x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended December 31, 2007 |
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
|
20-4121393
|
(State
or Other Jurisdiction of
|
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
|
Identification
No.)
|
Title
of each class
|
|
Common
Stock, $0.001 par value per
share
|
Common Stock
|
|
|
14,004,853
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
21 | |
|
21 | |
Item
4. Submission of Matters to a Vote of Security Holders
|
|
21 |
|
|
|
|
||
|
|
|
|
22 | |
Item
6. Management’s Discussion and Analysis or Plan of
Operations
|
|
23 |
Item
7. Financial Statements
|
|
27 |
Item
8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
|
27 |
Item
8A(T). Controls and Procedures
|
|
27 |
Item
8B. Other Information
|
|
|
|
|
|
|
||
|
|
|
|
29 | |
|
29 | |
|
29 | |
Item
12. Certain Relationships and Related Transactions, and Director
Independence
|
|
29 |
Item
13. Exhibits
|
|
30 |
|
34 |
Item 1. |
Description
of Business
|
·
|
Alzheimer’s
disease currently affects approximately 5 million people in the U.S.,
including as many as 13% of people age 65 and older and nearly 50%
of
those age 85 and older.
|
·
|
Worldwide,
Alzheimer’s disease affects 18 million people, and that number is
expected to reach 34 million by
2025.
|
·
|
There
are at least 350,000 new diagnoses of Alzheimer’s disease, and at least
65,000 Alzheimer’s disease deaths, per year in the U.S.
|
·
|
Following
initial diagnosis, patients live 4 – 6 years on
average, but may live up to 20 years with the disease.
|
·
|
Total
annual expenditures on Alzheimer’s disease in the U.S. exceed $100 billion
annually, and the average lifetime cost per Alzheimer’s disease patient is
$174,000.
|
Drug
(Trade Name/Generic)
|
|
Marketed
by
|
|
FDA
Approval Date
|
|
Postulated
Mechanism
|
Aricept
®
(donepezil)
|
|
Pfizer
Inc./Eisai Co., Ltd.
|
|
November 25, 1996
|
|
Cholinesterase
inhibition
|
Exelon
®
(rivastigmine)
|
|
Novartis
AG
|
|
April 21, 2000
|
|
Cholinesterase
inhibition
|
Razadyne
®
(galantamine)
|
|
Johnson
& Johnson
|
|
February 28, 2001
|
|
Cholinesterase
inhibition
|
Namenda
®
(memantine)
|
|
Forest
Laboratories, Inc.
|
|
October 16, 2003
|
|
NMDA-receptor
inhibition
|
·
|
may
have significantly longer inhibitory action at lower doses than the
other
approved drugs for early and middle stage Alzheimer’s
disease;
|
·
|
may
prove to reduce the unpleasant side effects resulting from use of
other
approved drugs for early and middle stage Alzheimer’s
disease;
|
·
|
may
be effective not only in increasing the brain’s acetylcholine levels, but
also levels of other important neurotransmitters such as dopamine
and
noradrenaline;
|
·
|
may
have high oral bioavailability and good penetration through the
blood-brain barrier; and
|
·
|
may
exhibit neuroprotective properties, and may significantly decrease
neuronal cell death due to glutamate-induced
excitotoxicity.
|
·
|
Enhanced
anti-aggregation activity
|
|
|
·
|
Better
blood-brain barrier (BBB) penetration
|
|
|
·
|
Milder
side effect profile
|
·
|
avoidance
of first-pass metabolism; better control of drug and metabolite plasma
levels leading to improved therapy with reduced side
effects;
|
·
|
avoidance
of non-compliance resulting, for example, from patients forgetting
to take
the medication; and
|
·
|
improved
quality of life for caregiver who only needs to replace the patch
up to
once per every three to five days.
|
Name
|
Age
|
Position
|
||
Gary
T. Shearman
|
54
|
President,
Chief Executive Officer and Director
|
||
David
Barrett
|
32
|
Chief
Financial Officer
|
||
L.
William McIntosh
|
62
|
Chief
Operating Officer
|
||
William
Wong
|
60
|
Chief
Scientific Officer
|
·
|
demonstrate
benefit from each specific drug
technology,
|
·
|
demonstrate
through pre-clinical and clinical trials that the drug and patient
specific therapy is safe and effective,
and
|
·
|
demonstrate
that its drug offers a material benefit to patients, especially in
cases
where the patent exclusivity on some of its competitors drugs, like
Pfizer’s Aricept®, is expiring.
|
·
|
establish
a viable Good Manufacturing Process capable of potential scale
up.
|
·
|
the
uncertainties arising from the interpretation of the Phase II
results;
|
·
|
the
uncertainties arising from the rapidly growing scientific aspects
of drug
therapies and potential treatments;
|
·
|
uncertainties
arising as a result of the broad array of potential treatments related
to
neurological disease; and
|
·
|
anticipated
expense and time believed to be associated with the development and
regulatory approval of treatments for neurological
disease.
|
·
|
the
product did not demonstrate acceptable clinical trial results even
though
it demonstrated positive preclinical trial
results;
|
·
|
the
product was not effective in treating a specified condition or
illness;
|
·
|
the
product had harmful side effects on
humans;
|
·
|
the
necessary regulatory bodies, such as the FDA, did not approve the
Company’s product for an intended
use;
|
·
|
the
product was not economical for the Company to
commercialize;
|
·
|
other
companies or people have or may have proprietary rights over the
Company’s
product, such as patent rights, and will not let the Company sell
it on
reasonable terms, or at all; or
|
·
|
the
product is not cost effective in light of existing
therapeutics.
|
·
|
the
number of potential products and technologies in
development;
|
·
|
continued
progress and cost of the Company’s research and development
programs;
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
·
|
the
time and costs involved in obtaining regulatory
clearance;
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
·
|
costs
of developing sales, marketing and distribution channels and the
Company’s
ability to sell its drugs;
|
·
|
costs
involved in establishing manufacturing capabilities for clinical
trial and
commercial quantities of the Company’s
drugs;
|
·
|
competing
technological and market
developments;
|
·
|
market
acceptance or the Company’s
products;
|
·
|
costs
for recruiting and retaining management, employees and consultants;
and
|
·
|
costs
for training physicians.
|
·
|
the
receipt of regulatory clearance of marketing claims for the uses
that the
Company is developing;
|
·
|
the
establishment and demonstration of the advantages, safety and efficacy
of
Huperzine A;
|
·
|
pricing
and reimbursement policies of government and third party payors such
as
insurance companies, health maintenance organizations and other health
plan administrators;
|
·
|
the
Company’s ability to attract corporate partners, including pharmaceutical
companies, to assist in commercializing the Company’s intended products;
and
|
·
|
the
Company’s ability to market its
products.
|
·
|
cease
selling, incorporating or using any of the Company’s Huperzine A products
and/or products that incorporate the challenged intellectual property,
which would adversely affect the Company’s future
revenue;
|
·
|
pay
significant damages and the patentee could prevent the Company from
using
the patented genes or polypeptides for the identification or development
of drug compounds;
|
·
|
Obtain
a license from the holder of the infringed intellectual property
right,
which license may be costly or may not be available on reasonable
terms,
if at all; or
|
·
|
redesign
the Company’s products, which would be costly and time
consuming.
|
·
|
potential
delays associated with research and development and clinical and
preclinical trials due to an inability to timely obtain a single
or
limited source component;
|
·
|
potential
inability to timely obtain an adequate supply;
and
|
·
|
potential
of reduced control over pricing, quality and timely
delivery.
|
·
|
fail
to satisfy financial or contractual obligations to the
Company;
|
·
|
fail
to adequately market the Company’s
products;
|
·
|
cease
operations with little or no notice;
or
|
·
|
offer,
design, manufacture or promote competing
products.
|
·
|
contract
manufacturers may encounter difficulties in achieving volume production,
quality control and quality assurance and also may experience shortages
in
qualified personnel. As a result, the Company’s contract manufacturers
might not be able to meet its clinical schedules or adequately manufacture
the Company’s products in commercial quantities when
required;
|
·
|
switching
manufacturers may be difficult because the number of potential
manufacturers is limited. It may be difficult or impossible for the
Company to find a replacement manufacturer quickly on acceptable
terms, or
at all;
|
·
|
the
Company’s contract manufacturers may not perform as agreed or may not
remain in the contract manufacturing business for the time required
to
successfully produce, store or distribute the Company’s products;
and
|
·
|
if
the Company’s primary contract manufacturer should be unable to
manufacture any of its product candidates for any reason, or should
fail
to receive FDA approval or Drug Enforcement Administration approval,
commercialization of the Company’s product candidates could be delayed
which would negatively impact its
business.
|
·
|
announcements
relating to the interpretation of the results from the Company’s Phase II
clinical trial;
|
·
|
announcements
or developments related to the products of the Company’s
competitors;
|
·
|
quarterly
variations in the Company’s operating
expenses;
|
·
|
issuances
or sales of capital stock by the Company;
and
|
·
|
sales
of the common stock by the Company’s founders or other selling
stockholders.
|
Item 2. |
Description
of Property.
|
Item 3. |
Legal
Proceedings.
|
Item4. |
Submission
of Matters to a Vote of Security Holders.
|
Item 5. |
Market
for Common Equity, Related Stockholder Matters and Small Business
Issuer
Purchases of Equity
Securities
|
|
Bid Price Per Share
|
||||||
|
High
|
Low
|
|||||
February
2006 - March 2006
|
$
|
10.73
|
$
|
5.49
|
|||
April
2006 - June 2006
|
$
|
9.15
|
$
|
5.00
|
|||
July
2006 - September 2006
|
$
|
8.00
|
$
|
5.25
|
|||
October
2006 - December 2006
|
$
|
7.50
|
$
|
5.00
|
|||
January
2007 - March 2007
|
$
|
7.25
|
$
|
4.75
|
|||
April
2007 – June 2007
|
$
|
8.15
|
$
|
5.82
|
|||
July
2007 – September 2007
|
$
|
6.47
|
$
|
4.25
|
|||
October
2007 – December 2007
|
$
|
5.50
|
$
|
3.01
|
|||
January
2008 – March 2008
|
$
|
4.40
|
$
|
0.40
|
Item 6. |
Management’s
Discussion and Analysis or Plan of Operation
|
Item 7. |
Item 8A. |
Controls
and Procedures
|
Item 8B. |
Other
Information
|
Item 9. |
Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
|
Item 10. |
Executive
Compensation
|
Item 11. |
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Item 12. |
Certain
Relationships and Related Transactions, and Director
Independence
|
Item 13 |
Exhibits
|
Exhibit
|
|
|
|
Incorporated
by Reference
|
|
Filed
|
||||
Number
|
|
Exhibit
Description
|
|
Form
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
2.1
|
|
Agreement
and Plan of Merger, dated January 17, 2006, between Northern Way
Resources, Inc., a Nevada corporation and Northern Way Resources,
Inc., a
Delaware corporation
|
|
8-K
|
|
2.1
|
|
1/23/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
Certificate
of Ownership and Merger merging Northern Way Resources, Inc., a Nevada
corporation into Northern Way Resources, Inc., a Delaware
corporation
|
|
8-K
|
|
2.2
|
|
1/23/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
Articles
of Merger merging Northern Way Resources, Inc., a Nevada corporation
into
Northern Way Resources, Inc., a Delaware corporation
|
|
8-K
|
|
2.3
|
|
1/23/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
Agreement
of Merger and Plan of Reorganization, dated as of January 24, 2006,
by and
among Neurotech Pharmaceuticals, Inc., Marco Hi-Tech JV Ltd., and
Marco
Acquisition I, Inc.
|
|
8-K
|
|
2.1
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
Agreement
and Plan of Merger, dated as of November 16, 2006, by and among
Neuro-Hitech, Inc., QA Acquisition Corp., QA Merger LLC, Q-RNA, Inc.,
and
Dr. David Dantzker, as the Representative of the Q-RNA, Inc. security
holders.
|
|
8-K
|
|
2.1
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Neurotech Pharmaceuticals, Inc.
|
|
8-K
|
|
3.1
|
|
1/23/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Certificate
of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
JV
Ltd.
|
|
8-K
|
|
3.5
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
Certificate
of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
JV
Ltd.
|
|
8-K
|
|
3.6
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation of Neurotech Pharmaceuticals,
Inc., changing name to Neuro-Hitech Pharmaceuticals, Inc.
|
|
8-K
|
|
3.7
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Certificate
of Ownership and Merger effective August 11, 2006
|
|
8-K
|
|
3.1
|
|
8/11/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
By-laws
of the Company
|
|
8-K
|
|
3.2
|
|
1/23/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Form
of Common Stock Purchase Warrant Certificate
|
|
8-K
|
|
4.1
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Warrant
to purchase common stock of Marco-Hitech JV Ltd. issued to Brown
Brothers
Harriman & Co.
|
|
8-K
|
|
4.2
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
Warrant
to purchase common stock of Marco-Hitech JV Ltd. issued to Barry
Honig
|
|
8-K
|
|
4.3
|
|
1/30/06
|
|
|
4.4
|
|
Form
of Marco Hi-Tech JV Ltd. Registration Rights Agreement
|
|
8-K
|
|
10.4
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Registration
Rights Agreement, dated as of November 29, 2006, by and among
Neuro-Hitech, Inc. and David Dantzker as the Representative of the
Q-RNA,
Inc. security holders
|
|
8-K
|
|
4.1
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Registration
Rights Agreement, dated as of November 29, 2006, by and among
Neuro-Hitech, Inc. and individuals and entities that are parties
to the
Securities Purchase Agreement dated as of November 16,
2006
|
|
8-K
|
|
4.2
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
Form
of $13 Warrant issued pursuant to the Merger.
|
|
8-K
|
|
4.3
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Form
of $18Warrant issued pursuant to the Merger.
|
|
8-K
|
|
4.4
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Form
of Warrant issued in connection with private offering
|
|
8-K
|
|
4.5
|
|
12/5/06
|
|
|
4.10
|
Stock
and Warrant Purchase Agreement, dated as of November 29, 2007, by
and
among Neuro-Hitech, Inc. and the investors identified therein
|
8-K
|
4.1
|
12/19/07
|
||||||
4.11
|
Registration
Rights Agreement, dated as of November 29, 2007, by and among
Neuro-Hitech, Inc. and the investors identified therein
|
8-K
|
4.2
|
12/19/07
|
||||||
4.12
|
Form
of Warrant issued in connection with private offering
|
8-K
|
4.3
|
12/19/07
|
||||||
|
|
|
|
|||||||
10.1
|
|
Neurotech
Pharmaceuticals, Inc. 2006 Incentive Stock Plan
|
|
8-K
|
|
10.1
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Neurotech
Pharmaceuticals, Inc. 2006 Non-Employee Directors Stock Option
Plan
|
|
8-K
|
|
10.2
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Form
of Private Placement Subscription Agreement
|
|
8-K
|
|
10.3
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Securities
Purchase Agreement, dated January 5, 2006, by and between Marco Hi-Tech
JV
Ltd. and the investors signatory thereto
|
|
8-K
|
|
10.5
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Reuben Seltzer
|
|
8-K
|
|
10.6
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Alan Kestenbaum
|
|
8-K
|
|
10.7
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and John Abernathy
|
|
8-K
|
|
10.8
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Mark Auerbach
|
|
8-K
|
|
10.9
|
|
1/30/06
|
|
|
10.9
|
|
Technology
License Contract, dated as of June 1, 1997, by and between Mayo
Foundation
for Medical Education and Research and Marco Hi-Tech JV
Ltd.
|
|
8-K
|
|
10.12
|
|
1/30/06
|
|
|
10.10
|
|
Clinical
Research Agreement, dated March 1, 2002, by and between Georgetown
University and Marco Hi-Tech JV Ltd.
|
|
8-K
|
|
10.13
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Offer
Letter, dated January 6, 2006, to John Abernathy from Marco Hi-Tech
JV
Ltd.
|
|
8-K
|
|
10.14
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Offer
Letter, dated January 5, 2006, to Mark Auerbach from Marco Hi-Tech
JV
Ltd.
|
|
8-K
|
|
10.15
|
|
1/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Development
Agreement dated February 1, 2006, between the Company and Org Syn
Laboratory, Inc
|
|
10-QSB
|
|
10.1
|
|
5/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Development
Agreement dated March 15, 2006, between the Company and Xel
Herbaceuticals, Inc
|
|
10-QSB
|
|
10.2
|
|
5/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Securities
Purchase Agreement, dated as of November 16, 2006, by and among
Neuro-Hitech, Inc. and the investors identified therein.
|
|
8-K
|
|
2.2
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Amendment
No. 1 to 2006 Incentive Stock Plan
|
|
8-K
|
|
4.6
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Amendment
No. 2 to 2006 Incentive Stock Plan
|
|
8-K
|
|
4.7
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Consultant
Agreement, dated as of November 29, 2006, by and between Neuro-Hitech,
Inc., and D.F. Weaver Medical, Inc., Donald F. Weaver, Principal
Consultant.
|
|
8-K
|
|
10.1
|
|
12/5/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
2002
Q-RNA, Inc. Stock Incentive Plan
|
|
S-8
|
|
10.1
|
|
12/13/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
2006
Stock Incentive Plan
|
DEF
14A
|
6/05/07
|
|||||||
10.21
|
Non-Management
Directors Deferral Program
|
10-QSB
|
10.2
|
8/08/07
|
||||||
10.22
|
Officers
Deferral Program
|
10-QSB
|
10.3
|
8/08/07
|
||||||
10.23
|
Employment
Agreement, dated August 22, 2007, between Neuro-Hitech, Inc. and
Gary
Shearman
|
8-K
|
10.1
|
8/29/07
|
||||||
10.24
|
Director
and Officer Indemnification Agreement, dated August 22, 2007, between
Neuro-Hitech, Inc. and Gary Shearman
|
8-K
|
10.2
|
8/29/07
|
||||||
10.25
|
Employment
Agreement, dated December 7, 2007, between Neuro-Hitech, Inc. and
David
Barrett
|
8-K
|
10.1
|
12/11/07
|
||||||
14.1
|
|
Code
of Ethics
|
|
10-KSB
|
|
14.1
|
|
3/31/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1
|
|
Letter
from Dale, Matheson, Carr-Hilton Labonte, dated as of January 27,
2006
|
|
8-K
|
|
16.1
|
|
2/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1
|
|
Subsidiaries
|
|
10-KSB
|
|
21.1
|
|
4/13/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.01
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
X
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of the Chief Executive Officer and Chief Financial Officer Pursuant
to 18
U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002
|
|
|
|
|
|
|
|
X
|
Item 14. |
Principal
Accountant Fees and
Services
|
|
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2007 and
2006
|
|
F-3
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ [Deficit] Equity
|
|
|
for
the Years Ended December 31, 2007 and 2006
|
|
F-4
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007
and 2006
|
|
F-5
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-7
|
/s/ Moore Stephens, P.C. | |
MOORE
STEPHENS, P.C.
|
|
Certified
Public Accountants
|
As
of
December 31, 2007
|
||||
ASSETS:
|
|
|||
Current
Assets:
|
||||
Cash
and Cash Equivalents
|
$
|
6,137,592
|
||
Accounts
Receivable
|
63,300
|
|||
Inventory
|
33,821
|
|||
Prepaid
Expenses
|
11,861
|
|||
Total
Current Assets
|
6,246,574
|
|||
Property
and Equipment, net
|
4,248
|
|||
Other
Assets:
|
||||
Security
Deposit
|
13,226
|
|||
Total
Assets
|
$
|
6,264,048
|
||
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
||||
Current
Liabilities:
|
||||
Accounts
Payable and Accrued Expenses
|
$
|
1,000,399
|
||
Total
Current Liabilities
|
1,000,399
|
|||
Stockholders'
Equity:
|
||||
Common
Stock $.001 Par Value, Authorized: 44,999,900, Issued and Outstanding:
14,004,853
|
14,005
|
|||
Common
Stock - Class A $.001 Par Value, Authorized: 100, Issued and Outstanding:
0
|
-
|
|||
Additional
Paid-in Capital
|
39,270,951
|
|||
Deferred
Compensation
|
(1,190,654
|
)
|
||
Accumulated
Deficit
|
(32,830,653
|
)
|
||
Total
Stockholders' Equity
|
5,263,649
|
|||
Total
Liabilities and Stockholders' Equity
|
$
|
6,264,048
|
For
the
Years Ended December
31,
|
|||||||
2007
|
2006
|
||||||
|
|||||||
Sales
|
$
|
458,870
|
$
|
304,240
|
|||
Cost
of Goods Sold
|
215,854
|
155,014
|
|||||
Gross
Profit
|
243,016
|
149,226
|
|||||
Operating
Expenses:
|
|||||||
Selling,
General and Administrative Expenses
|
2,561,402
|
1,765,486
|
|||||
Research
and Development Costs
|
3,523,954
|
19,480,501
|
|||||
Share-Based
Compensation
|
2,427,904
|
327,835
|
|||||
Amortization
of Deferred Compensation
|
242,447
|
130,905
|
|||||
Registration
Payment Arrangement
|
490,550
|
-
|
|||||
Total
Operating Expenses
|
9,246,257
|
21,704,727
|
|||||
(Loss)
from Operations
|
(9,003,241
|
)
|
(21,555,501
|
)
|
|||
Other
Income:
|
|||||||
Interest
and Dividend Income
|
206,804
|
147,730
|
|||||
Total
Other Income
|
206,804
|
147,730
|
|||||
(Loss)
Before Provision for IncomeTaxes
|
(8,796,437
|
)
|
(21,407,771
|
)
|
|||
Provision
for Income Taxes
|
-
|
-
|
|||||
Net
(Loss)
|
$
|
(8,796,437
|
)
|
$
|
(21,407,771
|
)
|
|
Basic
and Diluted (Loss) per Weighted Average Common Shares
Outstanding
|
$
|
(0.71
|
)
|
$
|
(2.25
|
)
|
|
Basic
and Diluted Weighted Average - Common Shares
Outstanding
|
12,351,746
|
9,528,650
|
Convertible
Preferred
Stock Series A |
Class
A -
Common
Stock
|
Common
Stock
|
Additional
Paid- In
|
Deferred
|
Accumulated
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit
|
Totals
|
||||||||||||||||||||||
Balance
as of January 1, 2006
|
12,005
|
$
|
12,005
|
-
|
-
|
8,654,112
|
$
|
86,541
|
$
|
2,478,373
|
-
|
$
|
(2,626,445
|
)
|
$
|
(49,526
|
)
|
||||||||||||||
Recapitalization
as of January 18, 2006
|
(12,005
|
)
|
(12,005
|
)
|
100
|
$
|
-
|
(1,626,860
|
)
|
(79,514
|
)
|
91,519
|
-
|
||||||||||||||||||
Private
Placement of Common Stock, net of issuance costs of
$353,127
|
3,026,204
|
3,026
|
8,152,378
|
8,155,404
|
|||||||||||||||||||||||||||
Common
Stock and Warrants Issued in Connection with Q-RNA merger, net
of issuance
costs of $271,394
|
-
|
-
|
1,800,000
|
1,800
|
16,532,593
|
16,534,393
|
|||||||||||||||||||||||||
Exercise
of Stock Options
|
-
|
-
|
1,679
|
2
|
217
|
219
|
|||||||||||||||||||||||||
Share-Based
Compensation Expense
|
327,835
|
327,835
|
|||||||||||||||||||||||||||||
Recognition
of Non-Qualified Stock Options in accordance with Consulting
Agreement
|
1,309,052
|
$
|
(1,309,052
|
)
|
-
|
||||||||||||||||||||||||||
Amortization
of Deferred Compensation
|
130,905
|
130,905
|
|||||||||||||||||||||||||||||
Net
(Loss)
|
-
|
-
|
-
|
-
|
(21,407,771
|
)
|
(21,407,771
|
)
|
|||||||||||||||||||||||
Balance
as of December 31, 2006
|
-
|
$
|
-
|
100
|
$
|
-
|
11,855,135
|
$
|
11,855
|
$
|
28,891,967
|
$
|
(1,178,147
|
)
|
$
|
(24,034,216
|
)
|
$
|
3,691,459
|
||||||||||||
Private
Placement of Common Stock, net of issuance costs of
$376,548
|
2,016,930
|
2,017
|
7,000,440
|
7,002,457
|
|||||||||||||||||||||||||||
Repurchase
of Class A Common Stock
|
(100
|
) | - |
-
|
|||||||||||||||||||||||||||
Exercise
of Stock Options
|
12,059
|
12
|
45,812
|
45,824
|
|||||||||||||||||||||||||||
Share-Based
Compensation Expense
|
2,427,904
|
2,427,904
|
|||||||||||||||||||||||||||||
Recognition
of Warrants granted in connection with services to be
rendered
|
|
254,954
|
(254,954
|
)
|
|||||||||||||||||||||||||||
Common
Stock issued in connection with services rendered
|
20,000
|
20
|
120,980
|
121,000
|
|||||||||||||||||||||||||||
Remeasurement
of Non-Qualified Stock Options in accordance with Consulting
Agreement
|
38,445
|
||||||||||||||||||||||||||||||
Amortization
of Deferred Compensation
|
242,447
|
242,447
|
|||||||||||||||||||||||||||||
Penalty
shares issued in connection with Registration Rights
Agreement
|
100,729
|
101
|
490,449
|
490,550
|
|||||||||||||||||||||||||||
Net
(Loss)
|
(8,796,437
|
)
|
(8,796,437
|
)
|
|||||||||||||||||||||||||||
Balance
as of December 31, 2007
|
-
|
$
|
-
|
-
|
$
|
-
|
14,004,853
|
$
|
14,005
|
$
|
39,270,951
|
$
|
(1,190,654
|
)
|
$
|
(32,830,653
|
)
|
$
|
5,263,649
|
For
the Years Ended
|
|||||||
December
31,
|
|||||||
2007
|
2006
|
||||||
Cash
flows used in operating activities:
|
|||||||
Net
(Loss)
|
$
|
(8,796,437
|
)
|
$
|
(21,407,771
|
)
|
|
Adjustments
to Reconcile Net (Loss) to Net Cash (Used In) Operating
Activities:
|
|||||||
Acquired
Research and Development Costs
|
-
|
16,805,787
|
|||||
Share-Based
Compensation Expense
|
2,427,904
|
327,835
|
|||||
Amortization
of Deferred Compensation
|
242,447
|
130,905
|
|||||
Registration
Payment Arrangement
|
490,550
|
-
|
|||||
Depreciation
Expense
|
2,998
|
1,749
|
|||||
Other
Share-Based Selling, General and Administrative Expenses
|
225,808
|
-
|
|||||
Change
in operating assets and liabilities:
|
|||||||
(Increase)
Decrease in Assets:
|
|||||||
Accounts
Receivable
|
(37,500
|
)
|
26,325
|
||||
Inventory
|
(2,530
|
)
|
(31,293
|
)
|
|||
Prepaid
Expenses
|
(1,166
|
)
|
(10,695
|
)
|
|||
Deferred
Charges
|
93,750
|
(93,750
|
)
|
||||
Security
Deposit
|
-
|
|
(13,226
|
)
|
|||
Increase
(Decrease) in Liabilities:
|
|||||||
Accounts
Payable and Accrued Expenses
|
(261,707
|
)
|
1,045,793
|
||||
Due
To Affiliate
|
- |
(42,304
|
)
|
||||
Net
cash (Used In) Operating activities
|
(5,615,883
|
)
|
(3,260,645
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Business
Acquisition and Related Costs
|
- |
(271,394
|
)
|
||||
Investment
in Property and Equipment
|
-
|
(8,995
|
)
|
||||
Net
cash (Used In) Investing activities
|
-
|
(280,389
|
)
|
||||
Cash
flows from financing activities:
|
|||||||
Net
Proceeds from Private Placement Offering of Common Stock
|
7,002,456
|
8,155,404
|
|||||
Proceeds
from the Exercise of Options
|
45,824
|
219
|
|||||
Net
cash provided by Financing activities
|
7,048,280
|
8,155,623
|
|||||
Net
increase in cash and cash equivalents
|
1,432,397
|
4,614,589
|
|||||
Cash
and cash equivalents, beginning of years
|
4,705,195
|
90,606
|
|||||
Cash
and cash equivalents, end of years
|
$
|
6,137,592
|
$
|
4,705,195
|
|||
Cash
Paid For:
|
|||||||
Income
Taxes
|
$
|
-
|
$
|
-
|
|||
Interest
|
$
|
-
|
$
|
-
|
|
December
31,
2007 |
|||
Office
Equipment
|
$
|
8,995
|
||
Less:
Accumulated depreciation
|
4,747
|
|||
Net
Office Equipment
|
$
|
4,248
|
2008
|
55,616
|
|||
2009
|
28,131
|
|||
Totals
|
$
|
83,747
|
Year
|
Amount
|
|||
2008
|
$
|
1,416,545
|
||
2009
|
20,000
|
|||
2010
|
30,000
|
|||
2011
|
40,000
|
|||
Total
|
$
|
1,506,545
|
·
|
Non-employee
directors of the Company and its subsidiaries are eligible to participate
in the Directors Plan. The term of the Directors Plan is ten years.
400,000 shares of common stock have been reserved for issuance under
the
Directors Plan.
|
·
|
Options
may only be issued as non-qualified stock
options.
|
·
|
Stockholder
approval is required in order to replace or reprice
options.
|
·
|
The
Directors Plan is administered by the a committee designated by the
board.
|
·
|
Options
shall be granted within ten years from the effective
date.
|
·
|
Upon
a “change in control” any unvested options shall vest and become
immediately exercisable.
|
Year
Ended December 31,
|
Risk-Free
Interest Rate |
Expected
Term
|
Expected
Volatility |
Expected
Dividends |
||||||||||||
2007
|
3.45
|
%
|
5
|
55.16
|
%
|
None
|
||||||||||
2006
|
4.45
|
%
|
5
|
48.60
|
%
|
None
|
|
Options Outstanding as of 12/31/2007
|
Options Exercisable
|
|||||||||||||||||
|
Weighted Average
|
|
Weighted
|
||||||||||||||||
Exercise Price Range
|
Number of
Shares Outstanding |
Remaining
Contractual Life |
Exercise Price
Per Share |
As of
12/31/2007 |
Average
Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||||||||
$0
to $2.50 per share
|
350,000
|
2.00
|
$
|
2.50
|
233,334
|
$
|
2.50
|
$
|
396,668 |
|
Year Ended December 31, 2007
|
|||||||||
|
Number of
Options |
Weighted
Average Exercise
Price Per Share
|
Aggregate
Intrinsic Value |
|||||||
Outstanding
at December 31, 2006
|
350,000
|
2.50
|
$ | 595,000 | ||||||
Granted
|
-
|
-
|
-
|
|||||||
Exercised
|
-
|
-
|
-
|
|||||||
Expired
|
-
|
-
|
-
|
|||||||
Outstanding
at December 31, 2007
|
350,000
|
$
|
2.50
|
$ | 595,000 |
·
|
Company’s
officers, directors, key employees and consultants of the Company
and its
subsidiaries are eligible to participate in the Incentive Plan. The
term
of the Incentive Plan is ten years. 3,250,000 shares of common stock
are
reserved for issuance under the Incentive
Plan.
|
·
|
Both
incentive and nonqualified stock options may be granted under the
Incentive Plan, as well as Stock Appreciation Rights, Restricted
Stock,
Restricted Stock Units and Unrestricted
Stock.
|
·
|
The
Incentive Plan terminates on January 23,
2016.
|
·
|
The
Incentive Plan is administered by a committee designated by the
board.
|
|
Options Outstanding as of 12/31/2007
|
Options Exercisable
|
|||||||||||||||||
|
Weighted Average
|
|
Weighted
|
||||||||||||||||
Exercise Price Range
|
Number of
Shares Under Option |
Remaining
Contractual Life |
Exercise Price
Per Share |
As of
12/31/2007
|
Average
Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||||||||
$0
to $2.50 per share
|
290,000
|
8.00
|
$
|
2.50
|
193,334
|
$
|
2.50
|
$
|
328,668
|
||||||||||
$2.51
to $4.25 per share
|
56,078
|
9.96
|
$
|
4.06
|
31,078
|
$
|
4.20
|
-
|
|||||||||||
$4.26
to $6.25 per share
|
2,079,242
|
9.01
|
$
|
5.68
|
673,118
|
$
|
5.68
|
- | |||||||||||
|
2,425,319
|
897,529
|
328,668
|
|
Year Ended December 31, 2007
|
|||||||||
|
Number of
Options
|
Weighted
Average Exercise
Price Per Share
|
Aggregate
Intrinsic Value |
|||||||
Outstanding
at December 31, 2006
|
1,240,000
|
$
|
5.07
|
-
|
||||||
Granted
|
1,185,319
|
$
|
5.46
|
-
|
||||||
Exercised
|
-
|
-
|
-
|
|||||||
Expired
|
-
|
-
|
-
|
|||||||
Outstanding
at December 31, 2007
|
2,425,319
|
$
|
5.26
|
-
|
|
Options Outstanding as of 12/31/2007
|
Options Exercisable
|
|||||||||||||||||
|
Weighted Average
|
|
Weighted
|
||||||||||||||||
Exercise Price Range
|
Number of
Shares Under Option |
Remaining
Contractual Life |
Exercise Price
Per Share |
As of
12/31/2007 |
Average
Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||||||||
$0
to $3.80 per share
|
- | - | - | - | - | - | |||||||||||||
$3.81
to $9.49 per share
|
1,210
|
5.75
|
$
|
9.49
|
1,210
|
$
|
9.49
|
- | |||||||||||
$9.50
to $12.66 per share
|
151,080
|
5.88
|
$
|
12.66
|
151,080
|
$
|
12.66
|
- | |||||||||||
|
152,290
|
152,290
|
|
Year Ended December 31, 2007
|
|||||||||
|
Number of
Options |
Weighted
Average Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||
Assumed
Upon Acquisition
|
199,286
|
$
|
11.98
|
- | ||||||
Exercised
|
1,679
|
.13
|
$
|
6,797
|
||||||
Expired
|
(2,049
|
) |
11.44
|
- | ||||||
Granted
|
||||||||||
Outstanding
at December 31, 2006
|
195,558
|
12.09
|
- | |||||||
Exercised
|
12,059
|
3.80
|
$
|
4,824
|
||||||
Expired
|
(31,209
|
)
|
12.66
|
- | ||||||
Granted
|
- | |||||||||
Outstanding
at December 31, 2007
|
152,290
|
$
|
12.62
|
- |
|
Options Outstanding as of 12/31/2007
|
Options Exercisable
|
|||||||||||||||||
|
Weighted Average
|
|
Weighted
|
||||||||||||||||
Exercise Price Range
|
Number of
Shares Under Option |
Remaining
Contractual Life |
Exercise Price
Per Share |
As of
12/31/2007
|
Average
Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||||||||
$0
to $2.50 per share
|
100,000
|
2.00
|
$
|
2.50
|
100,000
|
$
|
2.50
|
$
|
170,000
|
||||||||||
$2.51
to $5.00 per share
|
437,500
|
3.10
|
$
|
5.00
|
437,500
|
$
|
5.00
|
- | |||||||||||
$5.01
to $7.97 per share
|
1,517,145
|
4.35
|
$
|
7.05
|
1,517,145
|
$
|
7.05
|
- | |||||||||||
*$7.98
to $13.00 per share
|
600,356
|
8.92
|
$
|
13.00
|
600,356
|
$
|
13.00
|
- | |||||||||||
*$13.01
to $18.00 per share
|
600,356
|
8.92
|
$
|
18.00
|
600,356
|
$
|
18.00
|
- | |||||||||||
|
3,225,357
|
3,225,357
|
$
|
170,000
|
|
Year Ended December 31, 2007
|
|||||||||
|
Number of
Warrants |
Weighted
Average Exercise Price Per Share |
Aggregate
Intrinsic Value |
|||||||
Outstanding
at December 31, 2006
|
2,044,312
|
$
|
11.34
|
- | ||||||
Granted
|
1,211,045
|
$
|
7.06
|
- | ||||||
Exercised
|
-
|
-
|
- | |||||||
Expired
|
(40,000
|
)
|
$
|
0.98
|
- | |||||
Outstanding
at December 31, 2007
|
3,225,357
|
$
|
9.75
|
- |
Year
|
Amount
|
|||
2008
|
812,000
|
|||
2009
|
700,000
|
|||
2010
|
700,000
|
|||
2011
|
519,417
|
|||
2012
|
-
|
|||
Thereafter
|
-
|
|||
Total
|
$
|
2,731,417
|
|
December
31,
|
||||||
|
2007
|
2006
|
|||||
Deferred
Tax Asset - Non-Current:
|
|
|
|||||
Net
Operating Loss Carryforwards
|
$
|
3,613,600
|
$
|
2,475,600
|
|||
Valuation
Allowance
|
(3,613,600
|
)
|
(2,475,600
|
)
|
|||
|
$ |
-
|
$
|
-
|
Amount
|
||||
2012
|
$
|
153,000
|
||
2021
|
21,000
|
|||
2022
|
113,000
|
|||
2023
|
634,000
|
|||
2024
|
713,000
|
|||
2025
|
955,000
|
|||
2026
|
3,600,000
|
|||
2027
|
2,845,000
|
|||
|
$
|
9,034,000
|
For
the Years Ended December 31,
|
2007
|
2006
|
|||||
Federal
statutory tax rate
|
-35.0
|
%
|
-35.0
|
%
|
|||
Changes
to valuation allowance
|
12.9
|
%
|
0.06
|
%
|
|||
Effective
state tax rate
|
0.1
|
%
|
0.5
|
%
|
|||
Permanent
differences
|
22.0
|
%
|
34.44
|
%
|
|||
Effective
Income tax rate
|
0.00
|
%
|
0.00
|
%
|
|
NEURO-HITECH,
INC.
(Registrant) |
|
Date:
March 31, 2008
|
||
/s/
Gary T. Shearman
|
||
Gary
T. Shearman
President,
Chief Executive Officer and
Principal
Executive Officer
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ Gary T. Shearman |
|
President,
Chief Executive Officer,
|
|
March
31, 2008
|
Gary
T. Shearman
|
|
Principal
Executive Officer and Director
|
|
|
|
|
|
|
|
/s/
David Barrett
|
|
Chief
Financial Officer and
|
|
March
28, 2008
|
David
Barrett
|
|
Principal
Accounting Officer
|
|
|
|
|
|
|
|
/s/
John Abernathy
|
|
Director
|
|
March
29, 2008
|
John
Abernathy
|
|
|
|
|
|
|
|
|
|
/s/ Mark Auerbach |
|
Director
|
|
March
31, 2008
|
Mark
Auerbach
|
|
|
|
|
|
|
|
|
|
/s/ David Dantzker |
|
Director
|
|
March
31, 2008
|
David
Dantzker
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
__, 2008
|
|
Alan
Kestenbaum
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
__, 2008
|
Jay
Lombard
|
|
|
|
|
|
|
|
|
|
/s/
Reuben Seltzer
|
|
Director
|
|
March
28, 2008
|
Reuben
Seltzer
|
|
|
|
|