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
March 31,
2009




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. EmployerIncorporation or Organization)
                                        
                                        
                                        
                                        Identification No.)16255 Aviation Loop Drive, Brooksville, FL  34604(Address of Principal Executive Offices)  (Zip Code)(352) 754-8587(Issuer’s Telephone Number, Including Area Code)(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).


Yes o No o




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





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





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





The
number of shares outstanding of Neuro-Hitech common stock as May 5, 2009, was
31,520,186.





PART
I. FINANCIAL INFORMATION





Item 1.   Financial
Statements





Neuro-Hitech,
Inc. and Subsidiaries


Consolidated
Balance Sheets





March 31, 2009
                              
                              
                              December 31, 2008(unaudited)
                              
                              
                              (1)ASSETS:Current
      Assets:Cash
      and Cash Equivalents
                              
                              $
                              449,335
                              
                              
                              $
                              397,147Accounts
      Receivable
                              
                              
                              441,420
                              
                              
                              
                              1,310,852Inventory
                              
                              
                              428,846
                              
                              
                              
                              326,946Prepaid
      Inventory
                              
                              
                              826,761
                              
                              
                              
                              1,025,059Prepaid
      Expenses
                              
                              
                              173,350
                              
                              
                              
                              38,054Total
      Current Assets
                              
                              
                              2,319,712
                              
                              
                              
                              3,098,058Property
      and Equipment, net
                              
                              
                              8,556
                              
                              
                              
                              9,472Other
      Assets:Intangible
      Asset, net
                              
                              
                              5,691,171
                              
                              
                              
                              6,021,751Total
      assets
                              
                              $
                              8,019,439
                              
                              
                              $
                              9,129,281LIABILITIES
      AND STOCKHOLDERS' EQUITY:Current
      Liabilities:Accounts
      payable and accrued expenses
                              
                              $
                              830,988
                              
                              
                              $
                              830,588Accrued
      Returns and Chargebacks
                              
                              
                              408,307
                              
                              
                              
                              408,307Total
      current liabilities
                              
                              
                              1,239,295
                              
                              
                              
                              1,238,895Stockholders'
      Equity:Preferred
      stock, $.001 par value, 5,000,000 shares authorized:Series
      A Preferred Stock,1,500,000 issued and outstanding at
      December 31, 2008
                              
                              
                              1,500
                              
                              
                              
                              1,500Series
      B Preferred Stock,1,397,463 issued and outstanding at
      December 31, 2008
                              
                              
                              1,397
                              
                              
                              
                              1,397Common
      stock, $.001 par value, 44,999,990 shares authorized, 31,520,186 issued
      and outstanding at March 31, 2009 and December 31, 2008,
      respectively
                              
                              
                              31,520
                              
                              
                              
                              31,520Subscriptions
      receivable
                              
                              
                              (15,000
                              )
                              
                              
                              (15,000Deferred
      Compensation
                              
                              
                              (15,936
                              )
                              
                              
                              (15,936
                              )Additional
      paid-in capital
                              
                              
                              52,255,434
                              
                              
                              
                              51,443,428Accumulated
      deficit
                              
                              
                              (45,478,771
                              )
                              
                              
                              (43,556,523
                              )Total
      stockholders' equity
                              
                              
                              6,780,144
                              
                              
                              
                              7,890,386Total
      liabilities and stockholders' equity
                              
                              $
                              8,019,439
                              
                              
                              $
                              9,129,281





(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 endedMarch 31,2009
                                  
                                  
                                  2008(Unaudited)
                                  
                                  
                                  (Unaudited)Revenues
                                  
                                  $
                                  981,353
                                  
                                  
                                  $
                                  190,827Cost
      of goods sold
                                  
                                  
                                  676,795
                                  
                                  
                                  
                                  99,357Gross
      Profit
                                  
                                  
                                  304,558
                                  
                                  
                                  
                                  91,470Operating
      expenses:Selling,
      general and administrative expenses
                                  
                                  
                                  1,084,594
                                  
                                  
                                  
                                  556,411Research
      and Development Costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,100,664Share-Based
      Compensation
                                  
                                  
                                  809,390
                                  
                                  
                                  
                                  511,017Amortization
      of Deferred Compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  31,869Amortization
      of Intangibles
                                  
                                  
                                  330,581
                                  
                                  
                                  
                                  -Total
      operating expenses
                                  
                                  
                                  2,224,565
                                  
                                  
                                  
                                  2,199,961Operating
      loss
                                  
                                  
                                  (1,920,007
                                  )
                                  
                                  
                                  (2,108,491
                                  )Other
      income:Interest
      income (expense)
                                  
                                  
                                  365
                                  
                                  
                                  
                                  38,788Net
      loss
                                  
                                  $
                                  (1,919,642
                                  )
                                  
                                  $
                                  (2,069,703
                                  )Basic
      and diluted loss per common share
                                  
                                  $
                                  (0.06
                                  )
                                  
                                  $
                                  (0.15
                                  )Basic
      and diluted weighted average commonshares
      outstanding
                                  
                                  
                                  31,520,186
                                  
                                  
                                  
                                  14,004,853




See
accompanying notes to Unaudited Consolidated Financial Statements.


3




NEURO HI-TECH, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




For
      the three-month period endedMarch
      31,2009
                                  
                                  
                                  2008(Unaudited)
                                  
                                  
                                  (Unaudited)Cash
      flows from operating activities:Net
      (loss)
                                  
                                  $
                                  (1,919,642
                                  )
                                  
                                  $
                                  (2,069,703
                                  )Adjustments
      to reconcile net (loss) to net cash provided by (used in)operating
      activities:Depreciation
                                  
                                  
                                  916
                                  
                                  
                                  
                                  747Amortization
      of intangible assets
                                  
                                  
                                  330,580
                                  
                                  
                                  
                                  –Amortization
      of Deferred Compensation
                                  
                                  
                                  –
                                  
                                  
                                  
                                  31,869Share-based
      Compensation
                                  
                                  
                                  809,390
                                  
                                  
                                  
                                  –Fair
      value of shares issued for services
                                  
                                  
                                  –
                                  
                                  
                                  
                                  511,017Changes
      in operating assets and liabilities:(Increase)
      Decrease in Assets:Accounts
      receivable
                                  
                                  
                                  869,432
                                  
                                  
                                  
                                  (100,951
                                  )Inventory
                                  
                                  
                                  (101,900
                                  )
                                  
                                  
                                  8,812Prepaid
      expenses
                                  
                                  
                                  63,012
                                  
                                  
                                  
                                  (92,081
                                  )Accounts
      payable and accrued expenses
                                  
                                  
                                  400
                                  
                                  
                                  
                                  (261,919
                                  )Net
      cash provided by (used in) operating activities
                                  
                                  
                                  (52,188
                                  )
                                  
                                  
                                  (1,972,209
                                  )Cash
      flows from financing activities:Net
      increase (decrease) in cash
                                  
                                  
                                  52,188
                                  
                                  
                                  
                                  (1,972,209
                                  )Cash
      and cash equivalent, beginning of year
                                  
                                  
                                  397,147
                                  
                                  
                                  
                                  6,137,592Cash
      and cash equivalent, end of period
                                  
                                  $
                                  449,335
                                  
                                  
                                  $
                                  4,165,383Supplemental
      disclosures of cash flow information:Cash
      paid for taxes
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Cash
      paid for interest
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -




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.





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. in 2008 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 three-month period ended March 31, 2009 are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2009.


5





NEURO-HITECH,
INC. AND SUBSIDIARIES


NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Liquidity
and Capital Resources





The
accompanying consolidated financial statements have been prepared on a
going-concern basis, which contemplates the continuation of operations,
realization of assets, and liquidation of liabilities in the ordinary course of
business.  For the three-month period ended March 31, 2009 the Company
generated a net loss of approximately $1.9 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 Neuro-Hitech, and MCR and AMBI. 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.





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.





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 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 first quarter, the Company recognized cost of goods sold of $676,795 for
products by MCR and AMBI.


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 March 31, 2009 and
2008 have been excluded from the computation of diluted earnings per share due
to their antidilutive effect.





Common
share equivalent are as follows:




March 31, 2009
                                    
                                    March 31, 2008Options
                                    
                                    
                                    1,312,043
                                    
                                    2,730,319Warrants
                                    
                                    
                                    3,255,357
                                    
                                    3,255,357Preferred
      Stock (If Converted)
                                    
                                    
                                    28,974,630
                                    
                                    -33,542,030
                                    
                                    5,985,676





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 executive officers evaluate 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





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”), which provides
companies with an option to report selected financial assets and liabilities at
fair value.  SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
SFAS No. 159 is effective as of the beginning of an entity’s first fiscal
year beginning after November 15, 2007.  The adoption of SFAS
No. 159 has not had an effect on the Company’s financial
statements.





In
December 2007 FASB issued FAS 141(R) “Business Combinations” (“FAS 141
(R)”) and FAS 160 “Noncontrolling Interests in Consolidated Financial
Statements” (“FAS 160”).  These statements are effective for fiscal
years, and interim periods within those fiscal years in case of FAS 160,
beginning on or after December 15, 2008.  Earlier adoption is
prohibited.   Together these statements revise the accounting
rules with respect to accounting for business combinations. Specifically,
the objective of FAS 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that the reporting entity
provides in its financial reports about a business combination and its
effects.  This statement thus establishes principles and requirements for
how the acquirer:




·
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree;




·
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase; and




·
            Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.




The
objective of FAS 160 is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require:




·
            The
      ownership interests in subsidiaries held by parties other than the parent
      be clearly identified, labeled, and presented in the consolidated
      statement of financial position within equity, but separate from the
      parent’s equity.




·
            The
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest be clearly identified and presented on the face of
      the consolidated statement of
income.




·
            Changes
      in a parent’s ownership interest while the parent retains its controlling
      financial interest in its subsidiary be accounted for consistently. A
      parent’s ownership interest in a subsidiary changes if the parent
      purchases additional ownership interests in its subsidiary or if the
      parent sells some of its ownership interests in its subsidiary. It also
      changes if the subsidiary reacquires some of its ownership interests or
      the subsidiary issues additional ownership interests. All of those
      transactions are economically similar, and this Statement requires that
      they be accounted for similarly, as equity
  transactions.




·
            When
      a subsidiary is deconsolidated, any retained noncontrolling equity
      investment in the former subsidiary be initially measured at fair value.
      The gain or loss on the deconsolidation of the subsidiary is measured
      using the fair value of any noncontrolling equity investment rather than
      the carrying amount of that retained
investment.




·
            Entities
      provide sufficient disclosures that clearly identify and distinguish
      between the interests of the parent and the interests of the
      noncontrolling owners.




Together
these statements are not currently expected to have a significant impact on the
Company’s consolidated financial statements.  A significant impact may
however be realized on any future acquisition(s) by the Company.  The
amounts of such impact cannot be currently determined and will depend on the
nature and terms of such future acquisition(s), if any.




9




In March
2008, the FASB issued FASB No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” which amends and expands the disclosure requirements of
FASB No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
with the intent to provide users of financial statements with an enhanced
understanding of; how and why an entity uses derivative instruments, how the
derivative instruments and the related hedged items are accounted for and how
the related hedged items affect an entity’s financial position, performance and
cash flows.  This statement is effective for financial statements for
fiscal years and interim periods beginning after November 15,
2008.  Management believes this statement will have no impact on the
consolidated financial statements of the Company.


In
May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States. Any effect of applying
the provisions of SFAS 162 shall be reported as a change in accounting principle
in accordance with SFAS 154, Accounting Changes and Error
Corrections. SFAS162 is
effective 60 days following approval by the Securities and Exchange
Commission of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting Principles.The adoption ofSFAS162
has not had an impact on the Company’s consolidated financial
statements.





In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (“FSP03-6-1”), which addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in earnings allocation in computing earnings
per share under the two-class method. The statement is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and
retrospective application is required for all periods presented. The Company is
currently evaluating the effect of the implementation ofFSP03-6-1, but does not believe that it
will have a material impact on the calculation of earnings per
share.





In
October 2008 the FASB issued FASB Staff Position  SFAS No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active” (“FSP”). This FSP clarifies the application of SFAS No. 157
in an inactive market and provides an example to illustrate key considerations
in determining the fair value of a financial asset when the market for that
financial asset is not active. This FSP was effective October 10, 2008 and
must be applied to prior periods for which financial statements have not been
issued. The application of this FSP did not have a material impact to our
consolidated financial statements.





Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.


10


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 and the stockholder that became our chief executive officer
was terminated.





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 $8,271,255. The aggregate purchase
price consists of the following:




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




The
purchase price has initially been allocated as follows:




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





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





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





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


11





Had these
acquisitions occurred on January 1, 2008, the results would be as
follows:





For the
                          Three
                          Months
                          Ended
                          March 31,2008Total
      Revenue
                        
                        $
                        1,521,038Net
      [Loss]
                        
                        $
                        (2,577,311
                        )Basic
      & Diluted [Loss] Per Common Share
                        
                        $
                        (0.18
                        )





Intangible Assets





Intangible
assets consisted of the following:





Useful Life
                        (Years)
                        Weighted
                        Average
                      
                      
                      At March
                        31, 2009
                      
                      
                      At December
                        31, 2008MCR
      and AMBI Pharmaceuticals
                      
                      
                      4.87
                      
                      
                      $
                      6,611,625
                      
                      
                      $
                      6,611,625Less:
      accumulated amortization
                      
                      
                      
                      
                      
                      $
                      (920,454
                      )
                      
                      
                      (589,874)$
                      5,691,171
                      
                      
                      $
                      6,021,751





For the
three months ended March 31, 2009 and 2008, amortization expense was $330,581
and $0 respectively.


12




NEURO-HITECH,
INC. AND SUBSIDIARIES


NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Stock
Based Compensation





During
the quarter ended March 31, 2009 and 2008, the Company recorded share-based
payments expenses amounting to $809,390 and $511,017, respectively, in
connection with all options and stock appreciation rights outstanding at the
respective measurement dates. The amortization of share-based payments was
recorded in selling, general, and administrative expenses during the three-month
period ended March 31, 2009 and 2008





The total
compensation cost related to nonvested options and stock appreciation rights not
yet recognized amounted to approximately $1,621,570 at March 31, 2009 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 :




Three month period
                                      endedMarch 31, 2009Exercise
      price:
                                    
                                    $
                                    0.44 - $5.85Market price
      at date of grant:
                                    
                                    $
                                    0.41 - $0.45Volatility:
                                    
                                    
                                    121.63
                                    %Expected
      dividend rate:
                                    
                                    
                                    0
                                    %Expected
      terms:
                                    
                                    4 –
      5 yearsRisk-free
      interest rate:
                                    
                                    
                                    3.2
      - 3.52
                                    %Stock
      options granted:
                                    
                                    
                                    4,050,000Stock
      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.


13





NEURO-HITECH,
INC. AND SUBSIDIARIES


NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





[4]
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
three-month periods ended March 31, 2009 and 2008, the payments made or accrued
by the Company to Georgetown under the terms of the clinical research agreement
were approximately $0 and $529,400, 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. The Company expects to make a final payment in the
second quarter of 2009 to Georgetown in the amount of $40,000.





Xel
Herbaceuticals, Inc.





On March
15, 2006, the Company entered into a development agreement with XEL for the
development of the Huperzine A Transdermal Delivery System
(“Product”).  For the three months ended March 31, 2009 and 2008, the
payments made to XEL under this agreement were approximately $0 and $92,500,
respectively, and are reflected in the Research and Development caption of the
Statement of Operations.  The Company does not expect to make any
additional payments in 2009.





Dalhousie License Agreements (PARTEQ)





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





Under the
terms of the Exclusive Patent License Agreement with PARTEQ which was amended in
early 2007, the Company was obligated to pay fixed annual fees of
C$282,944.  Under the terms of the Exclusive Patent License Option
Agreement with PARTEQ which was amended in early 2007, the Company was obligated
to pay fixed annual fees of C$150,800.





For the
three-months ended March 31, 2009 and 2008, the payments made or accrued by the
Company to PARTEQ under these agreements were $0 and $121,065, respectively, and
are reflected in the Research and Development caption of the Statement of
Operations.


14




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-K 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, 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




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.





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.





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





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





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





Results
of Operations





The
following discussion provides comparisons of the Company’s results of operations
for the three-month period ended March 31, 2009 to the three-month period ended
March 31, 2008.  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.


15





The
following tables include selected consolidated statement of operations and other
data for the three-month periods ended March 31, 2009 and 2008.




Results
of Operations




For the three-month
                                      period ended
                                      March 312009 vs
                                      2008
                                    
                                    
                                    2009 vs
                                      20082009
                                    
                                    
                                    2008
                                    
                                    
                                    ($)
                                    
                                    
                                    (%)(Unaudited)
                                    
                                    
                                    (Unaudited)Revenues
                                    
                                    $
                                    981,353
                                    
                                    
                                    $
                                    190,827
                                    
                                    
                                    $
                                    790,526
                                    
                                    
                                    
                                    414.3
                                    %Cost
      of goods sold
                                    
                                    
                                    676,795
                                    
                                    
                                    
                                    99,357
                                    
                                    
                                    
                                    577,438
                                    
                                    
                                    
                                    581.2
                                    %Gross
      Profit
                                    
                                    
                                    304,558
                                    
                                    
                                    
                                    91,470
                                    
                                    
                                    
                                    213,088
                                    
                                    
                                    
                                    233.0
                                    %Operating
      expenses:Selling,
      general and administrative expenses
                                    
                                    
                                    1,084,594
                                    
                                    
                                    
                                    556,411
                                    
                                    
                                    
                                    528,183
                                    
                                    
                                    
                                    94.9
                                    %Research
      and development costs
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,100,664
                                    
                                    
                                    
                                    (1,100,664
                                    )
                                    
                                    
                                    -100
                                    %Share-Based
      Compensation
                                    
                                    
                                    809,390
                                    
                                    
                                    
                                    511,017
                                    
                                    
                                    
                                    298,373
                                    
                                    
                                    
                                    58.4
                                    %Amortization
      of Deferred Compensation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    31,869
                                    
                                    
                                    
                                    (31,869
                                    )
                                    
                                    
                                    -100.0
                                    %Amortization
      of Intangibles
                                    
                                    
                                    330,581
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    330,581
                                    
                                    
                                    
                                    100
                                    %Total
      operating expenses
                                    
                                    
                                    2,224,565
                                    
                                    
                                    
                                    2,199,961
                                    
                                    
                                    
                                    24,604
                                    
                                    
                                    
                                    1.1
                                    %Operating
      loss
                                    
                                    
                                    (1,920,007
                                    )
                                    
                                    
                                    (2,108,491
                                    )
                                    
                                    
                                    188,484
                                    
                                    
                                    
                                    -8.9
                                    %Other
      income (expense):Interest
      income (expense)
                                    
                                    
                                    (365
                                    )
                                    
                                    
                                    38,788
                                    
                                    
                                    
                                    (38,423
                                    )
                                    
                                    NMNet
      loss
                                    
                                    $
                                    (1,919,642
                                    )
                                    
                                    $
                                    (2,069,703
                                    )
                                    
                                    $
                                    (150,061
                                    )
                                    
                                    
                                    7.3
                                    %




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 $981,353 for the quarter ended March 31,
2009, a 414.3% increase from the $190,827 in revenue achieved for the quarter
ended March 31, 2008. The change in revenue was attributable to revenues
generated by MCR and AMBI following the Company’s acquisition of those
companies.





Cost of Goods
Sold





Cost of
goods sold as a percentage of the Company’s revenue was 31.03% for the quarter
ended March 31, 2009, compared with 47.9% for the quarter ended March 31,
2008.  The change in cost of goods sold as a percentage of the
Company’s revenue was attributable to a change in the margins associated with
the sales of the Company’s pharmaceutical products following its acquisition of
MCR and AMBI compared to the margins associated with the sales of Huperzine A in
the prior period.  A comparison to the prior period is not meaningful
in light of the change in the composition of the Company’s
business.


16





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
$556,411 for the quarter ended March 31, 2008 to $1,084,594 for the quarter
ended March 31, 2009, a 94.9% increase.  The increase in these
expenses was attributable to increases in salaries and employee benefits
following the Company’s acquisition of MCR and AMBI.





Share
based compensation for the quarter ended March 31, 2009 was $809,390 an increase
from the $511,017 for the quarter ended March 31, 2008.  The increase
in share based compensation expense was attributable to share-based payments of
approximately $298,373 associated with the forefeiture of options granted to
officers, employees and consultants in prior years, and the grant of options and
stock appreciation rights.


17


Research and development
costs





The
Company incurred no research and development costs during the quarter ended
March 31, 2009 compared to $1,100,664 for the quarter ended March 31,
2008.  The decrease in research and development expenses is attributable to
the conclusion of the Company’s clinical development programs following the
announcement of its Phase II results for Huperzine A.




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.  In November 2008, the Company,
David Ambrose and TG United (an affiliate of Mr. Ambrose) modified certain terms
of the agreement pursuant to which the Company purchased MCR and AMBI, pursuant
to a Modification Agreement and Release (“Modification
Agreement”).  Pursuant to the Modification Agreement the Company
issued 1,500,000 shares of the Company’s Series A Preferred Stock and 1,397,463
shares of the Company’s Series B Preferred Stock (i) to satisfy its
obligations to Mr. Ambrose under a Convertible Note and a Subordinated Note
aggregating approximately $6.1 million and payables aggregating approximately $1
million and (ii) to receive products from an affiliate of Mr. Ambrose valued at
up to $1,257,717. Each share of the Series A and B Preferred Stock is
convertible 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
Company is dependent upon TG United as its sole source of inventory and
operating credit.  As part of the Modification Agreement, the Company
was provided a $1.26 million inventory credit by TG United.  The
Company is required to make minimum monthly payments of $100,000 to TG United
with respect to inventory purchases, subject to a quarterly reconciliation
against amounts due.  The $1.26 million inventory credit may be
applied by MCR and AMBI against invoices issued by TG United at a rate of up to
$100,000 per month, after any required minimum monthly cash payments are
made.  Approximately $827,000 of the inventory credit remained
available to the Company as of March 31, 2009.




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





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





During
the quarter ended March 31, 2009 the Company used approximately $52,188 in its
operating activities.  The cash used in operating activities consisted
primarily of the following:





●
            Net
      loss of approximately $1.9 million, adjusted for share-based payments
      aggregating $809,000 and the amortization of intangible assets acquired
      pursuant to the MCR and AMBI acquisition amounting to approximately
      $331,000;


●
            A
      decrease in accounts receivable of approximately $869,000 which is
      primarily due to sales of products sold in the first quarter,
      2009;


●
            An
      increase in inventory of approximately
$102,000.





The
Company expects to incur additional expenses in 2009 payable to Georgetown of
$40,000 related to the open label extension of the Phase II Clinical Trial and
C$40,000 payable to Dalhousie related to the preclinical licensing
agreement.





To fund
the implementation of its business plan, the Company has historically engaged in
financings through existing investors and potential new investors. If the
Company fails to raise additional capital, or generate sufficient liquidity from
sales of its pharmaceutical products, it may not have sufficient cash to meet
future operating expenses and capital requirements during this period or in
future periods.  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.  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.


18





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.


19


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 $400,000 at March 31, 2009 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.


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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.


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PART II.     OTHER INFORMATION





Item 6.   Exhibits





31.1
            
            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.


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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:
      May 14, 2009
                        By:
                        /s/
      David AmbroseDavid
      AmbrosePresident
      and Chief Executive OfficerDate:
      May 14, 2009
                        By:
                        /s/
      David BarrettDavid
      J. BarrettChief
      Financial
Officer


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