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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 
(Mark One)
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 0-51216

ANDAIN, INC.
(Exact Name of Company as Specified in its Charter)
 
Nevada
20-2066406
(State or Other Jurisdiction of Incorporation
(I.R.S. Employer
or Organization)
Identification No.)
 
400 South Beverly Drive, Suite 312, Beverly Hills, California
90212
(Address of Principal Executive Offices)
(Zip Code)

Company’s telephone number:  (310) 286-1777

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:  
 
Yes o    No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:  
 
Yes o    No x.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) been subject to such filing requirements for the past 90 days:  
 
Yes x    No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
 
Yes x    No o.
 
 
 

 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

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

Large accelerated filer  o
Accelerated filer  o
   
Non-accelerated filer  o
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act:  
 
Yes o    No x.
 
The aggregate market value of the voting stock held by non-affiliates of the Company as of February 28, 2012: $189,300.  As of February 28, 2012, the Company had 22,034,242 shares of common stock issued and outstanding.
 
 
2

 
 
TABLE OF CONTENTS

PART I.
 
PAGE
     
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28
     
37
     
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PART II.
   
     
38
 
               
 
39
     
40
 
                
 
48
     
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48
     
52
     
PART III.
   
     
52
 
                   
 
57

 
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4

 
 

BUSINESS.

Business Development.

Andain Inc., a Nevada corporation (“Company”), was incorporated on July 23, 2004.  The address for the Company is: 400 South Beverly Drive, Suite 312, Beverly Hills, California 90212, its telephone number is: (310) 286-1777.  The Company commercializes novel technologies in the biotechnology and medical fields.  The Company’s products include miniature disposable insulin pump, stem cell therapy for muscular injuries and organ-targeted nano-particles for drug delivery via inhalation.

The Company also operates an in-house technological and industrial incubator, supported by the its industrial associates and government funding.  Through its incubator program, the Company is constantly screening promising new technologies to commercialize. The Company’s focus is on patented technologies that can be commercialized within a period of 12-24 months and, preferably, provide life saving attributes.

Business of the Company.

The Company is currently operating eight business units:

Product-based business units:

·
Miniature insulin pump (Gaia Med Ltd.)

·
Targeted drug delivery nano-particles (TPDS Ltd.)

·
Stem cell therapy (OrCell Ltd.)

·
Ultasonic catheter for brain cancer therapy (Sonenco Ltd.)

·
Peptide booster for anti-wrinkle cosmeceuticals (NBCT Ltd.)

Service-based business units:

·
Management consulting and business development (Impact Active Team Ltd.)

·
Industrial and technological incubator (Meizam – Advance Enterprise Center Arad Ltd.)

·
Financing services (Meizam Arad Investments Ltd.)

 
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1.
Miniature Disposable Insulin Pump.

On July 1, 2010, the Company, through its subsidiaries Meizam – Advanced Enterprise Center Ltd., an Israel corporation (“Meizam Arad”), and Meizam Arad Investments Ltd. an Israel corporation (“Meizam Investments”), entered into an initial share purchase agreement with Gaia Med Ltd., an Israel corporation (“Gaia Med”).  On March 31, 2011 Gaia Med issued 600,000 shares to Meizam Investments according to the Industrial Incubator Agreement, where Meizam Investments acquired 33% of Gaia Med shares for 2.25 million New Israeli Shekels (“NIS”) (App. $650,000).  The Company will receive research and development grants for Gaia Med from the Israeli Ministry of Industry, Trade, and Labor’s (“MOITL”).

On March 31, 2011 the Company transferred all rights commitments, assets and holdings of Gaia Med from Meizam Arad to Meizam Investments.

On September 30, 2011, Gaia Med adjusted the share distribution to match unissued vested shares.  After the adjustment, the Company holds 42.6% of its total issued and outstanding shares.

On December 28, 2011, Gaia Med bought back 27% of its share capital from some of its private shareholders.  As a result, the Company increased its holding in Gaia Med to 57.6%.

The Company’s insulin pump product line is based on miniaturizing technologies implemented in our insulin pumps.  The Company has developed two types of miniature pumps: semi-disposable, and fully disposable.  These insulin pumps address two market segments:

·
Type-I diabetics, who are usually eligible for reimbursement of insulin pump expenditure from health insurers and, therefore, many of them use insulin pump.  The Company's miniature product may offer more comfortable and unnoticeable product for this market segment.

·
Type-II diabetics, who comprise of the majority of diabetic patients, but usually are not eligible for health insurance reimbursement for insulin pump and, therefore, usually use other injection products, e.g. insulin pen injector, which are eligible for reimbursement. Diabetic doctors usually agree that insulin pump offers clinically superior therapy.  The Company’s low cost product may offer an affordable yet superior product for this market segment.

(a)
Fully-Disposable Nano-Pump.

On February 1, 2011 the Company initiated an aggressive development program to develop a miniature band-aid patch-size waterproof fully disposable insulin pump suitable for Diabetics type I and type II.  The Company’s miniature insulin pump's low cost offers an affordable replacement for the pen-injections used by diabetic type II patients, with superior clinical performance.
 
 
6

 
 
The nano-pump is based on an innovative, design:

·
The pump is miniature in size: 25 grams, 49x7 mm making it almost unnoticeable.

·
It is attached to body by an adhesive patch making it very comfortable to wear and no tubing is required like in conventional pumps.

·
The pump is fully disposable and suitable for Type-I diabetics as well as Type-II.

·
Its low cost offers an affordable replacement to the insulin pen injector.

·
The pump provides a real-time alert for occlusions and leakages.

The development and in-vitro test of the nano-pump were successfully completed, and meets the medical and marketing requirement for diabetic type I type II at the planed manufacturing cost.

(b)
Semi-Disposable Nano-Pump.

The Company has completed the development, lab and in-vitro tests of the Diamond semi-disposable miniature pump, which has a disposable part and a reusable sophisticated multi-function part, and met the medical and marketing requirement for treating diabetes type-I and type II. The Diamond semi-disposable miniature pump meets all medical regulatory requirements, and provides low-cost solution for diabetics type I and type II patients.
 
The Company has concluded the initial production batch of the semi-disposable Diamond pump for pre-clinical and clinical studies as required by regulations. The initial pre-clinical results showed promising results enabling the Company’s engineers further miniaturizing the pump and dramatically reducing the production to a, very low cost and very reliable patch size pump.

As a result, the Company is modifying the pre-clinical and clinical trials, as well the related regulatory applications to meet the new design of the fully disposable and semi-disposable pumps.  In addition, the Company is preparing a new patent application to secure the newly developed fully disposable technology.

(c)
Current Status.

The Company is currently putting significant efforts in design for manufacturing and regulatory affairs of the fully disposable miniature pump in order to enable us completing the clinical tests before end of 2012.  As a result, the Company is modifying the pre-clinical and clinical trials as well the related applications.  The Company is currently completing the new patent application, which is separate from the semi-disposable pump patents and intellectual properties, in order to secure the newly developed technology.
 
 
7

 
 
The development and in-vitro tests of the Diamond semi-disposable pump were successfully completed and meet the medical and marketing requirements for diabetic type-I and type-II patients.  The Company now intends further miniaturizing the pump and reducing its production cost.

(d)
12 month Operational Plan.

Pre-clinical – As of the new design of the fully disposable pump we intend to repeat some of the safety pre-clinical tests on a large animal. Although it is not required by the regulations, the Company has decided to add a second test of the treatment efficacy.  The Company assumes positive results that will provide a significant business advantage.  The Company has built a model of a diabetic 100-kilogram pig, and tested the diabetic model.  Currently, the Company is planning to run 8 – 12 weeks treatment of 3 diabetic pigs.  The animals will be monitored for glucose levels and other parameters for the test period.

Animal test and Ethical Committee applications – The Company submits the animal tests request and ethical committee request form to the Israeli authorities for the animal and human trials. This requires some additional regulatory work and submission fees.

Production – The Company’s design for production enables it to commence pump production for the pre-clinical and clinical trials. The production of the fully disposable pump will take place at a GMP production facility certified for the same regulation and quality assurance as the commercial product.

Clinical trials – The Company’s our scheduled clinical trials will take place at the Diabetics Clinic of Soroka Medical Center.  This clinic serves all of southern Israel with over 1,200 beds.  The  clinical trials are designed to support 3 groups of 200 patients per group, compared to the general population of diabetics type-II using conventional insulin pen injection:

Type I diabetics – Pumps personally programmed for type I diabetics. The individual in the group is controlled by Soroka Hospital Diabetic Clinic.

Type II Diabetics – Pumps personally programmed for type II diabetics. The individual in the group is controlled by Soroka Hospital Diabetic Clinic.

Type II diabetics – Pumps have general basal programming to be used as the reference group

Type II diabetics – Patients use the conventional pen injection as a control group.

(e)
The Market for Insulin Pumps.

Diabetes is a global epidemic with over 285,000,000 diabetes patients worldwide and 7,000,000 patients contracting the disease annually (Source: International Diabetes Federation, Diabetes Atlas 2010).  Diabetes can be identified as: Type-1, Type-2 and gestational.  Type-2 diabetes accounts for more than 90% of all diabetes cases in developed countries (Source: The American Diabetes Association, 2010).
 
 
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According to the National Center for Chronic Disease Prevention and Health Promotion (CDC), in 2010 there were 18.8 million people diagnosed with diabetes in the U.S., of which 1.9 million were newly diagnosed in 2010; 26% of them were treated in insulin.  The estimated direct cost of diabetes in the U.S. is over $170 billion annually.  In order to constrain spiraling healthcare costs and limit the progression of full-blown type 2 diabetes and its complications among an aging and increasingly obese population, the development of more affordable and effective diabetes management (self-testing and treatment) products has become a top priority not only in the U.S., but worldwide.

In Type-1 diabetes, the body fails to produce insulin as a result of an autoimmune response in which the immune system does not recognize its own islet cells and destroys them. This type of diabetes generally occurs in people under the age of 40 and is most commonly acquired during childhood. Type 1 diabetes is treated by insulin injections and diet.

Type-2 diabetes is the most common form of diabetes (90-95% of diabetes patients). It presents as high blood glucose levels despite an initial abundance of the hormone insulin. The cells of the body ignore the insulin and do not allow glucose to enter the body’s cells. This insulin resistance leads to high levels of glucose in the bloodstream, and eventually to beta-cell failure, where the beta cells of the pancreas are no longer able to release insulin in response to high blood glucose levels. Patients may require insulin for control of hyperglycaemia, if this is not achieved with diet alone or with oral hypoglycaemic agents.

Lifelong dependence on insulin delivery forces the patient to manually inject insulin with every meal and to constantly monitor their glucose levels using syringes, pens or needle less injectors. The Diabetes Control and Complications Trial (DCCT) demonstrated that intensive insulin therapy – multiple (three or more) daily injections (i.e. shots with syringe or insulin pen) of insulin (MDI) or insulin pump therapy – keeps blood sugar levels in a normal versus elevated (hyperglycemia) range, and slows the progression of diabetic retinopathy, nephropathy, and neuropathy in Type 1 diabetics, at the expense of increased severe hypoglycemia (low blood sugar from too much insulin or too little glucose in the blood). The incidence of severe hypoglycemia in the trial, defined as treatment requiring assistance, was approximately three times higher in the intensive therapy group, and included altered consciousness, episodes of coma/seizure, and hospital/emergency room visits.

(f)
Insulin Pumps.

Diabetes management products market, insulin injection devices and insulin pumps, insulin therapies and oral and injectable diabetes drugs—has become one of the largest medical device markets in the U.S. totalling more than $20 billion in 2008. As the population of diabetics continues to increase, the market is expected to continue to grow at a double-digit rate over the next five years, reaching nearly $28 billion by 2013.
 
 
9

 
 
The insulin pump market is sizeable and rapidly growing.  Global markets sales are estimated to be over $1 billion annually with a 12% compound annual growth rate.

However, insulin pumps are comparatively expensive, with the average price of $3,500-$5,000 at the U.S. market.  The disposable infusion sets are $15-20 each (replaceable every 3 days); while insulin reservoirs cost $5 each.  As a result, most diabetes patients still do not use insulin pumps as the replacement of the inferior injection administration.  Pumps are used by less than 3% of the potential insulin-injecting patients, and nearly all by Type-1 diabetes patients almost none are used for Type 2 diabetics.

Insulin pumps provide an alternative to daily injections and provide some Type 1 diabetics better control of their diabetes and a more flexible lifestyle. The standard insulin pump is about the size of a pager and is worn outside the body. The pump is programmed to deliver insulin continuously (basal rate) and in specific increments (bolus) when needed usually before a meal. Insulin pump users fill up a new insulin cartridge, which is placed inside the pump, every three to seven days (depending on cartridge size patient body mass and daily insulin usage).

An infusion set of thin, flexible plastic tube with sub-dermal injection needle is attached to the pump and delivers the insulin from the pump to the patient. The infusion sets are inserted just beneath the skin, and need to be changed, on average, every three days. The infusion set tubing is uncomfortable and is susceptible for disconnections due to the physical patient movements and various obstacles.

The insulin pump provides superior diabetes treatment with enhanced glycaemic control and reduces the risk of hypoglycaemic events that dramatically improves a patient’s quality of life. According to the American Diabetes Association, some advantages of using an insulin pump instead of insulin injections are:

Eliminates individual insulin injections

·
Delivers insulin more accurately than injections

·
Improves A1C

·
Fewer large swings in blood glucose levels

·
Easier diabetes management

·
Allows to be flexible about when and what to eat

·
Improves quality of life

·
Reduces severe low blood glucose episodes

·
Eliminates unpredictable effects of intermediate- or long-acting insulin

·
Allows to exercise without having to eat large amounts of carbohydrate
 
 
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(g)
Competition.

Medtronic’s MiniMed division (acquired in August 2001) is the insulin pump market leader (Paradigm pump) in the US, while Roche’s Disetronic division (acquired in May 2003) is the market leader outside of the US. Until 2000, the U.S. insulin pump and disposables market was dominated by MiniMed and Disetronic. Animas began shipping its first generation R1000 insulin pump in July 2000, launched its second generation IR 1000 insulin pump in 2002, its third generation IR 1200 insulin pump in April 2004, and fourth generation IR 1250 in February 2005. In 20005 the US, Animas markets its products through both a direct sales force of about 55 sales representatives (paired with about 75 clinical diabetes educators) and distributors. Animas has shipped more than 14,500 pumps worldwide as of March 2004, up to the end of 2005, and does not currently break out unit sales. In June 2003, Roche stopped shipping insulin pumps to the US as a result of regulatory issues with the FDA, but continued to support its current customer base in terms of customer support and shipping of disposables. Roche re-enter the U.S. market with its Accu-Chek Spirit in 2006.

Deltec introduced the Cozmo insulin pump in December 2002, and partnered with Abbott to introduce its new CozMore Insulin Pump System in August 2004, which works with the Abbott (TheraSense) FreeStyle meter.  Deltec has sold about 18,000 pumps as of July 2005, most of which were in the U.S. (Dana Diabecare pump) and Nipro (Amigo pump) also manufacture insulin pumps. Insulet was introduced to the diabetes pump market in early 2007 with its OmniPod disposable insulin pump. Anima is launching its next generation IR 1275 and IR 1500 pumps in and disposable insulin pump.

With miniaturizing technology, the insulin pump manufactures drive for a patch-size fully disposable pump. Several patch pumps are in various development stages:

·
Finesse (Calibra Medical): delivers bolus insulin or pramlitide.

·
V-Go (Valeritas): is a once-daily disposable insulin delivery system for type 2 diabetes.

·
Solo (Medingo): has a three-month life, electronically controlled.

·
Freehand (MedSolve Technologies): is remote controlled, 80% smaller than OmniPod.

·
Insulin NanoPump (ST Microelectronics and Debiotech): has large reservoir, miniaturized system.

·
Altea Therapeutics: is developing a 12-hour and 24-hour patch.

·
Medtronic: is developing a patch delivery system.
 
 
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2.
Nano-particles Targeted Drug Delivery Technology.

On June 11, 2006, the Company entered into a Technology Purchase Agreement with Pangea Investments GmbH (“Pangea”).  Pangea was the owner of the intellectual properties, potential patent rights, know-how and research and development in process, and all related technical information, in connection with technology as described in a U.S. patent application filed on June 7, 2006.  In return for acquiring the rights to use the technology covered by this applied patent, the Company paid to Pangea Investments GmbH 4,500,000 restricted shares of common stock.

This application covers a pulmonary inhalation drug delivery system for hydrophobic drug molecules for wet and dry inhalation.  Hydrophobic refers to the physical property of a molecule that is repelled from a mass of water. Hydrophobic drugs such as these widely vary in levels of toxicity but are very efficient antibiotics and the only solution capable to treat the MDR (multi drug resistance) bacteria that COPD patients suffer from. They cannot mix and dissolve easily in water or in saline without use of additional toxic solvents and if used in a class IV administration form can cause imminent kidney failure, therefore used only in very extreme cases as a last resource.

On August 14, 2006, the Company established TPDS Ltd., an Israel corporation (“TPDS”), as a subsidiary responsible for further development of the acquired technology into a commercially viable product in the field of respiratory care of chronic obstructive pulmonary disease and ventilator-associated pneumonia patients.  TPDS has developed organ-targeted drug delivery nano-particles with timely drug release capacity.  TPDS is located at the Science Park in Rehovot, Israel.  Currently, the Company holds 93.6% of TPDS’s equity.

On March 31, 2011 The Company transferred all rights commitments assets and holdings of TPDS from Meizam Arad to Meizam Investments.

On March 31, 2011 TPDS issued 9,367,350 shares to the Company to compensate for the over issuance to Dr. Leonid Luria as of the signed agreement with Dr. Luria dated May 16, 2006. In addition TPDS issued 3,876,192 shares to Meizam Investments according to an industrial incubator agreement, where Meizam Investments acquired 25% of TPDS shares for 2.25 million NIS (approximately $650,000).

TPDS (target particle delivery system) is the Company’s product line based on unique nano-particles capable of carrying different drugs to specific organs. Our nano-particle technology is capable of ultra high drug loading of hydrophobic and hydrophilic drug types. The nano-particle releases the drug on a pre-designed timing, and then decomposes to its natural ingredients and naturally dissolves by the body's functions. Our nano-particle delivery technology improves significantly the effectiveness and efficiency of delivering antibiotics via inhalation, thus providing a potentially better cure for pulmonary diseases.
 
 
12

 
 
TPDS lipid-based nano-particles can deliver almost any drug with extremely high load capability. The nano-particles target only the specific designated organ with hardly any residual drug existence in other internal organs.

The nano-particles release the drug in the target organ in a well-timed and controlled manner. Such controlled release enables lower drug dosage while reducing toxicity and harm.

TPDS nano-particles encapsulate the drug molecules until the release-triggering mechanism releases the drug. As soon the drug is released, the nano particles dissolve to their natural ingredients and are absorbed by the surrounding tissue.

The Company’s primary application is COPD (chronic obstructive pulmonary disease), which affects over 16 million patients in the U.S. alone. The initial target application is VAP (Ventilator-Associated Pneumonia), where patients are commonly treated in intensive care units and suffer high mortality rate, and the Company may offer life saving therapy.

TPDS nano-particle can also carry a cocktail of drugs, handling persistent bacteria with anti-inflammatory agents, to prevent lung spasm and airway obstruction, in conjunction with the appropriate drugs. The formulation developed, handles the bacteria that flourish in the lungs, causing inflammation and edema, and eventually lung collapse with devastating effects.

The Company completed the initial development and is preparing batch production for pre-clinical trials

(a)
Current Status
 
Nano-particle accelerated development – The Company has performed a technological study case of the nano-particle technology in order to generalize its capacity to accommodate hydrophobic (repelling water based molecules) as well hydrophilic (attracting water based molecules) properties.  The Company has managed to expand significantly its nano-particles capabilities to carry out also the GSK RELENZA (zanamivir) drug for swine flu (H1N1) therapy.  About two years ago, the FDA issued a warning letter regarding the use of RELENZA in inhalation since it has not been proven as safe and effective.  Zanamivir is an effective drug for the swine flu. The request for this nano-particle application was referred to us by Professor Pitlik formerly Head of Infectious Diseases Dept. at Belinson Medical Center.  The Company estimates that the additional development enhancing the product’s capabilities will provide unique and significant technological advantage and will enhance the Company’s business capabilities.

It is the Company’s goal to enter into clinical trials with the modified nano-particle which will be capable of carrying additional drugs such as the zanamivir knowing that the use of its nano-particle may prevent solution foaming and increase the drug delivery effectiveness.

Ethical Committee ("Declaration of Helsinki") – The Company was asked to add one pre-clinical safety test.  The Company is in preparation of the regulatory applications for the planned clinical trials.
 
 
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Clinical trials – The clinical trials will take place at the respiratory intensive care unit at Rambam Medical Center (Haifa, Israel)
 
GMP production – The production will take place at Rotem Industries GMP facility. In April 2011 Rotem received the Ministry of Health's approval for producing TPDS drug with no cross-contamination risk!

(b)
12 month Operational Plan.

GMP production Line – The Company is required to upgrade the production line at Rotem Industries and add a separate high-pressure homogenizer, in order to avoid possible cross contamination with the other production lines at Rotem.

Initial batch Production – The Company plans to produce minimum 2,000 vials to meet the clinical trial needs of 21 days treatment course, 3 times a day per patient (with spare).

Pre-Clinical Trials – The Company plans to perform the pre-clinical trials with large animals in order to meet all needed safety regulatory requirements. Although it was not requested by the regulations, we intend adding pharmacokinetics and pharmacodynamics tests to exhibit our technology superiority comparing to any other relevant available solutions.

Clinical Trials – 2 cycles of patients in the Respiratory Intensive Care Unit at Rambam Medical Canter are planned.  The duration of the first cycle will be minimum 6 months, treating the VAP patients with TPDS nano-particles. The lung fluids will be analyzed for bacterial colonies infection after each treatment (min. 3 times a day).  The second cycle will receive the same treatment without our nano-particle, using the same procedure analyzing bacterial colonies infection after each treatment (min. 3 times a day), and comparing the results between the 2 groups.
 
Lab tests and analytics – For each lung fluid test, the Company needs to test the patient blood-work and urine. Those tests will probably continue after the treatment ends in order to analyze the decay of the delivered drug in the patient's body over time. The lung liquids for bacteria colonies have to be analyzed outside the hospital laboratories. This analysis will take place at Beer-Sheva University analytical department.

(c)
Market Overview

Pulmonary Diseases.

COPD (Chronic Obstructive Pulmonary Disease).

This is an umbrella term used to describe lung disease associated with airflow obstruction.  Most generally, emphysema, chronic bronchitis and chronic asthma either alone or in combinations fall into this category.  There is continuing debate as to whether this term also includes Asthma (non chronic), however as a general rule, it is not included as, even though it does have obstructive components to it, it is in part reversible, and is more generally considered a restrictive lung disease. 
 
 
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The symptoms of COPD can range from chronic cough and sputum production to severe debilitating shortness of breath. In some individuals, chronic cough and sputum production are the first signs that they are at risk for developing the airflow obstruction and shortness of breath characteristic of COPD.  In others, shortness of breath may be the first indication of the disease.

Chronic Bronchitis.

This is the inflammation and eventual scarring of the lining of the bronchial tubes. When the bronchi are inflamed and/or infected, less air is able to flow to and from the lungs and a heavy mucus or phlegm is coughed up. The condition is defined by the presence of a mucus-producing cough most days of the month, three months of a year for two successive years without other underlying disease to explain the cough.  This inflammation eventually leads to scarring of the lining of the bronchial tubes.  Once the bronchial tubes have been irritated over a long period of time, excessive mucus is produced constantly, the lining of the bronchial tubes becomes thickened, an irritating cough develops, and airflow may be hampered, the lungs become scarred. The bronchial tubes then make an ideal breeding place for bacterial infections within the airways, which eventually impedes airflow.  Symptoms of chronic bronchitis include chronic cough, increased mucus, frequent clearing of the throat and shortness of breathe.

Emphysema.

This disease begins with the destruction of air sacs (alveoli) in the lungs where oxygen from the air is exchanged for carbon dioxide in the blood.  The walls of the air sacs are thin and fragile. Damage to the air sacs is irreversible and results in permanent “holes” in the tissues of the lower lungs.  As air sacs are destroyed, the lungs are able to transfer less and less oxygen to the bloodstream, causing shortness of breath. The lungs also lose their elasticity, which is important to keep airways open.  The patient experiences great difficulty exhaling.  Emphysema does not develop suddenly.  It comes on very gradually. Years of exposure to the irritation of cigarette smoke usually precede the development of emphysema. Of the estimated 3.1 million Americans ever diagnosed with emphysema, 95 percent were 45 or older.  Symptoms of emphysema include cough, shortness of breath and a limited exercise tolerance. Diagnosis is made by pulmonary function tests, along with the patient’s history, examination and other tests. 

Smoking is the primary risk factor for COPD. Approximately 80 to 90 percent of COPD deaths are caused by smoking.  Female smokers are nearly 13 times as likely to die from COPD as women who have never smoked.  Male smokers are nearly 12 times as likely to die from COPD as men who have never smoked.  Other risk factors of COPD include air pollution, second-hand smoke, history of childhood respiratory infections and heredity.  Occupational exposure to certain industrial pollutants also increases the odds for COPD.  A recent study found that the fraction of COPD attributed to work was estimated as 19.2% overall and 31.1% among never smokers.
 
 
15

 
 
Ventilator-Associated Pneumonia (VAP).

Pseudomonas Aeruginosa.

This is an opportunistic pathogen, meaning that it exploits some break in the host defenses to initiate an infection.  It causes urinary tract infections, respiratory system infections, dermatitis, soft tissue infections, bacterium, bone and joint infections, gastrointestinal infections and a variety of systemic infections, particularly in patients with severe burns and in cancer and AIDS patients who are immuno-suppressed. Pseudomonas aeruginosa infection is a serious problem in patients hospitalized with cancer, cystic fibrosis, and burns.  The case fatality rate in these patients is 50%.

Ventilator-Associated Pneumonia (VAP).

This affects up to 28% of patients receiving mechanical ventilation in the intensive care unit.  The mortality rate for VAP ranges from 24 to 50% and can reach 76% in some specific settings or when lung infection is caused by high-risk pathogens common in ICU.

TPDS Technology.

TPDS is in the process of developing a proprietary lipid-based target particles technology that is intended to enable:

·
Target Delivery to an Organ. TPDS technology is capable of delivering a desired drug to a specific organ without any residual drug existence to other body organs.

·
Control Drug Release. TPDS delivery system releases the drug at a timely and controlled manner. Such controlled release enables significantly lower dosage of the drug preventing toxicity and damage.

·
Deliver Non-Hydrophobic Drugs. TPDS is a viable solution for non-hydrophobic (cannot dissolve properly in liquid) drugs reformulation especially to respiratory usage.

Market Need.

COPD.

It is estimated that there are currently 16 million people in the United States diagnosed with COPD.  It is estimated that an additional 14 million or more are still undiagnosed, as they are in the beginning stages and have few or minimal symptoms and have not sought health care yet.  It is predicted that close to 35 million cases could possibly be found just in the United States alone.
 
 
16

 
 
COPD is the fourth leading cause of death in America, claiming the lives of 120,000 Americans in 2002. Beginning in 2000, women have exceeded men in the number of deaths attributable to COPD.  In 2002, over 61,000 females died compared to 59,000 males.

In 2003, 10.7 million U.S. adults were estimated to have COPD.  However, close to 24 million U.S. adults have evidence of impaired lung function, indicating an under diagnosis of COPD.  In 2004, the cost to the nation for COPD was approximately $37.2 billion, including healthcare expenditures of $20.9 billion in direct health care expenditures, $7.4 billion in indirect morbidity costs and $8.9 billion in indirect mortality costs.

TPDS nano-particle drug delivery system carrying a cocktail of drugs, such as Colistin and other drugs handling persistence bacteria with anti-inflammatory agents preventing lung spasm and obstruction of the airways, with anti-infection agents. TPDS formulation subscribed to the patients handles the bacteria that flourishes in the sensitive lung causing inflammation and edema, eventually causing collapsing of the lung.

VAP.

Humanity developed in the last decades multi drug resistance (MDR) mainly for antibiotics.  MDR is a major cause of life threatening pulmonary diseases. There is no wide range drug treatment available. No efficient drug for pulmonary MDR diseases. Therefore there is massive failure to save intensive care and chronicle respiratory patients.

3.
Stem Cell Therapy for Muscular Injuries.

On November 16, 2010, the Company’s subsidiary Meizam Investments signed an initial share purchasing agreement with OrCell Ltd., an Israel corporation (“OrCell”), to acquire 33% of OrCell shares for 1.5 million NIS (around $400,000).  OrCell has developed an innovative stem cell technology for healing and rehabilitating of severally damaged muscle tissue and initiating strong myogenetic regeneration in injuries such as myocardial infarction (MI), pressure ulcers, and regenerative diseases of muscle.

The product is based on an invention that allows controlled direction of stem cells toward myogenic cells only. This unique process allows myogenic cells to work as a network (similar to the cells of skeletal and heart muscle tissue) suitable for transplantation use.

For human treatment, OrCell myogenic cells are isolated from adipose (fat) or bone marrow tissue. This procedure prevents the formation of spontaneously differentiated stem cells that may potentially form tissues such as bone tissue, cartilage, etc. along with blocking tumorgenecity that may develop in muscular tissue undergoing healing after transplantation.

Apart from this technology, a protocol is currently being developed that allows safe and efficient mass-production direction of human stem cells into myogenic cells for human transplantation and human tissue engineering. The protocol currently shows promising safe human therapy without side effects and is integrated into the injured tissue without body rejection or suppressive immunological medical treatment.
 
 
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(a)
Current Status.

The Company has completed successful animal studies with positive results.

Initial animal tests – The Company’s initial development has being focused on limb therapy.  The initial animal studies showed promising results.  As of those results, the Company has modified its business model and the remaining of the R&D program of this business line.

Development – The Company has developed two pillar technologies with strong intellectual properties: (i) Direct a stem cell to a myogenic (muscle) cell without any spontanuous direction into unhealthy cells such as cancer; and (ii) Mass-produce the directed myogenic cells for patient treatment. As part of the of the development phase we have developed “harvesting” procedure of human fat tissue from the patient as a row material for extracting the stem cells, diverting and directing the stem cells to muscle cells and reproducing these cells for an effective treatment. Currently we are developing the upscale production process for commercial use.

Production – For clinical trials, the Company needs a GMP certified production facility to produce the stem cells for human use.  Currently, the Company is in a process of adapting the infrastructure at Rotem Industries.

(b)
12 months operational plan

Production from human fat – The Company is further developing the production methods of diverted stem cells from patient fat to a commercial scale.  The Company intends introducing a working production method and facility by end Q1, 2013.

Pre-Clinical trial – The Company intends commencing clinical trials in Q4 2012, using initial products produced in its production line.

Clinical trials – They will be conducted at the Regenerative Clinic of Sheba (Tel Hashomer) Medical Center.  The Company intends commencing clinical trials in Q2, 2013.

Pre-clinical and ethical applications– Currently, the Company is in the process of animal studies and ethical regulatory process and applications.

4.
Ultrasonic Catheter for Brain Cancer Therapy.

On April 10, 2011, Meizam Arad entered into a share purchase agreement with Sonenco Ltd., an Israel corporation (“Sonenco”).  As a consideration for this investment, Sonenco issued to Meizam Arad 55% of its total issued and outstanding shares on a fully diluted basis, and, in addition, 5% of its total issued and outstanding shares on a fully diluted basis to Meizam Arad.  The Company will receive research and development grants for Sonenco.
 
 
18

 
 
On March 31, 2011 the Company transferred all rights commitments, assets and holdings of Sonenco Ltd. from Meizam Arad to Meizam Investments.

The Company has developed an ultrasonic drug delivery catheter that enables the delivery of medication-coated nano-particles to specific organs and tissues in the body.  The initial application that has been developed is for the treatment of brain tumors by a stereotactic procedure.

The blood brain barrier (“BBB”) protects the brain against toxic substances that circulate in the blood stream.  While this is a life-supporting protection for the brain, the existence of the blood brain barrier is a severe limitation for the delivery of most drugs to the brain because they cannot cross in sufficient amounts.  A large number of potentially useful drugs, such as cytostatics and central nervous system (“CNS”) in-vitro active agents, do not cross the blood brain barrier at all or in insufficient quantities.  Sonenco has developed a novel method of delivering those drugs to the brain that are usually blocked from entering by the blood brain barrier.

The technology's promising future application is in cardiac catheterization, where nano-particles offer a significant advantage in drug delivery over cardiac stents that suffer positioning difficulties and limited size.  Those heavy mass solid nano carriers containing drug are hundred times smaller than average human cell and thus can penetrate and cross the human cells without causing any damage.  Once stuck in their final position the nano carrier will remain there for a very long period, allowing them to release the attached drug.  Programming the nano drugs with a slow controlled release profile will enable them to perform an effective and comprehensive drug delivery treatment.

The Company's solution to drug delivery introduces the following advantages:

·
Minimal invasive short procedure (few minutes only).

·
Ability to cover big drug dispersion volume.

·
Continuous drug exposure at the targeted site.

·
Sufficient energy-for maximum efficient dispersion is much below medical energy levels restrictions.

·
Precise dispersion profile to meet medical demands derived from fine-tuning and adjustment flexibility of all effecting parameters.

The estimated brain cancer market potential for Sonenco’s pioneering drug delivery catheter exceeds $400 million per year in the major Western economies.
 
 
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Sonenco has completed animal studies that show an outstanding dispersion performance, with no damage to the healthy brain tissue and the animal subject.
 
5.
Peptide Booster for Anti-wrinkle Cosmetics

On October 16, 2010, the Company’s subsidiary Meizam Investments signed an initial share purchasing agreement with NBCT Ltd., an Israel corporation (“NBCT”), to acquire 35% of NBCT shares for 1.5 million NIS (around $400,000).

NBCT has developed an intra-dermal nano-technology enhancing skin penetration of collagen generating peptides in cosmetic anti-wrinkle products, and is preparing for clinical trials to be conducted in 2012.

The lipid-based nano-particles deliver peptides to the dermis, and provide:

·
Efficient transport of peptides through the epidermis without physical or chemical changes in the skin barrier properties for other materials.

·
Effective protection of peptides from degradation by skin enzymes.

·
Controlled release of the peptides at the dermis.

·
The penetration mechanism does not alter the skin properties.

·
Particles pass through the epidermis to the dermis, form an active-agent payload deposit in the dermis that act to prevent any amino acids attacking the payload.

·
Particles have a controlled release mechanism for the active agent payload deposit directly to the dermis.

6.
Meizam – Advance Enterprise Center Arad Ltd. (Technological and Industrial Incubator).

Meizam Arad is the Company’s subsidiary operating an industrial incubator program under the guidance and support of the Office of the Chief Scientist of MOITL.  The industrial incubator program is aimed at young companies with proven technologies or prototypes that are on the verge of commercialization and industrialization.  This program is designed to attract novel technologies and attractive new products supported by government funding at the pre-commercialization phase.

The Company established Meizam Arad on October 25, 2006 in the City of Arad, which is located in the south east of Israel, overlooking Massada and the Dead Sea.  Meizam Arad was established as a joint venture between the Company and the City of Arad, and the local industries, which are strategic partners at the industrial incubator program.  Currently, the Company holds 73.1% of Meizam Arad’s equity, and Arad and the local industries hold the remaining 26.9%.
 
 
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On July 27, 2008, MOITL announced Meizam Arad as the winner of the national tender for a three-year license to operate an industrial incubator program supported with government funding.  The license entitles Meizam Arad to an annual management fee of NIS 1 million (about $280,000). In addition, each project (company) within the incubator program is entitled to an annual research and development grant of up to NIS 500,000 (about $140,000) per year for up to three years (i.e. a total of NIS 1,500,000 - about $420,000).  Each project’s funding is subject to the initial approval of the National Industrial Incubator Committee (“NIIC”) and the final approval of MOITL.  In January 2011, MOITL issued an updated regulation extending technology-oriented incubator licenses to six years.  Meizam Arad does not intend to apply to MOITL for such an extension.

On January 1, 2009, MOITL officially launched Meizam Arad’s industrial incubator program.  During 2009, the Company screened dozens of technology and business opportunities, of which six projects were approved by NIIC.

On January 1, 2010, MOITL officially launched the industrial incubator program for TPDS Ltd., which developed a nano-delivery carrier for inhalation drugs.

On July 1, 2010 MOITL officially launched the industrial incubator program for Gaia Med Ltd., which has developed a miniature insulin pump for diabetic patients.

The local industries in the City of Arad that have taken an interest in Meizam Arad include so far the following manufacturers:

·
Luxembourg Industries Ltd. – A chemical manufacturer of intermediate products to the pharmaceutical, cosmetics and agro-chemical industries, which operates chemical reactors and other chemical production equipment. In addition, Luxembourg operates a fully equipped chemical laboratory for research and development, and quality control.

·
AMS Electronics Ltd. – An electronics manufacturing service provider, which operates SMT (a method for constructing electronic circuits in which the electronic components are mounted directly onto the surface of printed circuit boards using robotic machinery) production lines and provide turnkey services, including component procurement, final testing, packaging and ship-to-customer supply chain.  AMS is listed on the Tel Aviv Stock Exchange.

·
Danor Technical Molding Ltd. – A plastics manufacturing service provider, which operates injection molding production lines, and provides engineering services including mold design and manufacturing.

·
Arad Metal Processing Ltd. – A metal processing service provider, which operates CNC (computer numerical control, which is the programming technology of computerized metal processing machinery) production lines and other special metal processing equipment, and provides engineering services.

·
Arad Industrial Development Company Ltd – a real-estate company providing 22,000 square feet of office and laboratory space to accommodate all ongoing projects.
 
 
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Meizam Arad technological/industrial incubator provides to its member companies a vast industrial infrastructure of its industrial partners, as well as government funds and a top-of-the-line management team. Arad industries support the incubator companies operations, providing manufacturing and engineering services that significantly accelerate the companies’ time-to-market. The incubator's highly skilled management team comprised of Impact Active Team professionals, supported by other The Company subsidiaries' professionals as well as experts from the local industries.

Until on-going sales of the member companies are established, these industrial partners provide the services to the incubator member companies in exchange for Meizam Arad’s common stock instead of cash, at a price of $1.00 per share, or at a higher price as will be established in a private placement.  Those provided services are priced at the fair value and are registered as investments in the member companies.

For each dollar funded by the Company to the incubator company, MOITL funds the incubator company with additional two dollars. Therefore, in exchange of its funding the Company receives (through its subsidiary Meizam Arad Investments Ltd.) shares of the incubator member company for the full program funding including the MOITL funds.

7.
Meizam Arad Investments Ltd.

The Company established Meizam Investments on February 9, 2011 as a business unit that provides all the required financing to the other Company's subsidiaries operating under the industrial incubator program.  Currently, the Company holds 92.5% of Meizam Arad’s equity

Meizam Investments was established to meet MOITL’s requirement to operate Meizam Arad as a management service provider only, and separate the holding and financing of the incubator through a different entity, as structured at other technology incubators in Israel.

On January 31, 2011, the Company provided financing of $200,723 to the industrial incubator program through Meizam Investments.  This financing was provided to Meizam Investments in an equity transaction, and Meizam Investment provided this financing to Meizam Arad in an equity transaction.

On June 3, 2011, the Company provided financing of $104,970 to the industrial incubator program through Meizam Investments.  This financing was provided to Meizam Investments in an equity transaction, and Meizam Investment provided this financing to Meizam Arad in a loan transaction.
 
 
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8.
Impact Active Team Ltd. (Management Consulting).

On July 3, 2006, the Company entered into a Share Purchase Agreement with Pangea. Under this agreement, the Company purchased from Pangea all of the outstanding common stock of Impact Active Team Ltd., an Israeli corporation (“Impact”).  In return for acquiring these shares, the Company paid to Pangea 2,500,000 restricted shares of common stock.  Currently, the Company holds 100% of Impact’s equity.

Impact is a management consulting firm specializing in strategic planning and management services: Executive management, strategic business planning, market research, planning and management, sales management, financial planning, strategic alliances, investor and public relations.

The main benefits that Impact provides to the Company are consulting assignments that may present new business opportunities in the medical and biotech fields, and the capability to evaluate these opportunities.

Impact partially has an affiliation agreement with P.O.C. Hi-Tech (1992) Ltd., a leading management consulting firm in Israel.
 
Impact does not employ its consultants on a payroll basis. Consulting assignments are performed by Mr. Mar-Chaim and Mr. Elimelech, who are officers of the Company, as well as by various consultants and experts employed by Impact on a contractual basis.

Advisory Board

The Company has an advisory board of experienced professionals in the academy and industry, who support our current new development and operations as well as screening novel technologies and products.

Professor Itay Benhar, Ph.D.
Head of Biotech

Full Professor and chairman of the Department of Molecular Microbiology and Biotechnology at Tel-Aviv University, Israel.  He is also a member of the Department of Biomedical Engineering & Neufeld Cardiac Research Institute, Tel-Aviv University, Israel.  Professor Benhar received in 1992 a PhD in Molecular Biology from the Hebrew University, Hadassah Medical School Jerusalem, Israel, where he studied control of bacterial gene expression. Professor Benhar did his postdoctoral fellowship at the National Cancer Institute, NIH, working with Dr. Ira Pastan on recombinant immunotoxins.
 
In 1995, Professor Benhar joined the Department of Molecular Microbiology and Biotechnology of the George S. Wise Faculty of Life Sciences as a tenure-track assistant professor. Professor Benhar received tenure at 2002, and became an associate professor in 2005 and a full professor in 2008.  In 2007, Professor Benhar was appointed as Department Chairman.
 
 
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Professor Benhar’s is an expert and opinion leader in the field of antibody engineering. Over the 18 years of being active in that field, he prepared several phage display libraries from which antibodies against numerous targets were isolated. Professor Benhar publishes 68 research papers, wrote 10 book chapters and submitted 8 patent applications. Research in Professor Benhar’s group if currently focused on three major topics: (1) evaluation of novel formats of antibody-toxin fusion proteins as potential anti-cancer agents. (2) Evaluation of death switches that are activated by viral proteases for potential eradication of virus-infected cells. (3) Application of filamentous phages as targeted drug-carrying nanomedicines. Research in Professor Benhar’s lab is currently funded with grants from the Israeli Health ministry, the Israel Cancer Association and the Israel Science Foundation.

Professor Benhar spent 2 years at the National Institute of Health during his post-doc fellowship program, Bethesda, MD, and 2 additional years in Washington Hospital Center, Washington DC during his sabbatical from Tel-Aviv University.

Previously, Professor Benhar was a Committee Member of the Israeli Ministry of Health: Healthy People 2020 Initiative; Member of the National Council for Health Promotion, Israel Ministry of Health; Member of the National Council for the Prevention and Treatment of Cardiovascular Diseases, Israel Ministry of Health; Chairman of The Israeli Group for Heart Research, Subsection of the International Society for Heart Research.

Professor Mickey Scheinowitz, Ph.D., F.A.C.S.M.
Head of Regenerative Therapy

Professor Scheinowitz is head of Regenerative Therapy Department of Biomedical Engineering and Neufeld Cardiac Research Institute, Tel-Aviv University, Israel.  He spent two years at the National Institute of Health during his post-doctoral fellowship program, Bethesda, Maryland, and two additional years in Washington Hospital Center, Washington DC during his sabbatical from Tel-Aviv University.
 
Previously, Professor Scheinowitz was a committee member of the Israeli Ministry of Health: Healthy People 2020 Initiative; member of the National Council for Health Promotion, Israel Ministry of Health; member of the National Council for the Prevention and Treatment of Cardiovascular Diseases, Israel Ministry of Health; and chairman of The Israeli Group for Heart Research, Subsection of the International Society for Heart Research.

Professor Scheinowitz has published more than 60 manuscripts in peered professional and scientific journals, presented over 100 abstracts in different meetings worldwide, and he was invited to dozens of conferences as invited speaker. During his academic career he had supervised over 50 graduate and doctorate students.  Professor Scheinowitz also has vast experience with the industry specifically with the medical device companies.
 
 
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Dr. Orna Yosef, Ph.D.
Head of Stem Cell Technologies

Researcher, Lecturer and director of the cells and tissue engineering laboratory in the Department of Biomedical Engineering at Tel Aviv University, Israel. Dr. Yosef was one of the founders of a new lab, took a significant part in its design and the purchase of some of most advanced equipment of its kind in the country. Responsible for the lab curriculum including lectures and workshop, as well as the lab projects in the field of cell cultures and cell engineering.  Dr. Yosef Specializes in stem cells research, gene therapy, tissue cultures, molecular biology and in small animal studies models. 

Dr. Yosef received dual Post-Doctorate Degrees from Tel-Aviv University in Gene Therapy and Molecular virology as well as in Prostate pathology. Doctorate from Bar-Ilan University in molecular biology and physiology of skeletal muscle.

Dr. Yosef is a researcher at the Weizmann Institute in the field of signal transduction. Senior researcher in stem cells and cardiovascular research at the “Neufeld Cardiac Research Institute” in Sheba Medical Center, Tel Hashomer, Israel. Supervising undergraduate, graduate and M.D. degree students in clinical applied research.

Dr. Yosef is a reviewer for the journal Cardiovascular Research on the topic of mesenchymal stem cells and Cardiovascular Research.

Dr. Gilead Asseo, M.D.
Head of Medical Affairs

Dr. Asseo is a founder, and currently acting as Director at Vaica Medical Ltd., a high tech company that has patented computerized medication dispensers and reminders, remotely connected to manned and Internet based call centers.  He also serves as a medical consultant in the field of life science and medical devices to high tech companies and investor organizations.

Following film and television studies at Tel Aviv University, Faculty of Art, Dr. Asseo worked as a TV cameraman, documenter and reporter for the Israel national TV, Vis News Association, and ABC News for 5 years, and was nominated for cameraman of the year 1980 by Vis News for the Royal Film Society in the UK.

Dr. Asseo finished his medical training at Ben Gurion University in 1987, graduated as General Surgeon in 1996 at the Rabin Medical Center, and acted as Surgical Chief at the Safed Hospital ER.
 
Dr. Asseo entered the high tech industry, first as a Medical Director for Odin Technologies, and then founded his own company – MDG Medical in 2001, writing the patents, and acting as director and CEO. MDG Medical designed and is marketing a complex computerized medication delivery system for hospital wards, is currently invested at close to $50M, and is present in more than 250 hospitals in the USA, Europe and Israel.
 
 
25

 
 
Dr. Asseo founded and ran the first hospital based telemedicine center in Israel at Safed Hospital, and served as lecturer at Safed Nursing School covering surgery and basic science. He also acted as medical reporter with a personal column for NRG – Maariv’s Internet portal.

Ronen Smooha
Head of Software

Mr. Smooha is a former Microsoft executive and veteran of the Israeli software industry. After joining Microsoft Israel in 2001, he went on to lead the subsidiary’s ISV business development services and Developer Evangelism.  In this capacity, Mr. Smooha was responsible for .NET platform adoption across the market, growing revenue and impact worldwide, while forming long term relations with the ISV eco-system.  He formed RDS Business Development in 2009, which provides business development support for seasoned start-ups and IT companies and business and technical due diligence for International companies, angel investors and Israeli software incubation centers.  Mr. Smooha is on the board of E4D solutions LTD, advisory board of SkilliQ, and on the investment committee of Meizam.org, an industrial incubation center.

Forward Looking Business Development.

In addition to the above business activities, the Company will continue to search for business opportunities, particularly toward small and medium-sized enterprises.  The Company does not propose to restrict its search to any particular geographical area or industry, and may, therefore, engage in essentially any business, to the extent of its limited resources.  This includes industries such as service, manufacturing, high technology, product development, medical, communications and others.  The Company’s discretion in the selection of business opportunities is unrestricted, subject to the availability of such opportunities, economic conditions, and other factors.  No assurance can be given that the Company will be successful in finding or acquiring a desirable business opportunity, and no assurance can be given that any acquisition, which does occur, will be on terms that are favorable to the Company or to its stockholders.  Business opportunities may come to the Company’s attention from various sources, including professional advisers such as attorneys and accountants, venture capitalists, members of the financial community, and others who may present unsolicited proposals.  The Company may pay a finder’s fee in connection with any such transaction.

The Company will not restrict its search to any specific kind of firm, but may acquire a venture which is in its preliminary or development stage, one which is already in operation, or in a more mature stage of its corporate existence.  The acquired business may need to seek additional capital, may desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer.  However, the Company does not intend to obtain funds to finance the operation of any acquired business opportunity until such time as the Company has successfully consummated the merger or acquisition transaction.
 
 
26

 
 
The analysis of business opportunities will be under the supervision of the Company’s officers and directors with MOITL.  In analyzing prospective business opportunities, management will consider such matters as available technical, financial and managerial resources; working capital and other financial requirements; history of operations, if any; prospects for the future; nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development, or exploration; specific risk factors not now foreseeable, but which then may be anticipated to impact the Company’s proposed activities; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services, or trades; name identification; and other relevant factors.  In many instances, it is anticipated that the historical operations of a specific business opportunity may not necessarily be indicative of the potential for the future because of a variety of factors, including, but not limited to, the possible need to expand substantially, shift marketing approaches, change product emphasis, change or substantially augment management, raise capital and the like.

Company management intends to meet directly with other key personnel of the target business entity as part of its investigation.  To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors.

Prior to making a decision to participate in a business opportunity, it is the Company’s policy to receive written materials regarding the business opportunity containing as much relevant information as possible, including, but not limited to, such items as a description of products, services and company history; management resumes; financial information; available projections, with related assumptions upon which they are based; an explanation of proprietary products and services; evidence of existing patents, trademarks, or service marks, or rights thereto; present and proposed forms of compensation to management; a description of transactions between such company and its affiliates during the relevant periods; a description of present and required facilities; an analysis of risks and competitive conditions; a financial plan of operation and estimated capital requirements; audited financial statements, or if they are not available at that time, unaudited financial statements, together with reasonable assurance that audited financial statements would be able to be produced within a required period of time; and the like.
 
The Company will participate in a business opportunity only after the negotiation and execution of appropriate agreements.  Although the terms of such agreements cannot be predicted, generally such agreements will require certain representations and warranties of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by the parties prior to and after such closing, outline the manner of bearing costs, including costs associated with the Company’s attorneys and accountants, and will include miscellaneous other terms.

Employees.

The Company has five full time and eight part-time employees who are employed by the Company’s subsidiary Impact Active Team Ltd.
 
 
27

 
 
RISK FACTORS.

In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating the Company’s business.  The Company’s business, financial condition, and results of operations could be materially adversely affected by any of these risks.  Please note that additional risks not presently known to the Company or that it currently deems immaterial may also impair its business and operations.

Risks Relating to the Business.
 
(a)           The Company Has a History of Losses That is Likely to Continue, Requiring Additional Sources of Capital, Which May Result in Curtailing of Operations and Dilution to Existing Stockholders.

The Company has incurred net losses of $1,434,472 for the year ended December 31, 2011, $1,002,034 for the year ended December 31, 2010, and $4,168,857 for the period of inception (July 23, 2004) through December 31, 2011.  The Company cannot provide assurance that it can achieve or sustain profitability or even generate positive cash flow in the future.  If revenues grow more slowly than anticipated, or if operating expenses exceed expectations or cannot be adjusted accordingly, the Company will continue to incur losses.  The Company will continue to incur losses until it is able to establish reasonable levels of sales.  The Company’s possible success is dependent upon the successful development and marketing of its products and services, as to which there is no assurance.  Any future success that the Company might enjoy will depend upon many factors, including factors out of its control or which cannot be predicted at this time.  These factors may include changes in or increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs, including costs of supplies, personnel and equipment, reduced margins caused by competitive pressures and other factors.  These conditions may have a materially adverse effect upon the Company or may force it to reduce or curtail operations.  In addition, the Company will require additional funds to sustain and expand its sales and marketing activities, particularly if a well-financed competitor emerges.  The Company will need to raise up to $10,000,000 in the next 36 months to implement its plan of operation.  In the event that the Company needs additional financing, there can be no assurance that financing will be available in amounts or on terms acceptable, if at all.  The inability to obtain sufficient funds from operations or external sources would require the Company to curtail or cease operations.  Any additional equity financing may involve substantial dilution to then existing stockholders.

(b)           The Independent Registered Public Accounting Firm Has Expressed Substantial Doubt About the Company’s ability to Continue as a Going Concern, Which May Hinder the Ability to Obtain Future Financing.

In its report dated April 8, 2012, the Company’s independent auditor stated that the financial statements for the periods ended December 31, 2011 were prepared assuming that the Company would continue as a going concern.  The Company's ability to continue as a going concern is an issue raised as a result of cash flow constraint, an accumulated deficit, and recurring losses from operations.  The Company continues to experience net losses.  The Company's ability to continue as a going concern is subject to the ability to execute a business combination and thereafter to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of the Company's securities, increasing sales or obtaining loans from various financial institutions where possible.  The continued net losses and stockholders' deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
 
 
28

 
 
(c)           The Company May Not Be Able to Accommodate Rapid Growth Which Could Decrease Revenues.

To manage anticipated growth, the Company must continue to implement and improve its operational, financial and management information systems.  The Company must also hire, train and retain additional qualified personnel, continue to expand and upgrade core technologies, and effectively manage its relationships with end users, suppliers and other third parties.  The Company’s expansion could place a significant strain on its current services and support operations, sales and administrative personnel, capital and other resources.  The Company could also experience difficulties meeting demand for its products and services.  The Company cannot guarantee that its systems, procedures or controls will be adequate to support operations, or that management will be capable of fully exploiting the market.  The Company’s failure to effectively manage growth could adversely affect the business’s financial position and results of operations.

(d)           Protection of Proprietary Rights May Affect the Company’s Success and Ability to Compete.

The Company’s success and ability to compete will be dependent in part on the protection of its patents, trademarks, trade names, service marks and other proprietary rights.  The Company intends to rely on trade secret and copyright laws to protect the intellectual property that it plans to develop, but there can be no assurance that such laws will provide sufficient protection, that others will not develop products that are similar or superior to the Company’s, or that third parties will not copy or otherwise obtain and use its proprietary information without authorization.  In addition, certain of the Company’s know-how and proprietary technology may not be patentable.

The Company may rely on certain intellectual property licensed from third parties, and may be required to license additional products or services in the future, for use in the general operations of its business plan.  There can be no assurance that these third party licenses will be available or will continue to be available to the Company on acceptable terms or at all.  The inability to enter into and maintain any of these licenses could have a material adverse effect on the Company’s business, financial condition or operating results.

There is a risk that some of the Company’s products may infringe the proprietary rights of third parties.  In addition, whether or not the Company’s products infringe on proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against it and it could incur significant expense in defending them.  If any claims or actions are asserted against the Company, it may be required to modify its products or seek licenses for these intellectual property rights.  The Company may not be able to modify the Company’s products or obtain licenses on commercially reasonable terms, in a timely manner or at all.  The Company’s failure to do so could have a negative affect on its business and revenues.
 
 
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(e)           The Company’s Dependence on Outside Suppliers and Manufacturers May Affect Its Ability to Conduct Business.

The Company will depend on a number of outside suppliers and manufacturers components for its products.  There is an inherent risk that certain components of the Company’s products will be unavailable for prompt delivery or, in some cases, discontinued or only available at substantially higher costs.  Due to the current political crisis in the Middle East and corresponding predicted continued increase in taxes, energy costs, the price of production and transportation of goods is likely to dramatically increase, thus increasing supply price.  If such supply price increases occur, the Company will either suffer from decrease in margins or be required to raise the Company’s prices, which could compromise demand.  The Company has only limited control over any third-party manufacturer as to quality controls, timeliness of production, deliveries and various other factors.  Should the availability of certain components be compromised, it could force the Company to develop alternative designs using other components, which could add to the cost of goods sold and compromise delivery commitments.  If the Company is unable to obtain components in a timely manner, at an acceptable cost, or at all, it may need to select new suppliers, redesign or reconstruct processes used.  In such an instance, the Company would not be able to manufacture any products for a period of time, which could materially adversely affect the Company’s business, results from operations, and financial condition.

(f)            The Company Will Face Strong Competition in Its Markets, Which Could Make It Difficult for It to Generate Revenues.

The market for the Company’s products and services will be competitive.  The Company’s future success will depend on its ability to adapt to rapidly changing technologies, evolving industry standards, product offerings and evolving demands of the marketplace.

Some of the Company’s competitors have:

·
longer operating histories;

·
larger customer bases;

·
greater name recognition and longer relationships with clients; and

·
significantly greater financial, technical, marketing, public relations and managerial resources than the Company.
 
 
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Competitors may develop or offer services that provide significant technological, creative, performance, price or other advantages over the products offered by the Company.  If the Company fails to gain market share or lose existing market share, the Company’s financial condition, operating results and business could be adversely affected and the value of the investment in the Company could be reduced significantly.   The Company may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully.

(g)           The Company Could Fail to Develop New Products to Compete in this Industry of Rapidly Changing Technology, Resulting in Decreased Revenues.

The markets in which the Company intends to compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers.  There can be no assurance that the Company’s products and services will continue to be properly positioned in the market or that the Company will be able to introduce new or enhanced products into the market on a timely basis, or at all.
 
There is the risk to the Company that there may be delays in initial shipments of new products or services.  Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors’ responses to the introductions and the desire by customers to evaluate new products for longer periods of time.

(h)           New Versions of The Company’s Products May Contain Errors or Defects, Which Could Affect Its Ability to Compete.
 
The Company’s products will be complex and, accordingly, may contain undetected errors or failures when first introduced or as new versions are released.  This may result in the loss of, or delay in, market acceptance of the Company’s products.  The Company may in the future discover errors and additional scalability limitations in new releases or new products after the commencement of commercial shipments or be required to compensate customers for such limitations or errors, as a result of which the Company’s business, cash flow, financial condition and results of operations could be materially adversely affected.

(i)            The Company’s Ability to Grow is Directly Tied to Its Ability to Attract and Retain Customers, Which Could Result in Reduced Revenue.

The Company has no way of predicting whether its marketing efforts will be successful in attracting new business and acquiring substantial market share.  If the Company’s marketing efforts fail, it may fail to attract new customers and fail to retain existing ones, which would adversely affect the Company’s business and financial results.
 
 
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(j)            If Government Regulation of The Company’s Business Changes, the Company May Need to Change the Manner in Which It Conducts Business, or Incur Greater Operating Expenses.

The adoption or modification of laws or regulations relating to the Company’s business could limit or otherwise adversely affect the manner in which the Company currently conducts its business.  If the Company is required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause the Company to incur additional expenses or alter the Company’s business model.

The manner in which legislation may be enacted and enforced cannot be precisely determined and may subject either the Company or its potential customers to possible liability, which in turn could have an adverse effect on the Company’s business, results of operations and financial condition.

The TPDS products will require approval by the U.S. Food and Drug Administration before sales can be made in this country.  This process, which ordinarily requires clinical approvals, may take some time before any approval is given.  This process could affect the ability of the Company in its overall marketing of these products, which will, in turn affect the Company’s business and the ability to generate revenues.

(k)           Operating Results May Be Adversely Affected by the Uncertain Geopolitical Environment and Unfavorable Factors Affecting Economic and Market Conditions.
 
Adverse factors affecting economic conditions worldwide have contributed to a general inconsistency in the power industry and may continue to adversely impact the Company’s business.  Terrorist and military actions may continue to put pressure on economic conditions. If such an attack should occur or if the economic and market conditions could deteriorate as a result of a terrorist attack, the Company may experience a material adverse impact on its business, operating results, and financial condition as a consequence of the above factors or otherwise.

(l)            The Company May Incur Significant Costs to Ensure Compliance with U.S. Corporate Governance and Accounting Requirements.
 
The Company may incur significant costs associated with its public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission.  The Company expects all of these applicable rules and regulations to increase its legal and financial compliance costs and to make some activities more time-consuming and costly.  The Company also expects that these applicable rules and regulations may make it more difficult and more expensive for it to obtain director and officer liability insurance and the Company may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on its board of directors or as executive officers.  The Company is currently evaluating and monitoring developments with respect to these newly applicable rules, and it cannot predict or estimate the amount of additional costs the Company may incur or the timing of such costs.
 
 
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(m)          Any Required Expenditures as a Result of Indemnification Will Result in an Increase in Expenses.

The Company’s bylaws include provisions to the effect that it may indemnify any director, officer, or employee.  In addition, provisions of Nevada law provide for such indemnification, as well as for a limitation of liability of directors and officers for monetary damages arising from a breach of their fiduciary duties.  Any limitation on the liability of any director or officer, or indemnification of any director, officer, or employee, could result in substantial expenditures being made by the Company in covering any liability of such persons or in indemnifying them.

(n)           The Company’s Success Is Largely Dependent on the Abilities of Its Management and Employees.

The Company’s success is largely dependent on the personal efforts and abilities of its senior management.  The loss of certain key members of the Company’s senior management, including its president, could have a materially adverse effect on the Company’s business and prospects.
 
The Company intends to recruit skilled employees who are experts in the biotechnology and medical industry. The failure to recruit these key personnel could have a materially adverse effect on the Company’s business. As a result, the Company may experience increased compensation costs that may not be offset through either improved productivity or higher revenue.  There can be no assurances that the Company will be successful in retaining existing personnel or in attracting and recruiting experienced qualified personnel.

Risks Relating to the Common Stock.
 
(a)           The Company’s Common Stock Price May Be Volatile.
 
The trading price of the Company’s common stock, once a public offering is made, may fluctuate substantially. The price of the common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond the Company’s control and may not be directly related to its operating performance.  These factors include the following:
 
·
Price and volume fluctuations in the overall stock market from time to time;

·
Significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;

·
Changes in regulatory policies with respect to business development companies;

·
Actual or anticipated changes in earnings or fluctuations in operating results;

·
General economic conditions and trends;

·
Loss of a major funding source; or
 
 
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·
Departures of key personnel.
 
Due to the continued potential volatility of the stock price, the Company may be the target of securities litigation in the future.  Securities litigation could result in substantial costs and divert management’s attention and resources from the business.

(b)           Absence of Cash Dividends May Affect Investment Value of the Company’s Stock.

The board of directors does not anticipate paying cash dividends on the common stock for the foreseeable future and intends to retain any future earnings to finance the growth of the Company’s business.  Payment of dividends, if any, will depend, among other factors, on earnings, capital requirements and the general operating and financial conditions of the Company as well as legal limitations on the payment of dividends out of paid-in capital.
 
(c)           No Assurance of a Public Trading Market and Risk of Low Priced Securities May Affect Market Value of the Company’s Stock.

The Securities and Exchange Commission (“SEC”) has adopted a number of rules to regulate “penny stocks.”  Such rules include Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934.  Because the Company’s securities may constitute “penny stocks” within the meaning of the rules (as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, largely traded in the Over the Counter Bulletin Board or the Pink Sheets), the rules would apply to the Company and its common stock.

The SEC has adopted Rule 15g-9 which established sales practice requirements for certain low price securities.  Unless the transaction is exempt, it shall be unlawful for a broker or dealer to sell a penny stock to, or to effect the purchase of a penny stock by, any person unless prior to the transaction:

·
the broker or dealer has approved the person’s account for transactions in penny stock pursuant to this rule; and

·
the broker or dealer has received from the person a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stock, the broker or dealer must:

·
obtain from the person information concerning the person’s financial situation, investment experience, and investment objectives;

·
reasonably determine that transactions in penny stock are suitable for that person, and that the person has sufficient knowledge and experience in financial matters that the person reasonably may be expected to be capable of evaluating the risks of transactions in penny stock;
 
 
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·
deliver to the person a written statement setting forth the basis on which the broker or dealer made the determination stating in a highlighted format that it is unlawful for the broker or dealer to affect a transaction in penny stock unless the broker or dealer has received, prior to the transaction, a written agreement to the transaction from the person, stating in a highlighted format immediately preceding the customer signature line that the broker or dealer is required to provide the person with the written statement, and the person should not sign and return the written statement to the broker or dealer if it does not accurately reflect the person’s financial situation, investment experience, and investment objectives; and

·
receive from the person a manually signed and dated copy of the written statement.

It is also required that disclosure be made as to the risks of investing in penny stock and the commissions payable to the broker-dealer, as well as current price quotations and the remedies and rights available in cases of fraud in penny stock transactions.  Statements, on a monthly basis, must be sent to the investor listing recent prices for the penny stock and information on the limited market.
 
There has been no public market for the Company’s common stock.  The Company intends to have a market maker file an application on the Company’s behalf with the Over the Counter Bulletin Board in order to make a market in the Company’s common stock.  However, until this happens, if the market maker is successful with such application, and even thereafter, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of the Company’s securities.  The regulations governing penny stocks, as set forth above, sometimes limit the ability of broker-dealers to sell the Company’s common stock and thus, ultimately, the ability of the investors to sell their securities in the secondary market.

Potential stockholders of the Company should also be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.  Such patterns include:

·
control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

·
manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

·
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;

·
excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and
 
 
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·
the wholesale dumping of the same securities by promoters and broker dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.

(d)           Failure To Remain Current In Reporting Requirements Could Result in the Company Being Delisting From The Over The Counter Bulletin Board.

Companies that trade on the Over the Counter Bulletin Board (such as the Company) must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the Bulletin Board.  When the Company becomes listed on that market, if it fails to remain current in the Company’s reporting requirements, the Company could be delisted from the Over the Counter Bulletin Board.

In addition, the National Association of Securities Dealers, Inc., which operates the Bulletin Board, has adopted a change to its Eligibility Rule.  The change makes those Over the Counter Bulletin Board issuers that are cited for filing delinquency in its Form 10-K’s/Form 10-Q’s three times in a 24-month period and those Bulletin Board issuers removed for failure to file such reports two times in a 24-month period ineligible for quotation on the Bulletin Board for a period of one year.  Under this rule, a company filing with the extension time set forth in a Notice of Late Filing (Form 12b-25) is not considered late.  This rule does not apply to a company’s Current Reports on Form 8-K (but failure to timely file a Form 8-K could have other ramifications for the Company).

As a result of these rules, the market liquidity for the Company’s common stock could be severely adversely affected by limiting the ability of broker-dealers to sell the Company’s securities and the ability of stockholders to sell their securities in the secondary market.

(e)           Failure to Maintain Market Makers May Affect Value of the Company’s Stock.

If the Company is unable to maintain National Association of Securities Dealers, Inc. member broker/dealers as market makers, the liquidity of the common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail.  Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market.  There can be no assurance the Company will be able to maintain such market makers.

(f)            Issuance of Common Stock in Exchange for Services or to Repay Debt Would Dilute Proportionate Ownership and Voting Rights, and Could Have a Negative Impact on the Market Price of the Company’s Stock.
 
The Company’s board of directors may issue shares of common stock to pay for debt or services, without further approval by its stockholders based upon such factors as the board of directors may deem relevant at that time.  It is likely that the Company will issue securities to pay for services and reduce debt in the future.  It is possible that the Company will issue additional shares of common stock under circumstances it may deem appropriate at the time.
 
 
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(g)           If The Company is Unable to Raise Necessary Additional Capital as Needed, Its Business May Fail or its Operating Results and the Stock Price May Be Materially Adversely Affected.

To secure additional needed financing, the Company may need to borrow money or sell more securities, which may reduce the value of its outstanding common stock.  Selling additional stock, either privately or publicly, would dilute the equity interests of the Company’s stockholders.  In addition, if the Company raises additional funds by issuing equity securities, the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of its common stock.  If the Company raises additional funds by issuing debt securities, the holders of these debt securities may have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for the Company.
 
(h)           Shares Eligible For Future Sale.

All of the shares currently held by management have been issued in reliance on the private placement exemption under the Securities Act of 1933.  Such shares will not be available for sale in the open market without separate registration except in reliance upon Rule 144 under the Securities Act of 1933.  In general, under Rule 144 a person (or persons whose shares are aggregated) who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed affiliates of the Company (as that term is defined under that rule) would be entitled to sell within any three-month period a number of shares that does not exceed 1% of the then outstanding shares of common stock, provided that certain current public information is then available.  If a substantial number of the shares owned by these stockholders were sold pursuant to Rule 144 or a registered offering, the market price of the common stock at that time could be adversely affected.

UNRESOLVED STAFF COMMENTS.

Not Applicable.

PROPERTIES.

The Company does not own any fixed property and has no agreements in place or planned to acquire any properties.  The Company currently maintains a mailing address at the office of its corporate agent, Corporate Service Center, located at 5190 Neil Road, Suite 430, Reno, Nevada 89502. The Company pays an annual fee for use of this address and a telephone number. These offices are currently adequate for the needs of the Company.

All commercialization and research and development operations are performed through the Company’s subsidiaries, Impact Active Team Ltd., Meizam Arad Investments Ltd., TPDS Ltd., Meizam – Advanced Enterprise Center Arad Ltd., and Gaia Med Ltd., and the principal support facilities are located in Arad, Israel.  The operation facilities include a clean room assembly area, assembly line, testing facilities and warehouse area.
 
 
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The Company believes that these facilities are sufficient to support its anticipated operations and any additional needs we may encounter for at least the next five years.  The Company also believes that, if it becomes necessary, it will be able to obtain alternative facilities.

LEGAL PROCEEDINGS.

Other than as set forth below, there are no known legal or other proceedings against the Company that could at the time of submitting this report that could have a materially adverse effect on the Company’s financial position or operations.

The Company instituted a claim of NIS 11,000,000 against the City of Arad, Israel in respect of an award by the Israeli government for operating an industrial incubator project that becomes due in 2011.  This claim was unable to be paid; therefore, the Company intends in the near future to institute legal proceedings in this matter.
 
MINE SAFETY DISCLOSURES.

Not applicable.


MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information.

The Company’s common stock began trading on the OTCBB under the symbol “ANDN”.   The range of closing prices shown below is as reported by the OTCBB.  The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 2011

   
High
   
Low
 
             
Quarter Ended December 31, 2011
  $ 0.125     $ 0.05  
Quarter Ended September 30, 2011
  $ 0.80     $ 0.05  
Quarter Ended June 30, 2011 (1)
  $ 0.80     $ 0.80  
Quarter Ended March 31, 2011
    -       -  

(1)  The Company’s common stock commenced quotation on the OTCBB on June 29, 2011.
 
 
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Holders of Common Equity.

As of February 28, 2012, the Company had 65 record holders of its common stock.  The number of record holders was determined from the records of the Company’s transfer agent.  The number of record holders excludes any estimate of the number of beneficial owners of common shares held in street name.
 
Dividends.

The Company has not declared or paid a cash dividend to stockholders since it was organized.  The Board of Directors presently intends to retain any earnings to finance the Company’s operations and does not expect to authorize cash dividends in the foreseeable future.  Any payment of cash dividends in the future will depend upon the Company’s earnings, capital requirements and other factors.

Equity Securities Sold Without Registration.

There were no sales of unregistered (restricted) securities not during the year ended on December 31, 2011 not previously reported on a Form 8-K.

There were no purchases of common stock of the Company by the Company or its affiliates during the year ended December 31, 2011 not previously reported on a Form 8-K, except as follows:

(a)  1568934 Ontario Limited purchased Company restricted shares of common stock from Pangea Investments GmbH as follows: January 14, 2011: 850,000 shares ($0.001 per share); May 24, 2011: 443,333 shares ($0.001 per share); and July 29, 2011: 211,111 shares ($0.001 per share).
 
(b)  1568934 Ontario Limited purchased Company shares of common stock on the open market as follows: October 11, 2011: 20,000 shares ($0.05 per share); October 20, 2011: 5,000 shares ($0.05 per share); November 17, 2011: 5,000 shares ($0.05 per share); and November 22, 2011: 30,000 shares ($0.05 per share).

(c)  HJG Partnership, which is under common control with 1568934 Ontario Limited, purchased 7,000 Company shares of common stock ($0.05 per share) on the open market on November 16, 2011.

SELECTED FINANCIAL DATA.

Not applicable.
 
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following management’s discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, the Company’s audited financial statements and related notes presented in a separate section of this report following Item 15, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
Overview.

(a)
General Discussion.

The Company invests in commercialization of its technologies and products. The Company’s main efforts are to optimize development, engineering for production, regulation, pre-clinical and clinical trials and market penetration, respectfully, to each of its products.  The Company is constantly working to enhance its products by new synergetic novel technologies keeping each of its products advantageous in its market.

The Company’s industrial incubator specializes in utilization of the industrial infrastructure of companies that it works with, optimizing each product’s research and development and engineering development to the “best-in-the-market” product.

The Company’s team of experts manages all technological, medical, regulatory and other aspects needed to insure timely development, and market presence within the planed program and budget.

The Company operates five product lines:

·
Miniature insulin pump

·
Targeted drug delivery nano-particles

·
Stem cell therapy

·
Ultasonic catheter for brain cancer therapy

·
Peptide booster for anti-wrinkle cosmeceuticals

Miniature Disposable Insulin Pump.

The Company is committed to develop a fully disposable miniature insulin pump, suitable for diabetics type I and type II as well, without any MOITAL grant, saving the need to pay future royalties.  The Company’s main challenge was to achieve production price capable to compete with the low price of the insulin pen syringe injection for diabetic type II.  The Company’s detailed market survey showed a significant advantage of such a product in the market, providing the comfort of a “band aid” patch size product, accurate as the expensive insulin pumps and preventing any hyper or hypo life threatening situations to the patient (stable blood glucose level superior to the syringe use).
 
 
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The Company’s team successfully developed the technology of the MinIn (Miniature Insulin) fully disposable pump, and lab tested all regulatory aspects of the MinIn pup, ready for the clinical trials initial production batch.  During the first quarter of 2012, The Company’s team focused on the technology transfer for GMP/GLP production, and Helsinky approval for clinical trials.

The Company estimates that the MinIn development, regulatory, and manufacturing in order to complete all needed clinical trials, will require an additional $750,000.

Nano-particles Targeted Drug Delivery Technology.

The Company is also committed to develop its nano-particle technology with the capacity to accommodate hydrophobic (repelling water based molecules), as well hydrophilic (attracting water based molecules) properties.  These developments enable the Company to carry out GSK RELENZA (zanamivir) drug for swine flu (H1N1) therapy.  The Company’s lab results show very stable nano-particle with over a six months shelf life capable to carry hydrophobic and hydrophilic molecules with a high drug load, providing exceptional drug delivery efficiency. During the first quarter of 2012, the Company’s team mapped all intellectual properties used to develop the multi-task nano-particles and to secure it in a separate its intellectual properties apart from those used by TPDS.

The Company estimates that the additional development, regulatory, and manufacturing in order to complete all needed clinical trials, will require an additional $1,200,000.
 
Stem Cell Therapy for Muscular Injuries.

The Company has completed successful animal studies with positive results on limb therapy. The initial animal studies showed very promising rehabilitating results.  Because of those results, the Company has modified and accelerated its development program with two pillar technologies with strong intellectual properties: (i) Direct a stem cell to a myogenic (muscle) cell without any spontaneous direction into unhealthy cells such as cancer; and (ii) mass produce the directed myogenic cells for patient treatment.  As part of the of the development phase, the Company has developed a “harvesting” procedure of human fat tissue from the patient as a row material for extracting the stem cells, diverting and directing the stem cells to muscle cells and reproducing these cells for an effective treatment.  Currently, the Company is developing the upscale production process for commercial use.

The Company estimates that the additional development, regulatory, and manufacturing in order to complete all needed pre-clinical trials, will require an additional $650,000.
 
 
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(b)
Operations.

Insulin Pumps.

The Company separates the development in any aspect from the development of the Gaia Med Diamond semi-disposable pump.  The Company has successfully managed to develop Gaia-Med’s technology and intellectual properties secured by patents, and develop new, separate intellectual properties for the MinIn pump capable and eligible for its own patents to be registered and filed in second quarter of 2012.  The Company’s development success of new and separate technology that is not based or relates in any aspect on Gaia-Med’s technology precludes the Company and the incubator from any royalties payment on this product line.  The Company and the incubator also continue to develop the semi-disposable Gaia-Med pump within its original program.  Therefore, the Company intends to establish a new company to accommodate all assets and operations of the MinIn pump as soon as this pump is ready for clinical trials batch production.

Nano-Particles.

The Company separates the additional development in any aspect from the development done in TPDS.

The Company has successfully managed to develop new technology and intellectual properties to be secured by new patents, for the multi-tasking nano-particles, to be filed in second quarter of 2012.  The Company’s development success of new and separate technology that is not based or relates in any aspect on TPDS’s technology precludes the Company and the incubator from any royalties payment on this product line.  Currently, the Company and the incubator halted development of TPDS based technology, and now develop only its new technology. The Company will revisit the original TPDS development program in the third quarter of 2012, according the pre-clinical results of the new technology and product.

The Company intends to establish in the second quarter of 2012 a new company to accommodate all assets and operations of the new technology and development

Stem Cell Therapy.

The Company intends to establish in the second quarter of 2012 a new company to accommodate all assets and operations of the new technology and development of the project.

Results of Operations.

(a)
Net Revenue.

The Company had net revenue of $340,006 for the year ended December 31, 2011 compared to $375,779 for the year ended December 31, 2010, a decrease of $35,773 or approximately 9%.  This decrease in net revenue was the result of a decrease in government grants received by the Company’s operating subsidiary, Meizam Arad, from MOITL.
 
 
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The Company had net revenue of $1,082,024 for the period of inception (June 23, 2004) through December 31, 2011.

(b)
General and Administrative Expenses.

The Company had general and administrative expenses of $1,223,300 for the year ended December 31, 2011 compared to $910,593 for the year ended December 31, 2010, an increase of $312,707 or approximately 34%.  This increase in general and administrative costs was due to Additional expenses to experts supporting the accelerated development of the fully disposable insulin pump technology and product development.

The Company had general and administrative expenses of $4,154,707 for the period of inception (June 23, 2004) through December 31, 2011.

(c)
Research and Development Expenses.

The Company had research and development expenses of $223,878 for the year ended December 31, 2011 compared to $146,760 for the year ended December 31, 2010, an increase of $77,118 or approximately 53%.  This increase in research and development were due to an accelerated production engineering program of the fully disposable insulin pump.  The Company had research and development expenses of $370,638 for the period of inception (June 23, 2004) through December 31, 2011.

(d)
Net Loss.

The Company had a net loss of $1,434,472 for the year ended December 31, 2011 compared to $1,002,034 for the year ended December 31, 2010, an increase of $432,438 or approximately 43%.  The increase in net loss is the result primarily from the Company’s accelerated development and engineering for production of our disposable insulin pump.

Operating Activities.

The net cash used in operating activities was $1,081,706 for the year ended December 31, 2011 compared to net cash provided by operating activities of $579,598 for the year ended December 31, 2010, a change of $502,108.  This change is attributed to accelerated development, as discussed above.

Investing Activities.

Net cash used in investing activities was $137,399 for the year ended December 31, 2011 compared to $487,929 for the year ended December 31, 2010, a decrease of $350,530 or approximately 72%.  This decrease resulted from acquisition of Gaia Med, the subsidiary involved in research and development of a miniaturized insulin pump.
 
 
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Liquidity and Capital Resources.

As of December 31, 2011, the Company had total current assets of $931,049 and total current liabilities of $1,180,879, resulting in a working capital deficit of $249,830.  The cash and cash equivalents was $872 as of December 31, 2011 compared to $23,672 for the year ended December 31, 2010, a decrease of $22,800 or approximately 96%.  This decrease resulted from negative cash flows from operations. 

The net cash provided by financing activities was $1,182,249 for the year ended December 31, 2011 compared to net cash used in financing activities of $80,941 for the year ended December 31, 2010, an increase of in cash provided financial activities of $1,263,190 or approximately 1,561%.  This increase resulted primarily from proceeds from stock issued for cash and from loans from key management personnel.

The Company’s current cash and cash equivalents balance will be not be sufficient to fund its operations for the next 12 months.  The Company’s ability to continue as a going concern on a longer-term basis will be dependent upon its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, and to obtain additional financing, and ultimately attain profitability.  The Company’s continued operations, as well as the implementation of the Company’s business plan will depend upon its ability to raise additional funds through bank borrowings and equity or debt financing.

On January 14, 2011, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited, an Ontario limited partnership (“Purchaser”).  Under this agreement, the Purchaser purchased from the Company 266,667 restricted shares of common stock at $0.75 per share for a total consideration of $200,000.  The Purchaser is an affiliate of the Company.

On May 24, 2011, the Company entered into a Regulation S Stock Purchase Agreement with the Purchaser.  Under this agreement, the Purchaser purchased from the Company 140,000 restricted shares of common stock at $0.75 per share for a total consideration of $105,000.

On July 29, 2011, the Company entered into a Regulation S Stock Purchase Agreement with the Purchaser.  Under this agreement, the purchaser purchased from the Company 66,667 restricted shares of common stock at $0.75 per share for a total consideration of $50,000.

On December 26, 2011, the Company entered into a Regulation S Stock Purchase Agreement with the Purchaser.  Under this agreement, the Purchaser purchased from the Company 2,590,909 restricted shares of common stock at $0.11 per share for a total consideration of $285,000.
 
 
44

 
 
Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to it and/or that demand for the Company’s common stock will be sufficient to meet its capital needs, or that financing will be available on terms favorable to the Company.  If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of the Company’s planned product development and marketing efforts, any of which could have a negative impact on its business and operating results.  In addition, insufficient funding may have a material adverse effect on the Company’s financial condition, which could require it to:

·
curtail operations significantly;

·
sell significant assets;

·
seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to products, technologies or markets; or

·
explore other strategic alternatives including a merger or sale of the Company.

To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to the Company’s existing stockholders.  If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on the Company’s operations.  Regardless of whether the Company’s cash assets prove to be inadequate to meet its operational needs, the Company may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to the Company’s existing stockholders.

Inflation.

The impact of inflation on the Company’s costs and the ability to pass on cost increases to its customers over time is dependent upon market conditions.  The Company is not aware of any inflationary pressures that have had any significant impact on its operations over the past quarter and the Company does not anticipate that inflationary factors will have a significant impact on future operations.

Off-Balance Sheet Arrangements.

The Company has entered into numerous purchase agreements with local biotech companies through its subsidiary Meizam Arad under its industrial incubator program. These projects are detailed under Item 1, Business.

Critical Accounting Policies.

The SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies.  In FRR 60, the Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, the Company’s most critical accounting policies include: (a) use of estimates; (b) impairment of long-lived assets; (c) share-based compensation; and (d) government grants.  The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results the Company reports in its financial statements.
 
 
45

 
 
(a)
Use of Estimates.

The preparation of financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk.  The Company bases its estimates on historical experience and on various other assumptions that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

(b)
Impairment Long-Lived Assets.

For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.  The Company assesses the impairment of long-lived assets (including identifiable intangible assets) annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When management determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we test for any impairment based on a projected undiscounted cash flow method.  Projected future operating results and cash flows of the asset or asset group are used to establish the fair value used in evaluating the carrying value of long-lived and intangible assets.  The Company estimates the future cash flows of the long-lived assets using current and long-term financial forecasts.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If this were the case, an impairment loss would be recognized.  The impairment loss recognized is the amount by which the carrying amount exceeds the fair value.

(c)
Share-Based Compensation.

The Company follows ASC Topic 718-10, “Stock Compensation,” which addresses accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.  Topic 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Upon the adoption of Topic ASC 718-10, the Company maintained its method of valuation for stock option awards using the Black-Scholes valuation model, which has historically been used for the purpose of providing pro-forma financial disclosures in accordance with Topic ASC 718-10.
 
 
46

 
 
The use of the Black-Scholes valuation model to estimate the fair value of stock option awards requires the Company to make judgments and assumptions regarding the risk-free interest rate, expected dividend yield, expected term and expected volatility over the expected term of the award. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the actual amount of expense could be materially different in the future.

Compensation expense is only recognized on awards that ultimately vest.

(d)
Government Grants.

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching then and the grants will be received.

Government grants are recognized in profit and loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future costs are recognised in profit and loss in the period in which they become receivable.

Forward Looking Statements.

Information in this Form 10-K contains “forward looking statements” within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended.  When used in this Form 10-K, the words “expects,” “anticipates,” “believes,” “plans,” “will” and similar expressions are intended to identify forward-looking statements.  These are statements that relate to future periods and include, but are not limited to, statements regarding the adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, the need for future financing, dependence on personnel, and operating expenses.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.  These forward-looking statements speak only as of the date hereof.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
 
 
47

 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Audited financial statements as of and for the years ended December 31, 2011 and 2010, and for the period of inception (July 23, 2004) through December 31, 2011, are presented in a separate section of this report following Item 15.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of its disclosure controls and procedures as of December 31, 2011.  Based on that evaluation, the principal executive officer and the principal financial officer concluded that, as of that date, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level because of the identification of material weaknesses in its internal control over financial reporting, which the Company views as an integral part of its disclosure controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, and in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”).

The Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 based on the criteria established in the report entitled “Internal Control – Integrated Framework” published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.  Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2011.  Specifically the Company did not maintain an effective control environment based on the criteria established in the COSO framework.
 
 
48

 
 
A material weakness is a control deficiency, or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.  The following material weaknesses were identified related to the Company’s control environment:
 
·
the Company did not maintain written accounting policies and procedures and did not maintain adequate controls with respect to the review, supervision and monitoring of its accounting operations.
 
·
the Company did not establish a formal enterprise risk assessment process.
 
These control environment material weaknesses contributed to the material weaknesses described below:
 
·
the Company did not maintain effective controls over the accounting for acquisitions and divestitures; specifically, effective controls were not designed and in place to ensure that such transactions were completely and accurately accounted for in accordance with general accepted accounting principles (“GAAP”);
 
·
the Company did not maintain effective controls over its accounting for consolidated subsidiaries and equity method investees; specifically, the Company did not maintain effective controls to ensure the completeness and accuracy of its accounting for its  subsidiaries either consolidated or accounted for under the equity method in accordance with GAAP;
 
·
the Company did not design and maintain effective controls to ensure that accrued expenses, including accruals and legal and professional fees, were complete and accurate in accordance with GAAP;
 
·
the Company did not design and maintain effective controls to ensure the completeness and accuracy of its translation of financial statement accounts denominated in foreign currencies and translation of foreign currency transaction gains or losses recorded in accordance with GAAP;
 
·
the Company did not design and maintain effective controls to ensure that revenue-recognition policies were recorded in accordance with GAAP; and
 
 
49

 
 
·
the Company did not design and maintain effective controls to ensure that accounting reconciliations between subsidiaries were prepared in accordance with GAAP.
 
Additional material weaknesses identified were as follows:
 
·
the need to hire an in-house accountant trained in U.S. generally accepted accounting principles to establish a system of internal financial reporting controls; and
 
·
the need to improve planning and execution of the Company’s Section 404 project to meet the requirements of the Sarbanes-Oxley Act on a timely basis.
  
(a)
Remediation of Material Weaknesses.
 
The Company has begun remediation efforts with respect to the material weaknesses that have been identified above.  The Company plans to continue to review and make necessary changes to the design of its internal control environment, including the roles and responsibilities of each functional group within the organization and reporting structure, and to enhance and document policies and procedures to improve the effectiveness of its internal control over financial reporting.
 
Because the Company must not only design new controls to remediate these material weaknesses, but also implement and test them in order to ensure that the weaknesses have been remediated, the Company expects that a number of these material weaknesses will not be remediated by December 31, 2012, the next date as of which the Company must assess its internal control over financial reporting.  While unremediated, these material weaknesses have the potential to result in the Company’s failure to prevent or detect misstatements in its consolidated financial statements.
 
The Company has taken, or will take, the following actions:
 
·
the Company intends to design, implement and maintain an effective control environment over financial reporting based upon the Treadway Commission guidelines;
 
·
the Company has begun creating policies and procedures manuals, including documentation of its accounting policies and methods of applying those policies, and intend to continue to increase the resources devoted to its accounting and finance function;
 
·
the Company has begun upgrading its existing accounting software to a recognized software package to ensure financial reports are available more timely; and
 
·
the Company’s management is implementing enhanced controls to ensure effective communication among the Company’s legal, finance and operations organizations to ensure that important information about its business, including the effects, if any, of all material agreements, is addressed appropriately and on a timely basis in its financial reporting.
 
 
50

 
 
(b)
Management’s Conclusions on the Remediation Plan.
 
The Company believes that the remediation measures described above will strengthen its internal control over financial reporting and remediate the material weaknesses that have been identified.  However, the Company has not yet implemented all of these measures and/or tested them.  The Company is committed to continuing to improve its internal control processes and will continue to diligently review its financial reporting controls and procedures in order to ensure compliance with the requirements of the Sarbanes-Oxley Act and the related rules promulgated by the SEC.  As the Company continues to evaluate and work to improve its internal control over financial reporting, the Company may take additional measures to address these control deficiencies.
  
On September 15, 2010, the SEC, in Release Nos. 33-9142 and 34-62914, adopted amendments to remove the requirement for a non-accelerated filer to include in its annual report an attestation report of the filer’s registered public accounting firm.  In addition, the SEC clarified that an auditor of a non-accelerated filer need not include in its audit report an assessment of the issuer’s internal control over financial reporting.  Therefore, the Company, as a smaller reporting company, does not include an attestation report of its independent registered public accounting firm regarding internal control over financial reporting in this Form 10-K.
 
Inherent Limitations of Control Systems.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Management, including the Company’s principal executive officer and the principal financial officer, does not expect that the Company’s internal controls 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 objectives of the control system are met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting during the fourth quarter of 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
51

 
 
OTHER INFORMATION.

Subsequent Events.

On January 5, 2012, the Company granted to 1568934 Ontario Limited, in connection with the purchase agreement dated December 26, 2011, an option to purchase two shares of Company common stock for each share purchased under this agreement, for a total of up to 5,181,818 shares (see Item 13(j) below).  The exercise price of this option is 67% of the lowest share price of the first one million shares sold by the Company’s underwriter to the public as of the Company public offering as set for in a Form S-1 registration statement to be filed with the Securities and Exchange Commission at a later time.   This option will be exercisable commencing the following day the Company’s underwriter completes the sale of the first 1,000,000 shares of the common stock and continuing up to 5:00 p.m. Pacific Standard Time on a date which is 24 months from such date.

Effective on February 27, 2012, Pangea Investments GmbH sold all of the restricted shares of common stock held in its name (5,543,756 as shown on its last filed Form 4) to the following: Mr. Elimelech (2,471,878 shares); Mr. Mar-Chaim (2,471,878 shares); and Ralph Marthaler (600,000 shares).  Effective on that date, Mr. Marthaler, the controlling person of Pangea, is no longer a reporting person of the Company (since he currently owns 650,000 shares).

In the September 30, 2011 Form 10-Q, the Company reported the following cumulative numbers (inception through September 30, 2011) for the operating expenses of impairment of goodwill, and research and development, respectively: $146,760 and $618,379.  The Company recently determined that the correct numbers, respectively, should have been: $367,148 and $397,991.


DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Directors and Executive Officers.

The names, ages, and respective positions of the directors and executive officers of the Company are set forth below.  The directors named below will serve until the next annual meeting of stockholders or until their successors are duly elected and have qualified.  Directors are elected for a term until the next annual stockholders’ meeting.  Officers will hold their positions at the will of the board of directors, absent any employment agreement, of which none currently exist or are contemplated.
 
 
52

 
 
There are no family relationships between any two or more of the directors or executive officers. There are no arrangements or understandings between any two or more of the directors or executive officers. There is no arrangement or understanding between any of the directors or executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings between non-management stockholders that may directly or indirectly participate in or influence the management of the Company’s affairs.  There are no other promoters or control persons of the Company.  There are no legal proceedings involving the executive officers or directors of the Company.

(a)
Sam Shlomo Elimelech, President/Director.

Mr. Elimelech, age 54, has executive and multidisciplinary technical experience and has founded and led several hi-tech companies in the communication field.  During the period of 1982 to 2000, he had extensive executive, management and technical experience in telecommunications.  From January 2000 to June 2002, Mr. Elimelech served as a director and CEO of Impact Active Team Ltd., providing executive consulting for that company’s turn-around process up to an IPO.  For the period of July 2002 to the present, he has served as an investment manager of Pangea Investments GmbH’s office in Israel, a Swiss-based investment company, and from July 2003 to September 2005, he was an investment manager in Pangea’s subsidiary, Enterprise Capital AG.  

(b)
Gai Mar-Chaim, Secretary/Treasurer/Director.

Mr. Mar-Chaim, age 49, has over twenty years of experience in strategic planning for more than 300 hi-tech companies.  In May 1987 he joined P.O.C. Capital Investments Ltd., a leading management-consulting firm in Israel, an affiliate of Arthur D. Little, and managed its technology & industrial division.  In January 2000, Mr. Mar-Chaim joined Fantine Group, a business development and venture capital group, and managed its management consulting practice; in January 2001, he left this firm to resume his consulting activities at P.O.C.  In June 2002 he joined Pangea as an investment manager in its Israel office and in July 2003 joined Enterprise Capital as an investment manager, a position he held until September 2005.  Mr. Mar-Chaim holds a Masters of Business Administration (finance) degree from Tel Aviv University.

Legal Proceedings.

There are two legal proceedings against Mr. Elimelech, and Mr. Mar-Chaim, as follows:

(a)           On November 23, 2006, Mercantile Bank filed a lawsuit in the Tel-Aviv Court is claiming a debt of $40,000, plus interest, from Enterprise Capital and from Impact Active, the Company’s wholly owned subsidiary (and not the Company as previously reported), as guarantor to loan provided to the Enterprise Capital.  Mr. Elimelech, and Mr. Mar-Chaim are also named as defendants in this action.  The defendants have filed answers in this action.
 
 
53

 
 
(b)           On October 19, 2006, P.O.C., the landlord of Enterprise Capital’s premises in Israel, filed a lawsuit in the Tel-Aviv Court claiming alleged utility debt of Enterprise Capital of about $14,000, plus interest.  Impact Active (and not the Company as previously reported), Mr. Elimelech, and Mr. Mar-Chaim are also named as defendants in this action.  The defendants have filed answers in this action.

(c)           On June 14, 2005, VKB Inc filed a lawsuit in the Tel-Aviv Court claiming $90,000 allegedly due to VKB by Enterprise Capital in connection of services and components provided to Enterprise Capital.  Pangea, Mr. Elimelech, and Mr. Mar-Chaim are also named as defendants in this action.  The defendants have filed answers in this action.  This action was dismissed with prejudice by VKB on October 11, 2011.

Compliance with Section 16(a) of the Securities Exchange Act.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors,  certain officers and persons holding 10% or more of the Company’s common stock to file reports regarding their ownership and regarding their acquisitions and dispositions of the Company’s common stock with the SEC.  Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(d) during fiscal year 2011, and certain written representations from executive officers and directors, the Company is aware that the following required reports were not timely filed:

(a)  Sam Elimelech: Form 4 to report the granting by the Company on January 20, 2011 of an option to purchase 990,000 restricted shares of Company common stock, and vesting at the rate of 330,000 per year for three years; and Form 4 to report the purchase by Mr. Elimelech from the Company of 4,000,000 restricted shares of common stock at $0.001 per share on March 1, 2011.

(b)  Gai Mar-Chaim: Form 4 to report the granting by the Company on January 20, 2011 of an option to purchase 990,000 restricted shares of Company common stock, and vesting at the rate of 330,000 per year for three years; and Form 4 to report the purchase by Mr. Mar-Chaim from the Company of 4,000,000 restricted shares of common stock at $0.001 per share on March 1, 2011.

(c)  Ralph Marthaler: Form 4 to report the sale by Pangea Investments GmbH (controlled Mr. Marthaler) on January 14, 2011 of 850,000 restricted shares of common stock to 1568934 Ontario Limited, another affiliate of the Company; Form 4 to report the sale on May 24, 2011 of 433,333 restricted shares of common stock to 1568934 Ontario Limited; Form 4 to report the sale on July 29, 2011 of 211,111 restricted shares of common stock to 1568934 Ontario Limited;
 
 
54

 
 
(d)  Howard Fialkov: Form 4 to report the purchase by 1568934 Ontario Limited (formerly controlled by Mr. Fialkov) on January 14, 2011 of 850,000 shares of common stock from Pangea Investments GmbH; Form 4 to report the purchase from the Company on January 14, 2011 of 266,667 restricted shares of common stock; Form 4 to report the granting by the Company of an option to purchase 1,000,000 restricted shares of common stock, exercisable for the period of 24 months after granting; Form 4 to report the purchase on May 24, 2011 of 433,333 restricted shares of common stock from Pangea Investments GmbH; Form 4 to report the purchase from the Company on May 24, 2011 of 140,000 restricted shares of common stock; Form 4 to report the purchase on July 29, 2011 of 211,111 restricted shares of common stock from Pangea Investments GmbH; Form 4 to report the purchase from the Company on July 29, 2011 of 66,666 restricted shares of common stock; Form 4 to report the issuance by the Company on September 2, 2011 of 60,000 restricted shares of common stock in payment of annual rent for 2011 for partial use of the offices of 1568934 Ontario Limited by the Company; Form 4 to report the purchase by 1568934 Ontario Limited on the open market on October 11, 2011 of 20,000 shares of common stock;  Form 4 to report the purchase by 1568934 Ontario Limited on the open market on October 20, 2011 of 5,000 shares of common stock;  Form 4 to report the purchase by HJG Partnership (under the partial control of Mr. Fialkov) on the open market on November 16, 2011 of 7,000 shares of common stock;  Form 4 to report the purchase by 1568934 Ontario Limited on the open market on November 17, 2011 of 5,000 shares of common stock; Form 4 to report the purchase by 1568934 Ontario Limited on the open market on November 22, 2011 of 30,000 shares of common stock; and Form 4 to report that as of December 29, 2011 Mr. Fialkov is no longer a reporting person of the Company since he is no longer in any control of either 1568934 Ontario Limited or HJG Partnership.

(e)  Gerald Fialkov: Form 3 to report that Mr. Fialkov is now the control person of both 1568934 Ontario Limited and HJG Partnership.

All of these reports have been prepared and filed with the SEC.

Corporate Governance.

The primary function of the Company’s board of directors is oversight of management so that identifying and addressing the risks and vulnerabilities that the Company faces is an important component of the board of directors’ responsibilities, whether monitoring ordinary operations or considering significant plans, strategies, or proposed transactions. The risk management process that the Company has established is overseen by the Audit Committee, which is also responsible for oversight of risk issues associated with our overall financial reporting and disclosure process and with legal compliance as well as reviewing policies on risk control assessment and accounting risk exposure.  While the board of directors is ultimately responsible for risk oversight, our management is responsible for day-to-day risk management processes.  The Company believes this division of responsibilities is the most effective approach for addressing the risks facing the Company and that its board of directors leadership structure supports this approach.
 
 
55

 
 
Code of Ethics.
 
The Company has not adopted a code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  The Company has not adopted such a code of ethics because all of management’s efforts have been directed to building the business of the Company; at a later time, the board of directors may adopt such a code of ethics.

Audit Committee.

The Company’s board of directors functions as audit committee for the Company.

The primary responsibility of the Audit Committee will be to oversee the financial reporting process on behalf of the Company’s board of directors and report the result of their activities to the board.  Such responsibilities include, but are not limited to, the selection, and if necessary the replacement, of the Company’s independent registered public accounting firm, review and discuss with such independent registered public accounting firm: (i) the overall scope and plans for the audit, (ii) the adequacy and effectiveness of the accounting and financial controls, including the Company’s system to monitor and manage business risks, and legal and ethical programs, and (iii) the results of the annual audit, including the financial statements to be included in the annual report on Form 10-K.

The Company’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.  These services may include audit services, audit-related services, tax services and other services.  Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.  The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.  The audit committee may also pre-approve particular services on a case-by-case basis.

Other Committee of the Board of Directors.

The Company presently does not have a nominating committee, an executive committee of the board of directors, stock plan committee or any other committees.

Recommendation of Nominees.

The Company does not have a standing nominating committee or committee performing similar functions.  Because of the small size of the Company, the board of directors believes that it is appropriate for the Company not to have such a committee.  All the directors participate in the consideration of director nominees.
 
 
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The board of directors does not have a policy with regard to the consideration of any director candidates recommended by security holders.  Because of the small size of the Company, and the limited number of stockholders, the board of directors believes that it is appropriate for the Company not to have such a policy.

When evaluating director nominees, The Company considered the following factors:

·
The appropriate size of the board.

·
The Company’s needs with respect to the particular talents and experience of company directors.

·
Knowledge, skills and experience of prospective nominees, including experience in finance, administration.

·
Experience with accounting rules and practices.

·
The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new board members.

The Company’s goal is to assemble a board that brings together a variety of perspectives and skills derived from high quality business and professional experience.  

EXECUTIVE COMPENSATION.

The following table presents compensation information for the years ended December 31, 2011, 2010, and 2009 for the persons who served as principal executive officer and principal financial officer (and directors)

Name and principal position
(a)
Year
(b)
Salary
($) (1)
(c)
Bonus
($)
(d)
Stock Awards
($)
(e)
Option
Award(s)
($) (2)
(f)
Non-Equity Incentive Plan Compensation
($)
(g)
Nonqualified Deferred Compensation Earnings
($)
(h)
All Other
Compen-sation
($)
(i)
Total
($)
(j)
Sam Elimelech, President
2011
2010
2009
180,000
240,000
240,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
180,000
240,000
240,000
Gai Mar-Chaim, Sec/Treas.
2011
2010
2009
180,000
240,000
240,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
180,000
240,000
240,000
 
(1)           This compensation has been accrued by the Company but not paid.

(2)           On January 15, 2011 the Company granted 1,980,000 stock options to two directors, to purchase common shares. The stock options are exercisable at fair market value as defined by the plan and vest over 3 years at 33% every year. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of $Nil, using the following assumptions: Expected volatility of 139.6%; expected life of 2.47 years; risk-free interest rate of 1.07%; and dividend yield of $Nil.
 
 
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Outstanding Equity Awards at Fiscal Year-End Table.

Option Awards
Stock Awards
 Name and principal position
(a)
Number of Securities Underlying Unexercised Options
Exercisable
(#)
(b)
Number of Securities Underlying Unexercised Options
Unexercisable
(#)
(c)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)
Option Exercise Price
($)
(e)
 
 
Option Expiration Date
(f)
Number of Shares or Units of Stock That Have Not Vested
(#)
(g)
 
Market Value of Shares or Units of Stock That Have Not Vested
($)
(h)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(i)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(j)
Sam Elimelech, President
330,000
 
660,000
 
 
-
 
 
(1)
 
(2)
 
 
-
 
 
-
 
 
-
 
 
-
Gai Mar-Chaim, Sec/Treas.
330,000
 
660,000
 
 
-
 
(1)
 
(2)
 
 
-
 
 
-
 
 
-
 
 
-

(1)            Exercisable at fair market value as defined under the Employee Stock Option Plan.

(2)           These options vest at the rate of 330,000 per year for each director over a period of three years.  The options granted are not exercisable until January 1 of the following year.

Executive Officer Contracts.

(a)  On January 1, 2011, the Company entered into an Employment Agreement with Sam Elimelech, the Company’s president.  This agreement replaces the former employment agreement with the Company, cancelled on December 31, 2010.  Under this agreement, the Company will pay Mr. Elimelech $15,000 per month (reduced from $20,000 per month under the cancelled agreement) commencing on the effective date and terminating on December 31, 2012, and $20,000 per month commencing January 1 2013 and on.  During the period of this agreement, at the end of the calendar month which Mr. Elimelech desires, he can convert salary due into restricted shares of Company common stock at the trading price per share at the conversion date.  This agreement also provides for certain other benefits.

(b)  On January 1, 2011, the Company entered into an Employment Agreement with Gai Mar-Chaim, the Company’s secretary/treasurer.  This agreement replaces the former employment agreement with the Company, cancelled on December 31, 2010.  Under this agreement, the Company will pay Mr. Mar-Chaim $15,000 per month commencing on the effective date and terminating on December 31, 2012, and $20,000 per month commencing January 1 2013 and on.  During the period of this agreement, at the end of the calendar month which Mr. Mar-Chaim desires, he can convert salary due into restricted shares of Company common stock at the trading price per share at the conversion date.  This agreement also provides for certain other benefits.
 
 
58

 
 
Other Compensation.

There are no plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans and nonqualified defined contribution plans.  In addition, there are no contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payment(s) to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the Company or a change in the named executive officer’s responsibilities following a change in control, with respect to each named executive officer.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

Beneficial Ownership Table.

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of February 28, 2012 (22,034,242 issued and outstanding) by (i) all stockholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; (ii) each director and executive officer; and (iii) all officers and directors of the Company as a group.  Each person or entity has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by that person or entity:

Title of Class
Name and Address of Beneficial Owner
Amount of Beneficial Ownership (1)
Percent of Class (2)
Common Stock
1568934 Ontario Limited, 3845 Bathurst Street, Suite 202, Toronto, Ontario, Canada, M3H 3N2
7,897,486 (2)
34.29%
Common Stock
Sam Shlomo Elimelech, 5190 Neil Road, Suite 430, Reno, Nevada 89502
7,001,878 (3)
31.31%
Common Stock
Gai Mar-Chaim, 5190 Neil Road, Suite 430, Reno, Nevada 89502
6,901,878 (4)
30.86%
Common  Stock
Shares of all directors and executive officers as a group (2 persons)
13,903,756
61.27%
 
 
59

 
 
(1)           Except as noted, each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them.

(2)           In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”), Gerald Fialkov may be deemed a control person of the shares owned by this stockholder.  In computing the number of shares beneficially owned by this stockholder and the percentage ownership of that stockholder, shares of common stock subject to options or convertible or exchangeable into such shares of common stock held by that person that are currently exercisable, or exercisable within 60 days, are included.  Therefore, 1,000,000 of the total consists of shares of common stock underlying a stock option issued in connection with a Regulation S Stock Purchase Agreement between the Company and 1568934 Ontario Limited, dated January 14, 2011.  This option is exercisable at a price that is equal to the public offering price of the Company’s common stock in a future Form S-1 registration statement and is exercisable for a period of 24 months from the Company's Form 15c2-11 filing with Financial Industry Regulatory Authority (“FINRA”) (which occurred on April 12, 2011).
 
(3)           In accordance with Rule 13d-3 under the1934 Act, since 150,000 shares of the total are held by members of Mr. Elimelech’s household, he is considered to be the beneficial owner of these shares also.  In computing the number of shares beneficially owned by this stockholder and the percentage ownership of this stockholder, shares of common stock subject to options or convertible or exchangeable into such shares of common stock held by that person that are currently exercisable, or exercisable within 60 days, are included.  Therefore, 330,000 of the total consists of shares of common stock underlying the vested and exercisable portion of a stock option for 990,000 shares of common stock granted by the Company in exchange for services rendered to the Company (see Item 13 below).

(4)           In accordance with Rule 13d-3 under the 1934 Act, since 50,000 shares of the total are held by a member of Mr. Mar-Chaim’s household, he is considered to be the beneficial owner of these shares also.  In computing the number of shares beneficially owned by this stockholder and the percentage ownership of this stockholder, shares of common stock subject to options or convertible or exchangeable into such shares of common stock held by that person that are currently exercisable, or exercisable within 60 days, are included.  Therefore, 330,000 of the total consists of shares of common stock underlying the vested and exercisable portion of a stock option for 990,000 shares of common stock granted by the Company in exchange for services rendered to the Company (see Item 13 below).

Securities Authorized for Issuance under Equity Compensation Plans.

The Company has adopted two equity compensation plans that are still in operation (neither of which has been approved by the Company’s stockholders):

(a)
2011 Stock and Option Plan.

The Company’s 2011 Stock and Option Plan, dated July 26, 2011, is intended to allow The Company’s 2011 Stock and Option Plan, dated July 26, 2011, is intended to allow designated directors, officers, employees, and certain non-employees, including consultants to receive certain options to purchase the Company’s common stock and to receive grants of common stock.  This plan covers up to 2,000,000 shares of common stock.  These shares were registered under a Form S-8 registration statement filed with the Securities and Exchange Commission on July 26, 2011.  Through December 31, 2011, a total of 830,000 shares have been issued out of this plan (with 1,170,000 remaining to be issued).
 
 
60

 
 
(b)
Employee Stock Option Plan.

On January 15, 2011, the Company adopted an Employee Stock Option Plan that is intended to is to attract and retain key employees of the Company) and its subsidiaries by the grant of options and stock appreciation rights.  This plan covers up to 3,000,000 shares of common stock.  On January 20, 2011, the Company granted stock options under this plan covering a total of 1,980,000 restricted shares of common stock to the two directors of the Company (990,000 each) (with options covering 1,020,000 remaining to be issued as of December 31, 2011).  These options vest at the rate of 330,000 per year for each director over a period of three years.  The options granted are not exercisable until January 1 of the following year.  They are exercisable at fair market value, as defined under this plan.

Equity Compensation Plan Information
December 31, 2011
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
(a)
Weighted-average exercise price of outstanding options, warrants and rights
 
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
(c)
Equity compensation plans approved by security holders
0
0
0
Equity compensation plans not approved by security holders
1,980,000
Fair market value
2011 Stock and Option  Plan: 1,170,000
Employee Stock Option Plan: 1,020,000
Total
1,980,000
Fair market value
2011 Stock and Option  Plan: 1,170,000
Employee Stock Option Plan: 1,020,000
 
 
61

 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
During the last two fiscal years other than as set forth below, there have not been any relationships, transactions, or proposed transactions to which the Company was or is to be a party, in which any of the directors, officers, or 5% or greater stockholders (or any immediate family thereof) had or is to have a direct or indirect material interest.

(a)  On January 1, 2011, the Company entered into an Employment Agreement with Sam Elimelech, the Company’s president.  This agreement replaces the former employment agreement with the Company, cancelled on December 31, 2010 (the Employment Agreement between Mr. Elimelech and the Company, dated July 3, 2006).  See Exhibit 10.12.

(b)  On January 1, 2011, the Company entered into an Employment Agreement with Gai Mar-Chaim, the Company’s secretary/treasurer.  This agreement replaces the former employment agreement with the Company, cancelled on December 31, 2010 (the Employment Agreement between Mr. Mar-Chaim and the Company, dated July 3, 2006).  See Exhibit 10.13.

(c)  On January 5, 2011, the Company entered into a Regulation S Stock Purchase Agreements with the two directors of the Company.  Under these agreements, the directors purchased from the Company a total of 8,000,000 restricted shares of common stock at $0.001) per share for a total consideration of $8,000.  These shares were actually issued on or about March 1, 2011.  See Exhibits 10.14 and 10.15.

(d)  On January 6, 2011, the Company terminated the consulting agreement entered into with Pangea Investments GmbH on July 3, 2006.  Since Pangea did not deliver consulting and management services under this agreement during the period 2006-2010, the firm is not eligible for any management fees as specified under that agreement.

(e)  On January 14, 2011, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited, an affiliate of the Company.  Under this agreement, the purchaser purchased from the Company 266,667 restricted shares of common stock at $0.75 per share for a total consideration of $200,000.  These shares were issued on or about January 14, 2011.  See Exhibit 10.16.

In connection with this agreement, the Company issued to the purchaser an option, dated January 14, 2011, to purchase 1,000,000 restricted shares of the Company’s common stock.  This option is exercisable for a period of 24 months from the date of filing by the Company of a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) at an exercise price that is equal to the public offering price of the common stock in a future Form S-1 registration statement of the Company.  This filing with FINRA occurred on April 12, 2011.  See Exhibit 4.1.
 
 
62

 
 
(f)  On January 20, 2011, the Company granted an options to Mr. Elimelech and Mr. Mar-Chaim to each purchase 990,000 restricted shares of Company common stock (see Exhibits 4.3 and 4.4).  This option is exercisable at fair market value, as defined in the Employee Stock Option Plan (see Exhibit 4.2).  This option vests at the rate of 330,000 per year over a period of three years.  The options granted are not exercisable until January 1 of the following year.  Therefore, only 330,000 shares of this option are currently exercisable.  Each vested portion of the option expires two years after vesting.  These options were granted in exchange for services provided to the Company.

(g)  On May 24, 2011, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited.  Under this agreement, the purchaser purchased from the Company 140,000 restricted shares of common stock at $0.75 per share for a total consideration of $105,000.  These shares were issued on or about June 14, 2011.  See Exhibit 10.19.

(h) On July 29, 2011, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited.  Under this agreement, the purchaser purchased from the Company 66,667 restricted shares of common stock at $0.75 per share for a total consideration of $50,000.  These shares were issued on or about August 8, 2011.  See Exhibit 10.20.

(i)  On January 1, 2011, the Company began using offices provided by 1568934 Ontario Limited located in Beverly Hills, California.  This office space is approximately 2,000 square feet; the Company pays 5,000 shares of restricted common stock each month for rent, electricity, telephones, and other expenses of the office.  The Company is under a month-to-month lease of these offices.  On August 8, 2011, the Company issued 60,000 restricted shares of common stock to 1568934 Ontario Limited under this arrangement as rent for the 2011 calendar year.

(j)  On December 26, 2011, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited.  Under this agreement, the purchaser purchased from the Company 2,590,909 restricted shares of common stock at $0.11 per share for a total consideration of $285,000.  These shares were issued on or about December 31, 2011.  See Exhibit 10.21.

Certain of the Company’s officers and directors are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors.  As a result, certain conflicts of interest may arise between the Company and such officers and directors.  The Company will attempt to resolve such conflicts of interest in its favor.

The Company defines director independence in accordance with the definition as set forth in Rule 5605(a)(2) of the Rules of the NASDAQ Stock Market.
 
 
63

 
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees.

The aggregate fees billed for professional services rendered by Dov Weinstein & Co. for the audit of the Company’s financial statements for each of the last two fiscal years and for review of the interim financial statements: 2011: $16,000; and 2010: $16,000

Audit-Related Fees.

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the accounting firms that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under Audit Fees above: $0.

Tax Fees.

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the accounting firms for tax compliance, tax advice, and tax planning: $0.

All Other Fees.

The aggregate fees billed in each of the last two fiscal years for products and services provided by the accounting firms, other than the services reported above: $0.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are being filed as a part of this report on Form 10-K:

(a)           Audited financial statements as of and for the years ended December 31, 2011 and 2010, and the period of inception (July 23, 2004) through December 31, 2011; and

(b)           Those exhibits required by Item 601 of Regulation S-K (included or incorporated by reference in this document are set forth in the Exhibit Index).

 
64

 
 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Andain, Inc.
 
       
Dated: April 15, 2012
By:
/s/ Sam Shlomo Elimelech
 
   
Sam Shlomo Elimelech, President
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:

Signature
 
Title
 
Date
         
/s/ Sam Shlomo Elimelech
Sam Shlomo Elimelech
 
President/Director
(principal executive officer)
 
April 15, 2012
 
/s/ Gai Mar-Chaim
Gai Mar-Chaim
 
 
Secretary/Treasurer/Director
(principal financial officer)
 
 
 
April 15, 2012

 
65

 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
of Andain Inc.

We have audited the accompanying consolidated balance sheets of Andain Inc. (a development stage company) (“Company) and its subsidiaries as of December 31, 2011 and 2010, and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended, and for the period of inception (July 23, 2004) through December 31, 2011.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. 

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides 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 the Company as of December 31, 2011 and 2010, and the results of its operations and cash flows for the years then ended, and for the period of inception (July 23, 2004) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses, has had significant recurring negative cash flows from operations, and has an accumulated deficit that raises substantial doubt over its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from this uncertainty.

/s/ Dov Weinstein & Co. C.P.A. (Isr)
Jerusalem, Israel
April 8, 2012
 
 
66

 
 
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

   
December 31,
2011
   
December 31,
2010
 
ASSETS
Current assets:
           
   Cash and cash equivalents
  $ 872     $ 23,672  
   Accounts receivable
    930,177       236,382  
Total current assets
    931,049       260,054  
                 
Property, plant and equipment
    35,098       47,477  
Intangible assets
    20,649       --  
Other assets
    360,178       93,841  
                 
Total assets
  $ 1,346,974     $ 401,372  

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
           
   Accounts payable and accrued expenses
  $ 1,180,879     $ 1,205,129  
Total current liabilities
    1,180,879       1,205,129  
                 
Long-term liabilities:
               
   Long-term debt
    550,312       1,867,201  
   Bank overdrafts
    1       38,387  
                 
Total liabilities
    1,731,192       3,110,717  
                 
Non-controlling interest
    (466,982 )     (186,441 )
                 
Stockholders’ deficit:
               
   Preferred stock, $0.001 par value, 10,000,000 authorized
  shares; no shares issued and outstanding
    --       --  
Common stock, $0.001 par value, 500,000,000 shares
  authorized; 22,034,242 shares issued and outstanding at December 31, 2011 and 9,980,000 at December 31, 2010
    22,034       9,980  
Additional paid-in capital
    3,890,219       156,730  

 
67

 

ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(continued)

    December 31,
2011
   
December 31,
2010
 
             
Share-based reserves
    6,300       6,300  
   Accumulated deficit during development stage
    (3,836,712 )     (2,682,781 )
   Accumulated other comprehensive income/(loss)
    923       (13,133 )
          Total Andain, Inc.’s stockholders equity/(deficit)
    82,764       (2,522,904 )
                 
          Total stockholders deficit
    (384,218 )     (2,709,345 )
                 
Total liabilities and stockholders’ deficit
  $ 1,346,974     $ 401,372  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
68

 
 
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Years Ended
December 31,
   
Period of Inception
(July 23, 2004) through
December 31,
 
    2011     2010    
2011
 
                   
Revenue:
                 
   Government grants
  $ 312,990     $ 369,700     $ 682,690  
   Consulting income
    12,016       6,079       384,334  
   Other income
    15,000       --       15,000  
      Total revenue
    340,006       375,779       1,082,024  
                         
Operating expenses:
                       
   Depreciation
    (12,379 )     (8,997 )     (40,625 )
   General and administrative
    (1,223,300 )     (910,593 )     (4,154,707 )
   Research and development
    (223,878 )     (146,760 )     (370,638 )
   Impairment of goodwill
    (14,708 )     (322,977 )     (412,699 )
    Loss on disposal of associate
    (135,424 )     --       (135,424 )
   Impairment loss
    (177,729 )     --       (177,729 )
      Total operating expenses
    (1,787,418 )     (1,389,327 )     (5,291,822 )
                         
Loss from operations
    (1,447,412 )     (1,013,548 )     (4,209,798 )
                         
Interest income
    12,940       13,733       45,675  
Interest expense
    --       (2,219 )     (4,734 )
                         
Net loss, including non-controlling interests
    (1,434,472 )     (1,002,034 )     (4,168,857 )
                         
Add: Net loss attributable to non-controlling interest
    280,541       51,604       332,145  
                         
Net loss attributable to Andain Inc.
  $ (1,153,931 )   $ (950,430 )   $ (3,836,712 )
                         
Loss per share – basic:
                       
   Net loss attributable to Andain
  $ (0.062 )   $ (0.095 )        
   Weighted average common shares
    18,639,062       9,980,000          
 
 
69

 
 
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)

   
Years Ended
December 31,
   
Period of Inception
(July 23, 2004) through
December 31,
 
    2011     2010    
2011
 
                   
Loss per share – diluted:
                 
   Net loss attributable to Andain
  $ (0.047 )   $ (0.059 )        
   Weighted average common shares
    24,639,062       15,980,000          

The accompanying notes are an integral part of these consolidated financial statements
 
 
70

 
 
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2011
 
   
Common Stock
    Capital In Excess     Share-Based     Non-Controlling     Accumulated     Other Comprehensive     Total Stockholders’  
    Shares     Amount    
 Of Par
   
 Reserves
   
Interest
   
 Deficit
   
Loss
   
Deficit
 
Inception (July 23, 2004)
    --     $ --     $ --     $ --     $ --     $ --     $ --     $ --  
                                                                 
Net loss
    --       --       --       --       --       (7,270 )     --       (7,270 )
                                                                 
Balance at December 31, 2004
    --       --       --       --       --       (7,270 )     --       (7,270 )
                                                                 
Common stock issued at $0.001 for cash
    100,000       100       --       --       --       --       --       100  
                                                                 
Common stock issued at $0.001 for legal services
    10,000       10       --       --       --       --       --       10  
                                                                 
Common stock issued to reduce stockholder loan at $0.001
    1,900,000       1,900       --       --       --       --       --       1,900  
                                                                 
Net loss
    --       --       --       --       --       (12,118 )     --       (12,118 )
                                                                 
Balance at December 31, 2005
    2,010,000       2,010       --       --       --       (19,388 )     --       (17,378 )
                                                                 
Common stock issued at $1.50 to purchase intellectual property
    4,500,000       4,500       --       --       --       --       --       4,500  
                                                                 
Common stock issued at $0.001 to purchase Impact Active Team Ltd. From Pangea Investments GmbH
    2,500,000       2,500       --       --       --       --       --       2,500  
                                                                 
Common stock issued at $0.01 for cash
    770,000       770       6,930       --       --       --       --       7,700  

 
71

 

ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2011
(continued)
 
   
Common Stock
    Capital In Excess     Share-Based     Non-Controlling     Accumulated     Other Comprehensive     Total Stockholders’  
    Shares     Amount    
 Of Par
   
Reserves
   
Interest
   
Deficit
   
Loss
   
Deficit
 
Common stock issued at $0.75 for cash
    200,000       200       149,800       --       --       --       --       150,000  
                                                                 
Equity-settled share-based payment
    --       --       --       300       --       --       --       300  
                                                                 
Non-controlling interest
    --       --       --       --       1,657       --       --       1,657  
                                                                 
Non-cash compensation expense
    --       --       --       2,000       --       --       --       2,000  
                                                                 
Foreign currency translation adjustment
    --       --       --       --       --       --       (1,418 )     (1,418 )
                                                                 
Net loss
    --       --       --       --       --       (299,095 )     --       (299,095 )
                                                                 
Balance at December 31, 2006
    9,980,000       9,980       156,730       2,300       1,657       (318,483 )     (1,418 )     (149,234 )
                                                                 
Non-controlling interest
    --       --       --       --       528       --       --       528  
                                                                 
Non-cash compensation expense
    --       --       --       2,000       --       --       --       2,000  
                                                                 
Foreign currency translation adjustment
    --       --       --       --       --