**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**




**FORM
      10-KSB/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, 2007




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 Small Business Issuer as Specified in its Charter)**




Delaware
            
            20-4121393**(State
                or Other Jurisdiction of**
            
            **(I.R.S.
                Employer****Incorporation
                or Organization)**
            
            **Identification
                No.)**





One
      Penn Plaza, Suite 1503, New York, NY 10019


**(Address
      of Principal Executive Offices)**




(212)
      594-1215


**(Issuer’s
      Telephone Number, Including Area Code)**





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




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




Title
                  of each classCommon
                  Stock, $0.001 par value per
                  share


Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  o





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of Form 10-KSB or any amendment
      to this Form 10-KSB.  o





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


o Yes   þ No




State
      issuer’s revenues for its most recent fiscal year.   $458,870




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant as of **** March
      17, **** 2008
      based upon the closing price of the common stock as reported then on the NASDAQ
      Capital Market as of such date, was approximately $4,735,733.





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of March 17, 2008 is:





Common Stock
            
            
            14,004,853




**DOCUMENTS
      INCORPORATED BY REFERENCE**





None.





Transitional
      Small Business Disclosure Format (check
      one):         o
      Yes   þ No








**EXPLANATORY
        NOTE**
 
 We
        are
        filing this Amendment No. 1 to our Annual Report on Form 10-KSB as filed
        with
        the Securities and Exchange Commission on April 9, 2008, to include Items
        9, 10,
        11, 12 and 14, which we had originally intended to include in our Proxy
        Statement and the inadvertent omission of a total in the “Remeasurement of
        Non-Qualified Stock Options in accordance with Consulting Agreement” row in the
        consolidated statement of changes in stockholders [deficit] equity table.
        We
        intend to file our Proxy Statement next month. This Form 10-KSB/A does not
        reflect events occurring after the filing of the original Form 10-KSB, 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-KSB**





**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**




PagePART
                IItem
                1. Description of Business
            
            1Item
                2. Description of Property
            
            21Item
                3. Legal Proceedings
            
            21Item
                4. Submission of Matters to a Vote of Security Holders
            
            21PART
                IIItem
                5. Market for Common Equity, Related Stockholder Matters and Small
                Business Issuer Purchases of Equity Securities
            
            22Item
                6. Management’s Discussion and Analysis or Plan of
                Operations
            
            23Item
                7. Financial Statements
            
            27Item
                8. Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosures
            
            27Item
                8A(T). Controls and Procedures
            
            27Item
                8B. Other InformationPART
                IIIItem
                9. Directors, Executive Officers,
                Promoters, Control Persons and Corporate Governance; Compliance with
                Section 16(a) of the Exchange Act
            
            29Item
                10. Executive Compensation
            
            32Item
                11. Security Ownership of Certain Beneficial
                Owners and Management and Related Stockholder Matters
            
            40Item
                12. Certain Relationships and Related Transactions, and Director
                Independence
            
            42Item
                13. Exhibits
            
            43Item
                14. Principal Accountant Fees and
                Services
            
            47









**PART
      I**





**Item
              1.**
            **Description
                of Business**





**Description
      of the Company**





Neuro-Hitech,
      Inc. (the “Company” or “Neuro-Hitech”) is an early stage pharmaceutical company
      focused on developing innovative drugs for the treatment of degenerative
      neurological diseases. The Company’s most advanced product candidate, Huperzine
      A, recently completed a Phase II clinical trial in the U.S. which tested
      Huperzine A for efficacy and safety in the treatment of mild to moderate
      Alzheimer’s disease. Huperzine A is a cholinesterase inhibitor that the Company
      believes may be effective in the treatment of Alzheimer’s disease and Mild
      Cognitive Impairment (“MCI”), although, to date, its efforts have been focused
      upon Huperzine A’s effectiveness in Alzheimer’s disease. Through a collaboration
      with the Alzheimer’s Disease Cooperative Study (“ADCS”), the Company has
      completed two Phase I studies and a Phase II clinical trial. ADCS was formed
      in
      1991 as a cooperative agreement between the National Institute of Aging and
      the
      University of California San Diego, with the goal of advancing the research
      of
      drugs for treating patients with Alzheimer’s disease, the National Institutes of
      Health (“NIH”) and Georgetown University Medical Center
      (“Georgetown”).





The
      Phase
      II clinical trial compared the safety, tolerability and efficacy of either
      200
      or 400 micrograms of Huperzine A on cognitive function, activities of daily
      living and behavior. Results showed that there was no statistical difference
      in
      the mean change AD Assessment Scale-Cognitive (ADAS-Cog) scores, the primary
      endpoint, after 16 weeks treatment with Huperzine A 200 micrograms bid compared
      to placebo (p=0.81). However, data demonstrated that the higher dose tested,
      400
      micrograms bid, showed cognitive enhancement on the ADAS-Cog versus placebo.
      The
      maximum cognitive improvement was observed at week 11 of treatment (p=0.001).
      Over 16 weeks Huperzine A (400 micrograms bid) improved cognition compared
      to
      placebo (p=0.03) and there was a trend to cognitive improvement over placebo
      at
      week 16 (p=0.069). In this clinical trial, there was an unexpected improvement
      in cognition in the placebo group at week 16 versus baseline. On other secondary
      endpoints, including clinical global impression of change (ADCS-CGIC) and the
      Neuropsychiatric Inventory (NPI) there was no statistical difference between
      placebo and either 200 or 400 micrograms bid after four months treatment.
      However, there was a trend to improvement on activities of daily living
      (ADCS-ADL) with 400 micrograms bid (p=0.077). Huperzine A was safe and well
      tolerated. Overall the incidence of adverse events during the study was similar
      between both doses of Huperzine A and placebo. Following completion of the
      double-blind part of this clinical trial, subjects were invited to receive
      Huperzine A treatment in an open-label fashion for up to one year; 82% of
      subjects accepted this invitation.





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





In
      view
      of the results of the Phase II clinical trial, the Company is currently
      reviewing its options for moving forward with its business. Currently, the
      Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company will further
      evaluate these opportunities based upon the results of Numoda’s review and
      report, and the Company also expects that Numoda will assist the Company in
      interpreting and presenting the results of the Phase II clinical trial to
      potential partners, licensees and merger or acquisition candidates.





The
      Company has also studied the transdermal delivery of Huperzine A. The Company
      believes that Huperzine A can effectively be delivered transdermally because
      of
      its low dosage requirement and low molecular weight. The Company believes that
      a
      transdermal patch could be a better way to deliver Huperzine A
      because the patch may provide the drug for transdermal delivery for up to
      between three and five days while avoiding the gastrointestinal tract. Although
      the Company initially expected to begin Phase I clinical trials in the first
      quarter of 2008, the Company has elected to postpone any decision or
      expenditures related to such a trial until after Numoda has delivered its report
      and the Company has considered its options.




Worldwide
      research thus far suggests that, in addition to Alzheimer’s Disease, Huperzine A
      may be effective in treating other dementias and myasthenia gravis. Also,
      research suggests that it has potential neuroprotective properties that may
      render it useful as a protection against neurotoxins, and it has an anti-oxidant
      effect.





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





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





1




**History**





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. On January 24, 2006, the Company entered
      into
      an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among
      the Company, Marco Hi-Tech JV Ltd., a privately held New York corporation
      (“Marco”), and Marco Acquisition I, Inc., a newly formed wholly-owned Delaware
      subsidiary of the Company (“Acquisition Sub”). Upon closing of the transactions
      contemplated under the Merger Agreement (the “Merger”), Acquisition Sub was
      merged with and into Marco, and Marco became a wholly-owned subsidiary of the
      Company. The Merger was consummated on that date and in connection with that
      Merger, the Company changed its name to Neuro-Hitech Pharmaceuticals, Inc.
      The
      Company subsequently changed its name to Neuro-Hitech, Inc. on August 11,
      2006.





Pursuant
      to the Merger Agreement, at closing, shareholders of Marco received 0.5830332
      shares of the Company’s Common Stock for each issued and outstanding share of
      Marco’s common stock, par value $.01 per share. As a result, at closing of the
      Merger, the Company issued 6,164,006 shares of its Common Stock to the former
      stockholders of Marco, which represented approximately 80% of the Company’s
      outstanding Common Stock following the Merger, in exchange for 100% of the
      outstanding capital stock of Marco.




All
      references to the “Company” for periods prior to the closing of the Merger refer
      to Marco, and references to the “Company” for periods subsequent to the closing
      of the Merger refer to Neuro-Hitech and its subsidiaries.





Marco
      was
      incorporated in the State of New York on December 11, 1996. Through 2005, Marco
      was focused primarily on licensing proprietary Huperzine A technology from
      independent third-party developers and investigators, including the Mayo
      Foundation for Medical Education and Research in Rochester, Minnesota (the
“Mayo
      Foundation”), and conducting analytical work and clinical trials of Huperzine A,
      and until such time operated with no full-time employees and minimal internal
      resources. 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. In 2005, Marco determined to raise
      additional capital to pursue additional approvals and undertake necessary
      studies for the development and commercialization of Huperzine A, including
      securing rights to third-party transdermal patch technology.





Upon
      the
      Merger, the Company abandoned the line of business pursued by Northern Way
      Resources prior to the Merger.





On
      November 29, 2006, the Company completed an acquisition by merger of Q-RNA,
      Inc. (“Q-RNA”), a New York-based biotechnology company focused on diseases such
      as Alzheimer’s, epilepsy and Parkinson’s disease (the “Q-RNA Merger”), pursuant
      to the Agreement and Plan of Merger (the “Q-RNA Merger Agreement”) with QA
      Acquisition Corp., a Delaware corporation, QA Merger LLC, a Delaware limited
      liability company, Q-RNA and Dr. David Dantzker, as the “Representative” of the
      Q-RNA security holders.





The
      Merger consideration paid to the Q-RNA securityholders pursuant to the Q-RNA
      Merger Agreement consisted of an aggregate of: (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. The Company also assumed Q-RNA options outstanding which upon
      exercise will be exercisable for 199,286 shares of the Company’s common
      stock.





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.





**Description
      of the Business**





**Alzheimer’s
      disease**  **and
      MCI**




Alzheimer’s
      disease, the leading cause of dementia, is characterized by the progressive
      loss
      of memory, thinking (cognitive function) and the ability to perform the
      activities of daily living (global function). There is currently no cure.
      According to the Alzheimer’s Association and the American Health Assistance
      Foundation:




·
            Alzheimer’s
                disease currently affects approximately 5 million people in the U.S.,
                including as many as 13% of people age 65 and older and nearly 50%
                of
                those age 85 and older.




·
            Worldwide,
                Alzheimer’s disease affects 18 million people, and that number is
                expected to reach 34 million by
                2025.




2




·
            There
                are at least 350,000 new diagnoses of Alzheimer’s disease, and at least
                65,000 Alzheimer’s disease deaths, per year in the U.S.




·
            Following
                initial diagnosis, patients live 4 – 6 years on
                average, but may live up to 20 years with the disease.




·
            Total
                annual expenditures on Alzheimer’s disease in the U.S. exceed $100 billion
                annually, and the average lifetime cost per Alzheimer’s disease patient is
                $174,000.




The
      precise physical changes in the brain that produce Alzheimer’s disease are
      complex and not completely understood, but it is generally believed that the
      misfolding of two proteins, A-beta and Tau, are central to the process. The
      two
      best-validated early drug targets for Alzheimer’s disease are cholinesterase and
      the N-methyl-D-aspartate receptor (NMDA-receptor). There are only four
      commonly-used drugs that the FDA has approved for the treatment of the symptoms
      of Alzheimer’s disease. Although the precise mechanism of action of these four
      drugs is unknown, three of these drugs are believed to inhibit cholinesterase,
      and one is believed to inhibit the NMDA-receptor. These four drugs and their
      respective marketers, FDA approval dates and mechanisms of action are set forth
      in the following table.





**Drug
                (Trade Name/Generic)**
            
            **Marketed
                by**
            
            **FDA
                Approval Date**
            
            **Postulated
                Mechanism**Aricept®(donepezil)
            
            Pfizer
                Inc./Eisai Co., Ltd.
            
            November 25, 1996
            
            Cholinesterase
                inhibitionExelon®(rivastigmine)
            
            Novartis
                AG
            
            April 21, 2000
            
            Cholinesterase
                inhibitionRazadyne®(galantamine)
            
            Johnson
                & Johnson
            
            February 28, 2001
            
            Cholinesterase
                inhibitionNamenda®(memantine)
            
            Forest
                Laboratories, Inc.
            
            October 16, 2003
            
            NMDA-receptor
                inhibition




According
      to Merrill Lynch equity research, the worldwide market for Alzheimer’s disease
      drugs in 2005 was $3 billion, with the largest selling cholinesterase
      inhibitor, Aricept, generating $1.7 billion of those sales.




The
      market performance of the existing Alzheimer’s disease therapeutics is
      particularly noteworthy given that their clinical performance to date has been
      modest. Specifically, as stated in their FDA-approved labeling, none of the
      drugs approved by the FDA to treat Alzheimer’s disease has been proven to
      prevent or change the underlying process of brain deterioration
      (neurodegeneration) in patients with Alzheimer’s disease. Rather, these drugs
      have been shown only to slow the worsening of the symptoms of Alzheimer’s
      disease—primarily loss of cognitive and global function. Furthermore, in the
      studies submitted in support of applications for FDA approval of these drugs,
      none of these drugs was shown significantly to improve both cognitive and global
      function over a six-month period in the patients studied. Thus, the Company
      believes that there is room for improvement in this large and growing
      pharmaceutical market.





In
      addition to the market for Alzheimer’s disease, compounds such as Huperzine A
      may provide potential benefits to patients diagnosed with MCI by slowing down
      the advent of Alzheimer’s disease or other forms of dementia. According to the
      Mayo Clinic, MCI afflicts up to 20% of the non-demented population over 65.
        MCI is a relatively new classification of memory disorder that is
      characterized by noticeable memory loss, but otherwise normal behavior.
      According to the Mayo Clinic, MCI converts to Alzheimer’s disease at a rate of
      10 to 15% a year.





**Huperzine
      A**





The
      Company’s decision to begin clinical development of Huperzine for Alzheimer’s
      disease and to investigate potential clinical development of huperzine for
      other
      neurological indications was based in part on the following data:





Huperzine
      A is a compound that is used in China as a prescription drug for treating
      Alzheimer’s disease and other forms of dementia. Clinical trials conducted
      outside the U.S of Huperzine A have been successful, and one Chinese study
      using
      the same clinical end points as an FDA-approved study for a leading Alzheimer’s
      disease treatment show Huperzine A to be safe and effective. Both pre-clinical
      and human clinical studies conducted both in China and in the U.S. suggest
      that
      Huperzine A:




·
            may
                have significantly longer inhibitory action at lower doses than the
                other
                approved drugs for early and middle stage Alzheimer’s
                disease;





·
            may
                prove to reduce the unpleasant side effects resulting from use of
                other
                approved drugs for early and middle stage Alzheimer’s
                disease;





·
            may
                be effective not only in increasing the brain’s acetylcholine levels, but
                also levels of other important neurotransmitters such as dopamine
                and
                noradrenaline;




·
            may
                have high oral bioavailability and good penetration through the
                blood-brain barrier; and





·
            may
                exhibit neuroprotective properties, and may significantly decrease
                neuronal cell death due to glutamate-induced
                excitotoxicity.





3




Although
      not being pursued by the Company at this time, Chinese clinical studies have
      indicated that Huperzine A may also have potential in the treatment of
      myasthenia gravis, a progressive autoimmune disease resulting in neuromuscular
      failure, which, untreated can lead to blindness and death from respiratory
      failure. In a 1986 study by Y.S. Cheng et al., it was shown that Huperzine
      A
      controlled the clinical manifestations of the disease in 99% of the 128 patients
      treated. Additional research at the Walter Reed Institute of Research indicates
      that Huperzine A may also have application as a nerve gas antidote. Under the
      Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended
      to
      treat a rare disease or condition, which is generally a disease or condition
      that affects fewer than 200,000 individuals in the U.S. The Company believes
      that Huperzine can qualify for orphan drug designation for treating myasthenia
      gravis.





**Future
      Compounds**





The
      acquisition of Q-RNA provided the Company with a pipeline of compounds, many
      of
      which have been discovered and developed by Dr. Donald F. Weaver, an inventor
      and expert in neuroscience and chemistry. The Company believes these compounds
      provide it with an additional research and development pipeline. The following
      compounds are ready to move to optimization and pre-clinical development:





NHT0012
      is one of a number of second generation disease modifying drugs for Alzheimer’s
      disease that inhibit A-beta and Tau oligomerization. *In
      vitro* studies
      suggest that these compounds are likely to offer a better pharmacological
      profile than first generation drugs by having:




·
            Enhanced
                anti-aggregation activity·
            Better
                blood-brain barrier (BBB) penetration·
            Milder
                side effect profile





Currently
      marketed medications only help to control symptoms and do not slow or reverse
      the progression of the disease. NHT0012 belongs to an emerging class of
      compounds focused on reducing the progression of Alzheimer’s disease while also
      improving its debilitating symptoms. It is believed that NHT0012 will prevent
      the formation and break down existing neurotoxic amyloid beta aggregates,
      allowing amyloid peptides to clear from the brain rather than accumulate and
      form amyloid plaques, a hallmark pathology of Alzheimer’s disease.





NHT1107
      is one of a large pharmaceutical library of drugs designed for the treatment
      of
      epilepsy that offer both anti-ictogenic (ability to treat epilepsy) and
      anti-epileptogenic (ability to prevent epilepsy) properties. Many of these
      compounds have proven to be effective in animal model ( *in
      vivo* )
      systems
      conducted at the National Institutes of Health.





Existing
      medications for epilepsy only control symptoms (i.e. seizures) and do not slow
      the progression of the disorder.  NHT1107 is a prototypic agent in a
      pioneering class of new antiepileptogenic agents that actually prevent the
      onset
      of epilepsy after a brain injury.  It is believed that NHT1107 prevents
      excessive brain excitation that arises from abnormal   activities of
      glutamate and Gamma-Aminobutyric Acid within the injured brain and that
      culminate in causing epilepsy.





**Licenses
      and Patents**





**PARTEQ**





As
      part
      of the acquisition of Q-RNA, the Company assumed exclusive license agreements
      and an option to purchase an exclusive license with PARTEQ Research and
      Development Innovations (“PARTEQ”), the technology licensing arm of Queens
      University, Kingston, Ontario, Canada. The exclusive license agreement grants
      the Company exclusive worldwide licenses to all innovations and developments
      made under the Sponsored Research Agreement, as defined therein.





**PARTEQ
      - Alzheimer’s Research**





The
      Company holds an exclusive license for patent applications directed to compounds
      (including bi-aromatic and aromatic anionic (e.g., bi-indole and single indole
      compounds) and methods for treating protein folding disorders (including
      Alzheimer’s disease) from PARTEQ.




The
      exclusive license agreement grants the Company an exclusive worldwide license
      to
      all innovations and developments, including the patent applications and
      additional filings pursuant to the Exclusive Patent License Agreement with
      PARTEQ (the “PARTEQ Licensing Agreement”) for Alzheimer’s research. The Company
      paid a one-time license fee of C$25,000 when it entered into the PARTEQ
      Licensing Agreement in 2005 and will be required to make quarterly royalty
      payments of 3% of net sales of the licensed products, with a minimum annual
      royalty of C$10,000 for 2007, C$20,000 for 2008, C$30,000 for 2009 and C$40,000
      for 2010 and each subsequent calendar year. Until such time as the Company
      has a
      licensed product, the Company will not have to make quarterly payments. It
      does
      not anticipate having a licensed product in the near term. The Company is also
      obligated to make the following milestone payments: C$100,000 upon completion
      of
      a Phase I trial of a licensed product, C$250,000 upon completion of a Phase
      II
      trial of a licensed product, and C$1,000,000 upon the first FDA approval (as
      such term is defined in the PARTEQ Licensing Agreement). The Company also has
      the right to sub-license with the payment of 20% of all non-royalty sublicensing
      consideration.





4




Under
      the
      terms of the PARTEQ Licensing Agreement, which was amended in 2006, the Company
      is obligated to pay fixed annual fees of C$256,802 for the Alzheimer’s research.
      In October 2007, the Company renewed its licensing agreements with PARTEQ.
      The
      renewal extends the Company’s right to license any innovations and developments
      thereunder for an additional year. Under the terms of the renewal, the Company
      will be obligated to make additional payments of C$282,944, which payments
      are
      payable quarterly.





**PARTEQ
      - Epilepsy Research**





The
      Company holds an option to acquire an exclusive worldwide license to all
      innovations and developments for certain compounds (including pyrimidine,
      heterocyclic, beta-alanine, uracil, diuracil, beta amino acid analogs and
      related compounds) and patents/patent applications related thereto from PARTEQ
      for Epilepsy research, including the patent applications and additional filings,
      pursuant to the Exclusive Patent License Option Agreement with PARTEQ (the
      “PARTEQ Licensing Option Agreement”) for Epilepsy Research. The Company made a
      non-refundable, non-creditable option payment of C$10,000 when it entered into
      the PARTEQ Licensing Option Agreement in 2006. If the Company exercises its
      option, the Company will make a non-refundable, non-creditable license payment
      of C$17,500 at the time of such exercise. If the Company exercises its option,
      it will be required to make quarterly royalty payments of 3% of net sales of
      the
      licensed products, with a minimum annual royalty of C$10,000 through the second
      anniversary of the license, C$20,000 through the third anniversary of the
      license, C$30,000 through the fourth anniversary of the license and C$40,000
      through the fifth anniversary of the license and each subsequent anniversary.
      The Company does not anticipate having a licensed product in the near term
      and
      thus will not be required to make these quarterly payments. If the Company
      exercises its option, the Company is also obligated to make the following
      milestone payments: C$100,000 upon completion of a Phase I trial of a licensed
      product, C$250,000 upon completion of a Phase II trial of a licensed product,
      and C$1,000,000 upon the first FDA approval (as such term is defined therein).
      If the Company exercises its option, the Company also has the right to
      sub-license with the payment of 20% of all non-royalty sublicensing
      consideration. ****





Under
      the
      terms of the PARTEQ Licensing Option Agreement, the Company is required to
      pay
      fixed annual fees of C$150,800 for the epilepsy research.





For
      the
      year ended December 31, 2007, the payments made by the Company to PARTEQ under
      these agreements have been approximately $457,115 and are reflected in the
      Research and Development caption of the Statement of Operations. Following
      the
      results of the Phase II clinical trial of Huperzine A, the Company is evaluating
      its alternatives for the further pursuit of the development of the PARTEQ
      compounds.





**Strategy**





In
      view
      of the results of the Phase II clinical trial, the Company is currently
      reviewing its options for moving forward with its business. Currently, the
      Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company will further
      evaluate these opportunities based upon the results of Numoda’s review and
      report, and the Company also expects that Numoda will assist the Company in
      interpreting and presenting the results of the Phase II clinical trial to
      potential partners, licensees and merger or acquisition candidates.





**Huperzine
      A For**  **Alzheimer’s
      disease**  **(Oral)**





The
      Company’s primary focus has been completion of the Phase II clinical trial for
      Huperzine A in conjunction with Georgetown and the ADCS. Based upon the results
      of this trial, the Company believes that additional testing is necessary. The
      cost of this additional testing will be significant, and there are no assurances
      that the Company can obtain the funds necessary to pay this expense or that
      this
      testing will provide favorable results.





**Georgetown
      (Phase II Clinical Trial)**





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





For
      the
      year ended December 31, 2007, the payments made by the Company to Georgetown
      under the terms of the clinical research agreement were approximately $1,183,167
      and the total payments made by the Company to Georgetown since inception of
      the
      agreement were approximately $3,110,667.   These costs are reflected in the
      Research and Development caption of the Statement of Operations.





The
      Company expects to make additional payments in 2008 to Georgetown of $926,175
      related to an open label extension which is expected to be completed in the
      second half of 2008.





5




**Org
      Syn Laboratory (Synthetic Huperzine)**





On
      February 1, 2006, the Company entered into an exclusive development agreement
      (the “Development Agreement”) with Org Syn Laboratory, Inc. (“Org Syn”) for the
      development by Org Syn of synthetic Huperzine A. Under the terms of the
      Development Agreement, Org Syn received an aggregate of $175,894 upon the
      execution of the Development Agreement. For
      the
      year ended December 31, 2007, the payments made by the Company to Org Syn were
      approximately $11,375 and are reflected in the Research and Development caption
      of the Statement of Operations. Following the results of the Phase II clinical
      trial of Huperzine A, the Company is evaluating its alternatives for the further
      pursuit of the development of synthetic Huperzine A.





**Huperzine
      A For**  **Alzheimer’s
      disease**  **(Transdermal)**





The
      Company’s strategy has been to make Huperzine A available in both oral and
      transdermal form. The Company believes that Huperzine A can effectively be
      delivered transdermally because of its low dosage requirement and low molecular
      weight.





A
      marketing study funded by the Company has shown that patient compliance is
      a
      crucial factor in determining patient and doctor choice in choosing a medication
      for Alzheimer’s disease. Often it is the responsibility of a caregiver to remind
      the patient to take the orally given medications. Recognizing this, the Company
      hopes to develop and license a multi-day transdermal patch, which, if
      successfully realized, will be able to be applied to the patient for more than
      one day. The Company believes that some advantages of a transdermal delivery
      may
      include:




·
            avoidance
                of first-pass metabolism; better control of drug and metabolite plasma
                levels leading to improved therapy with reduced side
                effects;





·
            avoidance
                of non-compliance resulting, for example, from patients forgetting
                to take
                the medication; and





·
            improved
                quality of life for caregiver who only needs to replace the patch
                up to
                once per every three to five days.





**XEL
      Herbaceuticals, Inc. (Transdermal)**





On
      March
      15, 2006, the Company entered into a development agreement with Xel
      Herbaceuticals, Inc. (“XEL”) for the development of the Huperzine A Transdermal
      Delivery System (“Delivery Product”). Under the terms of the agreement, the
      Company paid XEL a $250,000 fee upon the execution of the agreement and paid
      XEL
      $92,500 per month during the development of the Delivery Product including
      the
      first six months of 2007. The Delivery Product was completed in July 2007.
      Between August 2007 and January 2008, the Company paid XEL an additional $92,500
      per month to fund the further development of the Product. Following the receipt
      of the results of the Phase II clinical trial of Huperzine A, the Company
      implemented certain cost reductions that have delayed expenditures relating
      to
      the study of the transdermal delivery system of Huperzine A.





The
      Company and XEL may seek domestic and foreign patent protection for the Delivery
      Product.





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





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





6




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





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





For
      the
      year ended December 31, 2007, the total payments made by the Company to XEL
      under this agreement were approximately $1,111,250 **** and
      are
      reflected in the Research and Development caption of the Statement of
      Operations.





**Commercialization
      of Huperzine A**





The
      Company believes that there is substantial support within the results that
      Huperzine A can become a safe and effective treatment for Alzheimer’s disease.
      The Company presently believes the estimated additional costs to bring Huperzine
      A to market as an oral dose drug after completing clinical trials will be
      substantial and no assurances as to future costs can be made or that the Company
      will be able to fund them.





Currently,
      the Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company anticipates that
      it would be necessary to obtain collaborative partners who would be primarily
      responsible for the sale and distribution of Huperzine A products after
      obtaining FDA approval for Huperzine A.





Although
      the Company’s primary focus continues to be the ultimate commercialization of
      Huperzine A, the Company believes that a scientific and clinical rationale
      exists for exploring the potential of both preclinical compounds discovered
      by
      Dr. Donald Weaver.





**NHT0012
      for**  **Alzheimer’s
      disease**





Protein
      misfolding and aggregation are critical steps in the pathogenesis of a number
      of
      neurodegenerative diseases. In many cases, self-assembly of two or more proteins is implicated in these diseases, including
      Alzheimer’ s disease, in which aggregation of amyloid-β (Aβ), tau and
α-synuclein may all contribute to neurotoxicity. Inhibiting aberrant folding
      and
      assembly of one or more of these
      species is thus of great therapeutic interest. A novel class of bi-aromatic
      compounds has been identified by researchers engaged by Neuro-Hitech that
      pot ently
      inhibit the aggregation of Aβ, tau and α-synuclein in Thioflavin T (ThT) and
      Thioflavin S (ThS) dye-binding fluorescence assays. The aggregation of both
      major physiological isoforms of Aβ, i.e. Aβ40 and Aβ42, was inhibited and
      compounds also caused disassembly of pre-formed aggregates. Further experiments
      confirmed the anti-amyloidogenic activity of the compounds against Aβ40;
      circular dichroism studies showed the compounds inhibited the random coil to
      β-sheet conversion, while Aβ40 binding was studied in 1H NMR experiments.
      Furthermore, compounds rescued SH-SY5Y neuroblastoma cells from Aβ40 toxicity
      in a cell viability model. Ongoing pharmacokinetic testing for the compounds
      has
      been positive, with evidence of blood-brain barrier permeability, half- lives
      of
      several hours and minimal to no toxicity at doses as high as 300
      mg/kg.




**NHT1107
      - Anti-ictogenci and anti-epileptogenic**





Current
      drugs for the treatment of epilepsy are little more than “symptomatic” agents,
      suppressing the symptoms of epilepsy, while failing to deal with the causative
      process underlying the susceptibility to seizures. The Neuro-Hitech approach
      to
      designing drugs to prevent epilepsy differentiates between “ictogenesis” and
“epileptogenesis”. No current anticonvulsant drug influences the natural history
      of epilepsy, thus there is a crucial need for prototype “preventative”
antiepileptogenic drugs. Since epileptogenesis arises from altered
      excitatory/inhibitory neurotransmitter activity, drug design exploiting such
      neurotransmitters represents a therapeutic approach to epileptogenesis.
      Neuro-Hitech’s approach focuses on b -alanine, an unexploited neuromodulator that affords multiple opportunities
      for
      drug design. b -alanine’s unique structure is intermediate between a - and g -amino
      acids and thus b -alanine
      can bind to glutamate, glycine and g -amino
      butyric acid neurotransmitter receptors in brain. b -Alanine
      analogs have “proGABAergic” and “antiglutamatergic” activities and thus
      represent powerful platforms for drug design. Neuro-Hitech’s lead compound in
      this therapeutic domain, NHT1107, prevents the onset of epilepsy in the
      spontaneous recurrent seizure rat model of epilepsy by 82%, compared to
      controls. NHT1107 is non-toxic in rodents at doses ranging from 100-300 mg/kg.
      NHT1107 is thus a structurally unique analogue of b -alanine
      with pioneering anti-epileptogenic activity. Preclinical development of this
      compound is currently underway in collaboration with the Antiepileptic Drug
      Development Program at NIH.





7




In
      addition to developing a pioneering anti-epileptogenic drug, Neuro-Hitech’s
      antiepilepsy program is also focusing on the design and development of improved
      anticonvulsant drugs with fewer side-effects. Other analogues of b -alanine
      are being optimized for their anti-ictogenic properties to permit the
      development of an efficacious anticonvulsant agent with reduced cognitive and
      memory-related side-effects.





**Manufacturing
      and Raw Materials**





The
      Company does not have, and does not intend to establish, manufacturing
      facilities to produce its product candidates in the near or mid-term. The
      Company plans to control capital expenditures by using contract manufacturers
      to
      produce product candidates. It is the Company’s belief that there are a
      sufficient number of high quality GLP (Good Laboratory Practice) and GMP (Good
      Manufacturing Practice) contract manufacturers available, and the Company has
      had discussions and in some instances established relationships to fulfill
      its
      production needs for research and clinical use.





The
      manufacturer of Neuro-Hitech’s product candidates or any future product, whether
      done by third-party contractors as planned or internally, will be subject to
      rigorous regulations, including the need to comply with the FDA’s current GMP
      standards. As part of obtaining FDA approval for each product, each of the
      manufacturing facilities must be inspected, approved by and registered with
      the
      FDA. In addition to obtaining FDA approval of the prospective manufacturer’s
      quality control and manufacturing procedures, domestic and foreign manufacturing
      facilities are subject to periodic inspection by the FDA and/or foreign
      regulatory authorities.





The
      Company currently obtains natural Huperzine from a limited number of suppliers
      in China. If the Company is unable to develop synthetic Huperzine, the Company
      may be wholly dependent upon its limited suppliers to provide the Company
      natural Huperzine. Although the Company believes it has a good working
      relationship with its suppliers, the Company is aware of the increased risk
      and
      challenges posed when relying on limited suppliers.





The
      Company attempts to manage these risks by active inventory management. A
      material shortage, contamination and/or recall could adversely affect the
      manufacturing of the Company’s products.




**Government
      Regulation**





The
      research and development, manufacture and marketing of pharmaceuticals are
      subject to regulation by U.S., Canadian and foreign governmental authorities
      and
      agencies. Such national agencies and other federal, state, provincial and local
      entities regulate the testing, manufacturing, safety and promotion of the
      Company’s products. Regulations applicable to the Company’s products may change
      as the currently limited number of approved controlled-release products
      increases and regulators acquire additional experience in this
      area.





**United
      States Regulation**





**New
      Drug Application**





The
      Company will be required by the FDA to comply with New Drug Application (“NDA”)
      procedures for its products prior to commencement of marketing by the Company
      or
      the Company’s licensees. New drug compounds and new formulations for existing
      drug compounds are subject to NDA procedures. These procedures include (a)
      preclinical laboratory and animal toxicology tests; (b) scaling and testing
      of
      production batches; (c) submission of an investigational new drug application
      (“IND”), and subsequent approval is required before any human clinical trials
      can commence; (d) adequate and well controlled replicate human clinical trials
      to establish the safety and efficacy of the drug for its intended indication;
      (e) the submission of an NDA to the FDA; and (f) FDA approval of an NDA prior
      to
      any commercial sale or shipment of the product, including pre-approval and
      post-approval inspections of its manufacturing and testing facilities. If all
      of
      these data in the product application is owned by the applicant, the FDA will
      issue its approval without regard to patent rights that might be infringed
      or
      exclusivity periods that would affect the FDA’s ability to grant an approval if
      the application relied upon data which the applicant did not own. The Company
      currently intends to generate all data necessary to support FDA approval of
      the
      applications the Company files.





Preclinical
      laboratory and animal toxicology tests may have to be performed to assess the
      safety and potential efficacy of the product. The results of these preclinical
      tests, together with information regarding the methods of manufacture of the
      products and quality control testing, are then submitted to the FDA as part
      of
      an IND requesting authorization to initiate human clinical trials. Once the
      IND
      notice period has expired, clinical trials may be initiated, unless a hold
      on
      clinical trials has been issued by the FDA.





Clinical
      trials involve the administration of a pharmaceutical product to individuals
      under the supervision of qualified medical investigators that are experienced
      in
      conducting studies under “Good Clinical Practice” guidelines. Clinical studies
      are conducted in accordance with protocols that detail the objectives of a
      study, the parameters to be used to monitor safety and the efficacy criteria
      to
      be evaluated. Each protocol is submitted to the FDA and to an Institutional
      Review Board prior to the commencement of each clinical trial. Clinical studies
      are typically conducted in three sequential phases, which may overlap. In Phase
      I, the initial introduction of the product into human subjects, the compound
      is
      tested for absorption, safety, dosage, tolerance, metabolic interaction,
      distribution, and excretion. Phase II involves studies in a limited patient
      population with the disease to be treated to (1) determine the efficacy of
      the
      product for specific targeted indications, (2) determine optimal dosage and
      (3)
      identify possible adverse effects and safety risks. In the event Phase II
      evaluations demonstrate that a pharmaceutical product is effective and has
      an
      acceptable safety profile, Phase III clinical trials are undertaken to further
      evaluate clinical efficacy of the product and to further test its safety within
      an expanded patient population at geographically dispersed clinical study sites.
      Periodic reports on the clinical investigations are required.





8




The
      Company, or the FDA, may suspend clinical trials at any time if it is believed
      that clinical subjects may be exposed to unacceptable health risks. The results
      of the product development, analytical laboratory studies and clinical studies
      are submitted to the FDA as part of an NDA for approval of the marketing and
      commercialization of a pharmaceutical product.





In
      certain companies where the objective is to develop a generic version of an
      approved product already on the market in controlled-release dosages, an
      Abbreviated New Drug Application (“ANDA”) may be filed in lieu of filing an NDA.
      Under the ANDA procedure, the FDA waives the requirement to submit complete
      reports of preclinical and clinical studies of safety and efficacy and instead
      requires the submission of bio-equivalency data, that is, demonstration that
      the
      generic drug produces the same effect in the body as its brand-name counterpart
      and has the same pharmacokinetic profile, or change in blood concentration
      over
      time. The advantages of an ANDA over an NDA include reduced research and
      development costs associated with bringing a product to market, and generally
      a
      shorter review and approval time at the FDA. This procedure is not available
      to
      the Company’s planned products but might be available to the Company’s
      competitors if the Company receives FDA approval for one or more of its
      products.




**Exclusivity
      Issues**





Under
      U.S. law, the expiration of a patent on a drug compound does not create a right
      to make, use or sell that compound. There may be additional patents relating
      to
      a person’s proposed manufacture, use or sale of a product that could potentially
      prohibit such person’s proposed commercialization of a drug
      compound.





The
      Food
      Drug and Cosmetic Act (“FDC”) contains non-patent market exclusivity provisions
      that offer protection to pioneer drug products and are independent of any patent
      coverage that might also apply. Five years of exclusivity are granted to the
      first approval of a “new chemical entity.” Three years of exclusivity may apply
      to products which are not new chemical entities, but for which new clinical
      investigations are essential to the approval. For example, a new indication
      for
      use, or a new dosage strength of a previously approved product, may be entitled
      to exclusivity, but only with respect to that indication or dosage strength.
      Exclusivity only offers protection against a competitor entering the market
      via
      the ANDA route, and does not operate against a competitor that generates all
      of
      its own data and submits a full NDA.





If
      applicable regulatory criteria are not satisfied, the FDA may deny approval
      of
      an NDA or an ANDA or may require additional testing. Product approvals may
      be
      withdrawn if compliance with regulatory standards is not maintained or if
      problems occur after the product reaches the market. The FDA may require further
      testing and surveillance programs to monitor the pharmaceutical product that
      has
      been commercialized. Noncompliance with applicable requirements can result
      in
      additional penalties, including product seizures, injunction actions and
      criminal prosecutions.





**Additional
      Regulatory Considerations**





Sales
      of
      the Company’s products by licensees outside the U.S. and Canada are subject to
      regulatory requirements governing the testing, registration and marketing of
      pharmaceuticals, which vary widely from country to country.





In
      addition to the regulatory approval process, pharmaceutical companies are
      subject to regulations under provincial, state and federal law, including
      requirements regarding occupational safety, laboratory practices, environmental
      protection and hazardous substance control, and may be subject to other present
      and future local, provincial, state, federal and foreign regulations, including
      possible future regulations of the pharmaceutical industry. The Company believes
      that it is in compliance in all material respects with such regulations as
      are
      currently in effect.





**Competition**





The
      Company intends to develop and market (through collaborative, joint and
      strategic alliances or licensing arrangements with one or more pharmaceutical
      companies) proprietary pharmaceutical products based on Huperzine A and NHT0012.
      The Company’s competition consists of those companies which develop drugs to
      treat Alzheimer’s disease, MCI and other forms of dementia, and companies that
      develop Alzheimer’s disease and MCI drugs and drug delivery systems for theses
      drugs.





Additionally,
      the Company may seek to develop and market (through collaborative, joint and
      strategic alliances or licensing arrangements with one or more pharmaceutical
      companies) proprietary pharmaceutical products based on NHT1107. Currently,
      there are 12 drugs on the market for the symptomatic treatment of epilepsy.
       All of the drugs currently on the market are anti-seizure drugs that must
      be taken after epilepsy has developed. These anti-seizure drugs suppress the
      occurrence of seizures in an individual with established epilepsy. The Company
      seeks to develop anti-epileptogenic agent that may prevent the onset of epilepsy
      after a brain injury. Currently, there are no anti-epileptogenic drugs on the
      market.





9




An
      increasing number of pharmaceutical companies are interested in the development
      and commercialization of products that treat these diseases. The Company also
      expects that competition in the field of drug delivery will significantly
      increase in the future since smaller specialized research and development
      companies are beginning to concentrate on this aspect of the business. For
      each
      area, some of the major pharmaceutical companies have invested and are
      continuing to invest significant resources in the development of these products,
      and some have invested funds in specialized drug delivery
      companies.





Other
      companies may develop new drug formulations and products for Alzheimer’s
      disease, Epilepsy or MCI, or may improve existing drug formulations and products
      more efficiently than the Company can. In addition, almost all of the Company’s
      competitors have vastly greater resources than the Company does. While the
      Company’s product development capabilities and exclusive patent licenses may
      help it maintain a market position in the field of drug delivery, there can
      be
      no assurance that others will not be able to develop these capabilities, or
      alternative technologies outside the scope of the Company’s patents, if any, or
      that even if patent protection is obtained, these patents will not be
      successfully challenged in the future.




**Scientific
      and Clinical Advisory Board**





The
      Company maintains a Scientific and Clinical Advisory Board comprised of
      scientists and physicians with experience relevant to the Company and its
      product candidates. Members of the Company’s Scientific and Clinical Advisory
      Board have agreed to consult and advise the Company in their respective areas
      of
      expertise. The Company has placed special emphasis on identifying members of
      its
      Scientific and Clinical Advisory Board with expertise in the treatment of the
      clinical indications targeted by the Company’s programs. The Company’s
      Scientific and Clinical Advisory Board consists of the following
      members:




**Paul
      Aisen, M.D.** Dr.
      Aisen
      is a professor in the Department of Neurosciences at the University of
      California, San Diego, and the National Institute of Aging-appointed director
      of
      the ADCS. Dr. Aisen was one of the first to conduct an Alzheimer’s disease
      clinical trial in the U.S. and was an investigator in the pivotal FDA
      registration studies for Namenda®. Dr. Aisen received his M.D. from Columbia
      University, College of Physicians and Surgeons.




**Robert
      M. Moriarty, M.D.**  **** Dr.
      Robert M. Moriarty is a consultant of Org Syn Laboratory, Inc. Dr. Moriarty
      received his Ph.D. degree from Princeton University. After completing
      postdoctoral work at University of Munich and Harvard University, he worked
      as a
      research chemist at Merck from 1955-57. He founded Steroids Limited in 1981,
      which became SynQuest Limited and was acquired by United Therapeutics in 2000.
      Dr. Moriarty has authored over 200 articles on various topics in synthetic
      and
      mechanistic organic synthesis. Dr. Moriarty is a recipient of several
      prestigious awards and grants.




**Dr.
      Dinesh Patel, M.D.** Dr.
      Patel is the Chairman of the Board and Co-founder of Xel Herbaceuticals Inc.
      Dr.
      Patel has served fifteen years as Co-founder, Chairman of the Board of
      Directors, President & CEO, of TheraTech, Inc., a Salt Lake City based
      company that has been a pioneer in the development and manufacture of innovative
      drug delivery products. Under Dr. Patel’s guidance, TheraTech established
      strategic alliances with major pharmaceutical companies, including Eli Lilly,
      Pfizer, Procter & Gamble, Roche, SmithKline Beecham, and Wyeth-Ayerst. Dr.
      Patel directed the construction of a state-of-the-art manufacturing facility
      and
      oversaw the company’s R&D efforts through the manufacture of its currently
      marketed transdermal products (transdermal testosterone and estrogen
      hormone-replacement therapy patches). Dr. Patel has been the recipient of
      numerous awards.




**Donald
      F. Weaver, M.D.** Dr.
      Weaver is currently Canada Research Chair in Neuroscience/Chemistry, Professor
      of the Department of Medicine (Neurology), Professor of the Department of
      Chemistry and Professor of the School of Biomedical Engineering at Dalhousie
      University in Halifax, Nova Scotia, Canada. With experience that spans academic
      and commercial interests, he has published hundreds of articles, is a prolific
      inventor with over 70 patents to his name and is the recipient of many awards
      and honors. Dr. Weaver co-founded three biotechnology companies, including
      Neurochem, Inc., and is a fellow of the Canadian Institute of Chemistry (FCIC),
      a fellow of the Royal College of Physicians and Surgeons of Canada (FRCIP)
      and a
      board-certified neurologist.




**Employees**





As
      of
      March 17, 2008, the Company had two full-time employees and two employees that
      work on a part-time basis.




**Corporate
      Information**





The
      Company’s corporate headquarters are located at One Penn Plaza, New York, NY
      10019. The Company’s telephone number is (212) 594-1215, and its fax number is
      (212) 798-8183.





**Executive
      Officers and Significant Employees of the Registrant**





The
      following sets forth certain information with regard to the executive officers
      and certain significant employees of the Company as of March 31, 2008 (ages
      are
      as of December 31, 2007):




10




**Name**
            
            **Age**
            
            **Position**Gary
                T. Shearman
            
            54
            
            President,
                Chief Executive Officer and DirectorDavid
                Barrett
            
            32
            
            Chief
                Financial OfficerL.
                William McIntosh
            
            62
            
            Chief
                Operating OfficerWilliam
                Wong
            
            60
            
            Chief
                Scientific Officer





**Dr.
      Gary T. Shearman** has
      been
      serving as Chief Executive Officer and Director of the Company since August
      2007. Immediately prior to joining the Company, Dr. Shearman was serving as
      a
      consultant. Immediately prior to that, between September 2001 and April 2007,
      Dr. Shearman had been serving as Chairman and Managing Director of HBM Advisors
      USA, LLC, a provider of advisory services for HBM Partners (Cayman) Ltd., the
      investment manager for all HBM investment vehicles including HBM BioVentures
      and
      HBM BioCapital, holding companies in the human medicine, biotechnology and
      medical technology industries. Between May 1992 and January 2000, Dr. Shearman
      was employed by Rhône-Poulenc Rorer where he served in a variety of positions,
      most recently as Deputy Head of Global Research and Drug Development and Senior
      Vice President, Global Development. Prior to that, Dr. Shearman held positions
      with Merck & Co., Inc. and Sandoz Ltd.





**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.





**L.
      William McIntosh** has been
      serving as Chief Operating Officer since November 2006. Mr. McIntosh also served
      as a director of the Company between November 2006 and August 2007. Prior to
      joining the Company, Mr. McIntosh spent 30 years within the pharmaceutical
      and
      biotechnology industries in a variety capacities including marketing, sales,
      business development, product development and general management. Immediately
      prior to joining the Company, he served as a director and Chief Executive
      Officer of Q-RNA between August 2004 and the closing of the Merger. Prior to
      that, Mr. McIntosh served as Principal and Managing Director of Novatures
      Consulting Group between June 2003 and July 2004. Between August 2001 and May
      2003, Mr. McIntosh served as President and CBO of FASgen, Inc. Mr. McIntosh
      has
      also served in senior positions at Merck & Co., Inc., Medco Containment
      Services, Boehringer Mannheim Pharmaceuticals Corporation, Zynaxis, Inc.,
      Smith-Kline Beecham Pharmaceuticals, VIMRx Pharmaceuticals, Inc. and Nexell
      Therapeutics, Inc. Mr. McIntosh received both his B.S. and M.B.A. from Lehigh
      University in Pennsylvania.





**William
      Wong** has been
      serving as Chief Scientific Officer since November 2006. Immediately prior
      to
      joining the Company, Dr. Wong worked in a variety of management capacities
      at
      pharmaceutical development, biotechnology and medical device companies during
      his twenty-five year career, most recently at Q-RNA, where he served as Vice
      President of Product Development, between August 2002 and November 2006. Prior
      to that, he served as Principal at Novatures Consulting Group. He has served
      on
      the senior management teams at Lynx Therapeutics, IntraCel Corporation, E.I.
      DuPont Co. and Becton-Dickinson Corp. Dr. Wong received his Ph.D. from the
      University of Rochester School of Medicine in the Department of Microbiology
      and
      Immunology.





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-KSB, 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.





11




**Risks
      Related to the Company and the Company’s Business**





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





As
      of
      March 30, 2008 the Company had approximately $4.3 million available in cash
      and
      cash equivalents. The Company expects to 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 will 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.





Following
      receipt of the results of its Phase II clinical trial of Huperzine A, the
      Company implemented cost reductions. Presently, the Company expects that its
      available cash, cash equivalents and interest income earned are sufficient
      to
      meet its operating expenses and capital requirements for a period of at least
      twelve months, however, if the Company fails to raise additional capital it
      may
      not have sufficient cash to meet future operating expenses and capital
      requirements beyond twelve months. 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.





***The
      failure to complete development of Huperzine A, obtain government approvals,
      including required FDA approvals, or to comply with ongoing governmental
      regulations, could delay or limit introduction of proposed products and result
      in failure to achieve revenues or maintain the Company’s ongoing
      business.***





The
      Company’s research and development activities, and the manufacture and marketing
      of its intended products, are subject to extensive regulation for safety,
      efficacy and quality by numerous government authorities in the U.S. and abroad.
      Before receiving FDA clearance to market the Company’s proposed products, the
      Company will have to demonstrate that its products are safe and effective on
      the
      patient population and for the diseases that are to be treated. Clinical trials,
      manufacturing and marketing of drugs are subject to the rigorous testing and
      approval process of the FDA and equivalent foreign regulatory authorities.
      The
      FDA and other federal, state and foreign statutes and regulations govern and
      influence the testing, manufacture, labeling, advertising, distribution and
      promotion of drugs and medical devices. As a result, clinical trials and
      regulatory approval can take a number of years or longer to accomplish and
      require the expenditure of substantial financial, managerial and other
      resources.





In
      order
      to be commercially viable, the Company must successfully research, develop,
      obtain regulatory approval for, manufacture, introduce, market and distribute
      its technologies. For each drug the Company must successfully meet a number
      of
      critical developmental milestones, including:




·
            demonstrate
                benefit from each specific drug
                technology,




·
            demonstrate
                through pre-clinical and clinical trials that the drug and patient
                specific therapy is safe and effective,
                and





·
            demonstrate
                that its drug offers a material benefit to patients, especially in
                cases
                where the patent exclusivity on some of its competitors drugs, like
                Pfizer’s Aricept®, is expiring.·
            establish
                a viable Good Manufacturing Process capable of potential scale
                up.




The
      time
      frame necessary to achieve these developmental milestones may be long and
      uncertain, and the Company may not successfully complete these milestones for
      any of its intended products in development.





Although
      the Company completed the Phase II clinical trial of Huperzine A, Huperzine
      A is
      subject to additional developmental risks which include the
      following:




·
            the
                uncertainties arising from the interpretation of the Phase II
                results;·
            the
                uncertainties arising from the rapidly growing scientific aspects
                of drug
                therapies and potential treatments;





·
            uncertainties
                arising as a result of the broad array of potential treatments related
                to
                neurological disease; and





·
            anticipated
                expense and time believed to be associated with the development and
                regulatory approval of treatments for neurological
                disease.




12




In
      order
      to conduct clinical trials that are necessary to obtain approval by the FDA
      to
      market a product, it is necessary to receive clearance from the FDA to conduct
      such clinical trials. The FDA can halt clinical trials at any time for safety
      reasons or because the Company or its clinical investigators do not follow
      the
      FDA’s requirements for conducting clinical trials. If the Company is unable to
      receive clearance to conduct clinical trials or the trials are halted by the
      FDA, the Company would not be able to achieve any revenue from such product,
      as
      it is illegal to sell any drug or medical device for human consumption without
      FDA approval.





***Data
      obtained from clinical trials is susceptible to varying interpretations, which
      could delay, limit or prevent regulatory clearances.***





Data
      already obtained, or in the future obtained, from pre-clinical studies and
      clinical trials do not necessarily predict the results that will be obtained
      from later pre-clinical studies and clinical trials. Moreover, pre-clinical
      and
      clinical data is susceptible to varying interpretations, which could delay,
      limit or prevent regulatory approval. The Company is also not able to assure
      that the results of the tests already conducted will be consistent with prior
      observations or support the Company’s applications for regulatory approval. A
      number of companies in the pharmaceutical industry have suffered significant
      setbacks in advanced clinical trials, even after promising results in earlier
      trials. The failure to adequately demonstrate the safety and effectiveness
      of an
      intended product under development could delay or prevent regulatory clearance
      of a potential drug, resulting in delays to commercialization, and could
      materially harm the Company’s business. The Company’s clinical trials may not
      demonstrate sufficient levels of safety and efficacy necessary to obtain the
      requisite regulatory approvals for the Company’s drugs, and thus its proposed
      drugs may not be approved for marketing. Even after approval, further studies
      could result in withdrawal of FDA and other regulatory approvals and voluntary
      or involuntary withdrawal of products from the market.





The
      Company may encounter delays or rejections based upon additional government
      regulation from future legislation or administrative action or changes in FDA
      policy during the period of development, clinical trials and FDA regulatory
      review. The Company may encounter similar delays in foreign countries. Sales
      of
      the Company’s products outside the U.S. would be subject to foreign regulatory
      approvals that vary from country to country. The time required to obtain
      approvals from foreign countries may be shorter or longer than that required
      for
      FDA approval, and requirements for foreign licensing may differ from FDA
      requirements. The Company may be unable to obtain requisite approvals from
      the
      FDA and foreign regulatory authorities, and even if obtained, such approvals
      may
      not be on a timely basis, or they may not cover the uses that the Company
      requests.





***The
      Company’s product development efforts may not result in commercial
      products.***





Successful
      product development in the biotechnology industry is highly uncertain, and
      very
      few research and development projects produce a commercial product. Products
      that appear promising in the early phases of development, such as in early
      human
      clinical trials, may fail to reach the market for a number of reasons, such
      as:





·
            the
                product did not demonstrate acceptable clinical trial results even
                though
                it demonstrated positive preclinical trial
                results;





·
            the
                product was not effective in treating a specified condition or
                illness;





·
            the
                product had harmful side effects on
                humans;





·
            the
                necessary regulatory bodies, such as the FDA, did not approve the
                Company’s product for an intended
                use;





·
            the
                product was not economical for the Company to
                commercialize;





·
            other
                companies or people have or may have proprietary rights over the
                Company’s
                product, such as patent rights, and will not let the Company sell
                it on
                reasonable terms, or at all; or





·
            the
                product is not cost effective in light of existing
                therapeutics.





As
      a
      result, there can be no assurance that any of the Company’s products currently
      in development will ever be successfully commercialized.




***The
      Company will require significant additional funding and may have difficulty
      raising needed capital in the future because of its limited operating history
      and business risks associated with the Company’s drug
      technology.***





The
      Company’s business currently does not generate significant revenue from the
      Company’s proposed products and its limited revenue may not be sufficient to
      meet its future capital requirements. The Company does not know when, or if,
      this will change. The Company has expended and will continue to expend
      substantial funds in the research, development and clinical and pre-clinical
      testing of its drug technology. The Company will require additional funds to
      conduct research and development, establish and conduct clinical and
      pre-clinical trials, establish commercial scale manufacturing arrangements,
      provide for the marketing and distribution of its products and/or support its
      obligations under collaborative, joint and strategic alliances or licensing
      arrangements. Additional funds may not be available on acceptable terms, if
      at
      all. The Company has already implemented cost reductions following receipt
      of
      the results of its Phase II clinical trial of Huperzine A and delayed any
      expenditures relating to the study of the transdermal delivery system of
      Huperzine A. If adequate funds are unavailable from any available source, the
      Company may have to further delay, reduce the scope of or eliminate one or
      more
      of its research or development programs or product launches or marketing efforts
      which may materially harm the Company’s business, financial condition and
      results of operations.





13




The
      Company’s long term capital requirements are expected to depend on many factors,
      including:




·
            the
                number of potential products and technologies in
                development;





·
            continued
                progress and cost of the Company’s research and development
                programs;





·
            progress
                with pre-clinical studies and clinical
                trials;





·
            the
                time and costs involved in obtaining regulatory
                clearance;





·
            costs
                involved in preparing, filing, prosecuting, maintaining and enforcing
                patent claims;





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





·
            costs
                involved in establishing manufacturing capabilities for clinical
                trial and
                commercial quantities of the Company’s
                drugs;





·
            competing
                technological and market
                developments;





·
            market
                acceptance or the Company’s
                products;





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





·
            costs
                for training physicians.





The
      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 exercising of warrants, equity 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 with regard
      to its drug technology, compounds and drugs.





***If
      the Company fails to negotiate or maintain successful collaborative arrangements
      with third parties, the Company’s development and commercialization activities
      may be delayed or reduced.***





In
      the
      past, the Company has entered into, and expects to enter into in the future,
      collaborative arrangements with third parties, such as universities,
      governmental agencies, charitable foundations, manufacturers, contract research
      organizations and corporate partners, who provide the Company with funding
      and/or who perform research, development, regulatory compliance, manufacturing
      or commercialization activities relating to some or all of the Company’s product
      candidates. If the Company fails to secure or maintain successful collaborative
      arrangements, its development and commercialization activities may be delayed
      or
      reduced.  Under
      certain circumstances, partners, universities and other collaborators, may
      acquire certain rights in newly developed intellectual property developed in
      conjunction with the Company.




These
      collaborative agreements can be terminated under certain conditions by the
      Company’s partners. The Company’s partners may also under some circumstances
      independently pursue competing products, delivery approaches or technologies.
      Even if the Company’s partners continue their contributions to the Company’s
      collaborative arrangements, they may nevertheless determine not to actively
      pursue the development or commercialization of any resulting products. Also,
      the
      Company’s partners may fail to perform their obligations under the collaborative
      arrangements or may be slow in performing their obligations. In addition, the
      Company’s partners may experience financial difficulties at any time that could
      prevent them from having available funds to contribute to these collaborations.
      In these circumstances, the Company’s ability to develop and market potential
      products could be severely limited.





14




***Because
      the Company has accumulated deficits in the research and development of
      Huperzine A since inception, there is no guarantee that the Company will ever
      become profitable even if one or more of the Company’s drugs are approved for
      commercialization.***





Since
      inception the Company has recorded operating losses. As of December 31, 2007,
      the Company had a stockholders’ equity of approximately $5,263,649 and an
      accumulated deficit of approximately $(32,830,653). In addition, the Company
      expects to incur increasing operating losses over the next several years as
      the
      Company continues to incur increasing costs for research and development and
      clinical trials, compliance with governmental regulations and in other
      development activities. The Company’s ability to generate revenue and achieve
      profitability depends upon its ability, alone or with others, to complete the
      development of its proposed products, obtain the required regulatory approvals
      and manufacture, market and sell its proposed products. Development is costly
      and requires significant investment. In addition, the Company may choose to
      license rights to particular drugs. The license fees for such drugs may increase
      the Company’s costs.





The
      Company has not generated any revenue from the commercial sale of its proposed
      products in development or any drugs and does not expect to receive such revenue
      in the near future. The Company’s primary activity to date has been research and
      development. Revenues to date have been primarily from sales of
      inventory of imported Huperzine, which may be continued by the Company. The
      Company may however, elect to reduce or eliminate entirely these sales
      efforts as the Company refocuses its efforts on drug development and
      approval.





The
      Company cannot be certain as to when or whether to anticipate commercializing
      and marketing its proposed products in development, and do not expect to
      generate sufficient revenues from proposed product sales to cover its expenses
      or achieve profitability in the near future.





***Acceptance
      of the Company’s products in the marketplace is uncertain and failure to achieve
      market acceptance will prevent or delay its ability to generate
      revenues.***





The
      Company’s future financial performance will depend, at least in part, upon the
      introduction and acceptance of the Company’s proposed Huperzine A products by
      physicians, patients, payors and the broader medical community. Even if approved
      for marketing by the necessary regulatory authorities, the Company’s products
      may not achieve market acceptance. The degree of market acceptance will depend
      upon a number of factors, including:




·
            the
                receipt of regulatory clearance of marketing claims for the uses
                that the
                Company is developing;





·
            the
                establishment and demonstration of the advantages, safety and efficacy
                of
                Huperzine A;





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





·
            the
                Company’s ability to attract corporate partners, including pharmaceutical
                companies, to assist in commercializing the Company’s intended products;
                and





·
            the
                Company’s ability to market its
                products.




***The
      Company may face costly and time consuming litigation from third parties which
      claim that the Company’s products infringe on their intellectual property
      rights, particularly because there is substantial uncertainty about the validity
      and breadth of medical patents.***





There
      is
      significant litigation in the biotechnology field regarding patents and other
      intellectual property rights. Biotechnology companies of roughly the Company’s
      size and financial position have gone out of business after fighting and losing
      an infringement battle. The Company may be exposed to future litigation by
      third
      parties based on claims that the Company’s technologies, products or activities
      infringe the intellectual property rights of others or that the Company has
      misappropriated the trade secrets of others. This risk is exacerbated by the
      fact that the validity and breadth of claims covered in medical technology
      patents and the breadth and scope of trade secret protection involve complex
      legal and factual questions for which important legal principles are unresolved.
      In particular, there are many patents relating to specific genes, nucleic acids,
      polypeptides or the uses thereof to treat Alzheimer’s disease and other central
      nervous system diseases. Some of these may encompass genes or polypeptides
      that
      the Company utilizes in its drug development activities. Any litigation or
      claims against the Company, whether or not valid, could result in substantial
      costs, could place a significant strain on the Company’s financial and
      managerial resources and could harm the Company’s reputation. Most of the
      Company’s license agreements would likely require that the Company pay the costs
      associated with defending this type of litigation. In addition, intellectual
      property litigation or claims could force the Company to do one or more of
      the
      following:




·
            cease
                selling, incorporating or using any of the Company’s Huperzine A products
                and/or products that incorporate the challenged intellectual property,
                which would adversely affect the Company’s future
                revenue;




15




·
            pay
                significant damages and the patentee could prevent the Company from
                using
                the patented genes or polypeptides for the identification or development
                of drug compounds;





·
            Obtain
                a license from the holder of the infringed intellectual property
                right,
                which license may be costly or may not be available on reasonable
                terms,
                if at all; or





·
            redesign
                the Company’s products, which would be costly and time
                consuming.




As
      of
      March 17, 2008, the Company has not engaged in discussions, received any
      communications, nor does the Company have any reason to believe that any third
      party is challenging or has the proper legal authority to challenge the
      Company’s intellectual property rights or those of the actual patent holders, or
      the Company’s licenses.




***If
      the Company is unable to adequately protect or enforce its rights to
      intellectual property or secure rights to third party patents, the Company
      may
      lose valuable rights, experience reduced market share, assuming any, or incur
      costly litigation to protect such rights.***





The
      Company’s ability to obtain licenses to patents, apply for new patents on a
      Huperzine A product, maintain trade secret protection and operate without
      infringing the proprietary rights of others will be important to its
      commercializing any products under development. Therefore, any disruption in
      access to the technology could substantially delay the development of Huperzine
      A or other products.





The
      patent positions of biotechnology and pharmaceutical companies, including ours,
      which also involve licensing agreements, are frequently uncertain and involve
      complex legal and factual questions. In addition, the coverage claimed in a
      patent application can be significantly reduced before the patent is issued.
      Consequently, the Company’s patent applications and any issued and licensed
      patents may not provide protection against competitive technologies or may
      be
      held invalid if challenged or circumvented. The Company’s competitors may also
      independently develop drug technologies or products similar to the Company’s or
      design around or otherwise circumvent patents issued or licensed to the Company.
      In addition, the laws of some foreign countries may not protect the Company’s
      proprietary rights to the same extent as U.S. law.





The
      Company also relies upon trade secrets, technical know how and continuing
      technological innovation to develop and maintain the Company’s competitive
      position. The Company generally will seek to require its employees, consultants,
      advisors and collaborators to execute appropriate confidentiality and assignment
      of inventions agreements. These agreements typically provide that all materials
      and confidential information developed or made known to the individual during
      the course of the individual’s relationship with the Company is to be kept
      confidential and not disclosed to third parties except in specific
      circumstances, and that all inventions arising out of the individual’s
      relationship with the Company shall be the its exclusive property. These
      agreements may be breached, or unavailable, and in some instances, the Company
      may not have an appropriate remedy available for breach of the agreements.
      Furthermore, the Company’s competitors may independently develop substantially
      equivalent proprietary information and techniques, reverse engineer the
      Company’s information and techniques, or otherwise gain access to its
      proprietary technology. The Company may be unable to meaningfully protect its
      rights in trade secrets, technical know how and other non patented
      technology.





Although
      the Company’s trade secrets and technical know how are important, the Company’s
      continued access to the patents and ability to develop, and apply for, new
      patents is a significant factor in the development and commercialization of
      Huperzine A and other products. Aside from the general body of scientific
      knowledge from other drug processes and technology, these patents and processes,
      to the best of the Company’s knowledge and based upon its current scientific
      data, are the only intellectual property necessary to develop its proposed
      drugs. The Company does not believe that it is or will be knowingly violating
      any other patents in developing Huperzine A or its other products.





***The
      Company may have to resort to litigation to protect its rights for certain
      intellectual property, or to determine their scope, validity or
      enforceability.***





Enforcing
      or defending the Company’s rights is expensive, could cause diversion of its
      resources and may not prove successful. Any failure to enforce or protect the
      Company’s rights could cause it to lose the ability to exclude others from using
      Huperzine A or to develop or sell competing products.





***The
      Company may rely on third party contract research organizations, service
      providers and suppliers to support development and clinical testing of its
      products.***





Failure
      of any of these contractors to provide the required services in a timely manner
      or on reasonable commercial terms could materially delay the development and
      approval of the Company’s products, increase its expenses and materially harm
      its business, financial condition and results of operations.





Key
      components of the Company’s drug technologies may be provided by sole or limited
      numbers of suppliers, and supply shortages or loss of these suppliers could
      result in interruptions in supply or increased costs.




16





Certain
      components used in the Company’s research and development activities such as
      naturally occurring or synthetic Huperzine are currently purchased from a single
      or a limited number of sources primarily located in China in the case of
      naturally   occurring supplies. The reliance on a sole or limited number of
      suppliers could result in:





·
            potential
                delays associated with research and development and clinical and
                preclinical trials due to an inability to timely obtain a single
                or
                limited source component;





·
            potential
                inability to timely obtain an adequate supply;
                and





·
            potential
                of reduced control over pricing, quality and timely
                delivery.




The
      Company does not have long-term agreements with any of its suppliers, and
      therefore the supply of a particular component could be terminated without
      penalty to the supplier. Any interruption in the supply of components could
      cause the Company to seek alternative sources of supply or manufacture these
      components internally. If the supply of any components is interrupted,
      components from alternative suppliers may not be available in sufficient volumes
      within required timeframes, if at all, to meet the Company’s needs. This could
      delay the Company’s ability to complete clinical trials, obtain approval for
      commercialization or commence marketing, or cause the Company to lose sales,
      incur additional costs, delay new product introductions or harm the Company’s
      reputation. Further, components from a new supplier may not be identical to
      those provided by the original supplier. Such differences if they exist could
      affect product formulations or the safety and effect of the Company’s products
      that are being developed and delay regulatory approvals.





***Due
      to the Company’s limited marketing, sales and distribution experience, the
      Company may be unsuccessful in its efforts to sell its products, enter into
      relationships with third parties or develop a direct sales
      organization.***





The
      Company has yet to establish marketing, sales or distribution capabilities
      for
      its proposed products. Until such time as the Company’s products are further
      along in the regulatory process, the Company will not devote meaningful time
      and
      resources to this effort. At the appropriate time, the Company intends to enter
      into agreements with third parties to sell its products or the Company may
      develop its own sales and marketing force. The Company may be unable to
      establish or maintain third party relationships on a commercially reasonable
      basis, if at all. In addition, these third parties may have similar or more
      established relationships with the Company’s competitors.





If
      the
      Company does not enter into relationships with third parties for the sales
      and
      marketing of its products, the Company will need to develop its own sales and
      marketing capabilities. The Company has limited experience in developing,
      training or managing a sales force. If the Company chooses to establish a direct
      sales force, the Company may incur substantial additional expenses in
      developing, training and managing such an organization. The Company may be
      unable to build a sales force on a cost effective basis or at all. Any such
      direct marketing and sales efforts may prove to be unsuccessful. In addition,
      the Company will compete with many other companies that currently have extensive
      marketing and sales operations. The Company’s marketing and sales efforts may be
      unable to compete against these other companies. The Company may be unable
      to
      establish a sufficient sales and marketing organization on a timely basis,
      if at
      all.





The
      Company may be unable to engage qualified distributors. Even if engaged, these
      distributors may:




·
            fail
                to satisfy financial or contractual obligations to the
                Company;




·
            fail
                to adequately market the Company’s
                products;





·
            cease
                operations with little or no notice;
                or





·
            offer,
                design, manufacture or promote competing
                products.





If
      the
      Company fails to develop sales, marketing and distribution channels, the Company
      would experience delays in product sales and incur increased costs, which would
      harm the Company’s financial results. If the Company is unable to convince
      physicians as to the benefits of its intended products, it may incur delays
      or
      additional expense in its attempt to establish market acceptance.





Broad
      use
      of the Company’s drug technology may require physicians to be informed regarding
      its intended products and the intended benefits. The time and cost of such
      an
      educational process may be substantial. Inability to successfully carry out
      this
      physician education process may adversely affect market acceptance of the
      Company’s products. The Company may be unable to timely educate physicians
      regarding its intended products in sufficient numbers to achieve the Company’s
      marketing plans or to achieve product acceptance. Any delay in physician
      education may materially delay or reduce demand for the Company’s products. In
      addition, the Company may expend significant funds towards physician education
      before any acceptance or demand for the Company’s products is created, if at
      all.





17




***The
      market for the Company’s products is rapidly changing and competitive, and new
      drug mechanisms, drug technologies, new therapeutics, new drugs and new
      treatments which may be developed by others could impair the Company’s ability
      to maintain and grow its business and remain
      competitive.***





The
      pharmaceutical and biotechnology industries are subject to rapid and substantial
      technological change. Developments by others may render the Company’s
      technologies and intended products noncompetitive or obsolete, or the Company
      may be unable to keep pace with technological developments or other market
      factors.





Technological
      competition from pharmaceutical and biotechnology companies, universities,
      governmental entities and others diversifying into the field is intense and
      is
      expected to increase. Many of these entities have significantly greater research
      and development capabilities and budgets than the Company do, as well as
      substantially more marketing, manufacturing, financial and managerial resources.
      These entities represent significant competition for the Company. Acquisitions
      of, or investments in, competing pharmaceutical or biotechnology companies
      by
      large corporations could increase such competitors’ financial, marketing,
      manufacturing and other resources.





The
      Company’s resources are limited and the Company may experience management,
      operational or technical challenges inherent in such activities and novel
      technologies.





***Competitors
      have developed or are in the process of developing technologies that are, or
      in
      the future may be, the basis for competition.***





Some
      of
      these technologies may have an entirely different approach or means of
      accomplishing similar therapeutic effects. The Company’s competitors may develop
      drug technologies and drugs that are safer, more effective or less costly than
      its intended products and, therefore, present a serious competitive threat
      to
      the Company.





***The
      Company has no manufacturing capabilities. If third-party manufacturers of
      the
      Company’s product candidates fail to devote sufficient time and resources to the
      Company’s concerns, or if their performance is substandard, its clinical trials
      and product introductions may be delayed.***





Currently,
      the Company has no internal manufacturing capabilities for any of its product
      candidates. The Company cannot be sure that the Company will be able to: (i)
      acquire or build facilities that will meet quality, quantity and timing
      requirements; or (ii) enter into manufacturing contracts with others on
      acceptable terms. Failure to accomplish these tasks would impede the Company’s
      efforts to bring its product candidates to market, which would adversely affect
      its business. Moreover, if the Company decides to manufacture one or more
      product candidates, the Company would incur substantial start-up expenses and
      would need to expand the Company’s facilities and hire additional
      personnel.




The
      Company currently expects to utilize third-party manufacturers to produce the
      drug compounds used in clinical trials and for the potential commercialization
      of future products. If the Company is unable to obtain or retain third-party
      manufacturers, the Company will not be able to commercialize its products.
      The
      Company’s reliance on contract manufacturers also will expose the Company to the
      following risks:





·
            contract
                manufacturers may encounter difficulties in achieving volume production,
                quality control and quality assurance and also may experience shortages
                in
                qualified personnel. As a result, the Company’s contract manufacturers
                might not be able to meet its clinical schedules or adequately manufacture
                the Company’s products in commercial quantities when
                required;





·
            switching
                manufacturers may be difficult because the number of potential
                manufacturers is limited. It may be difficult or impossible for the
                Company to find a replacement manufacturer quickly on acceptable
                terms, or
                at all;





·
            the
                Company’s contract manufacturers may not perform as agreed or may not
                remain in the contract manufacturing business for the time required
                to
                successfully produce, store or distribute the Company’s products;
                and





·
            if
                the Company’s primary contract manufacturer should be unable to
                manufacture any of its product candidates for any reason, or should
                fail
                to receive FDA approval or Drug Enforcement Administration approval,
                commercialization of the Company’s product candidates could be delayed
                which would negatively impact its
                business.





Third-party
      manufacturers also must comply with the FDA, the Drug Enforcement Administration
      and other regulatory requirements for their facilities. The Company does not
      have control over third-party manufacturers’ compliance with the regulations and
      standards established by these agencies. In addition, manufacture of product
      candidates on a limited basis for investigational use in animal studies or
      human
      clinical trials does not guarantee that large-scale, commercial production
      is
      viable. Small changes in methods of manufacture can affect the safety, efficacy,
      controlled release or other characteristics of a product. Changes in methods
      of
      manufacture, including commercial scale-up, can, among other things, require
      the
      performance of new clinical studies.





18




***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 scientific personnel and develop and maintain
      important relationships with leading academic institutions and scientists,
      may
      not be able to achieve its research and development objectives. Competition
      for
      personnel and academic collaborations is intense.





Although
      the Company has outsourced and intends to continue to outsource its development
      programs, the Company also may need to hire additional qualified personnel
      with
      expertise in preclinical testing, clinical research and testing, government
      regulation, formulation and manufacturing and sales and marketing. The Company
      competes for qualified individuals with numerous biopharmaceutical companies,
      universities and other research institutions and other emerging entrepreneurial
      companies. Competition for such individuals, particularly in the New York City
      area, where the Company is located, 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 located in the New York metropolitan
      area that are more established than the Company is and has the ability to pay
      more cash compensation than the Company does. The Company will require
      experienced scientific personnel in many fields in which there are a limited
      number of qualified personnel and will have to compete with other technology
      companies and academic institutions for such personnel. As a result, depending
      upon the success and the timing of clinical tests, the Company may continue
      to
      experience difficulty in hiring and retaining highly skilled employees,
      particularly scientists. If the Company is unable to hire and retain skilled
      scientists, its business, financial condition, operating results and future
      prospects could be materially adversely affected.




***If
      users of the Company’s products are unable to obtain adequate reimbursement from
      third party payors, or if new restrictive legislation is adopted, market
      acceptance of the Company’s products may be limited and the Company may not
      achieve anticipated revenues.***





The
      continuing efforts of government and insurance companies, health maintenance
      organizations and other payors of healthcare costs to contain or reduce costs
      of
      health care may affect the Company’s future revenues and profitability, and the
      future revenues and profitability of the Company’s potential customers,
      suppliers and collaborative partners and the availability of capital. For
      example, in certain foreign markets, pricing or profitability of prescription
      pharmaceuticals is subject to government control. In the U.S., given recent
      federal and state government initiatives directed at lowering the total cost
      of
      health care, the U.S. Congress and state legislatures will likely continue
      to
      focus on health care reform, the cost of prescription pharmaceuticals and on
      the
      reform of the Medicare and Medicaid systems. While the Company cannot predict
      whether any such legislative or regulatory proposals will be adopted, the
      announcement or adoption of such proposals could materially harm the Company’s
      business, financial condition and results of operations.





The
      Company’s ability to commercialize its products will depend in part on the
      extent to which appropriate reimbursement levels for the cost of its products
      and related treatment are obtained by governmental authorities, private health
      insurers and other organizations, such as HMOs. Third party payors are
      increasingly challenging the prices charged for medical drugs and services.
      Also, the trend toward managed health care in the U.S. and the concurrent growth
      of organizations such as HMOs, which could control or significantly influence
      the purchase of health care services and drugs, as well as legislative proposals
      to reform health care or reduce government insurance programs, may all result
      in
      lower prices for or rejection of the Company’s drugs. The cost containment
      measures that health care payors and providers are instituting and the effect
      of
      any health care reform could materially harm the Company’s ability to operate
      profitably.





***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 are expected to change dramatically as the
      Company evolves from primarily a “virtual” technology holding company with no
      full-time employees to a capitalized company with larger internal operations
      and
      costs. This limited history may not be adequate to enable an investor to fully
      assess the Company’s ability to develop Huperzine A and proposed drugs, obtain
      FDA approval, and achieve market acceptance of the Company’s proposed products
      and respond to competition, or conduct such affairs as are presently
      contemplated.





***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.
      Additionally, the Company will incur substantial expenses in connection with
      the
      preparation of a registration statement and related documents to register
      certain shares of the Company’s common stock which it is obligated to
      register.





19




**Risks
      Relating to 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
                relating to the interpretation of the results from the Company’s Phase II
                clinical trial;





·
            announcements
                or developments related to the products of the Company’s
                competitors;





·
            quarterly
                variations in the Company’s operating
                expenses;





·
            issuances
                or sales of capital stock by the Company;
                and





·
            sales
                of the common stock by the Company’s founders or other selling
                stockholders.




***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 Pink Sheets 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.





***Because
      the Company became public by means of a reverse merger, it may not be able
      to
      attract the attention of major brokerage firms.***





There
      may
      be risks associated with the Company becoming public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of the
      Company because there is no incentive to brokerage firms to recommend the
      purchase of the Company’s common stock.





***The
      common stock is controlled by insiders.***





Alan
      Kestenbaum, Reuben Seltzer and certain affiliated parties beneficially own
      a
      large percentage of the Company’s outstanding shares of common stock. Such
      concentrated control of the Company may adversely affect the price of the common
      stock. The Company’s principal security holders may be able to control matters
      requiring approval by security holders, including the election of directors.
      Such concentrated control may also make it difficult for stockholders to receive
      a premium for their shares of common stock in the event of a merger with a
      third
      party or different transaction that requires stockholder approval. In addition,
      certain provisions of Delaware law could have the effect of making it more
      difficult or more expensive for a third party to acquire, or of discouraging
      a
      third party from attempting to acquire, control of the Company. Accordingly,
      under certain circumstances, investors may have no effective voice in the
      management of the Company.





20




***The
      Company does not expect to pay dividends for the foreseeable
      future.***





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.





**Item
              2.**
            **Description
                of Property.**





The
      Company leases office space at One Penn Plaza, Suite 1503, New York, New York
      10019.





**Item
              3.**
            **Legal
                Proceedings.**





The
      Company is not a party to any pending legal proceedings.




**Item4.**
            **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, 2007.


21


**PART
      II**




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





The
      Company’s common stock is currently traded on the Pink Sheets 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 our 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 ShareHigh
            
            LowFebruary
                2006 - March 2006
            
            $
            10.73
            
            $
            5.49April
                2006 - June 2006
            
            $
            9.15
            
            $
            5.00July
                2006 - September 2006
            
            $
            8.00
            
            $
            5.25October
                2006 - December 2006
            
            $
            7.50
            
            $
            5.00January
                2007 - March 2007
            
            $
            7.25
            
            $
            4.75April
                2007 – June 2007
            
            $
            8.15
            
            $
            5.82July
                2007 – September 2007
            
            $
            6.47
            
            $
            4.25October
                2007 – December 2007
            
            $
            5.50
            
            $
            3.01January
                2008 – March 2008
            
            $
            4.40
            
            $
            0.40




**Stockholders**





As
      of
      March 17, 2008, the Company believes there were approximately 123 **** 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, 2007 that were not previously reported on a Quarterly Report on
      Form 10-QSB or a Current Report on Form 8-K.




22




**Item
              6.**
            **Management’s
                Discussion and Analysis or Plan of Operation**




**FORWARD-LOOKING
      STATEMENTS**




This
      Annual Report on Form 10-KSB 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-KSB and include,
      without limitation, the Company’s early stage, 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.





All
      references to the “Company” for periods prior to the closing of the Merger refer
      to Marco, and references to the “Company” for periods subsequent to the closing
      of the Merger refer to Neuro-Hitech and its subsidiaries.





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-KSB.





The
      Company is an early stage pharmaceutical company focused on developing
      innovative drugs for the treatment of degenerative neurological diseases. The
      Company’s most advanced product candidate, Huperzine A, recently completed a
      Phase II clinical trial in the U.S. which tested Huperzine A for efficacy and
      safety in the treatment of mild to moderate Alzheimer’s disease.





The
      Phase
      II clinical trial compared the safety, tolerability and efficacy of either
      200
      or 400 micrograms of Huperzine A on cognitive function, activities of daily
      living and behavior. Results showed that there was no statistical difference
      in
      the mean change AD Assessment Scale-Cognitive (ADAS-Cog) scores, the primary
      endpoint, after 16 weeks treatment with Huperzine A 200 micrograms bid compared
      to placebo (p=0.81). However, data demonstrated that the higher dose tested,
      400
      micrograms bid, showed cognitive enhancement on the ADAS-Cog versus placebo.
      The
      maximum cognitive improvement was observed at week 11 of treatment (p=0.001).
      Over 16 weeks Huperzine A (400 micrograms bid) improved cognition compared
      to
      placebo (p=0.03) and there was a trend to cognitive improvement over placebo
      at
      week 16 (p=0.069). In this clinical trial, there was an unexpected improvement
      in cognition in the placebo group at week 16 versus baseline. On other secondary
      endpoints, including clinical global impression of change (ADCS-CGIC) and the
      Neuropsychiatric Inventory (NPI) there was no statistical difference between
      placebo and either 200 or 400 micrograms bid after four months treatment.
      However, there was a trend to improvement on activities of daily living
      (ADCS-ADL) with 400 micrograms bid (p=0.077). Huperzine A was safe and well
      tolerated. Overall the incidence of adverse events during the study was similar
      between both doses of Huperzine A and placebo. Following completion of the
      double-blind part of this clinical trial, subjects were invited to receive
      Huperzine A treatment in an open-label fashion for up to one year: 82% of
      subjects accepted this invitation.





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





In
      view
      of the results of the Phase II clinical trial, the Company is currently
      reviewing its options for moving forward with its business. Currently, the
      Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company will further
      evaluate these opportunities based upon the results of Numoda’s review and
      report, and the Company also expects that Numoda will assist the Company in
      interpreting and presenting the results of the Phase II clinical trial to
      potential partners, licensees and merger or acquisition candidates.





The
      Company has also studied the transdermal delivery of Huperzine A. The Company
      believes that Huperzine A can effectively be delivered transdermally because
      of
      its low dosage requirement and low molecular weight. The Company believes that
      a
      transdermal patch could be a better way to deliver Huperzine A because the
      patch
      may provide the drug for transdermal delivery for up to between three and five
      days while avoiding the gastrointestinal tract. Although the Company initially
      expected to begin Phase I clinical trials in the first quarter of 2008, the
      Company has elected to postpone any decision or expenditures related to such
      a
      trial until after Numoda has delivered its report and the Company has considered
      its options.




Worldwide
      research thus far suggests that, in addition to Alzheimer’s Disease, Huperzine A
      may be effective in treating other dementias and myasthenia gravis. Also,
      research suggests that it has potential neuroprotective properties that may
      render it useful as a protection against neurotoxins, and it has an anti-oxidant
      effect.





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





23




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




**History**




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. On January 24, 2006, the Company entered
      into
      an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among
      the Company, Marco Hi-Tech JV Ltd., a privately held New York corporation
      (“Marco”), and Marco Acquisition I, Inc., a newly formed wholly-owned Delaware
      subsidiary of ours (“Acquisition Sub”). Upon closing of the transactions
      contemplated under the Merger Agreement (the “Merger”), Acquisition Sub was
      merged with and into Marco, and Marco became a wholly-owned subsidiary of the
      Company. The Merger was consummated on January 24, 2006, and in connection
      with
      that Merger, the Company changed its name to Neuro-Hitech Pharmaceuticals,
      Inc.
      The Company subsequently changed its name to Neuro-Hitech, Inc. on August 11,
      2006.





Marco
      was
      incorporated in the State of New York on December 11, 1996. Through 2005, Marco
      conducted analytical work and clinical trials of Huperzine A and was focused
      primarily on licensing proprietary Huperzine A technology from independent
      third-party developers and investigators, including the Mayo Foundation, and
      until such time operated with no full-time employees and minimal internal
      resources. In addition, from time to time, Marco has imported and sold
      inventories of natural Huperzine and other dietary supplement ingredients to
      vitamin and supplement suppliers to generate revenues. In 2005, Marco decided
      to
      raise additional capital to pursue additional approvals and undertake necessary
      studies for the development and commercialization of Huperzine A, including
      funding development and securing rights to third-party transdermal patch
      technology.





Upon
      the
      Merger, the Company abandoned the line of business pursued by Northern Way
      Resources prior to the Merger.




On
      November 29, 2006, the Company completed its acquisition by merger of
      Q-RNA, Inc. (“Q-RNA”), a New York-based biotechnology company focused on
      diseases such as Alzheimer’s, epilepsy and Parkinson’s disease, pursuant to the
      Agreement and Plan of Merger with QA Acquisition Corp., a Delaware corporation,
      QA Merger LLC, a Delaware limited liability company, Q-RNA and Dr. David
      Dantzker, as the “Representative” of the Q-RNA securityholders.




**Plan
      of Operation**




Based
      upon the completion of a Phase II clinical trial of Huperzine A, the Company
      is
      currently reviewing its options for moving forward with its business. Currently,
      the Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company will further
      evaluate these opportunities based upon the results of Numoda’s review and
      report, and the Company also expects that Numoda will assist the Company in
      interpreting and presenting the results of the Phase II clinical trial to
      potential partners, licensees and merger or acquisition candidates.





The
      Company presently believes the estimated additional costs to bring Huperzine
      A
      to market as an oral dose drug after completing clinical trials will be
      substantial and no assurances as to future costs can be made or that the Company
      will be able to fund them. Currently, the Company expects to focus upon the
      development of collaborative, joint and strategic alliances and licensing
      arrangements with one or more pharmaceutical companies for the further
      development of Huperzine A and also expects to consider merger and/or
      acquisition opportunities. The Company anticipates that it would be necessary
      to
      obtain collaborative partners who would be primarily responsible for the sale
      and distribution of Huperzine A products after obtaining FDA approval for
      Huperzine A.





The
      principal use of the Company’s cash and cash equivalents is to review the
      results of its Phase II clinical trial of Huperzine A and pursuing the
      development of collaborative, joint and strategic alliances and licensing
      arrangements with one or more pharmaceutical companies and/or acquisition or
      merger candidates.





The
      Company has generated limited revenue from operations to date, and expects
      to
      continue generating limited operating revenue for several years. Substantially
      all of the Company’s operations to date have been funded through the sale of its
      securities, and the Company expects this to continue to be the case for the
      foreseeable future.





Following
      the receipt of the results of the Phase II clinical trial of Huperzine A, to
      improve its liquidity and help ensure that it has sufficient cash and cash
      equivalents for the next 12 months, the Company implemented certain cost
      reductions in the first quarter of 2008 and delayed the implementation of
      certain research programs, including the previously planned Phase I trial for
      the transdermal patch. The Company anticipates, based on current plans and
      assumptions relating to operations, including the implementation of its cost
      reductions, that its cash and cash equivalents are sufficient to satisfy its
      contemplated cash requirements to implement its business plan for the next
      twelve months. In the event that the Company’s cash and cash equivalents prove
      to be insufficient to fund the implementation of its business plan (due to
      a
      change in the Company’s plans or a material inaccuracy in its assumptions, or as
      a result of unanticipated expenses, technical difficulties or other
      unanticipated problems), the Company will be required to seek additional
      financing sooner than anticipated in order to proceed with such implementation.
      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 one or more of its research or development programs, product
      launches or marketing efforts which may materially harm the Company’s financial
      condition and operations.




24




**Results
      of Operations**





The
      following discussion provides a comparison of the Company’s results from
      operations for the year ended December 31, 2007 to the year ended December
      31,
      2006.




The
      Company had revenues from operations of $458,870 for the year ended December
      31,
      2007, a 50.8% increase from the $304,240 in revenue achieved from the year
      ended
      December 31, 2006. The increase in revenue was a result of an increase in
      product sales to the Company’s single customer of natural Huperzine.




Cost
      of
      goods sold as a percentage of the Company’s revenue was 47% for the year ended
      December 31, 2007, compared with 51% for the year ended December 31, 2006.
      The
      Company’s cost of goods sold remained relatively constant as a percentage of the
      Company’s revenue as the Company continues to purchase its natural Huperzine
      from the same supplier as the prior year on substantially similar
      terms.





The
      Company’s total selling, general and administrative expenses increased from
      $1,765,486 for the year ended December 31, 2006 to $2,561,402 for the year
      ended
      December 31, 2007. This increase was the result of the Company’s expansion of
      its executive management and salaries and benefits in response to the
      acquisition of Q-RNA. Additionally, a portion of the increase in the selling,
      general and administrative expenses from the prior year is attributable to
      the
      increased costs associated with being a public company.




Share
        based compensation for the year ended December 31, 2007 was $2,427,904, an
        increase from the $327,835 for the year ended December 31, 2006. The increase
        in
        share based compensation was attributable to options granted during the year
        ended December 31, 2007 to Messrs. Barrett, McIntosh, Shearman and Wong and
        options paid to directors in lieu of director fees pursuant to the
        Non-Management Director Deferral Program.




The
      Company’s research and development costs increased from $2,674,714 for the year
      ended December 31, 2006 to $3,523,954 for the year ended December 31, 2007,
      as a
      result of the expansion of the Company’s clinical development portfolio for
      Huperzine A and preclinical research in compounds acquired from Q-RNA. These
      costs exclude $16,805,787 assigned by the Company in the year ended December
      31,
      2006, as in-process research and development in accordance with FASB Statement
      No. 4, “Applicability
      of FASB
      Statement No. 2 to Business Combinations Accounted for by the Purchase
      Method.”The Company expects operating expenses in 2008 to decrease as it looks
      to
      pass on future expenditures to collaborative licensing partners with one or
      more
      pharmaceutical companies and/or acquisition or merger candidates.





In
      December 2003, the Company entered into a clinical research agreement, which
      was
      amended in November 2005, with Georgetown pursuant to which Georgetown provided
      the Company with Phase II research on Huperzine A. The costs associated with
      this agreement totaled $3,146,667 and were partially funded by the National
      Institutes of Health. The Company’s portion of the total cost was $1,846,667 and
      payable in installments upon the achievement of certain milestones.   On
      December 8, 2006, the Company announced the expansion in the size of the Phase
      II clinical trial by 60 participants, an increase of 40%.   The Company’s
      portion of the total cost increased by another $2,190,175 and is payable in
      installments. For the years ended December 31, 2007 and 2006, the payments
      made
      by the Company to Georgetown under the terms of the clinical research agreement
      were approximately $1,183,167 and $952,500, respectively, and the total
      payments made by the Company to Georgetown since inception of the agreement
      were
      approximately $3,110,667.   These costs are reflected in the Research and
      Development caption of the Statement of Operations.  The
      Company expects to make additional payments in 2008 to Georgetown of $926,175
      related to an open label extension which extension is expected to be completed
      in the second half of 2008. ****





On
      February 1, 2006, the Company entered into an exclusive development agreement
      with Org Syn for the development by Org Syn of synthetic Huperzine A, in
      accordance with the terms of the Agreement. Org Syn received an aggregate of
      $175,894 upon the execution of the Agreement. For the years ended December
      31,
      2007 and 2006, the payments made by the Company to Org Syn were approximately
      $11,375 and $419,500, respectively, and are reflected in the Research and
      Development caption of the Statement of Operations. Org Syn may receive up
      to an
      additional $75,000 upon the achievement of certain milestones for services
      rendered under the Agreement.





On
      March
      15, 2006, the Company entered into a development agreement with XEL for the
      development of the Huperzine A Transdermal Delivery System (“Product”). Under
      the terms of the agreement, the Company paid XEL a $250,000 fee upon the
      execution of the agreement and paid an additional $92,500 per month during
      the
      development of the Product, including
      the first six months of 2007. The Delivery Product was completed in July
      2007. Between August 2007 and December 2007, the Company paid XEL an
      additional $92,500 per month to fund the further development of the Product.
      For
      the years ended December 31, 2007 and 2006, the payments made by the Company
      to
      XEL were approximately $1,111,250 and $1,081,000, respectively, and are
      reflected in the Research and Development caption of the Statement of
      Operations. The Company and XEL intend to seek domestic and foreign patent
      protection for the Product.




As
      part
      of the acquisition of Q-RNA, the Company assumed exclusive license agreements
      with PARTEQ. Under the terms of the exclusive PARTEQ Licensing Agreement the
      Company made an initial one-time license fee of C$25,000 and since January
      1,
      2008 has been obligated to pay fixed annual fees of C$283,000 for the
      Alzheimer’s research in equal quarterly installments. The Company may also be
      required to make quarterly royalty payments of 3% of net sales of the licensed
      products, with a minimum annual royalty of C$10,000 for 2007, C$20,000 for
      2008,
      C$30,000 for 2009 and C$40,000 for 2010 and each subsequent calendar year.
      Until
      such time as the Company has a licensed product, the Company will not have
      to
      make any quarterly payments. The Company is also obligated to make the following
      milestone payments: C$100,000 upon completion of a Phase I trial of a licensed
      product, C$250,000 upon completion of a Phase II trial of a licensed product,
      and C$1,000,000 upon the first FDA approval (as such term is defined in the
      PARTEQ Licensing Agreement). The Company does not currently anticipate having
      a
      licensed product in the near term. The Company also has the right to sub-license
      with the payment of 20% of all non-royalty sublicensing consideration.





25


Under
      the
      terms of the Exclusive Patent License Option Agreement with PARTEQ (the
“Epilepsy Agreement”) grants the Company a three-year option to acquire an
      exclusive worldwide license to all innovations and developments, including
      the
      patent applications and additional filings, related to specified patents for
      research on Epilepsy. The Company made a non-refundable, non-creditable option
      payment of $10,000 when it entered into the Epilepsy Agreement in 2006. The
      Company made an additional payment of $45,000 to PARTEQ in the year ended
      December 31, 2007 for expenses that should have been paid by Q-RNA in the year
      ended December 31, 2005.The Company also began to pay fixed annual fees
      of C$150,800 in quarterly installments of C$37,700 beginning on March 1,
      2008. If the Company exercises its option, the Company will make a
      non-refundable, non-creditable license payment of C$17,500 at the time of such
      exercise. If the Company exercises its option, it will be required to make
      quarterly royalty payments of 3% of net sales of the licensed products (as
      such
      term is defined in Epilepsy Agreement), with a minimum annual royalty of
      C$10,000 through the second anniversary of the license, C$20,000 through the
      third anniversary of the license, C$30,000 through the fourth anniversary of
      the
      license and C$40,000 through the fifth anniversary of the license and each
      subsequent anniversary. If the Company exercises its option, it is also
      obligated to make the following milestone payments: C$100,000 upon completion
      of
      a Phase I trial of a licensed product, C$250,000 upon completion of a Phase
      II
      trial of a licensed product, and C$1,000,000 upon the first FDA approval (as
      such term is defined therein). If the Company exercises its option, the Company
      also has the right to sub-license with the payment of 20% of all non-royalty
      sublicensing consideration. For the years ended December 31, 2007 and 2006,
      the
      payments made by the Company to PARTEQ under these agreements have been
      approximately $457,115 and $48,600, respectively.




The
        Company holds a license for two composition of matter patents and four process
        patents for Racemic Huperzine A, Huperzine A and their analogues and derivatives
        from the Mayo Foundation. The Company has a license to the four process patents
        pursuant to a Technology License Contract with the Mayo Foundation (the “Mayo
        Licensing Agreement”). For the year ended December 31, 2007 and 2006, the total
        research and development costs incurred by the Company under this Agreement
        have been approximately $18,888 and $205,000, respectively. The total costs
        accrued and incurred since inception of the agreement were approximately
        $350,000 and are reflected in the Research and Development caption of the
        Statement of Operations. Although
        the Company has accrued certain costs relating to the Mayo Licensing Agreement,
        because of uncertainty between the Company and Mayo over the interpretation
        of the agreement, it is uncertain when or whether those expenses actually
        will
        be paid.




**Liquidity
      and Capital Resources**





The
      Company has generated limited revenue from operations to date, and expects
      to
      continue generating limited operating revenue from the sale of natural
      Huperzine. Substantially all of the Company’s operations to date have been
      funded through the sale of its securities, and the Company expects this to
      continue in the foreseeable future.





Historically,
      the principal uses of the Company’s cash and cash equivalents have been
      concluding 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. 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 or technologies. Currently, the
      principal uses of the Company’s cash and cash equivalents are investigating the
      results of the Phase II clinical trials.





During
      the year ended December 31, 2007, the Company experienced an increase in
      selling, general and administrative expenses compared to the year ended
      December 31, 2006. The increases were largely attributable to increases in
      salaries and employee benefit expenses resulting from the Company’s expansion of
      its executive management team following the acquisition of Q-RNA and the
      employment of a new Chief Executive Officer. To improve its liquidity and ensure
      that it has sufficient cash and cash equivalents for the next 12 months, the
      Company implemented certain cost reductions in the first quarter of 2008 and
      delayed the implementation of certain research programs, including the
      previously planned Phase I trial for the transdermal patch.





The
      Company expects to make additional payments by June 30, 2008 to Georgetown
      of
      $926,175 related to an open label extension which extension will expire in
      June
      2008. The Company also expects to continue making payments to PARTEQ of
      C$108,000 each quarter as a result of the renewal of the Alzheimer’s Agreement
      and Epilepsy Agreement with PARTEQ. The Company may also incur additional
      expenses if it pursues certain contractual rights or activities that are at
      its
      discretion, including exercising its option to license the Product in North
      America from XEL, pursuant to which it would pay XEL an initial license fee
      of
      $400,000 and up to an aggregate of $2.8 million in additional payments upon
      the
      achievement of certain milestones.





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 will pay Numoda $100,000. The Company
      may be obligated to pay Numoda up to $400,000 of additional payments (a
“Deferred Payment”) if the Company enters into an agreement for the sale or
      license of the Company’s products, or an agreement to merge or sell the Company
      (each a “Transaction”). If the aggregate consideration paid to the Company in
      such a Transaction is $1,000,000 or less, the Deferred Payment will be $200,000.
      If the aggregate consideration paid to the Company in a Transaction is more
      than
      $1,000,000 but less than $5,000,000, the Deferred Payment will be $250,000.
      If
      the aggregate consideration paid to the Company in a Transaction is more than
      $5,000,001 but less than $10,000,000, the Deferred Payment will be $300,000.
      If
      the aggregate consideration paid to the Company in the Transaction is more
      than
      $10,000,000, the Deferred Payment will be $400,000. Additionally, the Company
      will be obligated to pay Numoda a fee equal to 3.5% of the aggregate
      consideration paid to the Company in a Transaction, provided that the
      Transaction is completed at any time during the term of the agreement, or prior
      to March 3, 2011, and Numoda has either introduced such party to the Company
      or
      materially assisted the Company in facilitating such a Transaction.





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 substantial
      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, including the potential delay, reduction in scope of or elimination
      of some of its research or development programs. 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.




During
      2007, the Company issued 2,016,930 shares of its Common Stock in private
      placements of the Company’s securities, raising gross proceeds of $7,379,005.
      Costs and expenses related to these private offerings, including, placement
      agent, legal, accounting and printing fees, totaled in the aggregate,
      $376,548 and were charged to additional paid-in capital.





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





During
      the year ended December 31, 2007, the Company issued 20,000 shares of restricted
      stock for services rendered. The Company recognized an expense of $121,000
      relating to the issuance of those shares and are reflected in the Selling,
      General and Administrative Expenses caption of the Statement of
      Operations.


26


During
      the third quarter of 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 took place in the first quarter of 2006 and between
      November 2006 and March 2007. The shares were issued in accordance with the
      provisions of registration rights agreements between the Company and the
      purchasers of securities in those offerings. 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 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 described above.





**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.
 
 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
              7.**
            **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.





**Item
              8.**
            **Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure**





N/A





**Item
              8A.**
            **Controls
                and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





Based
      on
      management’s evaluation (with the participation of our Chief Executive Officer
      (“CFO”) and Chief Financial Officer (“CFO”)), as of the end of the period
      covered by this report, our CEO and CFO have concluded that our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are
      effective to provide reasonable assurance that information required to be
      disclosed by us in reports that we file or submit 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 our 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, our internal control over financial
      reporting.





**Management
      Report on Internal Control Over Financial Reporting**





Our
      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 our financial reporting and the preparation of financial
      statements for external purposes in accordance with U.S. generally accepted
      accounting principles.


27


Management
      assessed our internal control over financial reporting as of December 31,
      2007, the end of our 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 our overall control environment.





Based
      on
      our assessment, management has concluded that our 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. We reviewed
      the results of management’s assessment with the Audit Committee of our Board of
      Directors.




This
      report does not include an attestation report of our registered public
      accounting firm regarding our internal controls over financial reporting. The
      disclosure contained under this Item 8A was not subject to attestation by our
      independent registered public accounting firm pursuant to temporary rules
      of the SEC that permit us to provide only the disclosure under this Item 8A
      in
      this Report.





**Inherent
      Limitations on Effectiveness of Controls**





Our
      management, including the CEO and CFO, does not expect that our disclosure
      controls or our 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
                8B.**
              **Other
                  Information**
 None.




28




**PART
      III**





**Item
              9.**
            **Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act**




The
        following sets forth certain information with regard to the directors, executive
        officers and certain significant employees of the Company (ages are as of
        December 31, 2007):
 
 **Name**
              **Age**
              **Position**Gary
                  T. Shearman
              54
              President,
                  Chief Executive Officer and DirectorDavid
                  Barrett
              32
              Chief
                  Financial OfficerL.
                  William McIntosh
              62
              Chief
                  Operating OfficerWilliam
                  Wong
              60
              Chief
                  Scientific OfficerJohn
                  Abernathy
              70
              DirectorMark
                  Auerbach
              69
              DirectorDavid
                  Dantzker
              64
              DirectorJay
                  Lombard
              47
              DirectorAlan
                  Kestenbaum
              46
              DirectorReuben
                  Seltzer
              51
              Director
 
 **Dr.
        Gary T. Shearman** has
        been
        serving as Chief Executive Officer and Director of the Company since August
        2007. Immediately prior to joining the Company, Dr. Shearman was serving
        as a
        consultant. Immediately prior to that, between September 2001 and April 2007,
        Dr. Shearman had been serving as Chairman and Managing Director of HBM Advisors
        USA, LLC, a provider of advisory services for HBM Partners (Cayman) Ltd.,
        the
        investment manager for all HBM investment vehicles including HBM BioVentures
        and
        HBM BioCapital, holding companies in the human medicine, biotechnology and
        medical technology industries. Between May 1992 and January 2000, Dr. Shearman
        was employed by Rhône-Poulenc Rorer where he served in a variety of positions,
        most recently as Deputy Head of Global Research and Drug Development and
        Senior
        Vice President, Global Development. Prior to that, Dr. Shearman held positions
        with Merck & Co., Inc. and Sandoz Ltd.
 
 **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.
 
 **L.
        William McIntosh** has been
        serving as Chief Operating Officer since November 2006. Mr. McIntosh also
        served
        as a director of the Company between November 2006 and August 2007. Prior
        to
        joining the Company, Mr. McIntosh spent 30 years within the pharmaceutical
        and
        biotechnology industries in a variety capacities including marketing, sales,
        business development, product development and general management. Immediately
        prior to joining the Company, he served as a director and Chief Executive
        Officer of Q-RNA between August 2004 and the closing of the Merger. Prior
        to
        that, Mr. McIntosh served as Principal and Managing Director of Novatures
        Consulting Group between June 2003 and July 2004. Between August 2001 and
        May
        2003, Mr. McIntosh served as President and CBO of FASgen, Inc. Mr. McIntosh
        has
        also served in senior positions at Merck & Co., Inc., Medco Containment
        Services, Boehringer Mannheim Pharmaceuticals Corporation, Zynaxis, Inc.,
        Smith-Kline Beecham Pharmaceuticals, VIMRx Pharmaceuticals, Inc. and Nexell
        Therapeutics, Inc. Mr. McIntosh received both his B.S. and M.B.A. from Lehigh
        University in Pennsylvania.
 
 **William
        Wong** has been
        serving as Chief Scientific Officer since November 2006. Immediately prior
        to
        joining the Company, Dr. Wong worked in a variety of management capacities
        at
        pharmaceutical development, biotechnology and medical device companies during
        his twenty-five year career, most recently at Q-RNA, where he served as Vice
        President of Product Development, between August 2002 and November 2006.
        Prior
        to that, he served as Principal at Novatures Consulting Group. He has served
        on
        the senior management teams at Lynx Therapeutics, IntraCel Corporation, E.I.
        DuPont Co. and Becton-Dickinson Corp. Dr. Wong received his Ph.D. from the
        University of Rochester School of Medicine in the Department of Microbiology
        and
        Immunology.
 
 **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.
 
 29
 **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 since
        September 2003, and as director since 1990, of Par, 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.
 
 **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 Valera Pharmaceuticals, Inc., which is listed on The
        NASDAQ
        Global Market System.
 
 **Jay
        Lombard** has been
        serving as a director of Neuro-Hitech since February 2007. Dr. **** Lombard
        has been serving as the Chairman of Neurology at Bronx Lebanon Hospital since
        September 2006 and as Clinical Assistant Professor of Neurology at Cornell
        University Medical College, New York Presbyterian Hospital **** since **** January
        1998. Dr. Lombard has also been the director of the Brain Behavior Center
        in
        Pomona, New York since January 2001. Dr. Lombard is a board certified
        neurologist and is a published author and speaker on various neurological
        matters. Dr Lombard completed his neurology residency at Albert Einstein
        College
        of Medicine, Long Island Jewish Medical Center and is on several advisory
        boards
        including Two River Holdings and Metagenics, Inc.
 
 **Alan
        Kestenbaum** has been
        serving as a director of Neuro-Hitech since January 2006 and also served
        as its
        Executive Vice President between January 2006 and August 2007. Mr. Kestenbaum
        founded in 1985, and is currently Chief Executive Officer of, Marco
        International Corp., an international finance investment and trading company
        specializing in raw materials. In March 2004, Mr. Kestenbaum founded and
        is
        currently Chairman and Chief Executive Officer of Globe Specialty Metals,
        Inc.
        Mr. Kestenbaum also serves as a director for Wolverine Tube, Inc.
 
 **Reuben
        Seltzer** has been
        serving as a director of Neuro-Hitech since January 2006 and also served
        as its
        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 2007 each of the Company’s executive officers and
        directors filed the required reports on a timely basis under Section 16(a),
        except as follows:
 
 30
 ·
            John
                Abernathy filed two late reports on Form
                4; ·
            Mark
                Auerbach filed two late reports on Form
                4; ·
            David
                Dantzker filed two late reports on Form
                4; ·
            Alan
                Kestenbaum filed one late report on Form 4 and one late report on
                Form
                5; ·
            Jay
                Lombard filed two late reports on Form 4; ·
            Reuben
                Seltzer filed one late report on Form 5;
                and ·
            Gary
                Shearman filed a late report on Form 3 to report his initial
                ownership. 
 ***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.
  31


**Item
              10.**
            **Executive
                Compensation**




**Compensation
        Discussion and Analysis******
  The
        Company’s primary objective with respect to executive compensation is to design
        compensation programs which will align executives’ compensation with the
        Company’s overall business strategies, attract and retain highly qualified
        executives and provide incentives that drive stockholder value. The Compensation
        Committee of the Company’s Board 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
        comprised of Directors Auerbach, Dantzker and Abernathy (Chair). In order
        to
        enhance the Compensation Committee’s ability to carry out these responsibilities
        effectively, as well as ensure that the Company maintains strong links between
        executive pay and performance, the Compensation Committee:
 
 ·
              Reviews
                  management recommendations to the Compensation Committee with respect
                  to
                  compensation decisions. The Chief Executive Officer is not present
                  when
                  the Compensation Committee makes decisions on his compensation
                  package.
 ·
              Reviews
                  the Chief Executive Officer’s individual performance evaluations for
                  executive officers and discusses such performance assessments with
                  the
                  Chief Executive Officer on an annual basis and recommends any adjustments
                  to the Board for approval.
 
 In
        setting compensation for the Executive Officers, the Compensation
        Committee:
 
 ·
              Considers
                  comparative market data, gathered from early stage bio-technology
                  companies of comparable size.
 ·
              Considers
                  prior salary levels and the value of any long-term incentive awards
                  at the
                  time the awards were made.
 
 The
        allocation of at risk compensation between short-term and long-term performance
        compensation is based on market comparisons to remain competitive to other
        companies and to further the Company’s objective to attract and retain highly
        qualified executives. This allocation is re-evaluated annually.
 
 ***Compensation
        Components***
  *Salaries*
  The
        Company believes that executive base salaries should generally be targeted
        at or
        below the median of the range of salaries for executives in similar positions
        and with similar responsibilities at comparable companies. However, the Company
        may provide for base salaries above the median if, in the Compensation
        Committee’s view, a particular executive’s performance exceeded expectations; if
        an executive takes on additional responsibilities; or under other special
        circumstances. Except for the base salaries that are set forth in a written
        contract between the Company and an executive, base salaries are reviewed
        annually, and adjusted from time to time to realign salaries with market
        levels
        after taking into account individual performance and experience.
 
 *Equity
        Incentives*
 
 The
        Company believes that the most effective means to encourage long-term
        performance by the Company’s Executive Officers is to create an ownership
        culture. This philosophy is implemented through the granting of equity-based
        awards that vest based on continued employment and other long-term awards
        which
        vest on achievement of pre-determined performance goals. The Company believes
        that stock options and stock incentives (together “Awards”) are invaluable tools
        for the recruitment, retention and motivation of qualified employees, officers,
        non-employee directors and consultants who can contribute materially to the
        Company’s success. Awards are issued in accordance with the terms of the
        Company’s 2006 Incentive Stock Plan (the “Plan”). A summary of the principal
        provisions of the Plan is set forth below and is qualified in its entirety
        by
        reference to the Plan. ****
 
 32
 **Summary
        Compensation Table**
  The
        following table shows the total compensation awarded to, earned by or paid
        to
        each Named Executive Officer during 2007 and 2006 for service to the Company
        and
        its subsidiaries for the year ended December 31, 2007 and December 31, 2006,
        respectively.
 
 **Name
                  and**
                **Principal
                  Position****(a)**
              
              **Year**
                **(b)**
              
              **Salary**
                **($)**
                **(c)**
              
              **Stock**
                **Awards
                  (1)**
                **($)**
                ******(e)**
              
              **Option**
                **Awards
                  (1)**
                **($)**
                ******(f)**
              
              **Total**
                **($)**
                ******(j)**Gary
                  T. Shearman (2)
                President,
                  Chief Executive Officer, Director
              
              
              2007
                2006
              
              
              159,375
                —
              
              
              —
                —
              
              
              820,266
                —
              
              
              979,641
                —Reuben
                  Seltzer (3)
                Former
                  President, Chief Executive Officer and Director
              
              
              2007
                2006
              
              
              225,000
                206,250
              
              
              —
                —
              
              
              167,865
                87,488
              
              
              327,060
                293,378David
                  J. Barrett
                Chief
                  Financial Officer
              
              
              2007
                2006
              
              
              212,700
                120,000
              
              
              39,063
                —
              
              
              374,936
                —
              
              
              626,699
                120,000
  (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.
 
 (3)
        Mr.
        Seltzer ceased serving as an executive officer in August 27, 2007. The salary
        paid to Mr. Seltzer includes $65,625 paid to Mr. Seltzer for services rendered
        as a director after August 27, 2007.
 33
 **Outstanding
        Equity Awards at Fiscal Year-End**
  The
        following table presents information on equity awards held under the 2006
        Incentive Stock Plan as of December 31, 2007.
  **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)**Gary
                  Shearman (1)
              
              
              
              
              
              
              
              
              240,000
              
              
              
              
              
              560,000
              
              
              
              
              
              —
              
              
              5.35
              
              8/22/2017
              
              —
              
              
              —Reuben
                  Seltzer (2)
              
              
              
              
              
              
              
              
              146,666
              
              
              
              
              
              73,334
              
              
              
              
              
              —
              
              
              2.50
              
              1/24/2016
              
              —
              
              
              —David
                  Barrett (3)
              
              
              
              
              
              
              
              
              40,000
              
              
              
              
              
              20,000
              
              
              
              
              
              
              
              
              5.85
              
              4/10/201650,000
              
              
              210,00040,000
              
              
              
              
              
              60,000
              
              
              
              
              
              
              
              
              7.97
              
              6/26/201625,000
              
              
              
              
              
              
              
              
              3.88
              
              12/07/2017
 
 (1)
        Dr.
        Shearman’s option to purchase 800,000 shares of the Company’s common stock
        became exercisable as to 240,000 shares on August 27, 2007 and shall become
        exercisable as to an additional 186,666 shares on August 27, 2008, an additional
        186,666 shares on August 27, 2009 and the remaining 186,668 shares on August
        27,
        2010.
  (2)
        Mr.
        Seltzer’s option to purchase 220,000 shares of the Company’s common stock became
        fully vested and exercisable on January 24, 2008.
 
 (3)
        Mr.
        Barrett’s option to purchase 60,000 shares at an exercise price of $5.85 per
        share will become fully vested and exercisable on April 20, 2008. Mr. Barrett’s
        restricted stock grant of 50,000 shares vests as to 12,500 shares on May
        10,
        2008 an additional 12,500 shares on each of the first, second and third
        anniversaries of May 10, 2008. Mr. Barrett’s option to purchase 100,000 shares
        at an exercise price of $7.97 per share will vest as to 20,000 shares on
        May 10,
        2008 and an additional 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, 2008, an additional 8,333 shares on December
        1, 2009
        and 8,334 shares on December 1, 2010.
 
 *Summary
        of 2006 Incentive Stock Plan*
 
 Administration
 
 The
        Plan
        is administered by the Compensation Committee. Subject to the terms of the
        Plan,
        the Compensation Committee may select participants to receive awards, determine
        the types of awards and terms and conditions of awards and interpret provisions
        of the Plan.
 
 Shares
        Reserved for Issuance Under the Plan
 
 There
        are
        3,250,000 shares reserved for issuance under the Plan, of which 2,774,319
        have
        been granted under the Plan. The shares issued or to be issued under the
        Plan
        consist of authorized but unissued shares.
 
 Eligibility
 
 Awards
        may be made under the Plan to the Company’s directors, officers, employees or
        consultants and to any other individual whose participation in the Plan is
        determined to be in the Company’s best interests by the Compensation Committee.
        We estimate that currently approximately 10 persons are eligible to receive
        awards under the Plan.
 
 Types
        of
        Awards Available for Granted under the Plan
 
 Stock
        Options
 
 The
        Company believes that use of options provides it with the ability to retain
        key
        employees and at the same time increase stockholder value since the value
        of the
        common stock underlying the options is only realized if the Company’s stock
        price increases from the date on which the options are granted. The Compensation
        Committee approves all options grants and sets the option price based on
        fair
        market value of the Company’s common stock on the effective date of the grant.
        In 2006, stock options were designed in part to promote retention of key
        executives during the acquisition of Q-RNA. In 2007, stock options were awarded
        to David Barrett, in part to recognize prior performance and a delay in making
        past awards to him originally contemplated when he was hired.
 
 Restricted
        Stock
 
 The
        Company believes that use of restricted stock provides it with the ability
        to
        retain key employees. The Compensation Committee approves all restricted
        stock
        grants. In 2007, 50,000 shares of restricted stock were awarded to David
        Barrett, in part to recognize prior performance and a delay in making past
        awards to him originally contemplated when he was hired. The stock that Mr.
        Barrett received is subject to vesting in equal installments annually on
        the
        anniversaries of the grant date, May 10, 2007, over a period of four
        years.
 
 34
 Other
        Awards
 
 Although
        authorized to grant stock appreciation rights, restricted stock units and
        unrestricted stock under the Plan, the Compensation Committee did not issue
        any
        such awards in 2007.
 
 *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. The
        election must be made prior to the year in which the services are performed.
        For
        the year ended December 31, 2007, the Company accrued an expense of $21,244
        for
        compensation that would have otherwise been paid to one of its officers during
        the year ended December 31, 2007. In lieu of compensation that would have
        been
        paid in that year, the officer received options to purchase 8,276 shares
        of the
        Company’s common stock pursuant to the terms of the Officers Deferral Program.
 
 **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, 2007. 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, 2007,
        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*
  *Dr.
        Gary T. Shearman*
 
 Dr.
        Shearman has served as the Company’s Chief Executive Officer and President since
        August 27, 2007. In order to induce Dr. Shearman to join the Company, the
        Board
        authorized the Compensation Committee to negotiate an employment agreement
        with
        Dr. Shearman. Dr. Shearman’s employment agreement provides for a term of four
        years, unless earlier terminated or extended in accordance with the terms
        therein. Pursuant to the terms of Dr. Shearman’s employment agreement, the
        Company has agreed to pay Dr. Shearman an annual base salary of $450,000.
        In
        addition, Dr. Shearman will be eligible to receive bonus compensation of
        up to
        50% of his base salary, in amounts to be determined by the Compensation
        Committee following Dr. Shearman’s achievement of certain performance
        objectives. The Company issued Dr. Shearman a stock option to purchase up
        to
        800,000 shares of the Company’s common stock, at an exercise price of $5.35 per
        share. The option immediately vested as to 240,000 shares on August 27, 2007
        and
        the remaining 560,000 shares vest in equal one-third increments on the first,
        second and third anniversaries of the commencement of the term of Dr. Shearman’s
        employment. Dr. Shearman is also eligible to receive options to purchase
        up to
        66,667 shares of the Company’s common stock on each anniversary of the
        commencement of the term of his employment.
 
 *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.
 
 35
 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 shall vest in equal one-third
        increments on the first, second and third anniversaries of the commencement
        of
        the term of Mr. Barrett’s employment agreement. 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 their respective employment agreements, Mr. Barrett and Dr.
        Shearman will each serve in his respective executive position until (i) his
        death or disability, (ii) his decision to terminate his employment
        relationship with us for or without good reason, or (iii) the decision by
        the Company’s board of directors to terminate his employment with or without
        cause.
 
 Under
        the
        employment agreements, “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 the
        executive that are substantially inconsistent with the responsibilities of
        his
        specific executive position or we substantially alter the nature or status
        of
        such responsibilities; (iii) diminish his title; (iv) reduce executive’s base
        salary as in effect on the date his agreement was executed; or (v) materially
        reduce the benefits provided to the executive, 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
        the executive 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 the executive 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 executive’s incapacity due
        to physical or mental illness), after notice to executive and a reasonable
        opportunity to cure; (iii) gross negligence or willful misconduct by the
        executive 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 the executive
        of the sections of executive’s employment agreement pertaining to executive’s
        duties, non-competition or confidentiality.
 
 Each
        of
        the executives has agreed to protect the confidentiality of the Company’s
        proprietary and confidential information. Each executive has 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.
  The
        employment agreements provide that if such executives are 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 one year thereafter for Dr. Shearman, six months thereafter for
        Mr.
        Barrett, (ii) payment of other accrued compensation, (iii) continuation of
        certain insurance and other fringe benefits for one year for Dr. Shearman,
        six
        months for Mr. Barrett, and (iv) the immediate vesting of all outstanding
        stock
        options.
 
 The
        following table sets forth the estimated payments and benefits that would
        have
        been provided to Dr. Shearman and Mr. Barrett if their respective employment
        had
        been terminated on December 31, 2007, by the Company without cause or such
        executive for good reason:
 
 Name
              
              Salary
                  ($)
              
              Health
                  Benefits ($)(1)
              
              All
                  Other Compensation ($)
              
              Option
                  Awards ($)(2)
              
              Total
                  ($)Gary
                  T. Shearman
              
              $
              450,000
              
              $
              21,000
              
              
              —
              
              $
              1,351,027
              
              $
              1,822,027David
                  Barrett
              
              $
              125,000
              
              $
              2,000
              
              
              —
              
              $
              205,432
              
              $
              332,432
 
 (1)
        The
        amount represents an estimate of 12 months of health benefits at the current
        2007 COBRA rate for Dr. Shearman and six months for Mr. Barrett.
 (2)
        The
        amount represents the fair market value of option awards and restricted stock
        awards at the closing price of $4.20 on December 31, 2007.
 
 36
 *Change
        of Control Benefits*
  Each
        of
        Dr. Shearman’s and 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
        Dr.
        Shearman’s or 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 their respective employment agreements, in the event Dr. Shearman’s or 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) in the case of Mr. Barrett and two times his base
        salary then in effect and vacation pay (for vacation not taken) in the case
        of
        Dr. Shearman; (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 case of Mr. Barrett and two years in the case of Dr.
        Shearman. In addition, Dr. Shearman shall receive a payment of two times
        the
        target bonus in effect as of the date of termination.
 
 In
        the
        event the executive 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” 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.
 
 “Good
        reason” (in the context of a Change of Control) means (i) the assignment to the
        executive of any duties inconsistent with the executive’s position or any other
        action that results in a diminution in such position; (ii) a reduction by
        us in
        the executive’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 the executive 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 the executive 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.
 
 37
 The
        following table sets forth the established payments and benefits that would
        have
        been provided to Dr. Shearman and Mr. Barrett if a Change of Control occurred
        and their respective employment had been terminated on December 31, 2007
        without cause or for good reason:
 
 Name
              
              Salary
                  ($)
              
              Health
                  Benefits ($)(1)
              
              All
                  Other Compensation ($)
              
              Option
                  Awards ($)(2)
              
              Total
                  ($) (3)Gary
                  T. Shearman
              
              $
              900,000
              
              $
              42,000
              
              
              —
              
              $
              1,351,027
              
              $
              2,293,027David
                  Barrett
              
              $
              250,000
              
              $
              4,000
              
              
              —
              
              $
              205,432
              
              $
              459,432
 
 (1)
        The
        amount represents an estimate of 24 months of health benefits at the current
        2007 COBRA rate for Dr. Shearman and six months for Mr. Barrett.
 (2)
        The
        amount represents the fair market value of option awards and restricted stock
        awards at the closing price of $4.20 on December 31, 2007.
 (3)
        Does
        not include any tax gross-up payments that would have been paid to the named
        executive officers assuming a change-in-control date of December 31, 2007
        that
        would have been triggered if the compensation and benefits paid to executive
        were subject to a non-deductible 20% excise tax under Internal Revenue Code
        280G.
 
 **Director
        Compensation**
 
 The
        general policy of the Board of Directors is that compensation for independent
        directors should be a mix of cash and equity-based compensation. The Company
        does not pay employee directors for Board service in addition to their regular
        employee compensation.
 
 Messrs.
        Auerbach and Abernathy receive $100,000, and $40,000, respectively, per year
        as
        a director’s fee, including their service on the committees of the board of
        directors. We pay each of the other non-employee directors an annual retainer
        fee of $10,000, an additional $7,500 for serving on the audit committee,
        $5,000
        for serving on the compensation committee and $5,000 for serving on the
        nominating and corporate governance committee. Dr. David Dantzker, the chair
        of the
        Company’s nominating and corporate governance committee is paid an additional $5,000
        for
        chairing that committee.
  *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.
 
 *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 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.
 
 38
 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.
 
 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, 2007 for services
        rendered as a director, excluding Reuben Seltzer, who served as the Chief
        Executive Officer until August 2007.
 
 **Name**
              
              **Fees
                  Earned**
                **or
                  Paid in Cash**
                **($)**
              
              **Option**
                **Awards
                  (1)**
                **($)**
              
              **All
                  Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**Mark
                  Auerbach (2)
              
              
              50,000
              
              
              
              
              
              203,115
              
              
              
              
              
              —
              
              
              253,115John
                  Abernathy (3)
              
              
              20,000
              
              
              
              
              
              52,258
              
              
              
              
              
              —
              
              
              72,258David
                  Dantzker (4)
              
              
              —
              
              
              
              
              
              112,700
              
              
              
              
              
              —
              
              
              112,700Jay
                  Lombard (5)
              
              
              —
              
              
              
              
              
              105,953
              
              
              
              
              
              —
              
              
              105,953Alan
                  Kestenbaum (6)
              
              
              —
              
              
              
              
              
              53,354
              
              
              
              
              
              —
              
              
              53,354
 
 (1)
        The
        value represents the dollar amounts recognized for financial statement reporting
        purposes in 2007 in accordance with FAS 123R for awards made during 2007.
 (2)
        During the year ended December 31, 2007, Mr. Auerbach elected to receive
        options
        to purchase an aggregate of 28,736 shares of the Company’s common stock in lieu
        of receiving $50,000 in cash fees in accordance with the terms of the
        Non-Management Directors Deferral Program. Mr. Auerbach was also granted
        an
        option to purchase 9,541 shares of the Company’s common stock.
 (3)
        During the year ended December 31, 2007, Mr. Abernathy elected to receive
        options to purchase an aggregate of 11,494 shares of the Company’s common stock
        in lieu of receiving $20,000 in cash fees in accordance with the terms of
        the
        Non-Management Directors Deferral Program. Mr. Abernathy was also granted
        an
        option to purchase 9,541 shares of the Company’s common stock.
 (4)
        During the year ended December 31, 2007, Dr. Dantzker elected to receive
        options
        to purchase an aggregate of 9,339 shares of the Company’s common stock in lieu
        of receiving $16,250 in cash fees in accordance with the terms of the
        Non-Management Directors Deferral Program. Dr. Dantzker was also granted
        an
        option to purchase 9,541 shares of the Company’s common stock.
 (5)
        During the year ended December 31, 2007, Dr. Lombard elected to receive options
        to purchase an aggregate of 4,310 shares of the Company’s common stock in lieu
        of receiving $7,500 in cash fees in accordance with the terms of the
        Non-Management Directors Deferral Program. Dr. Lombard was also granted an
        option to purchase 9,541 shares of the Company’s common stock.
 (6)
        The
        compensation reflected in the table as paid to Mr. Kestenbaum excludes the
        $53,333 paid to Mr. Kestenbaum between January 1, 2007 and August 27, 2007
        during which time Mr. Kestenbaum served as Executive Vice President of the
        Company.




39


**Item
              11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**




The
        following table sets forth certain information, as of December 31, 2007,
        concerning securities authorized for issuance under the Company’s 2006
        Non-Employee Directors Stock Option Plan and 2006 Incentive Stock Plan:
 
 **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
                  compensationplans
                  approved bysecurity
                  holders (1)
              
              
              1,974,319
              
              $
              4.73
              
              
              875,681Equity
                  compensation plansnot
                  approved bysecurity
                  holders (2)
              
              
              800,000
              
              $
              5.35
              
              
              __Total
              
              
              2,774,319
              
              $
              4.91
              
              
              875,681
  
 (1)
        Includes 400,000 shares authorized for issuance under the Company’s 2006
        Non-Employee Directors Stock Option Plan and 400,000 shares authorized issuance
        under the Company’s 2006 Incentive Stock Plan.
  (2)
        Includes 950,000 shares authorized for issuance under the Company’s 2006
        Incentive Stock Plan by the Board.
  **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 March 17, 2008 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.
 
 **Stockholder**
              **Number
                  of Shares of**
                **Common
                  Stock**
                **Beneficially
                  Owned at**
                **March
                  17, 2008 (1)**
              **Percentage**
                **of
                  Shares**
                **Beneficially**
                **Owned
                  (1)****5%
                  or Greater Stockholders**Hi-Tech
                  Pharmacal Co., Inc. (2)
              1,140,610
                  (4)
              8.1%Wheatley
                  MedTech Partners, L.P. (3)
              948,382
                  (5)
              6.7%Wheatley
                  New York Partners, LP (3)
              1,314,227
                  (6)
              9.3%Durand
                  Venture Associates, LLC
              1,345,048
                  (7)
              9.2%**Directors
                  and Executive Officers:**John
                  D. Abernathy, Director
              73,454
                  (8)
              *Mark
                  Auerbach, Director
              357,689
                  (9)
              2.5%David
                  J. Barrett, Chief Financial Officer
              125,000
                  (10)
              *David
                  Dantzker, Director
              46,611
                  (11)
              *Alan
                  Kestenbaum, Director
              2,092,008
                  (12)
              14.8%Jay
                  Lombard, Director
              43,617
                  (13)
              *Gary
                  Shearman, Chief Executive Officers and Director
              240,000
                  (14)
              1.7%Reuben
                  Seltzer, Director
              1,235,610
                  (15)
              8.7%All
                  directors and executive officers as a group (8
                  individuals)
              4,213,989(16)
              27.7%
  *
        Less
        than 1%.
  40
 (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 14,004,853 shares of Common
        Stock
        outstanding on March 17, 2008.
 
 (2)
        Reuben Seltzer is a director of Hi-Tech Pharmacal Co., Inc. and disclaims
        beneficial ownership as to any of the shares owned by Hi-Tech Pharmacal Co.,
        Inc.
 
 (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 15,000 shares of Common Stock issuable upon the exercise of currently
        exercisable warrants.
 
 (5)
        Includes 326,656 shares of Common Stock issuable upon the exercise of currently
        exercisable warrants.
 
 (6)
        Includes 527,172 shares of Common Stock issuable upon the exercise of currently
        exercisable warrants.
 
 (7)
        Includes 544,030 shares of Common Stock issuable upon the exercise of currently
        exercisable warrants.
 
 (8)
        Includes options to purchase 73,454 shares of Common Stock exercisable within
        sixty (60) days of March 17, 2008.
 
 (9)
        Includes options to purchase 357,689 shares of Common Stock exercisable within
        sixty (60) days of March 17, 2008.
 
 (10)
        Includes options to purchase 100,000 shares of Common Stock exercisable within
        sixty (60) days of March 17, 2008.
 
 (11)
        Includes options to purchase 46,611 shares of Common Stock exercisable within
        sixty (60) days of March 17, 2008.
 
 (12)
        Includes warrants to purchase 15,000 shares of Common Stock and options to
        purchase 85,000 shares of Common Stock exercisable within sixty (60) days
        of
        March 17, 2008.
 
 (13)
        Includes options to purchase 43,617 shares of Common Stock exercisable within
        sixty (60) days of March 17, 2008.
 
 (14)
        Includes 240,000 shares of Common Stock issuable upon the exercise of currently
        exercisable within sixty (60) days of March 17, 2008.
 
 (15)
        Includes 5,000 shares of Common Stock issuable upon the exercise of currently
        exercisable warrants and options to purchase 220,000 shares of Common Stock
        exercisable within sixty (60) days of March 17, 2008.
 
 (16)
        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 March 17, 2008.


41


**Item
              12.**
            **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, 2007, there were no related party
        transactions.
  *Director
        Independence* .
        Each of
        the non-employee directors qualifies as “independent” in accordance with the
        published listing requirements of NASDAQ: Mr. Abernathy, Mr. Auerbach, Dr.
        Dantzker and Dr. Lombard. Messrs. Kestenbaum, Seltzer and Shearman do not
        qualify as independent because Dr. Shearman is an employee of the Company
        and
        Messrs. Kestenbaum and Seltzer were employees 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 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. 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.


42


**Item
              13**
            **Exhibits**




**Exhibit**
            
            
            
            **Incorporated
                by Reference**
            
            **Filed****Number**
            
            **Exhibit
                Description**
            
            **Form**
            
            **Exhibit**
            
            **Filing****Date**
            
            **Herewith**2.1
            
            Agreement
                and Plan of Merger, dated January 17, 2006, between Northern Way
                Resources, Inc., a Nevada corporation and Northern Way Resources,
                Inc., a
                Delaware corporation
            
            8-K
            
            2.1
            
            1/23/062.2
            
            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
            
            1/23/062.3
            
            Articles
                of Merger merging Northern Way Resources, Inc., a Nevada corporation
                into
                Northern Way Resources, Inc., a Delaware corporation
            
            8-K
            
            2.3
            
            1/23/062.4
            
            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
            
            1/30/062.5
            
            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
            
            12/5/063.1
            
            Certificate
                of Incorporation of Neurotech Pharmaceuticals, Inc.
            
            8-K
            
            3.1
            
            1/23/063.2
            
            Certificate
                of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
                JV
                Ltd.
            
            8-K
            
            3.5
            
            1/30/063.3
            
            Certificate
                of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
                JV
                Ltd.
            
            8-K
            
            3.6
            
            1/30/063.4
            
            Certificate
                of Amendment of Certificate of Incorporation of Neurotech Pharmaceuticals,
                Inc., changing name to Neuro-Hitech Pharmaceuticals, Inc.
            
            8-K
            
            3.7
            
            1/30/063.5
            
            Certificate
                of Ownership and Merger effective August 11, 2006
            
            8-K
            
            3.1
            
            8/11/063.6
            
            By-laws
                of the Company
            
            8-K
            
            3.2
            
            1/23/064.1
            
            Form
                of Common Stock Purchase Warrant Certificate
            
            8-K
            
            4.1
            
            1/30/064.2
            
            Warrant
                to purchase common stock of Marco-Hitech JV Ltd. issued to Brown
                Brothers
                Harriman & Co.
            
            8-K
            
            4.2
            
            1/30/064.3
            
            Warrant
                to purchase common stock of Marco-Hitech JV Ltd. issued to Barry
                Honig
            
            8-K
            
            4.3
            
            1/30/06




43





4.4
            
            Form
                of Marco Hi-Tech JV Ltd. Registration Rights Agreement
            
            8-K
            
            10.4
            
            1/30/064.5
            
            Registration
                Rights Agreement, dated as of November 29, 2006, by and among
                Neuro-Hitech, Inc. and David Dantzker as the Representative of the
                Q-RNA,
                Inc. security holders
            
            8-K
            
            4.1
            
            12/5/064.6
            
            Registration
                Rights Agreement, dated as of November 29, 2006, by and among
                Neuro-Hitech, Inc. and individuals and entities that are parties
                to the
                Securities Purchase Agreement dated as of November 16,
                2006
            
            8-K
            
            4.2
            
            12/5/064.7
            
            Form
                of $13 Warrant issued pursuant to the Merger.
            
            8-K
            
            4.3
            
            12/5/064.8
            
            Form
                of $18Warrant issued pursuant to the Merger.
            
            8-K
            
            4.4
            
            12/5/064.9
            
            Form
                of Warrant issued in connection with private offering
            
            8-K
            
            4.5
            
            12/5/064.10
            
            Stock
                and Warrant Purchase Agreement, dated as of November 29, 2007, by
                and
                among Neuro-Hitech, Inc. and the investors identified therein
            
            8-K
            
            4.1
            
            12/19/074.11
            
            Registration
                Rights Agreement, dated as of November 29, 2007, by and among
                Neuro-Hitech, Inc. and the investors identified therein
            
            8-K
            
            4.2
            
            12/19/074.12
            
            Form
                of Warrant issued in connection with private offering
            
            8-K
            
            4.3
            
            12/19/0710.1
            
            Neurotech
                Pharmaceuticals, Inc. 2006 Incentive Stock Plan
            
            8-K
            
            10.1
            
            1/30/0610.2
            
            Neurotech
                Pharmaceuticals, Inc. 2006 Non-Employee Directors Stock Option
                Plan
            
            8-K
            
            10.2
            
            1/30/0610.3
            
            Form
                of Private Placement Subscription Agreement
            
            8-K
            
            10.3
            
            1/30/0610.4
            
            Securities
                Purchase Agreement, dated January 5, 2006, by and between Marco Hi-Tech
                JV
                Ltd. and the investors signatory thereto
            
            8-K
            
            10.5
            
            1/30/0610.5
            
            Director
                and Officer Indemnification Agreement dated January 24, 2006, between
                Neurotech Pharmaceuticals, Inc. and Reuben Seltzer
            
            8-K
            
            10.6
            
            1/30/0610.6
            
            Director
                and Officer Indemnification Agreement dated January 24, 2006, between
                Neurotech Pharmaceuticals, Inc. and Alan Kestenbaum
            
            8-K
            
            10.7
            
            1/30/0610.7
            
            Director
                and Officer Indemnification Agreement dated January 24, 2006, between
                Neurotech Pharmaceuticals, Inc. and John Abernathy
            
            8-K
            
            10.8
            
            1/30/0610.8
            
            Director
                and Officer Indemnification Agreement dated January 24, 2006, between
                Neurotech Pharmaceuticals, Inc. and Mark Auerbach
            
            8-K
            
            10.9
            
            1/30/06




44




10.9
              
              Technology
                  License Contract, dated as of June 1, 1997, by and between Mayo
                  Foundation
                  for Medical Education and Research and Marco Hi-Tech JV
                  Ltd.
              
              8-K
              
              10.12
              
              1/30/0610.10
              
              Clinical
                  Research Agreement, dated March 1, 2002, by and between Georgetown
                  University and Marco Hi-Tech JV Ltd.
              
              8-K
              
              10.13
              
              1/30/0610.11
              
              Offer
                  Letter, dated January 6, 2006, to John Abernathy from Marco Hi-Tech
                  JV
                  Ltd.
              
              8-K
              
              10.14
              
              1/30/0610.12
              
              Offer
                  Letter, dated January 5, 2006, to Mark Auerbach from Marco Hi-Tech
                  JV
                  Ltd.
              
              8-K
              
              10.15
              
              1/30/0610.13
              
              Development
                  Agreement dated February 1, 2006, between the Company and Org Syn
                  Laboratory, Inc
              
              10-QSB
              
              10.1
              
              5/15/0610.14
              
              Development
                  Agreement dated March 15, 2006, between the Company and Xel
                  Herbaceuticals, Inc
              
              10-QSB
              
              10.2
              
              5/15/0610.15
              
              Securities
                  Purchase Agreement, dated as of November 16, 2006, by and among
                  Neuro-Hitech, Inc. and the investors identified therein.
              
              8-K
              
              2.2
              
              12/5/0610.16
              
              Amendment
                  No. 1 to 2006 Incentive Stock Plan
              
              8-K
              
              4.6
              
              12/5/0610.17
              
              Amendment
                  No. 2 to 2006 Incentive Stock Plan
              
              8-K
              
              4.7
              
              12/5/0610.18
              
              Consultant
                  Agreement, dated as of November 29, 2006, by and between Neuro-Hitech,
                  Inc., and D.F. Weaver Medical, Inc., Donald F. Weaver, Principal
                  Consultant.
              
              8-K
              
              10.1
              
              12/5/0610.19
              
              2002
                  Q-RNA, Inc. Stock Incentive Plan
              
              S-8
              
              10.1
              
              12/13/0610.20
              
              2006
                  Stock Incentive Plan
              
              DEF
                  14A
              
              
              
              6/05/0710.21
              
              Non-Management
                  Directors Deferral Program
              
              10-QSB
              
              10.2
              
              8/08/0710.22
              
              Officers
                  Deferral Program
              
              10-QSB
              
              10.3
              
              8/08/0710.23
              
              Employment
                  Agreement, dated August 22, 2007, between Neuro-Hitech, Inc. and
                  Gary
                  Shearman
              
              8-K
              
              10.1
              
              8/29/0710.24
              
              Director
                  and Officer Indemnification Agreement, dated August 22, 2007, between
                  Neuro-Hitech, Inc. and Gary Shearman
              
              8-K
              
              10.2
              
              8/29/0710.25
              
              Employment
                  Agreement, dated December 7, 2007, between Neuro-Hitech, Inc. and
                  David
                  Barrett
              
              8-K
              
              10.1
              
              12/11/0714.1
              
              Code
                  of Ethics
              
              10-KSB
              
              14.1
              
              3/31/0616.1
              
              Letter
                  from Dale, Matheson, Carr-Hilton Labonte, dated as of January 27,
                  2006
              
              8-K
              
              16.1
              
              2/6/0621.1
              
              Subsidiaries
              
              10-KSB
              
              21.1
              
              4/13/07
  45
  31.1
              
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
              
              
              
              
              
              
              
              X31.2
              
              Certification
                  of the Chief Financial Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002
              
              
              
              
              
              
              
              X32.1
              
              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


46





**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, 2007 and December 31, 2006.
 
 **2007**
              
              **2006**Audit
                  Fees
              
              $
              28,000
              
              $
              13,000Audit
                  Related Fees
              
              
              --
              
              
              --Tax
                  Fees
              
              $
              6,000
              
              $
              3,000All
                  Other Fees
              
              $
              9,000
              
              $
              10,500
 
 *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
        Moore Stephens, P.C., in connection with statutory and regulatory filings
        or
        engagements.
  *Audit-Related
        Fees* .
        Consists of fees billed for assurance and related services that are reasonably
        related to the performance of the audit or review of our consolidated financial
        statements and are not reported under “Audit Fees.”
 
 *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 Moore
        Stephens. All audit and permissible non-audit services rendered to the Company
        in 2006 were pre-approved in accordance with these
        procedures.


47




**NEURO-HITECH,
      INC. AND SUBSIDIARIES**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page**Report
                of Independent Registered Public Accounting Firm
            
            F-1Consolidated
                Balance Sheet as of December 31, 2007
            
            F-2Consolidated
                Statements of Operations for the Years Ended December 31, 2007 and
                2006
            
            F-3Consolidated
                Statements of Changes in Stockholders’ [Deficit] Equityfor
                the Years Ended December 31, 2007 and 2006
            
            F-4Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007
                and 2006
            
            F-5Notes
                to the Consolidated Financial Statements
            
            F-7









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
        the
        Board of Directors
 Neuro-Hitech,
        Inc.
 New
        York,
        New York
 
 
 We
        have
        audited the 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 each of the two years
        in the
        period ended December 31, 2007. These financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits 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 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 audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Neuro-Hitech, Inc. and
        Subsidiaries as of December 31, 2007 and the results of their operations
        and
        their cash flows for each of the two years in the period ended December 31,
        2007, in conformity with U.S. generally accepted accounting
        principles.
 
 
 /s/
                Moore Stephens, P.C.MOORE
                  STEPHENS, P.C.Certified
                  Public Accountants
 
  New
        York,
        New York
 March
        28,
        2008


F-1




**Neuro-Hitech,
      Inc. and Subsidiaries**


**Consolidated
      Balance Sheet**


**As
                  of**
                **December 31, 2007****ASSETS:**Current
                  Assets:Cash
                  and Cash Equivalents
              
              $
              6,137,592Accounts
                  Receivable
              
              
              63,300Inventory
              
              
              33,821Prepaid
                  Expenses
              
              
              11,861Total
                  Current Assets
              
              
              6,246,574Property
                  and Equipment, net
              
              
              4,248Other
                  Assets:Security
                  Deposit
              
              
              13,226**Total
                  Assets**
              
              **$**
              **6,264,048****LIABILITIES
                  AND STOCKHOLDERS' EQUITY:**Current
                  Liabilities:Accounts
                  Payable and Accrued Expenses
              
              $
              1,000,399Total
                  Current Liabilities
              
              
              1,000,399Stockholders'
                  Equity:Common
                  Stock $.001 Par Value, Authorized: 44,999,900, Issued and Outstanding:
                  14,004,853
              
              
              14,005Common
                  Stock - Class A $.001 Par Value, Authorized: 100, Issued and Outstanding:
                  0
              
              
              -Additional
                  Paid-in Capital
              
              
              39,270,951Deferred
                  Compensation
              
              
              (1,190,654
              )Accumulated
                  Deficit
              
              
              (32,830,653
              )Total
                  Stockholders' Equity
              
              
              5,263,649**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **6,264,048**


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




F-2




**Neuro-Hitech,
      Inc. and Subsidiaries**


**Consolidated
      Statements of Operations**




**For
                  the**
                **Years Ended December
                  31,****2007**
              
              **2006******Sales
              
              $
              458,870
              
              $
              304,240Cost
                  of Goods Sold
              
              
              215,854
              
              
              155,014Gross
                  Profit
              
              
              243,016
              
              
              149,226Operating
                  Expenses:Selling,
                  General and Administrative Expenses
              
              
              2,561,402
              
              
              1,765,486Research
                  and Development Costs
              
              
              3,523,954
              
              
              19,480,501Share-Based
                  Compensation
              
              
              2,427,904
              
              
              327,835Amortization
                  of Deferred Compensation
              
              
              242,447
              
              
              130,905Registration
                  Payment Arrangement
              
              
              490,550
              
              
              -Total
                  Operating Expenses
              
              
              9,246,257
              
              
              21,704,727(Loss)
                  from Operations
              
              
              (9,003,241
              )
              
              (21,555,501
              )Other
                  Income:Interest
                  and Dividend Income
              
              
              206,804
              
              
              147,730Total
                  Other Income
              
              
              206,804
              
              
              147,730(Loss)
                  Before Provision for IncomeTaxes
              
              
              (8,796,437
              )
              
              (21,407,771
              )Provision
                  for Income Taxes
              
              
              -
              
              
              -**Net
                  (Loss)**
              
              **$**
              **(8,796,437**
              **)**
              **$**
              **(21,407,771**
              **)****Basic
                  and Diluted (Loss) per Weighted Average Common Shares
                  Outstanding**
              
              **$**
              **(0.71**
              **)**
              **$**
              **(2.25**
              **)****Basic
                  and Diluted Weighted Average - Common Shares
                  Outstanding**
              
              
              **12,351,746**
              
              
              **9,528,650**


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


F-3




**Neuro-Hitech,
      Inc. and Subsidiaries**


**Consolidated
      Statement of Changes in Stockholders' [Deficit] Equity**




**Convertible
                  PreferredStock Series A**
              
              **Class
                  A -**
                **Common
                  Stock**
              
              **Common
                  Stock**
              
              **Additional
                  Paid- In**
              
              **Deferred**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Compensation**
              
              **Deficit**
              
              **Totals****Balance
                  as of January 1, 2006**
              
              
              **12,005**
              
              **$**
              **12,005**
              
              
              **-**
              
              
              **-**
              
              
              **8,654,112**
              
              **$**
              **86,541**
              
              **$**
              **2,478,373**
              
              
              **-**
              
              **$**
              **(2,626,445**
              **)**
              **$**
              **(49,526**
              **)**Recapitalization
                  as of January 18, 2006
              
              
              (12,005
              )
              
              (12,005
              )
              
              100
              
              $
              -
              
              
              (1,626,860
              )
              
              (79,514
              )
              
              91,519
              
              
              
              
              
              
              
              
              **-**Private
                  Placement of Common Stock, net of issuance costs of
                  $353,127
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,026,204
              
              
              3,026
              
              
              8,152,378
              
              
              
              
              
              
              
              
              8,155,404Common
                  Stock and Warrants Issued in Connection with Q-RNA merger, net
                  of issuance
                  costs of $271,394
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              1,800,000
              
              
              1,800
              
              
              16,532,593
              
              
              
              
              
              
              
              
              16,534,393Exercise
                  of Stock Options
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              1,679
              
              
              2
              
              
              217
              
              
              
              
              
              
              
              
              219Share-Based
                  Compensation Expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              327,835
              
              
              
              
              
              
              
              
              327,835Recognition
                  of Non-Qualified Stock Options in accordance with Consulting
                  Agreement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,309,052
              
              $
              (1,309,052
              )
              
              
              
              
              -Amortization
                  of Deferred Compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              130,905
              
              
              
              
              
              130,905Net
                  (Loss)
              
              
              **-**
              
              
              
              
              
              **-**
              
              
              
              
              
              **-**
              
              
              
              
              
              
              
              
              -
              
              
              (21,407,771
              )
              
              **(21,407,771**
              **)****Balance
                  as of December 31, 2006**
              
              
              **-**
              
              **$**
              **-**
              
              
              **100**
              
              **$**
              **-**
              
              
              **11,855,135**
              
              **$**
              **11,855**
              
              **$**
              **28,891,967**
              
              **$**
              **(1,178,147**
              **)**
              **$**
              **(24,034,216**
              **)**
              **$**
              **3,691,459**Private
                  Placement of Common Stock, net of issuance costs of
                  $376,548
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,016,930
              
              
              2,017
              
              
              7,000,440
              
              
              
              
              
              
              
              
              7,002,457Repurchase
                  of Class A Common Stock
              
              
              
              
              
              
              
              
              (100
              )
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Exercise
                  of Stock Options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,059
              
              
              12
              
              
              45,812
              
              
              
              
              
              
              
              
              45,824Share-Based
                  Compensation Expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,427,904
              
              
              
              
              
              
              
              
              2,427,904Recognition
                  of Warrants granted in connection with services to be
                  rendered
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              254,954
              
              
              (254,954
              )Common
                  Stock issued in connection with services rendered
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,000
              
              
              20
              
              
              120,980
              
              
              
              
              
              
              
              
              121,000Remeasurement
                  of Non-Qualified Stock Options in accordance with Consulting
                  Agreement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              38,445
              
              
              
              
              
              
              
              
              38,445Amortization
                  of Deferred Compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              242,447
              
              
              
              
              
              242,447Penalty
                  shares issued in connection with Registration Rights
                  Agreement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              100,729
              
              
              101
              
              
              490,449
              
              
              
              
              
              
              
              
              490,550Net
                  (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**


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


F-4




**Neuro-Hitech,
      Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**




**For
                  the Years Ended****December
                  31,****2007**
              
              **2006**Cash
                  flows used in operating activities:Net
                  (Loss)
              
              $
              (8,796,437
              )
              $
              (21,407,771
              )Adjustments
                  to Reconcile Net (Loss) to Net Cash (Used In) Operating
                  Activities:Acquired
                  Research and Development Costs
              
              
              -
              
              
              16,805,787Share-Based
                  Compensation Expense
              
              
              2,427,904
              
              
              327,835Amortization
                  of Deferred Compensation
              
              
              242,447
              
              
              130,905Registration
                  Payment Arrangement
              
              
              490,550
              
              
              -Depreciation
                  Expense
              
              
              2,998
              
              
              1,749Other
                  Share-Based Selling, General and Administrative Expenses
              
              
              225,808
              
              
              -Change
                  in operating assets and liabilities:(Increase)
                  Decrease in Assets:Accounts
                  Receivable
              
              
              (37,500
              )
              
              26,325Inventory
              
              
              (2,530
              )
              
              (31,293
              )Prepaid
                  Expenses
              
              
              (1,166
              )
              
              (10,695
              )Deferred
                  Charges
              
              
              93,750
              
              
              (93,750
              )Security
                  Deposit
              
              
              -
              
              
              (13,226
              )Increase
                  (Decrease) in Liabilities:Accounts
                  Payable and Accrued Expenses
              
              
              (261,707
              )
              
              1,045,793Due
                  To Affiliate
              
              
              -
              
              
              (42,304
              )Net
                  cash (Used In) Operating activities
              
              
              (5,615,883
              )
              
              (3,260,645
              )Cash
                  flows from investing activities:Business
                  Acquisition and Related Costs
              
              
              -
              
              
              (271,394
              )Investment
                  in Property and Equipment
              
              
              -
              
              
              (8,995
              )Net
                  cash (Used In) Investing activities
              
              
              -
              
              
              (280,389
              )Cash
                  flows from financing activities:Net
                  Proceeds from Private Placement Offering of Common Stock
              
              
              7,002,456
              
              
              8,155,404Proceeds
                  from the Exercise of Options
              
              
              45,824
              
              
              219Net
                  cash provided by Financing activities
              
              
              7,048,280
              
              
              8,155,623Net
                  increase in cash and cash equivalents
              
              
              1,432,397
              
              
              4,614,589Cash
                  and cash equivalents, beginning of years
              
              
              4,705,195
              
              
              90,606Cash
                  and cash equivalents, end of years
              
              $
              6,137,592
              
              $
              4,705,195**Cash
                  Paid For:**Income
                  Taxes
              
              $
              -
              
              $
              -Interest
              
              $
              -
              
              $
              -
 The
          accompanying notes are an integral part of these consolidated financial
          statements
  F-5
 **Supplemental
          Disclosure of Non-Cash Investing and Financing
          Activities:**
  The
          Company entered into a service agreement and issued 100,000 warrants measured
          at
          fair value as of the date the service agreement was ratified by the Company's
          Board of Directors. The fair value of these warrants approximated $255,000
          and
          was recognized as Deferred Compensation in the Stockholders' Equity section
          of
          the Balance Sheet. During 2007, the Company ratably recognized approximately
          $112,000 of expense for the amortization of Deferred Compensation in accordance
          with the service term of the agreement.
 
 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. 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
          2007, in accordance with vesting terms of the options, the Company remeasured
          and recognized approximately $170,000 of expense for the amortization of
          Deferred Compensation.
  In
            connection with the reverse merger into Northern Way Resources - a non-operating
            public shell - shareholders of the former privately held company - Marco
            Hi-Tech
            J.V. LTD - converted their shares of preferred stock into common stock
            of the
            publicly traded Company for approximately $12,000.
  F-6


NEURO-HITECH,
      INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS




[1]
      Nature of Operations





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





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





In
      view
      of the results of the Phase II clinical trial, the Company is currently
      reviewing its options for moving forward with its business. Currently, the
      Company expects to focus upon the development of collaborative, joint and
      strategic alliances and licensing arrangements with one or more pharmaceutical
      companies for the further development of Huperzine A and also expects to
      consider merger and/or acquisition opportunities. The Company will further
      evaluate these opportunities based upon the results of Numoda’s review and
      report, and the Company also expects that Numoda will assist the Company in
      interpreting and presenting the results of the Phase II clinical trial to
      potential partners, licensees and merger or acquisition candidates.





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





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





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 year ending December 31, 2007, the Company generated a net
      loss of approximately $8.8 million. As of December 31, 2007, the Company has
      funded its working capital requirements primarily through the sale of equity
      to
      founders, institutional and individual investors. Management intends to fund
      future operations through entrance into the commercial marketplace as well as
      additional equity or debt offerings.





There
      can
      be no assurance that the Company will be successful in obtaining financing
      at
      the level needed for long-term operations or on terms acceptable to the Company.
      In addition, there can be no assurance, assuming the Company is successful
      in
      commercializing its product, realizing revenues and obtaining new equity or
      debt
      offerings that the Company will achieve profitability or positive operating
      cash
      flow. The Company is incurring significant losses, which give rise to questions
      about its ability to continue as a going concern. The accompanying financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





[2]
      Summary of Significant Accounting Policies




Principles
      of Consolidation





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. All inter-company balances and transactions have
      been
      eliminated. Approximately $459,000 and $6,264,000 of consolidated revenue and
      assets, after eliminations, respectively, are based upon the accounts of the
      parent and $0 and $0 of consolidated revenue and assets, after eliminations
      respectively, of the subsidiaries.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that effect 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 revenue and expenses during
      the reporting periods. Actual results could differ from those
      estimates.





F-7


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Cash
      and
      Cash Equivalents




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





Concentrations
      of Credit Risk ******





Financial
      statement items which potentially subject the Company to concentrations of
      credit risk are cash and cash equivalents and trade accounts receivable arising
      from the Company’s normal business activities. To mitigate cash risks, the
      Company places its cash with a high credit quality financial institution. At
      December 31, 2007, the Company had approximately $6,000,000 in this financial
      institution that is subject to normal credit risk beyond federally insured
      amounts.




Accounts
      Receivable




Accounts
      receivable are recorded at invoiced amounts and do not bear interest. The
      Company has established guidelines relative to credit ratings and maturities
      that seek to maintain stability and liquidity. The Company routinely assesses
      the financial strength of its customers and maintains allowances for doubtful
      accounts for estimate of the amount of probable credit losses of accounts
      receivable balances outstanding. Account balances are charged against the
      allowance after all means of collection have been pursued and likelihood of
      collection is remote. The Company does not have any off-balance sheet credit
      exposure related to its customers. Based on management’s assessment of credit
      losses as of December 31, 2007, no allowance for doubtful accounts has
      been deemed necessary.





Inventory





Inventory
      is stated at the lower of average cost or market.





Property
      and Equipment





Furniture,
      fixtures and equipment are carried at cost. Depreciation is recorded on the
      straight-line method over three years, which approximates their useful
      life. Depreciation expense in 2007 and 2006 was $2,998 and $1,749,
      respectively.





Routine
      maintenance and repair costs are charged to expense as incurred and renewals
      and
      improvements that extend the useful life of the assets are capitalized. Upon
      sale or retirement, the cost and related accumulated depreciation are eliminated
      from the respective accounts and any resulting gain or loss is reported in
      the
      statement of operations. During 2007 and 2006, there were no sales or
      retirements of property and equipment.





Earnings
      Per Share





The
      Company has adopted the provisions of SFAS No. 128. Basic earnings per share
      is
      computed by dividing income available to common stockholders by the weighted
      average number of common shares outstanding during the period. SFAS No. 128
      also
      requires a dual presentation of basic and diluted earnings per share on the
      face
      of the statement of operations for all companies with complex capital
      structures. Diluted earnings per share reflects the amount of earnings for
      the
      period available to each share of common stock outstanding during the reporting
      period, while giving effect to all dilutive potential common shares that were
      outstanding during the period, such as common shares that could result from
      the
      potential exercise or conversion of securities into common stock.





The
      computation of diluted earnings per share does not assume conversion, exercise,
      or contingent issuance of securities that would have an antidilutive effect
      on
      per share amounts [i.e., increasing earnings per share or reducing loss per
      share]. The dilutive effect of outstanding options and warrants and their
      equivalents are reflected in dilutive earnings per share by the application
      of
      the treasury stock method which recognizes the use of proceeds that could be
      obtained upon exercise of options and warrants in computing diluted earnings
      per
      share. It assumes that any proceeds would be used to purchase common stock
      at
      the average market price during the period. Options and warrants will have
      a
      dilutive effect only when the average market price of the common stock during
      the period exceeds the exercise price of the options or warrants.




In
        January 2006, the Company merged into a non-operating public shell, analogous
        to
        a reverse acquisition as more fully described in Note 5 - Capital Stock.
        The
        shares issued in connection with this transaction are presented as outstanding
        for all periods presented.




Basic
      earnings (loss) per share reflect the amount of earnings (loss) for the period
      attributable to each share of common stock outstanding during the reporting
      period. For the year ended December 31, 2007 and 2006, the Company recorded
      losses and as a result, the average number of common shares used in the
      calculation of basic and diluted loss per share have not been adjusted for
      the
      effects of potential common shares from unexercised stock options and
      warrants.




F-8


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




The
      basic
      and diluted loss per common share outstanding on the Consolidated Statement
      of
      Operations excludes common shares represented by warrants and options from
      the
      computation of diluted net loss per share, as they have an anti-dilutive effect
      but may dilute earnings per share in the future.





Share-Based
      Compensation





Effective
      January 1, 2006, the Company adopted 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 a standard option pricing model (i.e., Black-Scholes) 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 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.





Income
      Taxes





The
      Company follows the provisions of the Statement of Financial Accounting
      Standards No. 109, Accounting for Income Taxes (“SFAS 109”). Income taxes are
      provided on taxable income at the statutory rates applicable to such income.
      Deferred taxes arise from the temporary differences in the basis of assets
      and
      liabilities for income tax and financial reporting purposes. Deferred tax assets
      are reduced by a valuation allowance if it is more likely than not that some
      portion or all of the deferred tax asset will not be realized.





Fair
      Value of Financial Instruments





The
      carrying amounts of financial instruments including cash and cash equivalents,
      accounts receivable, other assets, accounts payable and accrued expenses,
      approximate fair value due to the relatively short maturity of these
      instruments.





Revenue
      Recognition





Revenues
      from product sales are recognized when products are shipped to the customer
      and
      risk of loss and transfer of title have carried over to the
      customer.




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.




Advertising
      Expense





The
      cost
      of advertising is expensed as incurred. During 2007 and 2006, the Company
      incurred approximately $0 in advertising costs.





[3]
      Property and Equipment





December
                31,2007Office
                Equipment
            
            $
            8,995Less:
                Accumulated depreciation
            
            
            4,747Net
                Office Equipment
            
            $
            4,248





[4]
      Operating Lease





The
      Company leases office space under a three year lease expiring June 30, 2009.
      The
      Company is required to pay utilities, insurance and other costs related to
      the
      leased facilities.




F-9


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




2008
            
            
            55,6162009
            
            
            28,131Totals
            
            $
            83,747





The
      Company’s lease on its office space has an escalation clause requiring increases
      over the lease term. The effect of the escalation clause which requires
      straight-line recognition over the lease term has not been recorded in
      accordance with SFAS No. 13 “Accounting for Leases” as it has been deemed
      immaterial.





[5]
      Common Stock





Recapitalization





On
      January 18, 2006, Northern Way Resources, Inc., a Nevada corporation
      (“Northern-NV”) was merged with and into Northern Way Resources Inc., a Delaware
      corporation (“Northern-DE”) for the sole purpose of changing its state of
      incorporation from Nevada to Delaware pursuant to an Agreement and Plan of
      Merger dated January 12, 2006 (“Reincorporation Merger Agreement”), which was
      approved through an action by written consent of a majority of the stockholders
      on the same date (“Reincorporation Merger”). Under the terms of the
      Reincorporation Merger, each share of Northern-NV was exchanged for one share
      of
      Northern-DE. In connection with the Reincorporation Merger, Northern-DE changed
      its name to Neurotech Pharmaceuticals, Inc. (“Neurotech”).




On
      January 24, 2006 Neurotech entered into an Agreement of Merger and Plan of
      Reorganization by and among Neurotech, Marco Hi-Tech J.V. Ltd., a privately
      held
      New York corporation, and Marco Acquisition I, Inc., (“Acquisition Sub”) a newly
      formed wholly-owned Delaware subsidiary of Neurotech. Upon closing of the merger
      transactions contemplated under the Merger Agreement, Acquisition Sub was merged
      with and into Marco, and Marco became a wholly-owned subsidiary of
      Neurotech.





On
      January 25, 2006, Neurotech filed a Certificate of Amendment to its Certificate
      of Incorporation in the State of Delaware in order to change its name to
      Neuro-Hitech Pharmaceuticals, Inc.





For
      accounting purposes, the acquisition was treated as an issuance of shares for
      cash by Marco with Marco as the acquirer. The accounting is identical to that
      resulting from a reverse acquisition except that no goodwill or other intangible
      assets are recorded. Pro forma information is not presented as of the date
      of
      this transaction as Neurotech was considered a public shell and
      accordingly, the transaction was not considered a business
      combination.





Thereafter,
      on August 11, 2006, Neuro-Hitech Pharmaceuticals, Inc. amended its Certificate
      of Incorporation to change its name to “Neuro-Hitech, Inc.”




Business
          Combination
 
 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. The
          Company also assumed Q-RNA options outstanding which upon exercise will
          be
          exercisable into 199,286 shares of the Company’s common stock. The common shares
          and warrants were valued at the adjusted close price of the NHPI stock
          on the
          closing date of the agreement which was $5.60 per share. The issuance costs
          related to the Q-RNA Merger totaled approximately $271,000.
  Upon
          acquisition of Q-RNA, the Company adopted Interpretation No. 4 (FIN), “Applicability
          of
          FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
          Method.” In
          accordance with this interpretation, a substantial portion of the costs
          of the
          Q-RNA acquisition, $16,805,787 million, was assigned to in-process research
          and
          development and expensed upon acquisition as management deemed these assets
          to
          have no alternative future use.
  The
          unaudited pro forma information below assumes that Q-RNA was acquired in
          fiscal
          2006 with the impact of charges for in-process research and development
          costs being excluded.
 
 The
          unaudited proforma information is presented for informational purposes
          only and
          is not indicative of the results of future operations or results that would
          have
          been achieved had the acquisition taken place at the beginning of fiscal
          year.
 For the YearEnded December31,**2006**Total
                      Revenue
                  
                  $
                  304,200Net
                      [Loss]
                  
                  $
                  (5,402,784
                  )Basic
                      and Diluted [Loss] Per Common Share
                  
                  $
                  (0.57
                  )
 The
              acquisition of Q-RNA provided the Company with intellectual property
              and a
              pipeline of preclinical compounds.




Private
      Placement Offerings





Immediately
      after the closing of the Merger on January 24, 2006, there were 7,027,252 shares
      of Neuro-Hitech Common Stock issued and outstanding and 100 shares of
      Neuro-Hitech Class A Common Stock issued and outstanding.





Prior
      to
      the closing of the Merger, the Company’s predecessor, Marco completed a private
      offering in which Marco received total gross proceeds of   $996,006, which
      after the closing of the merger with the Company, were converted into 664,004
      shares of the Company’s common stock. Subsequent to the closing of the Merger,
      Neuro-Hitech completed a private offering of 1,750,000 shares of its common
      stock and warrants to purchase 437,500 shares of its common stock for $4,375,000
      million in cash. The common stock was sold in the offering at $2.50 per share
      and the exercise price of the warrants is $5.00 per share. The warrants
      expire on January 24, 2009.





F-10


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


On
      November 29, 2006 Neuro-Hitech closed on the sale in a private offering of
      612,200 shares of its common stock and warrants to purchase 306,100 shares
      of
      its common stock for $3,137,525 in cash.  The common stock was sold in the
      offering at $5.125 per share and the exercise price of the warrants is $7.00
      per
      share. The warrants 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.





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
      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 and $200 from the exercise of options to purchase
      12,059 and 1,679 shares during 2007 and 2006,
      respectively.


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. The costs associated
        with this agreement totaled $5,336,842 and were partially funded by the National
        Institutes of Health. The Company’s portion of the total cost is $4,036,842, and
        paid in installments upon the achievement of certain
        milestones.





For
      the
      years ended December 31, 2007 and 2006, the payments made by the Company to
      Georgetown under the terms of the clinical research agreement were approximately
      $1,183,167 and $952,500, respectively, and the total payments made by the
      Company to Georgetown since inception of the agreement were approximately
      $3,110,667. These costs are reflected in the Research and Development caption
      of
      the Statement of Operations.





The
      Company expects to make additional payments in 2008 to Georgetown of $926,175
      related to an open label extension which extension will expire in June
      2008.





Org
      Syn
      Laboratory, Inc.





On
      February 1, 2006, the Company entered into an exclusive development agreement
      with Org Syn for the development of synthetic Huperzine A. Org Syn received
      an
      aggregate of $175,894 upon the execution of the Agreement .
For
      the
      years ended December 31, 2007 and 2006, the payments made by the Company to
      Org
      Syn were approximately $11,375 and $419,500, respectively.





F-11


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




For
      the
      years ended December 31, 2007 and 2006, the payments made by the Company to
      Org
      Syn were approximately $45,000 and $419,500, respectively, and are reflected
      in
      the Research and Development caption of the Statement of
      Operations.





Xel
      Herbaceuticals, Inc.





On
      March
      15, 2006, the Company entered into a development agreement with Xel
      Herbaceuticals, Inc. (“XEL”) for the development of the Huperzine A Transdermal
      Delivery System (“Delivery Product”). Under the terms of the agreement, the
      Company paid XEL a $250,000 fee upon the execution of the agreement and paid
      XEL
      $92,500 per month during the development of the Delivery Product, including
      the
      first six months of 2007. The Delivery Product was completed in July 2007.
The
      $250,000 signing fee paid upon the execution of the agreement was amortized
      ratably over the 16 month term of the agreement. Through December 31, 2007,
      the
      remaining $93,750 of unamortized signing fee was charged to the Statement of
      Operations and is reflected in the Research and Development Costs caption.Between August 2007 and December 31, 2007, the Company paid XEL an
      additional $92,500 per month to fund the further development of the Product.
      The
      Company and XEL intend to seek domestic and foreign patent protection for the
      Delivery Product.





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





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





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





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





For
      the
      years ended December 31, 2007 and 2006, the total payments made by the Company
      to XEL under this agreement were approximately $1,111,250 **** and
      $1,081,000, respectively, and are reflected in the Research and Development
      caption of the Statement of Operations.





Dalhousie
      License Agreements (PARTEQ)





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





The
      Exclusive Patent License Agreement with PARTEQ (the “Alzheimer’s Agreement”)
      grants the Company an exclusive worldwide license to all innovations and
      developments, including the patent applications and additional filings, related
      to specified patents related to research on Alzheimer’s disease. The Company
      made a one-time license fee of C$25,000 when it entered into the Alzheimer’s
      Agreement in 2005 and will be required to make quarterly royalty payments of
      3%
      of net sales of the licensed products (as such term is defined in Alzheimer’s
      Agreement), with a minimum annual royalty of C$10,000 for 2007, C$20,000 for
      2008, C$30,000 for 2009 and C$40,000 for 2010 and each subsequent calendar
      year.
      The Company is also obligated to make the following milestone payments:
      C$100,000 upon completion of a Phase I trial of a licensed product, C$250,000
      upon completion of a Phase II trial of a licensed product, and C$1,000,000
      upon
      the first FDA approval (as such term is defined in the Alzheimer’s Agreement).
      The Company also has the right to sub-license with the payment of 20% of all
      non-royalty sublicensing consideration.




F-12


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




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





The
      Exclusive Patent License Option Agreement with PARTEQ (the “Epilepsy Agreement”)
      grants the Company an option to acquire an exclusive worldwide license to all
      innovations and developments, including the patent applications and additional
      filings, related to specified patents related to research on Epilepsy. The
      Company made a non-refundable, non-creditable option payment of $10,000 when
      it
      entered into the Epilepsy Agreement in 2006. The
      Company made an additional payment of $45,000 to PARTEQ in the year ended
      December 31, 2007 for expenses that should have been paid by Q-RNA in the year
      ended December 31, 2005. If the Company exercises its option, the
      Company will make a non-refundable, non-creditable license payment of C$17,500
      at the time of such exercise. If the Company exercises its option, it will
      be
      required to make quarterly royalty payments of 3% of net sales of the licensed
      products (as such term is defined in Epilepsy Agreement), with a minimum annual
      royalty of C$10,000 through the second anniversary of the license, C$20,000
      through the third anniversary of the license, C$30,000 through the fourth
      anniversary of the license and C$40,000 through the fifth anniversary of the
      license and each subsequent anniversary. If the Company exercises its option,
      the Company is also obligated to make the following milestone payments:
      C$100,000 upon completion of a Phase I trial of a licensed product, C$250,000
      upon completion of a Phase II trial of a licensed product, and C$1,000,000 upon
      the first FDA approval (as such term is defined therein). If the Company
      exercises its option, the Company also has the right to sub-license with the
      payment of 20% of all non-royalty sublicensing consideration. ****





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





For
      the
      years ended
      December 31, 2007 and 2006, the payments made by the Company to PARTEQ under
      these agreements have been approximately $457,115 and $48,600,
      respectively, and are reflected in the Research and Development caption of
      the
      Statement of Operations.





The
      following chart estimates the fixed annual research and development costs of
      the
      Company, excluding any exercise of the option under the Epilepsy Agreement
      and
      any milestone payments to Numoda or XEL.




Mayo
      Foundation





The
      Company holds a license for two composition of matter patents and four process
      patents for Racemic Huperzine A, Huperzine A and their analogues and derivatives
      from the Mayo Foundation. The Company has a license to the four process patents
      pursuant to a Technology License Contract with the Mayo Foundation (the “Mayo
      Licensing Agreement”). For the years ended December 31, 2007 and 2006, the total
      research and development costs incurred by the Company under this Agreement
      have been approximately $18,888 and $205,000, respectively. The total costs
      accrued and incurred since inception of the agreement were approximately
      $350,000 and are reflected in the Research and Development caption of the
      Statement of Operations. Although the Company has accrued certain costs
      relating to the Mayo Licensing Agreement, because of uncertainty between the
      Company and Mayo over the interpretation of the agreement, it is uncertain
      when
      or whether those expenses actually will be paid.




Year
              
              Amount2008
              
              $
              1,416,5452009
              
              
              20,0002010
              
              
              30,0002011
              
              
              40,000Total
              
              $
              1,506,545


*See
      Note 13 for description of a subsequent event related to the License Agreement
      with Numoda.*


F-13
 
 NEURO-HITECH,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




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





As
      of
      December 31, 2007 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
      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.




·
            The
                Directors Plan is administered by the a committee designated by the
                board.




·
            Options
                shall be granted within ten years from the effective
                date.




·
            Upon
                a “change in control” any unvested options shall vest and become
                immediately exercisable.


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-FreeInterest Rate**
              
              **Expected
                  Term**
              
              **ExpectedVolatility**
              
              **ExpectedDividends**2007
              
              
              3.45
              %
              
              
              
              
              5
              
              
              55.16
              %
              
              None2006
              
              
              4.45
              %
              
              
              
              
              5
              
              
              48.60
              %
              
              None


A
      summary
      of the stock option activity under the Company’s Non-Employee Directors Stock
      Option Plan during the year ended December 31, 2007 is presented below:




F-14


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




Options Outstanding as of 12/31/2007
            
            Options ExercisableWeighted Average
            
            
            
            WeightedExercise Price Range
            
            Number ofSharesOutstanding
            
            RemainingContractual Life
            
            Exercise PricePer Share
            
            As of12/31/2007
            
            AverageExercise PricePer Share
            
            AggregateIntrinsicValue$0
                to $2.50 per share
            
            
            350,000
            
            
            2.00
            
            $
            2.50
            
            
            233,334
            
            $
            2.50
            
            $
            396,668




Year Ended December 31, 2007Number ofOptions
            
            Weighted
              Average Exercise
              Price Per Share
            
            AggregateIntrinsicValueOutstanding
                at December 31, 2006
            
            
            350,000
            
            
            2.50
            
            $
            595,000Granted
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -
            
            
            -Outstanding
                at December 31, 2007
            
            
            350,000
            
            $
            2.50
            
            $
            595,000





Employee
      Stock Option 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:




·
            Company’s
                officers, directors, key employees and consultants of the Company
                and its
                subsidiaries are eligible to participate in the Incentive Plan. The
                term
                of the Incentive Plan is ten years. 3,250,000 shares of common stock
                are
                reserved for issuance under the Incentive
                Plan.




·
            Both
                incentive and nonqualified stock options may be granted under the
                Incentive Plan, as well as Stock Appreciation Rights, Restricted
                Stock,
                Restricted Stock Units and Unrestricted
                Stock.




·
            The
                Incentive Plan terminates on January 23,
                2016.




·
            The
                Incentive Plan is administered by a committee designated by the
                board.




On
      January 24, 2006, the Company's Chief Executive Officer and Executive Vice
      President were granted options to purchase 220,000 shares and 70,000 shares
      of the Company’s common stock, respectively, each at an exercise price of $2.50
      per share. One-third of the shares granted vested on the date of grant and
      the
      remaining shares vest in equal proportions on the first and second
      anniversaries of the grant date.





In
      connection with the acquisition of Q-RNA, the Company also entered into a
      consulting relationship with Dr. Donald F. Weaver and signed an Employment
      Agreement with William McIntosh, as Chief Operating Officer, and William Wong,
      as Chief Scientific Officer.





Under
      the
      terms of the Consultant Agreement, the Company issued 500,000 non-qualified
      stock options to Dr. Donald Weaver. These options have a contractual term of
      15
      years and are exercisable at $5.85 per share.





Vesting
      of the options is based on two separate criteria. The first vesting criteria
      is
      for each successful year of completion of the sponsored research agreement
      measured from July to June and commencing in 2006 the consultant will earn
      the
      right to exercise the purchase of 50,000 options which total 200,000 options
      over a four year vesting term.





The
      second vesting criteria allows for the ability to earn the right to purchase
      the
      other 300,000 options measured by achievement of specified milestones in
      connection with the sponsored research agreement. There are four milestones
      allowing for the right to purchase an additional 75,000 shares,
      respectively.





Initial
      recognition of the deferred compensation approximated $1.3 million valued using
      the Black-Scholes option pricing model and was amortized by approximately
      $131,000 through December 31, 2006 due to vesting of the first 50,000 shares
      in
      accordance with achievement of the first successful year of completion of the
      sponsored research agreement from July 2005 through June 2006.





F-15


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


On
      November 29, 2006, Mr. McIntosh signed an employment agreement and received
      options to purchase 300,000 shares of the Company’s common stock, which option
      becomes exercisable as to 18,750 shares per quarter beginning as of the date
      of
      this agreement. The option has an exercise price of $5.85 per share. Pursuant
      to
      an amendment to Mr. McIntosh’s employment agreement which extended the term
      until May 28, 2008, in the event Mr. McIntosh remains employed by the Company
      until May 28, 2008, in addition to the vesting set forth above, the option
      shall
      then be immediately vested as to an additional 37,500 shares.





On
      November 29, 2006, Dr. Wong signed an employment agreement and received options
      to purchase 150,000 shares of the Company’s common stock, which option became
      exercisable as to 9,375 shares per quarter beginning as of the date of this
      agreement. The option has an exercise price of $5.85 per share. Pursuant
      to an amendment to Dr. Wong’s employment agreement which extended the term until
      May 28, 2008, in the event Dr. Wong remains employed by the Company until May
      28, 2008, in addition to the vesting set forth above, the option shall then
      be
      immediately vested as to an additional 18,750 shares.




On
        April
        10, 2007, the Company issued options to purchase an aggregate of 100,000
        shares
        of its common stock to two of its non-employee directors, each at an exercise
        price of $5.85 per share.




During
      the Year ended December 31, 2007, David Barrett, the Company’s Chief
      Financial Officer, was granted various options to purchase the Company’s
      common stock. On April 20, 2007, Mr. Barrett was granted an option that was
      immediately exercisable as to 60,000 shares at an exercise price of $5.85 per
      share. On June 26, 2007, Mr. Barrett was granted an option to purchase 100,000
      shares at an exercise price of $7.97 per
      share, which shares were immediately vested as to 40,000 shares and will vest
      as
      to 20,000 shares on May 10, 2008 and an additional 40,000 shares on May 10,
      2009. On December 6, 2007, Mr. Barrett was granted an option to purchase 25,000
      shares at an exercise price of $3.88 per share, which shares will vest as to
      8,333 shares on December 1, 2008, an additional 8,333 shares on December 1,
      2009
      and 8,334 shares on December 1, 2010.





In
      connection with his employment by the Company and in accordance with the terms
      of his employment agreement, on August 22, 2007, Dr. Gary Shearman was granted
      an option to purchase 800,000 shares of the Company’s common stock at an
      exercise price of $5.35 per share. The option to purchase 240,000 shares vested
      immediately on August 27, 2007 and the remaining 560,000 shares shall vest
      in
      equal one-third increments on the first, second and third anniversaries of
      the
      commencement of the term of his employment.





On
      June
      26, 2007, the Company issued options to purchase 9,541 shares to each of its
      non-employee directors, or an aggregate of 38,164, each at an exercise price
      of
      $6.25 per share.




During
      2007 and 2006, compensation costs on vested awards totaled approximately
      $2,428,000 an $328,000, and are reflected in Share-Based Compensation
      caption of the Statement of Operations.




During
        the year ended December 31, 2007, the Company accrued an expense of $138,308
        for
        directors’ fees that would have been paid in that year. In lieu of the fees that
        would otherwise have been paid, the Company issued options to purchase 53,880
        shares of the Company’s common stock to the non-management directors that
        elected to receive compensation for their service in the form of options
        pursuant to the terms of the Non-Management Directors Deferral Program. The
        number of shares underlying the options issued was determined by dividing
        the
        amount deferred 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. Similarly, the
        Company accrued an expense of $21,244 for compensation that would have otherwise
        been paid to one of its officers during the year ended December 31, 2007.
        In
        lieu of compensation that would have been paid in that year, the officer
        received options to purchase 8,276 shares of the Company’s common stock pursuant
        to the terms of the Officers Deferral Program. The number of shares underlying
        the option issued was determined by dividing the amount deferred 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.


Options Outstanding as of 12/31/2007
            
            Options ExercisableWeighted Average
            
            
            
            WeightedExercise Price Range
            
            Number ofShares UnderOption
            
            RemainingContractual Life
            
            Exercise PricePer Share
            
            As of
              12/31/2007
            
            AverageExercise PricePer Share
            
            AggregateIntrinsicValue$0
                to $2.50 per share
            
            
            290,000
            
            
            8.00
            
            $
            2.50
            
            
            193,334
            
            $
            2.50
            
            $
            328,668$2.51
                to $4.25 per share
            
            
            56,078
            
            
            9.96
            
            $
            4.06
            
            
            31,078
            
            $
            4.20
            
            
            -$4.26
                to $6.25 per share
            
            
            2,079,242
            
            
            9.01
            
            $
            5.68
            
            
            673,118
            
            $
            5.68
            
            
            -2,425,319
            
            
            
            
            
            
            
            
            897,529
            
            
            
            
            
            328,668




F-16


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Year Ended December 31, 2007Number of
              Options
            
            Weighted
              Average Exercise
              Price Per Share
            
            AggregateIntrinsicValueOutstanding
                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
            
            
            -




As
        of
        December 31, 2007, there was $1,190,654 of total unrecognized compensation
        cost
        related to nonvested stock-based compensation in connection with a consulting
        agreement assumed by the Company pursuant to the Q-RNA merger and a consulting
        agreement the Company entered into in 2007 for services to be rendered.
        Approximately $131,000 and $111,000 of the amounts recognized as Amortization
        of
        Deferred Compensation in the 2007 Statement of Operations are in accordance
        with
        vesting provisions of the consulting agreement entered into in 2006 and the
        performance of services pursuant to the consulting agreement entered into
        in
        2007, respectively. Similarly, all of the amounts reflected in Amortization
        of
        Deferred Compensation in the 2006 Statement of Operations relate to the vesting
        provisions of the consulting agreement entered into in 2006. For the years
        ended
        December 31, 2007 and 2006, approximately $242,000 and $131,000 was reflected
        in
        Amortization of Deferred Compensation in the Statement of Operations,
        respectively.




Options
      Assumed From Q-RNA Merger




As
      part
      of the Q-RNA merger, the Company assumed Q-RNA options outstanding which upon
      exercise will be exercisable into 199,286 shares of the Company’s common stock.
      Upon consummation of the Q-RNA Merger, the shares were immediately exercisable
      into the Company’s common stock.





Options Outstanding as of 12/31/2007
            
            Options ExercisableWeighted Average
            
            
            
            WeightedExercise Price Range
            
            Number ofShares UnderOption
            
            RemainingContractual Life
            
            Exercise PricePer Share
            
            As of12/31/2007
            
            AverageExercise PricePer Share
            
            AggregateIntrinsicValue$0
                to $3.80 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -$3.81
                to $9.49 per share
            
            
            1,210
            
            
            5.75
            
            $
            9.49
            
            
            1,210
            
            $
            9.49
            
            
            -$9.50
                to $12.66 per share
            
            
            151,080
            
            
            5.88
            
            $
            12.66
            
            
            151,080
            
            $
            12.66
            
            
            -152,290
            
            
            
            
            
            
            
            
            152,290




Year Ended December 31, 2007Number ofOptions
            
            WeightedAverage ExercisePrice Per Share
            
            AggregateIntrinsicValueAssumed
                Upon Acquisition
            
            
            199,286
            
            $
            11.98
            
            
            -Exercised
            
            
            1,679
            
            
            .13
            
            $
            6,797Expired
            
            
            (2,049
            )
            
            11.44
            
            
            -GrantedOutstanding
                at December 31, 2006
            
            
            195,558
            
            
            12.09
            
            
            -Exercised
            
            
            12,059
            
            
            3.80
            
            $
            4,824Expired
            
            
            (31,209
            )
            
            12.66
            
            
            -Granted
            
            
            -Outstanding
                at December 31, 2007
            
            
            152,290
            
            $
            12.62
            
            
            -




F-17


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




The
      intrinsic value for the 12,059 and 1,679 Q-RNA options exercised
      during the years ended December 31, 2007 and 2006 was $18,330 and $9,486,
      respectively.





*See
      Note 5 for further description of the options assumed by the Company in
      connection with the Q-RNA merger.*




Warrants
      to Non-Employees




Prior
      to
      the closing of the Merger with Northern Way Resources, Inc., the Company’s
      predecessor, the Company granted warrants to purchase an aggregate of 100,000
      shares of common stock at an exercise price of $2.50 per share.





In
      January 2006, in connection with a private offering of its securities, the
      Company granted warrants to purchase an aggregate of 437,500 shares of common
      stock at an exercise price of $5.00 per share.





In
      November 2006, in connection with a private placement offering, the Company
      granted warrants to purchase an aggregate of 306,100 shares of common stock
      at
      an exercise price of $7.00 per share.




Between
        January 1, 2007 and March 15, 2007, the Company granted warrants to purchase
        an
        aggregate of 232,098 shares of common stock at an exercise price of $7.00
        per
        share. The warrants expire on November 29, 2011.
 
 During
        the year ended December 31, 2007, the Company granted an aggregate of warrants
        to purchase an aggregate of 202,581 shares of common stock, 17,670 of which
        can
        be purchased at an exercise price of $7.00 per share prior to the expiration
        of
        such warrants on May 18, 2012, 9,911 at an exercise price of $5.13 per share
        prior to the expiration of such warrants on February 14, 2012, 75,000 at
        an
        exercise price of $7.97 per share prior to the expiration of such warrants
        on
        May 10, 2012 and 100,000 at an exercise price of $7.15 per share prior to
        the
        expiration of such warrants on February 14, 2011.
 
 On
        December 14, 2007, the Company granted warrants to purchase an aggregate
        of
        625,000 shares of common stock. The
        exercise price of these warrants is $7.00 per share unless the warrants are
        exercised prior to the later of (i) April 30, 2008 or (ii) thirty days
        after a registration statement registering the shares of common stock underlying
        the warrants is declared effective by the Securities and Exchange Commission,
        in
        which case the exercise price will be $5.00 per share.The
        warrants expire on December 14, 2012.
 
 On
        December 14, 2007, the Company adjusted the number of shares issuable upon
        the
        exercise of warrants to purchase common stock issued in private offerings
        between November 2006 and March 2007. These adjustments were made in accordance
        with certain anti-dilution adjustment provisions in the issued warrants.
        In
        accordance therewith, the number of shares of common stock issuable upon
        exercise of those warrants will result, if exercised, in the issuance of
        an
        additional 151,366 shares of the Company’s common stock.


A
      summary
      of the warrant activity during the year ended December 31, 2007 is presented
      below:





Options Outstanding as of 12/31/2007
            
            Options ExercisableWeighted Average
            
            
            
            WeightedExercise Price Range
            
            Number ofShares UnderOption
            
            RemainingContractual Life
            
            Exercise PricePer Share
            
            As of
              12/31/2007
            
            AverageExercise PricePer Share
            
            AggregateIntrinsicValue$0
                to $2.50 per share
            
            
            100,000
            
            
            2.00
            
            $
            2.50
            
            
            100,000
            
            $
            2.50
            
            $
            170,000$2.51
                to $5.00 per share
            
            
            437,500
            
            
            3.10
            
            $
            5.00
            
            
            437,500
            
            $
            5.00
            
            
            -$5.01
                to $7.97 per share
            
            
            1,517,145
            
            
            4.35
            
            $
            7.05
            
            
            1,517,145
            
            $
            7.05
            
            
            -*$7.98
                to $13.00 per share
            
            
            600,356
            
            
            8.92
            
            $
            13.00
            
            
            600,356
            
            $
            13.00
            
            
            -*$13.01
                to $18.00 per share
            
            
            600,356
            
            
            8.92
            
            $
            18.00
            
            
            600,356
            
            $
            18.00
            
            
            -3,225,357
            
            
            
            
            
            
            
            
            3,225,357
            
            
            
            
            $
            170,000





Year Ended December 31, 2007Number ofWarrants
            
            WeightedAverage ExercisePrice Per Share
            
            AggregateIntrinsicValueOutstanding
                at December 31, 2006
            
            
            2,044,312
            
            $
            11.34
            
            
            -Granted
            
            
            1,211,045
            
            $
            7.06
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Expired
            
            
            (40,000
            )
            $
            0.98
            
            
            -Outstanding
                at December 31, 2007
            
            
            3,225,357
            
            $
            9.75
            
            
            -




**See
      Note 5 for further description of the 1,200,712 warrants issued in
      connection with the acquisition of Q-RNA.*




[8]
      Employment Contracts and Consulting Agreements





Under
      the
      terms of the Q-RNA Merger Agreement, the Company entered into a consulting
      agreement with Dr. Donald F. Weaver and employment agreements with William
      McIntosh, as Chief Operating Officer, and William Wong, as Chief Scientific
      Officer.




Under
      the
      terms of the Consultant Agreement, Dr. Weaver will serve as a member of the
      Company’s Scientific Advisory Board and consult with the Company on matters
      pertaining to the research and development of products owned or licensed by
      the
      Company. Dr. Weaver will also serve as the coordinator and administrator of
      any
      formal licensing, sponsored research or other agreements as executed by the
      Company with Queens University, PARTEQ Innovations and Dalhousie
      University.


F-18


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




In
        accordance with the terms of his Consultant Agreement, Dr. Weaver was eligible
        to receive $1,000 per day, pro rata as appropriate for services actually
        performed. The term of the Agreement was for one year from November 29, 2006
        until November 29, 2007. Dr. Weaver did not receive any compensation in the
        years ended December 31, 2006 and December 31, 2007.




L.
      William McIntosh became the Company’s Chief Operating Officer on November 29,
      2006. Mr. McIntosh’s annualized base salary will be $240,000 per year. Under the
      terms of his employment agreement, Mr. McIntosh shall devote, on average, four
      days a week to the business affairs of the Company and be compensated
      accordingly. The original term of the Agreement expired on November 29, 2007,
      but was extended until May 28, 2008 pursuant to an amendment of the
      agreement. For
      the
      years ended December 31, 2007 and 2006, Mr. McIntosh was paid $192,000 and
      $16,000, respectively.




William
      Wong became the Company’s Chief Scientific Officer on November 29, 2006. Dr.
      Wong’s annualized base salary will be $180,000 per year. Under the terms of his
      employment agreement, Dr. Wong shall devote, on average, three days a week
      to
      the business affairs of the Company and be compensated accordingly. The original
      term of the Agreement expired on November 29, 2007, but was extended until
      May
      28, 2008 pursuant to an amendment of the agreement. For
      the
      years ended December 31, 2007 and 2006, Dr. Wong was paid $114,000 and $6,000,
      respectively.





On
      August
      27, 2007, Dr. Gary Shearman became the Company’s Chief Executive Officer,
      President and a member of the Company’s board of directors. Dr. Shearman’s base
      salary will be $450,000 per year. In addition, Dr. Shearman will be eligible
      to
      receive bonus compensation of up to 50% of his base salary, in amounts to be
      determined by the Compensation Committee of the Board following Dr. Shearman’s
      achievement of certain performance objectives. The term of the agreement is
      four
      years from August 27, 2007, unless earlier terminated or extended and the fixed
      and determinable salary to be paid under the agreement is $450,000 or $1,800,000
      in the aggregate. For
      the
      year ended December 31, 2007, Dr. Shearman was paid $159,750. 
 David
        Barrett, the Company’s Chief Financial Officer, entered into an executive
        employment agreement with the Company on December 7, 2007. Under the terms
        of
        Mr. Barrett’s employment agreement, Mr. Barrett will receive an annual base
        salary of $250,000. The agreement was effective December 1, 2007 and expires
        on
        November 30, 2010. 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 of the Board following Mr. Barrett’s achievement of
        certain performance objectives. For the year ended December 31, 2007, Mr.
        Barrett was paid $20,833 pursuant to the terms of his employment agreement.
        Mr.
        Barrett was paid $191,167 in compensation prior to the effectiveness of his
        employment agreement.


The
          following table summarizes the annual fixed minimum employment and
          consulting agreement obligations of the Company.
 Year
              
              Amount2008
              
              
              812,0002009
              
              
              700,0002010
              
              
              700,0002011
              
              
              519,4172012
              
              
              -Thereafter
              
              
              -Total
              
              $
              2,731,417


*See
      Note 8 for a description of the option grants.*





[9]
      Related Party Transaction





During
      2006, the Company recorded allocated salary, payroll taxes and other operational
      expenses from a company affiliated through common ownership. In March 2006,
      the
      Company fully repaid the amount due to the affiliate totaling approximately
      $45,000.





[10]
      Income Taxes





For
      2007
      and 2006, 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
                31,2007
            
            2006Deferred
                Tax Asset - Non-Current:Net
                Operating Loss Carryforwards
            
            $
            3,613,600
            
            $
            2,475,600Valuation
                Allowance
            
            
            (3,613,600
            )
            
            (2,475,600
            )$
            -
            
            $
            -




A
      full
      valuation allowance has been established due to the uncertainty about the
      realization of the deferred tax asset. The net change during 2007 and 2006
      in
      the total valuation allowance was approximately $1,138,000 and $1,439,600,
      respectively.





As
      of
      December 31, 2007, the Company has net operating loss carry-forwards of
      approximately $9,034,000. The Company’s net operating loss carry-forwards as
      of December 31, 2007 expire as set forth in the following table.





Year
                of Expiration
            
            Amount2012
            
            $
            153,0002021
            
            
            21,0002022
            
            
            113,0002023
            
            
            634,0002024
            
            
            713,0002025
            
            
            955,0002026
            
            
            3,600,0002027
            
            
            2,845,000$
            9,034,000




For
                  the Years Ended December 31,
              
              2007
              
              2006Federal
                  statutory tax rate
              
              
              -35.0
              %
              
              -35.0
              %Changes
                  to valuation allowance
              
              
              12.9
              %
              
              0.06
              %Effective
                  state tax rate
              
              
              0.1
              %
              
              0.5
              %Permanent
                  differences
              
              
              22.0
              %
              
              34.44
              %Effective
                  Income tax rate
              
              
              0.00
              %
              
              0.00
              %


The
      utilization of the net operating losses were limited during 2007 based upon
      provisions established in Section 382 of the Internal Revenue Code. Total
      net
      operating losses incurred were approximately $6,200,000, however, limitation
      of
      these losses pursuant to applicable Internal Revenue Code provisions, based
      upon
      changes in ownership resulted in only $2,800,000 of these losses being available
      to offset future taxable income.




F-19


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


[11] Supply Concentrations





The
      number of available suppliers of natural Huperzine is limited. The Company
      does
      not have a long-term supply contract with its current suppliers, and purchases
      natural Huperzine on a purchase order basis. If the Company is unable to obtain
      sufficient quantities of natural Huperzine, when needed, or develop a synthetic
      version of Huperzine A in the future, the Company’s ability to pursue its
      business plan could be delayed or reduced, or the Company may be forced to
      pay
      higher prices for the natural Huperzine.




[12] 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.





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.




[13]
      Subsequent Events





On
      February 1, 2008, the Company announced top-line results from the double-blind
      part of a phase 2 clinical trial of Huperzine A in mild to moderate Alzheimer’s
      disease (AD) patients. On
      March
      3, 2008, the Company entered into an agreement with Numoda corporation
      (“Numoda”) pursuant to which Numoda will review the results of the Company’s
      recently completed Phase II clinical trial of Huperzine A. After completing
      its
      review and delivering a report of its findings to the Company, the Company
      will
      consider its options for moving forward and Numoda will assist the Company
      in
      interpreting and presenting the results to potential licensing partners,
      purchasers and/or acquisition or merger candidates.





F-20


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




The
      terms
      of its agreement with Numoda, the Company made an initial payment to Numoda
      of
      $100,000. The Company will pay Numoda an additional $100,000 upon the delivery
      of their analysis. Deferred payments of up to $400,000 will be payable to Numoda
      (a “Deferred Payment”) if the Company enters into an agreement for the sale or
      license of the Company’s products, or an agreement to merge or sell the Company
      (each a “Transaction”). If the aggregate consideration paid to the Company in
      such a Transaction is $1,000,000 or less, the Deferred Payment will be $200,000.
      If the aggregate consideration paid to the Company in a Transaction is more
      than
      $1,000,000 but less than $5,000,000, the Deferred Payment will be $250,000.
      If
      the aggregate consideration paid to the Company in a Transaction is more than
      $5,000,000 but less than $10,000,000, the Deferred Payment will be $300,000.
      If
      the aggregate consideration paid to the Company in the Transaction is more
      than
      $10,000,000, the Deferred Payment will be $400,000. Additionally, the Company
      will be obligated to pay Numoda a fee equal to 3.5% of the aggregate
      consideration paid to the Company in a Transaction, provided that the
      Transaction is completed at any time during the term of the agreement, or prior
      to March 3, 2011, and Numoda has either introduced such party to the Company
      or
      materially assisted the Company in facilitating such a Transaction.




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 29, 2008/s/
                  David J. BarrettDavid
                  J. Barrett
                Chief
                  Financial Officer