Attached files
| file | filename |
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| EX-21 - EXHIBIT 21 - ANDAIN, INC. | exhibit_21.htm |
| EX-31.2 - EXHIBIT 31.2 - ANDAIN, INC. | exhibit_31-2.htm |
| EX-32 - EXHIBIT 32 - ANDAIN, INC. | exhibit_32.htm |
| EX-31.1 - EXHIBIT 31.1 - ANDAIN, INC. | exhibit_31-1.htm |
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, 2010
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: 0-29113
ANDAIN, INC.
(Exact Name of Company as Specified in its Charter)
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Nevada
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20-2066406
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(State or Other Jurisdiction of Incorporation
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(I.R.S. Employer
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or Organization)
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Identification No.)
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400 South Beverly Drive, Suite 312, Beverly Hills, California
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90212
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(Address of Principal Executive Offices)
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(Zip Code)
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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 o No x.
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 o No x.
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 x.
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:
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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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 March 31, 2011: $0. As of March 31, 2011, the Company had 18,246,667 shares of common stock issued and outstanding.
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TABLE OF CONTENTS
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PART I.
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PART II.
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PART III.
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3
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PART I.
Business Development.
Andain Inc., a Nevada corporation (“Company”), was incorporated on July 23, 2004. The address for the Company is: 5190 Neil Road, Suite 430, Reno, Nevada 89502; its telephone number is: (775) 333-5997. The Company has filed the necessary paperwork and funds with the Nevada Secretary of State to have the Company’s status returned to “active.”
The Company is primarily engaged in the biotechnology and medical fields; the company has through a technology purchase agreement with Pangea Investments GmbH, purchased the rights to a pulmonary inhalation drug delivery system. The Company also operates an in-house commercial incubator, which provided an operational and commercial platform to its technologies and products in development.
The Company is constantly screening promising new technologies in order to expedite their commercialization. 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.
The Company is currently operating in three business units:
Impact Active Team Ltd. - Providing Management and Consulting Services.
TPDS Ltd. - Providing further development of acquired medical technology.
Meizam – Advanced Enterprise Center Arad Ltd. - Industrial Incubator for companies in their commercialization phase.
Business of the Company.
Impact Active Team Ltd.
On July 3, 2006, the Company entered into a Share Purchase Agreement with Pangea Investments GmbH, the majority stockholder of the Company. Under this agreement, the Company purchased from Pangea all of the outstanding common stock of Impact Active Team Ltd., an Israeli corporation. In return for acquiring these shares, the Company paid to Pangea 2,500,000 restricted shares of common stock. With the filing of Form 8-K dated January 30, 2007, this transaction was completed.
Impact is a management consulting firm specializing in strategic planning and management services company providing: Active 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.
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Impact partially relies its sales on an affiliation agreement with P.O.C. Hi-Tech (1992) Ltd., a leading management consulting firm in Israel. According to the affiliation agreement, consulting assignments involve Gai Mar-Chaim, one of the Company’s officers and a partner in P.O.C., will be performed by Impact.
In June 2006, Impact engaged through P.O.C. with the City of Arad Economic Corporation in order to assist establishing a new industrial corporation in the medical field in the City of Arad. The new entity’s objective is to expand the industry and employment infrastructure of Arad by partial acquisition of promising companies in the medical field that will establish their operations in Arad. Besides establishing the new corporation, Impact screens the prospective companies that will enjoy the new corporation’s finding. As part of the screening process, Impact is interviewing numerous companies in the medical field in Israel, thus generating an attractive pipeline of business opportunities for the Company. Although Impact performs this assignment on a consulting basis, Arad Economic Corporation invited the Company to be a partner in the new medical corporation and in the acquisition of the relocating companies.
In addition, Impact has recently provided through P.O.C. strategic planning services to the Israel Insurance Brokers Association and management consulting services to companies in the fields of medical equipment, digital video and car accessories.
Impact also works in alliance, through P.O.C., with Aviv Management, Engineering & MIS Ltd., a leading Israeli operations management-consulting group. This alliance enables Impact expanding the scope of its management consulting services and provides access to Aviv's customer base.
Impact does not employ its consultants on a payroll basis. Consulting assignments are performed by Gai Mar-Chaim and Sam Elimelech, who are officers of the Company, as well as by various consultants and experts employed by Impact on a contractual basis.
TPDS Ltd.
On August 14, 2006, the Company established TPDS Ltd., an Israeli corporation, as a subsidiary that is responsible for further development of acquired technology. TPDS Ltd. is located at the Science Park in Rehovot, Israel
Scope of Business.
TPDS Ltd. (Target Particle Delivery System) is the Company’s business unit that is developing a drug delivery system that is intended to improve the effectiveness and efficiency of delivering antibiotics via inhalation, thus providing a potentially better cure for pulmonary diseases. The main target market for TPDS product is COPD (Chronic Obstructive Pulmonary Disease), which affects 16 million patients in the USA.
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Technology Purchase Agreement.
On June 11, 2006, the Company entered into a Technology Purchase Agreement with Pangea Investments GmbH. 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. 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 Celine 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.
The Company acquired this technology in order to further develop it into a commercially viable product in the field of respiratory care of chronic obstructive pulmonary disease and ventilator-associated pneumonia patients. 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.
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.
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.
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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.
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%.
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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.
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.
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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.
Meizam – Advance Enterprise Center Arad, Ltd.
Meizam – Advanced Enterprise Center Arad Ltd. (“Meizam Arad”) is the Company’s business unit, which operates an industrial incubator program under the guidance and with the support of the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor (“MOITL”). The industrial incubator program is aimed at young companies with proven technologies or prototypes that are on the verge of commercialization and industrialization.
Meizam Arad was established by the Company 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 70% of Meizam Arad’s equity, and Arad and the local industries hold the remaining 30%.
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 intends 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.
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Meizam Arad operates as a second stage technological/industrial incubator providing to its portfolio companies the vast industrial infrastructure of its industrial shareholders massive, as well as government funds and a top-of-the-line management team
Meizam Arad, now along with the Company’s subsidiary Meizam Arad Investments (see discussion below), has operated since 2008 through partial acquisitions of young promising companies in the biotech and medical field and the relocation of their operations to Meizam Arad’s central facility in the city of Arad. Currently, Meizam Arad screens and selects projects and companies according to their fitness to the local industries in the City of Arad. These industries will support the relocated companies operations, providing manufacturing and engineering services that significantly accelerate the companies’ time-to-market. In addition, until on-going sales are established, these industries will provide the services to the companies in exchange for Meizam Arad 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.
The local industries in the City of Arad that have taken an interest in Meizam Arad include so far the following manufacturers:
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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.
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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.
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Danor Technical Molding Ltd. – A plastics manufacturing service provider, which operates injection molding production lines, and provides engineering services including mold design and manufacturing.
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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.
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Meizam Arad coordinates the supporting industries services, engineers, laboratories, and production facilities with the relocating company operations supporting multi-sight production and central integration. Most of Meizam Arad’s prospective companies are in their commercialization development stage that needs prototypes, products re-design, and initial production support provided by the local industrial partners and the City of Arad. The local industries are the anchor of Meizam Arad’s operations, and provide hands-on support to the relocating companies.
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The shareholder industries support the approved, and relocated, companies’ operations, providing manufacturing and engineering services that significantly accelerate the companies’ time-to-market. In addition, until on-going sales of the portfolio companies are established, these industries provide the services to the portfolio 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 portfolio companies. For each invested dollar, MOITL funds the portfolio company with an additional two dollars. Therefore, in exchange Meizam Arad receives shares from the portfolio companies for the full investment, which includes the MOITL funds. As a result of leverage through the use of MOITL funds, it is projected that Meizam Arad equity will grow twice as fast as any direct investment in Meizam Arad.
Meizam Arad provides a highly skilled management team comprised of Impact Active Team personal in coordination with the Economical Company for Arad-Tamar Municipalities Development Ltd., and supported by TPDS Ltd.’s personal, and experts from the local industries.
Since Meizam Arad’s business model requires heavy funding from the industrial shareholder partners, for the relocating companies, Meizam Arad plans a private placement as soon as it completes 5-10 acquisitions. Meizam Arad has screened over 60 prospective medical companies into a shortlist of 14 companies with already developed technologies and products aimed at the global markets and ready for commercialization, for those willing to relocate their operations to the City of Arad.
Meizam Arad Investments Ltd.
Meizam Arad Investments Ltd. (“Meizam Investments”) was established by the Company on February 9, 2011 as a business unit that provides all the required financing to the Company's business units that operate under the industrial incubator program.
Meizam Investments was established to meet MOITL’s requirement to operate Meizam Arad only as a management service provider, and the handling and financing of the incubator through a different entity, as structured at other technology incubators in Israel.
On January 31, 2011, the Company invested $200,000 in Meizam Investments. Meizam Investments re-invested that $200,000 in Meizam Arad.
Gaia-Med Ltd.
On June 2, 2010, the Company, through its subsidiaries Meizam Arad and Meizam Investments, entered into a share purchase agreement with Gaia-Med Ltd. As a consideration for the investment, Gaia-Med issued to the Company 30% of its total issued and outstanding shares in fully diluted bases, and, in addition, 3% of its total issued and outstanding shares in fully diluted basis to Meizam Arad. The Company, through these subsidiaries, will receive research and development grants for Gaia-Med.
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The technology and product developed by Gaia-Med is based on innovative, patent-pending design: Miniature medical patch size: 25 grams, 49x7 mm insulin pump ten-fold cheaper than existing pumps suitable for diabetics with type one and two of the disease. The low cost of the pump enables easy and cost effective replacement of the insulin pen injections. The pump is directly attached to the body, with no tubing. The pump provides a real-time alert for occlusions and leakages.
Scope of the Business.
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. Where Type-2 diabetes accounts for more than 90% of all diabetes cases in developed countries (Source: The American Diabetes Association, 2010).
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 manual inject insulin with every meal and to constantly monitor their glucose levels using syringes, pens or needle less-injectors.
Continuous Subcutaneous Delivery Via Infusion Pumps.
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. 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 very 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 solely by Type-1 diabetes patients almost none are used for Type 2 diabetics.
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Sonenco Ltd.
On April 10, 2011, Meizam Arad entered into a share purchase agreement with Sonenco Ltd. 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, through these subsidiaries, will receive research and development grants for Sonenco.
Sonenco 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.
Sonenco’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.
Competitive Advantages.
Sonenco’s superior solution to drug delivery introduces the following advantages:
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Minimal invasive short procedure (few minutes only).
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Ability to cover big drug dispersion volume.
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Continuous drug exposure at the targeted site.
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Sufficient energy-for maximum efficient dispersion is much below medical energy levels restrictions.
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Precise dispersion profile to meet medical demands derived from fine-tuning and adjustment flexibility of all effecting parameters.
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The estimated brain cancer market potential for Sonenco's pioneering drug delivery catheter exceeds $400 million per year in the major Western economies.
Intellectual Property.
The patent is comprehensive, conclusive and contains 50 claims on the technology, device, applications and specific drugs. The Company’s patent attorneys have conducted a comprehensive patent research to ensure that no other patents for similar applications exist. All patent rights solely belong to Sonenco.
Cycli Ltd.
On November 18, 2010, Meizam Arad entered into a share purchase agreement with Cycli Ltd. As a consideration for this investment, Cycli issued to Meizam Arad 35% 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, through these subsidiaries, will receive research and development grants for Cycli.
Corrsight Ltd.
On November 15, 2010, Meizam Arad entered into a share purchase agreement with Corrsight Ltd. As a consideration for this investment, Corrsight will issue to Meizam Arad 22% of its total issued and outstanding shares on a fully diluted basis, and, in addition, 3% of its total issued and outstanding shares on a fully diluted basis to Meizam Arad. The Company, through its subsidiary, will receive research and development grants for Corrsight.
Corrsight is a software company developing and marketing the “Trading Ace”, a system for increasing financial broker revenues by maximizing the life-cycle value of retail traders. The system analyzes trader activity data and demographic information, and based on this data automatically creates segmented and personalized customer communications - approaching the customer at the right time with the right messages, and providing tools for maximizing trading activity and improving customer retention.
Retail financial trading markets are experiencing in recent years a huge growth of activity, with annual volume over $100 trillion and broker revenues over $20 billion. This has created a significant change in the customer mix of brokers - from a relatively small number of large-volume professionals to a large “long tail” of small, inexperienced customers with low trading activity. The brokers, struggling with differentiation and scalability issues, have not found to date any effective way to handle these lower-tier customers, and as a result are facing severe attrition challenges and are far from maximizing their revenue potential.
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“Trading Ace” is aimed at providing brokers a set of tools to automatically analyze and act upon the customer activity and engage with their customers in a way that will increase their trading activity and improve retention. Corrsight will focus initially on the Forex and securities day trading segments, but later plans to enhance its product to support other market segments such as commodities and CFDs. Corrsight will operate as a web-based service bureau, offering its service to brokers in a revenue-share business model.
Corrsight has completed the development of its product, and is in process of launching it with its first customer, the brokerage house Go Forex. The trial is scheduled to start in April 2011, with first revenues scheduled for October 2011. Corrsight is already engaged with a second customer that plans to launch this program in June 2011. Corrsight expects substantial revenues by the end of 2011, reaching breakeven in the first half of 2012.
To achieve these goals, Corrsight has assembled an experienced team of professionals led by Hudi Zack, formerly division president in Amdocs, CEO at Disksites and COO in Metalink, who has over 20 years of experience in leading business-oriented multi-disciplinary groups of various sizes. Along with Nir Yaffe, formerly CEO of Finotec, and founder of FX-Alphatrade, who is a seasoned expert in financial trading. And Haim Zelikovsky, formerly vice president in Amdocs and Comverse and CEO of Cellglide, who has vast experience in product strategy and marketing. And finally Eli Gur, formerly VP R&D in Exxana and Edge NW, who has was responsible for numerous successful cycles of product design, development and implementation.
NBCT Ltd.
On October 16, 2010, Meizam Arad signed an initial share purchase agreement with NBCT Ltd. to acquire 35% of NBCT shares for 1.5 million Israeli Shekels (approximately $400,000). The agreement is pending the approval of the Israeli Ministry of Industry, Trade & Labor. NBCT develops an intradermal nano-technology to enhance skin penetration of peptides in cosmetic anti-wrinkle products, and is preparing a clinical trial to be conducted in 2011 in an Israeli clinical center.
The lipid based nano-particle dispersion for delivery of peptides to dermis provides:
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efficient transport of peptides trough epidermis without physical or chemical changes in skin barrier properties for other materials.
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effective protection of peptides from degradation by skin enzymes.
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controlled release of peptides at targeted site skin contact with the penetrating particles.
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penetration mechanism does not alter the skin properties.
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particles pass through the epidermis layer to dermis layer of the skin and form an active-agent payload deposit in the aermis layer preventing any amino acids attacking the payload.
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particles have a controlled release mechanism for the active agent payload deposit directly to dermis layer.
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OrCell Ltd.
On November 16, 2010, Meizam Arad signed an initial share purchase agreement with OrCell Ltd. to acquire 33% of OrCell shares for 1.5 million Israeli Shekels (approximately $400,000). The agreement is pending the approval of the Israeli Ministry of Industry, Trade & Labor. OrCell develops stem cell technology for cardiac applications, mainly for acute MI recovery treatment. OrCell has completed successfully in vitro studies and is planning to conduct pre-clinical trials during 2011.
OrCell has developed an innovative technology product that allows healing and rehabilitation of wounds and languishing by cell therapy using directed stem cells. The product will enable restoration and healing languishing and wounds, which is non-healing by available methods, such as myocardial infarction (MI), pressure ulcer, 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.
Today, there is no protocol that allows the efficient direction of stem cells to myogenic cells for transplantation and tissue engineering. The protocol that was developed supports a highly safety product without side effects and is integrated into the injured tissue area.
The proposed development programs will be focused on optimization of the production process and the direction of stem cells to myogenic cells. In addition, animal testing will be performed to validate the process. The validation process will use various tissue cells as a source of regeneration of myogenic cells. These cells will be transplanted into the injured tissues of animals that will then be observed for the quality of rehabilitation and degree of successful of regeneration. The technology and product will also be applied and tested in damaged human tissue.
The project presented in this proposal allows for the first time to produce a new product suited for a safe and adaptable transplant in human patients. This innovative product is expected to bring a new treatment for a very sever and unsolved medical problem. It should provide an attractive alternative to currently used cellular therapy practices and treatments.
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FruitNess Ltd.
On November 23, 2010, Meizam Arad signed an initial share purchase agreement with Alexander Tchitchelnitski to acquire 40% of a joint venture shares with FruitNess Ltd. for 1.5 million Israeli Shekels (approximately $400,000). The agreement is pending the approval of the Israeli Ministry of Industry, Trade & Labor. Mr. Tchitchelnitski developed a food fusion technology for vegetables and fruits, and is planning to set an industrial pilot and start initial sales in 2011.
TooPii Ltd.
On January 17, 2011, Meizam Arad signed an initial share purchase agreement with TooPii Ltd. to acquire 35% of TooPii shares for 1.5 million Israeli Shekels (approximately $400,000). The agreement is pending the approval of the Israeli Ministry of Industry, Trade & Labor. TooPii develops a multimedia search engine for content management of Web portals, and is planning to install a beta site during 2011.
Publishers while having enormous amounts of content, fail to engage their users with all the content that interests them. Increasing users' reach to content is limited today due to the website’s size and structure and the publishers’ ability to serve targeted content to users based on their interests.
TooPii offers publishers a unique model and an advanced technology for arranging and serving content effectively. TooPii turns a publisher’s website to an engaging information source by enriching the web pages with dynamic layers of contextual content. With TooPii. users are reaching and consuming more content on site and the publishers increasing their revenue streams significantly.
TooPii’s viewer is placed as a floating layer on top of the page presenting users rich and targeted information related to the content of the page. As a user clicks a term of interest, TooPii’s viewer is opened offering content that was aggregated and packaged based on the user's preferences. With TooPii a single web page turned to a highly rich, dynamic and interactive source of information offering user a highly effective browsing experience.
The solution is based on an advanced business and technology platform that aggregates and serves content to users based on contextual relevance. The content aggregated either from the publisher's internal sources along with content from external sources of his choice.
TooPii’s viewer creates a new real estate for targeted ads and creates for the publisher’s new and highly effective channel of revenues. TooPii bases its business model on commission from the new revenue streams generated to the publishers.
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Further Search for Business Opportunities and New Prospects.
RetiCad Ltd. Soroka Medical Center
RetiCAD has developed a comprehensive standardized evaluation of retinal pathologies capable of earlier diagnosis of retinal disease. The system provides easy patient follow-up and tracking the diseases progression. The system provides a quantifying measurement of the perfusion retinal map with clear indication of the problematic retinal areas. The system assists the physician in tailoring treatment for each patient.
The system generates a flow and permeability maps with objective and quantitative measures of retinal blood supply, extracting functional and dynamic parameters reflecting the status of retinal vessels. The system provides:
· increased accuracy – better diagnosis and treatment
· allowing reliable follow-up of disease progression and treatment.
· reduce examination time (from 20 min to <5 min).
TransPlant Ltd. – Sheba Medical Center
As labs around the world respond to the challenges of accomplishing more results with fewer resources, (more methods developed, more analyses performed, more information related products and increasing demands of quality control) the challenge is to remain competitive, stay compliant with standards, and maintain a high standard of analysis, while at the same time operating within schedule and budget constraints. Furthermore, there is a greater burden of consolidating data from various sources. All of the above are the driving force for managements and for the regulator to developed computerized tools to manage the laboratory processes and the data that is generated for superior lab performance.
The product is an integrated laboratory and data management tool. The product is software for management and integration of numerous tests and quality control of a national laboratory for solid organ transplants and for tissue typing laboratories at worldwide medical centers.
The software assists the laboratory with tissue typing in the context of finding stem cell donors for malignant and genetic disorders. The software aids all steps in finding suitable donors for bone marrow and cord transplants. Tissue typing relates to the biochemical definition of genes called HLA A, HLA B etc. that encode proteins in both the recipient and the donor. This definition can be done by two major methodologies called serology and molecular biology. In addition each methodology can be performed using several techniques and at several levels. The closer we home – in on a prospective donor, the level of typing should be higher. The requirement for software stems from the fact that the results from all techniques and methodologies should be integrated and the fact that the status of the recipient and the prospective donor changes based on previous results, necessitating further tests. A further complication is that numerous tests are performed in parallel and results are compared. Results should be consistent with each other.
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Development of the software has resulted in mechanization of most of the tests being performed in Shiba Hospital and as a national transplant laboratory and the national laboratory for solid organ transplants.
The laboratory functions as the national laboratory for solid organ transplants with the function of immunological monitoring of all patients who are on the national waiting list for kidney and pancreas allocation from cadaver donors. Needless to say, an error in this context can lead to the erroneous allocation of an organ with life threatening consequences. Numerous (at present more than 600) blood samples are received in the laboratory on a monthly basis from more than 30 dialysis units. In order to mechanize the process and minimize human intervention we have developed bar code Israeli ID based software for the collection of samples from the units and their reception in the laboratory. Following reception in the laboratory, the laboratory assigns worksheets for the various tests that are to be performed. These worksheets are based on results from previous tests. The tests include determination of antibody levels and specificities and planning of cross matches for ad hoc cross matches between donors and potential recipients. Finally there is software-based allocation of the solid organs. Numerous warnings are generated with regard, for example to blood products that were not received (this can have medico legal implications) or changes in antibody levels and specificities (this can affect the organ allocation procedure).
General quality control and accreditation issues: The software that has been developed documents all the kits that are used and the samples that have been tested with each kit. The software documents external and internal quality control tests that have been performed with the kits, which performed the tests, the chain of custody of the sample and who specifically performed or analyzed the test. It documents expiration dates etc. The sample ID is always compared and linked with ministry of interior data, thus avoiding clerical mistakes in the incorporation of blood samples.
All electronic laboratory instruments are linked with the software. The work lists that are generated are incorporated into the software of the instruments. The output i.e. results from the instruments is sent to a technologist and, if authorized by the technologist, are sent to the files of the patients.
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.
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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.
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.
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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.
The Company now has five full time employees and three part-time all provided and funded by Impact Active Team Ltd.
ITEM 1A. 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 $1,002,034 for the year ended December 31, 2010, $463,363 for the year ended December 31, 2009, and $2,734,385 for the period of inception (July 23, 2004) through December 31, 2010. 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.
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(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 March 30, 2011, the Company’s independent auditor stated that the financial statements for the periods ended December 31, 2010 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.
(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.
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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.
(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.
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(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:
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longer operating histories;
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larger customer bases;
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greater name recognition and longer relationships with clients; and
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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.
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(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.
(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) 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.
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(m) 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) 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:
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Price and volume fluctuations in the overall stock market from time to time;
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Significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;
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Changes in regulatory policies with respect to business development companies;
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Actual or anticipated changes in earnings or fluctuations in operating results;
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General economic conditions and trends;
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Loss of a major funding source; or
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Departures of key personnel.
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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 Common 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.
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(c) No Assurance of a Public Trading Market and Risk of Low Priced Securities May Affect Market Value of Common 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:
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the broker or dealer has approved the person’s account for transactions in penny stock pursuant to this rule; and
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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.
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In order to approve a person’s account for transactions in penny stock, the broker or dealer must:
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obtain from the person information concerning the person’s financial situation, investment experience, and investment objectives;
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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
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receive from the person a manually signed and dated copy of the written statement.
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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:
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control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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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.
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(d) Failure To Remain Current In Reporting Requirements Could Result In Delisting From The Over The Counter Bulletin Board.
Companies that trade on the Over the Counter Bulletin Board 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.
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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 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) 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
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ITEM 2. 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 and associate, Impact Active Team Ltd., TPDS Ltd. and Meizam – Advanced Enterprise Center Arad 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.
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.
ITEM 3. LEGAL PROCEEDINGS.
(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 the Company as guarantor to loan provided to Enterprise Capital. Mr. Elimelech, and Mr. Mar-Chaim are also named as defendants in this action. The defendants have filed answers in this action.
(b) On October 7, 2010, the SEC initiated administrative proceedings against the Company, among others, that seeks to revoke the registration of the Company’s common stock under Section 12 of the Securities Exchange Act of 1934 based on certain delinquent filings. On November 4, 2010, the Company entered into a Settlement Agreement with the SEC; under this agreement, as long as the Company files all the delinquent filings, in proper form and content, not later than January 31, 2011, then the Company will only be subject to a Cease and Desist Order (with no fine attached).
The Company fully complied with the terms of this Settlement Agreement by filing all delinquent reports. As a result, on March 2, 2011 these proceedings as to the Company were dismissed by the SEC. In addition, on that date the SEC entered an order instituting cease-and-desist proceedings pursuant to section 21c of the Securities Exchange Act of 1934, making findings, and imposing a cease-and-desist order. This matter has not been concluded.
There are no other 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.
ITEM 4. (REMOVED AND RESERVED).
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PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information.
Currently, there is no public trading market for the Company’s common stock. In order to qualify for listing on the Over the Counter Bulletin Board (“OTCBB”), the Company must comply with the eligibility rules of the OTCBB (that is, all listed companies must be reporting companies), and accordingly the Company has filed and cleared comments on a Form 10-SB registration statement with the SEC. The Company has applied for eligibility for quotation on the OTCBB.
Holders of Common Equity.
As of March 31, 2011, the Company had 58 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 during the year ended on December 31, 2010.
There were no purchases of common stock of the Company by the Company or its affiliates during the year ended December 31, 2010.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
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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 intends to develop cutting edge pulmonary drug delivery systems capable of controlled drug delivery and drug release systems that improve the way patients receive medications and vaccines. The Company’s long-term goal is to become a leading supplier of particle delivery systems to the pharmaceutical and biotechnology industries.
The Company will continue to focus its business development efforts on new and existing licensing and supply agreements with leading pharmaceutical and biotechnology companies and after clinical trials, if successful, will continue to push for human testing so the Company can bring its product into the market.
The Company’s clinical research efforts will continue to be aimed primarily at collaborations in the areas of vaccines and drug delivery. The research and development efforts will focus on the Company’s two main product lines, VAP and COPD. In addition, the Company will continue to work on product improvements to existing devices and development of products.
The Company is still in its development phase, and it expects to remain in the this phase for at least another five years until its products receive FDA approval and investors and buyers for its products can be secured.
(b) Operations.
The Company intends to focus initially on delivery of hydrophobic antibiotics carried by our nano-particle delivery system via inhalation. In order to expedite time to market, the Company also intends to focus initially on VAP patients in hospitals, where the mortality rate is high and TPDS Ltd. technology may be considered as a life saving solution. TPDS concluded its initial development of the nano-particle delivery system with the target antibiotics tested in hospital mobilization systems. The Company’s next phase is bacterial and completion of clinical trials needed to receive Helsinki approval to administer the Company’s medical solution for dying VAP patents. All clinical data accumulated will be used as the FDA clinical data and provide substantiation of technology efficiency. The Company estimates the needed funds for this phase as $500,000 including establishing initial production at a GMP facility.
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The Company is looking for expediting the regulatory process to obtain an FDA approval. Although the Company will be required to conduct full clinical trials in order to obtain an FDA approval that will allow the Company to sell its products in the U.S., it can start commercializing the product outside the US before obtaining the FDA approval. In Europe, the Company is required to obtain only a CE-Mark certification plus local registration certificates to start sales.
In order to obtain CE-Mark certification, the Company needs to submit to the local health department the Company’s compiled file containing all medical, biological, chemical, clinical information, along with all results accumulated from our pre-clinical and clinical trials. In some cases, the Company will be asked to add or repeat a test in order to obtain the approval.
The Company estimates the needed funds for this phase as $300,000. In addition, due to the potential life saving nature of these products, the Company may apply to the FDA for a “Compassionate Use” certificate that will allow the Company to begin selling its products to hospitals in the U.S. before the clinical trials are concluded. The Company estimates that this phase funds needs are $100,000 for the regulation process. Assuming the Company can collect and use the clinical data accumulated for the Companionate Use, the Company estimates that an additional $750,000 will be required in order to complete all phase 2 and 3 clinical trials in animals and humans.
The Company intends to retain regulatory consultants in order to expedite obtaining certifications in Israel, Europe, U.S. and the rest of the world. The Company estimates that the cost of such an expert will be about $150,000.
In order to simplify the regulatory process, the Company intends to focus initially on generic FDA-approved drugs and on a drug delivery formulation based on GRAS (Generally Recognized As Safe) components. The Company intends to conduct pre-clinical trials in animals, mainly to prove safety issues that will allow it to apply for clinical trials in hospitals. Due to the potential life saving nature of its products, the Company expects that upon the completion of the safety pre-clinical trial some hospitals will start conducting clinical trials in their respiratory intensive care unit focusing initially on life threatened patients. The Company estimates that safety bacterial and toxicity tests will require budget of approximately $40,000. Should the clinical trials show successful results, the Company expects that hospitals will expand the usage to patients that are not in a life-threatening situation.
All needed budget for the medication production are covered in the initial development budget. The current production facility can produce TPDS medication for 10 patients per day. The available facility does not stand in GMP standards and therefore the Company’s production is dedicated for in-vitro and animal trials.
The Company intends to develop in parallel a product for home use aimed at the mass market of COPD patients. The Company estimates the budget needed to adapt its technology to the COPD patients as $100,000. The Company also intends to utilize the synergy in the regulatory procedures and expedite the COPD product development in parallel to the VAP product. The Company estimates an additional budget of about 1 million dollars for completion of the additional clinical trials needed for COPD medication phase 1 and 2. Since the mass COPD market is not in a life-threatening situation, the Company believes that it requires full FDA approval to commercialize the product in the U.S. The Company estimates that it will require an additional $2,000,000 complete the full FDA approval process.
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Therefore, the Company intends to focus on the hospital VAP product in order to promote the market education, if and when the FDA approval is obtained, and leverage it for the COPD product launching.
The Company has already started looking for a GMP manufacturing infrastructure that may produce its products. The Company intends to rely initially on existing drug producers infrastructures, but in the long run it may establish our own manufacturing line in the City of Arad.
When clinical trials start, the Company intends to approach pharmaceutical companies in Europe and Israel that specialize in distributing hospital supply. Such companies may take the responsibility for the local regulatory procedures as well as the local sales to hospitals.
There is no plan to purchase significant equipment or plant. The Company may acquire additional business synergies to its current business line. For the present time, there is no plan for such a transaction. The Company plans to recruit additional two employees: pre-clinical trials manager, and regulatory manager.
Results of Operations.
(a) Net Revenue.
The Company had net revenue of $375,779 for the year ended December 31, 2010 compared to $65,501 for the year ended December 31, 2009, an increase of $310,278 or approximately 473%. This increase in net revenue was the result of an increase the acquisition of the majority owned subsidiary Meizam Arad and the receipt of government grants during 2010.
(b) General and Administrative Expenses.
The Company had general and administrative expenses of $910,593 for the year ended December 31, 2010 compared to $530,721 for the year ended December 31, 2009, an increase of $379,872 or approximately 72%. This increase in general and administrative costs was due to the acquisition of its majority owned subsidiary, Meizam Arad, and an increase in legal fees, rental and accounting fees in 2010
(c) Net Loss.
The Company had a net loss of $1,002,034 for the year ended December 31, 2010 compared to $463,363 for the year ended December 31, 2009, an increase of $538,671 or approximately 116%. The increase in net loss is the result primarily from the increase in expenses incurred by the Company’s newly acquired subsidiary Meizam Arad in 2010.
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Operating Activities.
The net cash provided by operating activities was $579,598 for the year ended December 31, 2010 compared to net cash provided by operating activities of $112,359 for the year ended December 31, 2009, an increase of 467,239 or approximately 416%. This increase is attributed to several changes from period to period, mainly due to proceeds from accounts payable in 2010.
Investing Activities.
Net cash used in investing activities was $487,929 for the year ended December 31, 2010 compared to net cash used in investing activities $9,991 for the year ended December 31, 2009, an increase of $477,938 or approximately 4,784%. This increase resulted from the acquisition of Meizam Arad, as well increased purchases of equipment in connection with this acquisition.
Liquidity and Capital Resources.
As of December 31, 2010, the Company had total current assets of $260,054 and total current liabilities of $1,205,129, resulting in a working capital deficit of $945,075. The cash balance as of December 31, 2010 totalled $23,672.
The net cash used in financing activities was $80,941 for the year ended December 31, 2010, primarily as a result of loans from key management personnel. The net cash used in financing activities was $74,414 for the year ended December 31, 2009, resulting in an increase of $6,527 or approximately 9%. Overall, cash and cash equivalents for the year ended December 31, 2010 increased by 10,728.
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.
The Company raised $7,700 from the issuance of 770,000 common shares pursuant to a Regulation S offering during July 2006. On July 19, 2006, the Company entered into a Regulation S Stock Purchase Agreement with 1568934 Ontario Limited for the sale of 200,000 restricted shares of the Company’s common stock for consideration of $150,000 ($0.75 per share). These shares were issued on August 6, 2006, the value of which was recorded as offering costs against paid-in capital. Each share was accompanied by a 12-month warrant to acquire five shares at the price of the Company’s initial public offering as determined on the first trading day.
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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:
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curtail operations significantly;
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sell significant assets;
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seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to products, technologies or markets; or
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explore other strategic alternatives including a merger or sale of the Company.
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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.
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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.
The Company evaluates its long-lived assets and certain identified intangible assets for impairment in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable utilizing an undiscounted cash flow analysis. We did not recognize any other impairment on our long-lived assets during the periods presented.
(c) Share-Based Compensation.
On January 1, 2006, the Company adopted SFAS No.123R, which requires the measurement and recognition of compensation expense for all share-based payments to its employees and directors, including employee stock options, restricted stock and stock purchases based on the estimated fair value of the award on the grant date. Upon the adoption of SFAS No. 123R, 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 SFAS No. 123.
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.
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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 recognized 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Audited financial statements as of and for the years ended December 31, 2010 and 2009, and for the period of inception (July 23, 2004) through December 31, 2010, are presented in a separate section of this report following Item 15.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
(a) Effective on September 9, 2009, Child, Van Wagoner & Bradshaw, PLLC, the independent registered public accounting firm who was previously engaged as the principal accountant to audit the Company’s financial statements, was dismissed by the Company. The decision to change principal accountants was approved by the Company’s Board of Directors.
Child, Van Wagoner & Bradshaw, PLLC audited the Company’s financial statements for the year ended December 31, 2005, the period of inception (July 23, 2004) through December 31, 2004, and the period of inception (July 23, 2004) through December 31, 2005. This firm’s report on these financial statements was modified as to uncertainty that the Company will continue as a going concern; other than this, the accountant’s report on the financial statements for that period neither contained an adverse opinion or a disclaimer of opinion, nor was qualified or modified as to uncertainty, audit scope, or accounting principles.
During the period of inception (July 23, 2004) through December 31, 2005, and the subsequent period preceding such dismissal, there were no disagreements with Child, Van Wagoner & Bradshaw, PLLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. In addition, there were no “reportable events” as described in Item 304(a)(1)(iv)(B)1 through 3 of Regulation S-K that occurred during the period of inception (July 23, 2004) through December 31, 2005, and the subsequent period preceding such dismissal.
(b) On September 9, 2009, the Company engaged Dov Weinstein & Co., as successor to Child, Van Wagoner & Bradshaw, PLLC, as its independent registered public accounting firm to audit the Company’s financial statements. During the period of inception (July 23, 2004) through December 31, 2005, and the subsequent period prior to engaging this firm, neither the Company (nor someone on its behalf) consulted the newly engaged accountant regarding any matter.
ITEM 9A. 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.
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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, 2010. 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, 2010 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, 2010. Specifically the Company did not maintain an effective control environment based on the criteria established in the COSO framework.
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:
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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.
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the Company did not establish a formal enterprise risk assessment process.
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These control environment material weaknesses contributed to the material weaknesses described below:
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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”);
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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;
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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;
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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;
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the Company did not design and maintain effective controls to ensure that revenue-recognition policies were recorded in accordance with GAAP; and
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the Company did not design and maintain effective controls to ensure that accounting reconciliations between subsidiaries were prepared in accordance with GAAP.
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Additional material weaknesses identified were as follows:
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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;
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the need to upgrade accounting software so as to provide for more timely access to financial reports; and
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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.
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(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, 2011, 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.
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The Company has taken, or will take, the following actions:
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the Company intends to design, implement and maintain an effective control environment over financial reporting based upon the Treadway Commission guidelines;
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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;
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the Company has begun upgrading its existing accounting software to a recognized software package to ensure financial reports are available more timely; and
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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.
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(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.
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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 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. 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.
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.
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(a) Sam Shlomo Elimelech, President/Director.
Mr. Elimelech, age 53, 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 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, 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 48, has twenty years of experience in strategic planning for more than 300 hi-tech companies. In May 1987 he joined P.O.C., 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 Investments GmbH, a Swiss-based investment company, as an investment manager in its Israel office and in July 2003 joined Enterprise Capital AG 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 three 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 the Company 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.
(b) On October 19, 2006, P.O.C. Capital Investments Ltd., 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. The Company, 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 Investments, Mr. Elimelech, and Mr. Mar-Chaim are also named as defendants in this action. The defendants have filed answers in this action.
45
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 2010, and certain written representations from executive officers and directors, the Company is not aware of any required reports that were not timely filed.
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.
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.
46
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.
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.
|
47
|
·
|
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.
ITEM 11. EXECUTIVE COMPENSATION.
(a) The current officers and directors have not received any compensation to date. They will not be remunerated until the Company commences operations.
On July 3, 2006, the Company entered into employment agreements with its two officers, Mr. Elimelech and Mr. Mar-Chaim, Secretary/Treasurer. The Company is to pay to the employees, on or before the 9th day of each calendar month, a gross salary as follows: (a) $10,000 per month with respect to the period commencing on the Effective Date (July 3, 2006) and terminating upon the earlier of: (i) January 1, 2007; (ii) the end of the calendar month during which the Employee will desire to convert the employees due salaries to Company shares of common stock at a share price of $0.10 per share; (b) $15,000 per month with respect to the period commencing upon such conversion and upon expiration of the period set forth in (a) above. (c) $20,000 per month with respect to the period starting on January 1, 2008. This salary, unless otherwise specifically provided herein, does not include the employment-benefit payments provided by any applicable law. These individuals will also be eligible to have a company car and receive certain other employee benefits.
(b) There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of the Company in the event of retirement at normal retirement date as there is no existing plan provided for or contributed to by the Company.
(c) No remuneration is proposed to be paid in the future directly or indirectly by the Company to any officer or director since there is no existing plan that provides for such payment, including a stock option plan.
48
ITEM 12. 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 March 31, 2011 (18,246,667 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
|
Pangea Investments,
GmbH, Einsiedlpus
Wasse 1, Waedenswil
V8 Switzerland 8820
|
6,248,200 (2)
|
34.24%
|
|
Common Stock
|
1568934 Ontario Limited,
3845 Bathurst Street,
Suite 202, Toronto, Ontario,
Canada, M3H 3N2
|
4,318,467 (3)
|
22.44%
|
|
Common Stock
|
Sam Shlomo Elimelech,
5190 Neil Road,
Suite 430, Reno,
Nevada 89502
|
4,200,000 (4)
|
23.02%
|
|
Common Stock
|
Gai Mar-Chaim,
5190 Neil Road,
Suite 430, Reno,
Nevada 89502
|
4,100,000 (5)
|
22.47%
|
|
Common Stock
|
Shares of all directors
and executive officers
as a group (2 persons)
|
8,300,000
|
45.49%
|
(1) Each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them. None of these individuals holds any convertible securities.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Ralph W. Marthaler may be deemed a control person of the shares owned by this stockholder. 50,000 of the total shares are owned by Mr. Marthaler personally and the remainder by Pangea Investments, GmbH.
(3) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Howard 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 FINRA (which will occur within the next 60 days).
(4) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, 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.
(5) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, 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.
49
Securities Authorized for Issuance under Equity Compensation Plans.
The Company has not adopted any equity compensation plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
During the last two fiscal years 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.
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.
ITEM 14. 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 the year ended December 31, 2010, and for the period of inception (July 23, 2004) through December 31, 2010: $10,000. The aggregate fees to be billed for the professional services rendered by Dov Weinstein & Co. for review of the Company’s Form 10-Q’s for the year ended December 31, 2010: $6,000.
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.
50
ITEM 15. 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, 2010 and 2009, and the period of inception (July 23, 2004) through December 31, 2010; 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).
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 14, 2011
|
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
|
April 14, 2011
|
||
|
/s/ Gai Mar-Chaim
Gai Mar-Chaim
|
Secretary/Treasurer/Director
|
April 14, 2011
|
51
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, 2010 and 2009, 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, 2010. 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, 2010 and 2009, 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, 2010, 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
March 30, 2011
52
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
|
December 31,
2010
|
December 31,
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 23,672 | $ | 28,604 | ||||
|
Accounts receivable
|
236,382 | 11,532 | ||||||
|
Total current assets
|
260,054 | 40,136 | ||||||
|
Property, plant and equipment
|
47,477 | 26,171 | ||||||
|
Investment in equity-accounted investee
|
-- | 2,459 | ||||||
|
Other assets
|
93,841 | 43,686 | ||||||
|
Total assets
|
$ | 401,372 | $ | 112,452 | ||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 1,205,129 | $ | 208,954 | ||||
|
Total current liabilities
|
1,205,129 | 208,954 | ||||||
|
Long-term liabilities:
|
||||||||
|
Long-term debt
|
1,867,201 | 1,421,928 | ||||||
|
Bank overdrafts
|
38,387 | 36,089 | ||||||
|
Total liabilities
|
3,110,717 | 1,666,971 | ||||||
|
Non-controlling interest
|
(186,441 | ) | 2,295 | |||||
|
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; 9,980,000 shares issued and outstanding
|
9,980 | 9,980 | ||||||
|
Additional paid-in capital
|
156,730 | 156,730 | ||||||
53
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(continued)
|
December 31,
2010
|
December 31,
2009
|
|||||||
|
Share-based reserves
|
6,300 | 6,300 | ||||||
|
Accumulated deficit during development stage
|
(2,682,781 | ) | (1,732,351 | ) | ||||
|
Accumulated other comprehensive loss
|
(13,133 | ) | 2,527 | |||||
|
Total Andain, Inc.’s stockholders deficit
|
(2,522,904 | ) | (1,556,814 | ) | ||||
|
Total stockholders deficit
|
(2,709,345 | ) | (1,554,519 | ) | ||||
|
Total liabilities and stockholders’ deficit
|
$ | 401,372 | $ | 112,452 | ||||
The accompanying notes are an integral part of these consolidated financial statements
54
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Period of Inception
(July 23, 2004) through
|
||||||||||||
|
Years Ended
December 31,
|
||||||||||||
|
2010
|
2009
|
December 31, 2010
|
||||||||||
|
Revenue:
|
||||||||||||
|
Government grants
|
$ | 369,700 | $ | -- | $ | 369,700 | ||||||
|
Consulting income
|
6,079 | 65,501 | 372,318 | |||||||||
|
Total revenue
|
375,779 | 65,501 | 742,018 | |||||||||
|
Operating expenses:
|
||||||||||||
|
Depreciation
|
(8,997 | ) | (6,426 | ) | (28,246 | ) | ||||||
|
General and administrative
|
(910,593 | ) | (530,721 | ) | (2,931,407 | ) | ||||||
|
Research and development
|
(146,760 | ) | -- | (146,760 | ) | |||||||
|
Impairment of goodwill
|
(322,977 | ) | -- | (397,991 | ) | |||||||
|
Total operating expenses
|
(1,389,327 | ) | (537,147 | ) | (3,504,404 | ) | ||||||
|
Loss from operations
|
(1,013,548 | ) | (471,646 | ) | (2,762,386 | ) | ||||||
|
Interest income
|
13,733 | 8,283 | 32,735 | |||||||||
|
Interest expense
|
(2,219 | ) | -- | (4,734 | ) | |||||||
|
Net loss
|
(1,002,034 | ) | (463,363 | ) | (2,734,385 | ) | ||||||
|
Add: Net loss attributable to non-controlling interest
|
51,604 | -- | 51,604 | |||||||||
|
Net loss and deficit accumulated during development stage attributable to Andain
|
$ | (950,430 | ) | $ | (463,363 | ) | $ | (2,682,781 | ) | |||
|
Loss per share - basic:
|
||||||||||||
|
Net loss attributable to Andain
|
$ | (0.095 | ) | $ | (0.046 | ) | ||||||
|
Weighted average common shares
|
9,980,000 | 9,980,000 | ||||||||||
55
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
|
Period of Inception
(July 23, 2004) through
|
||||||||||||
|
Years Ended
December 31,
|
||||||||||||
| 2010 | 2009 |
December 31, 2010
|
||||||||||
|
Loss per share - diluted:
|
||||||||||||
|
Net loss attributable to Andain
|
$ | (0.059 | ) | $ | (0.029 | ) | ||||||
|
Weighted average common shares
|
15,980,000 | 15,980,000 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements
56
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2010
|
Common Stock
|
Capital In
Excess
Of Par
|
Share-Based Reserves
|
Non-Controlling Interest
|
Accumulated Deficit
|
Other Comprehensive Loss
|
Total
Stockholders’ Deficit
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
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 | ||||||||||||||||||||||||
57
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2010
(continued)
|
Common Stock
|
Capital In
Excess
Of Par
|
Share-Based Reserves
|
Non-Controlling Interest
|
Accumulated Deficit
|
Other Comprehensive Loss
|
Total
Stockholders’ Deficit
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
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
|
-- | -- | -- | -- | -- | -- | 2,164 | 2,164 | ||||||||||||||||||||||||
|
Net loss
|
-- | -- | -- | -- | -- | (450,577 | ) | -- | (450,577 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2007
|
9,980,000 | 9,980 | 156,730 | 4,300 | 2,185 | (769,060 | ) | 764 | (595,119 | ) | ||||||||||||||||||||||
58
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2010
(continued)
|
Common Stock
|
Capital In
Excess
Of Par
|
Share-Based
Reserves
|
Non-Controlling Interest
|
Accumulated Deficit
|
Other Comprehensive Loss
|
Total
Stockholders’ Deficit
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Non-controlling interest
|
-- | -- | -- | -- | 67 | -- | -- | 67 | ||||||||||||||||||||||||
|
Non-cash compensation expense
|
-- | -- | -- | 2,000 | -- | -- | -- | 2,000 | ||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-- | -- | -- | -- | -- | -- | 1,131 | 1,131 | ||||||||||||||||||||||||
|
Net loss
|
-- | -- | -- | -- | -- | (499,928 | ) | -- | (499,928 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2008
|
9,980,000 | 9,980 | 156,730 | 6,300 | 2,252 | (1,268,988 | ) | 1,877 | (1,091,849 | ) | ||||||||||||||||||||||
|
Non-controlling interest
|
-- | -- | -- | -- | 43 | -- | -- | 43 | ||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-- | -- | -- | -- | -- | -- | 650 | 650 | ||||||||||||||||||||||||
|
Net loss
|
-- | -- | -- | -- | -- | (463,363 | ) | -- | (463,363 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2009
|
9,980,000 | 9,980 | 156,730 | 6,300 | 2,295 | (1,732,351 | ) | 2,527 | (1,554,519 | ) | ||||||||||||||||||||||
59
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2010
(continued)
|
Common Stock
|
Capital In
Excess
Of Par
|
Share-Based Reserves
|
Non-Controlling Interest
|
Accumulated Deficit
|
Other Comprehensive Loss
|
Total
Stockholders’ Deficit
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Purchase of additional controlling interests
|
-- | -- | -- | -- | (137,132 | ) | -- | -- | (137,132 | ) | ||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-- | -- | -- | -- | -- | -- | (15,660 | ) | (15,660 | ) | ||||||||||||||||||||||
|
Net loss
|
-- | -- | -- | -- | (51,604 | ) | (950,430 | ) | -- | (1,002,034 | ) | |||||||||||||||||||||
|
Balance at December 31, 2010
|
9,980,000 | $ | 9,980 | $ | 156,730 | $ | 6,300 | $ | (186,441 | ) | $ | (2,682,781 | ) | $ | (13,133 | ) | $ | (2,709,345 | ) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
60
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Period of Inception
(July 23, 2004) through
|
||||||||||||
| Years Ended
December 31,
|
||||||||||||
| 2010 | 2009 | December 31, 2010 | ||||||||||
|
Operating activities:
|
||||||||||||
|
Net loss attributable to Andain, Inc.
|
$ | (950,430 | ) | $ | (463,363 | ) | $ | (2,682,781 | ) | |||
|
Income charges (credits) not affecting cash:
|
||||||||||||
|
Depreciation
|
8,997 | 6,426 | 28,246 | |||||||||
|
Amortization of goodwill
|
322,977 | -- | 322,977 | |||||||||
|
Minority interest
|
(51,604 | ) | 43 | (49,309 | ) | |||||||
|
Shares issued for professional services
|
-- | -- | 1,910 | |||||||||
|
Non-cash compensation expense
|
-- | -- | 6,000 | |||||||||
|
Equity-settled share-based payment
|
-- | -- | 300 | |||||||||
|
Effect of movements in foreign exchange rates on non-cash items
|
(1,667 | ) | (278 | ) | (6,356 | ) | ||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts payable
|
996,175 | 88,667 | 1,200,152 |
|
Accounts receivable
|
(224,850 | ) | 864 | (236,036 | ) | |||||||
|
Accrued compensation
|
480,000 | 480,000 | 1,920,000 | |||||||||
|
Accrued expenses – stockholder
|
-- | -- | 37,508 | |||||||||
|
Accrued expenses – consulting fees
|
-- | -- | 60,000 | |||||||||
|
Net cash provided by operating activities
|
579,598 | 112,359 | 602,611 | |||||||||
|
Investing activities:
|
||||||||||||
|
Purchase of equipment
|
(28,636 | ) | (9,355 | ) | (70,548 | ) | ||||||
|
Acquisition of subsidiary
|
(461,752 | ) | -- | (461,752 | ) | |||||||
|
Purchase of interest in equity- accounted investee
|
2,459 | (636 | ) | -- | ||||||||
|
Net cash used in investing activities
|
(487,929 | ) | (9,991 | ) | (532,300 | ) | ||||||
61
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
| Period of Inception
(July 23, 2004) through
|
||||||||||||
| Years Ended
December 31,
|
||||||||||||
| 2010 | 2009 | December 31, 2010 | ||||||||||
|
Financing activities:
|
||||||||||||
|
Proceeds from increase in bank overdrafts
|
2,298 | 253 | 38,387 | |||||||||
|
Proceeds from stock issued for cash
|
-- | -- | 164,800 | |||||||||
|
Proceeds (repayment) of other loans
|
34,414 | 49,788 | (1,309 | ) | ||||||||
|
Loan from majority stockholder
|
(2,098 | ) | (1,285 | ) | (16,617 | ) | ||||||
|
Loan from equity-accounted investee
|
2,151 | (3,974 | ) | -- |
|
Loans from key management personnel
|
(117,706 | ) | (119,196 | ) | (218,767 | ) |
|
Net cash used in financing activities
|
(80,941 | ) | (74,414 | ) | (33,506 | ) | ||||||
|
Increase in cash and cash equivalents
|
10,728 | 27,954 | 36,805 | |||||||||
|
Cash and cash equivalents, beginning of period
|
28,604 | -- | -- | |||||||||
|
Effects of exchange rate changes on balance of cash held in foreign currencies
|
(15,660 | ) | 650 | (13,133 | ) | |||||||
|
Cash and cash equivalents, end of period
|
$ | 23,672 | $ | 28,604 | $ | 23,672 | ||||||
62
ANDAIN, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
| Period of Inception
(July 23, 2004) through
|
||||||||||||
| Years Ended
December 31,
|
||||||||||||
| 2010 | 2009 | December 31, 2010 | ||||||||||
|
Supplementary schedule of cash flow activities:
|
||||||||||||
|
Non-cash investing and financing activities:
|
||||||||||||
|
Issuance of common stock for payment of consulting fees
|
$ | -- | $ | -- | $ | 1,900 | ||||||
|
Issuance of common stock for purchase of intellectual property
|
$ | -- | $ | -- | $ | 4,500 | ||||||
|
Issuance of common stock for purchase of subsidiary
|
$ | -- | $ | -- | $ | 2,500 | ||||||
|
Issuance of common stock for payment of management and consulting fees
|
$ | -- | $ | -- | $ | 300 | ||||||
|
Non-cash compensation expense
|
$ | -- | $ | -- | $ | 6,000 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
63
ANDAIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 AND 2009, AND
PERIOD OF INCEPTION (JULY 23, 2004) THROUGH DECEMBER 31, 2010
NOTE 1 – GENERAL INFORMATION
Andain Inc. (“Company”) was established in 2004 in the State of Nevada, U.S.A. Since commencing operations in 2006, the Company has been engaged, both independently and through its consolidated entities (collectively, the “Group”), in the development of medical technology, from early stage development to advanced clinical trials, for a wide range of medical needs.
In October 2010, the Company acquired Meizam – Advanced Enterprise Center Arad Ltd. (“Meizam Arad”) and currently holds a 70% interest in the subsidiary, with the remaining 30% held by the City of Arad, Israel and local industries. The subsidiary was acquired to operate an industrial research and development center in an incubator located in the City of Arad under an agreement with the State of Israel (“Incubator”). See Note 12.
The Company has been engaged in drug development since commencing operations and not yet generated profits from its activities and cannot determine with reasonable certainty if and when the Company will become profitable.
Agreement with the State of Israel for the Operation of a Biotechnology Incubator.
The biotechnological incubators program is an initiative of the Office of the Chief Scientist (“OCS”) that is designed to strengthen and promote the Israeli technology industry, as well as biotechnology projects. This program was launched in late 2001following publication of Directive No. 8.12 of the Director-General of Israel’s Ministry of Industry, Trade and Labor (“MOITL”) (“Directive 8.12”). This directive implements the recommendations of the “Monitor” report, which reviewed ways to promote the Israeli technology industry and recommended the establishment of for-profit incubators to support commercially viable projects by providing physical, organizational, professional, marketing and business infrastructure to promote research and development by early-stage biotechnology enterprises.
Directive 8.12 was amended in May 2004, to prescribe two tracks for operating biotech incubators (see (e) below). Immediately after the amendment of Directive 8.12, the OCS issued a call for proposals to establish and operate incubators. The Company, whose proposal was accepted by the OCS, entered into an agreement with the OCS, through a partnership, for the operation of a designated biotechnology incubator. The principal provisions of the incubator agreement are as follows:
(a) Period of the Agreement.
The Incubator agreement has a three-year period, commencing January 1, 2009. In January 2011, MOITL issued an updated regulation extending technology-oriented incubator licenses up to six years. Meizam Arad intends to apply to MOITL for such an extension.
64
(b) Scope of Incubator Operations.
The Incubator is designed for the simultaneous operation of at least 50 OCS approved projects. The Group may operate additional projects within the Incubator’s facilities that are not funded by the State or under the incubator program, provided that the operation of such additional projects does not interfere with OCS-approved projects.
(c) Summary of the Group’s Obligations.
Within the framework of the incubator agreement, the Group has agreed to operate a biotechnology-designated incubator, to identify projects suitable for OCS approval, to make adequate premises and physical infrastructure available for at least 50 projects and to provide administrative, organizational, professional and business support to the projects in order to facilitate research and development of commercially viable biotechnology projects. Among other things, some minimum requirements have been set for Incubator staff in terms of skills and employment levels. In addition, the Group has agreed to maintain a central laboratory for the use of all projects, equip the laboratory in accordance with the specifications provided in Directive 8.12 and in the Group’s incubator proposal, and operate the Incubator using capable personnel. The Group is also required to make consulting and auditing services (accounting, legal, patent consulting, quality assurance, information science services, regulatory consulting and clinical trials) available to the projects at an acceptable scope and quality, from service providers approved by the OCS. The Group has undertaken to invest at least NIS 500,000 per year in the operation of the Incubator.
(d) Summary of OCS Obligations.
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 with government funding. The license entitles Meizam Arad to an annual management fee of NIS 1,000,000 (about $280,000) plus an annual research and development grant of NIS 500,000 (about $140,000) for each project (company) operating under the industrial incubator program for up to three years (i.e. up to 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 by MOITL.
(e) The Different Tracks.
Directive 8.12 offers two tracks for the operation of an incubator:
Under the first track, each project is incorporated as a separate and independent company in which the incubator receives shares (the separate companies will allocate at least 30% of their share capital to the holder of the license/know how, up to 5% of the share capital for incubator services, and the remaining shares will be allotted to the incubator and other investors in proportion to their investments in the independent company, including the incubator’s investments derived from state loans). The Group has elected to operate the Incubator under the first track.
65
Under the second track, the projects are directly run within the incubator by the concessionaire, with the holder of the license/know-how being entitled to a fixed amount for the use of his know-how as well as to royalties upon the sale of the know how and in respect of the sales of a final product developed under the project. An incubator operating under the second track is allowed to operate additional specific projects under the guidelines of the first track, subject to fulfillment of the provisions in the guidelines.
(f) To the best knowledge of the Company’s management, as of the date of approval of these financial statements, the Group is in compliance with its material obligations to the OCS under the incubator agreement.
NOTE 2 – BASIS OF PRESENTATION
Statement of Compliance.
The consolidated financial statements include the accounts of the Company and all its wholly and majority owned subsidiaries after elimination of intercompany balances and transactions. The preparation of these financial statements are in conformity with U.S. generally accepted accounting principles and requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
The financial statements have been prepared under the historical cost basis that has been consistently applied to all the years presented, unless otherwise stated.
Functional and Reporting Currency.
The consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency and presentation currency. The financial statements of entities that use a functional currency other than the U.S. Dollar, are translated into U.S. Dollars. Assets and liabilities are translated using the exchange rate on the respective balance sheet dates. Items in the income statement and cash flow statement are translated into U.S. Dollars using the average rates of exchange for the periods involved. The resulting translation adjustments are recorded as a separate component of other comprehensive income/(loss) within stockholders’ equity.
The functional currency of foreign entities is generally the local currency unless the primary economic environment requires the use of another currency. Gains or losses arising from the translation or settlement of foreign-currency-denominated monetary assets and liabilities into the functional currency are recognized in the income in the period in which they arise. However, currency differences on intercompany loans that have the nature of a permanent investment are accounted for as translation differences as a separate component of other comprehensive income/(loss) within stockholders’ equity.
66
New Israeli Shekel (“NIS”) amounts as of December 31, 2010 have been translated into U.S. Dollars at the representative rate of exchange on December 31, 2010 (USD 1 = NIS 3.549).
Consolidation Principles.
The consolidated financial statements of the Company include the accounts of the Company, and all entities in which a direct or indirect controlling interest exists through voting rights or qualifying variable interests. All intercompany balances and transactions have been eliminated in the consolidated financial statements.
Going Concern.
The Company’s consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. Except for government grants received by the Group’s industrial incubator, the Company has not established any source of revenue to cover its operating costs. The Company will engage in very limited activities without incurring any liabilities that must be satisfied in cash until a source of funding is secured. The Company will offer non-cash consideration as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities, through business alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
Use of Estimates.
The preparation of the 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.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents.
Cash and cash equivalents comprise cash balances, cash on current accounts with banks, bank deposits and other highly liquid short-term investments with original maturities of less than three months
67
Accounts Receivable.
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The amount of the allowance is determined by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ country or industry, historical losses and our customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this reserve. As of December 31, 2010, the Company has experienced no bad debt write offs from operations.
Property, Plant and Equipment.
Property, plant and equipment are carried at cost, less accumulated depreciation and amortization. Included in property, plant and equipment are buildings and equipment acquired under capital lease arrangements and reagent rental equipment. Property, plant and equipment are assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
|
Motor vehicles
|
5 years
|
|
Furniture
|
15 years
|
|
Computer equipment
|
3 years
|
Investments in Equity-Accounted Investees.
Investment in companies in which the Company does not have the ability to directly or indirectly control the financial and operating decisions, but does possess the ability to exercise significant influence are accounted for using the equity method. In the absence of demonstrable proof of significant influence, it is presumed to exist if at least 20% of the voting stock is owned. The Company’s share of net income of these companies is included in the results relating to equity-accounted investees in the consolidated statements of income. When the Company’s share of losses exceed the carrying amount of an investment accounted for by the equity method, the Company’s carrying amount of that investment is reduced to zero and recognition of further losses is discontinued unless the Company has guaranteed obligations of the investee or is otherwise committed to provide further financial support to the investee.
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.
68
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 is the case, an impairment loss would be recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value.
Goodwill.
Goodwill represents the excess of the cost over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is assessed for impairment by applying fair value based tests annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit to its carrying value, including goodwill. The Company uses un-discounted cash flow models to determine the fair value of a reporting unit. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not required. The second step, if required, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.
Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.
69
Revenue Recognition.
The Company recognizes revenue when all four recognition criteria have been met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, seller’s price to buyer is fixed or determinable and collectability is reasonably assured.
Interest Income.
Interest income is recognized in the consolidated statement of income as it is earned.
Government Grants.
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching then and the grants will be received.
Government grants are recognised 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.
Research and Development.
Internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed.
Income Taxes.
Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under the asset and liability method specified by SFAS No. 109, deferred tax assets and liabilities are recognized for the future consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are recovered or settled. Valuation allowances for deferred tax assets are established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2010 and 2009, deferred tax assets had a 100% valuation allowance.
Earnings Per Share.
The Company presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potential dilutive common shares, which comprise options granted to employees.
70
Cash Flow Statement.
Cash flow statements have been prepared using the indirect method. Cash flows in foreign currencies have been translated into US dollars using the average exchange rate for the periods.
Share-Based Payments.
On January 1, 2006, the Company adopted SFAS” No. 123(R), “Share-Based Payment,” using the modified prospective method. SFAS No.123R requires the measurement and recognition of compensation expense for all share-based payment awards granted to its employees and directors, including employee stock options, restricted stock and stock purchases based on the estimated fair value of the award on the grant date. Upon the adoption of SFAS No. 123R, 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 SFAS No. 123.
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.
Recent Accounting Pronouncements.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (codified within Accounting Standards Codification (“ASC”) No. 105, Generally Accepted Accounting Principles), which became effective for the Group from the interim period ended September 30, 2009. The Codification is the sole source of authoritative U.S. GAAP to be applied by non-governmental entities and supersedes all non-SEC accounting and reporting standards existing on September 15, 2009. The issuance of SFAS No. 168 and the Codification does not change GAAP. All references to accounting standards in these financial statements were updated to corresponding ASC references. Management has determined that the adoption of SFAS No. 168 had no impact on the Group’s consolidated financial statements.
71
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”) (codified within ASC No. 805, “Business Combinations”), which replaces SFAS No. 141. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose certain information related to the nature and financial effect of the business combination. SFAS No. 141(R) also establishes principles and requirements for how an acquirer recognizes any non-controlling interest in the acquiree and the goodwill acquired in a business combination. SFAS No. 141(R) is effective on a prospective basis for business combinations for which the acquisition date is on or after January 1, 2009. Depending on the terms, conditions and details of the business combination, if any, that take place subsequent to January 1, 2009, SFAS No. 141(R) may have a material impact on the Group’s consolidated financial statements. SFAS No. 141(R) also amends SFAS No. 109, Accounting for Income Taxes, such that adjustments made to deferred taxes and acquired tax contingencies after January 1, 2009, even for business combinations completed before this date, will impact net income. Management has determined that the adoption of SFAS No. 141(R) had no material impact on the Group’s consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted.
FASB Update No. ASU 2010-28, “Intangibles—Goodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” affects all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. For public entities, this guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Adoption of Update No. ASU 2010-28 is not expected to have a significant impact on the Company’s consolidated financial statements.
NOTE 4 – LIST OF SIGNIFICANT SUBSIDIARIES
|
Proportion of Ownership
|
||||||||
|
Interest and Voting Power
|
||||||||
|
Name of Company
|
Principal Activity
|
Location
|
Held at December 31, 2010
|
|||||
|
Impact Active Team Ltd.
|
Consulting
|
Israel
|
100% | |||||
|
TPDS Ltd.
|
Medical
|
Israel
|
69% | |||||
|
Meizam - Advanced
|
Industrial Incubator
|
Israel
|
70% | |||||
|
Centre Arad Ltd.
|
||||||||
NOTE 5 – ACCOUNTS RECEIVABLE
|
2010
|
2009
|
|||||||
|
Trade accounts receivable
|
$ | 7,888 | $ | 7,717 | ||||
|
Advances to suppliers
|
100,821 | 79 | ||||||
|
Institutions
|
29,545 | 3,736 | ||||||
|
Other accounts receivable from OCS
|
98,128 | -- | ||||||
| $ | 236,382 | $ | 11,532 | |||||
72
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
|
|
Computers
|
Furniture
|
Vehicles
|
Total
|
||||||||||||
|
Balance as of January 1, 2009
|
273 | 198 | 22,607 | 23,078 | ||||||||||||
|
Capital expenditure
|
4,643 | 4,712 | -- | 9,355 | ||||||||||||
|
Depreciation
|
(839 | ) | (302 | ) | (5,285 | ) | (6,426 | ) | ||||||||
|
Effect of foreign currency exchange differences
|
2 | 1 | 161 | 164 | ||||||||||||
|
Balance as of December 31, 2009
|
$ | 4,079 | $ | 4,609 | $ | 17,483 | $ | 26,171 | ||||||||
|
Capital expenditure
|
12,874 | 15,762 | -- | 28,636 | ||||||||||||
|
Depreciation
|
(3,147 | ) | (230 | ) | (5,620 | ) | (8,997 | ) | ||||||||
|
Effect of foreign currency exchange differences
|
260 | 294 | 1,113 | 1,667 | ||||||||||||
|
Balance as of December 31, 2010
|
$ | 14,066 | $ | 20,435 | $ | 12,976 | $ | 47,477 | ||||||||
NOTE 7 – OTHER ASSETS
|
|
2010
|
2009
|
||||||
|
Other loans
|
$ | 43,775 | $ | 38,456 | ||||
|
Loans with related companies:
|
||||||||
|
Equity-Accounted Investee
|
-- | 2,151 | ||||||
|
Related companies
|
50,066 | 3,079 | ||||||
| $ | 93,841 | $ | 43,686 | |||||
The above loans are unsecured, bear interest at 4% per annum, and have no set terms of repayment.
73
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
2010
|
2009
|
|||||||
|
Trade payables
|
$ | 606,133 | $ | 68,248 | ||||
|
Institutions
|
44,942 | 6,627 | ||||||
|
Accrued liabilities
|
13,246 | 13,750 | ||||||
|
Deferred revenue:
|
||||||||
|
Arising from government grants (1)
|
33,787 | -- | ||||||
|
Arising from unearned revenues
|
222,132 | 120,329 | ||||||
|
Refundable deposits
|
284,889 | -- | ||||||
| $ | 1,205,129 | $ | 208,954 | |||||
(1) Deferred revenue arose as a result of the Group's receipt of an advanced payment from the OCS. The revenue will be offset against operating expenses of the Group's incubator Meizam Arad in 2011.
NOTE 9 – LONG-TERM DEBT
Long-term debt:
|
|
2010
|
2009
|
||||||
|
Key management personnel
|
$ | 1,701,233 | $ | 1,338,939 | ||||
|
Majority Stockholder (as defined under Note 14)
|
80,891 | 82,989 | ||||||
|
Related companies
|
47,275 | -- | ||||||
|
Other loans
|
37,802 | -- | ||||||
|
|
$ | 1,867,201 | $ | 1,421,928 | ||||
The above loans are unsecured, bear no interest, and have no set terms of repayment.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock.
On June 11, 2006, the Company entered into a share-based technology purchase agreement by issuing 4,500,000 restricted shares of common stock at $0.001 per share for the purchase of intellectual property, patent rights and related technical information for a pulmonary drug delivery system owned by Pangea Investments GmbH, the majority stockholder of the Company.
On June 11, 2006, the Company entered into a share-based purchase agreement by issuing 2,500,000 restricted shares of common stock at $0.001 per share for the purchase of all the common stock of Impact Active Team Ltd, a Company owned by Pangea Investments GmbH.
On July 19, 2006, the Company issued 200,000 restricted shares of common stock at $0.75 per share to 1568934 Ontario Limited for consideration of $150,000. Each share was accompanied by a 12 month warrant to acquire five shares of common stock at the price of the Company’s initial public offering as determined on the first day trading; however, no warrants were realized.
On July 29, 2006, the Company issued 770,000 restricted shares of common stock at $0.01 per share to a total of 56 investors for consideration of $7,700.
74
The holders of the Company’s common stock:
|
·
|
have equal ratable rights to dividends from funds legally available for payment of dividends when, and if declared by the board of directors;
|
|
·
|
are entitled to share ratably in all of the assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs;
|
|
·
|
do not have preemptive, subscription or conversion rights, or redemption or access to any sinking fund and;
|
|
·
|
are entitled to one non-cumulative vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders.
|
Preferred Stock.
The Company has authorized, but not issued, 10,000,000 shares of preferred stock, par value $0.001 per share. The board of directors has the authority to establish and fix the designation, powers, or preferences of preferred shares without further vote by the stockholders.
NOTE 11 – PROVISION FOR TAXES
At December 31, 2010, the Company had net operating loss carry forwards of $2,681,781 that may be offset against future federal taxable income through 2025. No tax benefit has been reported with respect to these net operating loss carry forwards in the accompanying financial statements because the Company believes that realization is not likely. Accordingly, the potential tax benefits of the net loss carry forwards are fully offset by a valuation allowance.
The income tax benefit for the year ended December 31, 2010 differs from the amount computed at the federal statutory rates of approximately 35% as follows:
|
Income tax benefit at statutory rate
|
$ | (350,712 | ) | |
|
Valuation allowance
|
350,712 | |||
|
Total
|
$ | -- |
If substantial changes in the Company’s ownership should occur, there would be an annual limitation of the amount of net operating loss carry forwards that may be utilized by the Company.
75
NOTE 12 – BUSINESS COMBINATIONS
Subsidiary Acquired.
Meizam Arad is an Israeli industrial incubator established on October 25, 2006 and situated in Israel, in the City of Arad. On October 1, 2010 the Company acquired 70% of the voting equity interests of Meizam Arad. This subsidiary was acquired to operate and facilitate project companies with proven technologies, which have completed their product development stage and are on the verge of commercialization and industrialization their technologies. The acquisition of Meizam Arad was achieved in stages, through the provision of management and consulting fees to Meizam Arad that were settled in equity instruments of the subsidiary.
Consideration Transferred.
|
Management and consulting services (1)
|
$ | 3,466 |
(1) The Company provides management and consulting services to Meizam Arad, which Meizam Arad settles with its equity instruments. These consulting services were valued according to SFAS No. 123R, “Share-Based Payment”, at the fair value of the equity instruments issued, which is considered to be the par value of the equity instruments. See Note 3, Share-Based Payments.
Goodwill Arising from the Acquisition.
|
Consideration transferred
|
$ | 3,466 | ||
|
Less : Non-controlling interest (30% of Meizam Arad) (1)
|
(138,526 | ) | ||
|
Less : Previously held equity interest in Meizam Arad
|
(1,125 | ) | ||
|
Add : Fair value of identifiable net liabilities acquired
|
459,162 | |||
|
Goodwill arising on acquisition
|
$ | 322,977 |
(1) The fair value of non-controlling interests at acquisition date was estimated by applying an income approach.
Goodwill from the acquisition arose as the consideration paid for the combination, effectively includes amounts in relation to the benefit of expected synergies, revenue growth and future market development of Meizam Arad. These benefits are not recognised separately from goodwill as they do not meet the criteria for identifiable intangible assets.
None of the goodwill arising from this acquisition is expected to be deductible for tax purposes.
Assets Acquired and Liabilities Recognized at Date of Acquisition.
|
Meizam Arad
|
||||
|
Current assets
|
$ | 171,776 | ||
|
Non-current Assets
|
13,558 | |||
|
Current liabilities
|
(598,150 | ) | ||
|
Non-current Liabilities
|
(46,346 | ) | ||
|
Net (liabilities) acquired
|
$ | (459,162 | ) | |
76
NOTE 13 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Exchange Risk.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. Dollar and the New Israeli Shekel. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.
Interest Rate Risk.
The Company is subject to cash flow interest rate risk due to fluctuations in the prevailing levels of market interest rates. The investment manager monitors the Company’s overall interest sensitivity on a monthly basis and the general director on a quarterly basis.
Credit Risk.
Credit risk refers to the risk that counter-party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counter-parties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Liquidity and Capital Risk Management.
The Company’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to stockholders, return capital to stockholders, issue new shares or sell assets to reduce debt.
NOTE 14 – RELATED PARTY TRANSATIONS
The Company’s Majority Stockholder is Pangea Investments GmbH (incorporated in the Switzerland), which owns approximately 70% of the Company’s outstanding common stock.
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
The following entities have been identified as related parties:
|
Pangea Investments GmbH
|
Majority Stockholder of Andain, Inc.
|
|
Impact Active Team Ltd.
|
Israeli, wholly-owned subsidiary
|
|
TPDS Ltd.
|
Israeli, majority-owned subsidiary
|
|
Meizam - Advanced Enterprise Center Arad Ltd.
|
Israeli, majority-owned subsidiary
|
|
Sam Elimelech
|
Director of Andain, Inc.
|
|
Gai Mar-Chaim
|
Director of Andain, Inc.
|
|
P.O.C. Hi Tech Ltd.
|
Israeli company with common director
|
|
Gai Med Ltd.
|
Part of the industrial incubator
|
77
The following transactions were carried out with related parties:
|
2010
|
2009
|
|||||||
|
$
|
$
|
|||||||
|
Income statements:
|
||||||||
|
Directors’ remuneration
|
480,000 | 480,000 | ||||||
|
Balance sheets:
|
||||||||
|
Investment in Equity-Accounted Investee
|
-- | 2,459 | ||||||
|
Loan – Equity-Accounted Investee
|
-- | 2,151 | ||||||
|
Loan – related companies
|
50,066 | 3,079 | ||||||
|
Loan – Majority Stockholder
|
(80,891 | ) | (82,989 | ) | ||||
|
Loans – key management personnel
|
(1,701,233 | ) | (1,338,939 | ) | ||||
|
Loan – related company
|
(47,275 | ) | -- | |||||
NOTE 15 – SUBSEQUENT EVENTS
(a) During 2010 and 2011, the Company’s subsidiary Meizam Arad entered into purchase agreements with certain portfolio companies (most of these agreements are still in the process of receiving approval from MOITL):
|
·
|
On January 1, 2011, Meizam Arad signed a share purchase agreement with TPDS Ltd. to acquire 25% of TPDS shares. TPDS is the Company’s majority owned subsidiary that develops nano-technology to improve delivery of antibiotics and other drugs through inhalation. TPDS is preparing a clinical trial to be conducted in 2011 in an Israeli clinical center.
|
|
·
|
On January 2, 2011, Meizam Arad signed a share purchase agreement with Gaia Med Ltd. to acquire 33% of Gaia Med shares for 2.25 million Israeli Shekels (approximately $700,000). Gaia Med develops a miniature insulin pump, and is preparing a clinical trial to be conducted in 2011 in an Israeli clinical center.
|
(b) On February 9, 2011, Meizam Arad Investments Ltd. was established as the Company’s majority owned subsidiary. The Company was issued 2,360,723 of Meizam Arad Investments Ltd.’s common stock, giving the Company a majority ownership (99.92%) at date of acquisition.
78
EXHIBIT INDEX
|
Number
|
Description
|
|
|
3.1
|
Articles of Incorporation, dated July 14, 2004 (incorporated by reference to Exhibit 3.1 of the Form 10-SB filed on March 24, 2005).
|
|
|
3.2
|
Bylaws, dated August 1, 2004 (incorporated by reference to Exhibit 3.2 of the Form 10-SB filed on March 24, 2005).
|
|
|
10.1
|
Affiliation Agreement between the Impact Active Team Ltd. and P.O.C. High-Tech (1992) Ltd. Corporation, dated June 23, 2004 (incorporated by reference to Exhibit 10.8 of the Form SB-2 filed on February 13, 2007).
|
|
|
10.2
|
Consulting Agreement between the Company and Dr. Leonid Lurya, dated May 16, 2006 (incorporated by reference to Exhibit 10.2 of the Form 10-K filed on December 30, 2010).
|
|
|
10.3
|
Share Purchase Agreement between the Company and Pangea Investments GmbH, dated June 11, 2006 (not including Schedule 1, Disclosure Schedule) (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on July 5, 2006).
|
|
|
10.4
|
Technology Purchase Agreement between the Company and Pangea Investments GmbH, dated June 11, 2006 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on July 5, 2006).
|
|
|
10.5
|
Finder’s Fee Agreement between the Company and Pangea Investments GmbH, dated June 11, 2006 (incorporated by reference to Exhibit 10.5 of the Form 8-K filed on July 5, 2006).
|
|
|
10.6
|
Consulting Agreement between the Company and Pangea Investments GmbH, dated July 3, 2006 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed on July 5, 2006).
|
|
|
10.7
|
Business Development Services Agreement between the Company and Pangea Investments GmbH, dated July 3, 2006 (incorporated by reference to Exhibit 10.4 of the Form 8-K filed on July 5, 2006).
|
|
|
10.8
|
Employment Agreement between the Company and Sam Elimelech, dated July 3, 2006 (incorporated by reference to Exhibit 10.6 of the Form 8-K filed on July 5, 2006).
|
|
|
10.9
|
Employment Agreement between the Company and Gai Mar-Chaim, dated July 3, 2006 (incorporated by reference to Exhibit 10.7 of the Form 8-K filed on July 5, 2006).
|
79
|
10.10
|
Regulation S Stock Purchase Agreement between the Company and 1568934 Ontario Limited, dated July 19, 2006 (incorporated by reference to Exhibit 10.11 of the Form 10-K/A filed on February 7, 2011).
|
|
|
10.11
|
Consulting Agreement between the Company and Meizam - Advanced Enterprise Center Arad Ltd., dated October 25, 2006 (incorporated by reference to Exhibit 10.10 of the Form 10-K filed on December 30, 2010).
|
|
|
10.12
|
Employment Agreement between the Company and Sam Elimelech, dated January 1, 2011 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on March 29, 2011).
|
|
|
10.13
|
Employment Agreement between the Company and Gai Mar-Chaim, dated January 1, 2011 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on March 29, 2011).
|
|
|
10.14
|
Regulation S Stock Purchase Agreement between the Company and Sam Elimelech, dated January 5, 2011 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed on March 29, 2011).
|
|
|
10.15
|
Regulation S Stock Purchase Agreement between the Company and Gai Mar-Chaim, dated January 5, 2011 (incorporated by reference to Exhibit 10.4 of the Form 8-K filed on March 29, 2011).
|
|
|
10.16
|
Regulation S Stock Purchase Agreement between the Company and 1568934 Ontario Limited, dated January 14, 2011 (incorporated by reference to Exhibit 10.5 of the Form 8-K filed on March 29, 2011).
|
|
|
10.17
|
Option issued to 1568934 Ontario Limited by the Company, dated January 14, 2011 (incorporated by reference to Exhibit 10.6 of the Form 8-K filed on March 29, 2011).
|
|
|
10.18
|
Stock Purchase Agreement between the Company and Meizam Arad Investments Ltd., dated January 31, 2011 (incorporated by reference to Exhibit 10.7 of the Form 8-K filed on March 29, 2011).
|
|
|
10.19
|
Stock Purchase Agreement between Meizam – Advanced Enterprise Center Arad Ltd and Meizam Arad Investments Ltd., dated January 31, 2011 (incorporated by reference to Exhibit 10.8 of the Form 8-K filed on March 29, 2011).
|
|
|
16.1
|
Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K filed on January 5, 2006).
|
80
|
16.2
|
Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K filed on November 5, 2010).
|
|
|
21
|
Subsidiaries of the Company (filed herewith).
|
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Sam Shlomo Elimelech (filed herewith).
|
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Gai Mar-Chaim (filed herewith).
|
|
|
32
|
Section 1350 Certification of Sam Shlomo Elimelech and Gai Mar-Chaim (filed herewith).
|
81