10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 000-52315

AtheroNova Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or other jurisdiction of incorporation or organization) 20-1915083 (I.R.S. Employer Identification No.)

2301 Dupont Drive, Suite 525, Irvine, CA 92612

(Address of principal executive offices and zip code)

(949) 476-1100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File  required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of November 7, 2011 there were 27,753,802 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.

1

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three and nine month periods ended September 30, 2011 and 2010, and for the period from December 13, 2006 (Inception) through September 30, 2011	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) (Unaudited) for the period from December 13, 2006 (Inception) through September 30, 2011	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine month periods ended September 30, 2011 and 2010, and for the period from December 13, 2006 (Inception) through September 30, 2011	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	29
Item 4.	Controls and Procedures	29
PART II	OTHER INFORMATION
Item 6.	Exhibits	31

2

Part I – Financial Information

Item 1.  Financial Statements

ATHERONOVA INC.

(A Development Stage Company)

Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2011			2010
Assets	(unaudited)
Current Assets
Cash	$	686,783		$	177,802
Other Current Assets		14,139			14,039
Total Current Assets		700,922			191,841
Equipment, net		4,676			5,521
Total Assets	$	705,598		$	197,362
Liabilities and Stockholders’ Deficiency
Current Liabilities:
Accounts payable and accrued expenses	$	288,691		$	157,665
Interest payable		33,613			22,596
Derivative Liability		8,952,110			13,697,923
Total Current Liabilities		9,274,414			13,878,184
2.5% Senior secured convertible notes, net of discount		338,505			228,298
Commitments and Contingencies
Stockholders’ Deficiency
Preferred stock $0.0001 par value, 10,000,000 shares authorized, none outstanding at September 30, 2011 and December 31, 2010		--			--
Common stock $0.0001 par value, 100,000,000 shares authorized, 27,547,211 and 23,420,899 outstanding at September 30, 2011 and December 31, 2010, respectively		2,748			2,337
Additional paid in capital		4,629,491			1,931,340
Deficit accumulated during the development stage		(13,539,560	)		(15,842,797	)
Total stockholders’ deficiency		(8,907,321	)		(13,909,120	)
Total Liabilities and Stockholders’ Deficiency	$	705,598		$	197,362

See accompanying notes to condensed consolidated financial statements.

3

ATHERONOVA INC.

(A Development Stage Company)

Condensed Consolidated Statements of Operations

(Unaudited)

For the three and nine month periods ended September 30, 2011 and 2010,

And for the period from December 13, 2006 (Inception) through September 30, 2011

	Three months ended September 30,						Nine months ended September 30,						Cumulative From
	2011			2010			2011			2010			Inception
Revenue, net	$	0		$	0		$	0		$	0		$	0
Operating expenses:
Research and development		88,270			--			271,645			110,450			763,180
General and administrative expenses		797,078			594,028			1,571,334			987,915			3,474,001
Impairment charge-intellectual property		--			572,868			--			572,868			572,868
Total operating expenses		885,348			1,166,896			1,842,979			1,671,233			4,810,049
Loss from operations		(885,348	)		(1,166,896	)		(1,842,979	)		(1,671,233	)		(4,810,049	)
Other income / (expenses):
Other income (expense)		36			676			165			(46,708	)		3,281
Merger-related expenses		--			--			--			(323,294	)		(323,294	)
Cancellation of related-party debt		--			--			--			--			100,000
Interest expense		(401,446	)		(196,810	)		(594,922	)		(233,060	)		(944,830	)
Private Placement Costs		--			--			--			(2,042,348	)		(2,148,307	)
Gain on extinguishment of derivative liability		811,393			--			811,393			--			811,393
Change in fair value of derivative liabilities		(3,469,451	)		(412,361	)		3,934,420			(412,361	)		(6,221,155	)
Net income (loss) before income taxes		(3,944,816	)		(1,775,391	)		2,308,077			(4,729,004	)		(13,532,961	)
Provision for income taxes		--			--			4,840			1,759			6,599
Net income (loss)	$	(3,944,816	)	$	(1,775,391	)	$	2,303,237		$	(4,730,763	)	$	(13,539,560	)
Basic income (loss) per share	$	(0.15	)	$	(0.08	)	$	0.09		$	(0.21	)
Diluted income (loss) per share	$	(0.15	)	$	(0.08	)	$	0.08		$	(0.21	)
Basic weighted average shares outstanding		26,503,747			22,785,012			24,729,573			22,243,571
Diluted weighted average shares outstanding		26,503,747			22,785,012			27,665,915			22,243,571

See accompanying notes to condensed consolidated financial statements.

4

ATHERONOVA INC.

(A Development Stage Company)

Condensed Consolidated Statements of Stockholders’ Equity (Deficiency)

(Unaudited)

For the period from December 13, 2006 (Inception) through September 30, 2011

Description	Common Stock Shares		Common Stock Amount		Additional Paid-in Capital			Deficit Accumulated During Development Stage			Total Stockholders’ Equity (Deficit)
Issuance of Common Stock to Founders		19,233,029		1,923		(1,923	)		--			--
Net loss		--		--		--			--			--
Balance – December 31, 2007		19,233,029		1,923		(1,923	)		--			--
Issuance of Common Stock for Cash at $0.223 per share		1,010,132		101		224,899			--			225,000
Net loss		--		--		--			(173,622	)		(173,622	)
Balance – December 31, 2008		20,243,161		2,024		222,976			(173,622	)		51,378
Issuance of Common Stock for Cash at $0.223 per share		224,663		23		99,977			--			100,000
Fair value of common stock issued for services		224,284		22		49,978			--			50,000
Net Loss		--		--		--			(12,323	)		(12,323	)
Balance – December 31, 2009		20,692,108		2,069		372,931			(185,945	)		189,055
Issuance of common stock for Cash at $0.223 per share		1,010,132		101		224,899			--			225,000
Exercise of warrants		392,498		39		87,488			--			87,527
Fair value of warrants issued for services		--		--		518,000			--			518,000
Fair value of vested options		--		--		287,355			--			287,355
Fair value of common stock issued for services		466,570		47		140,453			--			140,500
Contribution of stockholder notes payable to capital		--		--		200,000			--			200,000
Common stock issued in reverse merger		607,647		56		1,225			--			1,281
Common stock issued upon conversion of notes payable		251,944		25		98,989			--			99,014
Net loss		--		--		--			(15,656,852	)		(15,656,852	)
Balance – December 31, 2010		23,420,899		2,337		1,931,340			(15,842,797	)		(13,909,120	)
Issuance of common stock for Cash at $0.55 per share		2,518,421		252		1,384,879			--			1,385,131
Fair value of vested options		--		--		459,224			--			459,224
Fair value of common stock and warrants purchased by employees and vendors in excess of market price		--		--		309,426			--			309,426
Fair value of common stock and warrants issued to settle accounts payable		22,727		2		48,611			--			48,613
Common stock issued upon conversion of notes payable		1,585,164		157		473,541			--			473,698
Fair value of warrants issued for services		--		--		22,470			--			22,470
Net income		--		--		--			2,303,237			2,303,237
Balance – September 30, 2011		27,547,211	$	2,748	$	4,629,491		$	(13,539,560	)	$	(8,907,321	)

See accompanying notes to condensed consolidated financial statements.

5

ATHERONOVA INC.

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the nine month periods ended September 30, 2011 and 2010,

And for the period from December 13, 2006 (Inception) through September 30, 2011

		Nine months ended September 30,						Cumulative From
		2011			2010			Inception
Operating Activities:
Net income (loss)	$	2,303,237		$	(4,730,763	)	$	(13,539,560	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loss on settlement of payables		36,113			--			36,113
Amortization of debt discount		570,808			218,470			897,155
Depreciation		1,882			12,009			3,430
Stock based compensation		791,111			473,628			1,786,965
Impairment charge-intellectual property		--			572,867			572,867
Cost of private placement		--			2,042,348			2,148,307
Gain on extinguishment of debt		(811,393	)		--			(811,393	)
Change in fair value of derivative liabilities		(3,934,420	)		412,361			6,221,155
Cancellation of debt		--			--			(100,000	)
Changes in operating assets and liabilities:
Other current assets		(100	)		(81,022	)		(14,139	)
Accounts payable and accrued expenses		167,649			(33,697	)		447,910
Net cash used in operating activities		(875,113	)		(1,113,799	)		(2,351,190	)
Investing Activities
Purchase of equipment		(1,037	)		(7,069	)		(8,106	)
Investment in intellectual property		--			--			(372,867	)
Cash received from reverse merger		--			--			1,281
Net cash used in investing activities		(1,037	)		(7,069	)		(379,692	)
Financing Activities
Proceeds from issuance of common stock		1,385,131			225,000			2,022,659
Proceeds from sale of 2.5% senior secured convertible notes, net		--			1,395,601			1,395,006
Net cash provided by financing activities		1,385,131			1,620,601			3,417,665
Net change in cash		508,981			499,733			686,783
Cash - beginning balance		177,802			28,047			--
Cash - ending balance	$	686,783		$	527,780		$	686,783
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	4,840		$	1,759		$	6,599
Supplemental disclosure of non-cash investing and financing transactions:
Stockholder notes issued in exchange for intellectual property	$	--		$	--		$	200,000
Conversion of convertible notes payable and accrued interest to equity	$	473,707		$	79,364		$	572,721
Derivative liability created on issuance of convertible notes and warrants created	$	--		$	--		$	1,500,000
Reclass of accounts payable to related party notes	$	--		$	--		$	100,000
Common stock issued to settle accounts payable	$	12,500		$	--		$	12,500

See accompanying notes to condensed consolidated financial statements.

6

ATHERONOVA INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

The accompanying condensed consolidated financial statements of AtheroNova Inc. and subsidiary (“AtheroNova,” “we,” “us, “our” and “our Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2011 or for any other interim period.  These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2010, which are included in the Company’s Report on Form 10-K for such year filed on March 31, 2011.  The condensed consolidated balance sheet as of December 31, 2010 has been derived from the audited financial statements included in the Form 10-K for that year.

1.            ORGANIZATION

Z&Z Medical Holdings, Inc. (“Z&Z Nevada”) was incorporated under the laws of the State of Nevada on December 13, 2006 (Inception).  Z&Z Nevada had its headquarters located in Laguna Niguel, California.  On November 30, 2009, a separate corporation named Z&Z Medical Holdings, Inc. (“Z&Z Delaware”) was incorporated under the laws of the State of Delaware and on March 3, 2010 Z&Z Nevada was merged into Z&Z Delaware.  On May 13, 2010, pursuant to an Agreement and Plan of Merger dated March 26, 2010, (i) our subsidiary, Z&Z Merger Corporation, merged with and into Z&Z Delaware and the surviving subsidiary corporation changed its name to AtheroNova Operations, Inc. (“AtheroNova Operations”), (ii) we assumed all the outstanding options and warrants of Z&Z Delaware and (iii) we completed a Capital Raise Transaction in which we sold $1,500,000 in 2.5% Senior Secured Convertible Notes.  The former holders of AtheroNova Operations’ common stock became holders of approximately 98% of our outstanding common stock.  On May 21, 2010, holders of approximately 76.7% of the then outstanding shares of our Super-Voting Common Stock, approximately 90.7% of the then outstanding shares of common stock, and approximately 77.1% of the combined voting power of the then outstanding shares of our Super-Voting Common Stock and our common stock approved an amendment of our certificate of incorporation that (i) decreased the authorized number of shares of our common stock to 100,000,000, (ii) designated 10,000,000 shares of blank check preferred stock, and (iii) adopted a 1-for-200 reverse stock split.  The amendment to our certificate of incorporation became effective on June 23, 2010.

As a result of the merger AtheroNova is now engaged, through AtheroNova Operations, in development of pharmaceutical preparations and pharmaceutical intellectual property.  The Company will continue to be a development stage company for the foreseeable future.  The Company has entered into contracts with two research sites for its second pre-clinical trial.

Immediately prior to the Merger, AtheroNova had 107,272,730 shares of its common stock issued and outstanding. In connection with the Merger, AtheroNova issued 88,575,048 shares of its Super-Voting Common stock in exchange for the issued and outstanding shares of common stock of AtheroNova Operations, and assumed AtheroNova Operations’ outstanding options and warrants which became exercisable to purchase an aggregate of up to 16,552,227 shares of AtheroNova Super-Voting Common Stock.  Upon the effectiveness of the 1-for-200 reverse stock split all shares of AtheroNova Super-Voting Common Stock were automatically converted on a 50-to-1 basis into AtheroNova common stock, resulting in the issuance of 22,143,763 shares of AtheroNova common stock to the former holders of AtheroNova Operation’s common stock, and the outstanding shares of common stock held by AtheroNova’s existing stockholders were combined into 607,647 shares of AtheroNova common stock.

7

Since former holders of AtheroNova Operation’s common stock owned, after the Merger, approximately 98% of AtheroNova’s shares of common stock, and as a result of certain other factors, including that all members of the Company’s executive management are members of AtheroNova Operation’s management, AtheroNova Operations is deemed to be the acquiring company for accounting purposes and the merger was accounted for as a reverse merger and a recapitalization in accordance with generally accepted accounting principles in the United States (“GAAP”).  These condensed consolidated financial statements reflect the historical results of AtheroNova Operations prior to the merger and that of the combined company following the merger, and do not include the historical financial results of AtheroNova prior to the completion of the merger.  Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the merger and subsequent 1-for-200 reverse stock split effected on June 23, 2010.  In conjunction with the Merger, the Company assumed liabilities and incurred costs of $323,294 which have been reflected as costs of the reverse merger in the 2010 statement of operations.

2.             BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements.  Such financial statements and accompanying notes are the representation of the Company’s management, who is responsible for their integrity and objectivity.

Use of Estimates

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in AtheroNova’s Annual Report on Form 10-K filed with the SEC on March 31, 2011.  In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the valuation of long-lived assets, accrued other liabilities, and valuation assumptions related to share based payments and derivative liability.

Going Concern

The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  The Company has a stockholders deficiency of $8,907,321 at September 30, 2011, and has incurred recurring losses from operations since inception.  These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

8

Management is in the process of  concluding an offering to accredited investors of units consisting of one share of the Company’s common stock and a warrant to purchase 0.3 of a share of the Company’s common stock, at a per unit price of $0.55, to raise funds necessary for general corporate and research costs.  The offering has raised $1,385,131 as of September 30, 2011 (see Note 5) and an additional $80,000 was raised after September 30, 2011.  The conclusion of this offering should give the company sufficient capital to fund operations through the end of the first quarter of 2012.  Management is currently evaluating several future funding sources, including the commencement of a new subscription offering and various private placement opportunities.  There can be no assurances that sufficient subsequent funding, if any at all, will be raised by future offerings or private placements or that the cost of such funding will be reasonable.

In light of the foregoing, management will also seek funding through grants and other such funds available from private and public sources established to further research in health care and advancement of science.  Management continues to meet with representatives of private and public sources of funding to continue the ongoing process of capital development sufficient enough to cover negative cash flows expected in future periods and will continue to do so in the coming months.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiary.  All significant intercompany transactions and balances have been eliminated in consolidation.

Earnings and Loss per Share

The Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS.  Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the company reported an operating loss because all warrants and stock options outstanding are anti-dilutive.

A reconciliation of basic and diluted shares for the three months ended September 30, 2011 and 2010 follows:

	September 30,		September 30,
	2011		2010
Average common shares outstanding-basic		26,503,747		22,785,012
Effect of dilutive securities-
Warrants		--		--
Employee and director stock options		--		--
Average diluted shares	$	26,503,747	$	22,785,012

9

A reconciliation of basic and diluted shares for the nine months ended September 30, 2011 and 2010 follows:

	September 30,		September 30,
	2011		2010
Average common shares outstanding-basic		24,729,573		22,243,571
Effect of dilutive securities-
Warrants		2,677,985		--
Employee and director stock options		258,357		--
Average diluted shares	$	27,665,915	$	22,243,571

There were no adjustments to net income required for purposes of computing diluted earnings per share.

Warrants, options and other potentially dilutive securities are antidilutive and excluded from the dilutive calculations when their exercise or conversion price exceeds the average stock market price during the period or the effect would be anti-dilutive when applied to a net loss during the periods presented.  The following table sets forth the shares excluded from the diluted calculation for the three month periods presented as follows:

	September 30,		September 30,
	2011		2010
Convertible notes		3,626,409		4,199,358
Warrants		6,058,198		5,497,355
Employee and director stock options		3,024,498		549,498
Total potentially dilutive shares	$	12,709,105	$	10,246,211

Such securities could potentially dilute earnings per share in the future.

Derivative financial instruments

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the weighted-average Black-Scholes-Merton pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair value of financial instruments

Effective January 1, 2008, fair value measurements are determined by the Company’s adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company’s fair value measurements.  Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

10

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

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The Company is required to use observable market data if such data is available without undue cost and effort.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2011.

	Level 1		Level 2		Level 3		Total
Fair value of Derivative Liability	$	--	$	--	$	8,952,110	$	8,952,110

At September 30, 2011 and December 31, 2010, the fair values of cash and cash equivalents, and accounts payable approximate their carrying values.

Recently Issued Accounting Standards

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required.  The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company will adopt the ASU as required.  It will have no affect on the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely or not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted.  The Company is currently evaluating the effects adoption of ASU 2011-08 may have on its goodwill impairment testing.

11

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.

3.             2.5% SENIOR SECURED CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of the following as of September 30, 2011 and December 31, 2010:

	September 30,			December 31,
	2011			2010
	(Unaudited)
Convertible Notes Payable	$	955,351		$	1,401,951
Less valuation Discount		(616,846	)		(1,173,653	)
Convertible Notes Payable, net	$	338,505		$	228,298

On May 13, 2010, we entered into a Securities Purchase Agreement with W-Net, Europa and MKM pursuant to which the Purchasers purchased from us (i) 2.5% Senior Secured Convertible Notes for a cash purchase price of $1,500,000, and (ii) Common Stock Purchase Warrants pursuant to which the Purchasers may purchase up to 1,908,797 shares of our common stock at an exercise price equal to approximately $0.39 per share, subject to adjustment.  A portion of the proceeds from the Capital Raise Transaction were used to pay $250,000 owed by us to the two principal holders of our common stock, W-Net and Europa, and to reimburse them for legal and accounting fees and $73,294 of other expenses incurred by them and our company in connection with the Merger and the Capital Raise Transaction. Such costs have been reflected as costs of the reverse merger in the accompanying statement of operations for the nine-month period ended September 30, 2010. The net proceeds available to us for our operations were reduced by such payments.

The Original Notes accrued 2.5% interest per annum with a maturity of 4 years after the closing of the Capital Raise Transaction.  No cash interest payments were required, except that accrued and unconverted interest would be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest could be added to and included with the principal amount being converted.  If there was an uncured event of default (as defined in the Notes), the holder of each Note could declare the entire principal and accrued interest amount immediately due and payable.  Default interest would accrue after an event of default at an annual rate of 12%.  If there was an acceleration, a mandatory default amount equal to 120% of the unpaid Note principal plus accrued interest could be payable.

The Warrants may be exercised on a cashless basis under which a portion of the shares subject to the exercise are not issued in payment of the purchase price, based on the then fair market value of the shares.

On May 13, 2010, we also entered into a Security Agreement and an Intellectual Property Security Agreement with the Purchasers and AtheroNova Operations, pursuant to which all of our obligations under the Notes are secured by first priority security interests in all of our assets and the assets of AtheroNova Operations, including intellectual property.  Upon an event of default under the Notes or such agreements, the Note holders may be entitled to foreclose on any of such assets or exercise other rights available to a secured creditor under California and Delaware law.  In addition, under a Subsidiary Guarantee, AtheroNova Operations guaranteed all of our obligations under the Notes.

12

Each Original Note was convertible at any time into common stock at a specified conversion price, which was approximately $0.39 per share, subject to adjustment.  On July 6, 2011, the Company entered into an Amendment and Exchange Agreement with each of W-Net, Europa and MKM pursuant to which the Purchasers agreed to exchange the Original Notes for the Notes.  The Notes have the same terms as the Original Notes (as described below), except that each Note is convertible at any time into common stock at a per share conversion price of $0.29, subject to adjustment.

The Notes may not be prepaid, or forced by us to be converted in connection with an acquisition of our company, except in a limited case more than a year after the Note issuance date where the average of our stock trading price for 30 days on a national trading market other than the OTC Bulletin Board (“OTCBB”) is at least three times the conversion price, in which event, and subject to the satisfaction of certain other requirements, the Note holders may elect to receive at least double the unpaid principal amounts in cash and other requirements are satisfied.  In such a limited case acquisition, there could also be a forced cashless exercise of the Warrants subject to similar requirements and optional cash payments to the Warrant holders of at least double the exercise prices of their Warrants.

The Note conversion price and the Warrant exercise price are subject to specified adjustments for certain changes in the numbers of outstanding shares of our common stock, including conversions or exchanges of such.  If additional shares of our capital stock are issued, except in specified exempt issuances, for consideration which is less than the then existing Note conversion or Warrant exercise price, then such conversion or warrant price will be reduced by anti-dilution adjustments.  For the first $400,000 of such “Dilutive Issuances,” the reduction will be made on a weighted average basis, taking into account the relative magnitudes of any Dilutive Issuance relative to the total number of outstanding shares.  However, any further Dilutive Issuance would be subject to a more detrimental “full ratchet” adjustment that generally reduces the conversion or exercise price to equal the price in the Dilutive Issuance, regardless of the size of the Dilutive Issuance (see related accounting treatment for the Notes and Warrants below).

The Notes greatly restrict the ability of our company and AtheroNova Operations to issue indebtedness or grant liens on our or its respective assets without the Note holders’ consent.  They also limit and impose financial costs on our acquisition by any third party.

Under the Securities Purchase Agreement, as amended, if we meet three specified operating benchmarks during the first twenty-four months after the closing of the first Original Note purchase, an additional $1,500,000 in Note purchases (without Warrants) can be requested by us from the Purchasers.  The determination of whether we have met the benchmarks is solely at the discretion of the Purchasers.  If the benchmarks are determined to have been achieved, then we can require the Purchasers to make the additional $1,500,000 of Note purchases.  If such benchmarks are not attained in the 24-month period, then the Purchasers, in their discretion, during the next two months may elect to purchase up to $1,500,000 of Notes (without Warrants) having an initial conversion price which is 25% higher than the conversion price in the Notes.

Each of the Notes and Warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current conversion or exercise price. The Company considered the current Financial Accounting Standards Board guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument, regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that as the conversion price of the Notes and the strike price of the Warrants may fluctuate based on the occurrence of future offerings or events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes and the Warrants are not considered indexed to the Company’s own stock and characterized the value of the Notes and the Warrants as derivative liabilities upon issuance.

13

The Company determined that the fair value of the conversion feature at issuance was $2,370,245, and that the fair value of the warrant liability at issuance was $1,172,103, based upon a weighted average Black-Sholes-Merton calculation. The Company recorded the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life of the Notes. As the aggregate fair value of these liabilities of $3,542,348 exceeded the aggregate value of the Notes of $1,500,000 at issuance, the excess of the liability over the aggregate value of the Notes of $2,042,348 was considered as a cost of the private placement in 2010.  The Company has amortized $883,154 of the valuation discount of which, $556,807 was recorded during the period ended September 30, 2011.  The remaining unamortized valuation discount of $616,846 as of September 30, 2011 has been offset against the face amount of the Notes for financial statement purposes. The fair value of the derivative liabilities as of September 30, 2011 was $8,952,110 (see Note 4).

From issuance through September 30, 2011, the Purchasers exercised their option to convert a portion of the Original Notes into our common stock.  During the year ended December 31, 2010, principal in the amount of $98,049 and accrued interest in the amount of $965 was converted at a per share price of approximately $0.39 into 249,488 and 2,456 shares, respectively, of our common stock.  During the nine months ended September 30, 2011, principal in the amount of $446,600 was converted at a per share price of $0.29 into 1,540,000 shares of our common stock.  In addition, the Company also issued 45,164 shares of our common stock with a market value of $27,098 to settle $13,098 of accrued interest relating to these notes.  The issuance of these common shares resulted in an additional charge of $14,000 that has been reflected as a financing cost in the accompanying statement of operations.  The aggregate balance of the Original Notes outstanding as of September 30, 2011 amounted to $955,351.

4.             DERIVATIVE LIABILITY

In April 2008, the FASB issued a pronouncement that provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives.  This pronouncement was effective for financial statements issued for fiscal years beginning after December 15, 2008.  The adoption of these requirements can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions).  For example, warrants with such provisions will no longer be recorded in equity.  Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price.

14

We evaluated whether convertible debt and warrants to acquire stock of the Company contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price under the respective convertible debt and warrant agreements.  We determined that the Notes and the Warrants issued to W-Net, Europa and MKM contained such provisions and recorded such instruments as derivative liabilities.  Derivative liabilities were valued using the weighted-average Black-Scholes-Merton option pricing model, which approximates the Monte Carlo and other bi-nominal valuation techniques, with the following assumptions:

	September 30, 2011		December 31, 2010
	(Unaudited)
Conversion feature :
Risk-free interest rate		0.42%		2.01%
Expected volatility		136%		150%
Expected life (in years)	2.63 years		3.37 years
Expected dividend yield		0.00%		0.00%
Warrants :
Risk-free interest rate		0.42%		2.01%
Expected volatility		136%		150%
Expected weighted average life (in years)	2.63 years		3.37 years
Expected dividend yield		0.00%		0.00%
Fair Value :
Conversion feature	$	5,890,341	$	9,177,865
Warrants		3,061,769		4,520,058
	$	8,952,110	$	13,367,923

The risk-free interest rate was based on rates established by the Federal Reserve Bank.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient market information to estimate the volatility of its own stock, and the expected life of the instruments is determined by the expiration date of the instrument.  The expected dividend yield was based on the fact that the Company has not paid dividends to common stockholders in the past and does not expect to pay dividends to common stockholders in the future.

The Company measured the aggregate fair value of the Original Notes and the Warrants issued on May 13, 2010 as $3,542,348. The value of the derivative liability at the date of issuance of $3,542,348 in excess of the Original Notes payable with a face amount of $1,500,000 was $2,042,348, and such amount was recognized in the statements of operations for the three- and nine-month periods ended September 30, 2010 as a cost of the private placement. The Company measured the aggregate fair value of the Original Notes and the Warrants on December 31, 2010 at an aggregate value of $13,367,923.  As of September 30, 2011, the Company re-measured the remaining derivative liabilities and determined the aggregate fair value to be $8,952,110. The Company recorded the change in fair value of the derivative liabilities of $3,934,420 in the accompanying statement of operations for the nine months ending September 30, 2011.

For the three months ended September 30, 2011, the Company recorded a gain on the extinguishment of derivative liability of $811,393 due to the conversion of principal balance of convertible notes of $446,600.

15

5.            STOCKHOLDERS’ DEFICIENCY

Common Stock

Sale of common stock

During the nine months ended September 30, 2011, the Company sold 2,518,421 units for $0.55 per unit, each unit consisting of one share of common stock and a warrant to purchase .30 shares of common stock for up to three years at $0.60 per share, to accredited investors, resulting in proceeds to the Company of $1,385,131.  In connection with such sales, warrants to purchase 711,887 shares of common stock were issued to these same purchasers.  There were no commissions paid with respect to these sales.

Certain of these unit sales were made to existing employees, officers and vendors.  Included in these totals was the sale of 324,407 units (representing 324,407 common shares and warrants to purchase an additional 97,323 common shares) to officers and vendors to the Company.  The Company determined that it was appropriate to recognize compensation expense of $223,892 for the differential of the purchase price to the open market price of each respective purchase on its date of execution.  Additionally, the associated warrants resulted in recognition of additional compensation expenses of $85,525 which were valued using the Black-Scholes-Merton valuation model with the following assumptions: risk free interest rate of 0.25 – 0.56%, dividend yield of 0%, volatility factors of the expected market price of common stock of 138%, and an expected life of 1.5 years.  The aggregate amount of $309,417 has been reflected as additional compensation in the accompanying September 30, 2011 statement of operations.

On March 11, 2011, we issued 25,000 shares of our common stock for gross proceeds of $25,000 to an accredited investor in a private placement transaction.  On April 11, 2011, we amended the subscription agreement pursuant to which we sold such shares to provide, instead, for the purchase of 45,454 units consisting of 45,454 shares of our common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 13,636 shares of our common stock.

Common stock issued to settle payables

On September 30, 2011, we issued 22,727 units, consisting of 22,727 shares of our common stock and a warrant, having a three year term and an exercise price of $0.60 per share, to purchase 6,818 shares of our common stock in exchange for cancellation of $12,500 of accounts payable for prior services rendered.  The Company recognized a cost of $36,113 in the accompanying September 30, 2011 statement of operations upon settlement of this payable relating to the difference between the fair value of the units issued.

Stock Options

The Company has a stockholder-approved stock incentive plan for employees under which it has granted stock options.  In May 2010, the Company established the 2010 Stock Incentive Plan (the “2010 Plan”), which provides for the granting of awards to officers, directors, employees and consultants to purchase or acquire up to 4,362,964 shares of the Company’s common stock.  The awards have a maximum term of 10 years and vest over a period determined by the Company’s Board of Directors and are issued at an exercise price determined by the Board of Directors.  Options issued under the 2010 Plan will have an exercise price equal to or greater than the fair market value of a share of the Company’s common stock at the date of grant.  The 2010 Plan expires on May 20, 2020 as to any further granting of options.

During the period ended September 30, 2011, options to purchase 162,500 shares of the Company’s common stock were granted to employees under the 2010 Plan.  The options vest 25% upon issuance, and then vest 25% on each anniversary date thereafter.  The options have an exercise price of $1.01 per share and expire on the 7th anniversary of the date of grant.

On June 1, 2011, the Company entered into an agreement with a consultant to purchase 50,000 shares of common stock at $1.01, which vest over a one year period.  The company is valuing the vested options at each reporting date in accordance with the current accounting guidance which require option awards issued to non-employees be based upon the current market price as the services are performed using an option pricing model.

On June 1, 2011, the Company entered into an agreement with a consultant to perform certain development and regulatory activities.  Under the terms of the agreement, the company issued to the consultant an option to purchase 500,000 shares of our common stock at $1.01 per share that vests over 48 months starting July 2011.  The company is valuing the vested options at each reporting date in accordance with the current accounting guidance which require option awards issued to non-employees be based upon the current market price as the services are performed using an option pricing model.  As of September 30, 2011 a total of 31,250 option shares are vested with a fair value of $52,436, which was expensed during the period.

In addition to the above, an additional 1,500,000 option shares were committed to the consultant under a development plan calling for achievement of twelve (12) milestones set forth by the Company.  Upon achievement of these various milestones, the Company will be obligated to grant additional stock options of varying amounts.  Once the options are granted, the options will vest on a monthly basis for a period of four years.  In case the consultant terminates the relationship with the Company during the vesting period, any unvested options will be forfeited.  As of September 30, 2011, the consultant accomplished two (2) milestones and was granted total options of 150,000, of which 3,125 shares vested on October 2, 2011.  Total fair value of the options vested amounted to approximately $5,000.

16

A summary of the status of the Company’s stock options as of September 30, 2011 and changes during the period then ended is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		2,199,498	$	0.878		6.852
Granted		862,500	$	1.01		6.72
Exercised		--		--		--
Cancelled		(37,500)		1.11		--
Outstanding at September 30, 2011		3,024,498	$	0.953		6.001	$	2,600,558
Exercisable at September 30, 2011		807,601	$	0.882		5.779	$	751,518
Weighted-average fair value of options granted during the three month period ended September 30, 2011	$	0.870

During the three and nine months ended September 30, 2011, the Company recognized $165,121 and $459,224, respectively, of compensation costs related to the vesting of these options. As of September 30, 2011, the total compensation cost related to nonvested option awards not yet recognized is $2,397,843.  The weighted average period over which it is expected to be recognized is approximately 3.50 years.  The intrinsic value of the shares outstanding at September 30, 2011 was $2,600,558.

To compute compensation expense, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes-Merton option pricing model for employees, and calculated the fair value of each option award at the end of the period for non-employees.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient market information to estimate the volatility of its own stock.  The expected term of options granted represents the period of time that options are expected to be outstanding.  The Company estimated the expected term of stock options by using the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences.  To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.  The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

The following table shows the weighted average assumptions the Company used to develop the fair value estimates for the determination of the compensation charges in the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,			Nine months ended September 30,
	2011		2010	2011	2010
Expected volatility		138%	138%	138%		138%
Dividend yield		--	--	--		--
Expected term (in years)		1.5-6.25	6.25	6.25		6.25
Risk-free interest rate		1.41%	1.92%	2.19%		1.92%

17

Warrants

On March 29, 2011, we issued warrants to an advisor to the Company to purchase 21,000 shares of our common stock. The warrants vested over a three month period, have a term of three years and are exercisable at a purchase price of $0.50. The warrants were valued using the Black-Scholes-Merton option pricing model at $22,470 with the following assumptions:  risk free interest rate of 2.25%, dividend yield of 0%, volatility factors of the expected market price of common stock of 239%, and an expected life of 3 years.

During the nine months ended September 30 2011, we issued a total 725,523 fully-vested warrants to accredited investors who purchased common stock in the subscription offering.  These warrants are exercisable for three years from the date of issuance at an exercise price of $0.60 per share. We also issued 6,818 warrants as a part of our agreement at settle $12,500 of accounts payable.

As of September 30, 2011 there are warrants to purchase 6,058,198 shares of our common stock outstanding with expiration dates ranging from February 2013 through December 2015 and exercise prices ranging from $0.22 to $1.64.  A summary of the status of our warrants as of September 30, 2011 and changes during the period then ended is presented below:

	Shares		Weighted average exercise price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic  Value
Outstanding at December 31, 2010		5,304,857	$	0.338		3.664	11,471,264
Granted		753,341	$	0.597		2.862	906,109
Exercised		--		--		--	--
Cancelled		--		--		--	--
Outstanding at September 30, 2011		6,058,198	$	0.370		2.907	$	8,663,973
Exercisable at September 30, 2011		6,058,198	$	0.370		2.907	$	8,663,973
Weighted-average fair value of warrants granted during the three month period ended September 30, 2011	$	0.600

6.            COMMITTMENTS

At present the Company has commitments for two research and development projects for its second pre-clinical trials.  The first agreement, with the University of California, has completed the laboratory segment of the project and should be in process of issuing the final analytic reports.  Amendment #1 to the agreement, dated September 22, 2011, added serum analytic work on samples provided by Cedars-Sinai for an additional $4,620, increasing the final amount due under the agreement to $43,787.

The second commitment for research and development projects, with the Cedars-Sinai Medical Center, has also completed the laboratory segment of the project and completion of the data analysis and publishable manuscript are expected to be during the 4th quarter of 2011.  Additional progress payments still due at various dates dependent upon the stages of completion of the project total $137,583.

The Company has agreed to a consulting contract with its drug development consultant which calls for payments of certain achievement cash bonuses as well as future stock option grants based on attainment of various development milestones.  To date, cash bonuses of $10,000 and stock options to purchase 150,000 shares of common stock, subject to a vesting schedule, have been issued after satisfaction of several goals during the current period.  If all remaining development milestones are met, cash bonuses of $140,000 will be paid and additional stock options to purchase an additional 1,350,000 shares of common stock, also subject to a vesting schedule, will be granted.  It is expected that this development process will last between 24 and 36 months.

18

7.            SUBSEQUENT EVENTS

On October 11, 12 and 14th, 2011, the Company issued an aggregate of 145,455 units consisting of 145,455 shares of the Company’s common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 43,636 shares of the Company’s common stock.  The aggregate gross proceeds from this private placement transaction were $80,000.

On October 17, 2011, the Company issued 50,000 shares of its common stock to a service provider in consideration of services rendered to the Company.

Additionally on October 18, 2011, 11,136 units consisting of 11,136 shares of our common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 3,341 shares of our common stock, were issued in satisfaction of accounts payable totaling $6,124.80.

On October 22, 2011, the Company entered into two definitive agreements with OOO CardioNova, a wholly-owned subsidiary of Maxwell Biotech Group, a Russian biotech fund, covering the Company’s AHRO-001 compound.  The agreements cover a territory represented by the Russian Federation, the Ukraine and various countries in central Asia (the “Territory”).

Under the Licensing Agreement, OOO CardioNova (“CardioNova”) will become an equity investor in the Company in exchange for the funding of Phase 1 and 2 human clinical trials conducted by a Clinical Research Organization (“CRO”) located in Russia.  Terms of the Agreement specify that a Joint Steering Committee be established between both entities to determine final clinical protocols and research budget, which is expected to total approximately $3.8 million.  Upon acceptance of the development plan, common stock equal to 10% of the research budget will be issued to CardioNova at a 20-day weighted average prior to the signature of the initial term sheet, or $0.97 per share.

Additional common stock issuances of 20%, 40% and 30% of the approved budget shall be issued upon the approval by the Joint Steering Committee of the Phase 1 protocol, announcement of Phase 1 results and announcement of Phase 2 results, respectively.  Each tranche will be priced at the lower of the weighted 20-day average immediately prior to each issuance event, or $0.97 per share, whichever is lower.

If CardioNova successfully develops and commercializes AHRO-001 in the Territory, the Company will be entitled to receive a quarterly royalty, based on net sales during the period using an escalating scale.  The royalty agreement shall remain in force for the period in which intellectual property rights for AHRO-001are in full force and effect in the Territory.

Under the Securities Purchase Agreement, OOO CardioNova will purchase up to 275,258 shares of the Company’s common stock for a cash purchase price of $0.97 per share.  This transaction will take place in two installments.  The first installment of 154,639 shares will occur concurrently with the first common stock issuance as specified in the Licensing Agreement, which will occur after November 15, 2011.  The 2nd installment will occur upon delivery of final clinical product to be used in the Phase 1 and 2 clinical trials.

19

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

This discussion summarizes the significant factors affecting our operating results, financial condition and liquidity and cash flows for the three and nine months ended September 30, 2011 and 2010.  The discussion and analysis that follows should be read together with the condensed consolidated financial statements and the notes to the financial statements included elsewhere in this report.  Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control.  Our actual results could differ materially from the results anticipated in any forward-looking statements as a result of a variety of factors, including those discussed in the section of our annual report on Form 10-K captioned “Risk Factors.”

Overview

Z&Z Medical Holdings, Inc. (“Z&Z Nevada”) was incorporated in the State of Nevada on December 13, 2006 with contributed intellectual property from its founders.  Z&Z Nevada was engaged in developing the contributed intellectual property while seeking sources of funding to conduct further research and development.  In November 2009 we incorporated a separate company, Z&Z Medical Holdings Inc. in Delaware (“Z&Z Delaware”) and merged Z&Z Nevada into Z&Z Delaware in March 2010.  On March 26, 2010 we entered into a merger agreement between us, Z&Z Delaware and Z&Z Merger Corporation, our wholly-owned subsidiary and on May 13, 2010, Z&Z Delaware merged into Z&Z Merger Corporation and became our operating subsidiary.  Concurrent with the merger, Z&Z Delaware changed its name to AtheroNova Operations Inc. (“AtheroNova Operations”) and we changed our name to AtheroNova Inc.  The business of AtheroNova Operations, pharmaceuticals and pharmaceutical intellectual property, became our business upon consummation of the merger.  Concurrent with the closing of the merger we consummated a capital raise transaction, in which we sold to investors $1,500,000 in 2.5% Senior Secured Convertible Notes and Common Stock Purchase Warrants to purchase 1,908,798 shares of our commons stock (see Note 3 to the accompanying financial statements).

We have developed intellectual property, covered by our pending patent applications, which uses certain pharmacological compounds uniquely for the treatment of atherosclerosis, which is the primary cause of cardiovascular diseases.  Atherosclerosis occurs when cholesterol of fats are deposited and form as plaques on the walls of the arteries.  This buildup reduces the space within the arteries through which blood can flow.  The plaque can also rupture, greatly restricting or blocking blood flow altogether.  Through a process called delipidization, such compounds dissolve the plaques so they can be eliminated through normal body processes and avoid such rupturing or restriction of blood flow.  Such compounds may be used both to treat and prevent atherosclerosis.

In the near future, we plan to continue studies and trials to demonstrate the efficacy of our IP.  Ultimately, we plan to use or license our technology to various licensees throughout the world who may use it in treating or preventing atherosclerosis and other medical conditions or sublicense the IP to other such users.  Our potential licensees may also produce, market or distribute products which utilize or add our compounds and technology in such treatment or prevention.

General

Operating expenses consist primarily of payroll and related costs, corporate infrastructure costs and research costs.  We expect that our operating expenses will increase as we finalize clinical testing and continue executing our business plan, in addition to the added costs of operating as a public company.

Historically, we have funded our working capital needs primarily through the sale of shares of our capital stock and debt financing.

The merger was accounted for as a reverse merger (recapitalization) with AtheroNova Operations deemed to be the accounting acquirer, and our company deemed to be the legal acquirer.  Accordingly, the following discussing represents a discussion of the operations of our wholly-owned subsidiary, AtheroNova Operations for the periods presented.

20

During the 3 months ended September 30, 2011, we signed a term sheet with Maxwell Biotech Group (“Maxwell”) under which the Phase 1 and 2 human clinical trials of AHRO-001 will be conducted and funded by Maxwell for up to $3.8 million dollars in exchange for our common stock priced at the lower of $0.97 per share or the 20 day average prior to each achievement milestone.  Achievement milestones shall occur upon the following events: a) acceptance by both parties on a finalized development budget; b) acceptance by both parties on a finalized Phase 1 study protocol; c) announcement of results of Phase 1 study, and; d) announcement of the results of Phase 2 study.  A Joint Steering Committee, composed of personnel from both entities shall be established to oversee the development and approval of the finalized budgets and clinical trial protocols.

Concurrent with the establishment of the study budget and Joint Steering Committee, Maxwell shall purchase common stock equivalent to the expected cost of AHRO-001 and placebo clinical trial materials expected to be used to conduct the clinical trials.  This purchase, to be completed in 2 phases, shall be for a total of $267,000 at a price of $0.97 per share.  The first purchase will be consummated upon signing of the definitive Licensing and Securities Purchase Agreement and the second purchase will be consummated upon delivery of the clinical trial materials to Maxwell or its designated facilities.

Additionally, Maxwell will receive an exclusive marketing license for Russia and various Russian influenced countries.  If approval is received in this territory for commercial distribution, as part of the marketing license, Maxwell will pay an escalating royalty based on net annual sales volume in the territory.  Such royalties shall continue throughout the term of all patents received in the territories.

We have negotiated and executed the Stock Purchase Agreement and Licensing Agreement.  Additionally, a Manufacturing Agreement and Pharmacovigilance Agreement are called for and will need to be negotiated once clinical trials prove dose and efficacy of the compounds under development.

Results of Operations

Three-month Period ended September 30, 2011 vs. 2010

	Quarters ended September 30,				Increase
	2011		2010		(decrease)
Costs and expenses:
Research and development:
Share-based compensation	$	--	$	--	$	--
Other research and development expenses		88,270		--		88,270
Total research and development expenses		88,270		--		88,270
General and administrative:
Share-based compensation		529,518		113,409		416,109
Other general and administrative expenses		267,560		480,619		(213,059)
Total general and administrative expenses		797,078		594,028		203,050
Impairment charge-intellectual property:
Impairment charge		--		572,868		(572,868)
Total impairment charge-intellectual property expenses		--		572,868		(572,868)
Interest expense		401,446		196,810		204,636
Gain on extinguishment of debt		(811,393)		--		(811,393)
Change in fair value of derivative liabilities		3,469,451		412,361		3,057,090
Other expense		(36)		(676)		640
Total other expense		3,059,468		608,495		2,450,973
Net loss	$	3,944,816	$	1,775,391	$	2,169,425

21

During the three month periods ended September 30, 2011 and 2010, we did not recognize any revenues.  We are considered a development stage company and do not expect to have revenues relating to our products in the foreseeable future, if at all.

For the quarters ended September 30, 2011 and 2010, research and development expenses increased to $88,270 from $0.  This increase is primarily due to the costs associated with patent and intellectual property work and clinical progress payments in the current period with no comparable expenses in 2010.

General and administrative costs increased to $797,078 in the third quarter of 2011 compared to $594,028 for the quarter ended September 30, 2010, or an increase of $203,050.  The increase in costs in the current year compared to the same period in 2010 was due to the current year’s costs for stock-based compensation in connection with stock purchases and warrants by employees and consultants to the company in the current financing round at values that were less than the then current market price of the common stock.  This was partially offset by decreases in legal and consulting services performed in the prior year in conjunction with the financial valuation models on derivative liabilities as well documents associated with changes in management and the Board of Directors.

For the three months ended September 30, 2011, intellectual property impairment charge decreased to $0 from $572,868 in the three months ended September 30, 2010. This decrease is due to the prior year’s expense recognized following management’s evaluation of likelihood of realization of the assets as well as the appropriateness of recording such cost as intangible assets.

For the quarter ended September 30, 2011 interest expense was $401,446 compared to $196,810 for the same period in the prior year.  This increase is due to interest expense and discount amortization incurred on the 2.5% Senior Secured Convertible Notes (the “Original Notes”) as well as amortization of debt discount of $331,856 on the portion of the convertible notes converted to common stock during the quarter.

For the three months ended September 30, 2011, gain on extinguishment of debt increased to $811,393 from $0 in the three months ended September 30, 2010. This increase is due to the valuation of the convertible notes immediately prior to conversion of $446,600 of note principal during July 2011.

Change in fair value of derivative liabilities resulted in expense of $3,469,451 for the three months ended September 30, 2011.  Change in fair value of derivative liabilities resulted in expense of $412,361 for the 3 months ended September 30, 2010.  This change in fair value results from revaluing our derivative liabilities associated with the convertible notes and warrants issued and outstanding at the end of each period.

Net loss for the quarter ended September 30, 2011 was $3,944,816 compared to a net loss of $1,775,391 for the quarter ended September 30, 2010 due to continued operations in advancing the scientific and regulatory work of AHRO-001 as well as the revaluing of derivative liabilities, partially offset by lower impairment charges due to the prior year’s evaluation and subsequent write down of intellectual property intangible assets.

22

Nine-month Period ended September 30, 2011 vs. 2010

	Nine months ended September 30,				Increase
	2011		2010		(decrease)
Costs and expenses:
Research and development:
Share-based compensation	$	--	$	--	$	--
Other research and development expenses		271,645		110,450		161,195
Total research and development expenses		271,645		110,450		161,195
General and administrative:
Share-based compensation		827,224		473,628		353,596
Other general and administrative expenses		744,110		514,287		229,823
Total general and administrative expenses		1,571,334		987,915		583,419
Impairment charge-intellectual property:
Impairment charge		--		572,868		(572,868)
Total impairment charge-intellectual property expenses		--		572,868		(572,868)
Interest expense		594,922		233,060		361,862
Gain on extinguishment of debt		(811,393)		--		(811,393)
Change in fair value of derivative liabilities		(3,934,420)		412,361		(4,346,781)
Merger related expenses		--		323,294		(323,294)
Private placement costs		--		2,042,348		(2,042,348)
Other (income) expense		4,675		48,467		(43,792)
Total other (income) expense		(4,146,216)		3,059,530		(7,205,746)
Net (income) loss	$	(2,303,237)	$	4,730,763	$	(7,034,000)

During the nine month periods ended September 30, 2011 and 2010, we did not recognize any revenues.  We are considered a development stage company and do not expect to have revenues relating to our products in the foreseeable future, if at all.

For the nine months ended September 30, 2011, research and development expenses increased to $271,645 from $110,450 for the same period in 2010.  This increase is primarily the result of our 2nd pre-clinical trials currently in process as well as expenses for patent and intellectual property work during the current year with only final report expenses in the prior year.

General and administrative costs increased to $1,571,334 for the first nine months of 2011 compared to $987,915 for the first nine months of 2010, or an increase of $583,419.  The increase in costs incurred in 2011 is due to the costs associated with our corporate offices, payroll expenses as well as the cost of stock based compensation expense for our officers and directors, partially offset by reduced legal expenses for the merger transaction that was completed and recorded in May 2010.

For the nine months ended September 30, 2011, intellectual property impairment charge decreased to $0 from $572,868 in the nine months ended September 30, 2010. This decrease is due to the prior year’s expense recognized following management’s evaluation of likelihood of realization of the assets as well as the appropriateness of recording such cost as intangible assets.

For the period ended September 30, 2011 interest expense was $594,922 compared to $233,060 in the same period in 2010.  This change is due to interest expense and increased discount amortization of $242,518 on the portion of the convertible notes converted in the current year when compared to the portion of the convertible notes converted in the prior year.

23

For the nine months ended September 30, 2011, gain on extinguishment of debt increased to $811,393 from $0 in the nine months ended September 30, 2010. This increase is due to the valuation of the convertible notes immediately prior to conversion of $446,600 of note principal during July 2011.

Change in fair value of derivative liabilities resulted in income of $3,934,420 for the nine months ended September 30, 2011.  The fair value measurement for the nine months ended September 30, 2010 resulted in an expense of $412,361.  This change in fair value of $4,346,781 results from revaluing our derivative liabilities associated with the remaining Original Notes and the Warrants issued in the prior year.

Merger related expenses decreased from $323,294 in the nine months ended September 30, 2010 to $0 in the nine-month period of the current year due to the one-time nature of the costs incurred to complete the merger, including legal and settlement costs.

Private placement costs were $0 in the period ending September 30, 2011 compared to $2,042,348 in the period ending September 30, 2010 due to the fair value recorded for the Original Notes and the Warrants issued in excess of the face value of the Original Notes.  There are no such costs for the corresponding nine months of the current year as the revaluation analysis is recognized under the Change in fair value of derivative liabilities.

Net income for the nine months ended September 30, 2011 was $2,303,237 compared to a net loss of $4,730,763 for the nine months ended September 30, 2010 due to the change recorded from re-valuing our derivative liabilities which is only partially offset by payroll and stock based compensation for employees, officers and directors retained by us as well as the costs associated with the ongoing costs of the 2nd pre-clinical trials.  The net loss in the nine months ended September 30, 2010 included the final costs of the proof of concept study as well as legal costs associated with the negotiation and review of merger documents and private placement costs incurred with the valuation of derivative liabilities.

Liquidity and Capital Resources

From inception to September 30, 2011, we incurred a deficit during the development stage of $13,539,560 primarily as a result of our losses from operations and the non-cash costs relating to the accounting of debt, derivative and warrant issuances.  We expect to continue to incur additional losses for at least the next twelve months and for the foreseeable future.  These losses have been incurred through a combination of research and development activities as well as patent work related to our technology, expenses related to the merger and to public reporting obligations and the costs to supporting all of these activities.

We have financed our operations since inception primarily through equity and debt financings.  During the nine months ended September 30, 2011, we had a net increase in cash and cash equivalents of $508,981.  This increase resulted largely from cash provided by stock subscription financing activities of $1,385,131, partially offset by net cash used in operating activities of $875,113.  Total liquid resources as of September 30, 2011 were $686,783 compared to $177,802 at December 31, 2010.

As of September 30, 2011, excluding our derivative liability of $8,952,110, we had working capital of $378,618 compared to working capital of $11,580 at December 31, 2010, when excluding our derivative liability of $13,697,823 as of that date.

Our available working capital and capital requirements will depend upon numerous factors, including progress of our research and development programs, our progress in and the cost of ongoing and planned nonclinical and clinical testing, the timing and cost of obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, in-licensing activities, competing technological and market developments, the resources that we devote to developing manufacturing and commercializing capabilities, the status of our competitors, our ability to establish collaborative arrangements with other organizations and our need to purchase additional capital equipment.

24

Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, other collaborative agreements, strategic alliances, and our ability to realize the full potential of our technology in development.  Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.  Through September 30, 2011, a significant portion of our financing has been through private placements of common stock and warrants and debt financing.  Unless our operations generate significant revenues and cash flows from operating activities, we will continue to fund operations from cash on hand and through the sources of capital previously described.  We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs.  We believe that we will continue to incur net losses and negative cash flows from operating activities for the foreseeable future.

We are concluding an offering to accredited investors of units -consisting of one share of the Company’s common stock and a warrant to purchase 0.3 of a share of the Company’s common stock, at a per unit price of $0.55, to raise funds necessary for general corporate and research costs.  During the period ended September 30, 2011, we have raised $1,397,631 in gross proceeds from the sale of 2,541,148 units to accredited investors, with an additional $80,000 raised after September 30, 2011. The securities constituting the units have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold absent registration or an applicable exemption from the registration requirements. Disclosure of the offering in this report does not constitute an offer of securities for sale. There can be no assurances that sufficient subsequent funding, if any at all, will be raised by these or future discussions or the cost of such investments will be reasonable.  Furthermore, we will need additional financing thereafter to complete development and commercialization of our products.  There can be no assurances that we can successfully complete development and commercialization of our products.

These matters raise substantial doubt about our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have reported a net loss of $3,944,816 in the three months ended September 30, 2011, offset by non-cash losses on valuation of derivative liabilities of $3,469,451 and non-cash gains from extinguishment of debt of $811,393, compared to a net loss of $1,775,391 for the three months ended September 30, 2010, which included non-cash expenses of $412,361 for valuation of derivative liabilities and $572,868 for impairment charges on intellectual property.   We have reported net income of $2,303,237 in the nine months ended September 30, 2011, offset by non-cash gains on valuation of derivative liabilities of $3,934,420 and extinguishment of debt of $811,393, compared to a net loss of $4,730,763 for the nine months ended September 30, 2010, which included non-cash expenses of $2,042,348 for valuation of initial debt placement, $412,361 for valuation of derivative liabilities and $572,868 for impairment charges on intellectual property. The net loss from the date of inception, December 13, 2006, to September 30, 2011 amounts to $13,539,560.  Management believes that we will continue to incur net losses through at least December 31, 2012.

Amended and Restated 2.5% Senior Secured Convertible Notes Payable

On May 13, 2010, we entered into a Securities Purchase Agreement with W-Net Fund I, L.P. (“W-Net”), Europa International, Inc. (“Europa”), and MKM Opportunity Master Fund, Ltd. (“MKM” and together with W-Net and Europa, the “Purchasers”), pursuant to which the Purchasers, on May 13, 2010, purchased from us (i) Original Notes for a cash purchase price of $1,500,000, and (ii) Warrants pursuant to which the Purchasers may purchase up to 1,908,798 shares of our common stock at an exercise price equal to approximately $0.39 per share (the “Capital Raise Transaction”).  A portion of the proceeds from the Capital Raise Transaction were used to pay $250,000 owed by us to the two principal holders of our common stock, W-Net and Europa, and to reimburse them for legal and accounting fees and other expenses incurred by them and our company in connection with the merger and the Capital Raise Transaction.  The net proceeds available to us for our operations were reduced by such payments.

On July 6, 2011, we entered into an Amendment and Exchange Agreement with each of W-Net, Europa and MKM pursuant to which the Purchasers agreed to exchange the Original Notes for Amended and Restated 2.5% Senior Secured Convertible Notes (the “Notes”) and to amend the Securities Purchase Agreement to extend, for a period of 12 months, our right to cause the Purchasers to purchase their pro rata share of an aggregate of $1,500,000 in additional Notes provided that we meet three operating benchmarks specified in the Securities Purchase Agreement (the “Specified Benchmarks”), in consideration of our agreement to extend, for a period of 12 months, each Purchaser’s right to cause us to sell to such Purchaser its pro rata portion of an aggregate of $1,500,000 in additional Notes if we fail to meet the Specified Benchmarks.

25

The Notes pay 2.5% interest per annum with a maturity of 4 years after the closing of the Capital Raise Transaction.  No cash interest payments are required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount being converted.  If there is an uncured event of default (as defined in the Notes), the holder of each Note may declare the entire principal and accrued interest amount immediately due and payable.  Default interest will accrue after an event of default at an annual rate of 12%.  If there is an acceleration, a mandatory default amount equal to 120% of the unpaid Note principal plus accrued interest may be payable.

The Warrants may be exercised on a cashless basis under which a portion of the shares subject to the exercise are not issued in payment of the purchase price, based on the then fair market value of the shares.

On May 13, 2010, we also entered into a Security Agreement and an Intellectual Property Security Agreement with the Purchasers and AtheroNova Operations, pursuant to which all of our obligations under the Notes are secured by first priority security interests in all of our assets and the assets of AtheroNova Operations, including intellectual property.  Upon an event of default under the Notes or such agreements, the Note holders may be entitled to foreclose on any of such assets or exercise other rights available to a secured creditor under California and Delaware law.  In addition, under a Subsidiary Guarantee, AtheroNova Operations will guarantee all of our obligations under the Notes.

Each Note is convertible at any time into common stock at $0.29 per share.  Original Note principal in the amount of $98,049 has been converted in 2010 and $446,600 has been converted in the nine months ended September 30, 2011.   Immediate conversion of the remaining balance outstanding on the Notes of $955,351 would result in the holders receiving 3,294,314 shares of our common stock.  Interest expense of $965 accrued on the converted portion of the Original Notes from the date of issuance through the respective conversion dates in 2010 and $13,098 accrued on the converted portion in 2011 resulted in the issuance of 47,620 shares of our common stock in lieu of cash payment of the interest expense.  Additional interest expense of $14,001 was recorded using current valuations for interest expense paid with the issuance of common stock.

The Notes may not be prepaid, or forced by us to be converted in connection with an acquisition of our company, except in a limited case more than a year after the Note issuance where the average of our stock trading price for 30 days on a national trading market other than the OTC Bulletin Board (“OTCBB”) is at least three times the conversion price, in which event, and subject to the satisfaction of certain other requirements, the Note holders may elect to receive at least double the unpaid principal amounts in cash and other requirements are satisfied.  In such a limited case acquisition, there could also be a forced cashless exercise of the Warrants subject to similar requirements and optional cash payments to the Warrant holders of at least double the exercise prices of their Warrants.

The Note conversion price and the Warrant exercise price will be subject to specified adjustments for certain changes in the numbers of outstanding shares of our common stock, including conversions or exchanges of such.  If additional shares of our capital stock are issued, except in specified exempt issuances, for consideration which is less than the then existing Note conversion or Warrant exercise price, then such conversion or exercise price will be reduced by anti-dilution adjustments.  For the first $400,000 of such “Dilutive Issuances,” the reduction will be made on a weighted average basis, taking into account the relative magnitudes of any Dilutive Issuance relative to the total number of outstanding shares.  However, any further Dilutive Issuance would be subject to a more detrimental “full ratchet” adjustment that generally reduces the conversion or exercise price to equal the price in the Dilutive Issuance, regardless of the size of the Dilutive Issuance.

The Notes greatly restrict the ability of our company or AtheroNova Operations to issue indebtedness or grant liens on our or its respective assets without the Note holders’ consent.  They also limit and impose financial costs on our acquisition by any third party.

Under the Securities Purchase Agreement, as amended on July 6, 2011, if we meet three specified operating benchmarks during the first twenty-four months after the closing of the first Original Note purchase, an additional $1,500,000 in Note purchases (without Warrants) can be requested by us from the Purchasers.  The determination of whether we have met the benchmarks is solely at the discretion of the Purchasers.  If the benchmarks are determined to have been achieved, then we can require the Purchasers to make the additional $1,500,000 of Note purchases.  If such benchmarks are not attained in the 24-month period, then the Purchasers, in their discretion, during the next two months may elect to purchase up to $1,500,000 of Notes (without Warrants) having an initial conversion price which is 25% higher than the conversion price in the Notes.

26

Research and Development Projects

At present we have commitments for two research and development projects for our second pre-clinical trials.  The first agreement, with the University of California, has completed the laboratory segment of the project and should be in process of issuing the final analytic reports.  Amendment #1 to the agreement, dated September 22, 2011, added serum analytic work on samples provided by Cedars-Sinai for an additional $4,620, increasing the final amount due under the agreement to $43,787.

The second commitment for research and development projects, with the Cedars-Sinai Medical Center, has also completed the laboratory segment of the project and completion of the data analysis and publishable manuscript are expected to be during the 4th quarter of 2011.  Additional progress payments still due at various dates dependent upon the stages of completion of the project total $137,583.

Summary of Contractual Commitments

Employment Agreements

Employment agreements with our Chief Executive Officer and Chief Financial Officer are incorporated by reference to Exhibits 10.1 and 10.2 to the Current Report on Form 8-K (File No. 000-52315) filed with the Securities and Exchange Commission (“SEC”) on September 3, 2010.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations.  The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.  On an ongoing basis, management evaluates its estimates and judgment, including those related to revenue recognition, accrued expenses, financing operations and contingencies and litigation.  Management bases its estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results could differ from those estimates under different assumptions or conditions.  The following represents a summary of our critical accounting policies.

27

Research and Development Expenses

All research and development costs are expensed as incurred and include costs of consultants and contract research facilities who conduct research and development on our behalf and on behalf of AtheroNova Operations.  We have contracted with third parties to facilitate, coordinate and perform agreed upon research and development of our technology.  We have expensed all costs associated with the conduct of the laboratory research as well as the costs associated with peripheral clinical researchers as period costs.

Stock-Based Compensation

We periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of our common stock option and warrant grant is estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.

Intangible Assets and Goodwill

We account for intangible assets and goodwill in accordance with the authoritative guidance issued by the Financial Accounting Standards Board. Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit.

Recently Issued Accounting Standards

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. We will adopt the ASU as required.  The ASU will affect our fair value disclosures, but will not affect our results of operations, financial condition or liquidity.

28

In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  We will adopt the ASU as required.  It will have no affect on our results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely or not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted.  The Company is currently evaluating the effects adoption of ASU 2011-08 may have on its goodwill impairment testing.

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 our present or future consolidated financial statements.

Item 3.   Quantitative and Qualitative Disclosure About Market Risk

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2011, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our disclosure controls or internal controls over financial reporting were designed to provide only reasonable assurance that such disclosure controls or internal control over financial reporting will prevent all errors or all instances of fraud, even as the same are improved to address any deficiencies.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

29

Changes in Internal Control

During the quarter ended September 30, 2011, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

30

Part II – Other Information

Item 6. Exhibits

Exhibit No.	Description
10.1	Stock Purchase Agreement dated November 3, 2011, between the Registrant and OOO CardioNova.*
10.2	License Agreement dated November 4, 2011, between the Registrant, AtheroNova Operations, Inc. and OOO CardioNova.*
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance.
101.SCH**	XBRL Taxonomy Extension Schema.
101.CAL**	XBRL Taxonomy Extension Calculation.
101.DEF**	XBRL Taxonomy Extension Definition.
101.LAB**	XBRL Taxonomy Extension Labels.
101.PRE**	XBRL Taxonomy Extension Presentation.

*  Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

**  XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ATHERONOVA INC.
Date: November 10, 2011	By:	/s/ Mark Selawski
	Mark Selawski
	Chief Financial Officer (Principal financial and accounting officer)

32

EX-10.1

Exhibit 10.1

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”) is dated as of November 3, 2011, by and among AtheroNova Inc., a Delaware corporation (the “Company”), and OOO CardioNova, a Russian corporation and a subsidiary of OOO Maxwell Biotech Group, having its principal office at Bolshaya Yakimanka 1, Suite 329, Russia, 119180(the “Purchaser”).

RECITALS

A.           The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission under the Securities Act.

B.           The Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate number of shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”), having a value of up to $267,000 as determined in this Agreement (referred to herein as the “Shares”), at a per share price of $0.97 (the “Share Price”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser hereby agree as follows:

ARTICLE I.

DEFINITIONS

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or, to the Company’s Knowledge, threatened in writing against or affecting the Company or any of its properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by or is under common control with such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in Irvine, California are open for the general transaction of business.

“Board of Directors” means the Board of Directors of the Company.

“California Courts” means the state and federal courts sitting in the County of Los Angeles, California.

“Closing” means each of the Initial Closing and the Subsequent Closing.

“Closing Date” means each of the Initial Closing Date and the Subsequent Closing Date.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” has the meaning set forth in the Recitals, and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.­

“Company Deliverables” has the meaning set forth in Section 2.3(a).

“Company Party” has the meaning set forth in Section 4.3(c)(ii).

“Company’s Knowledge” (or words of similar import, such as ‘to the Knowledge of the Company’) means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the officers of the Company having responsibility for the matter or matters that are the subject of the statement.

“Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Disclosure Materials” has the meaning set forth in Section 3.1(f).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Initial Closing” has the meaning set forth in Section 2.1.

“Initial Closing Date” has the meaning set forth in Section 2.1.

“Lien” means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

“Losses” has the meaning set forth in Section 4.3(c).

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or financial condition of the Company or (iii) any material adverse impairment to the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

“OTCQB” means the OTC Markets Group electronic interdealer quotation system.

“Outside Date” means the date that the joint steering committee approves the development plan and aggregate budget for the studies pursuant to Section 3.2 of the that certain license agreement entered into of even date between the Company and Purchaser.

2

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Deliverables” has the meaning set forth in Section 2.3(b).

“Purchaser Party” has the meaning set forth in Section 4.3(c)(i).

“Registrable Securities” has the meaning set forth in Section 4.3(a).

“Required Approvals” has the meaning set forth in Section 3.1(d).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” has the meaning set forth in Section 3.1(f).

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Subscription Amount” means the aggregate amount to be paid for the Shares purchased hereunder at each Closing.

“Subsequent Closing” has the meaning set forth in Section 2.2.

“Subsequent Closing Date” has the meaning set forth in Section 2.2.

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the OTCQB or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means this Agreement, the schedules and exhibits attached hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Routh Stock Transfer, Inc., or any successor transfer agent for the Company.

ARTICLE II.

PURCHASE AND SALE

2.1           Initial Closing.  Subject to the terms and conditions set forth in this Agreement, within 30 calendar days of the Outside Date (the actual date hereinafter referred to as the “Initial Closing Date”) the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, one hundred fifty-four thousand six hundred thirty-nine (154,639) shares of Common Stock, for an aggregate purchase price of one hundred fifty thousand dollars ($150,000.00) (the “Initial Closing”).

3

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

2.2           Subsequent Closing.  Subject to the terms and conditions set forth in this Agreement, within five Business Days of the date (the actual date hereinafter referred to as the “Subsequent Closing Date”) that Purchaser acquires all supplies and the Company completes all services set forth on Exhibit A hereto (the “Drug Supply Expenses”), which exhibit sets forth an estimate of the costs for the Drug Supply Expenses, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, the lesser of that number of shares of Common Stock having an aggregate value based on the Share Price of (i) one hundred seventeen thousand dollars ($117,000.00) and (ii) an amount equal to the difference of the actual costs of the Drug Supply Expenses less one hundred fifty thousand dollars ($150,000.00), for an aggregate purchase price equal to the value of such Shares based on the Share Price (the “Subsequent Closing”).

2.3           Closing Deliveries.

(a)           At each Closing the Company shall issue, deliver or cause to be delivered to the Purchaser the following (the “Company Deliverables”):

(i)           This Agreement, duly executed by the Company;

(ii)           One or more stock certificates evidencing the applicable number of Shares purchased by the Purchaser in such Closing, registered in the name of the Purchaser; and

(iii)           the Compliance Certificate referred to in Section 5.1(f).

(b)           At each Closing the Purchaser shall deliver or cause to be delivered to the Company the following (the “Purchaser Deliverables”):

(i)           This Agreement, duly executed by Purchaser; and

(ii)           Its Subscription Amount, in United States dollars and in immediately available funds.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1           Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchaser that, except as set forth in the Schedules delivered herewith:

(a)           Organization and Qualification.  The Company is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted.  The Company is not in violation of any of the provisions of its certificate of incorporation or bylaws.  The Company is duly qualified to conduct business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to, have individually or in the aggregate, resulted in a Material Adverse Effect, and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

4

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

(b)           Authorization; Enforcement; Validity.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents to which it is a party by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Shares) have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals.  Each of the Transaction Documents to which it is a party has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(c)           No Conflicts.  The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Shares) do not and will not (i) conflict with or violate any provision of the Company’s certificate of incorporation or bylaws, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchaser herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company is bound or affected, except in the case of clauses (ii) and (iii) such as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(d)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the issuance of the Shares), other than (i) filings required by applicable state securities laws, (ii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act and (iii) those that have been made or obtained prior to the date of this Agreement (collectively, the “Required Approvals”).

(e)           Issuance of the Shares.  The Shares have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights of stockholders.  Assuming the accuracy of the representations and warranties of the Purchaser in this Agreement, the Shares will be issued in compliance with all applicable federal and state securities laws.

(f)           SEC Reports.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports” and together with this Agreement and the Schedules to this Agreement (if any), the “Disclosure Materials”).  As of their respective dates, or to the extent corrected by a subsequent restatement, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder.

5

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

(g)           Litigation.  There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Shares or (ii) except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(h)           Certain Fees.  No person or entity will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.  The Company shall pay, and hold the Purchaser harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

(i)           No Directed Selling Efforts or General Solicitation.  Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has conducted any “general solicitation” or “general advertising” (as those terms are used in Regulation D) in connection with the offer or sale of any of the Shares.

(j)          Intellectual Property.  The Company owns or possesses sufficient rights to use all patents, trademarks, copyrights, licenses, inventions, trade secrets and trade names that are currently necessary for the conduct of its business as now conducted (the “Company Intellectual Property”), except where the failure to own or possess would not reasonably be expected to have a Material Adverse Effect.  The Company has not received any written notice of, or have any actual knowledge of, any infringement by the Company of intellectual property rights of any third party that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, and the Company has not received any written notice of any infringement by a third party of any Company Intellectual Property that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(k)         Sarbanes-Oxley Act.  The Company is in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Sections 302 and 906 thereof relating to certifications.

(l)           No Material Adverse Change.  Since the date of the Company’s 10-Q, except as described or referred to in the SEC Documents and except for cash expenditures in the ordinary course of business, there has not been (i) any change, event, circumstance or development that has resulted in a Material Adverse Effect, (ii) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, or (iii) any loss or damage (whether or not insured) to the physical property of the Company that has resulted in a Material Adverse Effect.

6

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

3.2      Representations and Warranties of Purchaser.  The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)           Organization; Authority.  The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution, delivery and performance by the Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Purchaser.  This Agreement has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b)           Investment Intent.  The Purchaser understands that the Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Shares for its own account and not with a view to, or for distributing or reselling such Shares or any part thereof in violation of the Securities Act or any applicable state securities laws, without prejudice, however, to the Purchaser’s right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of such Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.  The Purchaser is acquiring the Shares hereunder in the ordinary course of its business.  The Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Shares (or any securities which are derivatives thereof) to or through any person or entity.

(c)           Purchaser Status.  At the time the Purchaser was offered the Shares, it was, and at the date hereof it is an “accredited investor” as defined in Rule 501(a) under the Securities Act.  The Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act.

(d)           General Solicitation.  The Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general advertisement.

(e)           Experience of the Purchaser.  The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment.  The Purchaser is able to bear the economic risk of an investment in the Shares and, at the present time, is able to afford a complete loss of such investment.

(f)           Access to Information.  The Purchaser acknowledges that it has had the opportunity to review the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

7

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

(g)           Brokers and Finders.  No Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.

(h)           Independent Investment Decision.  The Purchaser has independently evaluated the merits of its decision to purchase Shares pursuant to the Transaction Documents.  The Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Shares constitutes legal, tax or investment advice.  The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Shares.

(i)           Reliance on Exemptions.  The Purchaser understands that the Shares being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Purchaser’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Shares.

(j)           No Governmental Review.  The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1           (a)           Compliance with Laws.  Notwithstanding any other provision of this Article IV, the Purchaser covenants that the Shares may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws.  In connection with any transfer of the Shares other than (i) pursuant to an effective registration statement, (ii) to the Company, (iii) to an Affiliate of the Purchaser, (iv) pursuant to Rule 144 (provided that the Purchaser provides the Company with reasonable assurances (in the form of seller and broker representation letters) that the Shares may be sold pursuant to such rule or (v) in connection with a bona fide pledge as contemplated in Section 4.1(b), except as otherwise provided herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of the Purchaser under this Agreement.

(b)           Legends.  Certificates evidencing the Shares shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

8

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Upon Purchaser’s written request, the foregoing legend shall be removed from the certificates representing the Shares, and the Company shall deliver irrevocable instructions to the Company’s transfer agent that a certificate without such legend shall be delivered to Purchaser, if (i) (A) the resale of such Shares are registered under the registration statement contemplated by Section 4.3, such registration statement is effective for such transfer and a prospectus meeting the requirements of Section 10 of the Securities Act is available with respect to such Shares or (B) the Shares are eligible to be sold pursuant to Rule 144 or any successor rule and (ii) Purchaser delivers to the Company or its transfer agent the legended certificate(s) for such shares and customary representations with respect to the shares as reasonably requested by the Company.  If the Company is required to issue unlegended certificates pursuant to this Section 4.1(b) the Company shall use its reasonable best efforts to (i) cause its counsel to deliver to the Company’s transfer agent one or more blanket opinions to the effect that the removal of such legends in such circumstances may be effected under the Securities Act and (ii) deliver or cause to be delivered to Purchaser or its transferee a certificate representing such shares that is free from all restrictive and other legends within five business days of the submission by Purchaser of the legended certificates and the representations required for consummation of such transaction.

The Company acknowledges and agrees that the Purchaser may from time to time pledge, and/or grant a security interest in, some or all of the legended Shares in connection with applicable securities laws, pursuant to a bona fide margin agreement in compliance with a bona fide margin loan.  Such a pledge would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion shall be required in connection with a subsequent transfer or foreclosure following default by the Purchaser transferee of the pledge.  No notice shall be required of such pledge, but Purchaser’s transferee shall promptly notify the Company of any such subsequent transfer or foreclosure.  The Purchaser acknowledges that the Company shall not be responsible for any pledges relating to, or the grant of any security interest in, any of the Shares or for any agreement, understanding or arrangement between the Purchaser and its pledgee or secured party.  At the Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares may reasonably request in connection with a pledge or transfer of the Shares, including the preparation and filing of any required prospectus supplement under Rule 423(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.  The Purchaser acknowledges and agrees that any Shares subject to a pledge or security interest as contemplated by this Section 4.1(b) shall continue to bear the legend set forth in this Section 4.1(b) and be subject to the restrictions on transfer set forth in Section 4.1(a).

4.2           Reservation of Common Stock.  The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.  In the event that at any time the then authorized shares of Common Stock are insufficient for the Company to satisfy its obligations in full under the Transaction Documents, the Company shall promptly take such actions as may be required to increase the number of authorized shares.

9

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

4.3           Registration.

(a)           Right to Piggyback.  If the Company shall determine to register for sale any of its securities for its own account or for the account of others (each a “Piggyback Registration”), other than (i) a registration relating solely to employee benefit plans or securities issued or issuable to employees, directors, consultants (to the extent the securities owned or to be owned by such consultants could be registered on Form S-8) or any of their family members (including a registration on Form S-8), or (ii) a registration relating solely to a Rule 145 transaction (under the Securities Act) or a registration on Form S-4 in connection with a merger, acquisition, divestiture, reorganization, or similar event, the Company shall promptly give to the Purchaser written notice thereof (and in no event shall such notice be given less than ten (10) calendar days prior to the filing of such registration statement), and, upon the written request of the Purchaser within thirty (30) days after the giving of such notice, will use its best efforts to include in such Piggyback Registration (and any related qualification under blue sky laws or other compliance) the Shares purchased by the Purchaser pursuant to this Agreement (or any other securities of the Company, including but not limited to any securities convertible or exchangeable into shares of Common Stock or options, warrants or other rights to acquire Common Stock issued to the Purchaser in lieu of such Shares or thereafter acquired by the Purchaser pursuant to a stock split, stock dividend, recapitalization, reverse merger or similar transaction in connection with such Shares) (the “Registrable Securities”), specified in a written request or requests, made within five (5) calendar days after receipt of such written notice from the Company, by the Purchaser.  The Company shall determine for reasons of complying with limitations on the maximum number of shares of Common Stock permitted to be registered in a Piggyback Registration by the staff of the Commission pursuant to Rule 415 promulgated under the Securities Act, the exact number of Registrable Securities to be included in any Piggyback Registration.  It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities that the Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.  However, the Company may, without the consent of the Purchaser, withdraw such registration statement prior to its becoming effective if the Company has elected to abandon the proposal to register the securities proposed to be registered thereby.

(b)           Underwriting Requirements.  The Company shall not be required to include any of the Purchaser’s Registrable Securities in any Piggyback Registration involving an underwriting unless the Purchaser accepts the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the Piggyback Registration.  If the total number of securities, including Registrable Securities, requested by the Company’s stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the Piggyback Registration, then the Company shall be required to include in the Piggyback Registration only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering.

(c)           Registration Expenses The Company shall bear all expenses in connection with the registration of the Registrable Securities, regardless of whether the corresponding registration statement becomes effective, including without limitation:  (i) all registration and filing fees and expenses; (ii) fees and expenses of compliance with federal securities and state “blue sky” or securities laws; (iii) expenses of printing or copying; (iv) all application and filing fees, if any, in connection with listing of the Registrable Securities with a recognized stock exchange; and (v) all fees and disbursements of counsel of the Company and independent certified public accountants of the Company; provided, however, that the Purchaser shall be responsible for paying the underwriting commissions or brokerage fees, taxes of any kind (including, without limitation, transfer taxes) applicable to any disposition, sale or transfer of Purchaser’s Registrable Securities, and fees and expenses, if any, of counsel or other advisors to Purchaser.  The Company shall, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties)

10

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

(d)           Indemnification.

(i)           The Company will indemnify and hold the Purchaser and its directors, officers, shareholders, partners, employees and agents (each, an “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs, and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Purchaser Party may suffer or incur as a result of or relating to any misrepresentation, breach, or inaccuracy of any representation, warranty, covenant, or agreement made by the Company in any Piggyback Registration in which the Purchaser is participating and any other documents delivered in connection therewith.

(ii)           In connection with any Piggyback Registration in which the Purchaser is participating, the Purchaser agrees to indemnify and hold the Company and its directors, officers, shareholders, partners, employees and agents (each, a “Company Party”) harmless from any and all Losses that such Company Party may suffer or incur as a result of any misrepresentation, breach, or inaccuracy of any representation, warranty, covenant, or agreement made by the Purchaser in any document delivered by the Purchaser in connection therewith.

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSING

5.1           Conditions Precedent to the Obligations of the Purchaser to Purchase Shares.  The obligation of the Purchaser to acquire Shares at each Closing is subject to the fulfillment on or prior to the applicable Closing Date, of each of the following conditions, any of which may be waived by the Purchaser:

(a)           Representations and Warranties.  The representations and warranties of the Company contained herein shall be true and correct in all material respects (except to the extent that any such representation or warranty is already qualified by materiality, in which case it shall be true and correct in all respects) as of the date when made and as of the Closing Date, as though made on and as of such date;

(b)           Performance.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing;

(c)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;

11

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

(d)           Consents.  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Shares, all of which shall be and remain so long as necessary in full force and effect;

(e)           Company Deliverables.  The Company shall have delivered the Company Deliverables in accordance with Section 2.3(a); and

(f)           Compliance Certificate.  The Company shall have delivered to the Purchaser a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1(a) and (b).

5.2           Conditions Precedent to the Obligations of the Company to sell Shares.  The Company’s obligation to sell and issue the Shares at each Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

(a)           Representations and Warranties.  The representations and warranties made by the Purchaser in Section 3.2 hereof shall be true and correct in all material respects as of the date when made, and as of the Closing Date as though made on and as of such date;

(b)           Performance.  The Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchaser at or prior to the Closing;

(c)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents; and

(d)           Purchaser Deliverables.  The Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.3(b).

ARTICLE VI.

MISCELLANEOUS

6.1           Publicity.  The parties recognize that each party may from time to time desire to issue press releases and make other public statements or disclosures regarding the subject matter of this Agreement.  In such event, the party desiring to issue a press release or make a public statement or disclosure shall provide the other party with a copy of the proposed press release, statement or disclosure for review and prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.  Notwithstanding the foregoing, a party may (a) disclose the existence and terms of this Agreement under obligations of confidentiality to agents, advisors, contractors, investors, acquirors and sublicensees, and to potential agents, advisors, contractors, investors, acquirors and sublicensees, in connection with such party’s activities hereunder or its financing or strategic activities and (b) disclose the existence, terms and subject matter of this Agreement where required, as reasonably determined by the disclosing party, by applicable law or regulation, including without limitation the securities laws, by applicable stock exchange or stock market rule or by order of a court or other legal process; provided that, in the case of this clause (b) only, the announcing party shall use reasonable efforts to provide the other party with a copy of the proposed text of such announcement sufficiently in advance of the scheduled release or publication thereof to afford such other party a reasonable opportunity to review and comment upon the proposed text prior to such public announcement; and provided, further, that, the failure of such other party or its counsel to respond to such proposed announcement prior to the scheduled release shall be deemed approval of same and no such review and comment shall inhibit the announcing party from complying with applicable law or regulation, including without limitation the securities laws, applicable stock exchange or stock market rules or an order of a court or other legal process

12

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

6.2           Fees and Expenses.  The Company and the Purchaser shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party in connection with the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Shares to the Purchaser.

6.3           Entire Agreement.  The Transaction Documents, together with the exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.  At or after the Closing, and without further consideration, the Company and the Purchaser will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

6.4           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this section prior to 5:00 p.m. (Pacific Time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 5:00 p.m. (Pacific Time) on any Business Day, (c) the Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

If to the Company:               AtheroNova Inc.

2301 Dupont Drive, Suite 525

Irvine, CA 92612

Telephone No.: (949) 476-1100

Facsimile No.: (949) 476-1122

Attention: Chief Executive Officer

With a copy to:                     Stubbs Alderton & Markiles, LLP

15260 Ventura Boulevard, 20th Floor

Sherman Oaks, CA 91403

Telephone No.: (818) 444-4500

Facsimile No.: (818) 444-6303

Attention: Gregory Akselrud

13

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

If to the Purchaser: To the address set forth under Purchaser’s name on the signature page hereof;

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

6.5           Amendments; Waivers; No Additional Consideration.  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

6.6           Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

6.7           Successors and Assigns.  The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns.  This Agreement, or any rights or obligations hereunder, may not be assigned by the Company without the prior written consent of the Purchaser.  The Purchaser may assign its rights hereunder in whole or in part to any Person to whom Purchaser assigns or transfers any Shares in compliance with this agreement and applicable law, provided such transferee shall agree in writing to be bound, with respect to the transferred Shares, by the terms and conditions of this Agreement that apply to the “Purchaser”.

6.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except each Purchaser Party and Company Party is an intended third party beneficiary of Section 4.3(c) and may enforce the provisions of such sections directly against the parties with obligations thereunder.

6.9           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the federal or state courts located in the County of Orange, California (“California Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the California Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such California Court, or that such Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

14

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

6.10           Survival.  Subject to applicable statute of limitations, the representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares.

6.11           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

6.12           Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

6.13           Replacement of Shares.  If any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is reasonably required by the Transfer Agent.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Shares.  If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

6.14           Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.

6.15           Payment Set Aside.  To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

15

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

6.16           Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in any Transaction Document to a number of shares or a price per share shall be amended to appropriately account for such event.

6.17           Termination. This Agreement may be terminated and the sale and purchase of the Shares abandoned at any time prior to the Initial Closing by either the Company or the Purchaser (with respect to itself only) upon written notice to the other, if the Initial Closing has not been consummated on or prior to 5:00 p.m. (Pacific Time) on the Outside Date; provided, however, that the right to terminate this Agreement under this Section 6.16 shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Initial Closing to occur on or before such time.  Nothing in this Section 6.16 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.  Upon a termination in accordance with this section, the Company and the Purchaser shall not have any further obligation or liability (including arising from such termination) to the other.

Signature Page Follows

16

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

AtheroNova Inc.

By:	/s/ Thomas W. Gardner
Name:	Thomas W. Gardner
Title:	CEO, Chairman

[OOO CardioNova]

By:	/s/ Andrey Boldyrev
Name:	Andrey Boldyrev
Title:	General Director

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

EXHIBIT A

DRUG SUPPLY EXPENSES

[***]

EX-10.2

Exhibit 10.2

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

LICENSE AGREEMENT

PREAMBLE

           This License Agreement (“Agreement”) is made and entered into to be effective as of November 4, 2011 (“Effective Date”), by and between AtheroNova, Inc., a Delaware corporation having its principal office at 2301 Dupont Drive, Suite 525, Irvine, California 92612 U.S.A. (hereinafter with its respective Affiliates collectively referred to as “Parent”), AtheroNova Operations, Inc., a wholly owned subsidiary of Parent, (hereinafter referred to as “AtheroNova”), and OOO CardioNova, a Russian corporation and a subsidiary of OOO Maxwell Biotech Group, having its principal office at Bolshaya Yakimanka 1, Suite 329, Russia, 119180 (hereinafter with its respective Affiliates referred to as “CardioNova”).

WITNESSETH

           WHEREAS,  Parent is a publicaly traded company and wishes to support the efforts of AtheroNova, its wholly owned subsidiary;

WHEREAS, AtheroNova is the owner of certain technology and patent rights regarding AHRO-001, an investigational drug candidate for the treatment of dyslipidemia (“Dyslipidemia”) and regression of atherosclerotic plaque and has the right to grant licenses with respect to same;

           WHEREAS, CardioNova desires to receive a license to develop and commercialize AHRO-001 and AtheroNova is willing to grant such a license in the Territory (as later defined);

           WHEREAS, CardioNova, on its own and/or through affiliated companies, intends to secure funds, manage and monitor clinical trials for the registration of AHRO-001 in the Territory, and thereafter use, market and/or sell products containing AHRO-001 in its Territory; and

           WHEREAS, AtheroNova wishes to grant the aforementioned license and Parent wishes to support such grant all to induce CardioNova to secure funding for such development and commercialization; all upon the terms and conditions hereinafter set forth.

           NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE I. DEFINITIONS

           For the purposes of this Agreement, the following words and phrases shall have the following meanings:

1.1. “Actual Cost” shall mean, with respect to the Licensed Compound or the Licensed Products, AtheroNova’s actual direct manufacturing, testing, material supply, storage, and transportation costs expended to produce, release and deliver the Licensed Compound or Licensed Products to CardioNova’s designated facilities in the Territory, as the case may be (without markup or inclusion of any internal AtheroNova costs, unless specifically provided under this Agreement).

1.2. “Affiliate” shall include, with respect to any party:  an organization the voting stock of which is, directly or indirectly, at least fifty percent (50%) owned or controlled by such party; an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of such party, or an organization the voting stock of which is, directly or indirectly, at least fifty percent (50%) owned or controlled by an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of such party.

1.3. “Ancillary Agreements” shall mean, collectively, the Stock Purchase Agreement, the Manufacturing and Supply Agreement and the Pharmacovigilance Agreement as described in more detail in Appendix B, and which shall be negotiated in good faith and documented in separate written agreements between the parties.

1.4. “AtheroNova Patent Rights” shall mean patents and patent applications and any patent issued from said applications and from divisionals, continuations, re-examinations and reissues thereof in the Territory, owned or controlled by AtheroNova and related to Licensed Compounds.  As of the Effective Date, the AtheroNova Patent Rights are listed in Appendix A, which may be updated and amended from time-to-time after the Effective Date to include such additional relevant patents and patent applications that are subsequently filed.

1.5. “Commercially Reasonable Efforts” shall mean exerting such good faith efforts, expertise and employing such resources as would normally be exerted or employed by established pharmaceutical companies in the Territory for a drug candidate or pharmaceutical product wholly owned by them and which is of similar market potential in any given country in the Territory and at a comparable stage of development or product life, taking into account product labeling or anticipated labeling, issues of safety, efficacy, dosing, pricing and reimbursement, the patent and other proprietary position of the compound or product, the present and potential total profitability of the compound or product marketed or to be marketed and alternative compounds or products, past performance, present and future regulatory environment, competitive market conditions in the Field and other relevant factors affecting cost, risk and timing of development and the total potential reward to be obtained if the compound or product is commercialized.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

1.6. “Common Stock” shall mean fully paid, non-assessable, registrable common stock of Parent.

1.7. “Development IP” shall mean any and all intellectual property developed by AtheroNova and CardioNova after the Effective Date of this Agreement related to Licensed Technology, and includes, without limitation, intellectual property and data relevant to the research, development, clinical testing and commercialization of Licensed Technology, and improvements, extensions and modifications of the Licensed Technology applicable to the manufacture, use or sale of Licensed Products.  Development IP shall constitute AtheroNova’s Proprietary Information.

1.8. "Diversion" shall have the meaning set forth in Section 2.6.

1.9. “Field” shall mean all human diagnostic and therapeutic applications of the Licensed Technology disclosed in the AtheroNova Patent Rights including without limitation the treatment of Dyslipidemia and the regression of atherosclerotic plaque.

1.10. “First Commercial Sale” shall mean the first sale to a distributor or an end user of a Licensed Product by or on behalf of CardioNova in the Territory.

1.11. “IFRS” shall mean international financial reporting standards as promulgated by the International Accounting Standards Board.

1.12. “JSC” or “Joint Steering Committee” shall have the meaning ascribed to it in Section 3.3.

1.13. “Issue Price” shall mean US$0.97.

1.14. “Know-how” shall mean all ideas, processes whether or not patented, data, results, information and trade-secrets, owned or controlled by AtheroNova and which may be related to, necessary or useful for CardioNova for exploitation of Licensed Compounds including the development, manufacture, use and sale of Licensed Products, further including, without limitation, any pre-clinical and clinical related information and data which may be useful or necessary to support registration for marketing and manufacturing approval of Licensed Product with all applicable regulatory agencies in the Territory.  Know-how shall constitute AtheroNova’s Proprietary Information.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

1.15. “Licensed Compounds” shall mean AHRO-001 including all stereoisomers, polymorphs, prodrugs, analogs, active metabolites and salts of any of the foregoing further including any and all related backup compounds and analogs disclosed and claimed in the AtheroNova Patent Rights which are subsequently substituted for AHRO-001.

1.16. A “Licensed Process” shall mean any process that is covered, in whole or in part, by a Valid Claim contained in the AtheroNova Patent Rights issued in the country in which such process is used.  Licensed Processes shall constitute AtheroNova’s Proprietary Information.

1.17. A “Licensed Product” shall mean any product or formulation containing any form of a Licensed Compound.  Licensed Products shall constitute AtheroNova’s Proprietary Information.

1.18. “Licensed Technology” shall mean the AtheroNova Patent Rights, the Know-how and the Development IP, to the extent that each relates to the formulation, use or manufacture of Licensed Compounds or Licensed Products.  Licensed Technology shall constitute AtheroNova’s Proprietary Information.

1.19. “Net Sales” means the gross amounts invoiced by CardioNova for all Licensed Products covered by a Valid Claim and sold by CardioNova, its Affiliates, andSublicensees (each, a “Seller”) to Third Party end users, after deduction of the following items, to the extent such items are incurred, taken or borne by Seller:

1.19.1. trade, cash or quantity discounts, rebates and chargebacks or other usual and customary discounts granted and taken directly with respect to sales of Licensed Products and that are reflected on invoices; (b) credits or allowances given or made by reason of defects, rejections, recalls, returns and rebates;

1.19.2. up to a maximum of [***] of the total gross invoice amount for any actual amounts which were billed and not collected by Seller due to bad debts, supported by evidence of bankruptcy or provided Seller has taken reasonable steps to collect bad debt on a valid invoice;

1.19.3. actual sales taxes, value added taxes, customs or excise taxes within the Territory, or other duties, taxes or tariffs comparable to those imposed in respect of pharmaceutical products similar to Licensed Products in the Territory (excluding any income or other tax on the business of Seller);

1.19.4. allowances, discounts, adjustments, rebates, reimbursements and similar payments in respect of sales to any governmental authority or agency thereof in the Territory, or with respect to any government-subsidized program in the Territory;

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

1.19.5. freight and shipping insurance; and

1.19.6. Amounts paid to AtheroNova based on Net Sales shall be reduced by [***] on a country-by-country basis if there shall exist with respect to Licensed Product during a given calendar quarter in such country one or more generic products containing the same active chemical entity(ies) as contained in Licensed Product and having the same therapeutic benefit as Licensed Product.

Sales between CardioNova, its Affiliates and Sublicensees, shall be excluded from the computation of Net Sales except where such Affiliates or Sublicensees are end users, but Net Sales shall include the subsequent final sales to Third Party end users by such Affiliates or Sublicensees.  In the event a Seller receives non-cash consideration for a Licensed Product, the Net Sales for such Licensed Product shall be determined on the assumption that the gross amounts invoiced for the Licensed Product had been received by Seller.

In the event a Licensed Product is sold in the form of a combination product with one or more separate products which are not Licensed Products, Net Sales for such combination product will be calculated on a country-by-country basis by multiplying the actual Net Sales of such combination product by the fraction A/(A+B), where A is the average Net Sales for the Licensed Product, if sold separately in finished form in such country and B is the average Net Sales for all other components or products in the combination product, if sold separately in finished form in such country.  If, on a country-by-country basis, the Licensed Product and/or other components or products of the combination product are not sold separately in finished form in such country, Net Sales for the combination product shall be determined by AtheroNova and CardioNova in good faith.

1.20. "Regulatory Approvals" shall mean and include licenses, permits, authorizations and approvals of, and registrations, filings and other notifications to, any governmental agency or department, including, without limitation, the United States Food and Drug Administration and/or its equivalent agency as applicable in each country in the Territory, and including any requisite pricing and reimbursement approval, necessary or appropriate for the manufacture, production, distribution, marketing, sale and/or use of Licensed Products.  “Approved” shall mean the requisite approvals for manufacture and marketing have been issued by the applicable agency.

1.21. “Royalty Term” shall mean that period of time beginning with the First Commercial Sale and continuing until the last to expire Valid Claim under Licensed Technology.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

1.22. “Stock Purchase Agreement” shall mean that Ancillary Agreement to be executed concurrently with this Agreement and which is more particularly described in Appendix B hereto.

1.23. “Strategic Partner” shall have the meaning provided in Section 13.5.2.

1.24. “Sublicensee” shall mean any Third Party to whom CardioNova, by sublicense agreement, sublicenses any portion of the Licensed Technology.

1.25. “Term of the Agreement” or “Term” shall have the meaning as set forth in Section 13.1.

1.26. “Termination Payment” shall have the meaning as set forth in Appendix C hereto.

1.27. “Territory” shall mean Russian Federation, Belarus, Ukraine, Kazakhstan, Kirgizstan, Tajikistan, Turkmenistan, Moldova, Azerbaijan, and Armenia, collectively also referred to hereafter as the “Enlarged RF”.

1.28. “Third Party” shall mean any entity other than a party to this Agreement or its respective Affiliates.

1.29. “Valid Claim” shall mean (i) an issued claim from the AtheroNova Patent Rights in the Territory so long as such claim shall not have been irrevocably abandoned, dedicated to the public or held invalid in an unappealed or unappealable decision of a court or other authority of competent jurisdiction and further including any and all patent term extensions granted pursuant to applicable law on any such claim in the AtheroNova Patent Rights in the Territory, or (ii) a claim from the AtheroNova Patent Rights in the Territory that has been pending no longer than five (5) years after the priority date to which it is entitled.

ARTICLE II. GRANT

2.1. License Grant.  Subject to the terms and conditions of this Agreement including, without limitation, the payment of royalties under Article IV during the Royalty Term, AtheroNova hereby grants to CardioNova (i) a non-exclusive right and license, during the Royalty Term, with the right to sublicense, under the Licensed Technology to conduct applicable clinical or related scientific trials for the registration of Licensed Compounds and/or Licensed Products in the Field and the Territory (the “Development License”); and (ii) an exclusive right and license, during the Royalty Term, with the right to sublicense, to use the Licensed Technology only for applications within the Field and in the Territory, including the rights to import, transfer, use, offer for sale and sell Licensed Compounds and/or Licensed Products in the Territory (the “Commercial License”), unless such rights are sooner terminated in accordance with the terms hereof.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

2.1.1. Manufacturing License Rights.  In the event that AtheroNova is unable, due to natural disasters or any causes reasonably beyond the control of AtheroNova, to manufacture and timely supply to CardioNova Licensed Products meeting the applicable specifications therefor and in accordance with purchase orders therefor, which purchase orders shall not provide for more than a projected ninety (90)-day supply of any Licensed Product based on historical data or, where such data is unavailable or insufficient, reasonable forecasts of prospective trends or as mutually agreed by the parties, the Commercial License and Development License shall be expanded to additionally include Licensed Processes and the right to CardioNova to make and, to have made by Third Party(ies), and to purchase from Third Party suppliers, Licensed Products for development, use and sale in the Territory.  Each such Third Party shall be a reputable manufacturer capable of manufacturing under GMP or equivalent standards and who has a history of manufacturing for other pharmaceutical companies. Such Third Party may be located within or outside the Territory but shall be limited to producing Licensed Products only for Sellers and further, shall be prohibited from shipping Licensed Products to any destination outside the Territory.

2.1.2. Termination.  After the Term of this Agreement all licenses shall, subject to Section 13.6, be terminated.

2.2. Distributors.  AtheroNova further grants to CardioNova the right to appoint one or more distributors and/or resellers in one or more countries in the Territory for the distribution of Licensed Products for applications solely within the Field and the Territory.

2.3. Sublicense Limitations.  CardioNova may not sublicense any rights granted hereunder or transfer directly or indirectly Licensed Products or rights regarding Licensed Technology to any Affiliates or Third Parties for use outside the Territory.

2.4. License Limitations.  The license granted hereunder shall not be construed to confer any rights upon CardioNova by implication, estoppel or otherwise as to any technology except as specifically set forth herein.

2.5. No Other Rights.  Except for the license rights granted in this Article II, AtheroNova grants no other right in the Licensed Technology to CardioNova, and, as between AtheroNova and CardioNova, all rights in the Licensed Technology shall remain the sole and exclusive property of AtheroNova.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

2.6. Diversion.  CardioNova shall not sell or make Licensed Products available for sale outside the Territory or outside the Field ("Diversion"), and to the extent permitted by applicable law, CardioNova shall include in agreements with Sublicensees, resellers and distributors that sell Licensed Products covenants from such Sublicensees, resellers and distributors to not sell or make Licensed Products available for sale outside the Territory or outside the Field. Such agreements with Sublicensees, resellers and distributors shall provide for the right of termination upon learning of any diversion as to such country wherein any diversion is occurring or sourced, and, in the event of termination of this Agreement and subject to the provisions of Section 13.6.1, shall provide for the same right of termination, at AtheroNova’s sole discretion, upon Diversion by such Sublicensee, distributor or reseller. Should either party become aware of any Diversion, it shall so inform the other party and together, both parties shall in good faith reasonably agree on a plan to eradicate such Diversion. In the event that materially all Diversion is not eliminated within [***], AtheroNova shall have the right on thirty (30) days written notice to terminate the Commercial License granted under Section 2.1 as to such country wherein such Diversion is occurring or sourced.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE III. JOINT STEERING COMMITTEE and DEVELOPMENT

3.1. Studies.  Subject to the terms herein, CardioNova, on its own or through its Affiliates, will fund, manage and monitor in the Territory (with oversight by the Joint Steering Committee) Phase I and Phase II studies (in compliance with the attached preliminary Phase I Study Protocol and Phase II Study Protocol, as modified by the Joint Steering Committee pursuant to the authority granted hereunder) for the treatment of Dyslipidemia and regression of atherosclerotic plaque, as well as non-GLP preclinical studies necessary to satisfy Russian regulatory requirements (collectively the “Studies”) and deliver study data to AtheroNova in an agreed format, and for each Study a report in reasonable and customary form acceptable to regulatory authorities of the three ICH regions (“CSR”) and the United States Food and Drug Administration. The Studies will be adequate to meet the requirements for performing clinical studies in the Territory. In parallel with the Studies, AtheroNova shall perform at its expense animal toxicology studies in compliance with ICH guidelines (“ICH-compliant Preclinical Studies”).  The Phase I study, involving a minimum of [***] study subjects, will be a multiple ascending dose study of the safety and tolerability of the Licensed Compound in combination with atorvastatin for the treatment of subjects with mild to moderate Dyslipidemia.  The Phase II study, involving a minimum of [***] study subjects, will be a placebo-controlled efficacy and safety study of the Licensed Compound on its own and in combination with [***] in subjects with elevated blood cholesterol and either normal or elevated triglycerides. Each Study will be conducted in accordance with a study protocol approved by the Joint Steering Committee (preliminary forms of which are attached hereto as the Phase I Study Protocol and Phase II Study Protocol) and ICH Good Clinical Practice (GCP). All details of the Studies, including where they will be conducted and by whom, will be subject to final approval by AtheroNova, such approval not to be unreasonably withheld or delayed.

3.1.1. Data Ownership.  All data, results, reports and other information and materials from the Studies, including all related conceptions and inventions, and all regulatory documents, applications, submissions and approvals, shall be deemed included within Development IP, and shall be owned by AtheroNova subject to completion of the applicable Equity Issuances set forth in Section 4.3.

3.1.2. Information Exchange.  AtheroNova shall provide CardioNova with all information and Know-how which is owned or controlled by AtheroNova and which is necessary or useful to CardioNova for the conduct of the Studies and the development and related activities needed to obtain Regulatory Approval of Licensed Product. Similarly, CardioNova shall convey to AtheroNova all information, data and know-how developed, gained or controlled by CardioNova in connection with the Studies or Licensed Products which is useful for the development and Regulatory Approval of Licensed Products.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

3.2. Joint Steering Committee.  Immediately following the Effective Date, a Joint Steering Committee (the “JSC”) will be established with at least one member appointed from each party and shall consist of an equal number of representatives from AtheroNova and CardioNova.  The JSC shall act promptly and diligently and be responsible for the development and approval of the design and protocol, study goals, timeline and budget for each of the Studies, allocating responsibilities to each party (the "Development Plan") and for the conduct and future direction of the Studies, among other activities.  Within thirty (30) days after the Effective Date, the JSC shall agree upon a Development Plan and approve an aggregate budget for the Studies (the “Aggregate Studies Budget”), which shall not exceed US$3,800,000 (excluding associated costs borne directly by AtheroNova) unless otherwise decided by mutual written agreement of AtheroNova and CardioNova.  On an annual basis, or more often as the parties deem appropriate, the JSC shall review and discuss, in good faith, and approve amendments to the then-current Development Plan and Aggregate Studies Budget which the parties propose to implement. Following completion of the Studies, the JSC’s focus shall be to oversee ongoing development, Regulatory Approval and commercialization of Licensed Product in the Territory.

3.2.1. Approvals.  The JSC shall act by consensus if each party has only appointed one representative or by a majority if there are multiple representatives from each party. If the JSC cannot reach agreement on an issue, the JSC shall refer such matter to AtheroNova's Chief Executive Officer, or its designee, for the resolution of issues concerning any change in (i) patient safety, (ii) adverse event reporting, (iii) therapeutic dosage or method of administration of the Licensed Product, (iv) design and protocol of each of the Studies (insofar as changes will not cause the total budget for the Studies to exceed US$3,800,000, in which case the matter shall be referred to AtheroNova's Chief Executive Officer and CardioNova 's Chief Executive Officer for joint resolution), or (v) other matters that are likely to result in an adverse effect on any market approvals of the Licensed Product outside the Territory; or to CardioNova's Chief Executive Officer, or its designee, for the resolution of all issues relating to the Regulatory Approval or commercialization of Licensed Product in the Territory.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

3.3. Financing.  CardioNova shall promptly seek financing sufficient to pay (i) the Aggregate Studies Budget to enable CardioNova to support pre-clinical and clinical trials of Licensed Compounds and Licensed Products in the Territory and (ii) the equity investment pursuant to Section 4.1 (collectively, the “Financing”). It is expected that CardioNova shall secure agreement to such funding within thirty (30) days of approval of the Development Plan and Aggregate Studies Budget by the JSC and that such funding shall occur in a first tranche of US$500,000 (the “Initial Tranche”) and then in additional tranches as are required to complete the Financing.  However, should CardioNova fail to secure agreement to provide all the Financing within three (3) months after the Effective Date, this Agreement shall terminate thereafter upon thirty (30) days written notice from AtheroNova unless during such thirty (30)-day period CardioNova shall secure such Financing in which case this Agreement shall continue unabated.  CardioNova shall notify AtheroNova in writing immediately upon securing the Initial Tranche of the Financing and any subsequent tranche until the Aggregate Studies Budget is fully financed.

3.4. Supply of Licensed Product.

3.4.1. Clinical.  AtheroNova will perform formulation and CMC work, and manufacture and supply at its own cost supplies of Licensed Compounds for use in the Studies.  Such supplies shall be timely supplied to CardioNova as needed to support its conduct of the Studies.  The cost of such activities are estimated and set forth in Appendix D hereto.  The total amount paid by AtheroNova in connection with recrystalization of the Licensed Compound and for tablet manufacturing, as contemplated in Appendix D, shall not exceed US$267,000 (the “Drug Supplies Total Cost”), shall equal the total amount of the Equity Investment to be made by CardioNova pursuant to Section 4.1 and the Stock Purchase Agreement.  For supply of any Licensed Product for other clinical or related studies required to obtain Regulatory Approval of such Licensed Product in the Territory, CardioNova shall pay to AtheroNova its Actual Costs [***], and all applicable shipping costs, for such Licensed Product meeting the applicable specifications therefor and the delivery requirements specified by CardioNova.  AtheroNova may use Third Parties for the manufacture and supply of Licensed Products.

3.4.2. Commercial.  For commercial supply of Licensed Products following Regulatory Approval in the Territory, the parties shall negotiate in good faith and enter into a Manufacturing and Supply Agreement as generally described in Appendix B.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

3.4.3. Right to Manufacture.  In the event AtheroNova (i) is unable, whether or not due to natural disasters or any causes reasonably beyond the control of AtheroNova, to supply adequate clinical or, subject to Section 2.1.1, commercial supplies of Licensed Product and CardioNova’s inventory on-hand of Licensed Product is less than [***] days supply based on historical data, (ii) licenses or distributes a product in the Territory, which is competitive with any Licensed Product, or (iii) if the cost of supplies of any finished Licensed Product from AtheroNova to CardioNova either (a) is greater than [***] of the Net Sales price of such Licensed Product in the Territory or (b) increases by greater than [***] over the lowest supply cost of such Licensed Product after the First Commercial Sale of such Licensed Product in the Territory, then the Commercial License and Develoment License granted CardioNova in Section 2.1 shall be expanded to include the Manufacturing License Rights set forth in Section 2.1.1.

3.5. Due Diligence.  Provided that AtheroNova makes timely delivery of adequate quantities of a Licensed Product conforming to the applicable specifications therefor and suitable for use in the Studies and any subsequent clinical trial required for Regulatory Approval of such Licensed Product in the Territory, CardioNova shall use Commercially Reasonable Efforts to (i) file, prosecute and obtain Regulatory Approval for commercial sale in each country in the Territory of such Licensed Product for the treatment of Dyslipidemia and/or such other indication within the Field as AtheroNova and CardioNova agree, and (ii) following receipt of Regulatory Approval in the Territory, thereafter use Commercially Reasonable Efforts to implement a marketing and commercialization strategy for such Licensed Product.  In the event of material breach by CardioNova of its obligations under this Section 3.5, AtheroNova shall have the right on sixty (60) days written notice to automatically terminate the licenses granted under Section 2.1 in such country where the breach shall have occurred unless CardioNova shall undertake material steps during such sixty (60)-day period to cure or substantively begin to cure such breach.  Notwithstanding the foregoing, CardioNova shall have the sole discretion to decide the timing and order of commercialization of Licensed Products within the Territory.

3.6. Pharmacovigilance Agreement.  At such time as becomes appropriate in advance of an anticipated Regulatory Approval in the Territory, the parties shall negotiate in good faith and enter into a Pharmacovigilance Agreement as described in Appendix B in order to conform with regulatory requirements for the applicable country in the Territory.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE IV. EQUITY ISSUANCES, ROYALTIES AND REPORTS

4.1. Stock Purchase Agreement.  In partial consideration of the rights granted under this Agreement the parties will enter into the Stock Purchase Agreement described in Appendix B wherein CardioNova will make an equity investment in Parent.

4.2. CardioNova Funding.  CardioNova hereby commits to funding the Phase I Study and, providing Licensed Products successfully meet the goals pre-approved for the Phase I Study by the JSC, thereafter the Phase II Study.

4.3. Equity Issuances.  In partial consideration to CardioNova for providing the funding for the Studies, Parent will issue to CardioNova:

4.3.1. Initial Tranche.  Upon approval of the Development Plan by the JSC and provided CardioNova has secured the Financing pursuant to Section 3.3, that number of shares of Common Stock to equal the quotient of 10% of the Aggregate Studies Budget first approved by the JSC divided by the Issue Price; and

4.3.2. Additional Tranches.  Additional tranches of Common Stock will be issued to CardioNova with a total value expressed as a percentage of the then current Aggregate Studies Budget and based on the lesser of the Issue Price and the volume weighted average closing price of Common Stock for the twenty (20) consecutive trading days preceding each associated event, as follows:

4.3.2.1.    20% upon JSC approval of the final Phase I Study protocol in advance of study commencement;

4.3.2.2.    40% on announcement of the results of the Phase I Study; and

4.3.2.3. A final tranche on announcement of the results of the Phase II Study and containing that number of shares adjusted so that the aggregate value of all issued tranches under this Section 4.3 shall equal the final Aggregate Studies Budget approved by the JSC.

4.3.3. Procedures.  Each tranche of Common Stock will be issued within ten (10) business days of the associated event.  All Common Stock issued to CardioNova under this Section 4.3 shall have the same benefits and rights as Common Stock issued pursuant to the Stock Purchase Agreement.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

4.4. Royalties.  As additional consideration for the rights, privileges and license granted hereunder, during the Royalty Term, CardioNova shall pay AtheroNova a percentage of the aggregate annual Net Sales of Licensed Product pursuant to the table below less [***] of any royalty payment made to any other Third Party with respect to any license under such Third Party’s intellectual property that is required by CardioNova to research, (manufacture or have manufactured in the event the license grant is expanced to include manufacturing rights), import, use or sell Licensed Product in the applicable country in the Territory, further provided however that royalties due Atheronova hereundfer shall not be reduced by more than [***].

Annual Territory Net Sales                                     Applicable Royalty Rate

For sales from [***]                                                                                   [***]

For sales greater than [***]                                                                      [***]

For sales exceeding [***]                                                                          [***]

Quarterly Payments.  All royalties due AtheroNova under this Agreement shall be paid quarterly within sixty (60) days after the expiration of each calendar quarter in which such are generated, in United States dollars to AtheroNova in the USA, or at such other place and in such other currency as AtheroNova may reasonably designate consistent with the laws and regulations controlling in any foreign country.

4.5. Currency, Conversion.  All amounts set forth in this Agreement are in United States dollars and to the extent any amounts are in a currency other than United States dollars (i.e. sales in the Territory, etc.) and need to be converted into United States dollars, such conversion shall be made by using the exchange rate published in the U.S. eastern version of The Wall Street Journal as of the last business day of the calendar quarterly reporting period to which such royalty payments or other amounts relate. In the event that such conversion cannot be legally made with respect to royalties, then CardioNova shall (i) to the extent CardioNova may legally convert such royalties into any other currency utilized by CardioNova, proceed with such conversion and thereafter, convert such converted currency into United States dollars or (ii) offset such non-convertible royalties against that portion of Net Sales to which CardioNova is entitled from any other country in the Territory where royalties may be converted to United States dollars (as determined by AtheroNova) such that the royalties payable from such country in the Territory shall be increased in proportion to the non-convertible royalties.

4.6. Royalty Report.  All royalties due hereunder shall be accompanied by a royalty report itemizing the unit sales of Licensed Products per country, the calculation of Net Sales and the calculation of the royalties due for the applicable quarter. If no monies shall be due, CardioNova shall so report.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

4.7. Taxes.  All payments by CardioNova to AtheroNova due under this Article 4 shall be paid in full, without deduction for any sales, use, excise or other similar taxes that may be owed by AtheroNova. All payments are exclusive of any value added or equivalent tax, which shall if applicable, be invoiced separately. In the event that CardioNova is required to withhold any taxes on any amount payable to AtheroNova hereunder, under the applicable laws of any country within the Territory, CardioNova shall at AtheroNova's request obtain and furnish AtheroNova with official tax receipts, or other evidence of payment of such withholding taxes, sufficient to permit AtheroNova to demonstrate the payment of such withholding taxes, in order to establish AtheroNova’s right to a credit for such withholding taxes against AtheroNova’s income tax liability. CardioNova shall provide AtheroNova, at its expense, with all assistance reasonably requested by AtheroNova in connection with any application to any competent tax authorities in any country within the Territory to qualify for the benefit of a reduced rate of withholding taxation under any applicable Double Tax Treaty.

ARTICLE V. RECORDS, AUDIT RIGHTS, LATE PAYMENTS

5.1. Audit.  CardioNova shall keep full, true and accurate books of account in accordance with IFRS consistently applied and containing all particulars that may be necessary for the purpose of showing the amounts payable to AtheroNova hereunder, and said books and supporting data shall be available, upon thirty (30) days written notice, for audit by an independent, certified public accountant, hired by AtheroNova at its expense, solely for the purpose of verifying CardioNova’s royalty reports and payments due under this Agreement.  Such audit may be conducted on previously unaudited records no more than once per year, during normal business hours, for up to five (5) years following the end of the calendar year to which the applicable records pertain.  This obligation to maintain accurate books of account and the right to inspect them shall survive termination of this Agreement for a period of five (5) years or such period of time as to satisfy any applicable taxing authority audit periods if longer.

5.2. Corrections.  CardioNova may submit a new statement correcting for an unintentional and newly discovered overpayment within one hundred eighty days (180) days after the close of CardioNova’s corporate fiscal year in which the original payment was due.  CardioNova’s sole remedy for overpayment shall be a credit of such overpayment against future quarterly payment(s) due AtheroNova.   After the one hundred eighty days (180) has expired, AtheroNova may reasonably rely on the payment previously made and shall have no further obligation to credit CardioNova for any previous overpayments unless such overpayments are discovered as a result of an audit conducted by AtheroNova.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

5.3. Audit Reimbursement.  In the event an audit by AtheroNova shows an underpayment, CardioNova shall pay AtheroNova the amounts underpaid.  In addition, in the event the examination shows an underpayment of more than [***] for any quarter, CardioNova shall pay AtheroNova, in addition to the amounts underpaid, the costs of the audit and interest on any undisputed underpayments at the monthly rate of [***], compounded monthly.

5.4. Interest.  The royalty payments set forth in this Agreement shall, if overdue and undisputed, bear interest until payment at the monthly rate of [***], compounded monthly.  The payment of such interest shall not foreclose AtheroNova from exercising any other rights it may have as a consequence of the lateness of the payment.

ARTICLE VI. PATENT PREPARATION, PROSECUTION, REGISTRATION

6.1. Prosecution.  AtheroNova shall be responsible, using counsel selected by AtheroNova and subject to CardioNova’s reasonable approval, for promptly and diligently preparing, prosecuting and maintaining the AtheroNova Patent Rights during the term of this Agreement including the Development IP and any inventions arising out of the Studies conducted in the Territory.  AtheroNova shall keep CardioNova reasonably apprised of all material written correspondence to and from the relevant patent offices governing intellectual property rights in the Territory in a manner, format and timing to permit CardioNova an adequate opportunity to comment thereon.  AtheroNova shall take into due and reasonable consideration all such comments and shall incorporate same as determined in its sole discretion, exercised reasonably, prior to submitting its correspondence, submissions and filings to the patent offices.  CardioNova shall reasonably cooperate with and assist AtheroNova with such documentation as may be reasonably needed by AtheroNova and reasonably obtained by CardioNova in connection with such prosecution efforts.  The parties shall equally share the reasonable Third Party costs incurred by the parties in connection with the preparation, prosecution and maintenance of the AtheroNova Patent Rights in the Territory.

6.2. Registration.  The parties recognize that in order to comply with Russian Federation registration regulations, this License Agreement may need to be re-executed at the time of the issuance of a patent included in the AtheroNova Patent Rights in the Russian Federation (such agreement to be referred to as the “Re-Execution Agreement”).  The Re-Execution Agreement shall contain the same terms as this Agreement albeit modified (i) to specifically identify the newly issued patent included in the AtheroNova Patent Rights and (ii) to adjust the license term to coincide with the expiration of a Valid Claim of the newly issued patent included in the AtheroNova Patent Rights.  Accordingly, to comply with such registration regulations, the parties hereby agree to execute the Re-Execution Agreement and to take such other steps as may be required so that CardioNova may register the grant of the license to CardioNova by AtheroNova to the AtheroNova Patent Rights.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE VII. INFRINGEMENT ACTIONS

7.1. Infringement by Third Parties.  The parties shall inform each other promptly, in writing, of any alleged infringement of the AtheroNova Patent Rights in the Territory by a Third Party, and any available evidence thereof.   AtheroNova and CardioNova shall consult one another in a timely manner concerning any appropriate response to the alleged infringement.

7.2. Expenses Paid by CardioNova.  CardioNova may prosecute such infringement at its own expense provided that it may apply up to [***] percent of the royalties due hereunder against the cost of such litigation without any permission being required of AtheroNova.  If requested in writing by CardioNova, AtheroNova may, at its discretion, join in any legal actions enforcing or defending the AtheroNova Patent Rights against third parties deemed necessary or advisable by CardioNova to prevent or seek damages, or both, from the infringement of the AtheroNova Patent Rights, at CardioNova’s expense.  CardioNova shall be allowed, with written permission from AtheroNova, to incur on behalf of AtheroNova a litigation advance of an amount of up to a further [***] percent of a then due and payable royalty amount against such litigation (the “Further Litigation Advance”).  Such litigation shall be reviewed on a quarterly basis by both entities and continued participation and payment of the Further Litigation Advance by AtheroNova approved in conjunction with each royalty payment date.  CardioNova may not settle or compromise any such suit in a manner that imposes any obligations or restrictions on AtheroNova or grant any rights beyond those granted to CardioNova under this Agreement without AtheroNova’s prior written permission. Financial recoveries from any such litigation will first be applied to reimburse CardioNova for its litigation expenses in excess of those already covered by the application of royalties due, then to reimbursing AtheroNova for all royalties which were reduced from payments otherwise due and applied to the cost of litigation. Thereafter all remaining recoveries paid to CardioNova shall be treated as if they were Net Sales, subject to the royalty due AtheroNova.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

7.3. Expenses Mutually Paid.  CardioNova’s rights under Section 7.2 are subject to the continuing right of AtheroNova to intervene at AtheroNova's own expense and join CardioNova in any claim or suit for infringement of the AtheroNova Patent Rights.  CardioNova and AtheroNova shall agree on the manner in which they shall exercise control over such action.  AtheroNova shall have the right to have its own counsel if it so desires at its own expense.  Financial recoveries from any such litigation will first be applied to reimburse CardioNova and AtheroNova for their litigation expenditures and then shared between AtheroNova and CardioNova in direct proportion to their share of the litigation expenses in such infringement action.

7.4. Expenses Paid by AtheroNova.  If CardioNova fails to prosecute any infringement within ninety (90) days of notice of such infringement or within such earlier period such that AtheroNova’s rights are not irrevocably prejudiced with respect to such infringement, AtheroNova may prosecute such infringement at its own expense.  In such event, financial recoveries will be entirely retained by AtheroNova.

7.5. Cooperation.  In any action to enforce any of the AtheroNova Patent Rights, either party, at the request and expense of the other party shall cooperate to the fullest extent reasonably possible.  This provision shall not be construed to require either party to undertake any activities, including legal discovery, at the request of any Third Party except as may be required by lawful process of a court of competent jurisdiction.

7.6. Infringement Allegations By Third Parties.  In the event that a Third Party asserts or alleges that a Licensed Product manufactured by or for CardioNova, or sold by a Seller infringes a trade secret or other proprietary copyright of such Third Party, CardioNova shall immediately notify AtheroNova in writing about such assertion or allegation.  To the extent such claim is based on materials, products, product designs, or product specifications or manufacturing processes provided by AtheroNova, AtheroNova will assume the defense of such claim through counsel of its own choosing and at its sole expense. In the event that a Third Party asserts or alleges that a Licensed Product manufactured by or for CardioNova, or sold by a Seller infringes a patent issued within the Territory (a "Patent Claim"), CardioNova shall have the first right, but not the obligation to defend against such Patent Claim, and if CardioNova elects to defend against the Patent Claim, AtheroNova shall reimburse CardioNova for [***] of the reasonable legal expenses (including reasonable attorneys’ fees) incurred by CardioNova in connection with the defense of a Patent Claim (the "CardioNova Patent Claim Expenses") as follows:  CardioNova shall receive a credit against [***] of all royalties payable to AtheroNova by CardioNova hereunder on the sales of the allegedly infringing Licensed Products during the period while the Patent Claim is pending (the “AtheroNova Patent Claim Contribution"), provided that the AtheroNova Patent Claim Contribution for each Patent Claim shall not exceed [***] of the CardioNova Patent Claim Expenses incurred for that Patent Claim.  In the event that CardioNova elects not to defend a Patent Claim, which election not to defend must be made in such a manner so as not to irrevocably prejudice AtheroNova’s rights in connection with such Patent Claim, then AtheroNova shall defend and indemnify CardioNova against such Patent Claim provided that CardioNova shall pay [***] of the royalties payable in the sales of allegedly infringing Licensed Products.  In the event that AtheroNova receives notice of such assertion or allegation, AtheroNova shall immediately notify CardioNova in writing of such allegation or assertion.  CardioNova may enter into any settlement, consent judgment, or other voluntary final disposition of any infringement action under this Section 7.6 provided that if such settlement would have an adverse effect upon AtheroNova or the validity or enforceability of the AtheroNova Patent Rights or other Licensed Technology in the Territory or otherwise, AtheroNova’s approval shall be required, which approval shall not be unreasonably withheld or delayed.  At all times CardioNova shall be entitled, at its option, to participate in any such defense using counsel of its choosing and at its expense.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE VIII. PRODUCT INDEMNIFICATION

8.1. Indemnification by Parent and AtheroNova.  Parent and AtheroNova shall severally and jointly indemnify, defend and hold harmless CardioNova, its Affiliates and Sublicensees and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (the “CardioNova Indemnitees”) against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon the CardioNova Indemnitees in connection with any Third Party claim, demand, suit, action or judgment (a) arising out of the gross negligence or intentional misconduct of Parent and/or AtheroNova or any material breach of any obligation or warranty or representation by Parent and/or AtheroNova under this Agreement; or (b) arising in connection with the supply of any Licensed Product by AtheroNova to CardioNova when the Licensed Product is used in accordance with the instructions provided by AtheroNova; or (c) based on any theory of product liability (including without limitation actions in the form of tort, warranty or strict liability) only to the extent Licensed Product is manufactured and supplied to CardioNova by AtheroNova or its agents or (d) based on, or caused by any act or omission of AtheroNova with respect to the development, manufacture, use, sale, offer for sale, or importation or exportation of any Licensed Product except to the extent that such liability, damage, loss or expense is covered under Section 8.2 or is directly attributable to the gross negligence or intentional misconduct of any Seller.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

8.2. Indemnification by CardioNova.  CardioNova shall indemnify, defend and hold harmless AtheroNova and its Affiliates and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (the “AtheroNova Indemnitees”) against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon the AtheroNova Indemnitees in connection with any Third Party claim, demand, suit, action or judgment (a) arising out of the gross negligence or intentional misconduct of any Seller or any material breach of any obligation or warranty or representation by any Seller, as applicable, under this Agreement; or (b) arising in connection with or based on, or caused by any act or omission of CardioNova with respect to securing Regulatory Approval in the Territory for the sale, offer for sale or importation or exportation under the laws of any country in the Territory of any Licensed Product within the Territory; or (c) based on any theory of product liability (including without limitation actions in the form of tort, warranty or strict liability) if CardioNova fails to use the Licensed Product in accordance with instructions provided by AtheroNova and/or the Licensed Product is manufactured by CardioNova or (d) based on, or caused by any act or omission of any Seller with respect to sale or offer for sale of any Licensed Product in the Territory; except to the extent that any of such foregoing liability, damage, loss or expense is directly attributable to the gross negligence or intentional misconduct of AtheroNova or its Affiliates.

8.3. Procedures.  The party claiming indemnification pursuant to this Section 8 (the "Indemnified Party") shall promptly notify the party providing indemnification pursuant to this Section 8 (the "Indemnifying Party") of any such claim of which it becomes aware and shall: (i) at the Indemnifying Party’s expense, provide reasonable cooperation to the Indemnifying Party in connection with the defense or settlement of any such claim, and (ii) at the Indemnified Party’s expense, be entitled to participate in the defense of any such claim.  The Indemnifying Party shall be permitted to solely control the defense of any such claim or action and all negotiations for its settlement or compromise; provided, however, that (i) no settlement or compromise affecting the financial or legal obligations of any Indemnified Party shall be entered into or agreed to without such Indemnified Party’s prior written approval, which approval shall not be unreasonably withheld, unless such settlement contains a release by the claimant or the plaintiff of such Indemnified Party, its Affiliates, officers, directors, employees, representatives, and agents from liability in respect of such claim or action and (ii) such Indemnified Party has the right to participate, at its own expense, in the defense and/or settlement of any such claim or action in order to protect its own interests, provided, however, that such Indemnified Party shall not enter into or agree to any settlement or compromise affecting the financial or legal obligations of any Indemnifying Party without such Indemnifying Party's prior written approval, which approval shall not be unreasonably withheld, unless such settlement contains a release by the claimant or the plaintiff of such Indemnifying Party, and its officers, directors, employees, representatives, and agents from liability in respect of such claim or action.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

8.4. Insurance.  Each party shall procure and maintain Commercial General Liability insurance, including without limitation, Product Liability, Contractual Liability, and Errors and Omissions insurance, in amounts which are reasonable and customary to cover its indemnity obligations hereunder.  Insurance coverage shall be obtained through reasonably acceptable insurance carriers and shall be maintained during the term of this Agreement and for five (5) years thereafter.

8.5. No Other Warranties.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NO PARTY MAKES ANY REPRESENTATIONS AND EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING.

8.6. Notification.  Each party shall promptly notify the other party of all claims involving the notifying party’s indemnitees who shall cooperate with the indemnifying party to the fullest extent reasonably possible.

8.7. Limits of Liability.  No party shall be liable to any other party for special, incidental, consequential or punitive damages or for lost profits.  The foregoing limitations of liability will not apply to any party’s material breach of its confidentiality obligations under Section 14 or to the gross negligence or willful misconduct of any party.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE IX. EXPORT CONTROLS

9.1. It is understood that Licensed Products or Licensed Processes may be subject to United States laws and regulations and the laws and regulations of the countries in the Territory controlling the export or transfer of defense articles, technical data, computer software, laboratory prototypes, and other commodities.  CardioNova hereby agrees to comply at its expense with any import or export controls or federal regulations which may apply to the Licensed Products or Licensed Processes in the Territory and AtheroNova agrees to comply at its expense with any comparable export laws and regulations of the USA.

ARTICLE X. ANCILLARY AGREEMENTS

10.1. Concurrently with this Agreement, the parties shall enter into the Stock Purchase Agreement.  Following the Effective Date hereof, as the development of Licensed Products progresses and the parties approach submission to the applicable regulatory agencies for marketing approval, the parties shall negotiate in good faith and enter into the Manufacturing and Supply Agreement and the Pharmacovigilance Agreement.

ARTICLE XI. ASSIGNMENT

11.1. This Agreement may not be assigned by any party without the prior written consent of the other parties, such consent not to be unreasonably withheld, except that any party may assign this Agreement in connection with any merger, consolidation, reorganization, or sale of all or substantially all of its equity or the assets to which this Agreement pertains, or in the event of the sale or transfer of a controlling interest in such party, or to an Affiliate. Any purported assignment in violation of this Section 11.1 shall be null and void.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

ARTICLE XII. ARBITRATION

12.1. Any and all claims, disputes or controversies arising under, out of, or in connection with this Agreement, excluding any dispute relating to patent validity or infringement, which have not been resolved by good faith negotiations between the parties, shall be resolved by final and binding arbitration in Wilmington, Delaware under the rules of the American Arbitration Association, or the Patent Arbitration Rules if applicable.  The arbitrators shall have no power to add to, subtract from or modify any of the terms or conditions of this Agreement.  Any award rendered in such arbitration may be enforced by either party in either the courts of the State of Delaware or in the United States District Court for the District of Delaware, to whose jurisdiction for such purposes Parent, AtheroNova and CardioNova each hereby irrevocably consents and submits.

12.2. Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

ARTICLE XIII. TERM AND TERMINATION

13.1 Term of Agreement.  The Term of this Agreement shall mean that period of time beginning with the Effective Date and continuing until the later of (i) the last to expire Valid Claim or (ii) ten years.

13.2 Bankruptcy.

13.2.1 Voluntary or Involuntary Proceeding.  CardioNova shall have the right to terminate this Agreement at any time upon written notice to AtheroNova if (a) either Parent or AtheroNova shall file in any court, pursuant to any statute of any state, a petition in bankruptcy or insolvency or for the appointment of a receiver or trustee of all or substantially all of AtheroNova’s property, or if either Parent or AtheroNova shall make an assignment for the benefit of creditors, or if either Parent or AtheroNova shall commit any other affirmative act of insolvency; or (b) if there shall be filed against either Parent or AtheroNova in any court, pursuant to any statute of any state, an involuntary petition in bankruptcy or insolvency or for reorganization, or if there shall be involuntarily appointed a receiver or trustee of all or substantially all of either Parent’s or AtheroNova’s property, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within one hundred twenty (120) days of the date of the filing or the appointment.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

13.2.2 Rights.  Notwithstanding any other provision of this Agreement to the contrary and to the extent applicable, in the event that AtheroNova becomes a debtor under the United States Bankruptcy Code (11 U.S.C. §101 et. seq. or any similar law in any other country (the “Bankruptcy Code”) and rejects this Agreement pursuant to Section 365 of the Bankruptcy Code (a “Bankruptcy Rejection”), (i) CardioNova shall have all of the rights afforded to non-debtor licensees and sublicensees under Section 365(n) of the Bankruptcy Code; and (ii) to the extent any rights of CardioNova under this Agreement which arise after the expiration or termination of this Agreement are determined by a bankruptcy court not to be “intellectual property rights” for purposes of Section 365(n), all of such rights shall remain vested in and fully retained by CardioNova after any Bankruptcy Rejection as though this Agreement were terminated or expired. CardioNova shall under no circumstances be required to terminate this Agreement after a Bankruptcy Rejection in order to enjoy or acquire any of its rights under this Agreement.

13.3 Non-payment.  Should CardioNova fail to pay AtheroNova royalties due and payable hereunder which are not subject to reasonable dispute, AtheroNova shall have the right to terminate this Agreement on a country-by-country basis where such royalties have not been paid when due, including all licenses hereunder with respect to such country, on thirty (30) days’ written notice, unless CardioNova shall pay AtheroNova within the thirty (30) day period, all undisputed amounts payable as to the applicable country pursuant to this Agreement.  Should there be any dispute between the parties concerning the amounts payable, such matter shall be submitted for resolution under the provisions of Article 12 before termination shall become effective under the provisions of this Section 13.3.

13.4 For Cause.  Other than for those circumstances set forth in Sections 13.2 and 13.3, either party shall have the right to terminate this Agreement, including all licenses hereunder, on ninety (90) days written notice due to the material breach or default of this Agreement by the other party unless during such ninety (90)-day period the party receiving such notice cures the breach described therein.

13.5 Without Cause.

13.5.1 By CardioNova.  CardioNova shall have the right to terminate this Agreement on a country-by-country basis or in its entirety at any time and for any reason upon thirty (30) days written notice in the event of the failure of a Study to meet its primary endpoint goals or if the Russian Regulatory Authority has advised that marketing approval for a Licensed Product will not be issued or is very unlikely to be issued or the Russian Regulatory Agency has issued either additional testing demands that make the continued development commercially infeasible or issues an unapprovability letter or its functional equivalent.  In the event of termination under this Section 13.5.1, CardioNova shall immediately cease all development and commercialization of Licensed Products and shall cease and desist from engaging in any other activity in relation to or covered by Valid Claims under the AtheroNova Patent Rights.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

13.5.2 By AtheroNova.  Beginning with the Effective Date and ending two years after the first marketing approval issued in the Territory for a Licensed Product, AtheroNova shall have the right on thirty (30) days written notice to fully terminate this Agreement for the purpose of supporting a transaction including global or European Union rights concerning Licensed Products that AtheroNova wishes to implement with a Third Party (the “Strategic Partner”) provided that AtheroNova makes the Termination Payment to CardioNova as specified in Appendix D.

13.6 Effect of Termination.  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination.  CardioNova may, however, for a period of [***] after the effective date of such termination, sell all fully manufactured Licensed Products in its inventory, and in the event it has a manufacturing license also complete the manufacture of Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that CardioNova shall pay to AtheroNova the royalties and submit the reports thereon as required by Article IV of this Agreement.

13.6.1 Any agreement already entered into by CardioNova with a Sublicensee, reseller or distributor in the Territory prior to CardioNova’s receipt of a notice of termination from AtheroNova, shall continue in effect except that such agreement shall be transferred to AtheroNova or the Strategic Partner as applicable who shall take over all of CardioNova's rights and obligations therein. Neither AtheroNova nor the Strategic Partner shall have any right to terminate such agreement other than pursuant to such terms as are specifically provided in such agreement(s).  Upon execution thereof, copies of all such agreements entered into by CardioNova with a Sublicensee, reseller or distributor shall be provided to AtheroNova, except that financial terms may, at the option of CardioNova, be redacted from such agreements until such time as this Agreement is terminated.  Notwithstanding the foregoing, CardioNova shall provide all previously redacted financial terms to AtheroNova’s independent auditor solely for the auditor’s inspection and use in connection with the exercise of the audit right granted pursuant to Article 5.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

13.6.2 In addition to those provisions which by their terms survive termination for the time periods provided therein, Articles VII, VIII, XIV and XVI and all associated definitions shall survive termination.

ARTICLE XIV. NOTICES AND CONFIDENTIALITY

14.1 Addresses.  Any payment (if not made by wire transfer), notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of receipt, or seven (7) days after mailing if sent to such party by Certified First Class Mail, Postage Prepaid, or three (3) days after delivery to an internationally recognized ‘overnight’ courier addressed to it at its address below or as it shall designate by written notice given to the other party:

In the case of Parent and/or AtheroNova:	In the case of CardioNova:
AtheroNova, Inc./AtheroNova Operations, Inc.   Attention:  President   2301 Dupont Drive, Suite 525 Irvine, CA 92612 U.S.A.	OOO CardioNova Attention:  President Bolshaya Yakimanka 1 Suite 329 Russia, 119180

14.2 Proprietary Information.  As used in this Agreement, the term “Proprietary Information” means all scientific, technical, trade or business information of either party (the “Disclosing Party”) disclosed to the other party (the “Recipient”), whether or not in writing, of a confidential or proprietary nature, including any portion of analyses, compilations, forecasts, data, studies or other documents prepared by Recipient which contains such information.  By way of illustration, but not limitation, Proprietary Information may include inventions, know-how, products, processes, methods, techniques, assays, formulas, compositions, compounds, projects, developments, plans, research data, pre-clinical and clinical data, financial data, personnel data, computer programs, customer and supplier lists and contacts at or knowledge of customers or prospective customers of the Disclosing Party.

14.3 Confidentiality re Proprietary Information.  Except as expressly permitted in this Section 14.3, during the Term and until the Proprietary Information becomes public through no fault of the Recipient, the Recipient shall hold in confidence and shall not directly or indirectly disclose, communicate or in any way divulge to any person any Proprietary Information received from the Disclosing Party, without the prior written consent of the Disclosing Party.  The Recipient shall use such Proprietary Information solely for the purposes of this Agreement. The Recipient shall not provide or grant access to the Proprietary Information to any Third Party, except the Recipient may disclose Proprietary Information received by it under this Agreement only to those of its directors, officers, employees, agents and consultants who have a need to know such Proprietary Information in the course of the performance of their duties and who are bound by a written agreement to protect the confidentiality of such Proprietary Information on terms not less restrictive than the terms herein and to potential or actual Sublicensees, distributors or investors who are likewise bound by a written agreement to protect the confidentiality of such Proprietary Information; provided that Recipient shall be liable to the Disclosing Party for any failure of any such director, officer, employee, agent, consultant, Sublicensees, distributors or investors to abide by the restrictions contained in this Agreement.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Beginning with the Effective Date hereof, this Agreement shall govern the exchange of any Proprietary Information between the parties which occurs on and after the Effective Date.

14.4 Limitation on Obligations.  The obligations of the Recipient specified in Section 14.3 above shall not apply, and the Recipient shall have no further obligations, with respect to any Proprietary Information to the extent the Recipient can demonstrate, by clear and convincing evidence, that such Proprietary Information:

14.4.1 was known or used by the Recipient prior to the date of disclosure to the Recipient, as evidenced by the written or physical records of the Recipient existing prior to the disclosure;

14.4.2 either before or after the date of disclosure to the Recipient, is lawfully disclosed to the Recipient by an independent, unaffiliated Third Party rightfully in possession of the Proprietary Information and such Proprietary Information is disclosed without an obligation of confidentiality attached;

14.4.3 either before or after the date of disclosure to the Recipient, becomes published or generally known to the public through no fault or omission on the part of the Recipient, but such inapplicability applies only after such information is published or becomes generally known; or

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

14.4.4 is independently developed by employees or contractors or other agents of the Recipient without knowledge of, access or reference to the Proprietary Information of the Disclosing Party.

In addition, the Recipient may make disclosures of the Disclosing Party’s Proprietary Information including the terms of this Agreement but solely to the extent Recipient counsel determines is reasonably necessary and required to comply with applicable laws or regulations or with a court or administrative order; provided, that the Recipient, when possible, provides prior written notice of such disclosure to the Disclosing Party and makes the minimal disclosure required and allows the Disclosing Party an opportunity to seek protective orders regarding such disclosure.  To the extent permitted by applicable law or the rules and regulations promulgated by the Securities and Exchange Commission, Parent shall use all reasonable efforts to seek confidential treatment with respect to any commercially sensitive terms contained in this License Agreement and the Ancillary Agreements and to do so in accordance with any reasonable request therefor made by CardioNova.

14.5 Equitable Relief.  The Recipient agrees that any actual or threatened breach of this Agreement may cause the Disclosing Party substantial and irreparable damages and that monetary damages will be insufficient to remedy such damages and, therefore, in the event of any such actual or threatened breach, in addition to other remedies which may be available, the Disclosing Party shall have the right to seek specific performance and other injunctive and equitable relief.

14.6 Ownership of Proprietary Information.  Subject to Article 2, the Recipient agrees that the Disclosing Party (or any Third Party entrusting its own confidential information to the Disclosing Party) is and shall remain the exclusive owner of the Proprietary Information disclosed to the Recipient and all patent, copyright, trademark, trade secret, and other intellectual property rights in such Proprietary Information or arising therefrom.  Except as expressly set forth in this Agreement, no option, license, or conveyance of such rights to the Recipient is granted or implied under this Agreement.

ARTICLE XV. REPRESENTATIONS AND WARRANTIES

15.1. Representations and Warranties of CardioNova.  CardioNova represents and warrants to AtheroNova as follows:

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

15.1.1. CardioNova is a corporation duly organized, validly existing and in good standing under the laws of the Russian Federation.  CardioNova has all requisite corporate power to own and operate its properties and assets and to carry on its business as presently being conducted and as proposed to be conducted.  CardioNova has, and will have on all relevant dates, all requisite legal and corporate power to execute and deliver this Agreement, and to carry out and perform its obligations under the terms of this Agreement;

15.1.2. The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate CardioNova corporate action.  The performance by CardioNova of any of the terms and conditions of this Agreement on its part to be performed does not and will not constitute a breach or violation of any other agreement or understanding, written or oral, to which it is a party;

15.1.3. (a) CardioNova shall use its reasonable efforts to ensure that its personnel have the proper skill, training and background necessary to accomplish their assigned tasks, and that all services to be rendered under this Agreement shall be performed in a competent and professional and workmanlike manner, by fully qualified personnel of CardioNova or its Affiliates, sub-licenseees, agents, contractors or other business partners, (b) the Studies shall conform to the Development Plan, (c) its processes and materials do not and shall not violate any applicable laws, rules or regulations or infringe the rights of any third party, and (d) it has obtained or shall obtain and maintain during the Term all rights, licenses, consents and authorizations necessary to perform its obligations as set forth in this Agreement; and

15.1.4. CardioNova will comply with all applicable laws related to this Agreement.

15.2. Representations and Warranties of Parent and AtheroNova.  Parent and AtheroNova severally represent and warrant to CardioNova as follows:

15.2.1. Each of Parent and AtheroNova is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Each of Parent and AtheroNova has all requisite corporate power to own and operate its properties and assets and to carry on its business as presently being conducted and as proposed to be conducted.  Each of Parent and AtheroNova has, and will have on all relevant dates, all requisite legal and corporate power to execute and deliver this Agreement and, with respect to AtheroNova, also the Ancillary Agreements, and to carry out and perform its obligations under the terms of this Agreement;

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

15.2.2. The performance by each of Parent and AtheroNova of any of the terms and conditions of this Agreement applicable to each does not and will not constitute a breach or violation of any other agreement or understanding, written or oral, to which it is a party;

15.2.3. AtheroNova is the owner of the Licensed Technology or otherwise has the right to grant the licenses granted hereunder, and that said licenses do not conflict with or violate the terms of any agreement between Parent and/or AtheroNova and a Third Party.  Each of Parent and AtheroNova further warrants that it has not as of the Effective Date granted and will not during the Term grant any other licenses having the same rights as the Commercial License to any Third Party.  However, nothing in this Agreement shall be construed as:

15.2.3.1. a warranty or representation by either Parent or AtheroNova as to the validity or scope of any right included in the AtheroNova Patent Rights.  Notwithstanding the foregoing, Each of Parent and AtheroNova warrants that it has not been informed, as of the Effective Date, of any administrative or judicial proceeding contesting the ownership, inventorship, validity, or enforceability of any element of the AtheroNova Patent Rights or Know-how nor does either of Parent or AtheroNova have any reason to doubt the ownership, inventorship, validity, or enforceability of any element of the AtheroNova Patent Rights or Know-how; and

15.2.3.2. a warranty or representation that anything made, used, sold or otherwise disposed of under the license granted in this Agreement will or will not infringe patents of third parties.

15.2.4. Each of Parent and AtheroNova represents that to the best of its actual knowledge practice of the AtheroNova Patent Rights in the Territory and (their equivalent) in the U.S. will not infringe the intellectual property rights of any third party;

15.2.5. Each of Parent and AtheroNova will comply with all applicable laws related to this Agreement.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

15.2.6. Parent hereby fully, unconditionally and irrevocably guarantees all of the obligations of AtheroNova under this Agreement, and in the event that AtheroNova fails to perform any such obligation, CardioNova may proceed against Parent directly.

ARTICLE XVI MISCELLANEOUS PROVISIONS

16.1. Applicable Law.  This Agreement and all subsequent modifications or amendments thereto shall be construed, governed, interpreted and applied in accordance with the laws of the State of Delaware, U.S.A., except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

16.2. Agreement is Confidential.  All terms and conditions of this Agreement (but not the existence of this Agreement) are confidential and may not be disclosed to any but the authorized representatives of the parties and may not be disclosed to any Third Party absent specific written permission of both parties.  This Agreement is considered proprietary business information and both parties recognize that breach of confidentiality will have a damaging effect on the business purposes of the non-breaching party.  Disclosure absent such written permission is considered a material breach of the Agreement.  Any breach of this provision may cause irreparable harm and the non-breaching party will be entitled to seek injunctive relief without the necessity of posting bond.  Notwithstanding the foregoing, AtheroNova shall be permitted to disclose any portion or all of this Agreement, and/or the terms herein, as may be required by law or the rules and regulations promulgated by the United States Securities and Exchange Commission (including, without limitation, on or in connection with any current or periodic reports required to be filed or furnished thereby), provided, that before making any such disclosure, AtheroNova shall use its reasonable efforts to provide to CardioNova a draft thereof and, if practicable, an opportunity to provide any reasonable comments thereto.  To the extent permitted by applicable law or the rules and regulations promulgated by the United States Securities and Exchange Commission, AtheroNova shall use its reasonable efforts to seek confidential treatment with respect to any commercially sensitive terms contained in this Agreement in accordance with any reasonable request therefore made by CardioNova.

16.3. Integration.  The parties hereto acknowledge that this Agreement along with those additional agreements referenced herein together sets forth the entire Agreement and understanding and supersedes and makes null and void as of the Effective Date any and all prior understandings and agreements of the parties hereto as to the subject matter hereof including the non-disclosure agreement between Maxwell Biotech and Parent dated March 1, 2011 and the Research and Development Collaboration, Equity Investment & Territory License Term Sheet dated September 8, 2011, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

16.4. Severability.  The provisions of this Agreement are severable, and in the event that any provisions of this Agreement shall be determined to be invalid or unenforceable under any controlling body of the law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof.  If such invalidity or unenforceability of a provision makes the remaining terms illogical, or changes substantially the meaning and intent of this Agreement, the parties agree to substitute new terms as similar in effect to the present terms of this Agreement as may be allowed under the applicable laws and regulations.

16.5. Patent Markings.  All Licensed Products shipped to or sold in the Territory shall be marked in such a manner so as to conform with the patent laws and practice of the country of manufacture or sale.

16.6. Waiver.  The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party.

16.7. Authority.  Each of CardioNova, Parent and AtheroNova warrants and represents that the persons signing this Agreement on its behalf have authority to execute this Agreement and that execution of this Agreement does not violate any law, rule, or regulation applicable to it or any contract or other agreement by which it is bound.

16.8. Binding Effect.  The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, administrators, successors and assigns.

16.9. Official Language.  The official language of this Agreement shall be English.

Signature page follows.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

IN WITNESS WHEREOF, the parties have, by affixing their authorized signature below, fully executed this Agreement as of the Effective Date set forth above:

AtheroNova, Inc.		OOO CardioNova
By	/s/ Thomas W. Gardner	By	/s/ Andrey Boldyrev
Name	Thomas W. Gardner	Name	Andrey Boldyrev
Title	CEO	Title	General Director

AtheroNova Operations, Inc.
By	/s/ Mark Selawski
Name	Mark Selawski
Title	CFO

"Upon approval of the Development Plan by the JSC and provided OOO CardioNova has secured the Financing pursuant to Section 3.3, OOO Maxwell Biotech Group hereby fully, unconditionally and irrevocably guarantees all of the obligations of OOO CardioNova to AtheroNova, Inc. under this Agreement, and in the event that OOO CardioNova fails to perform any such obligation, AtheroNova, Inc. may proceed against OOO Maxwell Biotech Group directly. This guarantee may be terminated by OOO Maxwell Biotech Group on the earlier of (i) the sale, license or other transfer of all or substantially all of the assets of OOO CardioNova to a Third Party, provided (a) such Third Party assumes all of OOO CardioNova’s financial obligations under the Agreement, (b) such Third Party has assets after liabilities that exceed  those of OOO Maxwell Biotech Group based on the most recent audited accounts at the time of such transfer and (c) no such transfer occurs prior to completion or discontinuation of the Studies,  and (ii) termination of the Agreement."

Acknowledged and Agreed:

MAXWELL BIOTECH GROUP                                                                

By:                                                                By:

Its:                                                                Its:

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Attachments

Appendix A – AtheroNova Patent Rights

Appendix B – Basic Terms for the Ancillary Agreements

Appendix C – Termination Payment

Appendix D – Drug Supplies Total Cost

Phase I Study Protocol

Phase II Study Protocol

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Appendix A

AtheroNova Patent Rights

Attorney Docket No.	Serial No./ Patent No.	Title	Status	Country
	WO 2010/033637 (PCT US2009/057211)	Dissolution of Arterial Plaque	PCT Pub Mar 25, 2010	Pending
	WO 2011/044523 (PCT US2011/0086829)	Compositions and Methods for Treating Obesity	PCT Pub Apr 14, 2011	Pending

Plus all patent rights in the Territory claiming priority to or nationally filed from any of the foregoing.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Appendix B

Ancillary Agreements

Concurrent

Stock Purchase Agreement

Parent and CardioNova will enter into a separate Stock Purchase Agreement providing for inter alia an equity investment by CardioNova not to exceed a total of US$267,000 comprising two installments: (i) US$150,000 on approval of the Development Plan by the JSC and (ii) the lesser of (a) US$117,000 and, (b) upon completion of the activities shown in Appendix D, an amount equal to the Drug Supplies Total Cost less US$150,000 in exchange for that number of shares of Common Stock determined by dividing the installment paid by the Issue Price.

CardioNova will be entitled to "piggy-back" registration rights on registrations of Parent, subject to customary underwriters' cutback.  Parent will pay registration expenses other than underwriting discounts or commissions. To the extent permitted by applicable law, Parent will, upon CardioNova's request, provide reasonable assistance to remove restrictions on the transfer of Common Stock held by CardioNova.

Future

Manufacturing and Supply Agreement

AtheroNova shall provide on a timely basis conforming Licensed Product priced at [***].  AtheroNova shall QC the Licensed Product before shipping and CardioNova shall have thirty (30) days after receipt to confirm conformance.  CardioNova shall provide one hundred twenty (120)-day rolling forecasts updated every thirty (30) days specifying quantities, delivery times and locations.

Pharmacovigilance Agreement

Within six (6) months prior to the predicted First Commercial Sale of a Licensed Product in the Territory, the parties shall discuss in good faith and enter into a pharmacovigilance and adverse event reporting agreement setting forth the pharmacovigilance procedures for the parties with respect to the Licensed Product, such as safety data sharing, adverse events reporting and prescription events monitoring. The agreement shall govern the pharmacovigilance procedures to be agreed upon by AtheroNova, CardioNova and the commercial partners of CardioNova.

The foregoing agreements shall contain such additional terms as is customary for such agreements and reasonable given the nature of the circumstances and the intent of the parties.  All such terms shall be commercially reasonable and negotiated in good faith by the parties.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Appendix C

Termination Payment

The Termination Payment to be paid by AtheroNova to CardioNova in respect of a Section 13.5.2 Termination Notice received by CardioNova prior to the first marketing approval of Licensed Product in the Territory shall be determined in accordance with the following:

(i) If a final, quality-assured clinical statistical report for the final clinical trial required by the first reviewing regulatory authority in the Territory has been created ("Final Trial Report") prior to CardioNova’s receipt of the Termination Notice, the amount payable as a termination payment shall equal [***], plus an additional amount of [***] provided marketing approval in a country in the Territory occurs as a result of the regulatory authority acting on the Final Trial Report and such marketing approval has occurs within [***] of the date of CardioNova’s receipt of the Termination Notice.

(ii) If a Final Trial Report has not been created on or before CardioNova receives the Termination Notice, the Termination Payment shall equal (a) [***] if the final clinical trial referred to in Section (i) of this Appendix C has not commenced, or if it has commenced, then (b) [***] in respect of such final trial incurred up to the date of receipt of the Termination Notice and the amount required for CardioNova to complete any trial then on-going.

(iii) If the Termination Notice is received after the first marketing approval in the Territory, the Termination Payment shall equal [***].

(iv) The scheduling of payment of the Termination Payment will be negotiated in good faith between AtheroNova and CardioNova taking into account the amount and timing of the payments to be received by AtheroNova from the Strategic Party provided however that no termination shall be effective unless the parties come to agreement thereon.

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Appendix D

Drug Supplies Total Cost

[***]

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Phase I Study Protocol

(to be attached)

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24B-2.  PORTIONS OF THIS AGREEMENT CONSISTING OF ASTERISKS SURROUNDED BY BRACKETS (I.E. [***]) HAVE BEEN REDACTED AND SUCH REDACTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

Phase II Study Protocol

(to be attached)

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas W. Gardner, certify that:

1. I have reviewed this report on Form 10-Q of AtheroNova Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2011	/s/ Thomas W. Gardner
	Thomas W. Gardner,
	Chief Executive Officer and Chairman
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Selawski, certify that:

1. I have reviewed this report on Form 10-Q of AtheroNova Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2011	/s/ Mark Selawski
	Mark Selawski,
	Chief Financial Officer and Secretary
	(Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AtheroNova Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas W. Gardner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2011	/s/Thomas W. Gardner
	Thomas W. Gardner
	Chief Executive Officer and Chairman (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AtheroNova Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Selawski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2011	/s/ Mark Selawski
	Mark Selawski
	Chief Financial Officer and Secretary (Principal Accounting Officer)

XML

Condensed Consolidated Balance Sheets (Parentheticals) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Preferred stock par value (in Dollars per share)	$ 0.0001	$ 0.0001
Preferred stock shares authorized	10,000,000	10,000,000
Preferred stock outstanding	0	0
Common stock par value (in Dollars per share)	$ 0.0001	$ 0.0001
Common stock shares authorized	100,000,000	100,000,000
Common stock shares outstanding	27,547,211	23,420,899

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended		58 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011
Revenue, net	$ 0	$ 0	$ 0	$ 0	$ 0
Operating expenses:
Research and development	88,270		271,645	110,450	763,180
General and administrative expenses	797,078	594,028	1,571,334	987,915	3,474,001
Impairment charge-intellectual property		572,868		572,868	572,868
Total operating expenses	885,348	1,166,896	1,842,979	1,671,233	4,810,049
Loss from operations	(885,348)	(1,166,896)	(1,842,979)	(1,671,233)	(4,810,049)
Other income / (expenses):
Other income (expense)	36	676	165	(46,708)	3,281
Merger-related expenses				(323,294)	(323,294)
Cancellation of related-party debt					100,000
Interest expense	(401,446)	(196,810)	(594,922)	(233,060)	(944,830)
Private Placement Costs				(2,042,348)	(2,148,307)
Gain on extinguishment of derivative liability	811,393		811,393		811,393
Change in fair value of derivative liabilities	(3,469,451)	(412,361)	3,934,420	(412,361)	(6,221,155)
Net income (loss) before income taxes	(3,944,816)	(1,775,391)	2,308,077	(4,729,004)	(13,532,961)
Provision for income taxes			4,840	1,759	6,599
Net income (loss)	$ (3,944,816)	$ (1,775,391)	$ 2,303,237	$ (4,730,763)	$ (13,539,560)
Basic income (loss) per share (in Dollars per share)	$ (0.15)	$ (0.08)	$ 0.09	$ (0.21)
Diluted income (loss) per share (in Dollars per share)	$ (0.15)	$ (0.08)	$ 0.08	$ (0.21)
Basic weighted average shares outstanding (in Shares)	26,503,747	22,785,012	24,729,573	22,243,571
Diluted weighted average shares outstanding (in Shares)	26,503,747	22,785,012	27,665,915	22,243,571

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 07, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	AtheroNova Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		27,753,802
Amendment Flag	false
Entity Central Index Key	0001377053
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML

Note 5 - Stockholders' Deficiency

3 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

5.            STOCKHOLDERS’ DEFICIENCY

Common Stock

Sale of common stock

During the nine months ended September 30, 2011, the Company sold 2,518,421 units for $0.55 per unit, each unit consisting of one share of common stock and a warrant to purchase .30 shares of common stock for up to three years at $0.60 per share, to accredited investors, resulting in proceeds to the Company of $1,385,131.  In connection with such sales, warrants to purchase 711,887 shares of common stock were issued to these same purchasers.  There were no commissions paid with respect to these sales.

Certain of these unit sales were made to existing employees, officers and vendors.  Included in these totals was the sale of 324,407 units (representing 324,407 common shares and warrants to purchase an additional 97,323 common shares) to officers and vendors to the Company.  The Company determined that it was appropriate to recognize compensation expense of $223,892 for the differential of the purchase price to the open market price of each respective purchase on its date of execution.  Additionally, the associated warrants resulted in recognition of additional compensation expenses of $85,525 which were valued using the Black-Scholes-Merton valuation model with the following assumptions: risk free interest rate of 0.25 – 0.56%, dividend yield of 0%, volatility factors of the expected market price of common stock of 138%, and an expected life of 1.5 years.  The aggregate amount of $309,417 has been reflected as additional compensation in the accompanying September 30, 2011 statement of operations.

On March 11, 2011, we issued 25,000 shares of our common stock for gross proceeds of $25,000 to an accredited investor in a private placement transaction.  On April 11, 2011, we amended the subscription agreement pursuant to which we sold such shares to provide, instead, for the purchase of 45,454 units consisting of 45,454 shares of our common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 13,636 shares of our common stock.

Common stock issued to settle payables

On September 30, 2011, we issued 22,727 units, consisting of 22,727 shares of our common stock and a warrant, having a three year term and an exercise price of $0.60 per share, to purchase 6,818 shares of our common stock in exchange for cancellation of $12,500 of accounts payable for prior services rendered.  The Company recognized a cost of $36,113 in the accompanying September 30, 2011 statement of operations upon settlement of this payable relating to the difference between the fair value of the units issued.

Stock Options

The Company has a stockholder-approved stock incentive plan for employees under which it has granted stock options.  In May 2010, the Company established the 2010 Stock Incentive Plan (the “2010 Plan”), which provides for the granting of awards to officers, directors, employees and consultants to purchase or acquire up to 4,362,964 shares of the Company’s common stock.  The awards have a maximum term of 10 years and vest over a period determined by the Company’s Board of Directors and are issued at an exercise price determined by the Board of Directors.  Options issued under the 2010 Plan will have an exercise price equal to or greater than the fair market value of a share of the Company’s common stock at the date of grant.  The 2010 Plan expires on May 20, 2020 as to any further granting of options.

During the period ended September 30, 2011, options to purchase 162,500 shares of the Company’s common stock were granted to employees under the 2010 Plan.  The options vest 25% upon issuance, and then vest 25% on each anniversary date thereafter.  The options have an exercise price of $1.01 per share and expire on the 7th anniversary of the date of grant.

On June 1, 2011, the Company entered into an agreement with a consultant to purchase 50,000 shares of common stock at $1.01, which vest over a one year period.  The company is valuing the vested options at each reporting date in accordance with the current accounting guidance which require option awards issued to non-employees be based upon the current market price as the services are performed using an option pricing model.

On June 1, 2011, the Company entered into an agreement with a consultant to perform certain development and regulatory activities.  Under the terms of the agreement, the company issued to the consultant an option to purchase 500,000 shares of our common stock at $1.01 per share that vests over 48 months starting July 2011.  The company is valuing the vested options at each reporting date in accordance with the current accounting guidance which require option awards issued to non-employees be based upon the current market price as the services are performed using an option pricing model.  As of September 30, 2011 a total of 31,250 option shares are vested with a fair value of $52,436, which was expensed during the period.

In addition to the above, an additional 1,500,000 option shares were committed to the consultant under a development plan calling for achievement of twelve (12) milestones set forth by the Company.  Upon achievement of these various milestones, the Company will be obligated to grant additional stock options of varying amounts.  Once the options are granted, the options will vest on a monthly basis for a period of four years.  In case the consultant terminates the relationship with the Company during the vesting period, any unvested options will be forfeited.  As of September 30, 2011, the consultant accomplished two (2) milestones and was granted total options of 150,000, of which 3,125 shares vested on October 2, 2011.  Total fair value of the options vested amounted to approximately $5,000.

A summary of the status of the Company’s stock options as of September 30, 2011 and changes during the period then ended is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		2,199,498	$	0.878		6.852
Granted		862,500	$	1.01		6.72
Exercised		--		--		--
Cancelled		(37,500)		1.11		--
Outstanding at September 30, 2011		3,024,498	$	0.953		6.001	$	2,600,558
Exercisable at September 30, 2011		807,601	$	0.882		5.779	$	751,518
Weighted-average fair value of options granted during the three month period ended September 30, 2011	$	0.870

During the three and nine months ended September 30, 2011, the Company recognized $165,121 and $459,224, respectively, of compensation costs related to the vesting of these options. As of September 30, 2011, the total compensation cost related to nonvested option awards not yet recognized is $2,397,843.  The weighted average period over which it is expected to be recognized is approximately 3.50 years.  The intrinsic value of the shares outstanding at September 30, 2011 was $2,600,558.

To compute compensation expense, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes-Merton option pricing model for employees, and calculated the fair value of each option award at the end of the period for non-employees.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient market information to estimate the volatility of its own stock.  The expected term of options granted represents the period of time that options are expected to be outstanding.  The Company estimated the expected term of stock options by using the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences.  To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.  The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

The following table shows the weighted average assumptions the Company used to develop the fair value estimates for the determination of the compensation charges in the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,			Nine months ended September 30,
	2011		2010	2011	2010
Expected volatility		138%	138%	138%		138%
Dividend yield		--	--	--		--
Expected term (in years)		1.5-6.25	6.25	6.25		6.25
Risk-free interest rate		1.41%	1.92%	2.19%		1.92%

Warrants

On March 29, 2011, we issued warrants to an advisor to the Company to purchase 21,000 shares of our common stock. The warrants vested over a three month period, have a term of three years and are exercisable at a purchase price of $0.50. The warrants were valued using the Black-Scholes-Merton option pricing model at $22,470 with the following assumptions:  risk free interest rate of 2.25%, dividend yield of 0%, volatility factors of the expected market price of common stock of 239%, and an expected life of 3 years.

During the nine months ended September 30 2011, we issued a total 725,523 fully-vested warrants to accredited investors who purchased common stock in the subscription offering.  These warrants are exercisable for three years from the date of issuance at an exercise price of $0.60 per share. We also issued 6,818 warrants as a part of our agreement at settle $12,500 of accounts payable.

As of September 30, 2011 there are warrants to purchase 6,058,198 shares of our common stock outstanding with expiration dates ranging from February 2013 through December 2015 and exercise prices ranging from $0.22 to $1.64.  A summary of the status of our warrants as of September 30, 2011 and changes during the period then ended is presented below:

	Shares		Weighted average exercise price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic  Value
Outstanding at December 31, 2010		5,304,857	$	0.338		3.664	11,471,264
Granted		753,341	$	0.597		2.862	906,109
Exercised		--		--		--	--
Cancelled		--		--		--	--
Outstanding at September 30, 2011		6,058,198	$	0.370		2.907	$	8,663,973
Exercisable at September 30, 2011		6,058,198	$	0.370		2.907	$	8,663,973
Weighted-average fair value of warrants granted during the three month period ended September 30, 2011	$	0.600

XML

Note 1 - Organization

3 Months Ended

Sep. 30, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.            ORGANIZATION

Z&Z Medical Holdings, Inc. (“Z&Z Nevada”) was incorporated under the laws of the State of Nevada on December 13, 2006 (Inception).  Z&Z Nevada had its headquarters located in Laguna Niguel, California.  On November 30, 2009, a separate corporation named Z&Z Medical Holdings, Inc. (“Z&Z Delaware”) was incorporated under the laws of the State of Delaware and on March 3, 2010 Z&Z Nevada was merged into Z&Z Delaware.  On May 13, 2010, pursuant to an Agreement and Plan of Merger dated March 26, 2010, (i) our subsidiary, Z&Z Merger Corporation, merged with and into Z&Z Delaware and the surviving subsidiary corporation changed its name to AtheroNova Operations, Inc. (“AtheroNova Operations”), (ii) we assumed all the outstanding options and warrants of Z&Z Delaware and (iii) we completed a Capital Raise Transaction in which we sold $1,500,000 in 2.5% Senior Secured Convertible Notes.  The former holders of AtheroNova Operations’ common stock became holders of approximately 98% of our outstanding common stock.  On May 21, 2010, holders of approximately 76.7% of the then outstanding shares of our Super-Voting Common Stock, approximately 90.7% of the then outstanding shares of common stock, and approximately 77.1% of the combined voting power of the then outstanding shares of our Super-Voting Common Stock and our common stock approved an amendment of our certificate of incorporation that (i) decreased the authorized number of shares of our common stock to 100,000,000, (ii) designated 10,000,000 shares of blank check preferred stock, and (iii) adopted a 1-for-200 reverse stock split.  The amendment to our certificate of incorporation became effective on June 23, 2010.

As a result of the merger AtheroNova is now engaged, through AtheroNova Operations, in development of pharmaceutical preparations and pharmaceutical intellectual property.  The Company will continue to be a development stage company for the foreseeable future.  The Company has entered into contracts with two research sites for its second pre-clinical trial.

Immediately prior to the Merger, AtheroNova had 107,272,730 shares of its common stock issued and outstanding. In connection with the Merger, AtheroNova issued 88,575,048 shares of its Super-Voting Common stock in exchange for the issued and outstanding shares of common stock of AtheroNova Operations, and assumed AtheroNova Operations’ outstanding options and warrants which became exercisable to purchase an aggregate of up to 16,552,227 shares of AtheroNova Super-Voting Common Stock.  Upon the effectiveness of the 1-for-200 reverse stock split all shares of AtheroNova Super-Voting Common Stock were automatically converted on a 50-to-1 basis into AtheroNova common stock, resulting in the issuance of 22,143,763 shares of AtheroNova common stock to the former holders of AtheroNova Operation’s common stock, and the outstanding shares of common stock held by AtheroNova’s existing stockholders were combined into 607,647 shares of AtheroNova common stock.

Since former holders of AtheroNova Operation’s common stock owned, after the Merger, approximately 98% of AtheroNova’s shares of common stock, and as a result of certain other factors, including that all members of the Company’s executive management are members of AtheroNova Operation’s management, AtheroNova Operations is deemed to be the acquiring company for accounting purposes and the merger was accounted for as a reverse merger and a recapitalization in accordance with generally accepted accounting principles in the United States (“GAAP”).  These condensed consolidated financial statements reflect the historical results of AtheroNova Operations prior to the merger and that of the combined company following the merger, and do not include the historical financial results of AtheroNova prior to the completion of the merger.  Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the merger and subsequent 1-for-200 reverse stock split effected on June 23, 2010.  In conjunction with the Merger, the Company assumed liabilities and incurred costs of $323,294 which have been reflected as costs of the reverse merger in the 2010 statement of operations.

XML

Note 7 - Subsequent Events

3 Months Ended

Sep. 30, 2011

Subsequent Events [Text Block]

7.            SUBSEQUENT EVENTS

On October 11, 12 and 14th, 2011, the Company issued an aggregate of 145,455 units consisting of 145,455 shares of the Company’s common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 43,636 shares of the Company’s common stock.  The aggregate gross proceeds from this private placement transaction were $80,000.

On October 17, 2011, the Company issued 50,000 shares of its common stock to a service provider in consideration of services rendered to the Company.

Additionally on October 18, 2011, 11,136 units consisting of 11,136 shares of our common stock and warrants, having a term of three years and an exercise price of $0.60 per share, to purchase 3,341 shares of our common stock, were issued in satisfaction of accounts payable totaling $6,124.80.

On October 22, 2011, the Company entered into two definitive agreements with OOO CardioNova, a wholly-owned subsidiary of Maxwell Biotech Group, a Russian biotech fund, covering the Company’s AHRO-001 compound.  The agreements cover a territory represented by the Russian Federation, the Ukraine and various countries in central Asia (the “Territory”).

Under the Licensing Agreement, OOO CardioNova (“CardioNova”) will become an equity investor in the Company in exchange for the funding of Phase 1 and 2 human clinical trials conducted by a Clinical Research Organization (“CRO”) located in Russia.  Terms of the Agreement specify that a Joint Steering Committee be established between both entities to determine final clinical protocols and research budget, which is expected to total approximately $3.8 million.  Upon acceptance of the development plan, common stock equal to 10% of the research budget will be issued to CardioNova at a 20-day weighted average prior to the signature of the initial term sheet, or $0.97 per share.

Additional common stock issuances of 20%, 40% and 30% of the approved budget shall be issued upon the approval by the Joint Steering Committee of the Phase 1 protocol, announcement of Phase 1 results and announcement of Phase 2 results, respectively.  Each tranche will be priced at the lower of the weighted 20-day average immediately prior to each issuance event, or $0.97 per share, whichever is lower.

If CardioNova successfully develops and commercializes AHRO-001 in the Territory, the Company will be entitled to receive a quarterly royalty, based on net sales during the period using an escalating scale.  The royalty agreement shall remain in force for the period in which intellectual property rights for AHRO-001are in full force and effect in the Territory.

Under the Securities Purchase Agreement, OOO CardioNova will purchase up to 275,258 shares of the Company’s common stock for a cash purchase price of $0.97 per share.  This transaction will take place in two installments.  The first installment of 154,639 shares will occur concurrently with the first common stock issuance as specified in the Licensing Agreement, which will occur after November 15, 2011.  The 2nd installment will occur upon delivery of final clinical product to be used in the Phase 1 and 2 clinical trials.

XML

Note 6 - Commitments

3 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

6.            COMMITTMENTS

At present the Company has commitments for two research and development projects for its second pre-clinical trials.  The first agreement, with the University of California, has completed the laboratory segment of the project and should be in process of issuing the final analytic reports.  Amendment #1 to the agreement, dated September 22, 2011, added serum analytic work on samples provided by Cedars-Sinai for an additional $4,620, increasing the final amount due under the agreement to $43,787.

The second commitment for research and development projects, with the Cedars-Sinai Medical Center, has also completed the laboratory segment of the project and completion of the data analysis and publishable manuscript are expected to be during the 4th quarter of 2011.  Additional progress payments still due at various dates dependent upon the stages of completion of the project total $137,583.

The Company has agreed to a consulting contract with its drug development consultant which calls for payments of certain achievement cash bonuses as well as future stock option grants based on attainment of various development milestones.  To date, cash bonuses of $10,000 and stock options to purchase 150,000 shares of common stock, subject to a vesting schedule, have been issued after satisfaction of several goals during the current period.  If all remaining development milestones are met, cash bonuses of $140,000 will be paid and additional stock options to purchase an additional 1,350,000 shares of common stock, also subject to a vesting schedule, will be granted.  It is expected that this development process will last between 24 and 36 months.

XML

Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) (Parentheticals) (USD $)	Sep. 30, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Per share cash received for issuance of Common Stock	$ 0.55	$ 0.223	$ 0.223	$ 0.223

XML

Note 2 - Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2011

Significant Accounting Policies [Text Block]

2.             BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements.  Such financial statements and accompanying notes are the representation of the Company’s management, who is responsible for their integrity and objectivity.

Use of Estimates

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in AtheroNova’s Annual Report on Form 10-K filed with the SEC on March 31, 2011.  In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the valuation of long-lived assets, accrued other liabilities, and valuation assumptions related to share based payments and derivative liability.

Going Concern

The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  The Company has a stockholders deficiency of $8,907,321 at September 30, 2011, and has incurred recurring losses from operations since inception.  These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Management is in the process of  concluding an offering to accredited investors of units consisting of one share of the Company’s common stock and a warrant to purchase 0.3 of a share of the Company’s common stock, at a per unit price of $0.55, to raise funds necessary for general corporate and research costs.  The offering has raised $1,385,131 as of September 30, 2011 (see Note 5) and an additional $80,000 was raised after September 30, 2011.  The conclusion of this offering should give the company sufficient capital to fund operations through the end of the first quarter of 2012.  Management is currently evaluating several future funding sources, including the commencement of a new subscription offering and various private placement opportunities.  There can be no assurances that sufficient subsequent funding, if any at all, will be raised by future offerings or private placements or that the cost of such funding will be reasonable.

In light of the foregoing, management will also seek funding through grants and other such funds available from private and public sources established to further research in health care and advancement of science.  Management continues to meet with representatives of private and public sources of funding to continue the ongoing process of capital development sufficient enough to cover negative cash flows expected in future periods and will continue to do so in the coming months.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiary.  All significant intercompany transactions and balances have been eliminated in consolidation.

Earnings and Loss per Share

The Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS.  Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the company reported an operating loss because all warrants and stock options outstanding are anti-dilutive.

A reconciliation of basic and diluted shares for the three months ended September 30, 2011 and 2010 follows:

	September 30,		September 30,
	2011		2010
Average common shares outstanding-basic		26,503,747		22,785,012
Effect of dilutive securities-
Warrants		--		--
Employee and director stock options		--		--
Average diluted shares	$	26,503,747	$	22,785,012

A reconciliation of basic and diluted shares for the nine months ended September 30, 2011 and 2010 follows:

	September 30,		September 30,
	2011		2010
Average common shares outstanding-basic		24,729,573		22,243,571
Effect of dilutive securities-
Warrants		2,677,985		--
Employee and director stock options		258,357		--
Average diluted shares	$	27,665,915	$	22,243,571

There were no adjustments to net income required for purposes of computing diluted earnings per share.

Warrants, options and other potentially dilutive securities are antidilutive and excluded from the dilutive calculations when their exercise or conversion price exceeds the average stock market price during the period or the effect would be anti-dilutive when applied to a net loss during the periods presented.  The following table sets forth the shares excluded from the diluted calculation for the three month periods presented as follows:

	September 30,		September 30,
	2011		2010
Convertible notes		3,626,409		4,199,358
Warrants		6,058,198		5,497,355
Employee and director stock options		3,024,498		549,498
Total potentially dilutive shares	$	12,709,105	$	10,246,211

Such securities could potentially dilute earnings per share in the future.

Derivative financial instruments

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the weighted-average Black-Scholes-Merton pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair value of financial instruments

Effective January 1, 2008, fair value measurements are determined by the Company’s adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company’s fair value measurements.  Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

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

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The Company is required to use observable market data if such data is available without undue cost and effort.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2011.

	Level 1		Level 2		Level 3		Total
Fair value of Derivative Liability	$	--	$	--	$	8,952,110	$	8,952,110

At September 30, 2011 and December 31, 2010, the fair values of cash and cash equivalents, and accounts payable approximate their carrying values.

Recently Issued Accounting Standards

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required.  The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company will adopt the ASU as required.  It will have no affect on the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely or not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted.  The Company is currently evaluating the effects adoption of ASU 2011-08 may have on its goodwill impairment testing.

11

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.

XML

Note 3 - 2.5% Senior Secured Convertible Notes Payable

3 Months Ended

Sep. 30, 2011

Mortgage Notes Payable Disclosure [Text Block]

3.             2.5% SENIOR SECURED CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of the following as of September 30, 2011 and December 31, 2010:

	September 30,			December 31,
	2011			2010
	(Unaudited)
Convertible Notes Payable	$	955,351		$	1,401,951
Less valuation Discount		(616,846	)		(1,173,653	)
Convertible Notes Payable, net	$	338,505		$	228,298

On May 13, 2010, we entered into a Securities Purchase Agreement with W-Net, Europa and MKM pursuant to which the Purchasers purchased from us (i) 2.5% Senior Secured Convertible Notes for a cash purchase price of $1,500,000, and (ii) Common Stock Purchase Warrants pursuant to which the Purchasers may purchase up to 1,908,797 shares of our common stock at an exercise price equal to approximately $0.39 per share, subject to adjustment.  A portion of the proceeds from the Capital Raise Transaction were used to pay $250,000 owed by us to the two principal holders of our common stock, W-Net and Europa, and to reimburse them for legal and accounting fees and $73,294 of other expenses incurred by them and our company in connection with the Merger and the Capital Raise Transaction. Such costs have been reflected as costs of the reverse merger in the accompanying statement of operations for the nine-month period ended September 30, 2010. The net proceeds available to us for our operations were reduced by such payments.

The Original Notes accrued 2.5% interest per annum with a maturity of 4 years after the closing of the Capital Raise Transaction.  No cash interest payments were required, except that accrued and unconverted interest would be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest could be added to and included with the principal amount being converted.  If there was an uncured event of default (as defined in the Notes), the holder of each Note could declare the entire principal and accrued interest amount immediately due and payable.  Default interest would accrue after an event of default at an annual rate of 12%.  If there was an acceleration, a mandatory default amount equal to 120% of the unpaid Note principal plus accrued interest could be payable.

The Warrants may be exercised on a cashless basis under which a portion of the shares subject to the exercise are not issued in payment of the purchase price, based on the then fair market value of the shares.

On May 13, 2010, we also entered into a Security Agreement and an Intellectual Property Security Agreement with the Purchasers and AtheroNova Operations, pursuant to which all of our obligations under the Notes are secured by first priority security interests in all of our assets and the assets of AtheroNova Operations, including intellectual property.  Upon an event of default under the Notes or such agreements, the Note holders may be entitled to foreclose on any of such assets or exercise other rights available to a secured creditor under California and Delaware law.  In addition, under a Subsidiary Guarantee, AtheroNova Operations guaranteed all of our obligations under the Notes.

Each Original Note was convertible at any time into common stock at a specified conversion price, which was approximately $0.39 per share, subject to adjustment.  On July 6, 2011, the Company entered into an Amendment and Exchange Agreement with each of W-Net, Europa and MKM pursuant to which the Purchasers agreed to exchange the Original Notes for the Notes.  The Notes have the same terms as the Original Notes (as described below), except that each Note is convertible at any time into common stock at a per share conversion price of $0.29, subject to adjustment.

The Notes may not be prepaid, or forced by us to be converted in connection with an acquisition of our company, except in a limited case more than a year after the Note issuance date where the average of our stock trading price for 30 days on a national trading market other than the OTC Bulletin Board (“OTCBB”) is at least three times the conversion price, in which event, and subject to the satisfaction of certain other requirements, the Note holders may elect to receive at least double the unpaid principal amounts in cash and other requirements are satisfied.  In such a limited case acquisition, there could also be a forced cashless exercise of the Warrants subject to similar requirements and optional cash payments to the Warrant holders of at least double the exercise prices of their Warrants.

The Note conversion price and the Warrant exercise price are subject to specified adjustments for certain changes in the numbers of outstanding shares of our common stock, including conversions or exchanges of such.  If additional shares of our capital stock are issued, except in specified exempt issuances, for consideration which is less than the then existing Note conversion or Warrant exercise price, then such conversion or warrant price will be reduced by anti-dilution adjustments.  For the first $400,000 of such “Dilutive Issuances,” the reduction will be made on a weighted average basis, taking into account the relative magnitudes of any Dilutive Issuance relative to the total number of outstanding shares.  However, any further Dilutive Issuance would be subject to a more detrimental “full ratchet” adjustment that generally reduces the conversion or exercise price to equal the price in the Dilutive Issuance, regardless of the size of the Dilutive Issuance (see related accounting treatment for the Notes and Warrants below).

The Notes greatly restrict the ability of our company and AtheroNova Operations to issue indebtedness or grant liens on our or its respective assets without the Note holders’ consent.  They also limit and impose financial costs on our acquisition by any third party.

Under the Securities Purchase Agreement, as amended, if we meet three specified operating benchmarks during the first twenty-four months after the closing of the first Original Note purchase, an additional $1,500,000 in Note purchases (without Warrants) can be requested by us from the Purchasers.  The determination of whether we have met the benchmarks is solely at the discretion of the Purchasers.  If the benchmarks are determined to have been achieved, then we can require the Purchasers to make the additional $1,500,000 of Note purchases.  If such benchmarks are not attained in the 24-month period, then the Purchasers, in their discretion, during the next two months may elect to purchase up to $1,500,000 of Notes (without Warrants) having an initial conversion price which is 25% higher than the conversion price in the Notes.

Each of the Notes and Warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current conversion or exercise price. The Company considered the current Financial Accounting Standards Board guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument, regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that as the conversion price of the Notes and the strike price of the Warrants may fluctuate based on the occurrence of future offerings or events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes and the Warrants are not considered indexed to the Company’s own stock and characterized the value of the Notes and the Warrants as derivative liabilities upon issuance.

The Company determined that the fair value of the conversion feature at issuance was $2,370,245, and that the fair value of the warrant liability at issuance was $1,172,103, based upon a weighted average Black-Sholes-Merton calculation. The Company recorded the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life of the Notes. As the aggregate fair value of these liabilities of $3,542,348 exceeded the aggregate value of the Notes of $1,500,000 at issuance, the excess of the liability over the aggregate value of the Notes of $2,042,348 was considered as a cost of the private placement in 2010.  The Company has amortized $883,154 of the valuation discount of which, $556,807 was recorded during the period ended September 30, 2011.  The remaining unamortized valuation discount of $616,846 as of September 30, 2011 has been offset against the face amount of the Notes for financial statement purposes. The fair value of the derivative liabilities as of September 30, 2011 was $8,952,110 (see Note 4).

From issuance through September 30, 2011, the Purchasers exercised their option to convert a portion of the Original Notes into our common stock.  During the year ended December 31, 2010, principal in the amount of $98,049 and accrued interest in the amount of $965 was converted at a per share price of approximately $0.39 into 249,488 and 2,456 shares, respectively, of our common stock.  During the nine months ended September 30, 2011, principal in the amount of $446,600 was converted at a per share price of $0.29 into 1,540,000 shares of our common stock.  In addition, the Company also issued 45,164 shares of our common stock with a market value of $27,098 to settle $13,098 of accrued interest relating to these notes.  The issuance of these common shares resulted in an additional charge of $14,000 that has been reflected as a financing cost in the accompanying statement of operations.  The aggregate balance of the Original Notes outstanding as of September 30, 2011 amounted to $955,351.

XML

Note 4 - Derivative Liability

3 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.             DERIVATIVE LIABILITY

In April 2008, the FASB issued a pronouncement that provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives.  This pronouncement was effective for financial statements issued for fiscal years beginning after December 15, 2008.  The adoption of these requirements can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions).  For example, warrants with such provisions will no longer be recorded in equity.  Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price.

We evaluated whether convertible debt and warrants to acquire stock of the Company contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price under the respective convertible debt and warrant agreements.  We determined that the Notes and the Warrants issued to W-Net, Europa and MKM contained such provisions and recorded such instruments as derivative liabilities.  Derivative liabilities were valued using the weighted-average Black-Scholes-Merton option pricing model, which approximates the Monte Carlo and other bi-nominal valuation techniques, with the following assumptions:

	September 30, 2011		December 31, 2010
	(Unaudited)
Conversion feature :
Risk-free interest rate		0.42%		2.01%
Expected volatility		136%		150%
Expected life (in years)	2.63 years		3.37 years
Expected dividend yield		0.00%		0.00%
Warrants :
Risk-free interest rate		0.42%		2.01%
Expected volatility		136%		150%
Expected weighted average life (in years)	2.63 years		3.37 years
Expected dividend yield		0.00%		0.00%
Fair Value :
Conversion feature	$	5,890,341	$	9,177,865
Warrants		3,061,769		4,520,058
	$	8,952,110	$	13,367,923

The risk-free interest rate was based on rates established by the Federal Reserve Bank.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient market information to estimate the volatility of its own stock, and the expected life of the instruments is determined by the expiration date of the instrument.  The expected dividend yield was based on the fact that the Company has not paid dividends to common stockholders in the past and does not expect to pay dividends to common stockholders in the future.

The Company measured the aggregate fair value of the Original Notes and the Warrants issued on May 13, 2010 as $3,542,348. The value of the derivative liability at the date of issuance of $3,542,348 in excess of the Original Notes payable with a face amount of $1,500,000 was $2,042,348, and such amount was recognized in the statements of operations for the three- and nine-month periods ended September 30, 2010 as a cost of the private placement. The Company measured the aggregate fair value of the Original Notes and the Warrants on December 31, 2010 at an aggregate value of $13,367,923.  As of September 30, 2011, the Company re-measured the remaining derivative liabilities and determined the aggregate fair value to be $8,952,110. The Company recorded the change in fair value of the derivative liabilities of $3,934,420 in the accompanying statement of operations for the nine months ending September 30, 2011.

For the three months ended September 30, 2011, the Company recorded a gain on the extinguishment of derivative liability of $811,393 due to the conversion of principal balance of convertible notes of $446,600.

XML

Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) (USD $)	Accounts payable converted [Member] Common Stock [Member]	Accounts payable converted [Member] Additional Paid-in Capital [Member]	Accounts payable converted [Member] Retained Earnings [Member]	Accounts payable converted [Member]	Common Stock [Member] Officers and Directors [Member]	Common Stock [Member]	Additional Paid-in Capital [Member] Officers and Directors [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member] Officers and Directors [Member]	Retained Earnings [Member]	Officers and Directors [Member]	Total
Balance – December 31, 2007 (in Dollars) at Dec. 12, 2006
Issuance of Common Stock (in Dollars)						$ 1,923		$ (1,923)		$ 0		$ 0
Issuance of Common Stock						19,233,029
Net income loss (in Dollars)						0		0		0		0
[StockholdersEquityOtherShares]						0
Balance (in Dollars) at Dec. 31, 2007						1,923		(1,923)		0		0
Balance at Dec. 31, 2007						19,233,029
Issuance of Common Stock (in Dollars)						101		224,899		0		225,000
Issuance of Common Stock						1,010,132
Net income loss (in Dollars)						0		0		(173,622)		(173,622)
[StockholdersEquityOtherShares]						0
Balance (in Dollars) at Dec. 31, 2008						2,024		222,976		(173,622)		51,378
Balance at Dec. 31, 2008						20,243,161
Issuance of Common Stock (in Dollars)						23		99,977		0		100,000
Issuance of Common Stock						224,663
Fair value of common stock issued for services (in Dollars)						22		49,978		0		50,000
Fair value of common stock issued for services						224,284
Net income loss (in Dollars)										(12,323)		(12,323)
Balance (in Dollars) at Dec. 31, 2009						2,069		372,931		(185,945)		189,055
Balance at Dec. 31, 2009						20,692,108
Issuance of Common Stock (in Dollars)						101		224,899		0		225,000
Issuance of Common Stock						1,010,132
Exercise of warrants (in Dollars)						39		87,488		0		87,527
Exercise of warrants						392,498
Fair value of warrants issued for services (in Dollars)								518,000				518,000
[StockIssuedDuringPeriodSharesConversionOfUnits]						0
Fair value of vested options (in Dollars)						0		287,355		0		287,355
[StockIssuedDuringPeriodSharesShareBasedCompensation]						0
Fair value of common stock issued for services (in Dollars)						47		140,453		0		140,500
Fair value of common stock issued for services						466,570
Convertible Debt (in Dollars)						0		200,000		0		200,000
Convertible Debt						0
Common stock issued in reverse merger (in Dollars)						56		1,225		0		1,281
Common stock issued in reverse merger						607,647
Common stock issued upon conversion of notes payable (in Dollars)						25		98,989		0		99,014
Common stock issued upon conversion of notes payable						251,944
Net income loss (in Dollars)										(15,656,852)		(15,656,852)
Balance (in Dollars) at Dec. 31, 2010						2,337		1,931,340		(15,842,797)		(13,909,120)
Balance at Dec. 31, 2010						23,420,899
Issuance of Common Stock (in Dollars)						252		1,384,879		0		1,385,131
Issuance of Common Stock						2,518,421
Fair value of warrants issued for services (in Dollars)	2	48,611	0	48,613
[StockIssuedDuringPeriodSharesConversionOfUnits]	22,727					1,585,164
Fair value of vested options (in Dollars)						0		459,224		0		459,224
[StockIssuedDuringPeriodSharesShareBasedCompensation]						0
Fair value of common stock and warrants purchased by employees and vendors in excess of market price (in Dollars)					0		309,426		0		309,426
Fair value of common stock and warrants purchased by employees and vendors in excess of market price					0	0
Convertible Debt (in Dollars)						157		473,541		0		473,698
Convertible Debt	22,727					1,585,164
Fair value of warrants issued for services (in Dollars)						0		22,470		0		22,470
Fair value of warrants issued for services					0	0
Net income loss (in Dollars)						0		0		2,303,237		2,303,237
[StockholdersEquityOtherShares]						0
Balance (in Dollars) at Sep. 30, 2011						$ 2,748		$ 4,629,491		$ (13,539,560)		$ (8,907,321)
Balance at Sep. 30, 2011						27,547,211

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended		58 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011
Operating Activities:
Net income (loss)	$ 2,303,237	$ (4,730,763)	$ (13,539,560)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loss on settlement of payables	36,113		36,113
Amortization of debt discount	570,808	218,470	897,155
Depreciation	1,882	12,009	3,430
Stock based compensation	791,111	473,628	1,786,965
Impairment charge-intellectual property		572,867	572,867
Cost of private placement		2,042,348	2,148,307
Gain on extinguishment of debt	(811,393)		(811,393)
Change in fair value of derivative liabilities	(3,934,420)	412,361	6,221,155
Cancellation of debt			(100,000)
Changes in operating assets and liabilities:
Other current assets	(100)	(81,022)	(14,139)
Accounts payable and accrued expenses	167,649	(33,697)	447,910
Net cash used in operating activities	(875,113)	(1,113,799)	(2,351,190)
Investing Activities
Purchase of equipment	(1,037)	(7,069)	(8,106)
Investment in intellectual property			(372,867)
Cash received from reverse merger			1,281
Net cash used in investing activities	(1,037)	(7,069)	(379,692)
Financing Activities
Proceeds from issuance of common stock	1,385,131	225,000	2,022,659
Proceeds from sale of 2.5% senior secured convertible notes, net		1,395,601	1,395,006
Net cash provided by financing activities	1,385,131	1,620,601	3,417,665
Net change in cash	508,981	499,733	686,783
Cash - beginning balance	177,802	28,047
Cash - ending balance	686,783	527,780	686,783
Cash paid for income taxes	4,840	1,759	6,599
Stockholder notes issued in exchange for intellectual property			200,000
Conversion of convertible notes payable and accrued interest to equity	473,707	79,364	572,721
Derivative liability created on issuance of convertible notes and warrants created			1,500,000
Reclass of accounts payable to related party notes			100,000
Common stock issued to settle accounts payable	$ 12,500		$ 12,500

XML

Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2011	Dec. 31, 2010
Current Assets
Cash	$ 686,783	$ 177,802
Other Current Assets	14,139	14,039
Total Current Assets	700,922	191,841
Equipment, net	4,676	5,521
Total Assets	705,598	197,362
Liabilities and Stockholders’ Deficiency
Accounts payable and accrued expenses	288,691	157,665
Interest payable	33,613	22,596
Derivative Liability	8,952,110	13,697,923
Total Current Liabilities	9,274,414	13,878,184
2.5% Senior secured convertible notes, net of discount	338,505	228,298
Commitments and Contingencies	0	0
Stockholders’ Deficiency
Preferred stock $0.0001 par value, 10,000,000 shares authorized, none outstanding at September 30, 2011 and December 31, 2010	0	0
Common stock $0.0001 par value, 100,000,000 shares authorized, 27,547,211 and 23,420,899 outstanding at September 30, 2011 and December 31, 2010, respectively	2,748	2,337
Additional paid in capital	4,629,491	1,931,340
Deficit accumulated during the development stage	(13,539,560)	(15,842,797)
Total stockholders’ deficiency	(8,907,321)	(13,909,120)
Total Liabilities and Stockholders’ Deficiency	$ 705,598	$ 197,362