**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**




**FORM
      10-Q**




(Mark
      One)




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




For
      the
      quarterly period ended September 30, 2008




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




For
      the
      transition period from __________ to ___________




Commission
      File Number   001-33426




NEURO-HITECH,
                INC.**(Exact
                name of Registrant as Specified in its Charter)**Delaware
            
            20-4121393**(State
                or Other Jurisdiction of**
            
            **(I.R.S.
                Employer****Incorporation
                or Organization)**
            
            **Identification
                No.)**450
                7thAvenue, Suite 1106, New York, NY 10123**(Address
                of Principal Executive Offices)**(212)
                798-8121**(Issuer’s
                Telephone Number, Including Area Code)**One
                Penn Plaza, Suite 1503, New York, NY 10019(Former
                Name, Former Address and Former Fiscal Year
              If
                Changed Since Last Report)




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


Yes x No o




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





Large Accelerated Filero
            Accelerated Filero
            Non-Accelerated Filero
            Smaller Reporting Companyx(Do Not Check if a smaller reporting company)





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). o Yes x No





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: November 19, 2008





Common
      Stock  31,520,303










**PART
      I. FINANCIAL INFORMATION**





**Item
      1.**  **Financial
      Statements**




NEURO-HITECH,
        INC. AND SUBSIDIARIES
 CONSOLIDATED
        BALANCE SHEETS


September
                  30,
              
              December
                  31,ASSETS
              
              2008
              
              2007(Unaudited)
              
              (1)Current
                  Assets:Cash
                  and cash equivalents
              
              $
              159,858
              
              $
              6,137,592Accounts
                  receivable
              
              
              129,600
              
              
              63,300Inventory
              
              
              202,724
              
              
              33,821Prepaid
                  expenses
              
              
              302,444
              
              
              11,861Total
                  current assets
              
              
              794,626
              
              
              6,246,574Fixed
                  assets, net of accumulated depreciation of $6,241 and $4,747 at
                  September
                  30, 2008 andDecember
                  31, 2007, respectively
              
              
              7,626
              
              
              4,248Intangible
                  assets, net of accumulated amortization of $432,516 and $0 at September
                  30, 2008 andDecember
                  31, 2007, respectively - (see note 3)
              
              
              12,542,960
              
              
              -Security
                  deposit
              
              
              -
              
              
              13,226Total
                  assets
              
              $
              13,345,212
              
              $
              6,264,048LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              1,669,541
              
              $
              1,000,399Convertible
                  note payable, including accrued interest of $48,082 and $0 at September
                  30, 2008 andDecember
                  31, 2007, respectively - (see note 3)
              
              
              3,048,082
              
              
              -Subordinated
                  note payable, including accrued interest of $67,316 and $0 at September
                  30, 2008 andDecember
                  31, 2007, respectively - (see note 3)
              
              
              3,067,316
              
              
              -Accrued
                  sales allowance
              
              
              1,636,138
              
              
              -Total
                  current liabilities
              
              
              9,421,077
              
              
              1,000,399Stockholders'
                  Equity:Preferred
                  stock, $.001 par value, 5,000,000 shares authorized:Series
                  A, none issued and outstanding at September 30, 2008 and December
                  31,
                  2007
              
              
              -
              
              
              -Series
                  B, none issued and outstanding at September 30, 2008 and December
                  31,
                  2007
              
              
              -
              
              
              -Common
                  stock - Class A, $.001 par value, 100 shares authorized, none issued
                  and
                  outstanding atSeptember
                  30, 2008 and December 31, 2007
              
              
              -
              
              
              -Common
                  stock, $.001 par value, 44,999,990 shares authorized, 31,520,303
                  and
                  14,004,853 issuedand
                  outstanding at September 30, 2008 and December 31, 2007,
                  respectively
              
              
              31,520
              
              
              14,005Subscriptions
                  receivable
              
              
              (15,000
              )
              
              -Additional
                  paid-in capital
              
              
              46,952,929
              
              
              38,080,297Accumulated
                  deficit
              
              
              (43,045,314
              )
              
              (32,830,653
              )Total
                  stockholders' equity
              
              
              3,924,135
              
              
              5,263,649Total
                  liabilities and stockholders' equity
              
              $
              13,345,212
              
              $
              6,264,048
 (1)
                Derived
                    from audited financial statements
  See
          accompanying notes to Unaudited Consolidated Financial Statements.
  2


NEURO-HITECH,
        INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF OPERATIONS


For
                the three-month period ended
            
            For
                the nine-month period endedSeptember
                30,
            
            September
                30,2008
            
            2007
            
            2008
            
            2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Revenues
            
            $
            46,238
            
            $
            112,455
            
            $
            433,377
            
            $
            363,740Cost
                of goods sold
            
            
            793,167
            
            
            56,203
            
            
            984,563
            
            
            167,262Gross
                Profit
            
            
            (746,929
            )
            
            56,252
            
            
            (551,186
            )
            
            196,478Operating
                expenses:Selling,
                general and administrative expenses
            
            
            2,418,347
            
            
            2,297,636
            
            
            8,059,997
            
            
            4,655,230Research
                and development costs
            
            
            -
            
            
            760,158
            
            
            1,553,408
            
            
            2,482,821Total
                operating expenses
            
            
            2,418,347
            
            
            3,057,794
            
            
            9,613,405
            
            
            7,138,051Operating
                loss
            
            
            (3,165,276
            )
            
            (3,001,542
            )
            
            (10,164,591
            )
            
            (6,941,573
            )Other
                income:Interest
                income (expense)
            
            
            (13,001
            )
            
            46,586
            
            
            (50,070
            )
            
            166,874Net
                loss
            
            $
            (3,178,277
            )
            $
            (2,954,956
            )
            $
            (10,214,661
            )
            $
            (6,774,699
            )Basic
                and diluted loss per common share
            
            $
            (0.10
            )
            $
            (0.24
            )
            $
            (0.48
            )
            $
            (0.55
            )Basic
                and diluted weighted average commonshares
                outstanding
            
            
            31,520,303
            
            
            12,356,931
            
            
            21,336,436
            
            
            12,272,348


See
        accompanying notes to Unaudited Consolidated Financial Statements.
  3




NEURO
        HI-TECH, INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS




For
                  the nine-month period endedSeptember
                  30,2008
              
              2007(Unaudited)
              
              (Unaudited)Cash
                  flows from operating activities:Net
                  loss
              
              $
              (10,214,661
              )
              $
              (6,774,699
              )Adjustments
                  to reconcile net loss to net cash used inoperating activities:Depreciation
              
              
              1,494
              
              
              2,249Amortization
                  of intangible assets
              
              
              432,516
              
              
              -Fair
                  value of options, warrants, and stock appreciation rights
              
              
              3,808,081
              
              
              2,927,497Fair
                  value of shares issued for services
              
              
              422,450
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (66,300
              )
              
              (61,755
              )Inventory
              
              
              43,969
              
              
              (42,895
              )Prepaid
                  expenses
              
              
              (290,583
              )
              
              (690
              )Deferred
                  charges
              
              
              -
              
              
              93,750Other
                  assets
              
              
              13,226
              
              
              (13,226
              )Accounts
                  payable and accrued expenses
              
              
              569,140
              
              
              80,630Accrued
                  sales allowance
              
              
              218,039
              
              
              -Accrued
                  interest on convertible note payable
              
              
              48,082
              
              
              -Accrued
                  interest on subordinated note payable
              
              
              67,316
              
              
              -Net
                  cash used in operating activities
              
              
              (4,947,231
              )
              
              (3,789,139
              )Cash
                  flows used in investing activities:Purchase
                  of property and equipment
              
              
              (4,872
              )
              
              -Acquisition
                  of intangible assets, net of cash acquired
              
              
              (4,303,581
              )
              
              -Net
                  cash used in investing activities
              
              
              (4,308,453
              )
              
              -Cash
                  flows from financing activities:Proceeds
                  from exercise of options
              
              
              -
              
              
              45,824Issuance
                  of common stock pursuant to private placement
              
              
              3,277,950
              
              
              2,220,805Net
                  cash provided by financing activities
              
              
              3,277,950
              
              
              2,266,629Net
                  decrease in cash
              
              
              (5,977,734
              )
              
              (1,522,510
              )Cash
                  and cash equivalent, beginning of period
              
              
              6,137,592
              
              
              4,705,195Cash
                  and cash equivalent, end of period
              
              $
              159,858
              
              $
              3,182,685**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for taxes
              
              $
              -
              
              $
              -Cash
                  paid for interest
              
              $
              -
              
              $
              -**Noncash
                  investing and financing activities:**Fair
                  value of Common Stock issued in connection with the acquisition
                  of
                  intangible assets
              
              $
              1,366,666
              
              
              -


See
      accompanying notes to Unaudited Consolidated
      Financial Statements.




4




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**[1]**  **Nature
      of Operations**





Neuro-Hitech,
      Inc. (the “Company” or “Neuro-Hitech”) is a specialty pharmaceutical company
      focused on developing, marketing and distributing branded and generic
      pharmaceutical products primarily in the cough and cold markets. The Company
      sells its products domestically through U.S. based distributors.





On
      June
      6, 2008, the Company acquired the capital stock of MCR American Pharmaceuticals,
      Inc., a Florida corporation (“MCR”) and AMBI Pharmaceuticals, Inc., a Florida
      corporation (“AMBI”) pursuant to an Amended and Restated Stock Purchase
      Agreement (the “Purchase Agreement”), by and among the Company, GKI Acquisition
      Corporation, the Company’s wholly-owned subsidiary (“GKI”), and David Ambrose
      (“Seller”), the sole stockholder of MCR and AMBI. The Company acquired GKI
      pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated June
      5, 2008, by and among the Company, GKI Acquisition Sub, Inc., GKI and Timothy
      J.
      Ryan, Matthew Colpoys, Jr. and Phillip J. Young. MCR and AMBI are now
      subsidiaries of the Company and conduct the Company’s principal
      business.





Prior
      to
      June 6, 2008, the Company had been focused primarily on technologies that
      address investigational compounds that have the potential to show clinical
      improvements versus current treatments for Alzheimer’s disease, Epilepsy and
      other central nervous system applications. The Company’s most advanced product
      candidate targeting these needs is Huperzine A which completed a Phase II
      clinical trial in the U.S. earlier this year for efficacy and safety in the
      treatment of mild to moderate Alzheimer’s disease. In addition to
      Huperzine A, the Company has worked on two pre-clinical development
      programs: one for second generation anti-amyloid compounds or disease modifying
      drugs for Alzheimer’s disease and, secondly, development of a series of
      compounds targeted to treat and prevent epilepsy.





In
      view
      of the results of the Phase II clinical trial, the cost associated with
      additional trials, and the acquisition of MCR and AMBI, the Company is
      principally focusing on the development, marketing and distribution of branded
      and generic pharmaceutical products targeted to the cough and cold markets.
      The
      Company continues to explore the potential development of collaborative, joint
      and strategic alliances and licensing arrangements with one or more
      pharmaceutical companies for the further development of Huperzine A and its
      pipeline of other compounds.





The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and with the instructions to Form 10-Q and
      Article 8-03 of Regulation S-X. Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America for complete financial statements. In the
      opinion of management, all adjustments (consisting of normal recurring accruals)
      considered necessary in order to make the interim financials not misleading
      have
      been included and all such adjustments are of normal recurring nature. The
      operating results for the nine-month period ended September 30, 2008 are not
      necessarily indicative of the results that can be expected for the year ending
      December 31, 2008.




5




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**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 nine-month period ended September 30, 2008 the Company
      generated a net loss of approximately $10.2 million. Until its acquisition
      of
      MCR and AMBI, the Company’s revenue was a result of the importation and sale of
      inventories of natural Huperzine to vitamin and supplement suppliers. The
      majority of the Company’s working capital requirements to date have been funded
      through the Company’s private placement of equity securities to founders and to
      institutional and individual investors. Management intends to fund future
      operations through the sale of its products as well as additional equity or
      debt
      offerings.





There
      can
      be no assurance that the Company will be successful in obtaining additional
      funds at the level needed for long-term operations or on terms acceptable to
      the
      Company. In addition, there can be no assurance, assuming the Company is
      successful in distributing its products, realizing revenues and obtaining new
      equity or debt offerings that the Company will achieve profitability or positive
      operating cash flow. The Company is incurring significant losses, which give
      rise to questions about its ability to continue as a going concern. The
      accompanying 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
      accompanying consolidated financial statements include the results of operations
      of Marco Hi-Tech JV Ltd. and Q-RNA, Inc, for the nine-month periods ended
      September 30, 2008 and 2007, respectively, and MCR and AMBI from June 6, 2008
      through September 30, 2008. All material inter-company accounts and transactions
      between the Company and its subsidiaries have been eliminated in consolidation.





**Cash
      and Cash Equivalents**





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





**Concentration
      of Credit Risks**





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





The
      Company’s cash and cash equivalents accounts are held at financial institutions
      and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
      $100,000. During the nine-month period ended September 30, 2008, the Company
      had
      bank balances exceeding the FDIC insurance limit. Effective October 3, 2008
      through December 31, 2009, federally insured limits have been increased from
      $100,000 to $250,000 per account. While the Company periodically evaluates
      the
      credit quality of the financial institutions in which it holds deposits, it
      cannot eliminate the risk associated with the sudden possible failure of such
      financial institutions.





**Product
      Concentration**





All
      of
      the Company’s revenues were derived from the sale of its products in the United
      States to a small group of customers. One customer accounted for 88%
      of
      sales of natural Huperzine during the nine-month period ended September 30,
      2008.





**Fair
      Value of Financial Instruments**





The
      carrying value of cash and cash equivalents, accounts receivable, accounts
      payable and accrued expenses, approximate their fair value due to their
      short-term maturities. The carrying amounts of the convertible note and the
      subordinated note approximate their fair value based on the Company’s
      incremental borrowing rate.




6


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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**Income
      Taxes**





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





**Use
      of Estimates**





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





**Revenue
      Recognition**





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





Revenue
      from sales of the Company’s products are recorded, net of returns and other
      sales allowances.  Other sales allowances include cash discounts, rebates,
      trade promotions, and sales incentives.  According to the terms of a sales
      contract, and consistent with industry practices, a customer may return products
      up to a maximum amount and under certain conditions.  Allowances are
      calculated based upon current economic conditions, the underlying contractual
      terms with both direct and indirect customers, the remaining time to expiration
      of the products and an evaluation of the levels of inventories held by the
      Company’s distributors.  The excess of allowance for returns over the gross
      amount of receivables amounted to approximately $1.6 million at September 30,
      2008 and is shown as accrued sales allowances in the accompanying consolidated
      balance sheet.  The Company continually monitors its assumptions, giving
      considerations to pricing trends, seasonality of its product lines and estimated
      trade inventory levels and makes adjustments to these estimates when it believes
      that its actual sales returns and sales allowances in the future will differ
      from its estimate.





**Inventories
      and Cost of Goods Sold**





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





During
      the third quarter, the Company recognized cost of goods sold of $793,167 for
      products by MCR and AMBI. The Company deferred the revenues for such sales
      until
      it can establish the rate at which returns are reasonably likely to be received
      but recognized the cost of goods of approximately $769,000.




7


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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**Basic
      and Diluted Earnings Per Share**





Basic
      earnings per share are calculated by dividing income available to stockholders
      by the weighted-average number of common shares outstanding during each period.
      Diluted earnings per share are computed using the weighted average number of
      common shares and dilutive common share equivalents outstanding during the
      period. Dilutive common share equivalents consist of shares issuable upon the
      exercise of stock options and warrants (calculated using the modified-treasury
      stock method). The options and warrants outstanding at September 30, 2008 and
      2007 have been excluded from the computation of diluted earnings per share
      due
      to their antidilutive effect.





Common
      share equivalent are as follows:





September
                30, 2008
            
            September
                30, 2007Options
            
            
            6,238,078
            
            
            1,311,242Warrants
            
            
            3,936,945
            
            
            1,941,491Convertible
                note
            
            
            1,500,000
            
            
            -11,675,023
            
            
            3,252,733





**Impairment
      of Long-Lived Assets**





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





**Share-Based
      Payments**





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





**Research
      and Development Costs**




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





**Segment
      reporting**





The
      Company operates in one segment, marketing of pharmaceutical products. The
      Company’s chief operating decision-maker evaluates the performance of the
      Company based upon revenues and expenses by functional areas as disclosed in
      the
      Company’s statement of operations.




8




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**Recent
      Pronouncements**





The
      FASB
      issued FASB Statement No. 141(R) (revised 2007), *Business
      Combinations.* Statement 141(R) requires the acquiring entity in a business combination to
      recognize all (and only) the assets acquired and liabilities assumed in the
      transaction; establishes the acquisition-date fair value as the measurement
      objective for all assets acquired and liabilities assumed; and requires the
      acquirer to disclose to investors and other users all of the information they
      need to evaluate and understand the nature and financial effect of the business
      combination. FASB No.141 R is effective for fiscal years beginning after
      December 15, 2008. FAS No. 141 R may have an impact on its financial statements
      if the Company has another acquisition.





The
      FASB
      issued FASB Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* Statement
      No.160 requires all entities to report noncontrolling (minority) interests
      in
      subsidiaries in the same way—as equity in the consolidated financial statements.
      Moreover, Statement 160 eliminates the diversity that currently exists in
      accounting for transactions between an entity and noncontrolling interests
      by
      requiring they be treated as equity transactions. FASB No.160 is effective
      for
      fiscal years beginning after December 15, 2008. FASB No. 160 may have an impact
      on its financial statements if the Company has another acquisition.




In
      March
      2008, the FASB issued FASB No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities, an amendment of FASB
      Statement No. 133,* which
      requires additional disclosures about the objectives of the derivative
      instruments and hedging activities, the method of accounting for such
      instruments under SFAS No. 133 and its related interpretations, and a
      tabular disclosure of the effects of such instruments and related hedged items
      on our financial position, financial performance, and cash flows. SFAS
      No. 161 is effective for the Company beginning January 1, 2009.
      Management believes that, for the foreseeable future, this Statement will have
      no impact on the financial statements of the Company once adopted.





In
      May
      2008, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles.” The new standard is intended to improve
      financial reporting by identifying a consistent framework, or hierarchy, for
      selecting accounting principles to be used in preparing financial statements
      that are presented in conformity with U.S. generally accepted accounting
      principles (GAAP) for non-governmental entities. We are currently evaluating
      the
      effects, if any, that SFAS No. 162 may have on our financial
      reporting.




9




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**[3]
      Common Stock and Business Combinations**





**Business
      Combinations**





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





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





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





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





The
      total
      aggregate purchase price, including professional fees of $492,624 incurred
      in
      connection with the acquisition, amounts to $13,377,451. The aggregate purchase
      price consists of the following:




Cash
              
              $
              4,492,624Notes
              
              
              6,000,000Fair
                  value of shares
              
              
              1,366,666Assumption
                  of liabilities
              
              
              1,518,161$
              13,377,451


The
      purchase price has initially been allocated as follows:




Cash
              
              $
              189,042Inventory
              
              
              212,872Intangible
                  assets
              
              
              12,975,537$
              13,377,451





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





The
      Company has not finalized the allocation of the purchase price between all
      intangible assets. It intends to obtain an independent valuation of the
      intangible assets within the next six months.





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




10




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**[3]
      Common Stock and Business Combinations-continued**





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





The
      Company’s proforma balance sheet at September 30, 2008 to reflect the terms of
      the Modification Agreement is as follows:




ASSETS
              
              September
                  30, 2008
              
              Proforma
                  Adjustments
              
              Total(Unaudited)Current
                  Assets:Cash
                  and cash equivalents
              
              $
              159,858
              
              $
              -
              
              $
              159,858Accounts
                  receivable
              
              
              129,600
              
              
              -
              
              
              129,600Inventory
              
              
              202,724
              
              
              -
              
              
              202,724Prepaid
                  expenses
              
              
              302,444
              
              
              1,257,717
              (a)
              
              1,560,161Total
                  current assets
              
              
              794,626
              
              
              1,257,717
              
              
              2,052,343Fixed
                  assets, net of accumulated depreciation of $6,241at
                  September 30, 2008
              
              
              7,626
              
              
              -
              
              
              7,626Intangible
                  assets, net of accumulated amortization of $432,517at
                  September 30, 2008
              
              
              12,542,960
              
              
              (4,475,652
              )
                  (a)
              
              8,067,308Total
                  assets
              
              $
              13,345,212
              
              $
              (3,217,935
              )
              $
              10,127,277LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              1,669,541
              
              $
              -
              
              $
              1,669,541Convertible
                  note payable, including accrued interest of $48,082at
                  September 30, 2008
              
              
              3,048,082
              
              
              (3,048,082
              )
                  (a)
              
              -Subordinated
                  note payable, including accrued interest of $67,316at
                  September 30, 2008
              
              
              3,067,316
              
              
              (3,067,316
              )
                  (a)
              
              -Accrued
                  sales allowance
              
              
              1,636,138
              
              
              -
              
              
              1,636,138Total
                  current liabilities
              
              
              9,421,077
              
              
              (6,115,398
              )
              
              3,305,679Stockholders’
                  Equity:Preferred
                  stock, $.001 par value, 5,000,000 shares authorized:Series
                  A, 1,500,000 issued and outstanding at November 17, 2008
              
              
              -
              
              
              1,500,000
              (a)
              
              1,500,000Series
                  B, 1,397,463 issued and outstanding at November 17, 2008
              
              
              -
              
              
              1,397,463
              (a)
              
              1,397,463Common
                  stock - Class A, $.001 par value, 100 shares authorizednone
                    issued and outstanding at September 30, 2008
              
              
              -
              
              
              -
              
              
              -Common
                  stock, $.001 par value, 44,999,990 shares authorized 31,520,303
                  issued and outstanding at September 30, 2008
              
              
              31,520
              
              
              -
              
              
              31,520Subscriptions
                  receivable
              
              
              (15,000
              )
              
              -
              
              
              (15,000
              )Additional
                  paid-in capital
              
              
              46,952,929
              
              
              -
              
              
              46,952,929Accumulated
                  deficit
              
              
              (43,045,314
              )
              
              -
              
              
              (43,045,314
              )Total
                  stockholders’ equity
              
              
              3,924,135
              
              
              2,897,463
              
              
              6,821,598Total
                  liabilities and stockholders’ equity
              
              $
              13,345,212
              
              $
              (3,217,935
              )
              $
              10,127,277


(a)
            To
                reflect the issuance of 1,500,000 shares and 1,397,463 shares of
                the
                Company’s Series A and B Preferred Stock, respectively, to satisfy the
                Company’s obligations under the Convertible and Subordinated Note Payable,
                the receipt by the Company of a right to receive future products
                from an
                affiliate of Seller with a corresponding net decrease of the carrying
                value of the intangible assets.




11




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**Private
      Placement Offerings**





During
      the nine-month period ended September 30, 2008, the Company issued 13,172,000
      shares of its common stock pursuant to two private placements, which generated
      proceeds of $3,111,000, net of subscription receivable of $15,000.





During
      the nine-month period ended September 30, 2007, the Company issued 464,196
      shares of its common stock and warrants to purchase 232,098 shares pursuant
      to a
      private placement, which generated gross proceeds of $2,220,805. The warrants
      issued in this private placement are exercisable at a price of $7 per share
      and
      expire on November 29, 2011.





**Stock
      Based Compensation**





During
      September 30, 2008 and 2007, the Company recorded share-based payments expenses
      amounting to $3,808,081 and $1,793,309, respectively, in connection with all
      options and stock appreciation rights outstanding at the respective measurement
      dates. The amortization of share-based payment was recorded in selling, general,
      and administrative expenses during the nine-month period ended September 30,
      2008 and 2007.





The
      total
      compensation cost related to nonvested options and stock appreciation rights
      not
      yet recognized amounted to approximately $1,621,570 at September 30, 2008 and
      the Company expects that it will be recognized over the following
      weighted-average period of 15 months.




The
      share-based payments are based on the fair value of the outstanding options
      and
      stock appreciation rights amortized over the requisite period of service for
      option holders, which is generally the vesting period of the
      options.




The
      fair
      value of the options and stock appreciation rights is based on the Black Scholes
      Model using the following assumptions :




Nine
                  month period ended
              
              Nine
                  month period endedSeptember
                  30, 2008
              
              September
                  30, 2007Exercise
                  price:
              
              $
              0.44
                  - $5.85
              
              $
              5.29
                  - 5.35Market
                  price at date of grant:
              
              $
              0.41
                  - $0.45
              
              $
              5.29
                  - 5.35Volatility:
              
              
              121.63
              %
              
              53.43
              %Expected
                  dividend rate:
              
              
              0
              %
              
              0
              %Expected
                  terms:
              
              
              4
                  - 5 years
              
              
              5
                  yearsRisk-free
                  interest rate:
              
              
              3.2
                  - 3.52
              %
              
              4.24
              %Stock
                  options granted:
              
              
              4,050,000
              
              
              806,825Stock
                  appreciation rights granted:
              
              
              365,000
              
              
              -




The
      expected volatility was based on the average historical volatility of comparable
      publicly-traded companies considering the Company’s period of observable
      historical data is shorter than the terms of the options.





The
      Company’s policy is to issue shares pursuant to the exercise of stock options
      from its available authorized but unissued shares of common stock.





**Option
      Exercises**





In
      addition to the aforementioned private placements, the Company received
      approximately $45,824 from the exercise of stock options to purchase 12,059
      shares during the nine-months ended September 30, 2007.  There were no
      options exercised during the nine-months ended September 30, 2008.





**Shares
      Issued for Services**





The
      Company issued 960,000 shares of its common stock to its employees and board
      members for services rendered during the nine-month period ended September
      30,
      2008. The fair value of such shares amounted to $422,450.





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




12


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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**[4]
      Promissory Notes Payable**





**Convertible
      Note Payable**





The
      Convertible Note issued pursuant to the Purchase Agreement bears interest at
      5%
      per annum and requires quarterly payments of accrued interest, with the
      principal balance and any unpaid interest due at maturity on June 6, 2011.
      The
      Convertible Note is convertible at the option of the holder into up to 1,500,000
      shares of the Company’s common stock. The Company owes $3,000,000 and $48,082 in
      principal and accrued interest, respectively, at September 30, 2008. The Company
      satisfied its obligations under the Convertible Note during November
      2008.





**Subordinated
      Note Payable**





The
      Subordinated Note issued pursuant to the Purchase Agreement bears interest
      at 7%
      per annum and requires payments of $500,000 plus accrued interest on each of
      December 6, 2008, June 6, 2009, December 6, 2009 and June 6, 2010, with an
      additional $1,000,000, plus any accrued but unpaid interest on June 6, 2010.





At
      the
      Company’s option, the Maturity Date may be extended by one year to June 6, 2011,
      provided, however, that the interest on the outstanding principal of the note
      be
      increased during the one year period to 14% per annum, compounded quarterly,
      with 50% of the interest during such one year period payable in cash and the
      remaining 50% of the interest during such one year period payable in the
      Company’s common stock at $2.00 per share. Except for the cash portion of the
      interest during the extension period, the Company may make any payment under
      the
      Subordinated Note by issuing shares of Company’s common stock at $2.00 per
      share. The Company owes $3,000,000 and $67,316 in principal and accrued
      interest, respectively, at September 30, 2008.





The
      Company satisfied its obligations under the Subordinated Note during November
      2008.




**[5]
      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 University 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 was
      $4,036,842, payable in installments upon the achievement of certain
      milestones.





For
      the
      nine-month periods ended September 30, 2008 and 2007, the payments made or
      accrued by the Company to Georgetown under the terms of the clinical research
      agreement were approximately $785,000 and $867,000, respectively, and the total
      payments made by the Company to Georgetown since inception of the agreement
      were
      $3,895,972. These costs 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”). For the nine-month periods ended September
      30, 2008 and 2007, the total payments made by the Company to XEL under this
      agreement were approximately $92,500  and
      $860,000, respectively, and are reflected in the Research and Development
      caption of the Statement of Operations.




13




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**Dalhousie
      License Agreements (PARTEQ)**





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





Under
      the
      terms of the Exclusive Patent License Agreement with PARTEQ which was amended
      in
      early 2007, the Company was obligated to pay fixed annual fees of
      C$282,944.  Under the terms of the Exclusive Patent License Option
      Agreement with PARTEQ which was amended in early 2007, the Company was obligated
      to pay fixed annual fees of C$150,800. The Company does not expect to
      make any additional payments to PARTEQ.





For
      the
      nine-months ended September 30, 2008 and 2007, the payments made or accrued
      by
      the Company to PARTEQ under these agreements were $327,000 and $33,000,
      respectively, and are reflected in the Research and Development caption of
      the
      Statement of Operations.





**Numoda
      Corporation**





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. Under 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.





After
      completing its review and delivering a report of its findings to the Company,
      the Company will consider Numoda’s findings and Numoda will assist the Company
      in interpreting and presenting the results to potential licensing partners,
      purchasers and/or acquisition or merger candidates.




14




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





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





Year
            
            Amount2009
            
            $
            465,0002010
            
            
            20,0002011
            
            
            02012
            
            
            0Total
            
            $
            485,000





**[6]
      Pro Forma Information**





Supplemental
      pro forma information that discloses the results of operations for the
      nine-month periods ended September 30, 2008 and 2007 as though the acquisition
      of MCR and AMBI had been completed as of the beginning of the period being
      reported on is as follows:




Nine-month
                        period ended
                    
                    Nine-month
                        period endedSeptember
                        30, 2008
                    
                    September
                        30, 2007Neuro-Hitech
                    
                    MCR/AMBI
                    
                    Pro
                        Forma
                      Adjustment
                    
                    Total
                    
                    Neuro-Hitech
                    
                    MCR/AMBI
                    
                    Pro
                        Forma Adjustment
                    
                    TotalRevenues
                    
                    $
                    433,377
                    
                    $
                    1,322,557
                    
                    $
                    -
                    
                    $
                    1,755,934
                    
                    $
                    363,740
                    
                    $
                    6,238,861
                    
                    $
                    (608,381
                    )
                    $
                    5,994,220Cost
                        of goods sold
                    
                    
                    216,205
                    
                    
                    1,775,392
                    
                    
                    -
                    
                    
                    1,991,597
                    
                    
                    167,262
                    
                    
                    925,577
                    
                    
                    (53,680
                    )
                    
                    1,039,159Gross
                        profit
                    
                    
                    217,172
                    
                    
                    (452,835
                    )
                    
                    -
                    
                    
                    (235,663
                    )
                    
                    196,478
                    
                    
                    5,313,284
                    
                    
                    (554,701
                    )
                    
                    4,955,061Operating
                        expenses:Selling,
                        general, & administrative
                    
                    
                    7,031,755
                    
                    
                    3,323,805
                    
                    
                    540,645
                    (a)
                    
                    10,896,205
                    
                    
                    4,655,230
                    
                    
                    3,729,685
                    
                    
                    (227,087
                    )
                        (a)
                    
                    8,157,828Product
                        development
                    
                    
                    -
                    
                    
                    31,235
                    
                    
                    -
                    
                    
                    31,235
                    
                    
                    -
                    
                    
                    364,522
                    
                    
                    -
                    
                    
                    364,522Research
                        & development costs
                    
                    
                    1,553,408
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,553,408
                    
                    
                    2,482,821
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,482,821Total
                        operating expenses
                    
                    
                    8,585,163
                    
                    
                    3,355,040
                    
                    
                    540,645
                    
                    
                    12,480,848
                    
                    
                    7,138,051
                    
                    
                    4,094,207
                    
                    
                    (227,087
                    )
                    
                    11,005,171Operating
                        income (loss)
                    
                    
                    (8,367,991
                    )
                    
                    (3,807,875
                    )
                    
                    (540,645
                    )
                    
                    (12,716,511
                    )
                    
                    (6,941,573
                    )
                    
                    1,219,077
                    
                    
                    (327,614
                    )
                    
                    (6,050,110
                    )Other
                        income :Interest
                        income (expense)
                    
                    
                    50,410
                    
                    
                    -
                    
                    
                    (154,603
                    )
                        (b)
                    
                    (104,193
                    )
                    
                    166,874
                    
                    
                    68,312
                    
                    
                    (32,718
                    )
                        (b)
                    
                    202,468Net
                        income (loss)
                    
                    $
                    (8,317,581
                    )
                    $
                    (3,807,875
                    )
                    $
                    (695,248
                    )
                    $
                    (12,820,704
                    )
                    $
                    (6,774,699
                    )
                    $
                    1,287,389
                    
                    $
                    (360,332
                    )
                    $
                    (5,847,642
                    )Basic
                        and diluted loss perCommon
                        share
                    
                    $
                    (0.51
                    )
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/ABasic
                        and diluted weighted average common sharesoutstanding
                    
                    
                    16,216,370
                    
                    
                    N/A
                    
                    
                    8,574,074
                    (c)
                    
                    24,790,444
                    
                    
                    12,272,348
                    
                    
                    N/A
                    
                    
                    N/A
                    (c)
                    
                    12,272,348




(a)
            Represents
                the amortization of intangible assets acquired pursuant to the acquisition
                of AMBI and MCR, based on its initial valuation of the various intangible
                assets acquired as if the acquisition occurred at the beginning of
                the
                nine-month periods ended September 30, 2008 and 2007,
                respectively.


(b)
            Consists
                of the interest related to the convertible and subordinated note
                payable
                issued pursuant to the acquisition of MCR and AMBI as if the acquisition
                occurred at the beginning of the nine-month periods ended September
                30,
                2008 and 2007, respectively.


(c)
            Consists
                of 3,333,333 shares of common stock issued pursuant to the acquisition
                of
                MCR and AMBI and 12,100,000 shares issued pursuant to a private placement
                to partially fund the purchase price of MCR and AMBI as if the acquisition
                occurred at the beginning of the nine-month periods ended September
                30,
                2008 and 2007, respectively.




15




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**[7]
      Subsequent Events**





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




16




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





**FORWARD-LOOKING
      STATEMENTS**




This
      Quarterly Report on Form 10-Q 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 contains 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 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” refer to Neuro-Hitech, Inc. 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 QUARTERLY
      REPORT ON FORM 10-Q .




**History**




Prior
      to
      June 6, 2008, the Company had been focused primarily on technologies that
      address investigational compounds that have the potential to show clinical
      improvements versus current treatments for Alzheimer’s disease, Epilepsy and
      other central nervous system applications. The Company’s most advanced product
      candidate targeting these needs is Huperzine A which completed a Phase II
      clinical trial in the U.S. earlier this year for efficacy and safety in the
      treatment of mild to moderate Alzheimer’s disease. In addition to Huperzine A,
      the Company has worked on two pre-clinical development programs: one for second
      generation anti-amyloid compounds or disease modifying drugs for Alzheimer’s
      disease and, secondly, development of a series of compounds targeted to treat
      and prevent epilepsy.





On
      June
      6, 2008, the Company acquired the capital stock of MCR American Pharmaceuticals,
      Inc., a Florida corporation (“MCR”), and AMBI Pharmaceuticals, Inc., a Florida
      corporation (“AMBI”), pursuant to an Amended and Restated Stock Purchase
      Agreement (the “Purchase Agreement”), by and among the Company, GKI Acquisition
      Corporation, the Company’s wholly-owned subsidiary (“GKI”) and David Ambrose
      (“Seller”), the sole stockholder of MCR and AMBI. The Company acquired GKI
      pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated June
      5, 2008, by and among the Company, GKI Acquisition Sub, Inc., GKI and Timothy
      J.
      Ryan, Matthew Colpoys, Jr. and Phillip J. Young. MCR and AMBI are now
      subsidiaries of the Company and conduct the Company’s principal
      business.





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





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





**Results
      of Operations**





In
      view
      of the results of the Phase II clinical trial, the cost associated with
      additional trials, and the acquisition of MCR and AMBI, the Company is
      principally focusing on the development, marketing and distribution of branded
      and generic pharmaceutical products primarily in the cough and cold markets.
      The
      Company continues to explore the potential development of collaborative, joint
      and strategic alliances and licensing arrangements with one or more
      pharmaceutical companies for the further development of Huperzine A and its
      pipeline of other compounds. The Company continually evaluates merger and/or
      acquisition opportunities.





The
      following discussion provides comparisons of the Company’s results of operations
      for the three and nine-month periods ended September 30, 2008 to the three
      and
      nine-month periods ended September 30, 2007. The Company’s results of operations
      reported herein reflect the acquisition of MCR and AMBI since June 5, 2008.
      Accordingly, the results of operations for the periods prior to the acquisition
      of MCR and AMBI are not comparable to periods after the acquisition of MCR
      and
      AMBI.




17





The
      following tables include selected consolidated statement of operations and
      other
      data for the three and nine-month periods ended September 30, 2008 and
      2007.




Results
      of Operations




For
                  the three-month
                period
                  ended
              
              
              
              
              
              For
                  the nine-month
                period
                  endedSeptember
                  30
              
              2008
                  vs 2007
              
              2008
                  vs 2007
              
              September
                  30
              
              2008
                  vs 2007
              
              2008
                  vs 20072008
              
              2007
              
              ($)
              
              (%)
              
              2008
              
              2007
              
              ($)
              
              (%)(Unaudited)
              
              (Unaudited)
              
              
              
              
              
              (Unaudited)
              
              (Unaudited)Revenues
              
              $
              46,238
              
              $
              112,455
              
              $
              (66,217
              )
              
              -59
              %
              $
              433,377
              
              $
              363,740
              
              $
              69,637
              
              
              19
              %Cost
                  of goods sold
              
              
              793,167
              
              
              56,203
              
              
              736,964
              
              
              NM
              
              
              984,563
              
              
              167,262
              
              
              817,301
              
              
              NMGross
                  Profit
              
              
              (746,929
              )
              
              56,252
              
              
              (803,181
              )
              
              -1428
              %
              
              (551,186
              )
              
              196,478
              
              
              (747,664
              )
              
              -381
              %Operating
                  expenses:Selling,
                  general and administrative expenses
              
              
              2,418,347
              
              
              2,297,636
              
              
              120,711
              
              
              5
              %
              
              8,059,997
              
              
              4,655,230
              
              
              3,404,767
              
              
              73
              %Research
                  and development costs
              
              
              -
              
              
              760,158
              
              
              (760,158
              )
              
              -100
              %
              
              1,553,408
              
              
              2,482,821
              
              
              (929,413
              )
              
              -37
              %Total
                  operating expenses
              
              
              2,418,347
              
              
              3,057,794
              
              
              (639,447
              )
              
              -21
              %
              
              9,613,405
              
              
              7,138,051
              
              
              2,475,354
              
              
              35
              %Operating
                  loss
              
              
              (3,165,276
              )
              
              (3,001,542
              )
              
              163,734
              
              
              5
              %
              
              (10,164,591
              )
              
              (6,941,573
              )
              
              3,223,018
              
              
              46
              %Other
                  income (expense):Interest
                  income (expense)
              
              
              (13,001
              )
              
              46,586
              
              
              59,587
              
              
              NM
              
              
              (50,070
              )
              
              166,874
              
              
              216,944
              
              
              NMNet
                  loss
              
              $
              (3,178,277
              )
              $
              (2,954,956
              )
              $
              223,321
              
              
              8
              %
              $
              (10,214,661
              )
              $
              (6,774,699
              )
              $
              3,439,962
              
              
              51
              %
  NM:
          Not
          meaningful


Revenues





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





The
      Company had revenues from operations of $46,238 for the quarter ended September
      30, 2008, a 59% decrease from the $112,455 in revenue achieved for the quarter
      ended September 30, 2007. The Company had revenues from operations of $433,377
      for the nine-month period ended September 30, 2008, a 19% increase from the
      $363,740 in revenue achieved for the nine-month period ended September 30,
      2007.
      The change in revenue was attributable to a decrease in the sales volume of
      Huperzine during the three-month period ended September 30, 2008 and an increase
      in sales volume of Huperzine during the nine-month period ended September 30,
      2008. Revenues from shipments of products made by our two subsidiaries since
      June 5, 2008 have been deferred and were recorded as an increase in our accrued
      sales allowance at September 30, 2008. These products, constituting new
      formulations, are sold with return privileges to distributors. The Company
      has
      deferred the recognition of revenues associated with such shipments until the
      Company can establish the rate at which returns are reasonably likely to be
      received.





Cost
      of Goods Sold





Cost
      of
      goods sold as a percentage of the Company’s revenue was 1715% (not meaningful)
      for the quarter ended September 30, 2008, compared with 49.9% for the quarter
      ended September 30, 2007. Cost of goods sold as a percentage of the Company’s
      revenue was 227% for the nine-month period ended September 30, 2008, compared
      with 45.9% for the nine-month period ended September 30, 2007. The increase
      in
      the cost of goods sold as a percentage of the Company’s revenue was attributable
      to additional costs of goods sold, for which the Company deferred the revenues
      but recognized the cost of such goods of approximately $769,000. The Company
      believes that it is more likely than not that when and if these products are
      returned by the distributors, it will not be able to resell them. Samples are
      also included in cost of goods sold





Selling,
      general, and administrative expenses





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





The
      Company’s total selling, general and administrative expenses increased from
      $2,297,636 for the quarter ended September 30, 2007 to $2,418,347 for the
      quarter ended September 30, 2008, an increase of 5%. The Company’s total
      selling, general and administrative expenses increased from $4,655,230 for
      the
      nine-month period ended September 30, 2007 to $8,059,997 for the nine-month
      period ended September 30, 2008, an increase of 73%. These increases during
      the
      two periods were the result of share-based payments of approximately $3.1
      million associated with the forfeiture of options granted to officers, employees
      and consultants in prior years, the grant of options and stock appreciation
      rights granted in the second quarter of 2008 as well as increases in salaries
      and employee benefit expenses, professional fees and occupancy costs following
      the Company’s acquisition of MCR and AMBI.




18





Research
      and development costs





The
      Company’s research and development costs decreased from $760,158 for the quarter
      ended September 30, 2007 to $0 for the quarter ended September 30, 2008, a
      decrease of 100%.  The Company’s research and development costs decreased
      from $2,482,821 for the nine-month period ended September 30, 2007 to $1,553,408
      for the nine-month period ended September 30, 2008, a decrease of $929,413,
      or
      approximately 37%.  The decrease in research and development expenses
      during both periods is attributable to a reduction in the Company’s clinical
      development programs following the announcement of its Phase II results for
      Huperzine A.




Georgetown





In
      December 2003, the Company entered into a clinical research agreement, which
      was
      amended in November 2005 and October 2007, with Georgetown University 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, payable in installments upon the achievement of certain
      milestones.




For
      the
      three-month periods ended September 30, 2008 and 2007, the payments made or
      accrued by the Company to Georgetown under the terms of the clinical research
      agreement were approximately  $0
      and
      $566,000, respectively.  For
      the
      nine-month periods ended September 30, 2008 and 2007, the payments made or
      accrued by the Company to Georgetown under the terms of the clinical research
      agreement were approximately $785,305  and
      $867,000, respectively.  The
      total
      payments made by the Company to Georgetown since inception of the agreement
      were
      $3,895,972 . These
      costs 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”).  For
      the
      three-month periods ended September 30, 2008 and 2007, the Company paid XEL
      approximately $0 and $211,000, respectively.  For
      the
      nine-month periods ended September 30, 2008 and 2007, the Company paid XEL
      approximately $92,500 and $860,000, respectively.  Payments
      to XEL are reflected in the Research and Development caption of the Statement
      of
      Operations.





Dalhousie
      License Agreements (PARTEQ)





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





Under
      the
      terms of the Exclusive Patent License Agreement with PARTEQ which was amended
      in
      early 2007, the Company was obligated to pay fixed annual fees of C$282,944.
       Under the terms of the Exclusive Patent License Option Agreement with
      PARTEQ which was amended in early 2007, the Company was obligated to pay fixed
      annual fees of C$150,800. The Company does not expect to make any
      additional payments to PARTEQ.





For
      the
      three-month periods ended September 30, 2008 and 2007, the payments made or
      accrued by the Company to PARTEQ under these  agreements
      have been approximately $0 and $7,000, respectively. For the nine-month periods
      ended September 30, 2008 and 2007, the payments made or accrued by the Company
      to PARTEQ under these agreements have been approximately  $327,000  and
      $33,000, respectively. The payments made or accrued by the Company to PARTEQ
      under these agreements are reflected in the Research and Development caption
      of
      the Statement of Operations.





The
      Company invests any cash and cash equivalents not used for working capital
      in
      short-term, interest-bearing, investment-grade securities or
      accounts.  For
      the
      three-month period ended September 30, 2008, the Company incurred an expense
      of
      $13,001 related to interest expense, compared to $46,586 generated in the
      three-month period ended September 30, 2007 . During
      the nine-month period ended September 30, 2008, the Company incurred an expense
      of $50,070 related to interest expense, compared to $166,944 generated during
      the nine-month period ended September 30, 2007. The decrease is attributable
      to
      a decrease in the balance of the Company’s cash and cash equivalents during the
      current periods and a decrease in the rate of interest paid on the Company’s
      cash and cash equivalents.





**Liquidity
      and Capital Resources**




Presently,
      the Company expects that its available cash, cash equivalents and interest
      income earned may not be sufficient to meet its operating expenses and capital
      requirements for the next 12 months, although its financial condition has been
      improved by the transaction described below under “Subsequent Event.” The
      Company intends to expand its business operations in several respects, but
      it
      will need additional capital to pursue these opportunities. If the Company
      fails
      to generate sufficient cash flow or raise additional capital it may not have
      sufficient cash to pursue its business expansion plans and meet capital
      requirements during this period or in future periods.





Prior
      to
      the Company’s acquisition of MCR and AMBI, the Company generated limited revenue
      from operations. The Company expects that it will generate revenue from the
      sale
      of its pharmaceutical products and limited operating revenue from the sale
      of
      natural Huperzine. If the sale of its pharmaceutical products is not sufficient
      to meet its working capital needs, the Company may need to raise capital through
      the sale of its securities or debt offerings.




19





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





During
      the nine-month period ended September 30, 2008 the Company used approximately
      $4.9 million in its operating activities. The cash used in operating activities
      consisted primarily of the following:





·
            Net
                loss of approximately $10 million, adjusted for share-based payments
                aggregating $4.5 million and the amortization of intangible assets
                acquired pursuant to the MCR and AMBI acquisition amounting to
                approximately $433,000;


·
            A
                decrease in accounts receivable of approximately $66,300 which is
                primarily due to quicker collection cycles experienced from one of
                the
                Company’s clients at September 30, 2008 then at December 31,
                2007;


·
            A
                decrease in deferred charges related to the Phase II results;
                and


·
            An
                increase in accounts payable and accrued expenses of approximately
                $569,000 primarily due to payables assumed from the acquisition of
                MCR and
                AMBI





During
      the nine-month period ended September 30, 2008, the net cash consideration
      paid
      for MCR and AMBI amounted to approximately $4.5 million.





During
      the nine-month period ended September 30, 2008, the Company issued shares of
      its
      common stock which generated proceeds of approximately $3.3
      million.





The
      Company expects to incur additional expenses in 2008 payable to Georgetown
      of
      $140,870 related to an open label extension for Phase 2 trial participants
      which
      expired in June 2008. The Company does not expect to make any additional
      payments to PARTEQ.





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 additional liquidity,
      or the sales of its pharmaceutical products are not sufficient to provide it
      needed liquidity, it may engage in additional financing efforts. Additional
      funds may not be available or not available on acceptable terms, if at all.
      Given the anticipated cash expenditures, the potential cash requirements and
      the
      lack of sufficient cash to fully fund those expenses, the Company is continually
      analyzing alternative ways in which it can preserve its cash and cash
      equivalents. If the Company is unable to raise additional financing and is
      forced to take such measures, they may materially harm the Company’s prospects,
      financial condition and future operations.





Subsequent
      Event





During
      November 2008, the Company and the Seller and an affiliate of the Seller
      modified certain terms of the Purchase Agreement pursuant to a Modification
      Agreement and Release (“Modification Agreement”). Pursuant to the Modification
      Agreement the Company issued 1,500,000 shares of the Company’s Series A
      Preferred Stock and 1,397,463 shares of the Company’s Series B Preferred Stock
      (i) to satisfy its obligations under the Convertible Note and the
      Subordinated Note aggregating approximately $6.1 million and payables
      aggregating approximately $1 million and (ii) to receive products from an
      affiliate of Seller valued at up to $1,257,717. Each share of the Series A
      and B
      Preferred Stock is convertible in 10 shares of the Company’s common stock.
      Additionally, the features of the Series A Preferred Stock include, among other
      things, a non-participating liquidation preference of $4,500,000.




**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 U.S. 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 its 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.




20





**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).





**Impairment
      of Long-Lived Assets**





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





**Revenue
      Recognition**





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





Revenue
      from sales of the Company’s products are recorded, net of returns and other
      sales allowances.  Other sales allowances include cash discounts, rebates,
      trade promotions, and sales incentives.  According to the terms of a sales
      contract, and consistent with industry practices, a customer may return products
      up to a maximum amount and under certain conditions.  Allowances are
      calculated based upon current economic conditions, the underlying contractual
      terms with both direct and indirect customers, the remaining time to expiration
      of the products and an evaluation of the levels of inventories held by the
      Company’s distributors.  The excess of allowance for returns over the gross
      amount of receivables is recorded as accrued sales allowance.  The excess
      of allowance for returns and other sales allowance over the gross amount of
      receivables amounted to approximately $1.6 million at September 30, 2008 and
      is
      shown as accrued sales allowances in the accompanying consolidated balance
      sheet.  The Company continually monitors its assumptions, giving
      considerations to pricing trends, seasonality of its product lines and estimated
      trade inventory levels and makes adjustments to these estimates when it believes
      that its actual sales returns and sales allowances in the future will differ
      from its estimate.





**New
      Authoritative Pronouncements**





The
      FASB
      issued FASB Statement No. 141(R) (revised 2007), *Business
      Combinations,* which
      requires the acquiring entity in a business combination to recognize all (and
      only) the assets acquired and liabilities assumed in the transaction;
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed; and requires the acquirer to disclose
      to investors and other users all of the information they need to evaluate and
      understand the nature and financial effect of the business combination. FASB
      No.141 R is effective for fiscal years beginning after December 15, 2008. The
      Company believes that FAS No. 141 R may have an impact on its financial
      statements.





The
      FASB
      issued FASB Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* Statement
      No.160 requires all entities to report noncontrolling (minority) interests
      in
      subsidiaries in the same way—as equity in the consolidated financial statements.
      Moreover, Statement 160 eliminates the diversity that currently exists in
      accounting for transactions between an entity and noncontrolling interests
      by
      requiring they be treated as equity transactions. FASB No.160 is effective
      for
      fiscal years beginning after December 15, 2008. The Company believes that FAS
      No. 160 may have an impact on its financial statements.





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





In
      May
      2008, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles.” The new standard is intended to improve
      financial reporting by identifying a consistent framework, or hierarchy, for
      selecting accounting principles to be used in preparing financial statements
      that are presented in conformity with U.S. generally accepted accounting
      principles (GAAP) for non-governmental entities. We are currently evaluating
      the
      effects, if any, that SFAS No. 162 may have on our financial
      reporting.




21




**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





Not
      applicable.




**Item
      4.**  **Controls
      and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





Based
      on
      management’s evaluation (with the participation of our Chief Executive Officer
      (“CEO”) and Chief Financial Officer (“CFO”)), as of the end of the period
      covered by this report, 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
      reported and 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.





**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 control 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.




22





**PART
      II.**  **OTHER
      INFORMATION**





**Item
      1A. Risk Factors**





We
      describe our business risk factors below. This description includes any material
      changes to and supersedes the description of the risk factors associated with
      our business previously disclosed in Part I, Item 1 of our Annual Report on
      Form
      10-KSB for the fiscal year ended December 31, 2007.





**Risks
      Related to Our Business**





***We
      have limited cash available, and we may not have sufficient cash to continue
      our
      business operations.***





As
      of
      September 30, 2008 the Company had approximately $160,000 available in cash
      and
      cash equivalents. The Company may continue to incur losses in future months
      as
      the Company engages in further expenditures as it pursues its business
      plan.





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





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





***We
      may require significant additional funding and may have difficulty raising
      needed capital in the future.***





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




·
            the
                number of potential products in
                development;





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





·
            competing
                technological and market
                developments;





·
            market
                acceptance or the Company’s products;
                and





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





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




23





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





We
      permit
      customers to return pharmaceutical products under certain conditions and the
      amount of product returns may be material. Although we have experienced product
      returns in the past, it is difficult to estimate what level of product returns
      we will experience in the future. We believe product returns may represent
      10%
      of the revenue of comparable companies. If we fail to properly estimate the
      amount of product returns or experience a material increase in product returns
      our results could be adversely affected.





We
      also
      face the risk of exposure to product liability claims. Although we carry product
      liability insurance; this insurance may not be sufficient to cover potential
      claims. This insurance may not be available to us in the future at an acceptable
      cost.





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





·
            reformulation
                of the product;


·
            additional
                testing;


·
            clinical
                trials; or


·
            changes
                in the labeling or marketing of the
                product.





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





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





While
      we
      market our products to a large number of doctors and pharmacists, we sell our
      products to a small number of wholesale drug distributors and a limited number
      of pharmacies. In 2007, McKesson HBOC, Inc. and Cardinal Health, Inc.
      represented approximately 37% and 34%, of sales by MCR and AMBI. The loss of
      any
      of these distributors could have an adverse effect on our business, financial
      condition and results of operations. A change in purchasing patterns or a
      reduction in inventory carrying levels by any of these distributors could have
      a
      material adverse impact on our results of operation. Additionally, the
      distribution network for pharmaceutical products has been subject to increasing
      consolidation. As a result, a few large wholesale distributors control a large
      share of the market. Further consolidation or financial difficulties of these
      distributors could result in the combination or elimination of warehouses that
      could increase product returns or delay product purchases to reduce inventory
      levels at the distributor.





***If
      third-party payors do not reimburse patients for our products, our sales and
      profits could decline.***





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





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


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


·
            price
                controls on pharmaceutical
                products.





Any
      of
      these reforms could adversely affect our revenues and ability to achieve
      profitability.




24





***Because
      we currently have no commercial manufacturing capabilities of our own, we are
      and will continue to be dependent upon one third party to manufacture products
      for us.***





We
      have
      no commercial manufacturing experience and currently outsource all of our
      product manufacturing to one third−party contract manufacturer. Although we have
      received sufficient material from that manufacturer to meet our current needs,
      we do not have any contracts with any other third parties. The termination
      of
      our agreement with or any loss of services under that agreement would be
      difficult for us to replace. We expect to continue to rely on this third party
      to produce materials required for the commercial production of our
      products.





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





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





***If
      our third−party manufacturer does not operate in accordance with current Good
      Manufacturing Practices, we could be subject to FDA enforcement actions,
      including the seizure of our products and the halt of our
      production.***





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





***We
      are dependent on our manufacturer party for the development of some of our
      products.***





We
      currently rely on our manufacturer for the development of our products. Our
      ability to commercialize the products that we develop and generate revenues
      from
      product sales depends on our partner’s ability to assist us in establishing the
      safety and efficacy of our product candidates, obtaining and maintaining
      regulatory approvals and achieving market acceptance of the products once
      commercialized.   If our partner fails to perform as we expect, our
      potential for revenue from products developed through our strategic relationship
      could be dramatically reduced.





If
      we
      utilize other partners for the development of our products, those partners
      may
      elect to delay or terminate development of one or more product candidates,
      independently develop products that could compete with ours or fail to commit
      sufficient resources to the distribution of products developed through their
      strategic relationships with us.





***We
      may engage in strategic transactions or acquisitions that fail to enhance
      stockholder value.***





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




Strategic
      transactions involve numerous risks, including the following:




•
            
            Difficulties
                in integrating the operations, technologies, products and personnel
                of the
                acquired companies;•
            
            Diversion
                of management’s attention from normal daily operations of the
                business;•
            
            Difficulties
                in entering markets in which we have no or limited direct prior experience
                and where competitors in such markets have stronger market
                positions;•
            
            Initial
                dependence on unfamiliar partners;•
            
            Insufficient
                revenues to offset increased expenses associated with acquisitions;
                and•
            
            The
                potential loss of key employees of the acquired companies.




Acquisitions
      may also cause us to:




•
            
            Issue
                common stock that would dilute our current shareholders’ percentage
                ownership;•
            
            Assume
                liabilities;•
            
            Record
                goodwill and non-amortizable intangible assets that will be subject
                to
                impairment testing on a regular basis and potential periodic impairment
                charges;




25




•
            
            Incur
                amortization expenses related to certain intangible
                assets;•
            
            Incur
                large and immediate write-offs, and restructuring and other related
                expenses; or•
            
            Become
                subject to litigation.





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





***The
      loss of key executives and failure to attract qualified management could limit
      our growth and negatively impact our results of
      operations.***





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





***Because
      none of our products have been approved by the FDA or subject of FDA-approved
      new drug applications, we could be subject to FDA enforcement
      actions.***





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





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





***The
      regulatory status of some of our products makes these products subject to
      increased competition and other regulatory risks, which could result in reduced
      sales or enforcement actions against us.***





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




26





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





***Our
      business is heavily regulated by governmental authorities, and failure to comply
      with such regulation or changes in such regulations could negatively impact
      our
      financial results.***





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





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





***Period−to−period
      comparisons of our operating results are not meaningful due to our acquisition
      of MCR American Pharmaceuticals, Inc. and AMBI Pharmaceuticals,
      Inc.***





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





***Our
      financial results may fluctuate due to factors outside our control, which
      fluctuations may have an adverse affect on our stock
      price.***





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





·
            seasonality
                of sales of cough, cold and allergy products;


·
            demand
                for and market acceptance of our
                products;


·
            insufficient
                demand in the marketplace causing our distributors to return
                product;


·
            the
                development of new competitive products by
                others;


·
            changes
                in treatment practices of physicians who currently prescribe our
                products;


·
            the
                timing, release and competitiveness of our
                products;


·
            the
                mix of products that we sell during any time
                period;


·
            increased
                price competition;


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


·
            adverse
                changes in the level of economic activity in the United States and
                other
                major regions in which we do
                business.





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





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





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




27





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





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





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





***If
      physicians and patients do not accept our current or future products, we may
      be
      unable to generate significant additional revenue, if
      any.***





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




·
              timing
                  of market introduction of competitive
                  drugs;
 ·
              lower
                  demonstrated clinical safety and efficacy compared to other
                  drugs;
 ·
              lack
                  of cost-effectiveness;
 ·
              pricing
                  and reimbursement policies of government and third party payors
                  such as
                  insurance companies, health maintenance organizations and other
                  health
                  plan administrators;
 ·
              lack
                  of convenience or ease of
                  administration;
 ·
              prevalence
                  and severity of adverse side
                  effects;
 ·
              other
                  potential advantages of alternative treatment methods;
                  and
 ·
              ineffective
                  marketing and distribution
                  support.




If
      our
      products fail to achieve market acceptance, we would not be able to generate
      significant revenue.




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





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





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





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





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





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




28





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





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





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




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





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





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




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





·
            quarterly
                variations in the Company’s operating
                expenses;





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





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




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





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





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





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




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




***We
      have not paid dividends in the past and do not expect to pay dividends in the
      future. Any return on investment may be limited to the value of our common
      stock.***




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




29





**Item
      5. Other Information**





On
      November 18, 2008, the Company, the Seller and his affiliate, TG United, entered
      into the Modification Agreement, modifying the terms pursuant to which the
      Company acquired MCR and AMBI from the Seller on June 6, 2008. Pursuant to
      the
      Modification Agreement, among other things, the Seller surrendered the $3
      million Convertible Note and $3 million Subordinated Note, each issued to him
      on
      June 6, 2008. In addition, the Modification Agreement provides for the
      cancellation of approximately $1 million in payables owed by MCR and AMBI to
      TG
      United and an inventory credit of $1.26 million. The payables that were
      cancelled represent all invoices owing to TG United by MCR and AMBI arising
      prior to the Company’s acquisition of MCR and AMBI and arising between June 6,
      2008 and November 1, 2008. The inventory credit may be applied to orders by
      MCR
      and AMBI after November 1, 2008.





In
      exchange for the agreements referenced above, the Company issued to the Seller
      1,500,000 shares of the Company’s newly designated Series A Preferred Stock,
      $0.001 par value per share (“Series A Stock”), and issued to TG United 1,397,463
      shares of the Company’s newly designated Series B Preferred Stock, $0.001 par
      value per share (“Series B Stock”). Each share of Series A Stock and Series B
      Stock is convertible into 10 shares of the Company’s common stock, with the
      Series B Stock automatically converted upon the effectiveness of an amendment
      to
      the Company’s Certificate of Incorporation increasing the authorized but
      unissued shares of the Company’s common stock to such number as will be
      sufficient to permit the conversion in full of the Series B Stock. The Company
      is subject to an affirmative covenant to seek the approval of its stockholders
      of an amendment to the Certificate of Incorporation to increase the available
      authorized and unissued common stock to such number as will be sufficient to
      permit the conversion in full of the Series A Stock and Series B Stock. Together
      with the 1,333,333 shares of common stock previously issued to the Seller on
      June 6, 2008, the Seller beneficially owns approximately 50.1% of the Company’s
      common stock. All of these shares are subject to a lock-up agreement expiring
      on
      March 31, 2009 and are entitled to certain customary rights to registration
      under the Securities Act of 1933, as amended, as set forth in a Registration
      Rights Agreement attached as an exhibit to this report. The Seller is also
      entitled to a preemptive right on subsequent securities offerings by the
      Company.





The
      Series A Stock has a non-participating liquidation preference of $4,500,000.
      The
      Series B Stock has a liquidation preference of approximately $14,000 and
      thereafter participates equally with the common stock on an as converted basis
      in any liquidation event. The Series A Stock includes certain customary negative
      covenants which may be waived with the consent of the holders of a majority
      of
      the Series A Stock. The Series A Stock and Series B Stock vote together with
      the
      common stock on an as converted basis, except that with respect to any proposed
      liquidation event that would result in net proceeds to all stockholders of
      less
      than $9,000,000, which transaction would require the approval of the holders
      of
      a majority of the outstanding common stock voting as a separate
      class.





Neither
      the issuance of the Series A Stock or Series B Stock, nor the issuance of the
      common stock issuable upon conversion of those securities, have been registered
      under the Securities Act of 1933, as amended. The Series A Stock and Series
      B
      Stock were issued in reliance upon an exemption from registration under Section
      4(2) of the Securities Act of 1933, as amended.





In
      connection with the execution of the Modification Agreement, Matthew Colpoys
      and
      Phillip Young resigned from the board of directors effective November 18, 2008.
      Mr. Colpoys continues to serve as the Chief Executive Officer and President
      of
      the Company. Gary Dutton and the Seller were appointed to the Company’s board of
      directors at the Seller’s request effective November 18, 2008, with the Seller
      also appointed as Vice Chairman of the board of directors. The Seller, as a
      holder of Series A Stock, is entitled to appoint three directors, including
      the
      board seat he now holds and two other board seats which currently remain
      vacant.





The
      Modification Agreement also provides for the termination of the Consulting
      Agreement between the Company and the Seller and certain changes to the Supply
      Agreement between the Company and the Seller. Specifically, the obligation
      of TG
      United to manufacture specified products exclusively for the Company is now
      limited to the branded products acquired on June 6, 2008 and the corresponding
      generic products. Additionally, TG United is no longer required to provide
      the
      Company certain previously specified discounts, nor is it required to permit
      the
      Company to become the exclusive distributor of any new pharmaceutical products
      constituting a branded product that TG United internally develops. The Company
      is now required to make minimum monthly payments of $100,000 to TG United with
      respect to inventory purchases, subject to a quarterly reconciliation against
      amounts due. The $1,257,717 inventory credit may be applied by MCR and AMBI
      against invoices issued by TG United at a rate of up to $100,000 per month,
      after any required minimum monthly cash payments are made.





The
      Modification Agreement also includes mutual releases of any claims with respect
      to any breaches of representations and warranties made in the purchase agreement
      pursuant to which the Company acquired MCR and AMBI from the
      Seller.





Copies
      of
      the Modification Agreement, Registration Rights Agreement and Certificates
      of
      Designation are attached as exhibits to this report. The Company issued a press
      release on November 19, 2008 announcing these transactions. It is also filed
      as
      an exhibit to this report.




30





**Item
      6.**  **Exhibits**





2.1
            
            Modification
                Agreement and Release by and among the Company, TG United Pharmaceuticals,
                Inc. and David Ambrose3.1
            
            Certificate
                of Designation of Series A Preferred Stock3.2
            
            Certificate
                of Designation of Series B Preferred Stock4.1
            
            Registration
                Rights Agreement by and between the Company and David
                Ambrose31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002.99.1
            
            Press
                Release




31




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**Neuro-Hitech,
                Inc.**(Registrant)Date:
                November 19, 2008
            By:
            /s/
                Matthew E. ColpoysMatthew
                E. ColpoysPresident
                and Chief Executive OfficerDate:
                November 19, 2008
            By:
            /s/
                David J. BarrettDavid
                J. BarrettChief
                Financial Officer




32