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Neuro-Hitech, Inc. · 10KSB · For 12/31/07

Filed On 4/9/08, 5:58pm ET   ·   Accession Number 1144204-8-21469   ·   SEC File 1-33426

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 4/10/08  Neuro-Hitech, Inc.                10KSB      12/31/07    5:1.3M                                   Vintage Filings/FA

Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                     HTML    825K 
 2: EX-23.01    Consent of Experts or Counsel                       HTML      9K 
 3: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     14K 
 4: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     14K 
 5: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML      8K 


10KSB   —   Annual Report — Small Business


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-KSB
 
x   
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended December 31, 2007
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number   001-33426
 
NEURO-HITECH, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
 
 
20-4121393
  (State or Other Jurisdiction of
 
   (I.R.S. Employer
  Incorporation or Organization)
 
   Identification No.)

One Penn Plaza, Suite 1503, New York, NY 10019
(Address of Principal Executive Offices)
 
    (212) 594-1215   
(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act: None
 
Securities registered under Section 12(g) of the Exchange Act: 
 
Title of each class
 
Common Stock, $0.001 par value per share
 
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
o Yes   þ No
 
State issuer’s revenues for its most recent fiscal year.   $458,870
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 17, 2008 based upon the closing price of the common stock as reported then on the NASDAQ Capital Market as of such date, was approximately $4,735,733.

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

  Common Stock
 
 
14,004,853
 
 
DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the registrant’s Proxy Statement relating to its 2008 Annual Stockholders’ Meeting, to be filed subsequently—Part III.

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







 
NEURO-HITECH, INC.

FORM 10-KSB

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 
 
 
Page
 
 
 
1
 
21
 
21
Item 4. Submission of Matters to a Vote of Security Holders
 
21
 
 
 
 
 
 
 
 
 
22
Item 6. Management’s Discussion and Analysis or Plan of Operations
 
23
Item 7. Financial Statements
 
27
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
 
27
Item 8A(T). Controls and Procedures
 
27
Item 8B. Other Information
 
 
 
 
 
 
 
 
 
 
 
29
 
29
 
29
Item 12. Certain Relationships and Related Transactions, and Director Independence
 
29
Item 13. Exhibits
 
30
 
34
 







 
PART I


Item 1.
Description of Business

Description of the Company

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

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

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

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

The Company has also studied the transdermal delivery of Huperzine A. The Company believes that Huperzine A can effectively be delivered transdermally because of its low dosage requirement and low molecular weight. The Company believes that a transdermal patch could be a better way to deliver Huperzine A because the patch may provide the drug for transdermal delivery for up to between three and five days while avoiding the gastrointestinal tract. Although the Company initially expected to begin Phase I clinical trials in the first quarter of 2008, the Company has elected to postpone any decision or expenditures related to such a trial until after Numoda has delivered its report and the Company has considered its options.
 
Worldwide research thus far suggests that, in addition to Alzheimer’s Disease, Huperzine A may be effective in treating other dementias and myasthenia gravis. Also, research suggests that it has potential neuroprotective properties that may render it useful as a protection against neurotoxins, and it has an anti-oxidant effect.

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

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





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History

The Company was originally formed on February 1, 2005, as Northern Way Resources, Inc., a Nevada corporation, for the purpose of acquiring exploration and early stage natural resource properties. On January 24, 2006, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among the Company, Marco Hi-Tech JV Ltd., a privately held New York corporation (“Marco”), and Marco Acquisition I, Inc., a newly formed wholly-owned Delaware subsidiary of the Company (“Acquisition Sub”). Upon closing of the transactions contemplated under the Merger Agreement (the “Merger”), Acquisition Sub was merged with and into Marco, and Marco became a wholly-owned subsidiary of the Company. The Merger was consummated on that date and in connection with that Merger, the Company changed its name to Neuro-Hitech Pharmaceuticals, Inc. The Company subsequently changed its name to Neuro-Hitech, Inc. on August 11, 2006.

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

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

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

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

The Merger consideration paid to the Q-RNA securityholders pursuant to the Q-RNA Merger Agreement consisted of an aggregate of: (i) 1,800,000 shares of the Company’s common stock, (ii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $13 per share, and (iii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $18 per share. The Company also assumed Q-RNA options outstanding which upon exercise will be exercisable for 199,286 shares of the Company’s common stock.

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

Description of the Business

Alzheimer’s disease and MCI
 
Alzheimer’s disease, the leading cause of dementia, is characterized by the progressive loss of memory, thinking (cognitive function) and the ability to perform the activities of daily living (global function). There is currently no cure. According to the Alzheimer’s Association and the American Health Assistance Foundation:
 
·
Alzheimer’s disease currently affects approximately 5 million people in the U.S., including as many as 13% of people age 65 and older and nearly 50% of those age 85 and older.
 
·
Worldwide, Alzheimer’s disease affects 18 million people, and that number is expected to reach 34 million by 2025.
 




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·
There are at least 350,000 new diagnoses of Alzheimer’s disease, and at least 65,000 Alzheimer’s disease deaths, per year in the U.S.
 
·
Following initial diagnosis, patients live 4 – 6 years on average, but may live up to 20 years with the disease.
 
·
Total annual expenditures on Alzheimer’s disease in the U.S. exceed $100 billion annually, and the average lifetime cost per Alzheimer’s disease patient is $174,000.
 
The precise physical changes in the brain that produce Alzheimer’s disease are complex and not completely understood, but it is generally believed that the misfolding of two proteins, A-beta and Tau, are central to the process. The two best-validated early drug targets for Alzheimer’s disease are cholinesterase and the N-methyl-D-aspartate receptor (NMDA-receptor). There are only four commonly-used drugs that the FDA has approved for the treatment of the symptoms of Alzheimer’s disease. Although the precise mechanism of action of these four drugs is unknown, three of these drugs are believed to inhibit cholinesterase, and one is believed to inhibit the NMDA-receptor. These four drugs and their respective marketers, FDA approval dates and mechanisms of action are set forth in the following table.
 
Drug (Trade Name/Generic)
 
Marketed by
 
FDA Approval Date
 
Postulated Mechanism
Aricept ® (donepezil)
 
Pfizer Inc./Eisai Co., Ltd.
 
 
Cholinesterase inhibition
Exelon ® (rivastigmine)
 
Novartis AG
 
 
Cholinesterase inhibition
Razadyne ® (galantamine)
 
Johnson & Johnson
 
 
Cholinesterase inhibition
Namenda ® (memantine)
 
Forest Laboratories, Inc.
 
 
NMDA-receptor inhibition
 
According to Merrill Lynch equity research, the worldwide market for Alzheimer’s disease drugs in 2005 was $3 billion, with the largest selling cholinesterase inhibitor, Aricept, generating $1.7 billion of those sales.
 
The market performance of the existing Alzheimer’s disease therapeutics is particularly noteworthy given that their clinical performance to date has been modest. Specifically, as stated in their FDA-approved labeling, none of the drugs approved by the FDA to treat Alzheimer’s disease has been proven to prevent or change the underlying process of brain deterioration (neurodegeneration) in patients with Alzheimer’s disease. Rather, these drugs have been shown only to slow the worsening of the symptoms of Alzheimer’s disease—primarily loss of cognitive and global function. Furthermore, in the studies submitted in support of applications for FDA approval of these drugs, none of these drugs was shown significantly to improve both cognitive and global function over a six-month period in the patients studied. Thus, the Company believes that there is room for improvement in this large and growing pharmaceutical market.

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

Huperzine A

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

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

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

·
may be effective not only in increasing the brain’s acetylcholine levels, but also levels of other important neurotransmitters such as dopamine and noradrenaline;
 
·
may have high oral bioavailability and good penetration through the blood-brain barrier; and

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





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

Future Compounds

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

NHT0012 is one of a number of second generation disease modifying drugs for Alzheimer’s disease that inhibit A-beta and Tau oligomerization. In vitro studies suggest that these compounds are likely to offer a better pharmacological profile than first generation drugs by having:
 
·
Enhanced anti-aggregation activity
 
 
·
Better blood-brain barrier (BBB) penetration
 
 
·
Milder side effect profile

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

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

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

Licenses and Patents

PARTEQ

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

PARTEQ - Alzheimer’s Research

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





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

PARTEQ - Epilepsy Research

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

Under the terms of the PARTEQ Licensing Option Agreement, the Company is required to pay fixed annual fees of C$150,800 for the epilepsy research.
  
For the year ended December 31, 2007, the payments made by the Company to PARTEQ under these agreements have been approximately $457,115 and are reflected in the Research and Development caption of the Statement of Operations. Following the results of the Phase II clinical trial of Huperzine A, the Company is evaluating its alternatives for the further pursuit of the development of the PARTEQ compounds.

Strategy

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

Huperzine A For Alzheimer’s disease (Oral)

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

Georgetown (Phase II Clinical Trial)

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

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

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





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Org Syn Laboratory (Synthetic Huperzine)

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

Huperzine A For Alzheimer’s disease (Transdermal)

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

A marketing study funded by the Company has shown that patient compliance is a crucial factor in determining patient and doctor choice in choosing a medication for Alzheimer’s disease. Often it is the responsibility of a caregiver to remind the patient to take the orally given medications. Recognizing this, the Company hopes to develop and license a multi-day transdermal patch, which, if successfully realized, will be able to be applied to the patient for more than one day. The Company believes that some advantages of a transdermal delivery may include:
 
·
avoidance of first-pass metabolism; better control of drug and metabolite plasma levels leading to improved therapy with reduced side effects;

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

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

XEL Herbaceuticals, Inc. (Transdermal)

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

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

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

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





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

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

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

Commercialization of Huperzine A

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

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

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

NHT0012 for Alzheimer’s disease

Protein misfolding and aggregation are critical steps in the pathogenesis of a number of neurodegenerative diseases. In many cases, self-assembly of two or more proteins is implicated in these diseases, including Alzheimer’ s disease, in which aggregation of amyloid-β (Aβ), tau and α-synuclein may all contribute to neurotoxicity. Inhibiting aberrant folding and assembly of one or more of these species is thus of great therapeutic interest. A novel class of bi-aromatic compounds has been identified by researchers engaged by Neuro-Hitech that potently inhibit the aggregation of Aβ, tau and α-synuclein in Thioflavin T (ThT) and Thioflavin S (ThS) dye-binding fluorescence assays. The aggregation of both major physiological isoforms of Aβ, i.e. Aβ40 and Aβ42, was inhibited and compounds also caused disassembly of pre-formed aggregates. Further experiments confirmed the anti-amyloidogenic activity of the compounds against Aβ40; circular dichroism studies showed the compounds inhibited the random coil to β-sheet conversion, while Aβ40 binding was studied in 1H NMR experiments. Furthermore, compounds rescued SH-SY5Y neuroblastoma cells from Aβ40 toxicity in a cell viability model. Ongoing pharmacokinetic testing for the compounds has been positive, with evidence of blood-brain barrier permeability, half- lives of several hours and minimal to no toxicity at doses as high as 300 mg/kg.
 
NHT1107 - Anti-ictogenci and anti-epileptogenic

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





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

Manufacturing and Raw Materials

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

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

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

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

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

United States Regulation

New Drug Application

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

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

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





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

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

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

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

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

Additional Regulatory Considerations

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

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

Competition

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

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





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

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

 The Company maintains a Scientific and Clinical Advisory Board comprised of scientists and physicians with experience relevant to the Company and its product candidates. Members of the Company’s Scientific and Clinical Advisory Board have agreed to consult and advise the Company in their respective areas of expertise. The Company has placed special emphasis on identifying members of its Scientific and Clinical Advisory Board with expertise in the treatment of the clinical indications targeted by the Company’s programs. The Company’s Scientific and Clinical Advisory Board consists of the following members:
 
Paul Aisen, M.D. Dr. Aisen is a professor in the Department of Neurosciences at the University of California, San Diego, and the National Institute of Aging-appointed director of the ADCS. Dr. Aisen was one of the first to conduct an Alzheimer’s disease clinical trial in the U.S. and was an investigator in the pivotal FDA registration studies for Namenda®. Dr. Aisen received his M.D. from Columbia University, College of Physicians and Surgeons.
 
Robert M. Moriarty, M.D.    Dr. Robert M. Moriarty is a consultant of Org Syn Laboratory, Inc. Dr. Moriarty received his Ph.D. degree from Princeton University. After completing postdoctoral work at University of Munich and Harvard University, he worked as a research chemist at Merck from 1955-57. He founded Steroids Limited in 1981, which became SynQuest Limited and was acquired by United Therapeutics in 2000. Dr. Moriarty has authored over 200 articles on various topics in synthetic and mechanistic organic synthesis. Dr. Moriarty is a recipient of several prestigious awards and grants.
 
Dr. Dinesh Patel, M.D. Dr. Patel is the Chairman of the Board and Co-founder of Xel Herbaceuticals Inc. Dr. Patel has served fifteen years as Co-founder, Chairman of the Board of Directors, President & CEO, of TheraTech, Inc., a Salt Lake City based company that has been a pioneer in the development and manufacture of innovative drug delivery products. Under Dr. Patel’s guidance, TheraTech established strategic alliances with major pharmaceutical companies, including Eli Lilly, Pfizer, Procter & Gamble, Roche, SmithKline Beecham, and Wyeth-Ayerst. Dr. Patel directed the construction of a state-of-the-art manufacturing facility and oversaw the company’s R&D efforts through the manufacture of its currently marketed transdermal products (transdermal testosterone and estrogen hormone-replacement therapy patches). Dr. Patel has been the recipient of numerous awards.
 
Donald F. Weaver, M.D. Dr. Weaver is currently Canada Research Chair in Neuroscience/Chemistry, Professor of the Department of Medicine (Neurology), Professor of the Department of Chemistry and Professor of the School of Biomedical Engineering at Dalhousie University in Halifax, Nova Scotia, Canada. With experience that spans academic and commercial interests, he has published hundreds of articles, is a prolific inventor with over 70 patents to his name and is the recipient of many awards and honors. Dr. Weaver co-founded three biotechnology companies, including Neurochem, Inc., and is a fellow of the Canadian Institute of Chemistry (FCIC), a fellow of the Royal College of Physicians and Surgeons of Canada (FRCIP) and a board-certified neurologist.
 
Employees

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

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

Executive Officers and Significant Employees of the Registrant

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




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Name
 
Age
 
Position
Gary T. Shearman
 
54
 
President, Chief Executive Officer and Director
David Barrett
 
32
 
Chief Financial Officer
L. William McIntosh
 
62
 
Chief Operating Officer
William Wong
 
60
 
Chief Scientific Officer

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

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

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

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

The Company is committed to legal and ethical conduct in fulfilling its responsibilities. The Board expects all directors, as well as officers and employees, to act ethically at all times. Additionally, the Board expects the Chief Executive Officer, the Chief Financial Officer, and all senior financial and accounting officials to adhere to the Company’s Code of Ethics which was adopted on February 23, 2006. The Code of Ethics incorporates the Company’s expectations of its executive officers that enable the Company to provide accurate and timely disclosure in its filings with the SEC and other public communications. In addition, they incorporate the Company’s guidelines pertaining to topics such as complying with applicable laws, rules, and regulations; reporting of code violations; and maintaining accountability for adherence to the code.
 
The full text of the Code of Ethics is published on the investor relations portion of our website at www.neurohitech.com. The Company intends to disclose any amendments to provisions of its Code of Ethics, or waivers of such provisions granted to executive officers and directors, on this website within four business days following the date of any such amendment or waiver.

Risk Factors

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





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Risks Related to the Company and the Company’s Business

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

As of March 30, 2008 the Company had approximately $4.3 million available in cash and cash equivalents. The Company expects to continue to incur losses in future months as the Company engages in further expenditures as it pursues its business plan.

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

Following receipt of the results of its Phase II clinical trial of Huperzine A, the Company implemented cost reductions. Presently, the Company expects that its available cash, cash equivalents and interest income earned are sufficient to meet its operating expenses and capital requirements for a period of at least twelve months, however, if the Company fails to raise additional capital it may not have sufficient cash to meet future operating expenses and capital requirements beyond twelve months. Even with additional capital, the Company may not be able to execute its current business plan nor fund its operations long enough to achieve positive cash flow. Furthermore, the Company may be forced to implement more significant reductions of its expenses and cash expenditures, which would impair the Company’s ability to execute its business operations.

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

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

In order to be commercially viable, the Company must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market and distribute its technologies. For each drug the Company must successfully meet a number of critical developmental milestones, including:
 
·
demonstrate benefit from each specific drug technology,
 
·
demonstrate through pre-clinical and clinical trials that the drug and patient specific therapy is safe and effective, and

·
demonstrate that its drug offers a material benefit to patients, especially in cases where the patent exclusivity on some of its competitors drugs, like Pfizer’s Aricept®, is expiring.
   
·
establish a viable Good Manufacturing Process capable of potential scale up.
 
The time frame necessary to achieve these developmental milestones may be long and uncertain, and the Company may not successfully complete these milestones for any of its intended products in development.

Although the Company completed the Phase II clinical trial of Huperzine A, Huperzine A is subject to additional developmental risks which include the following:
 
·
the uncertainties arising from the interpretation of the Phase II results;
   
·
the uncertainties arising from the rapidly growing scientific aspects of drug therapies and potential treatments;

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

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




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

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

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

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

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

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

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

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

·
the product had harmful side effects on humans;

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

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

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

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

As a result, there can be no assurance that any of the Company’s products currently in development will ever be successfully commercialized.
 
The Company will require significant additional funding and may have difficulty raising needed capital in the future because of its limited operating history and business risks associated with the Company’s drug technology.

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





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The Company’s long term capital requirements are expected to depend on many factors, including:
 
·
the number of potential products and technologies in development;

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

·
progress with pre-clinical studies and clinical trials;

·
the time and costs involved in obtaining regulatory clearance;

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

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

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

·
competing technological and market developments;

·
market acceptance or the Company’s products;
 
·
costs for recruiting and retaining management, employees and consultants; and

·
costs for training physicians.

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

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

In the past, the Company has entered into, and expects to enter into in the future, collaborative arrangements with third parties, such as universities, governmental agencies, charitable foundations, manufacturers, contract research organizations and corporate partners, who provide the Company with funding and/or who perform research, development, regulatory compliance, manufacturing or commercialization activities relating to some or all of the Company’s product candidates. If the Company fails to secure or maintain successful collaborative arrangements, its development and commercialization activities may be delayed or reduced. Under certain circumstances, partners, universities and other collaborators, may acquire certain rights in newly developed intellectual property developed in conjunction with the Company.
 
These collaborative agreements can be terminated under certain conditions by the Company’s partners. The Company’s partners may also under some circumstances independently pursue competing products, delivery approaches or technologies. Even if the Company’s partners continue their contributions to the Company’s collaborative arrangements, they may nevertheless determine not to actively pursue the development or commercialization of any resulting products. Also, the Company’s partners may fail to perform their obligations under the collaborative arrangements or may be slow in performing their obligations. In addition, the Company’s partners may experience financial difficulties at any time that could prevent them from having available funds to contribute to these collaborations. In these circumstances, the Company’s ability to develop and market potential products could be severely limited.





14



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

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

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

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

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

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

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

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

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

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

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




15



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

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

·
redesign the Company’s products, which would be costly and time consuming.
 
As of March 17, 2008, the Company has not engaged in discussions, received any communications, nor does the Company have any reason to believe that any third party is challenging or has the proper legal authority to challenge the Company’s intellectual property rights or those of the actual patent holders, or the Company’s licenses.
 
If the Company is unable to adequately protect or enforce its rights to intellectual property or secure rights to third party patents, the Company may lose valuable rights, experience reduced market share, assuming any, or incur costly litigation to protect such rights.

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

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

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

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

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

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

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

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

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




16




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

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

·
potential inability to timely obtain an adequate supply; and

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

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

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

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

The Company may be unable to engage qualified distributors. Even if engaged, these distributors may:
 
·
fail to satisfy financial or contractual obligations to the Company;
 
·
fail to adequately market the Company’s products;

·
cease operations with little or no notice; or

·
offer, design, manufacture or promote competing products.

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

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





17



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

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

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

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

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

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

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

Currently, the Company has no internal manufacturing capabilities for any of its product candidates. The Company cannot be sure that the Company will be able to: (i) acquire or build facilities that will meet quality, quantity and timing requirements; or (ii) enter into manufacturing contracts with others on acceptable terms. Failure to accomplish these tasks would impede the Company’s efforts to bring its product candidates to market, which would adversely affect its business. Moreover, if the Company decides to manufacture one or more product candidates, the Company would incur substantial start-up expenses and would need to expand the Company’s facilities and hire additional personnel.
 
The Company currently expects to utilize third-party manufacturers to produce the drug compounds used in clinical trials and for the potential commercialization of future products. If the Company is unable to obtain or retain third-party manufacturers, the Company will not be able to commercialize its products. The Company’s reliance on contract manufacturers also will expose the Company to the following risks:

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

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

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

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

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





18



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

The Company is small and if unable to continue to attract, retain and motivate highly qualified management and scientific personnel and develop and maintain important relationships with leading academic institutions and scientists, may not be able to achieve its research and development objectives. Competition for personnel and academic collaborations is intense.

Although the Company has outsourced and intends to continue to outsource its development programs, the Company also may need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. The Company competes for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions and other emerging entrepreneurial companies. Competition for such individuals, particularly in the New York City area, where the Company is located, is intense and the Company cannot be certain that the Company’s search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to the Company’s success. Skilled employees in the Company’s industry are in great demand. The Company is competing for employees against companies located in the New York metropolitan area that are more established than the Company is and has the ability to pay more cash compensation than the Company does. The Company will require experienced scientific personnel in many fields in which there are a limited number of qualified personnel and will have to compete with other technology companies and academic institutions for such personnel. As a result, depending upon the success and the timing of clinical tests, the Company may continue to experience difficulty in hiring and retaining highly skilled employees, particularly scientists. If the Company is unable to hire and retain skilled scientists, its business, financial condition, operating results and future prospects could be materially adversely affected.
 
If users of the Company’s products are unable to obtain adequate reimbursement from third party payors, or if new restrictive legislation is adopted, market acceptance of the Company’s products may be limited and the Company may not achieve anticipated revenues.

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

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

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

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

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

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





19



 
Risks Relating to the Company’s Common Stock

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

The market price of the Company’s common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which are beyond the Company’s control, including:
 
·
announcements relating to the interpretation of the results from the Company’s Phase II clinical trial;

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

·
quarterly variations in the Company’s operating expenses;

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

·
sales of the common stock by the Company’s founders or other selling stockholders.
 
Applicable SEC rules governing the trading of “penny stocks” may limit the trading and liquidity of the Company’s common stock in the future, which could affect its trading price.

The Company’s common stock is currently traded on the Pink Sheets under the symbol “NHPI.”

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

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

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

The common stock is controlled by insiders.

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





20



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

The Company currently intends to retain any future earnings to support the development and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of the board of directors after taking into account various factors, including but not limited to the Company’s financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that the Company may be a party to at the time.


Item 2.
Description of Property.

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


Item 3.
Legal Proceedings.

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

Item4.
Submission of Matters to a Vote of Security Holders.
 
The Company did not submit any matter to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended December 31, 2007.





21




PART II
 

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

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

 
 
Bid Price Per Share
 
 
 
High
 
Low
 
February 2006 - March 2006
 
$
10.73
 
$
5.49
 
April 2006 - June 2006
 
$
9.15
 
$
5.00
 
July 2006 - September 2006
 
$
8.00
 
$
5.25
 
October 2006 - December 2006
 
$
7.50
 
$
5.00
 
January 2007 - March 2007
 
$
7.25
 
$
4.75
 
April 2007 – June 2007
 
$
8.15
 
$
5.82
 
July 2007 – September 2007
 
$
6.47
 
$
4.25
 
October 2007 – December 2007
 
$
5.50
 
$
3.01
 
January 2008 – March 2008
 
$
4.40
 
$
0.40
 
 
Stockholders

As of March 17, 2008, the Company believes there were approximately 123 holders of record of its common stock. The Company believes that a greater number of holders of its common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Dividends

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

Recent Sales of Unregistered Securities

The Company did not sell any unregistered equity securities during the year ended December 31, 2007 that were not previously reported on a Quarterly Report on Form 10-QSB or a Current Report on Form 8-K.
 




22



 

Item 6.
Management’s Discussion and Analysis or Plan of Operation
 
FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-KSB contains forward-looking statements (as defined in Section 27A of the Securities Act and Section 21E of the Exchange Act). To the extent that any statements made in this Report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as “expects,” “plans” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” “projects” and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include those outlined in “Risk Factors” found within our Annual Report on Form 10-KSB and include, without limitation, the Company’s early stage, limited history, limited revenues, limited cash and ability to raise capital to finance the growth of the Company’s operations, the ability of the Company to develop its products and obtain necessary governmental approvals, the Company’s ability to protect its proprietary information, the Company’s ability to attract or retain qualified personnel, including scientific and technical personnel and other risks detailed from time to time in the Company’s filings with the SEC, or otherwise.

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

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

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

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

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

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

The Company has also studied the transdermal delivery of Huperzine A. The Company believes that Huperzine A can effectively be delivered transdermally because of its low dosage requirement and low molecular weight. The Company believes that a transdermal patch could be a better way to deliver Huperzine A because the patch may provide the drug for transdermal delivery for up to between three and five days while avoiding the gastrointestinal tract. Although the Company initially expected to begin Phase I clinical trials in the first quarter of 2008, the Company has elected to postpone any decision or expenditures related to such a trial until after Numoda has delivered its report and the Company has considered its options.
 
Worldwide research thus far suggests that, in addition to Alzheimer’s Disease, Huperzine A may be effective in treating other dementias and myasthenia gravis. Also, research suggests that it has potential neuroprotective properties that may render it useful as a protection against neurotoxins, and it has an anti-oxidant effect.

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





23



 
The Company has imported and sold inventories of natural Huperzine to vitamin and supplement suppliers to generate revenues. However, the majority of the Company’s operations to date have been funded through Company’s private placement of equity securities.
 
History 
 
The Company was originally formed on February 1, 2005, as Northern Way Resources, Inc., a Nevada corporation, for the purpose of acquiring exploration and early stage natural resource properties. On January 24, 2006, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among the Company, Marco Hi-Tech JV Ltd., a privately held New York corporation (“Marco”), and Marco Acquisition I, Inc., a newly formed wholly-owned Delaware subsidiary of ours (“Acquisition Sub”). Upon closing of the transactions contemplated under the Merger Agreement (the “Merger”), Acquisition Sub was merged with and into Marco, and Marco became a wholly-owned subsidiary of the Company. The Merger was consummated on January 24, 2006, and in connection with that Merger, the Company changed its name to Neuro-Hitech Pharmaceuticals, Inc. The Company subsequently changed its name to Neuro-Hitech, Inc. on August 11, 2006.

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

Upon the Merger, the Company abandoned the line of business pursued by Northern Way Resources prior to the Merger.
 
On November 29, 2006, the Company completed its acquisition by merger of Q-RNA, Inc. (“Q-RNA”), a New York-based biotechnology company focused on diseases such as Alzheimer’s, epilepsy and Parkinson’s disease, pursuant to the Agreement and Plan of Merger with QA Acquisition Corp., a Delaware corporation, QA Merger LLC, a Delaware limited liability company, Q-RNA and Dr. David Dantzker, as the “Representative” of the Q-RNA securityholders.
 
Plan of Operation
 
Based upon the completion of a Phase II clinical trial of Huperzine A, the Company is currently reviewing its options for moving forward with its business. Currently, the Company expects to focus upon the development of collaborative, joint and strategic alliances and licensing arrangements with one or more pharmaceutical companies for the further development of Huperzine A and also expects to consider merger and/or acquisition opportunities. The Company will further evaluate these opportunities based upon the results of Numoda’s review and report, and the Company also expects that Numoda will assist the Company in interpreting and presenting the results of the Phase II clinical trial to potential partners, licensees and merger or acquisition candidates.

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

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

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

Following the receipt of the results of the Phase II clinical trial of Huperzine A, to improve its liquidity and help ensure that it has sufficient cash and cash equivalents for the next 12 months, the Company implemented certain cost reductions in the first quarter of 2008 and delayed the implementation of certain research programs, including the previously planned Phase I trial for the transdermal patch. The Company anticipates, based on current plans and assumptions relating to operations, including the implementation of its cost reductions, that its cash and cash equivalents are sufficient to satisfy its contemplated cash requirements to implement its business plan for the next twelve months. In the event that the Company’s cash and cash equivalents prove to be insufficient to fund the implementation of its business plan (due to a change in the Company’s plans or a material inaccuracy in its assumptions, or as a result of unanticipated expenses, technical difficulties or other unanticipated problems), the Company will be required to seek additional financing sooner than anticipated in order to proceed with such implementation. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable the Company may have to delay, reduce the scope of or eliminate one or more of its research or development programs, product launches or marketing efforts which may materially harm the Company’s financial condition and operations.
 




24



 
Results of Operations

The following discussion provides a comparison of the Company’s results from operations for the year ended December 31, 2007 to the year ended December 31, 2006
 
The Company had revenues from operations of $458,870 for the year ended December 31, 2007, a 50.8% increase from the $304,240 in revenue achieved from the year ended December 31, 2006. The increase in revenue was a result of an increase in product sales to the Company’s single customer of natural Huperzine. 
 
Cost of goods sold as a percentage of the Company’s revenue was 47% for the year ended December 31, 2007, compared with 51% for the year ended December 31, 2006. The Company’s cost of goods sold remained relatively constant as a percentage of the Company’s revenue as the Company continues to purchase its natural Huperzine from the same supplier as the prior year on substantially similar terms.

The Company’s total selling, general and administrative expenses increased from $1,765,486 for the year ended December 31, 2006 to $2,561,402 for the year ended December 31, 2007. This increase was the result of the Company’s expansion of its executive management and salaries and benefits in response to the acquisition of Q-RNA. Additionally, a portion of the increase in the selling, general and administrative expenses from the prior year is attributable to the increased costs associated with being a public company.
 
Share based compensation for the year ended December 31, 2007 was $2,427,904, an increase from the $327,835 for the year ended December 31, 2006. The increase in share based compensation was attributable to options granted during the year ended December 31, 2007 to Messrs. Barrett, McIntosh, Shearman and Wong and options paid to directors in lieu of director fees pursuant to the Non-Management Director Deferral Program.
 
The Company’s research and development costs increased from $2,674,714 for the year ended December 31, 2006 to $3,523,954 for the year ended December 31, 2007, as a result of the expansion of the Company’s clinical development portfolio for Huperzine A and preclinical research in compounds acquired from Q-RNA. These costs exclude $16,805,787 assigned by the Company in the year ended December 31, 2006, as in-process research and development in accordance with FASB Statement No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.The Company expects operating expenses in 2008 to decrease as it looks to pass on future expenditures to collaborative licensing partners with one or more pharmaceutical companies and/or acquisition or merger candidates.

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

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

On March 15, 2006, the Company entered into a development agreement with XEL for the development of the Huperzine A Transdermal Delivery System (“Product”). Under the terms of the agreement, the Company paid XEL a $250,000 fee upon the execution of the agreement and paid an additional $92,500 per month during the development of the Product, including the first six months of 2007. The Delivery Product was completed in July 2007. Between August 2007 and December 2007, the Company paid XEL an additional $92,500 per month to fund the further development of the Product. For the years ended December 31, 2007 and 2006, the payments made by the Company to XEL were approximately $1,111,250 and $1,081,000, respectively, and are reflected in the Research and Development caption of the Statement of Operations. The Company and XEL intend to seek domestic and foreign patent protection for the Product.
 
As part of the acquisition of Q-RNA, the Company assumed exclusive license agreements with PARTEQ. Under the terms of the exclusive PARTEQ Licensing Agreement the Company made an initial one-time license fee of C$25,000 and since January 1, 2008 has been obligated to pay fixed annual fees of C$283,000 for the Alzheimer’s research in equal quarterly installments. The Company may also be required to make quarterly royalty payments of 3% of net sales of the licensed products, with a minimum annual royalty of C$10,000 for 2007, C$20,000 for 2008, C$30,000 for 2009 and C$40,000 for 2010 and each subsequent calendar year. Until such time as the Company has a licensed product, the Company will not have to make any quarterly payments. The Company is also obligated to make the following milestone payments: C$100,000 upon completion of a Phase I trial of a licensed product, C$250,000 upon completion of a Phase II trial of a licensed product, and C$1,000,000 upon the first FDA approval (as such term is defined in the PARTEQ Licensing Agreement). The Company does not currently anticipate having a licensed product in the near term. The Company also has the right to sub-license with the payment of 20% of all non-royalty sublicensing consideration.





25



Under the terms of the Exclusive Patent License Option Agreement with PARTEQ (the “Epilepsy Agreement”) grants the Company a three-year option to acquire an exclusive worldwide license to all innovations and developments, including the patent applications and additional filings, related to specified patents for research on Epilepsy. The Company made a non-refundable, non-creditable option payment of $10,000 when it entered into the Epilepsy Agreement in 2006. The Company made an additional payment of $45,000 to PARTEQ in the year ended December 31, 2007 for expenses that should have been paid by Q-RNA in the year ended December 31, 2005. The Company also began to pay fixed annual fees of C$150,800 in quarterly installments of C$37,700 beginning on March 1, 2008. If the Company exercises its option, the Company will make a non-refundable, non-creditable license payment of C$17,500 at the time of such exercise. If the Company exercises its option, it will be required to make quarterly royalty payments of 3% of net sales of the licensed products (as such term is defined in Epilepsy Agreement), with a minimum annual royalty of C$10,000 through the second anniversary of the license, C$20,000 through the third anniversary of the license, C$30,000 through the fourth anniversary of the license and C$40,000 through the fifth anniversary of the license and each subsequent anniversary. If the Company exercises its option, it is also obligated to make the following milestone payments: C$100,000 upon completion of a Phase I trial of a licensed product, C$250,000 upon completion of a Phase II trial of a licensed product, and C$1,000,000 upon the first FDA approval (as such term is defined therein). If the Company exercises its option, the Company also has the right to sub-license with the payment of 20% of all non-royalty sublicensing consideration. For the years ended December 31, 2007 and 2006, the payments made by the Company to PARTEQ under these agreements have been approximately $457,115 and $48,600, respectively.
 
The Company holds a license for two composition of matter patents and four process patents for Racemic Huperzine A, Huperzine A and their analogues and derivatives from the Mayo Foundation. The Company has a license to the four process patents pursuant to a Technology License Contract with the Mayo Foundation (the “Mayo Licensing Agreement”). For the year ended December 31, 2007 and 2006, the total research and development costs incurred by the Company under this Agreement have been approximately $18,888 and $205,000, respectively. The total costs accrued and incurred since inception of the agreement were approximately $350,000 and are reflected in the Research and Development caption of the Statement of Operations. Although the Company has accrued certain costs relating to the Mayo Licensing Agreement, because of uncertainty between the Company and Mayo over the interpretation of the agreement, it is uncertain when or whether those expenses actually will be paid.
 
Liquidity and Capital Resources

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

Historically, the principal uses of the Company’s cash and cash equivalents have been concluding the Phase II clinical trials, developing alternative delivery technologies, improving on the synthetic processes, and continuing to fund pre-clinical compounds associated with the agreements with PARTEQ. Although the Company has developed plans related to its operations, management continues to retain significant flexibility for the uses of Company funds. In addition to meeting its working capital needs, the Company may also use its cash and cash equivalents to acquire additional products or technologies. Currently, the principal uses of the Company’s cash and cash equivalents are investigating the results of the Phase II clinical trials.

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

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

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

To fund the implementation of its business plan, the Company has historically engaged in equity financing through existing investors and potential new investors. If the Company does not enter into a Transaction that provides it substantial liquidity, it may engage in additional financing efforts. Additional funds may not be available or not available on acceptable terms, if at all. Given the anticipated cash expenditures, the potential cash requirements and the lack of sufficient cash to fully fund those expenses, the Company is continually analyzing alternative ways in which it can preserve its cash and cash equivalents, including the potential delay, reduction in scope of or elimination of some of its research or development programs. If the Company is unable to raise additional financing and is forced to take such measures, they may materially harm the Company’s prospects, financial condition and future operations.
 
During 2007, the Company issued 2,016,930 shares of its Common Stock in private placements of the Company’s securities, raising gross proceeds of $7,379,005. Costs and expenses related to these private offerings, including, placement agent, legal, accounting and printing fees, totaled in the aggregate, $376,548 and were charged to additional paid-in capital.

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

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

 
26


During the third quarter of 2007, 100,729 shares of common stock were issued to investors that purchased common stock and warrants from the Company in the private offerings that took place in the first quarter of 2006 and between November 2006 and March 2007. The shares were issued in accordance with the provisions of registration rights agreements between the Company and the purchasers of securities in those offerings. The aforementioned registration rights agreements required the Company to pay an amount equal to 1% payable in the Company’s common stock, up to a maximum 6%, of the aggregate dollar amount of securities purchased by such investors if the Company did not file a resale registration statement or have such registration statement declared effective by the dates set forth in each agreement. The Company issued the maximum 6% of shares and is under no obligation to issue any additional shares pursuant to the terms of the registration rights agreements described above.
 
Critical Accounting Policies

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

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

Share-Based Compensation

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

Deferred Compensation

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

Item 7.

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

Item 8.


N/A


Item 8A.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures 

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

Changes in Internal Control Over Financial Reporting 

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

Management Report on Internal Control Over Financial Reporting 

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


 
27


 
Management assessed our internal control over financial reporting as of December 31, 2007, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
 
This report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. The disclosure contained under this Item 8A was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the disclosure under this Item 8A in this Report.

Inherent Limitations on Effectiveness of Controls 

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
 

Item 8B.
Other Information

None.
 




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PART III

Certain information required by Part III is omitted from this report in that the Company will file a definitive proxy statement pursuant to Regulation 14A with respect to its 2008 Annual Meeting (the “Proxy Statement”) no later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. In addition, the Company has adopted a Code of Ethics which can be reviewed and printed from its website, www.neurohitech.com.


Item 9.
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
 
The information required by this Item is hereby incorporated herein by reference to the Proxy Statement. The information under the heading “Executive Officers of the Registrant in Part I, Item 1 of this Form 10-KSB is also incorporated by reference in this section.


Item 10.
Executive Compensation

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.


Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.


Item 12.
Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.
 




29





Item 13
Exhibits  
 
Exhibit
 
 
 
Incorporated by Reference
 
Filed
Number
 
Exhibit Description
 
Form
 
Exhibit
 
Filing Date
 
Herewith
2.1
 
Agreement and Plan of Merger, dated January 17, 2006, between Northern Way Resources, Inc., a Nevada corporation and Northern Way Resources, Inc., a Delaware corporation
 
8-K
 
2.1
 
1/23/06
 
 
 
 
 
 
 
 
 
 
 
 
 
2.2
 
Certificate of Ownership and Merger merging Northern Way Resources, Inc., a Nevada corporation into Northern Way Resources, Inc., a Delaware corporation
 
8-K
 
2.2
 
1/23/06
 
 
 
 
 
 
 
 
 
 
 
 
 
2.3
 
Articles of Merger merging Northern Way Resources, Inc., a Nevada corporation into Northern Way Resources, Inc., a Delaware corporation
 
8-K
 
2.3
 
1/23/06
 
 
 
 
 
 
 
 
 
 
 
 
 
2.4
 
Agreement of Merger and Plan of Reorganization, dated as of January 24, 2006, by and among Neurotech Pharmaceuticals, Inc., Marco Hi-Tech JV Ltd., and Marco Acquisition I, Inc.
 
8-K
 
2.1
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
2.5
 
Agreement and Plan of Merger, dated as of November 16, 2006, by and among Neuro-Hitech, Inc., QA Acquisition Corp., QA Merger LLC, Q-RNA, Inc., and Dr. David Dantzker, as the Representative of the Q-RNA, Inc. security holders.
 
8-K
 
2.1
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1
 
Certificate of Incorporation of Neurotech Pharmaceuticals, Inc.
 
8-K
 
3.1
 
1/23/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2
 
Certificate of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech JV Ltd.
 
8-K
 
3.5
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3
 
Certificate of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech JV Ltd.
 
8-K
 
3.6
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.4
 
Certificate of Amendment of Certificate of Incorporation of Neurotech Pharmaceuticals, Inc., changing name to Neuro-Hitech Pharmaceuticals, Inc.
 
8-K
 
3.7
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.5
 
Certificate of Ownership and Merger effective August 11, 2006
 
8-K
 
3.1
 
8/11/06
 
 
 
 
 
 
 
 
 
 
 
 
 
3.6
 
 
8-K
 
3.2
 
1/23/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.1
 
Form of Common Stock Purchase Warrant Certificate
 
8-K
 
4.1
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2
 
Warrant to purchase common stock of Marco-Hitech JV Ltd. issued to Brown Brothers Harriman & Co.
 
8-K
 
4.2
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3
 
Warrant to purchase common stock of Marco-Hitech JV Ltd. issued to Barry Honig
 
8-K
 
4.3
 
1/30/06
 
 
 




30



 
4.4
 
Form of Marco Hi-Tech JV Ltd. Registration Rights Agreement
 
8-K
 
10.4
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.5
 
Registration Rights Agreement, dated as of November 29, 2006, by and among Neuro-Hitech, Inc. and David Dantzker as the Representative of the Q-RNA, Inc. security holders
 
8-K
 
4.1
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.6
 
Registration Rights Agreement, dated as of November 29, 2006, by and among Neuro-Hitech, Inc. and individuals and entities that are parties to the Securities Purchase Agreement dated as of November 16, 2006
 
8-K
 
4.2
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.7
 
Form of $13 Warrant issued pursuant to the Merger.
 
8-K
 
4.3
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.8
 
Form of $18Warrant issued pursuant to the Merger.
 
8-K
 
4.4
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
4.9
 
Form of Warrant issued in connection with private offering
 
8-K
 
4.5
 
12/5/06
 
 
                     
4.10
 
Stock and Warrant Purchase Agreement, dated as of November 29, 2007, by and among Neuro-Hitech, Inc. and the investors identified therein
 
8-K
 
4.1
 
12/19/07
   
                     
4.11
 
Registration Rights Agreement, dated as of November 29, 2007, by and among Neuro-Hitech, Inc. and the investors identified therein
 
8-K
 
4.2
 
12/19/07
   
                     
4.12
 
Form of Warrant issued in connection with private offering
 
8-K
 
4.3
 
12/19/07
   
 
 
 
 
             
10.1
 
Neurotech Pharmaceuticals, Inc. 2006 Incentive Stock Plan
 
8-K
 
10.1
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.2
 
Neurotech Pharmaceuticals, Inc. 2006 Non-Employee Directors Stock Option Plan
 
8-K
 
10.2
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.3
 
Form of Private Placement Subscription Agreement
 
8-K
 
10.3
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.4
 
Securities Purchase Agreement, dated January 5, 2006, by and between Marco Hi-Tech JV Ltd. and the investors signatory thereto
 
8-K
 
10.5
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.5
 
Director and Officer Indemnification Agreement dated January 24, 2006, between Neurotech Pharmaceuticals, Inc. and Reuben Seltzer
 
8-K
 
10.6
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.6
 
Director and Officer Indemnification Agreement dated January 24, 2006, between Neurotech Pharmaceuticals, Inc. and Alan Kestenbaum
 
8-K
 
10.7
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.7
 
Director and Officer Indemnification Agreement dated January 24, 2006, between Neurotech Pharmaceuticals, Inc. and John Abernathy
 
8-K
 
10.8
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.8
 
Director and Officer Indemnification Agreement dated January 24, 2006, between Neurotech Pharmaceuticals, Inc. and Mark Auerbach
 
8-K
 
10.9
 
1/30/06
 
 
 




31



 
10.9
 
Technology License Contract, dated as of June 1, 1997, by and between Mayo Foundation for Medical Education and Research and Marco Hi-Tech JV Ltd.
 
8-K
 
10.12
 
1/30/06
 
 
                     
10.10
 
Clinical Research Agreement, dated March 1, 2002, by and between Georgetown University and Marco Hi-Tech JV Ltd.
 
8-K
 
10.13
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.11
 
Offer Letter, dated January 6, 2006, to John Abernathy from Marco Hi-Tech JV Ltd.
 
8-K
 
10.14
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.12
 
Offer Letter, dated January 5, 2006, to Mark Auerbach from Marco Hi-Tech JV Ltd.
 
8-K
 
10.15
 
1/30/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.13
 
Development Agreement dated February 1, 2006, between the Company and Org Syn Laboratory, Inc
 
10-QSB
 
10.1
 
5/15/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.14
 
Development Agreement dated March 15, 2006, between the Company and Xel Herbaceuticals, Inc
 
10-QSB
 
10.2
 
5/15/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.15
 
Securities Purchase Agreement, dated as of November 16, 2006, by and among Neuro-Hitech, Inc. and the investors identified therein.
 
8-K
 
2.2
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.16
 
Amendment No. 1 to 2006 Incentive Stock Plan
 
8-K
 
4.6
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.17
 
Amendment No. 2 to 2006 Incentive Stock Plan
 
8-K
 
4.7
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.18
 
Consultant Agreement, dated as of November 29, 2006, by and between Neuro-Hitech, Inc., and D.F. Weaver Medical, Inc., Donald F. Weaver, Principal Consultant.
 
8-K
 
10.1
 
12/5/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.19
 
2002 Q-RNA, Inc. Stock Incentive Plan
 
S-8
 
10.1
 
12/13/06
 
 
 
 
 
 
 
 
 
 
 
 
 
10.20
 
2006 Stock Incentive Plan
 
DEF 14A
     
6/05/07
   
                     
10.21
 
Non-Management Directors Deferral Program
 
10-QSB
 
10.2
 
8/08/07
   
                     
10.22
 
Officers Deferral Program
 
10-QSB
 
10.3
 
8/08/07
   
                     
10.23
 
Employment Agreement, dated August 22, 2007, between Neuro-Hitech, Inc. and Gary Shearman
 
8-K
 
10.1
 
8/29/07
   
                     
10.24
 
Director and Officer Indemnification Agreement, dated August 22, 2007, between Neuro-Hitech, Inc. and Gary Shearman
 
8-K
 
10.2
 
8/29/07
   
                     
10.25
 
Employment Agreement, dated December 7, 2007, between Neuro-Hitech, Inc. and David Barrett
 
8-K
 
10.1
 
12/11/07
   
                     
14.1
 
Code of Ethics
 
10-KSB
 
14.1
 
3/31/06
 
 
 
 
 
 
 
 
 
 
 
 
 
16.1
 
Letter from Dale, Matheson, Carr-Hilton Labonte, dated as of January 27, 2006
 
8-K
 
16.1
 
2/6/06
 
 
 
 
 
 
 
 
 
 
 
 
 
21.1
 
 
10-KSB
 
21.1
 
4/13/07
 
 
 
 
 
 
 
 
 
 
 
 
 
23.01
 
Consent of Independent Registered Public Accounting Firm
 
 
 
 
 
 
 
X
 

 
32


 
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
31.2
 
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
32.1
 
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 




33



 

Item 14.
Principal Accountant Fees and Services

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.
 




34



 
NEURO-HITECH, INC. AND SUBSIDIARIES

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







 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Neuro-Hitech, Inc.
New York, New York


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

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

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

 

  /s/ Moore Stephens, P.C.
 
MOORE STEPHENS, P.C.
 
Certified Public Accountants

 
New York, New York
March 28, 2008
 




F-1



 
Neuro-Hitech, Inc. and Subsidiaries
Consolidated Balance Sheet


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

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




F-2



 
Neuro-Hitech, Inc. and Subsidiaries
Consolidated Statements of Operations
 

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

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





F-3



 
Neuro-Hitech, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' [Deficit] Equity
 

   
Convertible Preferred
Stock Series A
 
 
Class A -
Common Stock  
 
Common Stock 
 
Additional Paid- In
 
Deferred
 
Accumulated
     
   
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Compensation
 
Deficit
 
Totals
 
                                           
Balance as of January 1, 2006
   
12,005
 
$
12,005
   
-
   
-
   
8,654,112
 
$
86,541
 
$
2,478,373
   
-
 
$
(2,626,445
)
$
(49,526
)
                                                               
Recapitalization as of January 18, 2006
   
(12,005
)
 
(12,005
)
 
100
 
$
-
   
(1,626,860
)
 
(79,514
)
 
91,519
               
-
 
Private Placement of Common Stock, net of issuance costs of $353,127
                           
3,026,204
   
3,026
   
8,152,378
               
8,155,404
 
Common Stock and Warrants Issued in Connection with Q-RNA merger, net of issuance costs of $271,394
               
-
   
-
   
1,800,000
   
1,800
   
16,532,593
               
16,534,393
 
Exercise of Stock Options
               
-
   
-
   
1,679
   
2
   
217
               
219
 
Share-Based Compensation Expense
                                       
327,835
               
327,835
 
Recognition of Non-Qualified Stock Options in accordance with Consulting Agreement
                                       
1,309,052
 
$
(1,309,052
)
       
-
 
Amortization of Deferred Compensation
                                             
130,905
         
130,905
 
Net (Loss)
   
-
         
-
         
-
               
-
   
(21,407,771
)
 
(21,407,771
)
Balance as of December 31, 2006
   
-
 
$
-
   
100
 
$
-
   
11,855,135
 
$
11,855
 
$
28,891,967
 
$
(1,178,147
)
$
(24,034,216
)
$
3,691,459
 
                                                               
Private Placement of Common Stock, net of issuance costs of $376,548
                           
2,016,930
   
2,017
   
7,000,440
               
7,002,457
 
Repurchase of Class A Common Stock
               
(100
)   -                                  
-
 
Exercise of Stock Options
                           
12,059
   
12
   
45,812
               
45,824
 
Share-Based Compensation Expense
                                       
2,427,904
               
2,427,904
 
Recognition of Warrants granted in connection with services to be rendered
                               
 
   
254,954
   
(254,954
)
         
Common Stock issued in connection with services rendered
                           
20,000
   
20
   
120,980
               
121,000
 
Remeasurement of Non-Qualified Stock Options in accordance with Consulting Agreement
                                       
38,445
                   
Amortization of Deferred Compensation
                                             
242,447
         
242,447
 
Penalty shares issued in connection with Registration Rights Agreement
                           
100,729
   
101
   
490,449
               
490,550
 
Net (Loss)
                                                   
(8,796,437
)
 
(8,796,437
)
Balance as of December 31, 2007
   
-
 
$
-
   
-
 
$
-
   
14,004,853
 
$
14,005
 
$
39,270,951
 
$
(1,190,654
)
$
(32,830,653
)
$
5,263,649
 
 
The accompanying notes are an integral part of these consolidated financial statements





F-4



 
Neuro-Hitech, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 

   
For the Years Ended
 
     
     
2006
 
           
Cash flows used in operating activities:
         
Net (Loss)
 
$
(8,796,437
)
$
(21,407,771
)
               
Adjustments to Reconcile Net (Loss) to Net Cash (Used In) Operating Activities:
             
Acquired Research and Development Costs
   
-
   
16,805,787
 
Share-Based Compensation Expense
   
2,427,904
   
327,835
 
Amortization of Deferred Compensation
   
242,447
   
130,905
 
Registration Payment Arrangement
   
490,550
   
-
 
Depreciation Expense
   
2,998
   
1,749
 
Other Share-Based Selling, General and Administrative Expenses
   
225,808
   
-
 
               
Change in operating assets and liabilities:
             
(Increase) Decrease in Assets:
             
Accounts Receivable
   
(37,500
)
 
26,325
 
Inventory
   
(2,530
)
 
(31,293
)
Prepaid Expenses
   
(1,166
)
 
(10,695
)
Deferred Charges
   
93,750
   
(93,750
)
Security Deposit
   
-
 
 
(13,226
)
Increase (Decrease) in Liabilities:
             
Accounts Payable and Accrued Expenses
   
(261,707
)
 
1,045,793
 
Due To Affiliate
    -    
(42,304
)
Net cash (Used In) Operating activities
   
(5,615,883
)
 
(3,260,645
)
               
Cash flows from investing activities:
           
Business Acquisition and Related Costs
    -    
(271,394
)
Investment in Property and Equipment
   
-
   
(8,995
)
Net cash (Used In) Investing activities
   
-
   
(280,389
)
               
Cash flows from financing activities:
           
Net Proceeds from Private Placement Offering of Common Stock
   
7,002,456
   
8,155,404
 
Proceeds from the Exercise of Options
   
45,824
   
219
 
Net cash provided by Financing activities
   
7,048,280
   
8,155,623
 
               
Net increase in cash and cash equivalents
   
1,432,397
   
4,614,589
 
               
Cash and cash equivalents, beginning of years
   
4,705,195
   
90,606
 
               
Cash and cash equivalents, end of years
 
$
6,137,592
 
$
4,705,195
 
               
Cash Paid For:
             
Income Taxes
 
$
-
 
$
-
 
Interest
 
$
-
 
$
-
 
 
The accompanying notes are an integral part of these consolidated financial statements
 

 
F-5



Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
The Company entered into a service agreement and issued 100,000 warrants measured at fair value as of the date the service agreement was ratified by the Company's Board of Directors. The fair value of these warrants approximated $255,000 and was recognized as Deferred Compensation in the Stockholders' Equity section of the Balance Sheet. During 2007, the Company ratably recognized approximately $112,000 of expense for the amortization of Deferred Compensation in accordance with the service term of the agreement.

In connection with the Q-RNA merger, the Company entered into a consulting agreement and issued 500,000 non-qualified stock options valued at their grant date fair value as of the date of the merger closing. The total fair value of these options approximated $1,309,000 and was recognized as Deferred Compensation in the Stockholders' Equity section of the Balance Sheet. During 2007, in accordance with vesting terms of the options, the Company remeasured and recognized approximately $170,000 of expense for the amortization of Deferred Compensation.
 
In connection with the reverse merger into Northern Way Resources - a non-operating public shell - shareholders of the former privately held company - Marco Hi-Tech J.V. LTD - converted their shares of preferred stock into common stock of the publicly traded Company for approximately $12,000.
 

NEURO-HITECH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
[1] Nature of Operations

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

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

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

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

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

Liquidity

The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. For the year ending December 31, 2007, the Company generated a net loss of approximately $8.8 million. As of December 31, 2007, the Company has funded its working capital requirements primarily through the sale of equity to founders, institutional and individual investors. Management intends to fund future operations through entrance into the commercial marketplace as well as additional equity or debt offerings.

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

[2] Summary of Significant Accounting Policies
 
Principles of Consolidation

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

Use of Estimates

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




F-7



NEURO-HITECH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
Cash and Cash Equivalents
 
Cash and cash equivalents consist of highly liquid financial instruments with an original maturity of three months or less from the date acquired.

Concentrations of Credit Risk  

Financial statement items which potentially subject the Company to concentrations of credit risk are cash and cash equivalents and trade accounts receivable arising from the Company’s normal business activities. To mitigate cash risks, the Company places its cash with a high credit quality financial institution. At December 31, 2007, the Company had approximately $6,000,000 in this financial institution that is subject to normal credit risk beyond federally insured amounts.
 
Accounts Receivable
 
Accounts receivable are recorded at invoiced amounts and do not bear interest. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. The Company routinely assesses the financial strength of its customers and maintains allowances for doubtful accounts for estimate of the amount of probable credit losses of accounts receivable balances outstanding. Account balances are charged against the allowance after all means of collection have been pursued and likelihood of collection is remote. The Company does not have any off-balance sheet credit exposure related to its customers. Based on management’s assessment of credit losses as of December 31, 2007, no allowance for doubtful accounts has been deemed necessary.

Inventory

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

Property and Equipment

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

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

Earnings Per Share

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

The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an antidilutive effect on per share amounts [i.e., increasing earnings per share or reducing loss per share]. The dilutive effect of outstanding options and warrants and their equivalents are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. Options and warrants will have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants.
 
In January 2006, the Company merged into a non-operating public shell, analogous to a reverse acquisition as more fully described in Note 5 - Capital Stock. The shares issued in connection with this transaction are presented as outstanding for all periods presented.
 
Basic earnings (loss) per share reflect the amount of earnings (loss) for the period attributable to each share of common stock outstanding during the reporting period. For the year ended December 31, 2007 and 2006the Company recorded losses and as a result, the average number of common shares used in the calculation of basic and diluted loss per share have not been adjusted for the effects of potential common shares from unexercised stock options and warrants.
 




F-8



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

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

Share-Based Compensation

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

Deferred Compensation

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

Income Taxes

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

Fair Value of Financial Instruments

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

Revenue Recognition

Revenues from product sales are recognized when products are shipped to the customer and risk of loss and transfer of title have carried over to the customer.
 
Research and Development Costs
 
All research and development costs are expensed as incurred and include costs paid to sponsored third parties to perform research and conduct clinical trials.
 
Advertising Expense

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

[3] Property and Equipment


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

[4] Operating Lease

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




F-9



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

 

2008
   
55,616
 
2009
   
28,131
 
Totals
 
$
83,747
 

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

[5] Common Stock

Recapitalization

On January 18, 2006, Northern Way Resources, Inc., a Nevada corporation (“Northern-NV”) was merged with and into Northern Way Resources Inc., a Delaware corporation (“Northern-DE”) for the sole purpose of changing its state of incorporation from Nevada to Delaware pursuant to an Agreement and Plan of Merger dated January 12, 2006 (“Reincorporation Merger Agreement”), which was approved through an action by written consent of a majority of the stockholders on the same date (“Reincorporation Merger”). Under the terms of the Reincorporation Merger, each share of Northern-NV was exchanged for one share of Northern-DE. In connection with the Reincorporation Merger, Northern-DE changed its name to Neurotech Pharmaceuticals, Inc. (“Neurotech”).
 
On January 24, 2006 Neurotech entered into an Agreement of Merger and Plan of Reorganization by and among Neurotech, Marco Hi-Tech J.V. Ltd., a privately held New York corporation, and Marco Acquisition I, Inc., (“Acquisition Sub”) a newly formed wholly-owned Delaware subsidiary of Neurotech. Upon closing of the merger transactions contemplated under the Merger Agreement, Acquisition Sub was merged with and into Marco, and Marco became a wholly-owned subsidiary of Neurotech.

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

For accounting purposes, the acquisition was treated as an issuance of shares for cash by Marco with Marco as the acquirer. The accounting is identical to that resulting from a reverse acquisition except that no goodwill or other intangible assets are recorded. Pro forma information is not presented as of the date of this transaction as Neurotech was considered a public shell and accordingly, the transaction was not considered a business combination.
  
Thereafter, on August 11, 2006, Neuro-Hitech Pharmaceuticals, Inc. amended its Certificate of Incorporation to change its name to “Neuro-Hitech, Inc.”
 
Business Combination

On November 29, 2006, the Company completed an acquisition by merger of Q-RNA, Inc. a privately held New York-based biotechnology company. In connection with the acquisition, the Company issued (i) 1,800,000 shares of the Company’s common stock, (ii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $13 per share, and (iii) warrants to purchase 600,356 shares of the Company’s common stock at an exercise price of $18 per share. The Company also assumed Q-RNA options outstanding which upon exercise will be exercisable into 199,286 shares of the Company’s common stock. The common shares and warrants were valued at the adjusted close price of the NHPI stock on the closing date of the agreement which was $5.60 per share. The issuance costs related to the Q-RNA Merger totaled approximately $271,000.
 
Upon acquisition of Q-RNA, the Company adopted Interpretation No. 4 (FIN), Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. In accordance with this interpretation, a substantial portion of the costs of the Q-RNA acquisition, $16,805,787 million, was assigned to in-process research and development and expensed upon acquisition as management deemed these assets to have no alternative future use.
 
The unaudited pro forma information below assumes that Q-RNA was acquired in fiscal 2006 with the impact of charges for in-process research and development costs being excluded.

The unaudited proforma information is presented for informational purposes only and is not indicative of the results of future operations or results that would have been achieved had the acquisition taken place at the beginning of fiscal year.


 
 
For the Year
Ended December
31,
 
 
   
Total Revenue
 
$
304,200
 
 
       
Net [Loss]
 
$
(5,402,784
)
 
       
Basic and Diluted [Loss] Per Common Share
 
$
(0.57
)
 

The acquisition of Q-RNA provided the Company with intellectual property and a pipeline of preclinical compounds.
 
Private Placement Offerings

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

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





F-10



NEURO-HITECH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
On November 29, 2006 Neuro-Hitech closed on the sale in a private offering of 612,200 shares of its common stock and warrants to purchase 306,100 shares of its common stock for $3,137,525 in cash.  The common stock was sold in the offering at $5.125 per share and the exercise price of the warrants is $7.00 per share. The warrants expire on November 29, 2011.

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

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

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

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

Option Exercises

In addition to the aforementioned private placements, the Company received approximately $46,000 and $200 from the exercise of options to purchase 12,059 and 1,679 shares during 2007 and 2006, respectively. 

Class A Common Stock

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

[6] Research and License Agreements

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

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

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

Org Syn Laboratory, Inc.

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





F-11



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

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

Xel Herbaceuticals, Inc.

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

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

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

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

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

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

Dalhousie License Agreements (PARTEQ)

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

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




F-12



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

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

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

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

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

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

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

Year
 
Amount
 
2008
 
$
1,416,545
 
2009
   
20,000
 
2010
   
30,000
 
2011
   
40,000
 
Total
 
$
1,506,545
 
 
See Note 13 for description of a subsequent event related to the License Agreement with Numoda.




F-13



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

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

As of December 31, 2007 the Company had two stock-based compensation plans, which are described below. Effective January 1, 2006, the Company adopted the fair value method of recording stock-based compensation in accordance with the modified prospective method of SFAS No. 123(R), “Share-Based Payment.”

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

Non-Employee Stock Option Plan

On January 24, 2006, Neuro-Hitech’s shareholders approved the Company’s 2006 Non-Employee Directors Stock Option Plan (the “Directors Plan”). Key features of this Plan include:
 
·
Non-employee directors of the Company and its subsidiaries are eligible to participate in the Directors Plan. The term of the Directors Plan is ten years. 400,000 shares of common stock have been reserved for issuance under the Directors Plan.
 
·
Options may only be issued as non-qualified stock options.
 
·
Stockholder approval is required in order to replace or reprice options.
 
·
The Directors Plan is administered by the a committee designated by the board.
 
·
Options shall be granted within ten years from the effective date.
 
·
Upon a “change in control” any unvested options shall vest and become immediately exercisable.
 
The fair value used in calculating the stock option expense has been estimated using Black-Scholes pricing model which takes into account as of the grant date, the exercise price, expected life of the option, contractual term, current price of the underlying stock, expected volatility, expected dividends on the stock and the risk-free interest rate based on expected term of the option. The risk-free rate is estimated based on U.S. Treasury security rates for the applicable terms.
 
The following is the average of the data used for the aforementioned assumptions:


Year Ended December 31,
 
Risk-Free
Interest Rate
 
Expected Term
 
Expected
Volatility
 
Expected
Dividends
 
2007
   
3.45
%
     
5
   
55.16
%
 
None
 
2006
   
4.45
%
     
5
   
48.60
%
 
None
 
 

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




F-14



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

 

 
 
Options Outstanding as of 12/31/2007
 
Options Exercisable
 
 
 
Weighted Average
 
 
 
  Weighted
     
Exercise Price Range
 
Number of
Shares
Outstanding
 
Remaining
Contractual Life
 
Exercise Price
Per Share
 
As of
12/31/2007
 
 Average
Exercise Price
Per Share
 
 Aggregate
Intrinsic
Value
 
$0 to $2.50 per share
   
350,000
   
2.00
 
$
2.50
   
233,334
 
$
2.50
 
$
396,668  
 

 
 
Year Ended December 31, 2007  
 
 
 
Number of
Options
 
Weighted
Average Exercise
Price Per Share
 
 Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2006
   
350,000
   
2.50
  $ 595,000  
Granted
   
-
   
-
   
-
 
Exercised
   
-
   
-
   
-
 
Expired
   
-
   
-
   
-
 
Outstanding at December 31, 2007
   
350,000
 
$
2.50
  $ 595,000  

Employee Stock Option Plan

The Company’s 2006 Incentive Stock Plan was initially approved by the Company’s stockholders on January 24, 2006. Amendments to the 2006 Incentive Stock Plan (as amended, the “Incentive Plan”) were approved by the Company’s stockholders at a meeting of the Company’s stockholders on June 26, 2007. Key features of the Incentive Plan include:
 
·
Company’s officers, directors, key employees and consultants of the Company and its subsidiaries are eligible to participate in the Incentive Plan. The term of the Incentive Plan is ten years. 3,250,000 shares of common stock are reserved for issuance under the Incentive Plan.
 
·
Both incentive and nonqualified stock options may be granted under the Incentive Plan, as well as Stock Appreciation Rights, Restricted Stock, Restricted Stock Units and Unrestricted Stock.
 
·
The Incentive Plan terminates on January 23, 2016.
 
·
The Incentive Plan is administered by a committee designated by the board.
 
On January 24, 2006the Company's Chief Executive Officer and Executive Vice President were granted options to purchase 220,000 shares and 70,000 shares of the Company’s common stock, respectively, each at an exercise price of $2.50 per share. One-third of the shares granted vested on the date of grant and the remaining shares vest in equal proportions on the first and second anniversaries of the grant date.

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

Under the terms of the Consultant Agreement, the Company issued 500,000 non-qualified stock options to Dr. Donald Weaver. These options have a contractual term of 15 years and are exercisable at $5.85 per share.
  
Vesting of the options is based on two separate criteria. The first vesting criteria is for each successful year of completion of the sponsored research agreement measured from July to June and commencing in 2006 the consultant will earn the right to exercise the purchase of 50,000 options which total 200,000 options over a four year vesting term.

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

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





F-15



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

On November 29, 2006, Dr. Wong signed an employment agreement and received options to purchase 150,000 shares of the Company’s common stock, which option became exercisable as to 9,375 shares per quarter beginning as of the date of this agreement. The option has an exercise price of $5.85 per share. Pursuant to an amendment to Dr. Wong’s employment agreement which extended the term until May 28, 2008, in the event Dr. Wong remains employed by the Company until May 28, 2008, in addition to the vesting set forth above, the option shall then be immediately vested as to an additional 18,750 shares.
 
On April 10, 2007, the Company issued options to purchase an aggregate of 100,000 shares of its common stock to two of its non-employee directors, each at an exercise price of $5.85 per share.
 
During the Year ended December 31, 2007, David Barrett, the Company’s Chief Financial Officer, was granted various options to purchase the Company’s common stock. On April 20, 2007, Mr. Barrett was granted an option that was immediately exercisable as to 60,000 shares at an exercise price of $5.85 per share. On June 26, 2007, Mr. Barrett was granted an option to purchase 100,000 shares at an exercise price of $7.97 per share, which shares were immediately vested as to 40,000 shares and will vest as to 20,000 shares on May 10, 2008 and an additional 40,000 shares on May 10, 2009. On December 6, 2007, Mr. Barrett was granted an option to purchase 25,000 shares at an exercise price of $3.88 per share, which shares will vest as to 8,333 shares on December 1, 2008, an additional 8,333 shares on December 1, 2009 and 8,334 shares on December 1, 2010.

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

On June 26, 2007, the Company issued options to purchase 9,541 shares to each of its non-employee directors, or an aggregate of 38,164, each at an exercise price of $6.25 per share.
 
During 2007 and 2006, compensation costs on vested awards totaled approximately $2,428,000 an $328,000, and are reflected in Share-Based Compensation caption of the Statement of Operations.
 
During the year ended December 31, 2007, the Company accrued an expense of $138,308 for directors’ fees that would have been paid in that year. In lieu of the fees that would otherwise have been paid, the Company issued options to purchase 53,880 shares of the Company’s common stock to the non-management directors that elected to receive compensation for their service in the form of options pursuant to the terms of the Non-Management Directors Deferral Program. The number of shares underlying the options issued was determined by dividing the amount deferred by the Black-Scholes “value” of the last fair market value option grant made in the preceding fiscal year, as set forth in the Company’s audited financial statements for that preceding fiscal year. Similarly, the Company accrued an expense of $21,244 for compensation that would have otherwise been paid to one of its officers during the year ended December 31, 2007. In lieu of compensation that would have been paid in that year, the officer received options to purchase 8,276 shares of the Company’s common stock pursuant to the terms of the Officers Deferral Program. The number of shares underlying the option issued was determined by dividing the amount deferred by the Black-Scholes “value” of the last fair market value option grant made in the preceding fiscal year, as set forth in the Company’s audited financial statements for that preceding fiscal year.
 

 
 
Options Outstanding as of 12/31/2007
 
Options Exercisable
 
 
 
Weighted Average
 
 
 
Weighted
     
Exercise Price Range
 
Number of
Shares Under
Option
 
Remaining
Contractual Life
 
Exercise Price
Per Share
 
As of 
12/31/2007
 
Average
Exercise Price
Per Share
 
Aggregate
Intrinsic
Value
 
$0 to $2.50 per share
   
290,000
   
8.00
 
$
2.50
   
193,334
 
$
2.50
 
$
328,668
 
$2.51 to $4.25 per share
   
56,078
   
9.96
 
$
4.06
   
31,078
 
$
4.20
   
-
 
$4.26 to $6.25 per share
   
2,079,242
   
9.01
 
$
5.68
   
673,118
 
$
5.68
    -  
 
   
2,425,319
               
897,529
         
328,668
 
 




F-16



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

 
 
Year Ended December 31, 2007
 
 
 
Number of
Options
 
Weighted
Average Exercise
 Price Per Share
 
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2006
   
1,240,000
 
$
5.07
   
-
 
Granted
   
1,185,319
 
$
5.46
   
-
 
Exercised
   
-
   
-
   
-
 
Expired
   
-
   
-
   
-
 
Outstanding at December 31, 2007
   
2,425,319
 
$
5.26
   
-
 
 

As of December 31, 2007, there was $1,190,654 of total unrecognized compensation cost related to nonvested stock-based compensation in connection with a consulting agreement assumed by the Company pursuant to the Q-RNA merger and a consulting agreement the Company entered into in 2007 for services to be rendered. Approximately $131,000 and $111,000 of the amounts recognized as Amortization of Deferred Compensation in the 2007 Statement of Operations are in accordance with vesting provisions of the consulting agreement entered into in 2006 and the performance of services pursuant to the consulting agreement entered into in 2007, respectively. Similarly, all of the amounts reflected in Amortization of Deferred Compensation in the 2006 Statement of Operations relate to the vesting provisions of the consulting agreement entered into in 2006. For the years ended December 31, 2007 and 2006, approximately $242,000 and $131,000 was reflected in Amortization of Deferred Compensation in the Statement of Operations, respectively.
 
Options Assumed From Q-RNA Merger
 
As part of the Q-RNA merger, the Company assumed Q-RNA options outstanding which upon exercise will be exercisable into 199,286 shares of the Company’s common stock. Upon consummation of the Q-RNA Merger, the shares were immediately exercisable into the Company’s common stock.


 
 
Options Outstanding as of 12/31/2007
 
Options Exercisable
 
 
 
Weighted Average
 
 
 
Weighted
     
Exercise Price Range
 
Number of
Shares Under
Option
 
Remaining
Contractual Life
 
Exercise Price
Per Share
 
As of
12/31/2007
 
Average
Exercise Price
Per Share
 
Aggregate
Intrinsic
Value
 
$0 to $3.80 per share
    -     -     -     -     -     -  
$3.81 to $9.49 per share
   
1,210
   
5.75
 
$
9.49
   
1,210
 
$
9.49
    -  
$9.50 to $12.66 per share
   
151,080
   
5.88
 
$
12.66
   
151,080
 
$
12.66
    -  
 
   
152,290
               
152,290
             
 

 
 
Year Ended December 31, 2007
 
 
 
Number of
Options
 
Weighted
Average Exercise
Price Per Share
 
Aggregate
Intrinsic
Value
 
Assumed Upon Acquisition
   
199,286
 
$
11.98
    -  
Exercised
   
1,679
   
.13
 
$
6,797
 
Expired
   
(2,049
)  
11.44
    -  
Granted
                   
Outstanding at December 31, 2006
   
195,558
   
12.09
    -  
Exercised
   
12,059
   
3.80
 
$
4,824
 
Expired
   
(31,209
)
 
12.66
    -  
Granted
    -               
Outstanding at December 31, 2007
   
152,290
 
$
12.62
    -  
 




F-17



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

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

See Note 5 for further description of the options assumed by the Company in connection with the Q-RNA merger.
 
Warrants to Non-Employees
 
Prior to the closing of the Merger with Northern Way Resources, Inc., the Company’s predecessor, the Company granted warrants to purchase an aggregate of 100,000 shares of common stock at an exercise price of $2.50 per share.
 
In January 2006, in connection with a private offering of its securities, the Company granted warrants to purchase an aggregate of 437,500 shares of common stock at an exercise price of $5.00 per share.

In November 2006, in connection with a private placement offering, the Company granted warrants to purchase an aggregate of 306,100 shares of common stock at an exercise price of $7.00 per share.
 
Between January 1, 2007 and March 15, 2007, the Company granted warrants to purchase an aggregate of 232,098 shares of common stock at an exercise price of $7.00 per share. The warrants expire on November 29, 2011.

During the year ended December 31, 2007, the Company granted an aggregate of warrants to purchase an aggregate of 202,581 shares of common stock, 17,670 of which can be purchased at an exercise price of $7.00 per share prior to the expiration of such warrants on May 18, 2012, 9,911 at an exercise price of $5.13 per share prior to the expiration of such warrants on February 14, 2012, 75,000 at an exercise price of $7.97 per share prior to the expiration of such warrants on May 10, 2012 and 100,000 at an exercise price of $7.15 per share prior to the expiration of such warrants on February 14, 2011.

On December 14, 2007, the Company granted warrants to purchase an aggregate of 625,000 shares of common stock. The exercise price of these warrants is $7.00 per share unless the warrants are exercised prior to the later of (i) April 30, 2008 or (ii) thirty days after a registration statement registering the shares of common stock underlying the warrants is declared effective by the Securities and Exchange Commission, in which case the exercise price will be $5.00 per share. The warrants expire on December 14, 2012.

On December 14, 2007, the Company adjusted the number of shares issuable upon the exercise of warrants to purchase common stock issued in private offerings between November 2006 and March 2007. These adjustments were made in accordance with certain anti-dilution adjustment provisions in the issued warrants. In accordance therewith, the number of shares of common stock issuable upon exercise of those warrants will result, if exercised, in the issuance of an additional 151,366 shares of the Company’s common stock.
 
A summary of the warrant activity during the year ended December 31, 2007 is presented below:


 
 
Options Outstanding as of 12/31/2007
 
Options Exercisable
 
 
 
Weighted Average
 
 
 
Weighted
     
Exercise Price Range
 
Number of
Shares Under
Option
 
Remaining
Contractual Life
 
Exercise Price
Per Share
 
As of
12/31/2007
 
Average
Exercise Price
Per Share
 
Aggregate
Intrinsic
Value
 
$0 to $2.50 per share
   
100,000
   
2.00
 
$
2.50
   
100,000
 
$
2.50
 
$
170,000
 
$2.51 to $5.00 per share
   
437,500
   
3.10
 
$
5.00
   
437,500
 
$
5.00
    -  
$5.01 to $7.97 per share
   
1,517,145
   
4.35
 
$
7.05
   
1,517,145
 
$
7.05
    -  
*$7.98 to $13.00 per share
   
600,356
   
8.92
 
$
13.00
   
600,356
 
$
13.00
    -  
*$13.01 to $18.00 per share
   
600,356
   
8.92
 
$
18.00
   
600,356
 
$
18.00
    -  
 
   
3,225,357
               
3,225,357
       
$
170,000
 


 
 
Year Ended December 31, 2007
 
 
 
Number of
Warrants
 
Weighted
Average Exercise
Price Per Share
 
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2006
   
2,044,312
 
$
11.34
    -  
Granted
   
1,211,045
 
$
7.06
    -  
Exercised
   
-
   
-
    -  
Expired
   
(40,000
)
$
0.98
    -  
Outstanding at December 31, 2007
   
3,225,357
 
$
9.75
    -  
 
*See Note 5 for further description of the 1,200,712 warrants issued in connection with the acquisition of Q-RNA.
 
[8] Employment Contracts and Consulting Agreements

Under the terms of the Q-RNA Merger Agreement, the Company entered into a consulting agreement with Dr. Donald F. Weaver and employment agreements with William McIntosh, as Chief Operating Officer, and William Wong, as Chief Scientific Officer.
 
Under the terms of the Consultant Agreement, Dr. Weaver will serve as a member of the Company’s Scientific Advisory Board and consult with the Company on matters pertaining to the research and development of products owned or licensed by the Company. Dr. Weaver will also serve as the coordinator and administrator of any formal licensing, sponsored research or other agreements as executed by the Company with Queens University, PARTEQ Innovations and Dalhousie University.




F-18



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

 
In accordance with the terms of his Consultant Agreement, Dr. Weaver was eligible to receive $1,000 per day, pro rata as appropriate for services actually performed. The term of the Agreement was for one year from November 29, 2006 until November 29, 2007. Dr. Weaver did not receive any compensation in the years ended December 31, 2006 and December 31, 2007.
 
L. William McIntosh became the Company’s Chief Operating Officer on November 29, 2006. Mr. McIntosh’s annualized base salary will be $240,000 per year. Under the terms of his employment agreement, Mr. McIntosh shall devote, on average, four days a week to the business affairs of the Company and be compensated accordingly. The original term of the Agreement expired on November 29, 2007, but was extended until May 28, 2008 pursuant to an amendment of the agreement. For the years ended December 31, 2007 and 2006, Mr. McIntosh was paid $192,000 and $16,000, respectively.
 
William Wong became the Company’s Chief Scientific Officer on November 29, 2006. Dr. Wong’s annualized base salary will be $180,000 per year. Under the terms of his employment agreement, Dr. Wong shall devote, on average, three days a week to the business affairs of the Company and be compensated accordingly. The original term of the Agreement expired on November 29, 2007, but was extended until May 28, 2008 pursuant to an amendment of the agreement. For the years ended December 31, 2007 and 2006, Dr. Wong was paid $114,000 and $6,000, respectively.

On August 27, 2007, Dr. Gary Shearman became the Company’s Chief Executive Officer, President and a member of the Company’s board of directors. Dr. Shearman’s base salary will be $450,000 per year. In addition, Dr. Shearman will be eligible to receive bonus compensation of up to 50% of his base salary, in amounts to be determined by the Compensation Committee of the Board following Dr. Shearman’s achievement of certain performance objectives. The term of the agreement is four years from August 27, 2007, unless earlier terminated or extended and the fixed and determinable salary to be paid under the agreement is $450,000 or $1,800,000 in the aggregate. For the year ended December 31, 2007, Dr. Shearman was paid $159,750.

David Barrett, the Company’s Chief Financial Officer, entered into an executive employment agreement with the Company on December 7, 2007. Under the terms of Mr. Barrett’s employment agreement, Mr. Barrett will receive an annual base salary of $250,000. The agreement was effective December 1, 2007 and expires on November 30, 2010. In addition to his base compensation, Mr. Barrett will be eligible to receive bonus compensation of up to 25% of his base salary, in amounts to be determined by the Chief Executive Officer and approved by the Compensation Committee of the Board following Mr. Barrett’s achievement of certain performance objectives. For the year ended December 31, 2007, Mr. Barrett was paid $20,833 pursuant to the terms of his employment agreement. Mr. Barrett was paid $191,167 in compensation prior to the effectiveness of his employment agreement.



Year
 
Amount
 
2008
   
812,000
 
2009
   
700,000
 
2010
   
700,000
 
2011
   
519,417
 
2012
   
-
 
Thereafter
   
-
 
Total
 
$
2,731,417
 
 
See Note 8 for a description of the option grants.

[9] Related Party Transaction

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

[10] Income Taxes

For 2007 and 2006, the Company had no current or deferred income tax provision. Deferred taxes are based upon differences between the financial statement and tax basis of assets and liabilities and available net operating loss carryforwards summarized as follows:


 
   
 
   
2006
 
Deferred Tax Asset - Non-Current:
 
 
 
 
 
Net Operating Loss Carryforwards
 
$
3,613,600
 
$
2,475,600
 
Valuation Allowance
   
(3,613,600
)
 
(2,475,600
)
 
  $
-
 
$
-
 
 
A full valuation allowance has been established due to the uncertainty about the realization of the deferred tax asset. The net change during 2007 and 2006 in the total valuation allowance was approximately $1,138,000 and $1,439,600, respectively.

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


 
Amount
 
2012
 
$
153,000
 
2021
   
21,000
 
2022
   
113,000
 
2023
   
634,000
 
2024
   
713,000
 
2025
   
955,000
 
2026
   
3,600,000
 
2027
   
2,845,000
 
 
 
$
9,034,000
 
 

For the Years Ended December 31,
   
2006
 
Federal statutory tax rate
   
-35.0
%
 
-35.0
%
Changes to valuation allowance
   
12.9
%
 
0.06
%
Effective state tax rate
   
0.1
%
 
0.5
%
Permanent differences
   
22.0
%
 
34.44
%
Effective Income tax rate
   
0.00
%
 
0.00
%
 
The utilization of the net operating losses were limited during 2007 based upon provisions established in Section 382 of the Internal Revenue Code. Total net operating losses incurred were approximately $6,200,000, however, limitation of these losses pursuant to applicable Internal Revenue Code provisions, based upon changes in ownership resulted in only $2,800,000 of these losses being available to offset future taxable income.
 




F-19



NEURO-HITECH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
[11] Supply Concentrations

The number of available suppliers of natural Huperzine is limited. The Company does not have a long-term supply contract with its current suppliers, and purchases natural Huperzine on a purchase order basis. If the Company is unable to obtain sufficient quantities of natural Huperzine, when needed, or develop a synthetic version of Huperzine A in the future, the Company’s ability to pursue its business plan could be delayed or reduced, or the Company may be forced to pay higher prices for the natural Huperzine.
 
[12] Recent Accounting Pronouncements
 
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

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

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

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

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





F-20



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

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




F-21



 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
NEURO-HITECH, INC.
(Registrant)
   
 
 
/s/ Gary T. Shearman
 
Gary T. Shearman
President, Chief Executive Officer and
Principal Executive Officer
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE
 
TITLE
 
DATE
 
 
 
 
 
/s/ Gary T. Shearman
 
President, Chief Executive Officer,
 
Gary T. Shearman
 
Principal Executive Officer and Director
 
 
 
 
 
 
 
/s/ David Barrett
 
Chief Financial Officer and
 
David Barrett
 
Principal Accounting Officer
 
 
 
 
 
 
 
/s/ John Abernathy
 
Director
 
John Abernathy
 
 
 
 
 
 
 
 
 
/s/ Mark Auerbach
 
Director
 
Mark Auerbach
 
 
 
 
 
 
 
 
 
/s/ David Dantzker
 
Director
 
David Dantzker
 
 
 
 
 
 
 
 
 
 
 
Director
 
March __, 2008
Alan Kestenbaum
 
 
 
 
 
 
 
 
 
 
 
Director
 
March __, 2008
Jay Lombard
 
 
 
 
 
 
 
 
 
 /s/ Reuben Seltzer
 
Director
 
Reuben Seltzer
 
 
 
 
 




35




 

Dates Referenced Herein   and   Documents Incorporated By Reference

This 10KSB Filing   Date   Other Filings
11/25/96
12/11/96
6/1/97
4/21/00
2/28/01
3/1/02
10/16/03
2/1/05
12/31/0510KSB, 10QSB, NT 10-Q
1/1/06
1/5/06
1/6/06
1/12/06
1/17/068-K
1/18/06
1/24/068-K, 8-K/A
1/25/06
1/27/06
2/1/068-K, 8-K/A
2/2/06
2/23/06
3/15/068-K
8/11/068-K
11/16/068-K
11/29/063, 8-K, 8-K/A
12/8/06SC 13D
12/31/0610KSB, 10KSB/A, 5, NT 10-K
1/1/07
3/15/078-K
4/10/074
4/20/07
4/24/078-K
6/26/074, 4/A, 8-K, DEF 14A
8/22/07
8/27/07
11/15/07
11/29/078-K
12/1/07
12/7/0710KSB/A, 4, 8-K
12/14/078-K
For The Period Ended12/31/0710KSB/A, 5, 8-K, NT 10-K
1/1/08
2/1/088-K
3/1/08
3/3/088-K
3/17/088-K
3/28/088-K
3/29/08
3/30/08
3/31/0810-Q, NT 10-Q
4/2/08
Filed On4/9/08
Filed As Of4/10/08
5/28/08
6/30/0810-Q, 8-K
11/15/08
12/15/08
1/24/09
6/30/09
11/30/10
2/14/11
3/3/11
11/29/11
2/14/12
5/10/12
5/18/12
12/14/12
1/23/16
 
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