FORWARD-LOOKING STATEMENTS

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

All references to the "Company" refer to Neuro-Hitech, Inc. and its subsidiaries.

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

History

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

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

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

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

Results of Operations

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

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

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

Results of Operations

                     For the three-month                                             For the nine-month
                        period ended                                                    period ended
                                                                                                                                2008 vs
                        September 30            2008 vs 2007    2008 vs 2007            September 30            2008 vs 2007      2007
                     2008           2007            ($)              (%)            2008            2007            ($)           (%)
                 (Unaudited)    (Unaudited)                                      (Unaudited)    (Unaudited)

Revenues         $     46,238   $    112,455   $      (66,217 )           -59 % $     433,377   $    363,740   $       69,637         19 %

Cost of goods
sold                  793,167         56,203          736,964              NM         984,563        167,262          817,301         NM

Gross Profit         (746,929 )       56,252         (803,181 )         -1428 %      (551,186 )      196,478         (747,664 )     -381 %

Operating
expenses:
Selling,
general and
administrative
expenses            2,418,347      2,297,636          120,711               5 %     8,059,997      4,655,230        3,404,767         73 %
Research and
development
costs                       -        760,158         (760,158 )          -100 %     1,553,408      2,482,821         (929,413 )      -37 %

Total
operating
expenses            2,418,347      3,057,794         (639,447 )           -21 %     9,613,405      7,138,051        2,475,354         35 %

Operating loss     (3,165,276 )   (3,001,542 )        163,734               5 %   (10,164,591 )   (6,941,573 )      3,223,018         46 %

Other income
(expense):
Interest
income
(expense)             (13,001 )       46,586           59,587              NM         (50,070 )      166,874          216,944         NM

Net loss         $ (3,178,277 ) $ (2,954,956 ) $      223,321               8 % $ (10,214,661 ) $ (6,774,699 ) $    3,439,962         51 %

NM: Not meaningful

Revenues

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

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

Cost of Goods Sold

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

Selling, general, and administrative expenses

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

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

Research and development costs

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

Georgetown

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

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

Xel Herbaceuticals, Inc.

On March 15, 2006, the Company entered into a development agreement with Xel Herbaceuticals, Inc. ("XEL") for the development of the Huperzine A Transdermal Delivery System ("Delivery Product"). For the three-month periods ended September 30, 2008 and 2007, the Company paid XEL approximately $0 and $211,000, respectively. For the nine-month periods ended September 30, 2008 and 2007, the Company paid XEL approximately $92,500 and $860,000, respectively. Payments to XEL are reflected in the Research and Development caption of the Statement of Operations.

Dalhousie License Agreements (PARTEQ)

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

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

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

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

Subsequent Event

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

Critical Accounting Policies

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

Research and Development Costs

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

Share-Based Compensation

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

Impairment of Long-Lived Assets

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

Revenue Recognition

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

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

New Authoritative Pronouncements

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

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

In March 2008, the Financial Accounting Standards Board (FASB) issued FASB . . .