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ANDF > SEC Filings for ANDF > Form 10-K on 13-May-2013All Recent SEC Filings

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Form 10-K for ANDAIN, INC.


13-May-2013

Annual Report


ITEM 7. 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 technological / industrial accelerating 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).

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 Gemini development, regulatory, and manufacturing in order to complete all needed clinical trials, will require an additional $750,000. In addition we estimate that it will require $600,000 to introduce the innovative pump to the market and large distributors

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 $1,100,000.

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.

(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 Gemini pump During 2012 the Company further developed and enhanced the Gemini patents. Those enhancements will be filed in second quarter of 2013. 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 the Gemini 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 Gemini 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 as with the Company's next investment round. 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 during 2013, according the pre-clinical results of the new technology and product.

With the next investment round the Company intends to establish a new company to accommodate all assets and operations of the new technology and development

Stem Cell Therapy.

The Company intends to establish a new company to accommodate all assets and operations of the new technology and development of the project as soon the clinical trials will commence.

Results of Operations.

(a) Total Revenue.

The Company had total revenue of $181,298 for the year ended December 31, 2012 compared to $325,006 for the year ended December 31, 2011, a decrease of $143,708 or approximately 44%. This decrease in net revenue was the result of no government grants received by the Company's operating subsidiary, Meizam Arad, from MOITL during 2012 as compared to $312,990 in 2011.

The total revenue for the year ended December 31, 2012 ($181,298) was generated by consulting activities compared to $12,016 for the year ended December 31, 2011, an increase of $169,282 or approximately 1,409%. This was due to the fact that the Company made a strategic decision to allow the OCS agreement to expire and not renew it (the agreement expiration does not prevent the Company to get government grants subject to other regulations).

The Company had total revenue of $1,248,322 for the period of inception (June 23, 2004) through December 31, 2012.

(b) General and Administrative Expenses.

The Company had general and administrative expenses of $2,870,407 for the year ended December 31, 2012 compared to $1,235,679 for the year ended December 31, 2011, an increase of $1,634,728 or approximately 132%. This increase in general and administrative costs was mainly due to stock based compensation of $1,862,000 to key management in 2012 as compared to no stock based compensation to key management in 2011.

The Company had general and administrative expenses of $7,100,447 for the period of inception (June 23, 2004) through December 31, 2012.

(c) Research and Development Expenses.

The Company had research and development expenses of $55,359 for the year ended December 31, 2012 compared to $223,878 for the year ended December 31, 2011, a decrease of $168,519 or approximately 75%. This decrease in research and development was due to the following reasons:

The Company stopped employing sub-contractors funded by government grants.

The Company had no impairment of goodwill expenses for the year ended December 31, 2012 compared to $14,708 for the year ended December 31, 2011.

The Company had research and development expenses of $391,287 for the period of inception (June 23, 2004) through December 31, 2012.

(d) Other Income, Net.

The Company had $236,175 other income for the year ended December 31, 2012 compared to $15,000 for the year ended December 31, 2011 generated by debt forgiveness of service providers.

(e) Net Loss.

The Company had a net loss of $2,504,588 for the year ended December 31, 2012 compared to $1,359,896 for the year ended December 31, 2011, an increase of $1,144,692 or approximately 84%. The increase in net loss is the result primarily from the Company's accelerated development and engineering for production of our disposable insulin pump.

The Company had a net loss of $6,547,265 for the period of inception (June 23, 2004) through December 31, 2012.

Operating Activities.

The net cash used in operating activities was $343,498 for the year ended December 31, 2012 compared to $275,472 for the year ended December 31, 2011, an increase of $68,026 or approximately 25%. This change is mainly attributed to increase in share-based payments.

Investing Activities.

Net cash used in investing activities was $0 for the year ended December 31, 2012 compared to $20,649 for the year ended December 31, 2011, a decrease of 100% that is attributed to patent and acquisition of a subsidiary during 2011.

Liquidity and Capital Resources.

As of December 31, 2012, the Company had total current assets of $499,250 and total current liabilities of $700,613, resulting in a working capital deficit of $201,363. The cash and cash equivalents was $0 as of December 31, 2012 compared to $872 for the year ended December 31, 2011, a decrease of $872 or 100%. This decrease resulted from negative cash flows from operations.

The net cash provided by financing activities was $342,626 for the year ended December 31, 2012 compared to $259,265 for the year ended December 31, 2011, an increase in cash provided financial activities of $83,361 or approximately 32%. This increase resulted primarily from proceeds from stock issued for cash.

The Company's current cash and cash equivalents balance will 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.

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.

(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.

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.

(e) New Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued new accounting guidance intended to simplify the testing of indefinite-lived intangible assets for impairment. Entities will be allowed the option to first perform a qualitative assessment on impairment for indefinite-lived intangible assets to determine whether a quantitative assessment is necessary. This guidance is effective for impairment tests performed in the interim and annual periods for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

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.

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