	Mr. Esposito holds beneficial ownership of the shares held in the name of E4, LLC.

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

In November 16, 2006, Peter Steiger, a former member of our board of directors, made a loan to us in the principal amount of $10,316 pursuant to the terms of a promissory note.  The promissory note has a two-year term and an annual interest rate of 4.9%.  Principal and interest accrued thereon were payable in full on the promissory note’s due date in November 15, 2008. This principal and interest was paid in January 2009.

In September 2007, we entered into a three-year consulting agreement with E4, LLC. We sold E4, LLC 1,475,631 shares of common stock valued at $0.10 per share, for $0.02 per share for cash, or $29,513. The remaining $0.08 per share value was issued to the consultant as compensation for services rendered, specifically providing business guidance, and primarily in areas related to sales, marketing and business strategy.  25% of the shares were fully vested at the time of sale.  The remaining shares are subject to a repurchase right that diminishes over a 36 month period, so long as the consultancy continues.  The consultant also receives monthly cash payments of $24,000 as part of this consulting agreement. At December 31, 2007 we owed E4, LLC $84,000 that was subsequently paid in January 2008. There were no other outstanding obligations under the agreement.  It remains ongoing at this time. During the year ended December 31, 2008, the Company paid an additional $288,000 to E4, LLC.

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

DIRECTOR INDEPENDENCE

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

¨ Mark W. Kroll, Ph.D. FACC, FHRS*

¨ Patrick Maguire, M.D., Ph. D.*

¨ James A. Heisch*

¨ Robert M. Blair**

*   Mark Kroll, Patrick Maguire and James A. Heisch would qualify as being independent for the Audit Committee, or any committee.

** Robert M. Blair has a consulting agreement and would not qualify as independent for the Audit Committee under the NASDAQ Stock Market LLC rules. This agreement is not however a material agreement as defined by Item 404(a).

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

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Item 14.  Principal Accountant Fees and Services.

Summary of Principal Accountant Fees for Professional Services Rendered

The following table presents the aggregate fees for professional audit services and other services rendered by RBSM LLP, our independent registered public accountants in 2008 and 2007.

	Year Ended December 31, 2008		Year Ended December 31, 2007
Audit Fees	$	58,000	$	47,500
Audit-Related Fees		138,640		104,000
Tax Fees		-		9,025
All Other Fees		-		-
	$	196,640	$	160,525

____________

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

 We have an independent audit committee for all purposes relating to communication with our auditors and responsibility for our audit. All engagements for audit services, audit- related services and tax services are approved in advance by our audit committee. Our audit committee has considered whether the provision of the services described above for the fiscal year ended December 31, 2008, is compatible with maintaining the auditor’s independence.

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

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Item 15.  Exhibits, Financial Statement Schedules.

1.	Financial Statements:  See “Index to Consolidated Financial Statements” in Part II, Item 8 of the Form 10-K.
2.	Financial Statement Schedule:  Schedules are included in the Consolidated Financial Statements or notes of this Form 10-K or are not required.
3.	Exhibits:  The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

3.1a	Certificate of Incorporation of EP Floors, Inc., originally filed as Exhibit 3.1a to Registrant’s Registration Statement on Form SB-2 filed on March 22, 2006 and filed herewith.
3.1b	Amended Certificate of Incorporation of EP Floors, Inc., originally filed as Exhibit 3.1b to Registrant’s Registration Statement on Form SB-2 filed March 22, 2006 and filed herewith.
3.1c	Certificate of Amendment of Certificate of Incorporation, originally filed as Exhibit 3.2 to Registrant’s Form 8-K filed on February 1, 2008 and filed herewith.
3.2	Bylaws , (incorporated herein by reference to Exhibit No. 3.2 of Registrant’s Registration Statement on Form SB-2 filed on March 22, 2006).
3.3	Certificate of Designation of Series A Preferred Stock, filed as Exhibit 3.1 to Registrant’s Form 8-K filed on January 4, 2008.
3.4	Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 3.2 to Registrant’s Form 8-K filed on February 1, 2008.
4.1	Securities Purchase Agreement (Incorporated herein by reference to Exhibit No. 4.1 of Registrant's Form 8-K filed on January 4, 2008).
4.2	Form of Series A Warrant (Incorporated herein by reference to Exhibit No. 4.2 of Registrant's Form 8-K filed on January 4, 2008).
4.3	Form of Series J Warrant (Incorporated herein by reference to Exhibit No. 4.3 of Registrant's Form 8-K filed on January 4, 2008).
4.4	Form of Series J-A Warrant (Incorporated herein by reference to Exhibit No. 4.4 of Registrant's Form 8-K filed on January 4, 2008).
4.5	Registration Rights Agreement (Incorporated herein by reference to Exhibit No. 4.5 of Registrant's Form 8-K filed on January 4, 2008).
4.6	Amendment No. 1 to Securities Purchase Agreement dated as of December 27, 2007, between Marine Park Holdings, Inc. and certain of the purchasers’ signatory hereto (Incorporated herein by reference to Exhibit No. 4.6 of Registrant's Form 8-K filed on February 6, 2008).
4.7	Amendment No. 1 to Registration Rights Agreement dated as of December 27, 2007, between Marine Park Holdings, Inc. and certain of the purchasers’ signatory hereto (Incorporated herein by reference to Exhibit No. 4.7 of Registrant's Form 8-K filed on February 6, 2008).
4.8	Certificate of Designation of Series A Preferred Stock (incorporated herein by reference to Exhibit No. 3.1 of the Registrant’s Form 8-K filed on January 4, 2008).
10.1	Share Exchange Agreement by and among Marine Park Holdings, Inc., NewCardio, Inc., and the shareholder of NewCardio, Inc. (Incorporated herein by reference to Exhibit No. 10.1 of Registrant's Form 8-K filed on January 4, 2008).
10.2	Return to Treasury Agreement between Marine Park Holdings, Inc. and Harborview Master Fund L.P., dated as of December 27, 2007 (Incorporated herein by reference to Exhibit No. 10.2 of Registrant's Form 8-K filed on January 4, 2008).
10.3	Return to Treasury Agreement between Marine Park Holdings, Inc. and Diverse Trading Ltd., dated as of December 27, 2007 (Incorporated herein by reference to Exhibit No. 10.3 of Registrant's Form 8-K filed on January 4, 2008).
10.4	2004 Equity Incentive Plan (Incorporated herein by reference to Exhibit No. 10.4 of Registrant's Form S-8 POS filed on March 7, 2008).
10.5	Employment Agreement between NewCardio, Inc. and Branislav Vajdic dated November 1, 2007.
10.6	Consulting Agreement between NewCardio, Inc. and Branislav Vajdic dated March 1, 2007.
10.7	Employment Agreement between NewCardio, Inc. and Kenneth Londoner dated October 31, 2007.
10.8	Restricted Stock Purchase Agreement between NewCardio, Inc. and Kenneth Londoner, dated as of June 4, 2007, as amended by Amendment No. 1 to Restricted Stock Purchase Agreement between NewCardio, Inc. and Kenneth Londoner, dated as of September 15, 2007.

45

10.9	Return to Treasury Agreement dated December 27, 2007 between Marine Park Holdings, Inc. and Harborview Master Fund L.P., (incorporated herein by reference to The Company’s Current Report on Form 8-K filed by the Company with the SEC on January 4, 2008).
10.10	Return to Treasury Agreement dated as of December 27, 2007 between Marine Park Holdings, Inc. and Diverse Trading Ltd., (incorporated herein by reference to The Company’s Current Report on Form 8-K filed by the Company with the SEC on January 4, 2008).
10.11	2004 Equity Incentive Plan of the Company (incorporated herein by reference to the Form S-8, filed by the Company with the SEC on March 7, 2008).
10.12	Employment Agreement, dated November 1, 2007, by and between the Company and Branislav Vajdic (incorporated herein by reference to The Company’s Registration Statement on Form S-1/A (No. 2 filed by the Company with the SEC on May 20, 2008).
10.13	Consulting Agreement, dated March 1, 2007, by and between the Company and Branislav Vajdic (incorporated herein by reference to the Company’s Annual Report on Form 10-K/A, as filed with the SEC by the Company on April 4, 2008).
10.14	Employment Agreement dated October 31, 2007 between NewCardio, Inc. and Kenneth Londoner (incorporated herein by reference to the Company’s Annual Report on Form 10-K/A, as filed with the SEC by the Company on April 4, 2008).
10.15	Restricted Stock Purchase Agreement, dated as of June 4, 2007, by and between NewCardio, Inc. and Kenneth Londoner, as amended by Amendment No. 1 to Restricted Stock Purchase Agreement, dated as of September 15, 2007, by and between NewCardio, Inc. and Kenneth Londoner (incorporated herein by reference to the Company’s Annual Report on Form 10-K/A, as filed with the SEC by the Company on April 4, 2008).
10.16	Form of Lock Up Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A (No. 1) filed on April 15, 2008).
10.17	Escrow Deposit Agreement dated as of December 27, 2007, by and among Marine Park Holdings, Inc., Capstone Investments and Signature Bank (incorporated by reference to the Company’s Registration Statement on Form S-1/A (No. 1) filed on April 15, 2008).
10.18	Employment Agreement dated January 22, 2008 between NewCardio, Inc. and Richard Brounstein (incorporated herein by reference the Company’s Quarterly Report on Form 10-Q, as filed by the Company with the SEC on May 15, 2008).
10.19	Employment Agreement dated as of March 1, 2008 between NewCardio, Inc. and Richard Brounstein (incorporated herein by reference the Company’s Quarterly Report on Form 10-Q, as filed by the Company with the SEC on May 15, 2008).
10.20	Lease dated February 6, 2008 between NewCardio, Inc. and 2350 Mission Investors, LLC (incorporated herein by reference the Company’s Quarterly Report on Form 10-Q, as filed by the Company with the SEC on May 15, 2008).
10.21	Settlement and Release Agreement, dated as of October 1, 2006, by and between Samuel E. George, M.D., and the Company (incorporated by reference to the Company's Registration Statement on Form S-1/A (No. 4) filed on July 24, 2008).
10.22	Technology Assignment Agreement, dated as of September 28, 2004, by and between Bosko Bojovic and the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (No. 3) filed on June 23, 2008).
10.23	Consulting Agreement, dated as of February 22, 2008, by and between the Company and Robert N. Blair (incorporated by reference to the Company’s Registration Statement on Form S-1/A (No. 3) filed on June 23, 2008).
10.24	Consulting Agreement, dated as of September 13, 2007, by and between the Company and E4 LLC (incorporated by reference to the Company's Registration Statement on Form S-1/A (No. 4) filed on July 24, 2008).
10.25	Consulting Agreement, dated as of May 1, 2008, by and between the Company and JFS Investments (incorporated by reference to the Company's Registration Statement on Form S-1/A (No. 4) filed on July 24, 2008).
10.26	Consulting Agreement, dated as of June 27, 2008, by and between the Company and First Montauk Securities Group (incorporated by reference to the Company's Registration Statement on Form S-1/A (No. 4) filed on July 24, 2008).
10.27	Waiver Agreement, dated as of March 13, 2008, by and between the Company and Vision Opportunity Master Fund, Ltd. (incorporated by reference to the Company's Registration Statement on Form S-1/A (No. 4) filed on July 24, 2008).

46

10.28	Employment Agreement dated August 18, 2008 between the Company and Vincent W. Renz, Jr. (incorporated by reference to the Company’s Current Report on Form 8-K filed by the Company with the SEC on August 21, 2008). 10.29 Amendment to Securities Purchase Agreement, dated as of December 1, 2008, incorporated by reference to Exhibit 10.29 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008. 10.30 Platinum Put Letter, dated as of December 1,, 2008, incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008. 10.31 Management Rights Letter, dated as of December 1, 2008, incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008.
10.29	Amendment to Securities Purchase Agreement, dated as of December 1, 2008, incorporated by reference to Exhibit 10.29 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008.
10.30	Platinum Put Letter dated as of December 1, 2008, incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008.
10.31	Management Rights Letter, dated as of December 1, 2008, incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on December 3, 2008.
31.1	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 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

47

SIGNATURES

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

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

Dated:  March 27, 2009

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

Signature	Title	Date
/s/ Branislav Vajdic, Ph.D.	Chief Executive Officer and Director	March 27, 2009
Branislav Vajdic, Ph.D.
/s/ Vincent W. Renz	President and Chief Operating Officer	March 27, 2009
Vincent W. Renz
/s/ Richard D. Brounstein	Executive Vice President, Chief Financial Officer and Secretary	March 27, 2009
Richard D. Brounstein
/s/ Mark W. Kroll, Ph.D., FACC, FHRS	Director and Chairman	March 27, 2009
Mark W. Kroll, Ph.D., FACC, FHRS
/s/ Robert M. Blair, M.Inst.P.	Director	March 27, 2009
Robert N. Blair, M.Inst.P.
/s/ James A. Heisch	Director	March 27, 2009
James A. Heisch
/s/ Jess Jones, M.D.	Director	March 27, 2009
Jess Jones, MD
/s/ Patrick Maguire, M.D., Ph.D.	Director	March 27, 2009
Patrick Maguire, M.D., Ph.D.

48

NEWCARDIO, INC.

INDEX TO FINANCIAL STATEMENTS

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

49

RBSM LLP

CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

NewCardio, Inc.

Santa Clara, California

We have audited the accompanying consolidated balance sheets of NewCardio, Inc. and its wholly owned subsidiaries (the “Company”), a development stage Company as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholder’s (deficit) equity and cash flows for each of the two years in the period ended December 31, 2008 and the period September 7, 2004 (date of inception) through December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We have conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance   about whether the financial   statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NewCardio, Inc.  at  December 31, 2008 and 2007 and the results of its operations  and its cash flows for the each of the two  years  in the period ended  December 31, 2008 and the period September 7, 2004 (date of inception) through December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

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

As discussed in Note 16, the Company has restated the consolidated  balance sheet as of December 31, 2007 and the related consolidated statement of operations, and cash flows for the year  ended  December 31, 2007 and the period September  7,  2004 (date of  inception)  through  December 31, 2007.

/s/ RBSM LLP

RBSM LLP

Certified Public Accountants

New York, New York

March 27, 2009

F-1

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

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

The accompanying notes to these consolidated financial statements

F-2

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,						From September 7, 2004
				2007			(date of inception) through
	2008			Restated			December 31, 2008
Operating expenses:
Selling, general and administrative	$	7,179,767		$	1,729,901		$	9,265,921
Depreciation		18,614			594			19,208
Research and development		2,126,084			369,674			3,285,110
Total operating expenses		9,324,465			2,100,169			12,570,239
Net loss from operations		(9,324,465	)		(2,100,169	)		(12,570,239	)
Other income (expense)
Loss on change in fair value of warrant liability		(5,012,875	)		-			(5,012,875	)
Interest		155,701			(1,084,972	)		(938,923	)
Net loss before income taxes		(14,181,639	)		(3,185,141	)		(18,522,037	)
Provision for income taxes		-			-			-
Net loss		(14,181,639	)		(3,185,141	)		(18,522,037	)
Preferred stock dividend		(754,328	)		(2,817,710	)		(3,572,038	)
Net loss attributable to common shareholders	$	(14,935,967	)	$	(6,002,851	)	$	(22,094,075	)
Net loss-basic and fully diluted	$	(0.71	)	$	(0.55	)
Weighted average number of shares-basic and fully diluted		20,945,436			10,953,288

The accompanying notes to these consolidated financial statements

F-3

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																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	)

The accompanying notes to these consolidated financial statements

F-4

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																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 consolidated financial statements

F-5

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																	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 consolidated financial statements

F-6

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																			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 consolidated financial statements

F-7

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																	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 consolidated financial statements

F-8

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																	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 consolidated financial statements

F-9

NEWCARDIO, INC

(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

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

	Preferred																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 consolidated financial statements

F-10

NEWCARDIO, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,						From September 7, 2004
				2007			(date of inception) through
	2008			Restated			December 31, 2008
Cash flows from operating activities:
Net loss for the period	$	(14,181,639	)	$	(3,185,141	)	$	(18,522,037	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		18,614			594			19,208
Amortization of deferred compensation		337,500			-			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		56,400			454,050			545,788
Common stock issued as beneficial conversion feature in conjunction with settlement of convertible debentures		-			426,334			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			-			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		2,260,570			201,424			2,583,632
Fair value of warrants issued as compensation for services		481,855			-			481,855
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		5,012,875			-			5,012,875
Fair value of warrants issued in settlement of convertible debentures		-			598,692			598,692
Amortization of debt discount attributable to subordinated convertible debt		-			5,058			5,713
(Increase) decrease in:
Prepaid expenses		(118,454	)		-			(118,454	)
Deposits		(22,600	)		-			(22,600	)
Increase (decrease) in:
Accounts payable and accrued liabilities		(89,579	)		364,454			701,126
Net cash used in operating activities		(4,690,114	)		(1,134,535	)		(5,924,016	)
Cash flows from investing activities:
Purchase of property plant and equipment		(121,645	)		(8,281	)		(129,926	)
Proceeds from (purchases of )short term investment		2,856,543			(5,000,000	)		(2,143,457	)
Net cash provided by (used in) investing activities		2,734,898			(5,008,281	)		(2,273,383	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		3,639			5,916			9,855
Proceeds from exercise of warrants		2,799,745			-			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			7,342,500
Proceeds from sale of common stock		-			113,513			113,513
Proceeds from convertible debt, net		-			157,500			177,500
Net cash provided by financing activities		2,803,384			7,619,429			10,522,192
Net increase  in cash and cash equivalents		848,168			1,476,613			2,324,793
Cash and cash equivalents at beginning of period		1,476,625			12			-
Cash and cash equivalents at end of period	$	2,324,793		$	1,476,625		$	2,324,793
Supplemental disclosures of cash flow information:
Taxes paid	$	-		$	-		$	-
Interest paid	$	-		$	-		$	-
Non cash financial activities:
Fair value of warrants issued as compensation for financing	$	-		$	355,034		$	355,034
Beneficial conversion feature of redeemable preferred stock	$	-		$	2,817,710		$	2,817,710
Preferred stock dividend	$	754,328		$	2,817,710		$	3,572,038

The accompanying notes to these consolidated financial statements

F-11

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

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

Basis and business presentation

NewCardio, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in September 2004.  The Company is in the development stage, as defined by Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") and its efforts have been principally devoted to developing cardiac diagnostics equipment in the United States. To date, the Company has not generated sales revenues, has incurred expenses and has sustained losses.  Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.  For the period from inception through December 31, 2008, the Company has accumulated losses from operations of $12,570,239.

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

Reverse Merger and Corporate Restructure

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

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

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

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

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

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

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

Estimates

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

F-12

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

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

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

Cash and Cash Equivalents

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

Fair Values

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

Debt and Equity Securities

The Company follows the provisions 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.

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

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

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

F-13

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Debt and Equity Securities (continued)

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

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

Property and Equipment

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

Long-Lived Assets

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

Income Taxes

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

Comprehensive Income

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

Net Loss per Share

The Company has adopted Statement of Financial Accounting Standard No. 128, "Earnings Per Share," specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per share because they are either anti-dilutive, or their effect is not material. Fully diluted shares outstanding were 44,788,587 and 14,859,674 for the years ended December 31, 2008 and 2007, respectively.

F-14

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock based compensation

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

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

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

Concentrations of Credit Risk

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

Research and Development

The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs. Under SFAS 2, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.  The Company incurred research and development expenses of $2,126,084, $369,674 and $3,285,110 for the years ended December 31, 2008 and 2007 and from September 7, 2004 (date of inception) through December 31, 2008, respectively.

Fair Value of Financial Instruments

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

Liquidity

As shown in the accompanying consolidated financial statements, the Company incurred net loss from operations of $12,570,239 from its inception on September 7, 2004 through December 31, 2008.

F-15

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements

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

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

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

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

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

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

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

F-16

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

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

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

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

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

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

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

F-17

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 2 – GOING CONCERN MATTERS

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during years ended December 31, 2008 and 2007, the Company incurred operating losses of $12,570,239 and used $5,924,016  in cash for operating activities   from its inception through December 31, 2008. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

The Company's existence is dependent upon management's ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its products and services  and there can be no assurance that the Company's efforts will be successful. However, the planned principal operations have not commenced and no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

During the year ended December 31, 2008, the Company received $2,799,745 through the exercise of previously issued common stock warrants. There can be no assurance the Company will be successful in its effort to secure additional equity financing.

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

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

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

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

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The Company has consulting agreements with independent contractors, certain of whom are also Company stockholders plus one Board member. See Footnote 5 for related party transactions. The agreements are generally short term and milestones based and include cash compensation, equity compensation or a combination thereof.  Accounts payable and accrued liabilities at December 31, 2008 and 2007 are comprised of trade payables and accrued expenses.

NOTE 5 – RELATED PARTY TRANSACTIONS

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

In October 2006, the Company came to a mutually-agreed lump-sum settlement of $95,000 plus expenses of approximately $42,000 with a former director of the Company for services rendered and expenses incurred from September 2004 through August 2006 for managing our clinical trials and the related peer reviewed publications process. He was a director from August 2005 to June 2006. This amount was payable at December 31, 2006, with payment subject to the company having sufficient capital resources if and when it obtains financing.  The Company paid $111,000 following the December 27, 2007 financing and the balance in the first quarter of 2008. During 2008 this consultant was paid an additional $132,000 for his services, plus travel expenses.

In September 2007, the Company entered into a three-year consulting agreement with E4, LLC, a greater than 5% shareholder of the Company. The Company sold E4, LLC 1,475,631 shares of common stock for $0.02 per share for cash, or $29,513. The consultant also receives monthly cash payments of $24,000 as part of this consulting agreement.  At December 31, 2007 the Company owed E4, LLC $84,000 that was subsequently paid in January 2008. During the year ended December 31, 2008, the Company paid an additional $288,000 to E4, LLC. His services are to provide business guidance, and primarily in areas related to sales, marketing and business strategy.

F-18

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 5 – RELATED PARTY TRANSACTIONS (continued)

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

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

NOTE 6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE

All subordinated convertible notes payable outstanding as of December 31, 2006 and subsequent issuances during the two years ended December 31, 2007 were issued by the accounting predecessor and were converted to common stock at the time of the Merger and corporate restructure (see note 1) or was repaid at the closing of the Series A 10% Preferred Stock issuance (see Footnote 7).

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

	Principal		Accrued Interest		Number of Shares Issued		Conversion price per share
6% Subordinated convertible notes dated August 2006	$	20,000	$	1,677		22,815	$	0.95
6% Subordinated convertible notes dated February 2007		2,500		130		2,768	$	0.95
5% Subordinated convertible notes dated July 2007		25,000		2,500		38,596	$	0.7125
5% Subordinated convertible notes dated September 2007		123,957		12,396		191,371	$	0.7125
5% Subordinated convertible notes dated November 2007		8,000		8,800		12,350	$	0.7125
Total common stock issued in settlement of convertible notes payable and accrued interest						267,900

6% Subordinated convertible notes

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

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

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

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

F-19

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)

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

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

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

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

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

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

8% subordinated convertible notes

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

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

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

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

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

5% subordinated convertible notes

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

F-20

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)

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

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

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

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

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

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

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

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

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

On December 27, 2007, the Company issued 242,317 shares of common stock at $0.7125 per share in exchange for $156,957 in subordinated convertible notes and accrued and unpaid interest.  Additionally, the Company issued and paid cash for the remaining $300,000 in subordinated convertible notes and accrued and unpaid interest including a 10% payoff fee. In conjunction with the settlement of the 5% subordinated convertible notes, the Company issued an aggregate of 592,131 additional shares plus 592,131 warrants to purchase its common stock at $0.96 per share and 473,705 at $1.15 per share expiring June 27, 2012.  The fair value of the additional shares at $0.72 per share totaling $426,334 and the fair value (determined below) of the warrants of $598,692 was charged interest, net for the year ended December 31, 2007.

F-21

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 6 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)

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

NOTE 7 - REDEEMABLE SECURITIES

Series A 10% Convertible Preferred Stock

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

In December, 2007, the Board of Directors authorized the issuance of up to 12,000 shares of Series A 10% convertible non-voting preferred stock (“Series A”) having a stated value of $1,000 per share. The Series A shares are convertible at any time, at the option of the holder, into the Company’s common stock at an initial conversion rate determined by dividing the stated value of $1,000 by the initial conversion price of $0.95 per share. The conversion price is subject to certain anti-dilution provisions in the event the Company issues shares of its common stock or common stock equivalents below the stated conversion price or pays a stock dividend or otherwise makes a distribution payable in shares of common stock, with the exception of any shares issued upon conversion or payment of dividend on this issuance, or other similar events such as stock splits or common stock reclassifications. Changes to the conversion price, if any, will be charged to operations and included in unrealized gain (loss) relating to adjustment of derivative and to fair value of underlying securities. All shares were converted during 2008.

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

Until converted, upon any liquidation, dissolution or winding-up of the Company, the Series A shareholders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 120% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each Series A share before any distribution or payment shall be made to the holders of any other securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Series A shareholders shall be ratably distributed among the Series A shareholders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation value as of December 31, 2007 was $9,840,000 plus accrued dividends of $9,111. As all outstanding shares were converted during 2008, there was no liquidation value as of December 31, 2008.

In December 2007, the Company issued 8,200 Series A shares at $1,000 per share to accredited investors in a private placement, plus warrants. The Company received $8,200,000 less issuance costs totaling $1,312,534. Net cash proceeds at December 31, 2007 were $ 7,342,500. The balance of the costs includes an accrual paid in January and the value of a fee warrant issued in conjunction with the financing. The issuance costs have been recorded as a reduction in the 'Shares subject to redemption'. $4,802,973 was allocated to the warrants based on their value, reducing ‘Shares subject to redemption’.

Under the terms of the Series A Stock Certificate of Designation, the Company may be required to redeem the Series A shares for cash in an amount equal to the Series A stated value, plus accrued and unpaid dividends , upon the occurrence of  certain events , including the change in control of the Company. As the Series A shares redemption requirement may be triggered by events that are outside the Company’s control, in accordance with Emerging Issues Task Force (“EITF”) Topic D-98, Classification and Measurement of Redeemable Securities (“EITF Topic D-98”), the Company recorded the fair value of the outstanding Series A shares outside of common shareholders’ equity in the accompanying consolidated balance sheet as of December 31, 2007.

Under EITF No.00-27, “Application of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Rates’, to Certain Convertible Instruments,” the Company considered the effect of a beneficial conversion feature of the Series A shares issued in the December 2007 private placement. The Company has attributed a beneficial conversion feature of $2,817,710 to the Series A shares based upon the difference between the effective conversion price of those shares and the fair value of the Company’s common stock on the date of issuance of the Series A shares. The amount attributable to the beneficial conversion feature has been recorded as a dividend to the holders of the Series A shares. Since the redemption requirement of the Series A shares was contingent on the occurrence of future events, the Company did not accrete the carrying value of the Series A shares to redemption value until the occurrence of any one of those future events becomes probable.

F-22

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 7 - REDEEMABLE SECURITIES (continued)

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

· The Company effecting a merger or consolidation with another entity

· The Company sells all or substantially all of the Company's assets

· The Company's shareholders approve a tender or exchange offer, or

· The Company's holders of the common stock exchange their shares for securities or cash

Accordingly, upon the occurrence of any one of these events, the Series A shares will become redeemable and the Company will accrete the carrying value of the Series A shares to redemption value at that time.

During the during the year ended December 31, 2008, certain Series A 10% convertible preferred stockholders converted 569.81458 shares of preferred stock to 599,803 shares of the Company’s common stock. On December 1, 2008, the remaining 7,630.18542 shares of preferred stock were converted to an aggregate of 8,031 shares of Series B preferred stock and 134 shares of Series B preferred stock in settlement of accrued and unpaid dividends of $127,816.  Additionally, the Company issued an aggregate of 1,634 shares of Series B preferred stock as an inducement to convert from Series A convertible preferred stock.  The fair value of the 1,634 shares issued of $1,551,044 was charged to current period operations.

Refer to Footnote 10 regarding the Series B Preferred Stock.

Registration Rights Agreement

In connection with the December 27, 2007 private placement, the Company entered into a registration rights agreement with the purchasers of the Series A shares, which, as amended, required the Company to obtain an effective registration statement with the SEC covering the sale of the common stock issuable upon conversion of the Series A shares on or before August 28, 2008. The Company performed this obligation on August 28, 2008.

As additional consideration for the purchase of the Series A shares, the Company granted to the holders of the Series A shares three classes of warrants (Series A warrants entitling them to purchase 5,178,947 shares of the Company’s common stock at the price of $1.14 per share expiring five years from issuance, and exercisable after one year on a net cashless basis; Series J warrants entitling them to purchase 5,157,895 shares of the Company’s common stock at the price of $1.235 per share expiring one year from issuance; and Series J-A warrants entitling them to purchase 3,094,737 shares of the Company’s common stock at the price of $1.425 share, contingent on the exercise of the Series J warrants). For accounting purposes the Series J-A warrants have a one-year life as they are linked to the exercise of the Series J warrants. If the Series J warrants are exercised, the Series J-A warrants become 5-year warrants with a net cashless provision. None of the warrants have registration rights. As discussed in Footnote 11, the J and J-A warrants were exercised in December 2008.

NOTE 8 - WARRANT LIABILITY

The Company estimated the fair value at date of issue of the warrants issued in connection with the private placement to be $4,802,973 using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 3.37% to 3.64 %, expected volatility of 121.06%, and expected warrant life of one to five years. Since the Company may be obligated to settle the warrants in cash, pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the Company has recorded the fair value of the warrants as a derivative liability. The net value of the warrants at the date of issuance was recorded as a warrant liability on the balance sheet in the amount of $4,802,973 and a reduction in value of shares subject to redemption. Until conversion and modification of the warrants in December 2008, changes in fair value were recorded as non-operating, non-cash income or expense at each reporting date.

These warrants originally contained a “fundamental transaction” clause that if while the warrant(s) are outstanding, the Company effects any merger or consolidation of the Company with or into another “Person” or other similar transactions (as defined in the warrants), the warrant holders can demand net cash settlement.

F-23

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 8 - WARRANT LIABILITY (continued)

As the warrants contained a provision that could have required cash settlement, pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the warrants were recorded as a derivative liability and valued at fair market value until the Company met the criteria under EITF 00-19 for permanent equity. The net value of the warrants at the date of issuance was recorded as a warrant liability on the balance sheet in the amount of $4,802,973 and charged as a reduction of the preferred stock carrying value. Subsequent to the initial issuance date, the Company adjusted to fair value the warrant in current period operations.

In accordance with SFAS 133 “Accounting for Derivative Instruments and Hedging Activities,” the Company recorded a loss during the year on the change in fair value of warrant liability of $5,012,875 until December 1, 2008 at which time the warrants were exercised on term modification.  The fair value of the warrants at December 1, 2008 (time of modification or conversion, see below) was determined using the Black Scholes Option Pricing Model with the following assumptions:  Dividend yield: -0-%, volatility: 127.56%; risk free rate: 0.11% to 1.16%.

On December 1, 2008, all warrants that contain a provision that require a cash settlement as described above were exercised or terms modified to exclude such provision.  See Footnote 11 below.  As such, the fair value of the warrant liability of $9,815,847 at the time of the exercise or term modification was reclassified to equity.

NOTE 9 – PUT LIABILITY

In connection with the exercise of J warrants in December 2008, the Company has agreed to re-acquire 1,896 shares of Series B Preferred Stock (Put Option) for a sum of $744,280, net of unpaid transaction costs of $56,000 at the holder’s option for 30 days after March 2, 2009.  If the holder does not exercise the Put Option by April 1, 2009, the option expires.

NOTE 10 – STOCKHOLDERS EQUITY

Series A – Convertible Preferred Stock

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

Preferred Stock

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

Series A – 10% Convertible Preferred Stock

In December, 2007, the Board of Directors authorized the issuance of up to 12,000 shares of Series A 10% convertible non-voting preferred stock (the “Series A shares”) having a stated value of $1,000 per share.  8,200 shares were issued and subsequently converted into common stock or Series B preferred Stock.

Series B – Preferred Stock

In December 2008, the Board of Directors authorized the issuance of up to 18,000 shares of Series B 0% convertible non-voting preferred stock (the “Series B preferred stock”).

The Series B preferred stock is not entitled to preference upon liquidation; not entitled to dividends unless declared by the Board of Directors and are non voting except the Corporation shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B preferred stock, (a) alter or change adversely the powers, preferences or rights given to the Series B preferred stock or alter or amend the Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Series B preferred stockholders, (c) increase the number of authorized shares of Series B preferred stock, or (d) enter into any agreement with respect to any of the foregoing. Each share of Series B preferred stock is convertible, at any time at the option of the holder, into 1000 shares of Common Stock.

F-24

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 10 – STOCKHOLDERS EQUITY (continued)

Series B – Preferred Stock (continued)

On December 1, 2008; the Company issued 16,435 shares of Series B preferred stock:

1. An aggregate of 8,031 shares of Series B preferred stock in exchange for 7,630.18542 shares of Series A Convertible preferred stock;

2. An aggregate of 1,634 shares of Series B preferred stock as an inducement to convert Series A 10% convertible preferred stock to Series B preferred stock;

3. An aggregate of 134 shares of Series B preferred stock in settlement of accrued and unpaid dividends on Series A 10% convertible preferred stock of $127,816; and

4. An aggregate of 6,636 shares of Series B preferred stock in exchange for the exercise of Series J and JA warrants as more fully discussed in Footnote 11 below.

Common Stock

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

In September 2004, NewCardio Technologies issued 3,436,794 shares of common stock to founders and consultants in exchange for services and intellectual property.  The shares of common stock were valued at $0.001 per share at the time of issuance.

In November 2004, NewCardio Technologies issued 300,000 shares of common stock upon the exercise of stock options at the exercise price of $0.001 per share.

In March 2006, NewCardio Technologies issued 278,375 shares of common stock for services rendered and, in October 2006, NewCardio Technologies issued 75,000 shares of common stock for services rendered.  The shares were valued at $0.10 per share. The valuations of common stock issued for services were based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered.

In June 2007, NewCardio Technologies sold 4,200,000 shares of common stock, valued at $0.10 per share, for $0.02 per share, or $84,000.  The remaining $0.08 per share value was issued as compensation for services valued at $336,000.  The valuation of common stock issued for services was based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered. The difference between cash received for the sale of the common stock and the estimated fair value of $0.08 per share was recorded as stock-based compensation.  The shares are subject to a repurchase right that diminishes when certain events occur.  192,000 shares remain subject to the repurchase right.

In September 2007, NewCardio Technologies sold 1,475,631 shares of common stock, valued at $0.10 per share, for $0.02 per share for cash, or $29,513. The remaining $0.08 per share value was issued as compensation for services rendered.  The difference between cash received for the sale of the common stock and the estimated fair value of $0.08 per share was recorded as stock-based compensation.  25% of the shares were fully vested at the time of sale.  The remaining shares are subject to a repurchase right that diminishes over a 36 month period. 

In April 2008, the Company issued an aggregate of 110,301 shares of common stock as dividends due to holders of the Series A shares in the amount of $214,112.

In June 2008, the Company issued 100,000 shares of common stock as deferred compensation at $3.38 per share.

In June 2008, the Company issued an aggregate of 8,000 shares of common stock for services rendered at approximately $3.52 per share.  The valuations of common stock issued for services were based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered.

F-25

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 10 – STOCKHOLDERS EQUITY (continued)

Common Stock (continued

In July 2008, the Company issued an aggregate of 3,000 shares of common stock for services rendered at approximately $3.25 per share.  The valuations of common stock issued for services were based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered.

In July 2008, the Company issued an aggregate of 64,903 shares of common stock as a dividend due to holders of the Series A shares in the amount of $205,000.

In October 2008, the Company issued an aggregate of 10,000 shares of common stock for services rendered at approximately $1.85 per share.  The valuations of common stock issued for services were based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered.

In October 2008, the Company issued an aggregate of 98,041 shares of common stock as a dividend due to holders of the Series A shares in the amount of $202,557.

NOTE 11 -STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock issued to shareholders at December 31, 2008:

				Warrants Outstanding Weighted Average						Warrants Exercisable
				Remaining		Weighted				Weighted
		Number		Contractual		Average		Number		Average
	Exercise Price	Outstanding		Life (years)		Exercise price		Exercisable		Exercise Price
$	0.10		2,592,000		1.47	$	0.10		2,592,000	$	0.10
	0.50		25,000		2.65		0.50		25,000		0.50
	0.95		120,842		3.99		0.95		120,842		0.95
	0.96		203,385		3.50		0.96		203,385		0.96
	1.14		5,178,948		3.99		1.14		5,178,947		1.14
	1.15		162,709		3.50		1.15		162,709		1.15
	2.00		300,000		2.43		2.00		166,669		2.00
	4.00		300,000		2.43		4.00		166,669		4.00

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

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2006		2,612,000		$	0.11
Granted		15,106,627			1.22
Exercised		-			-
Canceled or expired		-			-
Outstanding at December 31, 2007		17,718,627			1.06
Granted		600,000			3.00
Exercised		(9,435,743	)		1.27
Canceled or expired		-			-
Outstanding at December 31, 2008		8,882,884		$	0.95

F-26

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 11 -STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

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

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

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

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

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

(a) The Series J-A warrants were only exercisable in the event the Series J warrants were exercised and carried a 1 year life for accounting purposes prior to exercise.

The Company reduced shares subject to redemption by $4,802,973 (and recorded a warrant liability) in conjunction in the year ended December 31, 2007.  The fair value of the liability at December 1, 2008 was reclassified to equity. See also Footnote 8.

For the year ended December 31, 2008, warrants totaling 300,000 were issued in connection with services rendered. The warrants vest over a twelve month period and are exercisable for three years from the date of issuance at an exercise price of $2.00 per share.  The warrants were valued using the Black Scholes option pricing method with the following assumptions:  dividend yield $-0-, volatility from 100.08% to 136.17% and risk free rate from 0.76% to 3.57%.  The Company recorded the vested portion as charge to operations of $262,407 in the year ended December 31, 2008.

For the year ended December 31, 2008, warrants totaling 300,000 were issued in connection with services rendered. The warrants vest over a twelve month period and are exercisable for three years from the date of issuance at an exercise price of $4.00 per share.  The warrants were valued using the Black Scholes option pricing method with the following assumptions:  dividend yield $-0-, volatility from 100.08% to 136.17% and risk free rate from 0.76% to 3.57%.  The Company recorded the vested portion as charge to operations of $219,448 in the year ended December 31, 2008.

F-27

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 11 -STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

During the year ended December 31, 2008, 9,435,743 warrants were exercised:

1. Warrant holders exercised 1,183,111 warrants on a cashless basis in exchange for 898,504 shares of the Company’s common stock; and

2. Warrant holders exercised $2.8 million or 2,267,206 Series J warrants in exchange for 2,267 shares of the Company’s Series B preferred stock. They also exercised the balance of the Series J and J-A warrants, 2,890,689 Series J warrants and 3,094,737 Series J-A warrants, on a cashless basis in exchange for 4,369 shares of the Company’s Series B preferred stock. A portion of this exercise is subject to a Put Liability.  See Footnote 9.

 Non-Employee Stock Options

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company's common stock issued to non employees at December 31, 2008:

		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted
				Remaining		Average				Average
	Exercise	Number		Contractual Life		Exercise		Number		Exercise
	Prices	Outstanding		(Years)		Price		Exercisable		Price
$	0.01		240,188		5.74	$	0.01		196,959	$	0.01
	0.02		122,500		7.26		0.02		53,439		0.02
	0.22		191,667		9.11		0.22		116,875		0.22
	1.59		8,000		9.81		1.59		333		1.59
	2.00		400,000		9.95		2.00		-		2.00
	2.25		320,000		9.43		2.25		60,001		2.25
	3.30		100,000		9.72		3.30		12,500		3.30
	4.72		26,000		9.86		4.72		3,667		4.72

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

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2006:		1,322,606		$	0.007
Granted		480,000			0.16
Exercised		(821,500	)		(0.05	)
Canceled or expired		(214,147	)		(0.06	)
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

During the year December 31, 2007, the Company granted 50,000 non employee stock options in connection with the issuance of convertible debentures with an exercise price of $0.02 per share expiring on November 30, 2007.  The fair value (determined based on the underlying security) of $4,055 is reflected as a debt discount and amortized over the term of the underlying debenture (See Footnote 6 above).

F-28

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 11 -STOCK OPTIONS AND WARRANTS (continued)

Non-Employee Stock Options (continued)

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

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

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

During the year ended December 31, 2008, the Company granted an aggregate of 854,000 non employee stock options in connection services rendered at the exercise price from $1.58 to $4.72 per share.  The fair values of the vested options were determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:		-0-	%
Volatility	93.24% to 136.17		%
Risk free rate:	2.25% to 3.99		%

The fair value of all non-employee options vesting during the year ended December 31, 2008 of $457,307 was charged to current period operations.

Employee Stock Options

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company's common stock issued to employees of the Company under a non-qualified employee stock option plan at December 31, 2008:

		Options Outstanding						Options 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		5.04	$	0.001		100,000	$	0.001
	0.01		300,000		7.53		0.01		201,042		0.01
	0.02		880,000		8.19		0.02		880,000		0.02
	0.22		1,750,000		8.90		0.22		652,777		0.22
	1.85		700,000		9.80		1.85		-		1.85
	2.01		80,000		9.80		2.01		-		2.01
	2.05		1,130,000		9.21		2.05		236,250		2.05
	2.15		120,000		9.73		2.15		-		2.15
	2.25		400,000		9.71		2.25		-		2.25
	3.05		100,000		9.25		3.05		16,667		3.05
	4.30		700,000		9.58		4.30		-		4.30
	4.72		45,000		9.61		4.72		45,000		4.72
	5.00		800,000		9.63		5.00		-		5.00

F-29

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 11 -STOCK OPTIONS AND WARRANTS (continued)

Employee Stock Options (continued)

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

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2006:		480,000		$	0.004
Granted		2,630,000			0.22
Exercised		(80,000	)		(0.01	)
Canceled or expired		-			-
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

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

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

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

During the year ended December 31, 2008, the Company granted 4,075,000 stock options with an exercise price from $1.85 to $5.00 per share expiring ten years from issuance.  The fair value was determined using the Black Scholes option pricing model with the following assumptions:

Dividend yield:	-0-	%
Volatility	93.24% to 127.24	%
Risk free rate:	3.48% to 3.91	%

The fair value of all employee options vesting in the year ended December 31, 2008 of $1,803,263 was charged to current period operations.

F-30

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 12 - FAIR VALUE

SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

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

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the following items as of December 31, 2008:

	Total		Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets:
Short term Investment	$	2,143,457	$	2,143,457
Total	$	2,143,457	$	2,143,457	$	-		-

With the exception of assets and liabilities included within the scope of FSP FAS No. 157-2, the Company adopted the provisions of SFAS No. 157 prospectively effective as of the beginning of Fiscal 2008.  For financial assets and liabilities included within the scope of FSP FAS No. 157-2, the Company will be required to adopt the provisions of SFAS No. 157 prospectively as of the beginning of Fiscal 2009.  The adoption of SFAS No. 157 did not have a material impact on our financial position or results of operations, and the Company do not believe that the adoption of FSP FAS No. 157-2 will have a material impact on our financial position or results of operations.

The fair value of the assets, short term investments, at December 31, 2008 was grouped as Level 1 valuation as the market price was readily available, and there has been no change to the fair value of the securities at December 31, 2008.

F-31

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 13 – INCOME TAXES 

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Effective January 1, 2007, the Company adopted the provisions of FIN 48, as required. As a result of implementing FIN 48, there has been no adjustment to the Company’s financial statements and the adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements for the years ending December 31, 2008 and 2007.

Income tax expense for the years ended December 31, 2008 and 2007 are comprised of State taxes which primarily are not based on earnings.  No other income taxes were recorded on the earnings in 2008 as a result of the utilization of the carry forwards.  All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.

At December 31, 2008, the significant components of the deferred tax assets (liabilities) are summarized below:

Net operating loss carry forwards expiring in 2024	$	22,000,000
Tax Asset		7,480,000
Less valuation allowance		(7,480,000	)
Balance	$	—

NOTE 14 -COMMITMENTS AND CONTINGENCIES

Consulting Agreements

The Company has consulting agreements with independent contractors, certain of whom are also Company stockholders. Of those two are former directors of the Company. The Company incurred $132,000 (plus travel expenses) and $376,000 ($40,000 in cash compensation, plus the fair value of equity) in fees and expenses to these individuals for the years ended December 31, 2008 and 2007 respectively, in a consulting role.  They were involved in business development in 2007 and R&D in 2008 and 2007. The Agreements are generally short term and milestones based and include cash compensation, equity compensation or a combination thereof. The current R&D agreement has no equity compensation.

Operating Lease Commitments

The Company leases office space in Santa Clara, California on a lease expiring April 30, 2011 at approximately $5,800 per month.  Additionally the Company maintains a Princeton, New Jersey office at $5,000 per month with the lease expiring March 31, 2009 and a facility in Belgrade, Serbia on a month to month basis at $500 per month.

At December 31, 2008, future minimum lease payments are as follows:

2009	$	72,706
2010		74,887
2011		25,207
2012		-
Thereafter		-

Total lease rental expenses for the years ended December 31, 2008 and 2007 was $90,506 and $9,130, respectively.

F-32

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 14 -COMMITMENTS AND CONTINGENCIES (continued)

Litigation

The Company is subject to other legal proceedings and claims, which arise in the ordinary course of its business.  Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.  There was no outstanding litigation as of December 31, 2008.

NOTE 15 – SUBSEQUENT EVENTS

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

In January 2009, the Company issued 250,000 warrants to purchase the Company’s common stock at an exercise price of $1.50 vesting over 12 months.

In January 2009, the Company paid the related party promissory note and accrued interest.

In February 2009, the Company issued 1,305,000 shares in connection with the exercise of 1,392,000 warrants to purchase the Company’s common stock at $0.10 per share.  The warrants were exercised on a cashless basis.

NOTE 16 – RESTATEMENT

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

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

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

F-33

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

Consolidated Balance Sheet

December 31, 2007

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

F-34

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

Consolidated Statement of Operations

For the Year Ended December 31, 2007

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

Consolidated Statement of Operations

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

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

F-35

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

Consolidated Statement of Cash Flows

For the Year Ended December 31, 2007

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

F-36

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

Consolidated Statement of Cash Flows

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

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

F-37

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

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

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

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

Shares subject to redemption is summarized as follows:

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

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

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

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

F-38

NEWCARDIO, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 16 – RESTATEMENT (continued)

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

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

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

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

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

F-39