U.S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark One)


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007





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)


Nevada
20-2066406(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)5190 Neil Road, Suite 430, Reno, Nevada
89502(Address of Principal Executive Offices)
(Zip Code)Company’s telephone number:  (775) 333-5997_________________________________________________________________

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)


Indicate by check mark whether the Company (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) has been subject to such filing requirements for the past 90 days.





Yes ­­o   No x




Indicate by check mark whether the Company has submitted electronically and posted on its corporate Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:




Large accelerated filer  o
Accelerated filer  oNon-accelerated filer  o
Smaller reporting company x





Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act):





Yes ­­oNo x





As of September 30, 2007, the Company had 9,980,000 shares of common stock issued and outstanding.












TABLE OF CONTENTS
 
 PAGEPART I – FINANCIAL INFORMATIONITEM 1.
FINANCIAL STATEMENTS

3CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006

3CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006 AND PERIOD OF INCEPTION THROUGH SEPTEMBER 30, 2007

5CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006 AND PERIOD OF INCEPTION THROUGH SEPTEMBER 30, 2007

6NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8ITEM 2.
MANAGEMIENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23ITEM 4.
CONTROLS AND PROCEDURES

23PART II–OTHER INFORMATION

24ITEM 1.
LEGAL PROCEEDINGS

24ITEM 1A.
RISK FACTORS

25ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

25ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

25ITEM 4.
(REMOVED AND RESERVED)

25ITEM 5.
OTHER INFORMATION

25ITEM 6.
EXHIBITS

26SIGNATURE

27
 2
  PART I – FINANCIAL INFORMATION
  ITEM 1. FINANCAL STATEMENTS.
  ANDAIN, INC.
 (A Development Stage Company)
 CONSOLIDATED BALANCE SHEETS
 
 September 30, 
2007

(Unaudited)


December 31, 
2006ASSETSCurrent assets:Cash and cash equivalents

$
57,445


$
45,563Accounts receivable


7,399



638Total current assets


64,844



46,201Property, plant and equipment


28,474



30,600Investment in equity-accounted investee


1,036



568Other loans


61,387



43,855Total assets

$
155,741


$
121,224LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent liabilities:Accounts payable

$
83,109


$
31,028Total current liabilities


83,109



31,028Long-term liabilities:Long-term debt


464,747



206,033Bank overdraft


75,029



33,397Total liabilities


622,885



270,458Minority Interest


1,940



1,657
  3
  ANDAIN, INC.
 (A Development Stage Company)
 CONSOLIDATED BALANCE SHEETS
 (continued)
 
 September 30, 
2007

(Unaudited)


December 31,

2006Stockholders’ 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



9,980Additional paid-in capital


156,730



156,730Share-based reserves


2,300



2,300Accumulated deficit during development stage


(662,249
)


(318,483
)Accumulated other comprehensive loss


24,155



(1,418
)Total Andain stockholders’ deficit


(469,084
)


(150,891
)Total stockholders’ deficit


(467,144
)


(149,234
)Total liabilities and stockholders’ deficit

$
155,741


$
121,224
  See accompanying notes to consolidated financial statements
  4
  ANDAIN, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three Months Ended


Nine Months Ended


Period of InceptionSeptember 30,


September 30,


(July 23, 2004) through2007


2006


2007


2006


September 30, 2007Net revenue

$
3,259


$
–


$
142,703


$
–


$
255,286Operating expenses:Depreciation


(1,255
)


–



(3,743
)


–



(5,482
)General and administrative


(109,487
)


(104,940
)


(482,726
)


(108,153
)


(835,495
)Impairment of goodwill


–



–



–



–



(75,014
)Loss from operations


(107,483
)


(104,940
)


(343,766
)


(108,153
)


(660,705
)Interest expense


–



–



–



–



(1,544
)Net loss and deficit accumulated during development stage

$
(107,483
)

$
(104,940
)

$
(343,766
)

$
(108,153
)

$
(662,249
)Basic loss per share:Net loss attributable to Andain

$
(0.01
)

$
(0.01
)

$
(0.03
)

$
(0.02
)Weighted average shares outstanding


9,980,000



9,730,652



9,980,000



4,611,832Diluted loss per share:Net loss attributable to Andain

$
(0.01
)

$
(0.01
)

$
(0.03
)

$
(0.02
)Weighted average shares outstanding


11,980,000



9,730,652



11,980,000



4,611,832
  See accompanying notes to consolidated financial statements
  5
  ANDAIN, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Nine Months Ended


Period of InceptionSeptember 30,


(July 23, 2004) through2007


2006


September 30, 2007Operating activities:Net loss

$
(343,766
)

$
(108,153
)

$
(662,249
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


3,743



–



5,482Minority interests


283



–



1,940Shares issued for professional services


–



–



1,910Accrued expenses – stockholder


1,506



18,439



39,014Accrued consulting fees - stockholder


–



30,000



60,000Accounts payable


52,081



214



83,109Accounts receivable


(6,761
)


(500
)


(7,399
)Non-cash compensation expense


–



–



2,000Equity-settled share-based payment


–



–



300Accrued compensation


270,000



60,000



390,000Effect of movements in foreign exchange rates on non-cash items


(1,617
)


–



(1,617
)Net cash used in operating activities


(24,531
)


–



(87,510
)Investing activities:Purchase of equipment


–



–



(32,339
)Purchase of interest in equity-accounted investee


(468
)


–



(1,036
)Net cash used in investing activities


(468
)


–



(33,375
)Financing activities:Proceeds from increase in bank overdrafts


41,632



–



75,029Proceeds from stock issued for cash


–



157,700



164,800Repayment of other loans


(14,049
)


–



(57,904
)Loan from majority stockholder


(605
)


–



(12,052
)
 
 6
 
 ANDAIN, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (continued)
 
 Nine Months Ended


Period of InceptionSeptember 30,


(July 23, 2004) through2007


2006


September 30, 2007Loan from equity-accounted investee


468



–



1,036Loans from key management personnel


(16,138
)


–



(16,734
)Net cash provided by financing activities


11,308



157,700



154,175Increase (decrease) in cash and cash equivalents


(13,691
)


157,700



33,290Effects of exchange rate changes on the balance of cash held in foreign currencies


25,573



–



24,155Cash and cash equivalents, beginning of period


45,563



–



–Cash and cash equivalents, end of period

$
57,445


$
157,700


$
57,445Supplementary schedule of cash flow activities:Non-cash investing and financing activities:Issuance of common stock for payment of consulting fees

$
–


$
–


$
1,900Issuance of common stock for purchase of intellectual property

$
–


$
4,500


$
4,500Issuance of common stock for purchase of subsidiary

$
–


$
2,500


$
2,500Issuance of common stock for payment of management and consulting fees

$
–


$
150


$
300Non-cash compensation expense

$
–


$
–


$
2,000
 
 See accompanying notes to consolidated financial statements


7





ANDAIN, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 1 – GENERAL INFORMATION





Andain, Inc (“Company”) was established in 2004 in Nevada, U.S.A. It is a public company developing novel technologies and products in the biotechnology and medical fields. Through its recent technology purchases, the Company has acquired the rights to intellectual properties, in order to produce pulmonary inhalation drug delivery systems.





NOTE 2 – BASIS OF PRESENTATION





The financial information included herein for the three and nine month periods ended September 30, 2007 and 2006 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2006 is derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.  The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2006 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.





The financial statements have been prepared under the historical cost basis.





The principal accounting policies are set out below, these policies have been consistently applied to all the years presented, unless otherwise stated.





Going Concern.





The Company’s 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.  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.






8





Consolidation Principles.





The consolidated financial statements of the Company include the accounts of the Company, a Nevada corporation, 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.





The Company commenced operations in 2004 for the purpose of developing, manufacturing and distributing drug delivery systems. Since its formation, the Company has been engaged principally in organizational, financing, research and development and marketing activities. The Company has not made a public issue of its stock.





Foreign Currencies.





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.





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.





Share-Based Payments.





On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“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.






9





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.





Cash Equivalents and Cash Equivalents.





Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible to cash. They are stated at face value, which approximates their fair value.





Accounts Receivable.




Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions.  Balances that remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable.  Payments received subsequent to the time that an account is written off are considered bad debt recoveries.  As of September 30, 2007, the Company has experienced no bad debt write offs from operations.





Property, Plant and Equipment.





Property and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred. Expenditures that increase the useful life or value are capitalized. For financial statement purposes, depreciation expense on property and equipment is computed on the straight-line method using the following lives:




Motor vehicles
5 yearsFurniture
15 yearsComputer equipment
3 years








10





Impairment of Long-Lived Assets.





The Company evaluates its long-lived assets and certain identified intangible assets for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Long-lived assets, such as property, plant and equipment and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset, generally determined by reference to the discounted future cash flows. Assets held for sale that meet certain criteria are measured at the lower of their carrying amount or fair value less cost to sell.





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.





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.





Income Taxes.





Income taxes are accounted for in accordance with 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.




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.


11




Cash Flow Statement.
  Cash flow statements have been prepared using the indirect method. Cash flows in foreign currencies have been translated into U.S. dollars using the average exchange rate for the periods.
  NOTE 3 – LIST OF SIGNIFICANT SUBSIDIARIES
 
 Proportion of OwnershipPrincipal


Interest and Voting PowerName of Company
Activity
Location

Held at September 30, 2007Impact Active Team Ltd.
Consulting
Israel


100
%TPDS Ltd.
Medical
Israel


69
%
  NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
 
 Computers


Vehicles


TotalBalance as of December 31, 2006

$
813


$
29,787


$
30,600Depreciation


(100
)


(3,643
)


(3,743
)Effect of foreign currency exchange differences


43



1,574



1,617Balance as of September 30, 2007 (unaudited)

$
756


$
27,718


$
28,474
  NOTE 5 – INVESTMENT IN EQUITY-ACCOUNTED INVESTEE
  Investments in Equity-Accounted Investee (as defined under Note 10) consists of the following:
 
 Investment in Equity-Accounted Investee at December 31, 2006

$
568Acquisitions


468Investment in Equity-Accounted Investee at September 30, 2007 (unaudited)

$
1,036
  Total carrying amount of investments in and loans to the Equity-Accounted Investee is summarized as follows:
 
 StockholdingMeizam – Advanced Enterprise Center Arad Ltd.


45
%
  12
 
 NOTE 6 – LONG-TERM DEBT
  Long-term debt consists of the following:
 
 September 30, 
2007


December 31,

2006(Unaudited)Key management personnel

$
373,266


$
119,404Equity-Accounted Investee


1,036



568Majority Stockholder (as defined under Note 10)


86,962



86,061Loans with related parties


3,483



–$
464,747


$
206,033
  The above loans are unsecured, interest free and have no set terms of repayment.
  NOTE 7 – 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.
  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.
  13
  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 8 – PROVISION FOR TAXES
  At September 30, 2007, the Company had net operating loss carry forwards of $662,249 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 nine months ended September 30, 2007 differs from the amount computed at the federal statutory rates of approximately 35% as follows:
  Income tax benefit at statutory rate

$
(120,318
)Valuation allowance


120, 318Total

$
–
  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.
  NOTE 9 – 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.
  14
  Credit Risk.
  Credit risk refers to the risk that a 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 10 – 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 subsidiaryTPDS Ltd.
Israeli, majority-owned subsidiaryMeizam - Advanced Enterprise Center Arad Ltd.
Israeli, Equity-Accounted InvesteeSam Elimelech
Director of Andain, Inc.Gai Mar-Chaim
Director of Andain, Inc.P.O.C. Hi Tech Ltd.
Israeli company with common director
  15
  The following transactions were carried out with related parties:
  September 30, 
2007


December 31,

2006(Unaudited)$


$Income statements:Compensation expenses


–



2,000Directors’ remuneration


270,000



120,000Management and consulting fees


–



60,000Legal fees


–



20,000Balance sheets:Loan from Equity-Accounted Investee


(1,036
)


(568
)Loan from Majority Stockholder


(86,962
)


(86,061
)Loans from key management personnel


(373,266
)


(119,404
)Loan from related party


(3,483
)


–
  NOTE 11 – SUBSEQUENT EVENTS
  No material event occurred subsequent to year end which would have a material impact on the financial statements.
  16


ITEM 2.  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 unaudited financial statements and related notes included elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.





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.






17





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 $240,000.  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.






18





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 $3,259 for the three months ended September 30, 2007 compared to $0 for the three months ended September 30, 2006.  Net revenue was $142,703 for the nine months ended September 30, 2007 compared to $0 for the nine months ended September 30, 2006.  Net revenue increased exclusively from consulting income earned by the Company’s subsidiary, Impact Active Team Ltd., which was acquired in June 2006.  This increase also resulted from fluctuations in the average U.S. Dollar to Israeli Shekel exchange rate from 2006 to 2007.





(b)           General and Administrative Expenses.





The Company had general and administrative expenses of $109,487 for the three months ended September 30, 2007 compared to $104,940 for the three months ended September 30, 2006, an increase of $4,547 or approximately 4%.  General and administrative expenses were $482,726 for the nine months ended September 30, 2007 compared to $108,153 for the nine months ended September 30, 2006, an increase of $374,573 or approximately 346%.  The increase in general and administrative expenses was due to the continued employment of the Company’s two directors, Gai Mar-Chaim and Sam Elimelech, during the current year, and fees paid for consulting work performed in the Company’s subsidiary Impact Active Team Ltd.






19





(c)           Net Loss.





The Company had a net loss of $107,483 for the three months ended September 30, 2007 compared to $104,940 for the three months ended September 30, 2006, an increase of $2,543 or approximately 2%.  The net loss was $343,766 for the nine months ended September 30, 2007 compared to $108,153 for the nine months ended September 30, 2006, an increase of $235,613 or approximately 218%.  The increase in net loss is the result of the factors mentioned above.





Operating Activities.





The net cash used in operating activities was $24,531 for the nine months ended September 30, 2007 compared to $0 for the nine months ended September 30, 2006, an increase of $24,531.  This increase is attributed to many changes from period to period, however mainly attributable to the increase in operating expenses in the Company’s wholly-owned subsidiary, Impact Active Team Ltd., acquired in June 2006.





Investing Activities.





Net cash used in investing activities was $468 for the nine months ended September 30, 2007 compared to $0 for the nine months ended September 30, 2006, an increase of $468.  This increase resulted from the purchase of an interest in Meizam - Advanced Enterprise Center Arad Ltd.





Liquidity and Capital Resources.





As of September 30, 2007, the Company had total current assets of $64,844 and total current liabilities of $83,109, resulting in a working capital deficit of $18,265.  The cash and cash equivalents balance as of September 30, 2007 totaled $57,445.





The net cash provided by financing activities was $11,308 for the nine months ended September 30, 2007, primarily from proceeds from an increase in bank overdrafts (a category that decreased from $157,700 for the nine months ended September 30, 2006 due to the proceeds from the sale of stock for cash).  Overall, cash and cash equivalents for the nine months ended September 30, 2007 increased by $11,882.





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.






20





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




·
curtail operations significantly;





·
sell significant assets;





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





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





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





Inflation.





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





Off-Balance Sheet Arrangements.





The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.






21





Critical Accounting Policies.





The Securities and Exchange Commission (“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; and (c) share-based compensation.  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 of 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.  The Company 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.






22





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.





Forward Looking Statements.





Information in this Form 10-Q 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.





ITEM 4.  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 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 SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer/principal financial officer, to allow timely decisions regarding required disclosure.






23





As of the end of the period covered by this report, the Company’s management carried out an evaluation, under the supervision and with the participation of the principal executive officer/principal financial officer, of disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).  Based upon the evaluation, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by it in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  In addition, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer/principal financial officer, to allow timely decisions regarding required disclosure.




Inherent Limitations of Control Systems.





Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate.  Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected.





Changes in Internal Control Over Financial Reporting.





There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





PART II – OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS.





From time to time, the Company may become party to litigation or other legal proceedings that the Company considers to be a part of the ordinary course of the business.  There are no material legal proceedings to report, except as outlined in the Form 10-K for the year ended December 31, 2006.  There are no changes to those legal proceedings as reported in that Form 10-K.






24





ITEM 1A.  RISK FACTORS.





There have been no material changes in the risk factors as previously disclosed in response to Item 1A.of Part I of the Company’s latest Form 10-K.





ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.





There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2007.





There were no purchases of the Company’s common stock by the Company or its affiliates during the three months ended September 30, 2007.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.





Not Applicable.





ITEM 4.  (REMOVED AND RESERVED).








ITEM 5.  OTHER INFORMATION.





None.





ITEM 6.  EXHIBITS.





Exhibits included or incorporated by reference herein are set forth in the Exhibit Index.




SIGNATURE





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.




Dated: January 12, 2011
Andain, Inc.



By: /s/ Sam Shlomo ElimelechSam Shlomo Elimelech, President




25








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).




10.10
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).
 
 16.1
Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K filed on January 5, 2006).
 
 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 (incorporated by reference to Exhibit 21 of the Form 10-QSB filed on November 20, 2006).
 
 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).