Edgar Filing: Neuro-Hitech, Inc.

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A
Amendment No. 1

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

	For the fiscal year ended December 31, 2008
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33426

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.)

16255 Aviation Loop Drive, Brooksville, FL 34604

(Address of Principal Executive Offices)

(352) 754-8587

(Registrant’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Title of each class

Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

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

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

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

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨	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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $8,995,340.

The number of shares outstanding of each of the registrant’s common stock, as of March 18, 2009 is:

Common Stock

31,520,186

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

We are filing this Amendment No. 1 to our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2009, to include Items 10, 11, 12, 13 and 14, which we had originally intended to include in our Proxy Statement and a correction to calculation of the basic and diluted (loss) per weighted average common shares outstanding and weighted average common shares outstanding on our consolidated statement of operations. We intend to file our Proxy Statement next month. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, or modify or update those disclosures in any way other than as required to reflect the effects of the inclusion of the above referenced items.

NEURO-HITECH, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

		Page
PART I
Item 1. Business		1
Item 2. Properties		14
Item 3. Legal Proceedings		14
Item 4. Submission of Matters to a Vote of Security Holders		14

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		15
Item 6. Selected Financial Data		15
Item 7. Management’s Discussion and Analysis or Plan of Operations		16
Item 8. Financial Statements		21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures		21
Item 9A(T). Controls and Procedures		22

PART II

Item 10. Directors, Executive Officers and Corporate Governance		23
Item 11. Executive Compensation		25
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		30
Item 13. Certain Relationships and Related Transactions, and Director Independence		31
Item 14. Principal Accountant Fees and Services		32

PART III

Item 15. Exhibits		34

PART I

Item 1.

Description of Business

Description of the Company

Neuro-Hitech, Inc. (the “Company” or “Neuro-Hitech”) is a specialty pharmaceutical company focused on developing, marketing and distributing branded and generic pharmaceutical products primarily in the cough and cold markets. The Company’s principal business is operated through two subsidiaries, one of which focuses on branded pharmaceuticals and the other which focuses on the generic pharmaceutical equivalents of the Company’s branded pharmaceuticals products. The Company sells its products domestically through U.S. based distributors.

The Company’s subsidiary MCR American Pharmaceuticals (“MCR”) is focused on the acquisition, development, marketing and distribution of cough and cold, prenatal and pain management pharmaceutical products that provide quick and low-cost market entry through the ANDA, and OTC monograph regulatory approval pathways. Typically, these products are referred to as “branded generics”.

MCR believes it has established a strong niche in marketing and distributing effective and conveniently dosed branded generics. MCR’s marketing of its pharmaceutical products is focused within targeted niche pharmaceutical markets. The pharmaceutical products the Company markets typically have low representative selling activity relative to large market blockbuster drugs and low brand loyalty among physicians for these products. MCR’s strategy is to market its products aggressively through it sales force by building brand loyalty among high-prescribing physicians.

MCR markets its products primarily to general practice, family practice, internal medicine, pediatric and ENT physicians. MCR currently has a national sales platform with 25 full-time sales representatives and regional sales managers covering high-prescribing physicians in key markets. MCR believes that it has attained strong prescription volume and strong repeat prescription volume for its product introductions over the past several years, because of its strategic market focus.

MCR believes it provides physicians with a comprehensive offering of products within the cough, cold, allergy, mild pain management and pre-natal health areas. MCR believes its product portfolio provides significant value to physicians as these products provide prescription treatment options for physicians with patients that might otherwise revert to Over-The-Counter (“OTC”) treatment options.

AMBI Pharmaceuticals, Inc. (“AMBI”) is focused on the distribution of generic equivalent pharmaceutical products to pharmaceutical wholesalers, distributors and chain pharmacies. AMBI currently has an account manager serving its customer base of distributors, wholesalers and retailers. Given the highly consolidated nature of the generic pharmaceutical distribution / wholesaler industry, the success of smaller generic distributors, such as AMBI, depends on the strength of the relationships that a company has with these large wholesalers, distributors and national chain pharmacies.

The Company believes it has very strong relationships, both in the branded and generic divisions, with large distributors and wholesalers and a significant opportunity to gain distribution for additional products through these channels. Typically, it is extremely difficult for new manufacturers and distributors to gain access to large national wholesaler and distribution networks without an existing business relationship. MCR has developed significant relationships with the top three pharmaceutical wholesalers and many other significant distributors and wholesalers in the U.S. because of AMBI sales of generic versions of MCR’s “Branded Generics” in the cough and cold area. Additionally, as MCR and AMBI grow and introduce additional products, including ANDA products, AMBI believes it will be able to leverage its current distribution agreements to introduce additional products.

Products – Branded Pharmaceuticals

MCR’s branded pharmaceutical products include:

Maxiphen – Phenylephrine and guaifenesin-based DESI regulated prescription decongestant / expectorant tablet product line for cough and cold offering five products with varying dosage strengths and ingredient combinations. Several formulations contain dextromethorphan and chlorpheniramine.

Maxifed – Pseudoephedrine and guaifenesin-based DESI regulated prescription decongestant / expectorant tablet product line for cough and cold offering four products with varying dosage strengths and ingredient combinations. Several formulations contain dextromethorphan.

Maxi-Tuss – Hydrocodone-based DESI regulated prescription antitussive product line offering three products with varying dosage strengths and active ingredients. Certain formulations contain guaifenesin, phenylephrine and chlorpheniramine.

Allfen – Guaifenesin-based DESI regulated prescription expectorant product line offering three products with varying dosage strengths and active ingredients. Certain formulations contain dextromethorphan and carbetapentane.

Promacet – FDA approved prescription tablet containing butalbital and acetaminophen for the relief of moderate to moderately severe pain.

Maxinate – DESI regulated and patented prescription pre-natal vitamin containing DHA and choline.

Time-Hist – Pseudoephedrine-based DESI regulated prescription decongestant / antihistamine / antispasmodic tablet with pseudoephedrine, chlorpheniramine and methscopolamine.

Ambifed – Pseudoephedrine and guaifenesin-based DESI regulated prescription decongestant / expectorant tablet product line for cough and cold treatment. This product line offers two products with varying dosage strengths and ingredient combinations.

Licenses & Permits

The pharmaceutical business is subject to various regulations. MCR holds the required federal and state licenses to distribute prescription pharmaceuticals within the U.S. The Company’s licenses are all currently valid and in good standing.

The Company’s licenses include:

Drug Enforcement Administration: Controlled Substance Registration Certificate

Schedules 3, 3N, 4

Drug Enforcement Administration: Domestic Chemical Diversion Control Registration Certificate

State of Florida Department of Health – Drugs, Devices, and Cosmetics

Its permits include:

Complimentary Drug Distributor and Prescription Drug Wholesaler

Manufacturing & Logistics

MCR outsources manufacturing of its products to one third party contract manufacturer, TG United Pharmaceuticals, Inc. (“TG United”), an entity that is wholly-owned by David Ambrose, the Company’s Chief Executive Officer and President, and beneficial owner of the greatest number of shares of the Company’s capital stock. TG United is responsible for receipt and storage of raw materials and the production, packaging and labeling of finished goods.

TG United and the Company are parties to a Manufacturing and Distribution Agreement dated June 6, 2008, as amended on November 18, 2008 (the “Supply Agreement”). The initial term of the Supply Agreement is through June 6, 2013, and permits additional one-year renewals based upon the parties’ written agreement. Under the terms of the Supply Agreement, TG United will manufacture specified products for the Company, including branded products acquired on June 6, 2008 that will be manufactured exclusively for the Company. On November 18, 2008, the Company was provided an inventory credit of $1.26 million. The Company is required to make minimum monthly payments of $100,000 to TG United with respect to inventory purchases, subject to a quarterly reconciliation against amounts due. The $1.26 million inventory credit may be applied by MCR and AMBI against invoices issued by TG United at a rate of up to $100,000 per month, after any required minimum monthly cash payments are made. Approximately $1.025 million and $0.9 million of the inventory credit remained available to the Company as of December 31, 2008 and March 31, 2009, respectively.

The Company manages the storage and distribution of its products to its customers from its 2,000 square foot warehouse facility in Brooksville, FL. This air-conditioned facility is equipped with a DEA controlled substance cage for the Scheduled products within the MCR and AMBI portfolio. This facility is licensed by the appropriate state and federal governments and agencies for the storage and distribution of prescription pharmaceuticals.

Nationwide Distribution Outlets

Virtually all pharmaceutical products in the United States are distributed through an established network of wholesale distributors. Similar to its peers MCR generates prescriptions at the physician level which are filled at local pharmacies. Local pharmacies purchase prescription pharmaceuticals from the established drug wholesaler network. In addition to the drug wholesale networks, MCR sells its pharmaceutical products to specialty retailers and distributors, including large chain drug stores, hospitals, clinics, government agencies and managed healthcare providers such as health maintenance organizations and other institutions.

Largest Customers
	MCR	AMBI
Cardinal Health, Inc.	32%	78%
McKesson Corporation	52%	*
AmeriSourceBergen Corp.	7%	*
North Carolina Mutual	*	8%

History of the Company

The Company was initially formed in February 2005.

Marco Hi-Tech JV Ltd.

In January 2006, the Company acquired Marco Hi-Tech JV Ltd. (“Marco”), a company focused primarily on licensing proprietary Huperzine A technology from independent third-party developers and investigators, and conducting analytical work and clinical trials of Huperzine A. In addition, from time to time, Marco imported and sold inventories of natural Huperzine and other dietary supplement ingredients to vitamin and supplement suppliers to generate revenues. After our acquisition of Marco, the Company undertook studies for the development and commercialization of Huperzine A, including securing rights to third-party transdermal patch technology.

Q-RNA, LLC

In November 2006, the Company acquired Q-RNA, Inc., a New York-based biotechnology company focused on diseases such as Alzheimer’s, epilepsy and Parkinson’s disease. The acquisition of Q-RNA provided the Company with a pipeline of compounds, many of which have been discovered and developed internally. Among the compounds that Q-RNA believed were ready to move to optimization and pre-clinical development were NHT0012, which is one of a number of second generation disease modifying drugs for Alzheimer’s disease that inhibit A-beta and Tau oligomerization and NHT1107, which is one of a large pharmaceutical library of drugs designed for the treatment of epilepsy that offer both anti-ictogenci (ability to treat epilepsy) and anti-epileptogenic (ability to prevent epilepsy) properties.

MCR American Pharmaceuticals, Inc.

In June 2008, the Company acquired MCR, which was founded in 1991. MCR’s operations are located in the Company’s Brooksville, Florida offices. MCR is focused on the acquisition, development, marketing and distribution of cough and cold, prenatal and pain management pharmaceutical products that provide quick and low-cost market entry through the ANDA, and OTC monograph regulatory approval pathways. These products are referred to as “Branded Generics.”

AMBI Pharmaceuticals, Inc.

In June 2008, the Company acquired AMBI. AMBI is focused on the distribution of generic equivalent pharmaceutical products to pharmaceutical wholesalers, distributors and chain pharmacies. AMBI’s operations are located in the Company’s Brooksville, Florida offices

Other Information

The Company was originally formed on February 1, 2005, as Northern Way Resources, Inc., a Nevada corporation, for the purpose of acquiring exploration and early stage natural resource properties. The Company’s name was changed in January 2006 to Neuro-Hitech Pharmaceuticals, Inc. The Company subsequently changed its name to Neuro-Hitech, Inc. in August 2006.

Prior to its acquisition of MCR and AMBI, the Company had been focused primarily on technologies that address investigational compounds that have the potential to show clinical improvements versus current treatments for Alzheimer’s disease, Epilepsy and other central nervous system applications. The Company’s most advanced product candidate targeting these needs is Huperzine A which completed a Phase II clinical trial in the U.S. earlier this year for efficacy and safety in the treatment of mild to moderate Alzheimer’s disease. 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.

In view of the results of the Phase II clinical trial, the cost associated with additional trials, and the acquisition of MCR and AMBI, the Company is principally focusing on the development, marketing and distribution of branded and generic pharmaceutical products targeted to the cough and cold markets. The Company continues to explore 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.

Employees

As of March 10, 2009, the Company had 30 full-time employees, including 25 sales representatives and sales managers. MCR and AMBI operations are housed within the same buildings, which include a 3,000 square foot office building and a 2,000 square foot distribution facility, both in Brooksville, Florida.

Corporate Information

The Company’s corporate headquarters are located at 16255 Aviation Loop Drive, Brooksville, FL 34604. The Company’s telephone number is (352) 754-8587, and its fax number is (352) 754-8507.

Executive Officers and Significant Employees of the Registrant

The following sets forth certain information with regard to the executive officers of the Company as of March 13, 2009 (ages are as of December 31, 2008):

Name	Age	Position
David Ambrose	42	President, Chief Executive Officer and Director
David Barrett	33	Chief Financial Officer
Gary Dutton	35	Chief Operating Officer and Director

David Ambrose has been serving as Chief Executive Officer of the Company since January 2009 and a Director of the Company since November 2008. During the past five years, Mr. Ambrose has been the Chief Executive Officer of TG United Pharmaceuticals, Inc. (“TG United”) and during that time, until June 6, 2008, he was also serving as the President and Chief Executive Officer of MCR and AMBI.

David Barrett has been serving as Chief Financial Officer since April 2006. Between January 2005 and April 2006, Mr. Barrett had been serving as Chief Financial Officer of Overture Financial Services, LLC, a company specializing in construction and management of investment platforms for financial intermediaries. Between September 2003 and January 2005, Mr. Barrett served in a variety of capacities, most recently as Chief Financial Officer of Overture Asset Managers, LLC, an asset management holding company that partners, acquires and manages investment managers with complementary investment products. Between June 1999 and September 2003, Mr. Barrett was employed by Deloitte & Touche where he served in a variety of capacities, most recently as Senior Consultant in merger and acquisition services.

Gary Dutton has been serving as Chief Operations Officer since January 2009 and as a Director since November 2008. During the past five years, Mr. Dutton has served as Chief Operations Officer of TG United. From 1999 to January 2008 Mr. Dutton served a variety of roles with MCR American and AMBI Pharmaceuticals, Inc., most recently as a Sales representative, Director of Sales and Vice-President of Sales.

The Company is committed to legal and ethical conduct in fulfilling its responsibilities. The Board expects all directors, as well as officers and employees, to act ethically at all times. Additionally, the Board expects the Chief Executive Officer, the Chief Financial Officer, and all senior financial and accounting officials to adhere to the Company’s Code of Ethics which was adopted on February 23, 2006. The Code of Ethics incorporates the Company’s expectations of its executive officers that enable the Company to provide accurate and timely disclosure in its filings with the SEC and other public communications. In addition, they incorporate the Company’s guidelines pertaining to topics such as complying with applicable laws, rules, and regulations; reporting of code violations; and maintaining accountability for adherence to the code.

The full text of the Code of Ethics is published on the investor relations portion of our website at www.neurohitech.com. The Company intends to disclose any amendments to provisions of its Code of Ethics, or waivers of such provisions granted to executive officers and directors, on this website within four business days following the date of any such amendment or waiver.

Risk Factors

Investing in the Company’s common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this Annual Report on Form 10-K, before purchasing shares of the Company’s common stock. There are numerous and varied risks, known and unknown, that may prevent the Company from achieving its goals. The risks described below are not the only ones the Company will face. If any of these risks actually occur, the Company’s business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of the Company’s common stock could decline and investors in the Company’s common stock could lose all or part of their investment.

Risks Related to the Company and the Company’s Business

The Company has limited cash available, and it may not have sufficient cash to continue its business operations.

As of December 31, 2008 the Company had $397,147 available in cash and cash equivalents. The Company may continue to incur losses in future months as the Company engages in further expenditures as it pursues its business plan.

The Company has relied almost entirely on external financing to fund its operations to date. Such financing has historically come from the sale of common stock to third parties. The Company may need to raise additional capital in the future to fund its operations and there is no guarantee that financing from external sources will be available if needed or on favorable terms. The sale of the Company’s common stock to raise capital may cause dilution to its existing stockholders. If additional financing is not available when required or is not available on acceptable terms, the Company may be unable to fund its operations and expansion, successfully develop its products, take advantage of business opportunities or respond to competitive market pressures, any of which could make it more difficult for the Company to continue operations. Any financing on unfavorable terms or a reduction in the Company’s operations may result in a lower stock price.

Presently, the Company expects that its available cash, cash equivalents and interest income earned may not be sufficient to meet its operating expenses and capital requirements for the next 12 months. If the Company fails to raise additional capital it may not have sufficient cash to meet future operating expenses and capital requirements during this period or in future periods. Even with additional capital, the Company may not be able to execute its current business plan nor fund its operations long enough to achieve positive cash flow. Furthermore, the Company may be forced to implement more significant reductions of its expenses and cash expenditures, which would impair the Company’s ability to execute its business operations.

A small number of customers account for a large portion of the Company’s sales and the loss of one of them, or changes in their purchasing patterns, could hurt the Company’s business.

While the Company markets its products to a large number of doctors and pharmacists, the Company sells its products to a small number of wholesale drug distributors and a limited number of pharmacies. In 2008, McKesson HBOC, Inc. and Cardinal Health, Inc. represented approximately 52% and 32% of MCR’s sales, respectively, and 78% of AMBI’s sales, respectively. The loss of either of these distributors could have an adverse effect on the Company’s business, financial condition and results of operations. A change in purchasing patterns or a reduction in inventory carrying levels by either of these distributors could have a material adverse impact on the Company’s results of operations. Additionally, the distribution network for pharmaceutical products has been subject to increasing consolidation. As a result, a few large wholesale distributors control a large share of the market. Further consolidation or financial difficulties of these distributors could result in the combination or elimination of warehouses that could increase product returns or delay product purchases to reduce inventory levels at the distributor.

The Company may require significant additional funding and may have difficulty raising needed capital in the future.

The Company has not historically generated significant revenue and may not generate sufficient revenue from its operations to meet its future capital requirements. The Company has expended and may continue to expend substantial funds in the operation of its business. The Company will require additional funds to provide for the marketing and distribution of its products. The Company may also require additional funds if it elects to engage in any acquisitions. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable, the Company may have to delay, reduce the scope of or eliminate some of its product development or marketing efforts or forego acquisition opportunities which may materially harm the Company’s business, financial condition and results of operations. The Company’s long term capital requirements are expected to depend on many factors, including:

·	the number of potential products in development;

·	costs of developing sales, marketing and distribution channels and the Company’s ability to sell its drugs;

·	competing technological and market developments;

·	market acceptance of the Company’s products; and

·	costs for recruiting and retaining management, employees and consultants.

The Company may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. The Company may seek to raise any necessary additional funds through the issuance of equity securities or debt financings, collaborative arrangements with corporate partners or other sources, which may be dilutive to existing stockholders or otherwise have a material effect on the Company’s current or future business prospects. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, the Company may have to relinquish economic and/or proprietary rights to some of the Company’s technologies or products under development that the Company would otherwise seek to develop or commercialize by itself. If adequate funds are not available, the Company may be required to significantly reduce or refocus its development efforts.

Product returns, product liability claims and product recalls could hurt our profits.

The Company permits customers to return pharmaceutical products under certain conditions and the amount of product returns may be material. Although the Company has experienced product returns in the past, it is difficult to estimate what level of product returns it will experience in the future. The Company believes product returns may represent 10% of the revenue of comparable companies. If the Company fails to properly estimate the amount of product returns or experience a material increase in product returns the Company’s results could be adversely affected.

The Company also faces the risk of exposure to product liability claims. Although the Company carries product liability insurance; this insurance may not be sufficient to cover potential claims. This insurance may not be available to the Company in the future at an acceptable cost.

Even after the Company receives regulatory approval for a product and markets it, identification of side effects or manufacturing problems could result in withdrawal of marketing approval or recall of the product or some other corrective action by the FDA or other government agencies that could require:

reformulation of the product;

additional testing;

clinical trials; or

changes in the labeling or marketing of the product.

In addition, the Company may have to issue market withdrawals or take other corrective actions. In May 2007, the FDA announced that companies must stop manufacturing and distributing unapproved time-release dosage forms containing guaifenesin. In anticipation of this announcement, MCR withdrew its products including guaifenesin and reformulated all affected products. If a product recall or withdrawal occurs, it could affect the Company’s profits, financial condition and results of operations.

If third-party payors do not reimburse patients for the Company’s products, the Company’s sales and profits could decline.

Third-party payors, such as the government, private healthcare insurers and managed care organizations, continuously challenge the pricing of medical products and services through their reimbursement policies. If reimbursement for the Company’s products is low or non-existent, patients and pharmacies may not continue to choose them. Competition among pharmaceutical companies to place their products on the list of products approved for third-party reimbursement creates downward pricing pressure in the industry. In the past several years there have been federal and state government initiatives or reforms affecting the payment for healthcare services and products, including proposals that would limit reimbursement under the Medicare and Medicaid programs. The Company anticipates that federal and state governments will continue to review and assess healthcare delivery systems and payment methods especially in light of the anticipated increase in healthcare costs caused by the aging of the population. Reforms may include:

controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending;

the increased use of managed care contractors by government payors; and

price controls on pharmaceutical products.

Any of these reforms could adversely affect the Company’s revenues and ability to achieve profitability.

Because the Company currently has no commercial manufacturing capabilities of its own, the Company is and will continue to be dependent upon TG United to manufacture products for it.

The Company has no commercial manufacturing experience and currently outsources all of its product manufacturing to one third−party contract manufacturer, TG United. Although the Company has received sufficient material from TG United to meet its current needs, it does not have any contracts with any other third parties. The termination of its agreement with or any loss of services under that agreement would be difficult for the Company to replace. The Company expects to continue to rely on TG United to produce materials required for the commercial production of the Company’s products.

There are a limited number of third−party manufacturers that operate under the FDA’s current Good Manufacturing Practices (“GMP”), regulations and that have the necessary expertise and capacity to manufacture the Company’s products. Additionally, the Company’s current manufacturing needs may not be a large enough volume to appeal to many potential manufacturers. As a result, it may be difficult for the Company to locate manufacturers for the Company’s anticipated future needs. If the Company is unable to arrange for third−party manufacturing of its products, or to do so on commercially reasonable terms, the Company may not be able market and sell its products.

Reliance on third−party manufacturers entails risks to which the Company would not be subject if it manufactured its own products, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party, and the possibility of termination or non−renewal of the agreement by the third party. Dependence upon third parties for the manufacture of the Company’s products may reduce the Company’s profit margins, or the sale of the Company’s products, and may limit the Company’s ability to develop and deliver products on a timely and competitive basis.

The Company is dependent upon TG United as its sole source of operating credit.

On November 18, 2008, TG United provided the Company a $1.26 million inventory credit. The Company is required to make minimum monthly payments of $100,000 to TG United with respect to inventory purchases, subject to a quarterly reconciliation against amounts due. The $1.26 million inventory credit may be applied by MCR and AMBI against invoices issued by TG United at a rate of up to $100,000 per month, after any required minimum monthly cash payments are made. Approximately $1.025 million and $0.9 million of the inventory credit remained available to the Company as of December 31, 2008 and March 31, 2009, respectively.

If the Company’s third−party manufacturer does not operate in accordance with current Good Manufacturing Practices, the Company could be subject to FDA enforcement actions, including the seizure of the Company’s products and the halting of production.

The third−party manufacturer that the Company currently relies on or any third-party manufacturers the Company will rely on in the future must continuously adhere to the GMPs set forth in the FDA’s regulations. In complying with GMPs, the Company and its third−party manufacturer must expend significant time, money and effort in development, testing, production, record keeping and quality control to assure that the Company’s products meet applicable specifications and other regulatory requirements. The failure to comply with these specifications and other requirements could result in an FDA enforcement action, including the seizure of products and shutting down of production. If the Company’s third−party manufacturer is unable to comply with GMPs, the Company’s ability to develop, produce and sell its products would be impaired.

The Company is dependent on its manufacturer party for the development of the Company’s products.

The Company currently relies on its manufacturer for the development of the Company’s products. The Company’s ability to commercialize the products that it develops and generate revenues from product sales depends on its partner’s ability to assist the Company in establishing the safety and efficacy of the Company’s product candidates, obtaining and maintaining regulatory approvals and achieving market acceptance of the products once commercialized. If the Company’s partner fails to perform as expected, the Company’s potential for revenue from products developed through its strategic relationship could be dramatically reduced.

If the Company utilizes other partners for the development of its products, those partners may elect to delay or terminate development of one or more product candidates, independently develop products that could compete with the Company’s products or fail to commit sufficient resources to the distribution of products developed through their strategic relationships with the Company.

The Company may engage in strategic transactions or acquisitions that fail to enhance stockholder value.

From time to time, the Company may consider possible strategic transactions, including the potential acquisition or licensing of products or technologies or acquisition of companies.

Strategic transactions involve numerous risks, including the following:

•	Difficulties in integrating the operations, technologies, products and personnel of the acquired companies;

•	Diversion of management’s attention from normal daily operations of the business;

•	Difficulties in entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions;

•	Initial dependence on unfamiliar partners;

•	Insufficient revenues to offset increased expenses associated with acquisitions; and

•	The potential loss of key employees of the acquired companies.

Acquisitions may also cause the Company to:

•	Issue common stock that would dilute the Company’s current shareholders’ percentage ownership;

•	Assume liabilities;

•	Record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges;

•	Incur amortization expenses related to certain intangible assets;

•	Incur large and immediate write-offs, and restructuring and other related expenses; or

•	Become subject to litigation.

Mergers and acquisitions of pharmaceutical companies are inherently risky, and no assurance can be given that the Company’s previous or future acquisitions will be successful and will not materially adversely affect its business, operating results or financial condition. Failure to manage and successfully integrate acquisitions the Company makes could harm its business and operating results in a material way.

The loss of key executives and failure to attract qualified management could limit the Company’s growth and negatively impact its results of operations.

The Company depends highly upon its senior management team, primarily David Ambrose, its Chief Executive Officer and President, and David Barrett, its Chief Financial Officer. The Company will continue to depend on management personnel with pharmaceutical industry experience. At this time, the Company does not know of the availability of such experienced management personnel or how much it may cost to attract and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced management personnel could have a material adverse effect on the Company’s financial condition and results of operations.

Because none of the Company’s products have been approved by the FDA or subject of FDA-approved new drug applications, the Company could be subject to FDA enforcement actions.

New drugs must be the subject of a U.S. Food and Drug Administration (“FDA”) approved New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”) demonstrating safety and effectiveness before they may be marketed in the United States. Some prescription and other drugs marketed by pharmaceutical companies have not been the subject of an FDA-approved marketing application because NDAs or ANDAs requiring demonstration of safety and effectiveness were not required at the time that these active ingredients were initially marketed. While the FDA reviewed classes of these products in the 1960s and 1970s as part of its Drug Efficacy Study Implementation (“DESI”) program, there are several types of drugs, including some cold and cough drugs, that the FDA has not yet evaluated and remain on the market without FDA approval.

The Company’s products are marketed in the United States without an FDA-approved marketing application because they have been considered by the Company to be identical, related or similar to products that have existed in the market without an NDA or ANDA. These products are marketed subject to the FDA’s regulatory discretion and/or enforcement policies. The FDA has adopted a risk-based enforcement policy concerning unapproved drugs. The agency has articulated that, in enforcing the NDA requirements, it prioritizes drugs that pose potential safety risks, lack evidence of effectiveness and prevent patients from seeking effective therapies, and those that are marketed fraudulently. In addition, the FDA has indicated that approval of an NDA for one drug within a class of drugs marketed without FDA approval may also trigger agency enforcement of the other drugs in that class. Once the FDA issues an approved NDA for one of the drug products at issue or completes the efficacy review for that drug product, it may require the Company to also file an NDA or ANDA for other drugs in the same class of drugs in order to continue marketing them in the United States. While the FDA generally allows a one-year grace period, it is not statutorily required to do so. In addition, although the Company may be given time to submit a marketing application for a product before the FDA would take enforcement action, the time it takes us to complete the necessary clinical studies and submit an application to the FDA may exceed the one-year grace period, resulting in an interruption of marketing and sales. It is also possible that the FDA could disagree with our determination that some or all of these products are identical, related or similar to products that have existed in the marketplace without an NDA or ANDA. In the event the FDA disagrees with our determination that these products are identical, the FDA may file an enforcement action which could result in these products being pulled off the market. If this were to occur it would have a substantial, negative impact on the Company’s business.

The regulatory status of some of the Company’s products makes these products subject to increased competition and other regulatory risks, which could result in reduced sales or enforcement actions against the Company.

The regulatory status of the Company’s products may allow third parties to more easily introduce competitive products. Several of the Company’s lines of products are marketed in the United States without an FDA-approved marketing application because they have been considered by the Company to be identical, related or similar to products that have existed in the market without an NDA or ANDA. On several occasions, the FDA has considered changing the classification of certain single entity and combination product types of drugs from prescription to over-the-counter use, and permitting sponsors to utilize foreign over-the-counter experience data to establish a product as safe and effective for over-the-counter use in the United States. If the FDA changes such classification, the Company may have to reformulate certain of its products or submit safety and efficacy data on such products, which would be costly, or the Company may have to discontinue selling certain products if the FDA does not approve any marketing application for such products.

In addition, the FDA considers certain products to be new drugs, but has indicated its intent to exercise enforcement discretion and not pursue regulatory action unless certain conditions occur. If these conditions were to materialize, or the FDA disagreed with the Company’s conclusions about the regulatory status of such products, the Company might be required to submit an NDA and/or cease marketing until the FDA grants approval to do so. The FDA could also, at any time, promulgate new regulations or policies to require the submission of an NDA for each of these products.

The Company’s business is heavily regulated by governmental authorities, and failure to comply with such regulation or changes in such regulations could negatively impact the Company’s financial results.

The Company’s business is regulated by many government authorities, including, among others, the FDA, the U.S. Drug Enforcement Agency (“DEA”), the Consumer Product Safety Commission, the Department of Health and Human Services (“HHS”) and the Centers for Medicare and Medicaid Services. The Company may incur significant expenses to comply with regulations imposed by these authorities. Also, the Company’s future results of operations could be negatively impacted by changes in governmental regulation over the pharmaceutical industry, including regulation of Medicare, Medicaid and similar programs, by reducing the Company’s revenue and profits and/or increasing its costs and expenses in order to comply with such regulations. In addition, the Company’s third-party manufacturer and other partners are subject to inspection by the FDA and, in appropriate cases, the DEA and other regulators. If the Company’s third-party manufacturer and other partners do not comply with FDA or DEA regulations in the future, they may not deliver products to the Company or deliver samples to the Company’s representatives, or the Company may have to recall products. Even if deficiencies observed by the FDA or DEA do not relate to the Company’s products, its third-party manufacturer and other partners may be delayed in manufacturing and in supplying the Company’s products to it in a timely manner until they address their compliance issues with the FDA and/or DEA.

Any regulatory approvals that the Company or its partners receive for its product candidates may also be subject to limitations on the indicated uses for which the drug may be marketed or contain requirements for potentially costly post-marketing follow-up studies. The subsequent discovery of previously unknown problems with the drug, including adverse effects of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market.

Period−to−period comparisons of the Company’s operating results are not meaningful due to its acquisition of MCR American Pharmaceuticals, Inc. and AMBI Pharmaceuticals, Inc.

The Company completed its acquisition of MCR American Pharmaceuticals, Inc. and AMBI Pharmaceuticals, Inc. in June 2008, which makes it difficult to analyze its pre−acquisition and post−acquisition results of operations and to compare them from period to period. Period−to−period comparisons of the Company’s results of operations may not be meaningful due to these acquisitions and are not indications of the Company’s future performance. Any future acquisitions will also make the Company’s future results difficult to compare from period to period.

The Company’s financial results may fluctuate due to factors outside its control, which fluctuations may have an adverse affect on the Company’s stock price.

The Company’s quarterly results of operations will be highly dependent upon the results of its subsidiaries MCR American Pharmaceuticals, Inc. and AMBI Pharmaceuticals, Inc. The results of operations for these subsidiaries have fluctuated in the past with the majority of their sales recorded in the first and fourth quarters. The Company’s results are likely to continue to fluctuate significantly in the future. The factors that contribute to these fluctuations are largely out of the Company’s control, and include:

seasonality of sales of cough, cold and allergy products;

demand for and market acceptance of the Company’s products;

insufficient demand in the marketplace causing the Company’s distributors to return product;

the development of new competitive products by others;

changes in treatment practices of physicians who currently prescribe the Company’s products;

the timing, release and competitiveness of the Company’s products;

the mix of products that the Company sells during any time period;

increased price competition;

increased expenses, whether related to marketing, product development, administration or otherwise; and

adverse changes in the level of economic activity in the United States and other major regions in which the Company does business.

Due to the factors summarized above, the Company does not believe that period−to−period comparisons of its results of operations are necessarily meaningful and should not necessarily be relied upon to predict future results of operations. It is also possible that in future periods the Company’s results of operations will not meet the expectations of investors.

The Company’s limited operating history makes evaluating its common stock more difficult, and therefore, investors have limited information upon which to rely.

An investor can only evaluate the Company’s business based on a limited operating history. The Company’s operations have changed dramatically since its inception and may continue to change. This limited history may not be adequate to enable an investor to fully assess the Company’s ability to execute its business plan, and achieve market acceptance of the Company’s products and respond to competition, or conduct such affairs as are presently contemplated.

Some of the Company’s products contain controlled substances, which are subject to extensive regulation by the Drug Enforcement Agency and other regulatory agencies.

Some of the Company’s products contain codeine as an active ingredient. Codeine is a controlled substance and is subject to extensive regulation by the Drug Enforcement Agency and other agencies. These regulations apply to the manufacture, shipment, sale and use of products containing controlled substances. These regulations are also imposed on prescribing physicians and other third parties, and could make the storage, transport and use of such products relatively complicated and expensive. The DEA is also involved in the review of labeling, promotion and risk management plans with the FDA for certain controlled substances. With the increased concern for safety by the FDA and the DEA with respect to products containing controlled substances, it is possible that these regulatory agencies could impose additional restrictions on marketing or even withdraw regulatory approval for such products.

In addition, adverse publicity may result in rejection of the product by the medical community. If the DEA, FDA or any other regulatory authority withdrew the approval of, or placed additional significant restrictions on these products, the Company’s product sales could be adversely affected. In addition, there can be no assurance that the DEA will not, in the future, seek to regulate other ingredients in the Company’s products as controlled substances.

If physicians and patients do not accept the Company’s current or future products, the Company may be unable to generate significant additional revenue, if any.

The Company’s future financial performance will depend upon the acceptance of the Company’s products by physicians, patients, third-party payors and the broader medical community. The degree of market acceptance will depend upon a number of factors, including:

timing of market introduction of competitive drugs;

lower demonstrated clinical safety and efficacy compared to other drugs;

lack of cost-effectiveness;

pricing and reimbursement policies of government and third party payors such as insurance companies, health maintenance organizations and other health plan administrators;

lack of convenience or ease of administration;

prevalence and severity of adverse side effects;

other potential advantages of alternative treatment methods; and

ineffective marketing and distribution support.

If the Company’s products fail to achieve market acceptance, the Company would not be able to generate significant revenue.

The market for products and services in the pharmaceuticals industry is highly competitive, and the Company may not be able to compete successfully.

The market for products and services in the pharmaceuticals industry is highly competitive. Most of the Company’s competitors in the industry have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company, and may be able to respond more quickly than the Company can to new or changing opportunities and customer requirements. Also, many competitors have greater name recognition and more extensive customer bases that they can leverage to gain market share. Such competitors are able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers than the Company can.

Recent federal legislation may increase the pressure to reduce prices of pharmaceutical products paid for by Medicare, which may adversely affect the Company’s revenues, if any.

The Medicare Prescription Drug Improvement and Modernization Act of 2003 (“MMA”) changed the way that Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and will eventually introduce a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation provides authority for limiting the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, the Company expects that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that the Company receives for any approved products and could seriously harm its business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

The Company’s compliance with the reporting requirements of federal securities laws and SEC rules concerning internal controls may be time consuming, difficult and expensive.

The Company is a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley Act. It may be time consuming, difficult and costly for the Company to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause the Company’s expenses to be higher than they would be if the Company had remained privately-held. The Company may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If the Company is unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, the Company may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act.

If the Company is unable to hire and retain additional qualified personnel, the Company’s business may be harmed.

The Company is small and if unable to continue to attract, retain and motivate highly qualified management and sales personnel, may not be able to achieve its objectives. Competition for management and sales personnel is intense.

The Company competes for qualified individuals with numerous pharmaceutical companies and other emerging entrepreneurial companies. Competition for such individuals is intense and the Company cannot be certain that the Company’s search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to the Company’s success. Skilled employees in the Company’s industry are in great demand. The Company is competing for employees against companies that are larger, more established than the Company is and companies that have the ability to pay more compensation than the Company. If the Company is unable to hire and retain needed personnel, operating results and future prospects could be materially adversely affected.

Risks Relating to the Market and the Company’s Common Stock

The market price of the Company’s common stock has been, and is likely to continue to be, highly volatile and subject to wide fluctuations.

The market price of the Company’s common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which are beyond the Company’s control, including:

·	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.

Applicable SEC rules governing the trading of “penny stocks” may limit the trading and liquidity of the Company’s common stock in the future, which could affect its trading price.

The Company’s common stock is currently traded on the OTC Bulletin Board market under the symbol “NHPI.”

The Company’s common stock may be considered a “penny stock” and subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of the common stock and reducing the liquidity of an investment in the common stock.

There is currently very little liquidity in the trading market for the Company’s common stock and the Company cannot ensure that a liquid trading market will ever develop or be sustained.

To date there has been a very limited trading market for the Company’s common stock. The Company cannot predict how liquid the market for its common stock might become. The Company’s common stock is currently trading on the OTC Bulletin Board. In addition, the price at which the Company’s common stock may be sold is hard to predict because of the limited liquidity of its common stock. Because the Company’s common stock is so thinly traded, a large block of shares traded can lead to dramatic fluctuations in the share price.

The Company has not paid dividends in the past and does not expect to pay dividends in the future. Any return on investment may be limited to the value of the Company’s common stock.

The Company currently intends to retain any future earnings to support the development and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of the board of directors after taking into account various factors, including but not limited to the Company’s financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that the Company may be a party to at the time. If the Company does not pay dividends, its common stock may be less valuable because a return on your investment will only occur if the Company’s stock price appreciates.

Item 2.

Description of Property.

The Company leases office and warehouse space from an affiliate of David Ambrose, at 16255 Aviation Loop Drive, Brooksville, FL 34604. Each of those leases is subject to a month-to-month lease.

Item 3.

Legal Proceedings.

On January 7, 2009, the Company terminated the employment of its former chief executive officer, Matthew Colpoys. In terminating his employment, the Company asserted, pursuant to Section 5(d) of his employment agreement, that the termination was for “cause” as defined in the agreement. On January 26, 2009, Mr. Colpoys filed suit in Supreme Court in Erie County, New York, asserting that prior to his termination his salary had been reduced in violation of the agreement and that his termination was without “without cause” under his employment agreement. He is seeking the payment of the amount of the salary reduction ($55,000), two year’s salary and benefits pursuant to the provision of the agreement pertaining to termination without “cause” ($664,000) and indemnification for his legal fees. The Company believes that Mr. Colpoys’ suit is without merit and intends to vigorously defend it. The Company has answered the complaint denying the claims and has asserted counterclaims for breach of fiduciary duty based upon various acts of misconduct prior to his termination.

On November 20, 2008, the Company terminated the employment of its former officers, David Benharris, Patrick Sullivan and Brendan Carney as part of a reorganization and down-sizing of its executive staff. Messrs. Benharris, Sullivan and Carney have asserted various claims for allegedly unpaid vacation benefits and unreimbursed business expenses. In addition, they have asserted that they were terminated following a “change in control” as that term is defined in the change in control agreement entered in connection with their employment and have asserted claims for two year’s salary and benefits pursuant to the termination provisions of those agreements (approximately $550,000 in the aggregate). Messrs. Benharris, Sullivan and Carney submitted a demand for arbitration on March 4, 2009. The Company believes that their claims are without merit and intends to vigorously defend them.

Item 4.

Submission of Matters to a Vote of Security Holders.

The Company did not submit any matter to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended December 31, 2008.

PART II

Item 5.

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

The Company’s common stock is currently traded on the OTC Bulletin Board market under the symbol “NHPI.”

The Company’s common stock was first traded on the OTCBB market on February 2, 2006 until the common stock began trading on the NASDAQ Capital Market on April 24, 2007. The Company’s common stock was delisted from the NASDAQ Capital Market on April 2, 2008. The following table sets forth the high and low sales prices for the period during which the common stock has been traded on the NASDAQ Capital Market and the range of the high and low bid prices for the period during which the common stock was traded on the OTCBB market. The information provided for trading on the OTCBB market, as reported by the National Quotation Bureau, represents interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.

	Bid Price Per Share
	High		Low
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
April 2008 – June 2008	$	0.51	$	0.22
July 2008 – September 2008	$	0.45	$	0.20
October 2008 – December 2008	$	0.20	$	0.04

Stockholders

As of March 2, 2009, the Company believes there were approximately 126 holders of record of its common stock. The Company believes that a greater number of holders of its common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Dividends

The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain all available funds and any future earnings to fund the development and growth of its business and does not anticipate declaring or paying any cash dividends on its common stock in the foreseeable future.

Recent Sales of Unregistered Securities

The Company did not sell any unregistered equity securities during the year ended December 31, 2008 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

Item 6.

Selected Financial Data

Not applicable.

Item 7.

Management’s Discussion and Analysis or Plan of Operation

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements (as defined in Section 27A of the Securities Act and Section 21E of the Exchange Act). To the extent that any statements made in this Report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as “expects,” “plans” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” “projects” and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include those outlined in “Risk Factors” found within our Annual Report on Form 10-K and include, without limitation, the Company’s limited history, limited revenues, limited cash and ability to raise capital to finance the growth of the Company’s operations, the ability of the Company to develop its products and obtain necessary governmental approvals, the Company’s ability to protect its proprietary information, the Company’s ability to attract or retain qualified personnel, including scientific and technical personnel and other risks detailed from time to time in the Company’s filings with the SEC, or otherwise.

THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

As a result of the acquisition of MCR and AMBI, the Company is now a specialty pharmaceutical company principally focused on developing, marketing and distributing branded and generic pharmaceutical products primarily in the cough and cold markets. The Company sells its products domestically through U.S. based distributors.

Until its acquisition of MCR and AMBI, the Company’s revenue was a result of the importation and sale of inventories of natural Huperzine to vitamin and supplement suppliers. The majority of the Company’s operations to date have been funded through the Company’s private placement of equity securities.

In view of the results of the Phase II clinical trial, the cost associated with additional trials, and the acquisition of MCR and AMBI, the Company is principally focusing on the development, marketing and distribution of branded and generic pharmaceutical products primarily in the cough and cold markets. The Company continues to explore 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. The Company continually evaluates merger and/or acquisition opportunities.

Results of Operations

The following discussion provides a comparison of the Company’s results of operations for the year ended December 31, 2008 to the year ended December 31, 2007. The Company’s results of operations reported herein reflect the acquisition of MCR and AMBI since June 5, 2008. Accordingly, the results of operations for the periods prior to the acquisition of MCR and AMBI are not comparable to periods after the acquisition of MCR and AMBI.

	For the twelve-month
	period ended
	December 31						2008 vs 2007			2008 vs 2007
	2008			2007			($)			(%)

Revenues	$	4,129,612		$	458,870		$	3,670,742			800	%

Cost of goods sold		1,827,160			215,854			1,611,306			746	%

Gross Profit		2,302,452			243,016			2,059,436			847	%

Operating expenses:
Selling, general & administrative expenses		5,788,983			2,561,402			3,227,581			126	%
Research & development costs		1,549,879			3,523,954			(1,974,075	)		-56	%
Share Based Compenssation		5,331,308			2,427,904			2,903,404			120	%
Amortization of Deferred comp		589,874			242,447			347,427			143	%

Registration Rights payments		0			490,550			(490,550	)		-100	%

Total operating expenses		13,260,044			9,246,257			4,013,787			43	%

Operating loss		(10,957,592	)		(9,003,241	)		(1,954,351	)		22	%

Other income (expense):

Interest income (expense)		(143,616	)		206,804			(350,420	)		-169	%
Forgiveness of debt		375,338			0			375,338		NM

Net loss		(10,725,870	)		(8,796,437	)		(1,929,433	)		22	%

Revenues

Revenues consist of sales of pharmaceutical products adjusted for any allowance for product returns and sales of natural Huperzine to vitamin and supplement suppliers.

The Company had revenues from operations of $4,129,612 for the year ended December 31, 2008, a 800% increase from the $458,870 in revenue achieved for the year ended December 31, 2007. The increase in revenue was attributable to revenues generated by MCR and AMBI following the Company’s acquisition of those companies.

Cost of Goods Sold

Cost of goods sold as a percentage of the Company’s revenue was 44.2% for the year ended December 31, 2008, compared with 47% for the year ended December 31, 2007. The change in the cost of goods sold as a percentage of the Company’s revenue was attributable to the higher margins associated with the sales of the Company’s pharmaceutical products following its acquisition of MCR and AMBI compared to the margins associated with the sales of Huperzine A in the prior period. A comparison to the prior period is not meaningful in light of the change in the composition of the Company’s business.

Selling, general and administrative expenses

Selling, general and administrative expenses generally consist of share-based and cash compensation to our employees and consultants who support our operations as well as professional fees, insurance costs and investor relations.

The Company’s total selling, general and administrative expenses increased from $2,561,402 for the year ended December 31, 2007 to $5,788,983 for the year ended December 31, 2008. The increase in these expenses was attrituable to increases in salaries and employee benefit expenses following the acquisition of MCR and AMBI.

Share based compensation for the year ended December 31, 2008 was $5,331,308, an increase from the $2,427,904 for the year ended December 31, 2007. The increase in share based compensation expense was attrituable to share-based payments of approximately $3.1 million associated with the forefeiture of options granted to officers, employees and consultants in prior years, and the grant of options and stock appreciation rights.

Research and development costs

The Company’s research and development costs decreased from $3,523,954 for the year ended December 31, 2007 to $1,549,879 for the year ended December 31, 2008. The decrease in research and development expenses is attributable to the conclusion of the Company’s clinical development programs following the announcement of its Phase II results for Huperzine A.

Georgetown

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 on Huperzine A. 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 was $4,036,842 and payable in installments upon the achievement of certain milestones. For the years ended December 31, 2008 and 2007, the payments made by the Company to Georgetown under the terms of the clinical research agreement were approximately $785,305 and $1,183,167, respectively, and the total payments made by the Company to Georgetown since inception of the agreement were approximately $3,895,972. These costs are reflected in the Research and Development caption of the Statement of Operations. The Company expects to make final payments in 2009 to Georgetown in the amount of $80,000.

XEL Herbaceuticals, Inc.

On March 15, 2006, the Company entered into a development agreement with XEL for the development of the Huperzine A Transdermal Delivery System (“Product”). For the years ended December 31, 2008 and 2007, the payments made by the Company to XEL were approximately $92,500 and $1,111,250, respectively, and are reflected in the Research and Development caption of the Statement of Operations. The Company does not expect to make any additional payments in 2009.

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 exclusive PARTEQ Licensing Agreement with PARTEQ, which was amended in early 2007, the Company was obligated to pay fixed annual fees of C$283,000. Under the terms of the Exclusive Patent License Option Agreement with PARTEQ which was amended in early 2007, the Company was obligated to pay fixed annual fees of C$151,000. For the years ended December 31, 2008 and December 31, 2007 the payments made by the Company to PARTEQ under these agreements have been approximately $122,000 and $457,115, respectively. The Company expects to make final payments in 2009 to PARTEQ in the amount of C$60,000.

Interest income (expense)

The Company invests any cash and cash equivalents not used for working capital in short-term, interest-bearing, investment-grade securities or accounts. For the year ended December 31, 2008, the Company incurred an expense of $143,616 related to interest accrued on notes payable to David Ambrose issued in connection with the Company’s acquisition of MCR and AMBI in June 2008, compared to $206,804 in interest income generated in the year ended December 31, 2007. The decrease is attributable to a decrease in the balance of the Company’s cash and cash equivalents during the 2008 fiscal year and a decrease in the rate of interest paid on the Company’s cash and cash equivalents.

Liquidity and Capital Resources

Presently, the Company expects that its available cash, cash equivalents and interest income earned may not be sufficient to meet its operating expenses and capital requirements for the next 12 months, although its financial condition has been improved since November 2008. In November 2008, the Company and David Ambrose and an affiliate of Mr. Ambrose modified certain terms of the agreement pursuant to which the Company purchased MCR and AMBI, pursuant to a Modification Agreement and Release (“Modification Agreement”). Pursuant to the Modification Agreement the Company issued 1,500,000 shares of the Company’s Series A Preferred Stock and 1,397,463 shares of the Company’s Series B Preferred Stock (i) to satisfy its obligations to Mr. Ambrose under a Convertible Note and a Subordinated Note aggregating approximately $6.1 million and payables aggregating approximately $1 million and (ii) to receive products from an affiliate of Mr. Ambrose valued at up to $1,257,717. Each share of the Series A and B Preferred Stock is convertible in 10 shares of the Company’s common stock. Additionally, the features of the Series A Preferred Stock include, among other things, a non-participating liquidation preference of $4,500,000.

The Company is dependent upon TG United as its sole source of operating credit. As part of the Modification Agreement, the Company was provided a $1.26 million inventory credit by TG United. The Company is required to make minimum monthly payments of $100,000 to TG United with respect to inventory purchases, subject to a quarterly reconciliation against amounts due. The $1.26 million inventory credit may be applied by MCR and AMBI against invoices issued by TG United at a rate of up to $100,000 per month, after any required minimum monthly cash payments are made. Approximately $1.025 million and $0.9 million of the inventory credit remained available to the Company as of December 31, 2008 and March 31, 2009, respectively.

Prior to the Company’s acquisition of MCR and AMBI, the Company generated limited revenue from operations. The Company expects that it will generate most of its revenue from the sale of its pharmaceutical products and limited operating revenue from the sale of natural Huperzine. If the sale of its pharmaceutical products is not sufficient to meet its working capital needs, the Company may need to raise capital through the sale of its securities or debt offerings. The Company also intends to expand its business operations in several respects, but it will need additional capital to pursue these opportunities. If the Company fails to generate sufficient cash flow or raise additional capital it may not have sufficient cash to pursue its business expansion plans and meet capital requirements during this period or in future periods.

Historically, the principal uses of the Company’s cash and cash equivalents have been conducting the Phase II clinical trials, developing alternative delivery technologies, improving on the synthetic processes, and continuing to fund pre-clinical compounds associated with the agreements with PARTEQ. The Company expects that the principal use of its cash and cash equivalents now, following its acquisition of MCR and AMBI, will be related to the sale of its pharmaceutical products to the cough and cold markets, and the expansion of its business. Although the Company has developed plans related to its operations, management continues to retain significant flexibility for the uses of Company funds. In addition to meeting its working capital needs, the Company may also use its cash and cash equivalents to acquire additional products, technologies or businesses.

During the year ended December 31, 2008 the Company used approximately $4.3 million in its operating activities. The cash used in operating activities consisted primarily of the following:

Net loss of approximately $10.7 million, adjusted for share-based payments aggregating $5.3 million and the amortization of intangible assets acquired pursuant to the MCR and AMBI acquisition amounting to approximately $0.6 million;

An increase in accounts receivable of approximately $1.25 million which is primarily due to sales of products sold in late November and early December 2008 ;

A decrease in accounts payable of approximately $0.3 million; and

An increase in inventory of approximately $0.1 million

During the year ended December 31, 2008, the net cash consideration paid for MCR and AMBI amounted to approximately $5 million.

During the year ended December 31, 2008, the Company issued 13,172,000 shares of its Common Stock in private placements of the Company’s securities, raising gross proceeds of $3,279,828.

The Company expects to incur additional expenses in 2009 payable to Georgetown of $80,000 related to the open label extension of the Phase II Clinical Trial and $60,000 payable to Dalhouise related to the preclinical licensing agreement.

The Company may also incur additional expenses in connection with its agreement with Numoda Corporation (“Numoda”). Following Numoda’s delivery of its analysis of the Phase II clinical trials, the Company paid Numoda $100,000.

To fund the implementation of its business plan, the Company has historically engaged in equity financing through existing investors and potential new investors. If the Company does not enter into a transaction that provides it additional liquidity, or the sales of its pharmaceutical products are not sufficient to provide it needed liquidity, it may engage in additional financing efforts. Additional funds may not be available or not available on acceptable terms, if at all. Given the anticipated cash expenditures, the potential cash requirements and the lack of sufficient cash to fully fund those expenses, the Company is continually analyzing alternative ways in which it can preserve its cash and cash equivalents. If the Company is unable to raise additional financing and is forced to take such measures, they may materially harm the Company’s prospects, financial condition and future operations.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates and assumptions are affected by management’s application of accounting policies.

Revenue Recognition

Revenue is recognized when it is earned. The Company’s revenue recognition policies are in compliance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition”. The Company recognizes revenues from the sale of pharmaceutical products, including shipping fees, if any, upon shipment, provided that a purchase order has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed or determinable and collection is deemed probable. If uncertainties regarding customer acceptance exist, the Company recognizes revenue when those uncertainties are resolved and title has been transferred to the customer, which is generally upon delivery to the destination point.

Revenue from sales of the Company’s products are recorded, net of returns and other sales allowances. Other sales allowances include cash discounts, rebates, trade promotions, and sales incentives. According to the terms of a sales contract, and consistent with industry practices, a customer may return products up to a maximum amount and under certain conditions. Allowances are calculated based upon current economic conditions, the underlying contractual terms with both direct and indirect customers, the remaining time to expiration of the products and an evaluation of the levels of inventories held by the Company’s distributors. The excess of allowance for returns over the gross amount of receivables is recorded as accrued sales allowance.

Research and Development Costs

All research and development costs are expensed as incurred and include costs paid to sponsored third parties to perform research and conduct clinical trials.

Share-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), (“SFAS No. 123(R)”), “Share-Based Payment,” which requires the Company to record as an expense in its financial statements the fair value of all stock-based compensation awards. The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of stock options granted to employees using the “modified prospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of SFAS No. 123(R) for all unvested awards granted prior to the effective date of SFAS No. 123(R).

Deferred Compensation

In accordance with EITF Abstract No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the Company initially measures the fair value of any equity granted to consultants on the date of grant and subsequently remeasures such grants in accordance with promulgated accounting principles using the Black-Scholes pricing model. Amounts are initially recorded as Deferred Compensation in the Stockholders’ Equity section of the balance sheet and are subsequently charged to the appropriate expense over the period to which the service relates.

Item 8.

Financial Statements

The Company’s Consolidated Financial Statements and the Report of the Independent Registered Public Accounting Firm appears at the end of this annual report and are incorporated herein by reference.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)), as of the end of the period covered by this report, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed the Company’s internal control over financial reporting as of December 31, 2008, the end of the Company’s fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and the Company’s overall control environment.

Based on the Company’s assessment, management has concluded that the Company’s internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. The Company reviewed the results of management’s assessment with the Audit Committee of the Company’s Board of Directors.

This report does not include an attestation report of the Company’s registered public accounting firm regarding the Company’s internal controls over financial reporting. The disclosure contained under this Item 9A was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the disclosure under this Item 9A in this Report.

Inherent Limitations on Effectiveness of Controls

The Company’s management, including its CEO and CFO, does not expect that the Company’s disclosure controls or its internal control over financial reporting will prevent or detect all errors and all fraud. 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. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of 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. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The following sets forth certain information with regard to the directors and executive officers of the Company as of April 28, 2009 (ages are as of December 31, 2008):

Name	Age	Position
David Ambrose	42	President, Chief Executive Officer and Director
David Barrett	33	Chief Financial Officer
Gary Dutton	35	Chief Operating Officer and Director
John Abernathy	71	Director
Mark Auerbach	70	Director
David Dantzker	65	Director
Kevin Esval	45	Director
Reuben Seltzer	52	Director

David Barrett has been serving as Chief Financial Officer since April 2006. Between January 2005 and April 2006, Mr. Barrett served as Chief Financial Officer of Overture Financial Services, LLC, a company specializing in construction and management of investment platforms for financial intermediaries. Between September 2003 and January 2005, Mr. Barrett served in a variety of capacities, most recently as Chief Financial Officer of Overture Asset Managers, LLC, an asset management holding company that partners, acquires and manages investment managers with complementary investment products. Between June 1999 and September 2003, Mr. Barrett was employed by Deloitte & Touche where he served in a variety of capacities, most recently as Senior Consultant in merger and acquisition services.

Gary Dutton has been serving as Chief Operations Officer since January 2009 and as a Director since November 2008. During the past five years, Mr. Dutton has served as Chief Operations Officer of TG United. From 1999 to January 2008 Mr. Dutton served a variety of roles with MCR American and AMBI Pharmaceuticals, Inc., most recently as a sales representative, Director of Sales and Vice-President of Sales.

John Abernathy has been a director of Neuro-Hitech since January 2006. Mr. Abernathy served as Chief Operating Officer of Patton Boggs LLP, a law firm, from January 1995 until his retirement in May 2004, and as managing partner of the accounting firm BDO Seidman from 1983 to 1990. Since July 2001, Mr. Abernathy has served on the board of directors of Par Pharmaceutical Company, Inc. (“Par”) and as a chairman of its audit committee since September 2003. Mr. Abernathy is also a director of Sterling Construction Company, Inc., a civil construction company and chairs its audit committee.

Mark Auerbach has been Chairman of the board of directors of Neuro-Hitech since January 2006. Mr. Auerbach has served as Executive Chairman of the board of directors of Par since September 2003, and as director of Par since 1990, and as a director of Optimer Pharmaceuticals, Inc., a biopharmaceutical company with a portfolio of late-stage anti-infective products and a range of preclinical antibiotics from carbohydrate drug discovery platform, since May 2005. From June 1993 through December 2005, Mr. Auerbach has served as Senior Vice President and Chief Financial Officer of Central Lewmar L.P., a distributor of fine papers. Mr. Auerbach is also a director of Collexis Holdings, Inc., a software company.

David Dantzker has been serving as a director of Neuro-Hitech since November 2006. Dr. Dantzker has been a general partner at Wheatley MedTech Partners, L.P., a New York-based venture capital firm since January 2001. He has served on the faculty and in leadership positions of four major research-oriented medical schools and has authored or co-authored 130 research papers and five textbooks. He is an internationally recognized expert in the area of pulmonary medicine and critical care. Prior to serving with Wheatley Partners, Dr. Dantzker served as Chief Executive Officer of Redox Pharmaceuticals Corporation from November 2000 until October 2001. Dr. Dantzker served as President of Long Island Jewish Medical Center from July 1993 to October 1997 and President of North Shore—LIJ Health System from October 1997 until May 2000. Dr. Dantzker is currently chairman of the board of directors of Versamed, Inc. and Oligomerix and a director of CNS, Visionsense, Ltd., Advanced Biohealing Inc. and Novaray Medical, Inc.

Kevin Esval has been serving as a director of Neuro-Hitech since June 2008. Mr. Esval has been serving as the President of VelocityHealth Securities, Inc., a Nashville, Tennessee boutique investment bank and focused exclusively on health care growth companies, since he founded the company in 2000.

Reuben Seltzer has been serving as a director of Neuro-Hitech since January 2006 and since August 2007 as Vice Chairman. Mr. Seltzer also served as the Company’s President and Chief Executive Officer between January 2006 and August 2007. Mr. Seltzer has been Chief Executive and President of Marco since 1996, president of Marco LLC, since January 2002 and a director and consultant for Hi-Tech Pharmacal Co., Inc., a pharmaceutical company since 1992.

Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, among others, to file with the SEC and NASDAQ an initial report of ownership of the Company’s stock on Form 3 and reports of changes in ownership on Form 4 or Form 5. Persons subject to Section 16 are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. Under SEC rules, some forms of indirect ownership and ownership of Company stock by family members are covered by these reporting requirements. Based solely on a review of the copies of such forms in the Company’s possession, and any written representations received from reporting persons, we believe that during fiscal 2008 each of the Company’s executive officers and directors filed the required reports on a timely basis under Section 16(a), except as follows:

·	Philip J. Young filed one late report on Form 3 to report his initial ownership;

·	Kevin Esval filed one late report on Form 3 to report his initial ownership;

·	John Abernathy filed one late report on Form 4 in respect of one transaction;

·	Mark Auerbach filed one late report on Form 4 in respect of one transaction;

·	Matthew Colpoys filed one late report on Form 4 in respect of one transaction;

·	David Dantzker filed two late reports on Form 4 in respect of ten transactions;

·	Gary E. Dutton, Jr. filed one late report on Form 4 in respect of two transactions ;

·	Reuben Seltzer filed one late report on Form 4 in respect of five transactions;

·	Alan Kestenbaum filed one late report on Form 5 in respect of one transaction.

Code of Ethics. The Company is committed to legal and ethical conduct in fulfilling its responsibilities. The Board expects all directors, as well as officers and employees, to act ethically at all times. Additionally, the Board expects the Chief Executive Officer, the Chief Financial Officer, and all senior financial and accounting officials to adhere to the Company’s Code of Ethics which was adopted on February 23, 2006. The Code of Ethics incorporates the Company’s expectations of its executive officers that enable the Company to provide accurate and timely disclosure in its filings with the SEC and other public communications. In addition, they incorporate the Company’s guidelines pertaining to topics such as complying with applicable laws, rules, and regulations; reporting of code violations; and maintaining accountability for adherence to the code.

The full text of the Code of Ethics is published on the investor relations portion of the Company’s website at www.neurohitech.com. The Company intends to disclose any amendments to provisions of its Code of Ethics, or waivers of such provisions granted to executive officers and directors, on this website within four business days following the date of any such amendment or waiver.

Audit Committee. The Company has an Audit Committee that assists the Board in its general oversight of the Company’s financial reporting, internal controls, and audit functions and is responsible for the appointment, retention, compensation, and oversight of the work of the Company’s independent registered public accounting firm. The Audit Committee is composed of Messrs. Abernathy, Auerbach and Dantzker, each of which has been determined by the Board, to meet the relevant definition of “independent director.” The Board has determined that Messrs. Abernathy and Auerbach each meet the SEC’s qualifications to be an “audit committee financial expert.” The Board determined that each Audit Committee member has sufficient knowledge in reading and understanding the Company’s financial statements to serve on the Audit Committee.

Compensation Committee. The Company has a Compensation Committee that is responsible for developing and maintaining appropriate compensation programs for the Company’s executive officers, including the Company’s named executive officers. The Compensation Committee is composed of Messrs. Dantzker and Abernathy.

Item 11.

Executive Compensation

Summary Compensation Table

The following table shows the total compensation awarded to, earned by or paid to each Named Executive Officer during 2008 and 2007 for service to the Company and its subsidiaries for the year ended December 31, 2008 and December 31, 2007, respectively.

Name and Principal Position (a)	Year (b)		Salary ($) (c)		Stock Awards (1) ($) (e)		Option Awards (1) ($) (f)		Total ($) (j)
Gary Shearman (2) Former President, Chief Executive Officer and Director		2008 2007		479,018 159,375		— —		1,351,027 820,266		1,830,045 979,641
Matt Colpoys (3) Former President, Chief Executive Officer and Director		2008 2007		130,833 —		— —		292,487 —		423,320 —
David J. Barrett (4) Chief Financial Officer		2008 2007		300,750 212,700		140,800 39,063		244,202 374,936		685,752 626,699

(1) Represents the dollar amounts recognized for financial statement reporting purposes with respect to the fiscal year covered in accordance with FAS 123R. For discussions of the relevant assumptions made in calculating these amounts, see Note 8 to the Company’s consolidated financial statements.

(2) Dr. Shearman joined the Company in August 2007 and resigned on June 5, 2008. Under the terms of a Resignation Agreement, Dr. Shearman received a lump sum payment of $275,000, accrued salary and $9,375 of accrued vacation pay, approximately $5,000 in reimbursable business expenses, approximately $22,560 representing payment of medical and dental coverage premiums for 12 months, and approximately $4,000 in attorney’s fees associated with the negotiation of his Resignation Agreement. The Company recognized the full value of the stock options in 2008.

(3) Matt Colpoys joined the Company on June 6, 2008 and on January 7, 2009 the Company terminated his employment.

(4) On June 24, 2008 the Company approved a payment of $90,000 to Mr. Barrett partly in consideration of deferred salary and earned bonus and granted 360,000 shares of the Company's common stock.

Outstanding Equity Awards at Fiscal Year-End

The following table presents information on outstanding equity awards held by the named executive officers as of December 31, 2008.

	Option Awards									Stock Awards
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)		Number of Securities Underlying Unexercised Options (#) Unexercisable (c)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)		Option Expiration Date (f)		Number of Shares Or Units That Have Not Vested (#) (g)		Market Value of Shares Or Units That Have Not Vested ($) (h)
Matt Colpoys (1)		500,000		1,500,000			2.00		6/6/2020
David Barrett (2)		60,000		40,000			7.97		6/26/2016
		6,250		18,750			3.88		12/07/2017
											37,500	$	5,625
											120,000	$	18,000

(1) The Company issued Mr. Colpoys a stock option to purchase up to 2,000,000 shares of NHI common stock, at an exercise price of $2.00 per share. The option immediately vested as to 500,000 shares on June 6, 2008 and the remaining 1,500,000 shares were to vest in equal one-third increments on the first, second and third anniversaries of the commencement of the term of Mr. Colpoys’ employment. Mr. Colpoys was terminated on January 7, 2009.

(2) Mr. Barrett’s option to purchase 100,000 shares at an exercise price of $7.97 per share vests as to 40,000 shares on May 10, 2009. Mr. Barrett’s option to purchase 25,000 shares at an exercise price of $3.88 per share will vest as to 8,333 shares on December 1, 2009 and 8,334 shares on December 1, 2010. Mr. Barrett’s restricted stock grant of 50,000 shares vested as to 12,500 shares on May 10, 2008 and vests as to an additional 12,500 shares on each of the first, second and third anniversaries of May 10, 2008. Mr. Barrett’s restricted stock grant of 360,000 shares vested as to 120,000 shares on June 30, 2008, an additional 120,000 shares on September 30, 2008 and the remaining 120,000 shares on January 1, 2009.

Officers Deferral Program

The Officers Deferral Program allows officers to elect, in respect of up to 50 percent of their salary, to receive, in lieu of a payment in cash, options for shares of common stock. Any salary amount subject to an election will not be paid to the officer and will accumulate during a calendar quarter. This total quarterly amount will be multiplied by 1.5 (the “Deferral Amount”), and the officer shall be issued on the day following the last day of the calendar quarter, options for a number of whole shares of common stock determined by dividing the Deferral Amount by the Black-Scholes “value” of the last fair market value option grant made in the preceding fiscal year, as set forth in the Company’s audited financial statements for that preceding fiscal year. The Board, however, reserves the right to determine the “value” of an option, for purposes of calculating the number of options to be granted, by utilizing the fair market value price of the Company’s common stock on the last trading day prior to the grant date and the other Black-Scholes assumptions set forth in the Company’s audited financial statements for the preceding fiscal year. None of the officers deferred any portion of their salary in 2008.

Employment Agreements, Severance and Change of Control Arrangements

The following is a description of the employment agreements and severance and change of control arrangements with respect to each named executive officer serving in that capacity at December 31, 2008. The amount of compensation payable to each named executive officer upon termination without cause, termination for good reason and termination following a change of control is shown below. The amounts shown assume that such terminations were effective as of December 31, 2008, and are estimates of the amounts which would be paid to the named executives upon their termination. The actual amounts to be paid can only be determined at the time of such executive’s actual separation from the Company.

Employment Agreements and Severance Arrangements, including Change of Control Benefits

Matt Colpoys

Mr. Colpoys served as the Company’s Chief Executive Officer and President between June 6, 2008 and January 7, 2009. On June, 6, 2008, the Company entered into an employment agreement with Mr. Colpoys, the initial term of which was three years, unless earlier terminated in accordance with the terms therein. Pursuant to the terms of Mr. Colpoys’ employment agreement, the Company initially paid Mr. Colpoys an annual base salary of $332,200. Mr. Colpoys annual base salary in effect on December 31, 2008 was $125,000. In addition to his annual base salary, Mr. Colpoys was entitled to receive an annual cash bonus with respect to such fiscal year in an amount equal to 0.75% of the Company’s consolidated annual gross profits (net revenues less cost of goods sold) for such fiscal year. The Company also issued Mr. Colpoys a stock option to purchase up to 2,000,000 shares of NHI common stock, at an exercise price of $2.00 per share. The option immediately vested as to 500,000 shares on June 6, 2008 and the remaining 1,500,000 shares would have vested in equal one-third increments on the first, second and third anniversaries of the commencement of the term of Mr. Colpoys’ employment.

Mr. Colpoys’ employment agreement provided for certain severance payments and benefits in the event that Mr. Colpoys’ employment was terminated “without cause,” he resigned for “good reason”, he was terminated without reason or terminated for good reason subsequent to a “change in control transaction” or he died or became disabled. If Mr. Colpoys was terminated other than for cause or terminated his employment for good reason, except with respect to a change in control transaction, Mr. Colpoys would be entitled to receive (i) the lesser of (A) two years of base salary at the then current rate, payable in a lump sum, less withholding of applicable taxes or any other compensation or benefits, or (B) base salary at the then current rate, payable in a lump sum, less withholding of applicable taxes or any other compensation or benefits for the remaining months left in the term of his employment agreement, (ii) the lesser of (X) his average annual bonus since the start of the agreement multiplied by two, payable in a lump sum, less withholding of applicable taxes or any other compensation or benefits, or (Y) his average bonus pro-rated for the remaining term of the agreement, and (iii) all unvested options would immediately vest and become exercisable. In the event Mr. Colpoys was terminated within 12 months of a change in control transaction, and Mr. Colpoys terminated his employment for good reason or the Company terminated his employment without cause, Mr. Colpoys would be entitled to receive (i) one year’s base salary at the then current rate, payable in a lump sum, less withholding of applicable taxes or any other compensation or benefits, (ii) the average bonus, payable in a lump sum, less withholding of applicable taxes or any other compensation or benefits, and (iii) all unvested options would immediately vest and become exercisable.

“Good Reason” pursuant to Mr. Colpoys employment agreement means Mr. Colpoys has resigned due to (i) any material diminution of his responsibilities that is not cured within 15 days; (ii) any reduction of or failure to pay his compensation provided for herein, except to the extent he consents in writing to any reduction, deferral or waiver of compensation, which non-payment continues for a period of 15 days following written notice to the Company by Mr. Colpoys of such non-payment; or (iii) any material violation by the Company of its obligations under the employment agreement that is not cured within 60 days after receipt of written notice thereof from Mr. Colpoys.

“Cause” is defined pursuant to Mr. Colpoys employment agreement as: (i) the willful or continued failure by Mr. Colpoys to substantially perform his duties, including, but not limited to, acts of fraud, willful misconduct, gross negligence or other act of dishonesty (provided that the Company shall have delivered to Mr. Colpoys a notice of such failure, specifying the particulars thereof and giving Mr. Colpoys a 15-day period to cure such conduct if such conduct is capable of being cured); (ii) a material violation or material breach of the employment agreement which is not cured within 10 days written notice to Employee; (iii) misappropriation of funds, properties or assets of the Company by Mr. Colpoys or any action which has a materially adverse effect on the Company or its business; (iv) the conviction of, or plea of guilty or no contest to, a felony or any other crime involving moral turpitude, fraud, theft, embezzlement or dishonesty; or (v) abuse of drugs or alcohol which impairs Mr. Colpoys ability to perform his duties.

The term “Change in Control Transaction” pursuant to Mr. Colpoys employment agreement means the sale of the Company to an un-affiliated person or entity or group of un-affiliated persons or entities pursuant to which such person, entity or group acquires (i) shares of capital stock of the Company representing at least fifty percent (50%) of outstanding capital stock (whether by merger, consolidation, sale or transfer of shares (other than a merger where the Company is the surviving corporation and the shareholders and directors of the Company prior to the merger constitute a majority of the shareholders and directors, respectively, of the surviving corporation (or its parent))) or (ii) all or substantially all of the Company’s assets determined on a consolidated basis.

David Barrett

Mr. Barrett has served as the Company’s Chief Financial Officer since April 2006. On December 7, 2007, the Company entered into an employment agreement with Mr. Barrett.

The employment agreement provides Mr. Barrett with an annual base salary of $250,000. The agreement was effective as of December 1, 2007 and expires on November 30, 2010, unless further extended or sooner terminated. In addition to his base compensation, Mr. Barrett will be eligible to receive bonus compensation of up to 25% of his base salary, in amounts to be determined by the Chief Executive Officer and approved by the Compensation Committee following Mr. Barrett’s achievement of certain performance objectives. The performance objectives shall be established by the Chief Executive Officer and Mr. Barrett at the beginning of each fiscal year, and the achievement of such goals shall be reviewed at the beginning of the ensuing fiscal year. In connection with the execution of the employment agreement, the Company issued Mr. Barrett stock options to purchase up to 25,000 shares of the Company’s common stock, at an exercise price of $3.88 per share. These options vested as to 8,333 on December 1, 2008 and shall vest as to an additional 8,333 on December 1, 2009 and 8,334 on December 1, 2010. Mr. Barrett is also eligible to receive options to purchase up to 17,000 shares of the Company’s common stock on each anniversary of the commencement of the term of his employment.

Pursuant to the terms of his employment agreement, Mr. Barrett will serve in his respective executive position until (i) his death or disability, (ii) his decision to terminate his employment relationship with the Company for or without good reason, or (iii) the decision by the Company’s board of directors to terminate his employment with or without cause.

Mr. Barrett’s employment agreement provides that if his employment with the Company is terminated under certain circumstances during the period of 24 months after a Change of Control, he will be entitled to the payment of cash benefits, the continuation of health, retirement and fringe benefits as well as the immediate vesting of any outstanding stock options and restricted stock, as described.

If Mr. Barrett’s employment with the Company is terminated during the 24-month period after a Change of Control for cause or resigns (other than for good reason), we will have no obligation to provide the benefits described below.

Pursuant to his respective employment agreement, in the event Mr. Barrett’s employment with us is terminated during the 24 month period after a Change of Control due to disability or death or without cause, or he resigns for good reason, the executive shall be entitled to (provided that he executes and delivers to us a general release instrument): (i) receive a lump sum payment of an amount equal to six months of base salary then in effect and vacation pay (for vacation not taken); (ii) the immediate vesting of all outstanding stock options, and (iii) receive the continuation of certain insurance and other fringe benefits for six months.

In the event Mr. Barrett becomes entitled to any payments and benefits related to a termination of employment after the occurrence of a Change of Control and if such payments equal or exceed 110% of three times the executive’s “base amount” determined for IRS purposes, we shall pay to the executive an additional amount equal to the sum of any excise tax imposed by the IRS to place the executive in the same after-tax position as if no such excise tax had been imposed and no additional amount had been made to him.

“Change of Control” under Mr. Barrett’s employment agreement means an event that would be required to be reported under the Securities and Exchange Act of 1934, as amended, whether or not we are then subject to such reporting requirements; provided that, without limitation, a change in control shall be deemed to have occurred if (i) any person is or becomes beneficial owner, directly or indirectly, of 25 percent or more of the Company’s voting securities; (ii) during any period of two consecutive years, the following persons cease for any reason to constitute a majority of the board of directors: individuals who at the beginning of such period constitute the board of directors and new directors each of whose election to the board of directors or nomination for election to the board of directors by the Company’s security holders was approved by a vote of at least two thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; (iii) the Company’s security holders approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately before the merger or consolidation continuing to represent a majority of the Company’s voting securities or of such surviving entity outstanding immediately after such merger or consolidation; or (iv) the Company’s security holders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by us of all or substantially all of the Company’s assets.

Under Mr. Barrett’s employment agreement, “good reason” (other than in the context of a change of control) means that we: (i) move the Company’s offices to an area other than the New York or Philadelphia Standard area; (ii) assign duties to Mr. Barrett that are substantially inconsistent with the responsibilities of his position or we substantially alter the nature or status of such responsibilities; (iii) diminish his title; (iv) reduce Mr. Barrett’s base salary as in effect on the date his agreement was executed; or (v) materially reduce the benefits provided to Mr. Barrett, other than in connection with a reduction in benefits generally applicable to senior executives of the Company. Under the employment agreements, “cause” is defined as: (i) the commission by Mr. Barrett of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty or fraud with respect to the Company or any of its affiliates or any of their customers or suppliers; (ii) substantial failure on the part of Mr. Barrett in his performance of the duties of the office held by him as reasonably directed by the board of directors (other than any such failure resulting from Mr. Barrett’s incapacity due to physical or mental illness), after notice to Mr. Barrett and a reasonable opportunity to cure; (iii) gross negligence or willful misconduct by Mr. Barrett with respect to the Company or any of its affiliates (including, without limitation, disparagement that adversely affects the reputation of the Company or any of its affiliates); or (iv) any material breach by Mr. Barrett of the sections of his employment agreement pertaining to his duties, non-competition or confidentiality.

“Good reason” (in the context of a Change of Control) under Mr. Barrett’s employment agreement means (i) the assignment to Mr. Barrett of any duties inconsistent with Mr. Barrett’s position or any other action that results in a diminution in such position; (ii) a reduction by us in Mr. Barrett’s base salary; (iii) a failure by us to maintain plans providing benefits at least as beneficial as those provided by any benefit or compensation plan in which Mr. Barrett was participating immediately before the beginning of the 24 month period after the occurrence of a Change of Control; (iv) a requirement by us to base Mr. Barrett at any office or location in excess of 25 miles from his office location immediately before the beginning of the 24 month period after the occurrence of a Change of Control; (v) any purported termination by us for cause otherwise than as provided in his employment agreement; or (vi) any failure by us to obtain the assumption of the obligations contained in his employment agreement by any successor.

The employment agreements provide that if Mr. Barrett is terminated without cause or if he resigns for good reason (outside the context of a change of control), he would be entitled to receive (i) payment of his then current base salary for six months thereafter, (ii) payment of other accrued compensation, (iii) continuation of certain insurance and other fringe benefits for six months, and (iv) the immediate vesting of all outstanding stock options.

Each of Mr. Barrett and Mr. Colpoys agreed to protect the confidentiality of the Company’s proprietary and confidential information. Each executive also agreed not to compete with us or solicit the Company’s employees or customers for a period of two years if he is terminated without cause or resigns for good reason, or for a period of one year if he is terminated for any other reason.

Director Compensation

The general policy of the Board of Directors is that compensation for independent directors should be equity-based compensation. The Company does not pay employee directors for Board service in addition to their regular employee compensation.

Annual Option Grants to Non-Management Directors

The Compensation Committee unanimously approved the following grants to each independent director: (i) options for 50,000 shares when an independent director is first elected to the Board and (ii) annual option grant equal to the whole number of shares calculated by dividing $25,000 by the Black-Scholes “value” of the last fair market value option grant made in the preceding fiscal year, as set forth in the Company’s audited financial statements for that preceding fiscal year. The Board, however, reserves the right to determine the “value” of an option, for purposes of calculating the number of options to be granted, by utilizing the fair market value price of the Company’s common stock on the last trading day prior to the grant date and the other Black-Scholes assumptions set forth in the Company’s audited financial statements for the preceding fiscal year.

The options will be granted at the Board meeting following the annual stockholders meeting. Twenty-five percent (25%) will vest upon grant and 25% will vest on each of the next three anniversaries, provided the holder is still a director of the Company. The options shall become exercisable six months after the date of grant. The options have a term of 10 years and an exercise price equal to the fair market value of the common stock on the date of grant.

In recognition of the appointments of Philip J. Young and Kevin Esval to the Board on June 6, 2008, the Board also approved, on June 24, 2008, a grant of 150,000 stock appreciation rights to each of Mr. Young and Mr. Esval, which rights are exercisable, at the Company's option, for cash or the Company's common stock, at an exercise price of $0.44. The stock appreciation rights shall expire on June 24, 2018, and shall vest in equal one-third increments on June 24, 2009, June 24, 2010 and June 24, 2011. Mr. Young’s stock appreciation rights were accelerated in November 2008, when he resigned from the Board of Directors.

Deferral Programs for Non-Management Directors and Officers

On May 10, 2007, the Board approved deferral programs for officers and non-management directors. The Non-Management Directors Deferral Program was subsequently amended on December 31, 2007. The Board intended that all options to be issued pursuant to the programs will be granted under the Company’s 2006 Equity Incentive Plan (the “Plan”). Some of the key terms of the options are: (i) the exercise price is the closing price of the common stock on the last trading day prior to the issuance date, (ii) the options have a ten year term, (iii) the options are transferable only upon death, (iv) the options shall become exercisable six months after the issuance date and (v) the options have no vesting requirement. None of the directors deferred any portion of their fees for the 2009 calendar year.

Non-Management Directors Deferral Program

Prior to December 31, 2007, the Non-Management Directors Deferral Program allowed directors who are not employees of the Company or any of its subsidiaries to elect to receive compensation for their service as members of the Board in part or in whole in the form of options on Company common stock in lieu of cash. Each non-management director was permitted to elect, in respect of all or any portion of the payment of their retainer or fee, to receive, in lieu of a payment in cash, options for shares of common stock. The amount of a retainer or fee earned during a calendar quarter that was subject to the plan was multiplied by 1.5 (the “Deferral Amount”), and the non-management director was issued on the day following the last day of the calendar quarter for which the retainer or fee otherwise would have been paid, options for a number of shares of common stock determined by dividing the Deferral Amount by the Black-Scholes “value” of the last fair market value option grant made in the preceding fiscal year, as set forth in the Company’s audited financial statements for that preceding fiscal year. The Board, however, reserved the right to determine the “value” of an option, for purposes of calculating the number of options to be granted, by utilizing the fair market value price of the Company’s common stock on the last trading day prior to the grant date and the other Black-Scholes assumptions set forth in the Company’s audited financial statements for the preceding fiscal year. For 2007, the election was made within 30 days from the effective date of the program and applied only to payments in respect of service performed after the date of the election and for the remainder of 2007.

On December 31, 2007, the Board amended the Deferral Program and adopted the Amended and Restated Non-Management Directors Deferral Program (the “Amended Program”). Under the terms of the Amended Program, the total amount of retainer or fee payable to the non-management director during a calendar year that is subject to the program shall be multiplied by 1.5 (the “Amended Program Deferral Amount”), and the non-management director shall be issued on the first business day of the calendar year for which the retainer or fee otherwise would have been paid (the “Issue Date”), options for a number of shares of common stock determined by dividing the Amended Program Deferral Amount by the Black-Scholes “value” of an option as of the Issue Date. The options are subject to monthly vesting and are exercisable six months after the Issue Date. The election must be made prior to the year in which the services are to be performed. The Amended Program was amended to provide that instead of receiving options on a quarterly basis, the non-management director will receive one option for the Deferral Amount at the beginning of the calendar year, which option is subject to vesting. Additionally, the exercise price of the option shall be determined on the first business day of the calendar year instead of the last trading day prior to the beginning of each calendar quarter.

None of the directors deferred any portion of their fees for the 2009 calendar year.

The table below sets forth the compensation paid to each non-employee member of the Company’s Board during the fiscal year ended December 31, 2008 for services rendered as a director.

Name	Fees Earned or Paid in Cash ($)		Option Awards (1) ($)		All Other Compensation ($)		Total ($)
Mark Auerbach (2)		—		947,822		140,800	1,088,622
John Abernathy (3)		—		160,363		70,400	230,763
David Dantzker (4)		—		142,843		70,400	213,243
Kevin Esval (5)		—		10,592		—	10,592

(1) The value represents the dollar amounts recognized for financial statement reporting purposes in 2008 in accordance with FAS 123R for awards made during 2008.

(2) During the year ended December 31, 2008, 140,891 options vested. Mr. Auerbach was also granted 300,000 shares of the Company’s common stock in 2008.

(3) During the year ended December 31, 2008, 42,232 options vested. Mr. Abernathy was also granted 150,000 shares of the Company’s common stock in 2008.

(4) During the year ended December 31, 2008, 42,400 options vested. Mr. Dantzker was also granted 150,000 shares of the Company’s common stock in 2008.

(5) During the year ended December 31, 2008, Mr. Esval was granted a stock appreciation right exercisable at $0.44 per share for up to 150,000 shares. The stock appreciation right vests as to 50,000 shares on June 24, 2009, 50,000 shares on June 24, 2010 and 50,000 shares on June 24, 2011.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information, as of December 31, 2008, concerning securities authorized for issuance under the Company’s 2006 Non-Employee Directors Stock Option Plan, 2006 Incentive Stock Plan and individual compensation arrangements approved by the Board of Directors of the Company:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders (1)	1,312,043	$	2.85	1,437,957
Equity compensation plans not approved by security holders (2)	4,000,000	$	2.00	1,825,000
Total	5,312,043	$		3,262,957

(1) Includes 400,000 shares authorized for issuance under the Company’s 2006 Non-Employee Directors Stock Option Plan and 2,350,000 shares authorized issuance under the Company’s 2006 Incentive Stock Plan.

(2) Includes 1,825,000 shares authorized for issuance under the Company’s 2006 Incentive Stock Plan by the Board and 4,000,000 granted by the Board as compensation to certain employees of the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the information that we know regarding ownership of the Company’s common stock on April 27, 2009 by (i) each person who is known to us to own 5% or more of the Company’s common stock, (ii) each of the Company’s directors and (iii) each of the Company’s named executive officers. All of the outstanding shares of the Company’s Series A Preferred Stock, $0.001 par value per share are wholly owned by Mr. Ambrose. All of the outstanding shares of the Company’s Series B Preferred Stock, $0.001 par value per share are wholly owned by TG United for which Mr. Ambrose is the sole stockholder.

Stockholder	Number of Shares of Common Stock Beneficially Owned at April 27, 2009 (1)			Percentage of Shares Beneficially Owned (1)
5% or Greater Stockholders
David Ambrose		30,363,763	(2)		50.2	%
Wheatley New York Partners, LP (3)		3,167,857	(4)		9.8	%
Wheatley MedTech Partners, L.P. (3)		2,169,592	(5)		6.8	%
Alan Kestenbaum		2,007,008	(6)		6.4	%

Directors and Executive Officers:
John D. Abernathy, Director		724,217	(8)		2.3	%
Mark Auerbach, Director		1,897,416	(9)		5.9	%
David J. Barrett, Chief Financial Officer		587,778	(10)		1.9	%
David Dantzker, Director		230,647	(11)		*
Gary Dutton, Director		43,333	(12)		*
Kevin Esval, Director		50,000	(13)		*
Reuben Seltzer, Director		1,706,047	(14)		5.4	%

All directors and executive officers as a group (8 individuals)		35,603,201	(16)		57.8	%

* Less than 1%.

(1) Unless otherwise indicated, includes shares owned by a spouse, minor children and relatives sharing the same home, as well as entities owned or controlled by the named person. Unless otherwise noted, shares are owned of record and beneficially by the named person. Based upon 31,520,186 shares of Common Stock outstanding on April 27, 2009.

(2) Includes 1,389,133 shares of Common Stock and 15,000,000 shares of Common Stock to be issued upon conversion of 1,500,000 shares of the Company’s Series A Preferred Stock, $0.001 par value per share owned by Mr. Ambrose and 13,974,630 shares of Common Stock to be issued upon conversion of 1,397,463 shares of the Company’s Series B Preferred Stock, $0.001 par value per share owned by TG United.

(3) David Dantzker is a director of Wheatley MedTech Partners, L.P. and Wheatley New York Partners, LP and disclaims beneficial ownership as to any of the shares owned by each of those entities.

(4) Includes 692,022 shares of Common Stock issuable upon the exercise of currently exercisable warrants.

(5) Includes 486,646 shares of Common Stock issuable upon the exercise of currently exercisable warrants.

(6) Includes 15,000 shares of Common Stock issuable upon the exercise of currently exercisable warrants.

(7) Includes 206,641 shares of Common Stock issuable upon the exercise of currently exercisable warrants.

(8) Includes options to purchase 140,446 shares of Common Stock exercisable within sixty (60) days of April 27, 2009.

(9) Includes options to purchase 392,170 shares of Common Stock exercisable within sixty (60) days of April 27, 2009.

(10) Includes options to purchase 177,778 shares of Common Stock exercisable within sixty (60) days of April 27, 2009.

(11) Includes options to purchase 80,647 shares of Common Stock exercisable within sixty (60) days of April 27, 2009.

(12) Includes 3,333 shares of common stock subject to a stock appreciation right exercisable within sixty (60) days of April 27, 2009.

(13) Includes 50,000 shares of common stock subject to a stock appreciation right exercisable within sixty (60) days of April 27, 2009.

(14) Includes 220000 shares of Common Stock issuable upon the exercise of currently exercisable within sixty (60) days of April 27, 2009.

(15) Includes shares of Common Stock issuable upon the exercise of currently exercisable warrants and options to purchase Common Stock exercisable within sixty (60) days of April 27, 2009 and common stock subject to stock appreciation rights exercisable within sixty (60) days of April 27, 2009.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The Board’s Audit Committee is responsible for review, approval, or ratification of “related-person transactions” between the Company or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the Company since the beginning of the last fiscal year and their immediate family members. The Audit Committee determines whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion.

In the year ended December 31, 2008, the following related party transactions occurred:

Since June 6, 2008, the Company has been a party to a Manufacturing and Distribution Agreement with TG United (the “Supply Agreement”), a corporation wholly-owned by Mr. Ambrose. Since the execution of that agreement, the Company has been completely dependent upon TG United as the sole supplier of the Company’s products. The initial term of the Supply Agreement is through June 6, 2013, and permits additional one-year renewals based upon the parties’ written agreement. Under the terms of the Supply Agreement, TG United will manufacture specified products for the Company, including branded products acquired on June 6, 2008 that will be manufactured exclusively for the Company. On November 18, 2008, the Company was provided an inventory credit of $1.26 million. The Company is required to make minimum monthly payments of $100,000 to TG United with respect to inventory purchases, subject to a quarterly reconciliation against amounts due. The $1.26 million inventory credit may be applied by MCR and AMBI against invoices issued by TG United at a rate of up to $100,000 per month, after any required minimum monthly cash payments are made. Approximately $1.025 million and $0.9 million of the inventory credit remained available to the Company as of December 31, 2008 and March 31, 2009, respectively.

On June 6, 2008, the Company issued to certain individual investors, private equity firms and their affiliates in a private offering 12,100,000 shares of its common stock, par value $0.001 per share, sold at a price of $0.25 per share for a total of $3,025,000 (the “Financing”). Messrs. Abernathy, Auerbach and Seltzer, directors of NHI, each participated in the Financing: Mr. Abernathy purchased 400,000 shares of NHI common stock; Mr. Auerbach’s spouse purchase 400,000 shares of NHI common stock; and Mr. Seltzer’s spouse and children purchased an aggregate of 400,000 shares of NHI common stock.

Director Independence. Each of the following non-employee directors qualifies as “independent” in accordance with the published listing requirements of NASDAQ: Mr. Abernathy, Mr. Auerbach and Dr. Dantzker. Messrs. Ambrose and Dutton do not qualify as independent because they are both employees of the Company. Mr. Seltzer does not qualify as independent because he was an employee within the past 3 years. The NASDAQ rules have both objective tests and a subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he is an employee of the Company or is a partner in or executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

None of the non-employee directors were disqualified from “independent” status under the objective tests. In assessing independence under the subjective test, the Board took into account the standards in the objective tests, and reviewed and discussed additional information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to the Company and its management. Based on all of the foregoing, as required by NASDAQ rules, the Board made a subjective determination as to each non-employee director, except Mr. Esval, that no relationships exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Because Mr. Esval serves as a director of a company that has supplied products distributed by the Company, the Company has not concluded that Mr. Esval is independent. Accordingly, Mr. Esval cannot be considered one of the Company’s “independent” directors. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances.

In addition to the board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the SEC providing that to qualify as “independent” for the purposes of membership on that committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company other than their director compensation.

Item 14.

Principal Accountant Fees and Services

The table below sets forth the aggregate audit fees, audit-related fees, tax fees and all other fees billed for services rendered by the Company’s principal accountant in our fiscal years ended December 31, 2008 and December 31, 2007.

	2008		2007
Audit Fees	$	46,000	$	28,000
Audit Related Fees	$	28,500	$	--
Tax Fees	$	10,921	$	6,000
All Other Fees	$	22,048	$	9,000

Audit Fees. Consists of fees billed for professional services rendered for the audit of our annual consolidated financial statements and review of the quarterly consolidated financial statements and services that are normally provided by Sherb & Co., LLP and prior to the appointment of Sherb & Co., LLP, Moore Stephens, P.C., in connection with statutory and regulatory filings or engagements.

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning.

All Other Fees. Consists of fees for products and services other than the services reported above, including fees associated with the review of the Company’s periodic reports and reports on Form 8-K.

The Audit Committee requires that management obtain the prior approval of the Audit Committee for all audit and permissible non-audit services to be provided. The Audit Committee considers and approves at its first meeting of each year, anticipated audit and permissible non-audit services to be provided during the year, as well as the projected fees for those services. The Audit Committee considers and pre-approves additional audit and permissible non-audit services and fees as needed at each meeting. The Audit Committee has delegated authority to its Chair to pre-approve audit and permissible non-audit services between meetings, provided that the Chair reports any such pre-approval to the Audit Committee at its next meeting. The Audit Committee will not approve non-audit engagements that would violate SEC rules or impair the independence of Sherb & Co., LLP. All audit and permissible non-audit services rendered to the Company in 2008 and 2007 were pre-approved in accordance with these procedures.

All of the services relating to the fees described in the table above were approved by the Audit Committee.

PART IV

Item 15.

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

2.6	Agreement and Plan of Merger, dated as of June 5, 2008, by and among Neuro-Hitech, Inc., GKI Acquisition Sub, Inc., GKI Acquisition Corporation and Timothy J. Ryan, Matthew Colpoys, Jr. and Philip J. Young.	8-K	2.1	6/11/08

2.7	Amended and Restated Stock Purchase Agreement, dated as of June 6, 2008, by and among, Neuro-Hitech, Inc., GKI Acquisition Corporation, and David Ambrose.	8-K	2.2	6/11/08

2.8	Modification Agreement and Release by and among the Company, TG United Pharmaceuticals, Inc. and David Ambrose	10-Q	2.1	11/19/08

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

3.7	Certificate of Designation of Series A Preferred Stock	10-Q	3.1	11/19/08

3.8	Certificate of Designation of Series B Preferred Stock	10-Q	3.2	11/19/08

4.1	Form of Common Stock Purchase Warrant Certificate	8-K	4.1	1/30/06

4.2	Form of Marco Hi-Tech JV Ltd. Registration Rights Agreement	8-K	10.4	1/30/06

4.3	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

4.4	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

4.5	Form of $13 Warrant issued pursuant to the Merger.	8-K	4.3	12/5/06

4.6	Form of $18 Warrant issued pursuant to the Merger.	8-K	4.4	12/5/06

4.7	Form of Warrant issued in connection with private offering	8-K	4.5	12/5/06

4.8	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

4.9	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

4.10	Form of Warrant issued in connection with private offering	8-K	4.3	12/19/07

4.11	Registration Rights Agreement, dated as of November 18, 2008, by and between Neuro-Hitech, Inc. and David Ambrose	10-Q	4.1	11/19/08

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 John Abernathy	8-K	10.8	1/30/06

10.7	Director and Officer Indemnification Agreement dated January 24, 2006, between Neurotech Pharmaceuticals, Inc. and Mark Auerbach	8-K	10.9	1/30/06

10.8	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

10.9	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

10.10	Offer Letter, dated January 6, 2006, to John Abernathy from Marco Hi-Tech JV Ltd.	8-K	10.14	1/30/06

10.11	Offer Letter, dated January 5, 2006, to Mark Auerbach from Marco Hi-Tech JV Ltd.	8-K	10.15	1/30/06

10.12	Development Agreement dated February 1, 2006, between the Company and Org Syn Laboratory, Inc	10-QSB	10.1	5/15/06

10.13	Development Agreement dated March 15, 2006, between the Company and Xel Herbaceuticals, Inc	10-QSB	10.2	5/15/06

10.14	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

10.15	Amendment No. 1 to 2006 Incentive Stock Plan	8-K	4.6	12/5/06

10.16	Amendment No. 2 to 2006 Incentive Stock Plan	8-K	4.7	12/5/06

10.17	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

10.18	2002 Q-RNA, Inc. Stock Incentive Plan	S-8	10.1	12/13/06

10.19	2006 Stock Incentive Plan	DEF 14A		6/05/07

10.20	Non-Management Directors Deferral Program	10-QSB	10.2	8/08/07

10.21	Officers Deferral Program	10-QSB	10.3	8/08/07

10.22	Employment Agreement, dated August 22, 2007, between Neuro-Hitech, Inc. and Gary Shearman	8-K	10.1	8/29/07

10.23	Employment Agreement, dated December 7, 2007, between Neuro-Hitech, Inc. and David Barrett	8-K	10.1	12/11/07

10.24	Securities Purchase Agreement, dated as of June 6, 2008, by and among Neuro-Hitech, Inc. and each of the investors identified therein.	8-K	10.1	6/11/08

10.25	Consulting Agreement, dated as of June 6, 2008, by and among Neuro-Hitech, Inc. and David Ambrose.	8-K	10.2	6/11/08

10.26	Resignation Agreement and Mutual Release, dated as of June 5, 2008, by and among Neuro-Hitech, Inc. and Gary T. Shearman.	8-K	10.3	6/11/08

10.27	Employment Agreement between NHI and Matthew E. Colpoys, dated June 6, 2008.	8-K	10.4	6/11/08

10.28	Manufacturing and Distribution Agreement, effective June 6, 2008, between TG United Pharmaceuticals, Inc. and Neuro-Hitech, Inc.*	10-Q	10.5	8/12/08

14.1	Code of Ethics	10-KSB	14.1	3/31/06

16.1	Letter of MSPC, Certified Public Accountants and Advisors, a Professional Corporation, dated July 11, 2008, regarding change in independent registered public accounting firm.	8-K	16.1	7/11/08

21.1	Subsidiaries	10-K	21.1	3/31/09

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

* Confidential treatment requested for certain information.

NEURO-HITECH, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of December 31, 2008 and 2007		F-3

Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007		F-4

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2008 and 2007		F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007		F-6

Notes to the Consolidated Financial Statements		F-7

1900 NW Corporate Blvd., East Suite 210

Boca Raton, Florida 33431

Tel. 561-886-4200

Fax. 561-886-3330

e-mail:info@sherbcpa.com

Offices in New York and Florida

Certified Public Accountants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee

Neuro-Hitech, Inc.

Brooksville, Florida

We have audited the accompanying consolidated balance sheet of Neuro-Hitech, Inc. as of December 31, 2008 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Neuro-Hitech, Inc. as of December 31, 2008, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced losses from operations in 2008 and 2007. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

		/s/ Sherb & Co., LLP
Boca Raton, Florida		Certified Public Accountants
March 24, 2009

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Neuro-Hitech, Inc.

New York, New York

We have audited the accompanying consolidated balance sheet of Neuro-Hitech, Inc. and Subsidiaries as of December 31, 2007 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2007, of Neuro-Hitech, Inc. and subsidiaries. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Neuro-Hitech, Inc. and subsidiaries as of December 31, 2007, and the consolidated results of their operations and their cash flows for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

	/s/ MSPC
	Certified Public Accountants and Advisors,
	A Professional Corporation

New York, New York

March 28, 2008

F-2

Neuro-Hitech, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31, 2008			December 31, 2007

ASSETS:
Current Assets:
Cash and Cash Equivalents	$	397,147		$	6,137,592
Accounts Receivable		1,310,852			63,300
Inventory		326,946			33,821
Prepaid Inventory		1,025,059
Prepaid Expenses		38,054			11,861
Total Current Assets		3,098,058			6,246,574

Property and Equipment, net		9,472			4,248

Other Assets:
Security Deposit		-			13,226
Intangible Asset, net		6,021,751			-

Total assets	$	9,129,281		$	6,264,048

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:
Accounts payable and accrued expenses	$	830,588		$	1,000,399
Accrued Returns and Chargebacks		408,307
Total current liabilities		1,238,895			1,000,399


Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized:
Series A Preferred Stock,1,500,000 issued and outstanding at December 31, 2008		1,500			-
Series B Preferred Stock,1,397,463 issued and outstanding at December 31, 2008		1,397			-
Common stock, $.001 par value, 44,999,990 shares authorized, 31,520,186 and 14,004,853 issued and outstanding at December 31, 2008 and December 31, 2007, respectively		31,520			14,005
Subscriptions receivable		(15,000	)		-
Deferred Compensation		(15,936	)		(1,190,654	)
Additional paid-in capital		51,443,428			39,270,951
Accumulated deficit		(43,556,523	)		(32,830,653	)

Total stockholders' equity		7,890,386			5,263,649

Total liabilities and stockholders' equity	$	9,129,281		$	6,264,048

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

F-3

Neuro-Hitech, Inc. and Subsidiaries

Consolidated Statements of Operations

	Years Ended December 31,
	2008			2007

Sales	$	4,129,612		$	458,870
Cost of Goods Sold		1,827,160			215,854
Gross Profit		2,302,452			243,016

Operating Expenses:
Selling, General and Administrative Expenses		5,788,983			2,561,402
Research and Development Costs		1,549,879			3,523,954
Share-Based Compensation		5,331,308			2,427,904
Amortization of Intangibles		589,874			242,447
Registration Payment Arrangement		-			490,550
Total Operating Expenses		13,260,044			9,246,257

(Loss) from Operations		(10,957,592	)		(9,003,241	)

Other Income:
Forgiveness of Debt		375,338			-
Interest and Dividend Income		21,150			206,804
Interest Expense		(164,766	)		-
Total Other Income		231,722			206,804

(Loss) Before Provision for IncomeTaxes		(10,725,870	)		(8,796,437	)

Provision for Income Taxes		-			-

Net (Loss)	$	(10,725,870	)	$	(8,796,437	)

Basic and Diluted (Loss) per Weighted Average Common Shares Outstanding	$	(0.45	)	$	(0.71	)

Weighted Average - Common Shares Outstanding		23,910,380			12,351,746

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

F-4

Neuro-Hitech, Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity

	Class A - Common Stock					Preffered Stock				Common Stock				Additional Paid- In Capital		Subscription Receivable			Deferred Compensation			Accumulated Deficit
	Shares			Amount		Class A		Class B		Shares		Amount							(Deficit)			(Deficit)			Totals
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 Common Stock or Warrants in connection with services to be rendered											20,000		20		375,934					(254,954	)					121,000
Remeasurement of Common Stock or Warrants in connection with services rendered															38,445											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

Private Placement of Common Stock											13,172,000		13,172		3,279,828		(15,000	)								3,278,000
Share-Based Compensation, net of Deferred Compensation and Stock Grants													-		4,215,976											4,215,976
Common Stock & Warrants Issued in connection with mergers											3,333,333		3,333		1,360,717											1,364,050
Preffered Shares Issued in connection with mergers							1,500		1,397						2,894,566											2,897,463
Stock Grants Issued on June 26, 2008											1,010,000		1,010		421,390											422,400
Amortization of Deferred Compensation															-					1,174,718						1,174,718
Net (Loss)																							(10,725,870	)		(10,725,870	)
Balance as of December 31, 2008		-			-	$	1,500	$	1,397		31,520,186	$	31,520	$	51,443,428	$	(15,000	)	$	(15,936	)	$	(43,556,523	)	$	7,890,386

F-5

Neuro-Hitech, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	For The Years Ended
	December 31,
	2008			2007

Cash flows used in operating activities:
Net (Loss)	$	(10,725,870	)	$	(8,796,437	)

Adjustments to Reconcile Net (Loss) to Net Cash (Used In) Operating Activities:
Fair Value of Options, Warrants, and Stock Appreciation Rights		4,215,976			2,427,904
Fair Value of Shares Issued for Service		421,390
Amortization of Deferred Compensation		1,174,718			242,447
Amortization of Intangibles		589,874			-
Gain on Sale of Net Assets		2,765			-
Registration Payment Arrangement		-			490,550
Depreciation Expense		3,021			2,998
Other Share-Based Selling, General and Administrative Expenses		-			225,808

Change in operating assets and liabilities:
(Increase) Decrease in Assets:
Accounts Receivable		(1,247,552	)		(37,500	)
Inventory		(80,253	)		(2,530	)
Prepaid Expenses		206,465			(1,166	)
Deferred Charges		-			93,750
Security Deposits		13,226			-
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses		(269,813	)		(261,707	)
Deferred revenue		1,393,805			-
Net cash (used in) Operating activities		(4,302,248	)		(5,615,883	)

Cash flows from investing activities:
Business Acquisition and Related Costs
Investment in Property and Equipment		(11,000	)		-
Cash Used in Acquistion,net		(4,703,581	)		-
Net cash (used in) Investing activities		(4,714,581	)		-

Cash flows from financing activities:
Net Proceeds from Private Placement Offering of Common Stock		3,279,828			7,002,456
Net Payments to Related Party		(3,444	)
Proceeds from the Sale of Stock		-			45,824
Net cash provided by Financing activities		3,276,384			7,048,280

Net (decrease) increase in cash and cash equivalents		(5,740,445	)		1,432,397
		-
Cash and cash equivalents, beginning of year		6,137,592			4,705,195

Cash and cash equivalents, end of year	$	397,147		$	6,137,592

Cash Paid For:
Income Taxes	$	-		$	-
Interest	$	-		$	-

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

During the twelve months ended December 31, 2008, options held by the Company's executive officers and board of directors vested as to 2,449,653 shares of the Company's common stock. The Company recognized an aggregate compensation cost of approximatly $4,216,000 for the vesting of the aforementioned options for the twelve months ended December 31, 2008.

During the third quarter of 2008, 960,000 shares of common stock were issued to directors and employees. The Company recognized an aggregate compensation cost of approximatly $422,000 for the aforemetioned shares

In connection with the Q-RNA merger, the Company entered into a consulting agreement and issued 500,000 non-qualified stock options valued at their grant date fair value as of the date of the merger closing. During 2008, the Company recognized approximately $1,178,000 of expense for the amortization of Deferred Compensation.

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. During 2008, the Company ratably recognized approximately $128,000 of expenses for the amortization of Deferred Compensation in accordance with the service term.

In connection with the MCR merger, the Company determined the future value of purchased property and allocated a portion to an intangible asset. Approximately $590,000 amortization of purchased intanbile assets was expensed during 2008.

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

F-6

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

[1] Nature of Operations

On June 6, 2008, the Company acquired the capital stock of MCR American Pharmaceuticals, Inc., a Florida corporation (“MCR”) and AMBI Pharmaceuticals, Inc., a Florida corporation (“AMBI”) pursuant to an Amended and Restated Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company, GKI Acquisition Corporation, the Company’s wholly-owned subsidiary (“GKI”), and David Ambrose (“Seller”), the sole stockholder of MCR and AMBI.

Prior to June 6, 2008, the Company had been focused primarily on technologies that address investigational compounds that have the potential to show clinical improvements versus current treatments for Alzheimer’s disease, Epilepsy and other central nervous system applications. The Company’s most advanced product candidate targeting these needs is Huperzine A which completed a Phase II clinical trial in the U.S. earlier this year for efficacy and safety in the treatment of mild to moderate Alzheimer’s disease. 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.

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 twelve-month period ended December 31, 2008 the Company generated a net loss of approximately $10 million. Until its acquisition of MCR and AMBI, the Company’s revenue was a result of the importation and sale of inventories of natural Huperzine to vitamin and supplement suppliers. The majority of the Company’s working capital requirements to date have been funded through the Company’s private placement of equity securities to founders and to institutional and individual investors. Management intends to fund future operations through the sale of its products as well as additional equity or debt offerings.

There can be no assurance that the Company will be successful in obtaining additional funds 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 distributing its products, 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

[2] Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents.

F-7

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

Intangible assets, net consists of the aquired customer relationships, vendor relationships and product formulations. The Company capitalizes and amortizes the cost of aquired intangible assets over their useful lives on a straight-line basis. The estimated useful lives of the Company’s intangible assets are 5 years.

Accounts receivable

Accounts receivable are recorded based on our revenue recognition policy. Our allowance for doubtful accounts

provides for specific doubtful receivables, as well as general counterparty credit risk evaluated using observable market information and internal assessments.

Largest Customers
	2008
McKesson Corporation		39	%
Cardinal Health, Inc.		53	%

Concentration of Credit Risks

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.

The Company’s cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. During the twelve-month period ended December 31, 2008, the Company had bank balances exceeding the FDIC insurance limit. Effective October 3, 2008 through December 31, 2009, federally insured limits have been increased from $100,000 to $250,000 per account. While the Company periodically evaluates the credit quality of the financial institutions in which it has deposits, it cannot eliminate the risk associated with the sudden possible failure of such financial institutions.

Product Concentration

Most of the Company’s revenues were derived from the sale of its products in the United States to the following customers:

Largest Customers
	MCR	AMBI
Cardinal Health, Inc.	32%	78%
McKesson Corporation	52%	*
AmeriSourceBergen Corp.	7%	*
North Carolina Mutual	*	8%

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.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their fair value due to their short-term maturities.

F-8

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS No. 109 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all deferred tax assets will not be realized. Penalties and interest on underpayment of taxes are reflected in the Company’s effective tax rate.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the 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 revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, the realization of receivables, the valuation of share-based payments, the impairment valuation of intangible assets, the allocation of the purchase price of the acquisition among various types of intangible assets and accrued sales allowance. Actual results will differ from these estimates.

Revenue Recognition

Revenue from sales of the Company’s products are recorded, net of returns and other sales allowances. Other sales allowances include cash discounts, rebates, trade promotions, and sales incentives. According to the terms of a sales contract, and consistent with industry practices, a customer may return products up to a maximum amount and under certain conditions. Allowances are calculated based upon current economic conditions, the underlying contractual terms with both direct and indirect customers, the remaining time to expiration of the products and an evaluation of the levels of inventories held by the Company’s distributors. The Company continually monitors its assumptions, giving considerations to pricing trends, seasonality of its product lines and estimated trade inventory levels and makes adjustments to these estimates when it believes that its actual sales returns and sales allowances in the future will differ from its estimate.

Inventories and Cost of Goods Sold

The Company maintains an inventory of pharmaceutical products and samples. Inventories are stated at the lower of cost or market. Cost has been determined using the first-in, first-out method. Sample costs are charged to cost of goods sold.

During the year end, the Company recognized cost of goods sold of $1,827,160 for products by MCR and AMBI. Substantially all of our cost of goods sold relate to the cost of the pharmaceutical products, fees paid to our contract manufacturers and samples provided to our sales representatives.

F-9

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Basic and Diluted Earnings Per Share

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). The options and warrants outstanding at December 31, 2008 and 2007 have been excluded from the computation of diluted earnings per share due to their antidilutive effect.

Common share equivalent are as follows:

	December 31, 2008		December 31, 2007
Options		5,312,043		2,775,319
Warrants		3,255,357		3,255,357
Preferred Stock (if converted)		28,974,630		-
		37,542,030		6,030,676

Share-Based Payments

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted shares, performance-based awards, share appreciation rights and employee share purchase plans. In March 2005, the SEC issued SAB 107. SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123(R). Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under SFAS 123. Effective January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123(R) and related interpretations as provided by SAB 107 prospectively. As such, compensation cost is measured on the date of grant as its fair value. The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of equity awards, including stock options and stock appreciation rights granted to employees using the “modified prospective” method. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

Research and Development Costs

All research and development costs are expensed as incurred and include costs paid to sponsored third parties to perform research and conduct clinical trials.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. In such circumstances, the Company will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will recognize an impairment loss to adjust to the fair value of the asset.

F-10

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation

In accordance with EITF Abstract No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the Company uses the Black-Scholes pricing model to value options granted in connection with services rendered, which are recorded as Deferred Compensation in the Stockholders’ Equity section of the balance sheet and are subsequently remeasured and charged to the appropriate expense for which the service relates.

[3] Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are 3 years.

	December 31, 2008
Office Equipment	$	11,000
Less: Accumulated depreciation		1,528
Net Office Equipment	$	9,472

[4] Operating Lease

The Company leases office and warehouse space at 16255 Aviation Loop Drive, Brooksville, FL 34604. Each of those leases is subject to a month-to-month lease.

[5] Business Combinations and Intangible Assets and Private Placement Offerings

On June 5, 2008, the Company acquired GKI pursuant to the Merger Agreement. The Merger Agreement provided for, among other things, the issuance of an aggregate of 1,700,000 shares of the Company’s common stock to three individuals, one of whom became our chief executive officer and another who became a director immediately following the merger. Pursuant to the Merger Agreement, the Company acquired rights to acquire MCR and AMBI. The shares issued to these three stockholders are subject to a lock-up agreement which restricts, for each of them, the sale of 25% of the issued shares until September 5, 2009, an additional 25% of the issued shares until February 5, 2010, an additional 25% of the issued shares until July 5, 2010 and the remaining 25% of the issued shares until December 5, 2010. Subsequently, one of the three stockholders has been released from the lock-up agreement.

On June 6, 2008, the Company acquired all of the capital stock of MCR and AMBI pursuant to the Purchase Agreement. The consideration paid to Seller pursuant to the Purchase Agreement consisted of: (i) $4,410,000 in cash, (ii) 1,333,333 shares of the Company’s common stock, (iii) a Convertible Note in the principal amount of $3,000,000 (the “Convertible Note”) and (iv) a Subordinated Note in the amount of $3,000,000 (the “Subordinated Note”). The shares issued to the Seller are subject to a lock-up agreement which restricts the Seller from selling the shares prior to June 6, 2009. Subsequently, this date was shortened to March 31, 2009.

Concurrent with the completion of the aforementioned transactions, the Company issued 300,000 shares of its common stock to an individual in lieu of payment for services rendered in connection with the transactions.

The acquisition of the operations of MCR and AMBI was accounted for pursuant to the Financial Accounting Standard (“FAS”) No. 141R, Business Combinations, which provides that the assets and liabilities acquired and the equity interest issued are initially recognized at the date of acquisition and measured at the fair value of the net assets acquired and consideration exchanged. Additionally, FAS No. 141R provides that the results of operations of the acquired entity after the effective date of acquisition be consolidated in the results of operations of the acquirer.

F-11

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The total aggregate purchase price, including professional fees of $492,624 incurred in connection with the acquisition, amounts to $7,953,934. The aggregate purchase price consists of the following:

	Pre-Modification		Adjustments			Post-Modification
Cash	$	4,492,624		400,000			4,892,624
Notes		6,000,000		(6,000,000	)		-
Fair value of shares		1,366,666		2,897,463			4,264,130
Assumption of liabilities		1,518,161		(2,403,660	)		(885,499	)
	$	13,377,451		(5,106,196	)		8,271,255

The purchase price has initially been allocated as follows:

	Pre-Modification		Adjustments			Post-Modification
Cash	$	189,042		-			189,042
Inventory		212,872		1,257,717			1,470,589
Intangible assets		12,975,537		(6,363,912	)		6,611,625
	$	13,377,451		(5,106,196	)		8,271,255

The fair value of the shares issued pursuant to this transaction was based on the quoted closing price per share of the Company’s common stock on the acquisition date.

The intangible assets resulting from this transaction are primarily attributable to the customer contracts and related relationships, noncontractual customer relationships, royalty agreements, supply contracts, drug formulas, brand names, distribution networks, and governmental registrations.

During November 2008, the Company and the Seller and an affiliate of the Seller agreed to modify certain terms of the Purchase Agreement pursuant to a Modification Agreement and Release (“Modification Agreement”). Pursuant thereto the Company issued 1,500,000 shares of the Company’s Series A Preferred Stock and 1,397,463 shares of the Company’s Series B Preferred Stock (i) to satisfy its obligations under the Convertible Note and the Subordinated Note aggregating approximately $6.1 million, including interest, and accounts payable aggregating approximately $1 million and (ii) to receive products from an affiliate of Seller valued at up to $1,257,717. Each shares of the Series A and B Preferred Stock is convertible into 10 shares of the Company’s common stock. Additionally, the features of the Series A Preferred Stock include, among other things, a non-participating liquidation preference of $4,500,000. The fair value of the consideration issued to the Seller pursuant to the Modification Agreement amounted to approximately $2.8 million. The excess of the carrying value of the satisfied obligations and the right to receive future products from an affiliate of the Seller over the consideration issued to the Seller, which amounts to approximately $4.5 million will be recorded as a reduction of the intangible assets.

F-12

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Had these acquisitions occurred on January 1, 2007, the results would be as follows:

	For the Year Ended December 31,			For the Year Ended December 31,
	2008			2007

Total Revenue	$	8,084,170		$	6,288,450

Net [Loss]	$	(9,842,433	)	$	(9,308,275	)

Basic & Diluted [Loss] Per Common Share	$	(0.31	)	$	(0.75	)

Intangible Assets

Intangible assets consisted of the following:

	Useful Life (Years) Weighted Average		At December 31, 2008			At December 31, 2007
MCR and AMBI Pharmaceuticals		4.87	$	6,611,625		$	0

			$	6,611,625		$	0
Less: accumulated amortization			$	(589,874	)
			$	6,021,751		$	0

For the years ended December 31 2008 and 2007, amortization expense was $589,875 and $0 respectively.

Amortization expense subsequent to the period ended December 31, 2008 is as follows:

2009	$	1,322,325
2010	$	1,322,325
2011	$	1,322,325
2012	$	1,322,325
2013	$	732,451
	$	6,021,751

Private Placement Offerings

During the twelve-month period ended December 31, 2008, the Company issued 13,172,000 shares of its common stock pursuant to two private placements, which generated proceeds of $3,278,000, net of subscription receivable of $15,000.

During the twelve-month period ended December 31, 2007, the Company issued 464,196 shares of its common stock and warrants to purchase 232,098 shares pursuant to a private placement, which generated gross proceeds of $2,220,805. The warrants issued in this private placement are exercisable at a price of $7 per share and expire on November 29, 2011.

Between January 2007 and March 2007, the Company received total gross proceeds of $2,379,005 from the private placement with accredited investors of an aggregate of 464,196 shares of the Company’s common stock and warrants to purchase 232,098 shares of the Company’s common stock. The common stock was sold in the offering at $5.125 per share and the exercise price of the warrants was $7.00 per share. The warrants expire on November 29, 2011.

F-13

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the Company received total gross proceeds of $5,000,000 from the private placement with accredited investors receiving an aggregate of 1,250,000 shares of the Company’s common stock and warrants to purchase 625,000 shares of the Company’s common stock. The common stock was sold in the offering at $4.00 per share and the exercise price of the warrants was $7.00 per share. The warrants expire on December 14, 2012.

In connection with these private placement offerings, placement agent, legal, accounting, printing and other costs in the aggregate amount of $376,548 and $353,127, were charged to Additional Paid-In Capital in the year ended December 31, 2007 and December 31, 2006, respectively.

Registration Rights Payment Arrangement

During 2007, 100,729 shares of common stock were issued to investors that purchased common stock and warrants from the Company in the private offerings that the Company conducted in 2006 and 2007. The shares were issued in accordance with the provisions of a Registration Rights Agreement dated as of January 5, 2006 between the Company and the purchasers of securities in the 2006 Private Offering and a Registration Rights Agreement dated November 29, 2006 between the Company and the purchasers of securities in the 2007 Private Offering. The aforementioned registration rights agreements, required the Company to pay an amount equal to 1% payable in the Company’s common stock, up to a maximum 6%, of the aggregate dollar amount of securities purchased by such investors if the Company did not file a resale registration statement or have such registration statement declared effective by the dates set forth in each agreement. The shares of common stock issued to these investors had an aggregate value of approximately $491,000 and were expensed as a Registration Payment Arrangement which is reflected in the Selling, General and Administrative Expense caption of the 2007 Statement of Operations. The Company issued the maximum 6% of shares and is under no obligation to issue any additional shares pursuant to the terms of the registration rights agreements previously described.

Option Exercises

In addition to the aforementioned private placements, the Company received approximately $46,000 from the exercise of options to purchase 12,059 during 2007.

Class A Common Stock

On April 24, 2007, immediately prior to listing of the Company’s Common Stock on the NASDAQ Capital Market, the Chief Executive Officer and Executive Vice President of the Company surrendered all of the Class A Common Stock they owned. The shares were repurchased for $2 and as of December 31, 2007, no Class A Common Stock remains outstanding.

[6] Research and License Agreements

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 on Huperzine A. 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 was $4,036,842 payable in installments upon the achievement of certain milestones. For the years ended December 31, 2008 and 2007, the payments made or accrued by the Company to Georgetown under the terms of the clinical research agreement were approximately $785,305 and $1,183,167, respectively, and the total payments made by the Company to Georgetown since inception of the agreement were approximately $3,895,972. These costs are reflected in the Research and Development caption of the Statement of Operations. The Company expects to make an additional payments in 2009 to Georgetown in the amount of $80,000.

F-14

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Xel Herbaceuticals, Inc.

On March 15, 2006, the Company entered into a development agreement with XEL for the development of the Huperzine A Transdermal Delivery System (“Product”). For the years ended December 31, 2008 and 2007, the payments made to XEL under this agreement were approximately $92,500 and $1,111,250, respectively, and are reflected in the Research and Development caption of the Statement of Operations. The Company does not expect to make any additional payments in 2009.

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 Exclusive Patent License Agreement with PARTEQ which was amended in early 2007, the Company was obligated to pay fixed annual fees of C$282,944. Under the terms of the Exclusive Patent License Option Agreement with PARTEQ which was amended in early 2007, the Company was obligated to pay fixed annual fees of C$150,800. For the years ended December 31, 2008 and 2007, the payments made or accrued by the Company to PARTEQ under these agreements have been approximately $122,000 and $475,115, respectively, and are reflected in the Research and Development caption of the Statement of Operations. The Company expects to make additional payments in 2009 to PARTEQ in the amount of C$60,000.

Numoda Corporation

On March 3, 2008, the Company entered into an agreement with Numoda corporation (“Numoda”) pursuant to which Numoda reviewed the results of the Company’s recently completed Phase II clinical trial of Huperzine A. Following Numoda’s delivery of its analysis of the Phase II clinical trials, the Company paid Numoda $100,000.

The Company does not expect to incur any fixed annual research and development costs for the foreseeable future.

[7] Employee, Director and Third Party Stock-Based Compensation

As of December 31, 2008 the Company had two stock-based compensation plans, which are described below. Effective January 1, 2006, the Company adopted the fair value method of recording stock-based compensation in accordance with the modified prospective method of SFAS No. 123(R), “Share-Based Payment.”

The Company’s Incentive Plan provides for the issuance of options and other equity-based awards for the Company’s common stock. Shares issued upon exercise of equity-based awards are shares held in treasury that have been reserved for issuance under the plan. The Company’s Incentive Plan is administered by the Company’s board of directors, or a committee appointed by the Board, which determines recipients and types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Options generally have an exercise price equal to the fair market value of the Company’s common stock as of the grant date.

Non-Employee Directors Stock Option Plan

On January 24, 2006, Neuro-Hitech’s shareholders approved the Company’s 2006 Non-Employee Directors Stock Option Plan (the “Directors Plan”). Key features of this Plan include:

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.

F-15

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Directors Plan is administered by 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.

The fair value used in calculating the stock option expense has been estimated using Black-Scholes pricing model which takes into account as of the grant date, the exercise price, expected life of the option, contractual term, current price of the underlying stock, expected volatility, expected dividends on the stock and the risk-free interest rate based on expected term of the option. The risk-free rate is estimated based on U.S. Treasury security rates for the applicable terms.

The following is the average of the data used for the aforementioned assumptions:

Year Ended December 31,	Risk-Free Interest Rate			Expected Term		Expected Volatility		Expected Dividends
2008		3.20	%		5	121.0	%	None
2007		3.45	%		5	55.16	%	None

A summary of the stock option activity under the Company’s Non-Employee Directors Stock Option Plan during the year ended December 31, 2008 is presented below:

	Options Outstanding as of 12/31/2008						Options Exercisable
Exercise Price Range	Number of Shares Outstanding		Remaining Contractual Life		Weighted Average Exercise Price Per Share		As of 12/31/2008		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
$0 to $2.50 per share		350,000		1.00	$	2.50		350,000	$	2.50	$	0

	Number of Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at December 31, 2006		350,000		2.50	$	0
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at December 31, 2007		350,000		2.50	$	-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at December 31, 2008		350,000	$	2.50	$	0

Incentive Stock Plan

The Company’s 2006 Incentive Stock Plan was initially approved by the Company’s stockholders on January 24, 2006. Amendments to the 2006 Incentive Stock Plan (as amended, the “Incentive Plan”) were approved by the Company’s stockholders at a meeting of the Company’s stockholders on June 26, 2007. Key features of the Incentive Plan include:

F-16

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. 4,575,000 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.

On June 24, 2008, Kevin Esval and Philip J. Young, were each granted a stock appreciation right to purchase 365,000 shares of the Company’s common stock, at an exercise price of $.44 per share. The fair value of the stock appreciation rights was approximately $127,000 and was calculated using the Black-Scholes option pricing model.

On June 24, 2008, the Company granted 1,010,000 shares of the Company’s common stock to 3 members of the Board and 1 employee in consideration of services for the year. The fair value of the stock grants was approximately $422,000 and was calculated using the Black-Scholes option pricing model.

During 2008, compensation costs on vested awards totaled approximately $4,089,000, and are reflected in Share-Based Compensation caption of the Statement of Operations. Total compensation cost related to non-vested awards not yet recognized is approximately $1,127,000 and the weighted period of recognition is approximately 1.4 years.

In connection with the Q-RNA merger, the Company entered into a consulting agreement with Dr. Donald Weaver and issued 500,000 non-qualified stock options valued at their grant date fair value as of the date of the merger closing. The total fair value of these options approximated $1,309,000 and was recognized as Deferred Compensation in the Stockholders' Equity section of the Balance Sheet. During 2008, the Company parted ways with Dr. Weaver and recognized approximately $1,175,000 of expense for the amortization of Deferred Compensation.

	Options Outstanding as of 12/31/2008						Options Exercisable
Exercise Price Range	Number of Shares Under Option		Remaining Contractual Life		Weighted Average Exercise Price Per Share		As of 12/31/2007		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
$0 to $2.50 per share		585,000		8.06	$	1.21		280,833	$	2.05	$	0
$2.51 to $4.25 per share		51,940		8.95	$	4.05		35,967	$	4.12		-
$4.26 to $6.25 per share		325,104		6.02	$	5.97		289,680	$	5.96		-
		962,043						606,480				0

F-17

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	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	-
Granted	365,000	$	.44	-
Exercised	-		-	-
Expired	1,828,276		5.50	-
Outstanding at December 31, 2008	962,043	$	2.98	-

Non-Plan Grants

As part of the acquisition of MCR and AMBI, the Company granted the following options:

	Options Outstanding as of 12/31/2008					Options Exercisable
Exercise Price Range	Number of Option		Remaining Contractual Life	Weighted Average Exercise Price Per Share		As of 12/31/2008	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
$0 to $2.00 per share		4,000,000	9.50		2.00	1,583,333		2.00	0
		4,000,000			2.00	1,583,333		2.00

Warrants to Non-Employees

There were no warrants issued in 2008.

	Options Outstanding as of 12/31/2008						Options Exercisable
	Number of				Weighted Average				Weighted Average
	Shares Under		Remaining		Exercise Price		As of		Exercise Price
Exercise Price Range	Option		Contractual Life		Per Share		12/31/2007		Per Share
$0.00 to $2.50 per share		100,000		1.00	$	2.50		100,000	$	2.50
$2.51 to $5.00 per share		437,500		2.10	$	5.00		437,500	$	5.00
$5.01 to $7.00 per share		1,517,145		3.35	$	7.05		1,517,145	$	7.05
*$7.01 to $13.00 per share		600,356		7.92	$	13.00		600,356	$	13.00
*$13.01 to $18.00 per share		600,356		7.92	$	18.00		600,356	$	18.00
		3,255,357						3,255,357

	Year Ended December 31, 2007
			Weighted
	Number of		Average Exercise
	Warrants		Price Per Share
Beginning of year		3,255,357	$	9.75
Granted		0	$	0
Exercised		-		-
Expired		0	$	0
Outstanding at end of year		3,255,357	$	9.75

F-18

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

*On November 29, 2006, the Company completed an acquisition by merger of Q-RNA, Inc. a privately held New York-based biotechnology company. In connection with the acquisition, the Company issued (i) 1,800,000 shares of the Company’s common stock, (ii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $13 per share, and (iii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $18 per share.

[8] Related Party Transaction

In November 2008, pursuant to the terms of the Modification Agreement, the Company issued 1,500,000 shares of the Company’s Series A Preferred Stock and 1,397,463 shares of the Company’s Series B Preferred Stock to the Seller (i) to satisfy its obligations under the Convertible Note and the Subordinated Note aggregating approximately $6.1 million, including interest, and accounts payable aggregating approximately $1 million and (ii) to receive products from an affiliate of Seller valued at up to $1,257,717. Each share of the Series A and B Preferred Stock is convertible into 10 shares of the Company’s common stock. Additionally, the features of the Series A Preferred Stock include, among other things, a non-participating liquidation preference of $4,500,000. The fair value of the consideration issued to the Seller pursuant to the Modification Agreement amounted to approximately $2.8 million. The excess of the carrying value of the satisfied obligations and the right to receive future products from an affiliate of the Seller over the consideration issued to the Seller, which amounts to approximately $4.5 million will be recorded as a reduction of the intangible assets.

Since June 6, 2008, the Company has been a party to a Manufacturing and Distribution Agreement with TG United Pharmaceuticals, Inc. (“TG United”), a corporation wholly-owned by the Company’s CEO. Since the execution of that agreement, the Company has been completely dependent upon TG United as the sole supplier of the Company’s products.

The Company leases office and warehouse space at 16255 Aviation Loop Drive, Brooksville, FL 34604 from TG United. Each of those leases is subject to a month-to-month lease.

[9] Income Taxes

For 2008 and 2007, the Company had no current or deferred income tax provision. Deferred taxes are based upon differences between the financial statement and tax basis of assets and liabilities and available net operating loss carryforwards summarized as follows:

	December 31,
	2008			2007
Deferred Tax Asset - Non-Current:
Net Operating Loss Carryforwards	$	1,246,000		$	3,613,600
Valuation Allowance		(1,246,000	)		(3,613,600	)
	$	-		$	-

A full valuation allowance has been established due to the uncertainty about the realization of the deferred tax asset. The net change during 2008 and 2007 in the total valuation allowance was approximately ($2,367,000) and $1,138,000, respectively.

As of December 31, 2008, the Company’s cumulative net operating losses are subject to an annual limitation pursuant to IRC Section 382 whereby the maximum amount of taxable income in any give year that can be offset by net operating losses is approximately $155,700. Such amount can be utilized in tax years 2009 through 2028. The total of such carryforwards available is $3,114,000 at December 31, 2008.

The following table reconciles the Company’s expected tax rate to its effective income tax rate (actual):

F-19

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31,	2008			2007
Federal statutory tax rate		-35.0	%		-35.0	%
Changes to valuation allowance		12.0	%		12.9	%
Effective state tax rate, net of federal benefits		5.0	%		0.1	%
Permanent differences		18.0	%		22.0	%
Effective Income tax rate		0.00	%		0.00	%

[10] Supply Concentrations

On June 6, 2008, the Company entered into a Manufacturing and Distribution Agreement with TG United. Since the execution of that agreement, the Company has been completely dependent upon TG United as the sole supplier of the Company’s products.

[11] Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised 2007), "Business Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may have on our financial statements and believe it could have a significant impact if business combinations are consummated. However, the effect is indeterminable as of December 31, 2007.

In December 2007, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51." This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of SFAS 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are currently evaluating this new statement and anticipate that the statement will not have a significant impact on the reporting of our results of operations.

F-20

NEURO-HITECH, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS. No. 161 on its financial statements.

F-21

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized..

		NEURO-HITECH, INC. (Registrant)

Date: April 30, 2009
		/s/ David J. Barrett
		David J. Barrett Chief Financial Officer