NEURO-HITECH, INC.
	(Exact name of Registrant as Specified in its Charter)
Delaware		20-4121393
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
	One Penn Plaza, Suite 1503, New York, NY 10019
	(Address of Principal Executive Offices)
	(212) 594-1215
	(Issuer’s Telephone Number, Including Area Code)
	(Former Name, Former Address and Former Fiscal Year If Changed Since Last Report)

 

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

Yes x No o

 

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

Large Accelerated Filer o	Accelerated Filer o	Non-Accelerated Filer o	Smaller Reporting Company x
	(Do Not Check if a smaller reporting company)

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

o Yes  x No

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: May 5, 2008

Common Stock   14,004,853

 

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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

 

Neuro-Hitech, Inc. and Subsidiaries

Consolidated Balance Sheets

 

		March 31, 2008
			(Unaudited)		December 31, 2007
ASSETS:
Current Assets:
Cash and Cash Equivalents		$	4,165,383		$	6,137,592
Accounts Receivable			164,250			63,300
Inventory			25,008			33,821
Prepaid Expenses			103,943			11,861
Total Current Assets			4,458,584			6,246,574
Property and Equipment, net			3,501			4,248
Other Assets:
Security Deposit			13,226			13,226
Total Assets		$	4,475,311		$	6,264,048
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses		$	738,478		$	1,000,399
Total Current Liabilities			738,478			1,000,399
Stockholders' Equity:
Common Stock $.001 Par Value, Authorized: 44,999,900, Issued and Outstanding: 14,004,853			14,005			14,005
Common Stock - Class A $.001 Par Value, Authorized: 100, Issued and Outstanding: 0			-			-
Additional Paid-in Capital			39,781,967			39,270,951
Deferred Compensation			(1,158,785	)		(1,190,654	)
Accumulated Deficit			(34,900,354	)		(32,830,653	)
Total Stockholders' Equity			3,736,833			5,263,649
Total Liabilities and Stockholders' Equity		$	4,475,311		$	6,264,048

 

The accompanying notes are an integral part of these consolidated financial statements

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Neuro-Hitech, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

					For the Three Months Ended March 31,
					2008			2007
Sales					$	190,827		$	194,400
Cost of Goods Sold						99,357			100,555
Gross Profit						91,470			93,845
Operating Expenses:
Selling, General and Administrative Expenses						556,411			662,322
Research and Development Costs						1,100,664			735,781
Share-Based Compensation						511,017			188,732
Amortization of Deferred Compensation						31,869			15,935
Total Operating Expenses						2,199,961			1,602,770
(Loss) from Operations						(2,108,491	)		(1,508,925	)
Other Income:
Interest and Dividend Income						38,788			61,206
Total Other Income						38,788			61,206
(Loss) Before Provision for IncomeTaxes						(2,069,703	)		(1,447,719	)
Provision for Income Taxes						-			-
Net (Loss)					$	(2,069,703	)	$	(1,447,719	)
Basic and Diluted (Loss) per Weighted Average Common Shares Outstanding					$	(0.15	)	$	(0.12	)
Weighted Average - Common Shares Outstanding						14,004,853			12,118,777
The accompanying notes are an integral part of these consolidated financial statements

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		For The Three Months EndedYears Ended
		March 31,
		2008			2007
Cash flows from operating activities:
Net (Loss)		$	(2,069,703	)	$	(1,447,719	)
Adjustments to Reconcile Net (Loss) to Net Cash (Used In) Operating Activities:
Share-Based Compensation Expense			511,017			188,732
Amortization of Deferred Compensation			31,869			15,935
Depreciation Expense			747			749
Change in operating assets and liabilities:
(Increase) Decrease in Assets:
Accounts Receivable			(100,951	)		(282,674	)
Inventory			8,812			(9,920	)
Prepaid Expenses			(92,081	)		(128,904	)
Deferred Charges			-			11,910
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses			(261,919	)		(227,339	)
Net cash (used in) Operating activities			(1,972,209	)		(1,879,230	)
Cash flows from investing activities:
Net cash (used in) Investing activities			-			-
Cash flows from financing activities:
Net Proceeds from Private Placement Offering of Common Stock			-			2,220,755
Proceeds from the Exercise of Stock Options			-			15,276
Net cash provided by Financing activities			-			2,236,031
Net (decrease) increase in cash and cash equivalents			(1,972,209	)		356,801
Cash and cash equivalents, beginning of period			6,137,592			4,705,195
Cash and cash equivalents, end of period		$	4,165,383		$	5,061,996
Cash Paid For:
Income Taxes		$	-		$	-
Interest		$	-		$	-

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

During the three months ended March 31, 2008, options held by the Company's executive officers and board of directors vested as to 181,342 and 124,791 shares of the Company's common stock. The Company recognized an aggregate compensation cost of $511,017 and $188,732 for the vesting of the aforementioned options for the three months ended March 31, 2008 and 2007.

The Company entered into a service agreement and issued 100,000 warrants measured at fair value as of February 14, 2007, the date the service agreement was ratified by the Company's board of directors. The fair value of these warrants approximated $255,000 and was recognized as Deferred Compensation in the Stockholders' Equity section of the Balance Sheet. During the first quarter of 2008 and 2007, the Company ratably recognized approximately $32,000 and $16,000 of expenses for the amortization of Deferred Compensation in accordance with the service term.

In connection with a private placement offering of the Company’s securities that occurred between January through March 15, 2007, the Company entered into a stock subscription agreement for the issuance of 30,000 shares of common stock and share purchase warrants for an additional 15,000 shares. The transaction totaled $144,525 and was fully collected by the Company in April 2007.

The accompanying notes are an integral part of these consolidated financial statements

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NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

[1] Nature of Operations

Neuro-Hitech, Inc. (the “Company” or “Neuro-Hitech”) is an early stage pharmaceutical company focused on developing innovative drugs for the treatment of degenerative neurological diseases. The Company’s most advanced product candidate, Huperzine A, recently completed a Phase II clinical trial in the U.S. which tested Huperzine A for efficacy and safety in the treatment of mild to moderate Alzheimer’s disease. The Company has also studied the transdermal delivery of Huperzine A. The Company believes that Huperzine A can effectively be delivered transdermally because of its low dosage requirement and low molecular weight.

After receiving the results of the Phase II clinical trial of Huperzine A, the Company conducted a detailed review of those results. Based on its review, the Company believes that there is substantial support within the results that Huperzine A can become a safe and effective treatment for Alzheimer’s disease. In order to validate the current information on the compound and review the Company’s analysis of the results, in March 2008 the Company entered into an agreement with Numoda Corporation (“Numoda”) pursuant to which Numoda will review the results and will provide a report to the Company on its findings.

In view of the results of the Phase II clinical trial, the Company is currently reviewing its options for moving forward with its business, including the potential development of collaborative, joint and strategic alliances and licensing arrangements with one or more pharmaceutical companies for the further development of Huperzine A and its pipeline of other compounds. Additionally, the Company is evaluating merger and/or acquisition opportunities.

In addition to Huperzine A, the Company has worked on two pre-clinical development programs: one for second generation anti-amyloid compounds or disease modifying drugs for Alzheimer’s disease and, secondly, development of a series of compounds targeted to treat and prevent epilepsy. The Company’s efforts however, have principally focused on its primary product.

The Company has imported and sold inventories of natural Huperzine to vitamin and supplement suppliers to generate revenues. However, the majority of the Company’s operations to date have been funded through Company’s private placement of equity securities.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of normal recurring nature. The operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that can be expected for the year ending December 31, 2008.

Liquidity

The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. For the three months ending March 31, 2008, the Company generated a net loss of approximately $2.1 million. As of March 31, 2008, the Company has funded its working capital requirements primarily through the sale of equity to founders, institutional and individual investors. Management intends to fund future operations through entrance into the commercial marketplace as well as additional equity or debt offerings.

There can be no assurance that the Company will be successful in obtaining financing at the level needed for long-term operations or on terms acceptable to the Company. In addition, there can be no assurance, assuming the Company is successful in commercializing its product, realizing revenues and obtaining new equity or debt offerings that the Company will achieve profitability or positive operating cash flow. The Company is incurring significant losses, which give rise to questions about its 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.

 

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NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

[2] Summary of Significant Accounting Policies

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated. Approximately $191,000 and $4,475,000 of consolidated revenue and assets, after eliminations, respectively, are based upon the accounts of the parent and $0 and $0 of consolidated revenue and assets, after eliminations respectively, of the subsidiaries.

Cash and Cash Equivalents

 

Cash and cash equivalents consist of highly liquid financial instruments with an original maturity of three months or less from the date acquired.

Georgetown University

 

In December 2003, the Company entered into a clinical research agreement, which was amended in November 2005 and October 2007, with Georgetown pursuant to which Georgetown provided the Company with Phase II research. The costs associated with this agreement totaled $5,336,842 and were partially funded by the National Institutes of Health. The Company’s portion of the total cost is $4,036,842, and paid in installments upon the achievement of certain milestones.

For the three months ended March 31, 2008 and 2007, the payments made by the Company to Georgetown under the terms of the clinical research agreement were approximately $529,400 and $250,000, respectively, and the total payments made by the Company to Georgetown since inception of the agreement were approximately $3,665,697. These costs are reflected in the Research and Development caption of the Statement of Operations.

The Company expects to make additional payments in 2008 to Georgetown of $371,145 related to an open label extension which extension will expire in June 2008.

Org Syn Laboratory, Inc.

On February 1, 2006, the Company entered into an exclusive development agreement with Org Syn for the development of synthetic Huperzine A. Org Syn received an aggregate of $175,894 upon the execution of the Agreement. For the three months ended March 31, 2008 and 2007, the payments made by the Company to Org Syn were approximately $0 and $176,000, respectively. These payments are reflected in the Research and Development caption of the Statement of Operations.

Xel Herbaceuticals, Inc.

On March 15, 2006, the Company entered into a development agreement with Xel Herbaceuticals, Inc. (“XEL”) for the development of the Huperzine A Transdermal Delivery System (“Delivery Product”). Under the terms of the agreement, the Company paid XEL a $250,000 fee upon the execution of the agreement and paid XEL $92,500 per month during the development of the Delivery Product, including the first six months of 2007. The Delivery Product was completed in July 2007. The $250,000 signing fee paid upon the execution of the agreement was amortized ratably over the 16 month term of the agreement.

 

If the Company elects to exercise its right to license the Delivery Product in the U.S. and Canada (“North America”) and to develop the Delivery Product on its own, the Company will pay XEL an initial license fee of $400,000 and up to an aggregate of $2.4 million in additional payments upon the achievement of certain milestones, including completion of a prototype, initial submission to the Food and Drug Administration (“FDA”), completion of phases of clinical studies and completion of the FDA submission and FDA approval. Similarly, if the Company elects to exercise its option to license the Delivery Product worldwide excluding China, Taiwan, Hong Kong, Macau and Singapore (“Worldwide”), and develop the Delivery Product on its own, the Company will pay XEL an additional initial license fee of $400,000 and up to an aggregate of $2.4 million in additional payments upon the achievement of comparable milestones. If XEL fails to obtain a U.S. or international patent, the corresponding license fee and milestone payments will be reduced by 50% until such time as XEL obtains such patent, at which time the unpaid 50% of all such milestone payments previously not made will be due. If the Company elects to exercise the licensing rights described above, the additional payments that the Company has made to XEL to further develop the Product would be applied toward the additional payments payable to XEL upon the achievement of certain milestones.

If the Company elects to exercise its right to license the Delivery Product in North America and to develop the Delivery Product with a third party, the Company will pay XEL 50% of any initial signing fees and milestone fees (excluding any research and development fees) paid by such third party. Similarly, in the event that the Company decides to exercise its option to license the Product Worldwide and to develop the Product with a third party, the Company will pay XEL 50% of any initial signing fees and milestone fees (excluding any research and development fees) paid by such third party. If XEL fails to obtain a U.S. or international patent, the percentage of the corresponding fees will be reduced to 25%. The Company will pay XEL 20% of any royalty payments received by the Company from third-party sublicensees, or if the Product is not protected by at least one patent, 10% of any royalty received by the Company from sublicensees.

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NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

If the Company elects not to exercise its right to license the Delivery Product and XEL elects to further develop the Delivery Product without the Company, XEL will be obligated to pay the Company 30% of any net profits realized up to a maximum of two times the amount paid by the Company to XEL during development, excluding the initial $250,000 signing fee. Upon such election, XEL will be entitled to full ownership of the intellectual property of the Delivery Product. If the Company elects to exercise its rights to license the Delivery Product in North America, but not Worldwide, XEL will have certain rights to obtain intellectual property protection in any country outside North America upon payment to the Company for such rights, such fees to be negotiated in good faith by the parties.

The Company will also be obligated to pay XEL royalty payments of between 7% and 10% of net sales, with such royalty payments subject to reduction upon the expiration of the patent or the launch of a generic product in the applicable territory. If a patent has not been issued in either the U.S. or Canada, the royalty payments will be subject to reduced rates of between 3% and 5% of net sales. Royalty payments for sales in the Worldwide territory will be subject to good faith negotiations between the parties. 

For the three months ended March 31, 2008 and 2007, the total payments made by the Company to XEL under this agreement were approximately $92,500 and $277,500, respectively, and are reflected in the Research and Development caption of the Statement of Operations.

Dalhousie License Agreements (PARTEQ)

As part of the acquisition of Q-RNA, the Company assumed exclusive License Agreements with PARTEQ Research and Development Innovations (“PARTEQ”), the technology licensing arm of Queens University, Kingston, Ontario, Canada.

 

Under the terms of the Alzheimer’s Agreement which was amended in early 2007, the Company will pay fixed annual fees of C$282,944.  

The Exclusive Patent License Option Agreement with PARTEQ (the “Epilepsy Agreement”) grants the Company an option to acquire an exclusive worldwide license to all innovations and developments, including the patent applications and additional filings, related to specified patents related to research on Epilepsy. The Company made a non-refundable, non-creditable option payment of $10,000 when it entered into the Epilepsy Agreement in 2006. If the Company exercises its option, the Company will make a non-refundable, non-creditable license payment of C$17,500 at the time of such exercise. If the Company exercises its option, it will be required to make quarterly royalty payments of 3% of net sales of the licensed products (as such term is defined in Epilepsy Agreement), with a minimum annual royalty of C$10,000 through the second anniversary of the license, C$20,000 through the third anniversary of the license, C$30,000 through the fourth anniversary of the license and C$40,000 through the fifth anniversary of the license and each subsequent anniversary. If the Company exercises its option, the Company is also obligated to make the following milestone payments: C$100,000 upon completion of a Phase I trial of a licensed product, C$250,000 upon completion of a Phase II trial of a licensed product, and C$1,000,000 upon the first FDA approval (as such term is defined therein). If the Company exercises its option, the Company also has the right to sub-license with the payment of 20% of all non-royalty sublicensing consideration.  

Under the terms of the Epilepsy Agreement which was amended in early 2007, the Company will pay fixed annual fees of C$150,800.

For the three months ended March 31, 2008 and 2007, the payments made by the Company to PARTEQ under these agreements have been approximately $121,000 and $135,000, respectively, and are reflected in the Research and Development caption of the Statement of Operations.

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NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)