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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter ended June 30, 2007
|_| 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: 000-30997
ASTRALIS LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1508866
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
75 Passaic Avenue
Fairfield, New Jersey 07004
---------------------------
(Address of principal executive offices)
(973) 227-7168
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of August 17, 2007, there were 91,454,873 shares of the issuer's Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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1
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ASTRALIS LTD.
INDEX
FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2007
Part I Financial Information........................................ 1
Item 1 Financial Statements
Balance Sheets............................................... 1
Statements of Operations (unaudited)......................... 2
Statements of Cash Flows (unaudited)......................... 3
Notes to Financial Statements (unaudited).................... 4
Item 2 Management's Discussion and Analysis or Plan of Operation.... 9
Item 3 Controls and Procedures...................................... 13
Part II Other Information............................................ 19
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.. 19
Item 6 Exhibits..................................................... 20
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ASTRALIS LTD.
(A Development Stage Company)
Balance Sheets
(unaudited)
ASSETS
June 30, December 31,
2007 2006
------------ ------------
Current Assets
Cash and cash equivalents $ 3,272 $ 211,495
Prepaid expenses 54,129 101,650
------------ ------------
Total Current Assets 57,401 313,145
Property and Equipment, Net 3,320 5,752
Deposits 5,000 5,000
------------ ------------
Total Assets $ 65,721 $ 323,897
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses $ 299,473 $ 313,762
Note payable advance, pending loan negotiations 150,000 150,000
------------ ------------
Total Current Liabilities 449,473 463,762
------------ ------------
Long-Term convertible debenture - net of discounts 85,948 70,430
Total Liabilities 535,421 534,192
------------ ------------
Commitments and Contingencies -- --
Stockholders' Deficit:
Common stock; $.0001 par value; 150,000,000 shares authorized;
91,454,873 issued and outstanding for both periods 9,145 9,145
Additional paid-in capital 32,161,693 32,157,772
Deficit accumulated during the development stage (32,640,538) (32,377,212)
------------ ------------
Total Stockholders' Deficit (469,700) (210,295)
------------ ------------
$ 65,721 $ 323,897
============ ============
See the accompanying notes to financial statements.
3
ASTRALIS LTD.
(A Development Stage Company)
Statements of Expenses
(unaudited)
Three Months Ended June 30, Six Months Ended June 30, March 12, 2001
---------------------------- ---------------------------- (Inception) to
2007 2006 2007 2006 June 30, 2007
------------ ------------ ------------ ------------ ------------
Operating Expenses
Research and development - related party $ -- $ -- $ -- $ -- $ 16,278,822
Research and development 1,146 125,723 6,032 289,750 6,526,343
Depreciation and amortization 1,148 2,716 2,433 5,813 107,696
Impairment of intangibles -- -- -- -- 2,912,588
Realized loss on asset exchange -- -- -- -- 28,957
General and administrative 70,767 276,778 161,077 539,796 8,038,309
------------ ------------ ------------ ------------ ------------
Loss From Operations (73,061) (405,217) (169,542) (835,359) (33,892,715)
Other (income) expense
Interest income (258) (1,448) (2,153) (4,347) (217,674)
Other income - sale of state tax credits -- -- -- -- (1,288,186)
Interest expense 15,100 -- 28,258 -- 60,348
Registration rights penalty 34,261 -- 67,679 -- 193,335
------------ ------------ ------------ ------------ ------------
Net Loss (122,164) (403,769) (263,326) (831,012) (32,640,538)
Preferred Stock Dividends -- -- -- -- (22,218,750)
------------ ------------ ------------ ------------ ------------
Net Loss to Common Stockholders $ (122,164) $ (403,769) $ (263,326) $ (831,012) $(54,859,288)
============ ============ ============ ============ ============
Basic and Diluted Loss per Common Share $ (0.00) $ (0.00) $ (0.00) $ (0.01)
============ ============ ============ ============
Basic and Diluted Weighted Average
Common Shares Outstanding 91,454,873 91,454,873 91,454,873 91,454,873
============ ============ ============ ============
See the accompanying notes to financial statements.
4
ASTRALIS LTD.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Six Months Ended June 30, March 12, 2001
----------------------------- (Inception) to
2007 2006 June 30, 2007
------------ ------------ ------------
Cash Flows from Operating Activities
Net loss $ (263,326) $ (831,012) $(32,640,538)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization (research and development amounts 2,433 39,945 2,741,139
included)
Impairment of intangible asset -- -- 2,912,588
Amortization of note discount 15,518 13,802 25,549
Loss on assets swapped for rent -- -- 28,957
Members' contributed salaries -- -- 12,986
Research and development service fee netted against proceeds
received from preferred stock issuance -- -- 5,015,000
Amortization of deferred compensation 3,921 71,876 222,428
Compensatory common stock -- -- 310,999
Assignment of call option -- -- 376,507
Loss on sale of available-for-sale securities and fixed asset -- -- 213,588
retirement
Changes in assets and liabilities
Prepaid expenses 47,521 32,816 (7,329)
Supplies -- -- (32,108)
Accounts payable and accrued expenses (11,801) (255,258) (2,849)
------------ ------------ ------------
Net Cash Used in Operating Activities (205,734) (927,831) (20,823,083)
------------ ------------ ------------
Cash Flows from Investing Activities
Purchases of available-for-sale securities -- -- (14,057,504)
Proceeds from sale of available-for-sale securities -- -- 13,843,916
Expenditures related to patent -- -- (134,222)
Purchase of technology option -- -- (5,000,000)
Insurance proceeds from claim -- -- 4,113
Proceeds received on deposit -- -- (5,000)
Purchases of property and equipment -- -- (570,584)
------------ ------------ ------------
Net Cash Used in Investing Activities -- -- (5,919,281)
------------ ------------ ------------
Cash Flows from Financing Activities
Proceeds from convertible debenture -- 350,000 427,480
Borrowings on debt -- -- 108,329
Principal payments on debt (2,489) -- (108,329)
Repurchase of common stock -- -- (80,000)
Proceeds from loan advance -- -- 150,000
Issuance of common stock, net of offering and transaction costs -- -- 11,333,263
Issuance of preferred stock -- -- 14,914,893
------------ ------------ ------------
Net Cash Provided by (Used in) Financing Activities (2,489) 350,000 26,745,636
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (208,223) (577,831) 3,272
Cash and Cash Equivalents, Beginning of Period 211,495 633,468 --
------------ ------------ ------------
Cash and Cash Equivalents, End of Period $ 3,272 $ 55,637 $ 3,272
============ ============ ============
See the accompanying notes to financial statements.
5
ASTRALIS LTD.
(A Development Stage Company)
Notes to Fiancial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared by
Astralis, Ltd. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
reflect all adjustments that are, in the opinion of management, necessary to
fairly present such information. All such adjustments are of a normal recurring
nature. Although Astralis believes that the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures, including a description of significant accounting policies normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, have been omitted
pursuant to such rules and regulations.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in Astralis' 2006 Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission. The results of
operations for interim periods are not necessarily indicative of the results for
any subsequent quarter or the entire fiscal year ending December 31, 2007. For
comparability purposes, certain figures for the prior periods have been
reclassified where appropriate to conform with the financial statement
presentation used in 2007. These reclassifications had no effect on the reported
net loss.
NOTE 2 - GOING CONCERN
Astralis incurred net losses to common stockholders of $263,326 and $54,859,288
for the six-month period ended June 30, 2007 and for the period March 12, 2001
(date of inception) through June 30, 2007, respectively. Included in the
cumulative net losses was non-cash preferred stock dividend generated from
beneficial conversion features of preferred stock in the amount of $22,218,750.
Astralis has no funds to continue its operations. If it is unable to raise
additional funds immediately it will cease operations.
The Company's Insurance policies for general liability and workers compensation
insurance expired April 10, 2007; consequently, the Company has been without
general liability or workers compensation insurance coverage since then.
Furthermore, the Company's directors and officers insurance policy expired May
31, 2007, it is without directors and officers insurance.
Consequently, the aforementioned items raise substantial doubt about Astralis'
ability to continue as a going concern. Management is seeking to identify
additional capital immediately so that it may continue its operations. Funds
will be needed in order to finance Astralis' currently anticipated needs for
operating and capital expenditures for the remainder of 2007, including the cost
to continue clinical trials of Psoraxine(R). Astralis will also need to raise
significant additional funds from outside sources in future years in order to
complete existing and future phases of FDA required testing.
NOTE 3 - STOCK BASED COMPENSATION
Effective January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (SFAS
No.123R) requiring that compensation cost relating to share-based payment
transactions be recognized under fair value accounting and recorded in the
financial statements. The cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the
employee's requisite service period (generally the vesting period of the equity
award). Prior to January 1, 2006, we accounted for share-based compensation to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations. We also followed the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", as amended by Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure". We
adopted SFAS No. 123R using the modified prospective method and, accordingly,
financial statement amounts for prior periods presented in this Form 10-QSB have
not been restated to reflect the fair value method of recognizing compensation
cost relating to non-qualified stock options.
There was $3,921 and $2,373 of compensation cost related to non-qualified stock
options recognized in operating results for the six and three months ended June
30, 2007, respectively. Since Astralis has generated losses from its inception,
no associated future income tax benefit was recognized for the six and three
months ended June 30, 2007.
1
The fair value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model. Historical volatilities based on the
historical stock trading prices of Astralis, Ltd. are used to calculate the
expected volatility. We used the simplified method as defined under the SEC
Staff Accounting Bulletin No. 107, Topic 14: "Share-based Payment," to derive an
expected term. The expected term represents an estimate of the time options are
expected to remain outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. treasury yield curve in
effect at the time of grant. The following table sets forth the assumptions used
to determine compensation cost for our stock options consistent with the
requirements of SFAS No. 123R:
Six Months Ended Six Months Ended
6/30/07 6/30/06
----------------- -----------------
Expected volatility 100.00 % - 128.00% 108.00 % - 128.00%
Expected annual dividend yield 0% 0%
Risk free rate of return 3.96 - 4.78% 4.45%
Expected option term (years) 10 5
At June 30, 2007 there was $1,883 of total unrecognized compensation cost
related to non-vested non-qualified stock option awards, which is expected to be
recognized over a weighted-average period of .5 year. The total fair value of
options vested during the six and three months ended June 30, 2007 was
approximately $20,299 and $3,330, respectively.
Other than stock options covered by the Stock Incentive Plan, Astralis has no
outstanding options to purchase shares of its common stock.
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains many forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future operating results or of our financial
condition or state other "forward-looking" information.
We believe that it is important to communicate our future expectations to
our investors. However, we may be unable to accurately predict or control events
in the future. Our actual results may differ materially from the expectations we
describe in our forward-looking statements.
Item 2. Management's Discussion and Analysis or Plan Of Operation.
The following discussion of our financial condition and plan of operation
should be read in conjunction with our financial statements and the related
notes included elsewhere in this quarterly report on Form 10-QSB. This quarterly
report contains certain statements of a forward-looking nature relating to
future events or our future financial performance. We caution prospective
investors that such statements involve risks and uncertainties, and that actual
events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this quarterly report, which could cause actual results to differ
materially from those indicated by such forward-looking statements. We disclaim
any obligation to update information contained in any forward-looking statement.
Overview
General
Astralis, Ltd. ("Astralis", "we", "us", "our", or the "Company") is a
development stage biotechnology company that was engaged primarily in the
research and development of treatments for immune system disorders and skin
diseases, such as psoriasis and psoriatic and rheumatoid arthritis. The
2
Company's initial product candidate, Psoraxine(R), is a protein extract used for
the treatment of the skin disease psoriasis.
As of the date of this filing, Astralis' liabilities exceed its assets.
Consequently all drug development efforts have ceased until sufficient funding
may be raised. Furthermore, substantial additional funds will be needed in order
to fund continued efforts to obtain FDA approval of Psoraxine(R), especially
given the failure of our Phase II study to meet its primary endpoint. We could
be forced to seek protection under Federal bankruptcy laws at any time. We have
only one employee remaining, being Dr. Jose Antonio O'Daly, our Chairman. We are
seeking funds to:
o Continue ongoing research and development of Psoraxine(R);
o Recommence clinical trials to obtain the approval of the United
States Food and Drug Administration for the marketing of
Psoraxine(R); and
o Develop technology underlying Psoraxine(R) for the treatment of
indications other than psoriasis, such as psoriatic arthritis,
eczema, seborrheic dermatitis, rheumatoid arthritis, multiple
sclerosis, inflammatory bowel disease and leishmaniasis.
Because the Company has not been able to secure sufficient funding to
continue the development of Psoraxine(R) on a timely basis, the market
introduction of Psoraxine(R) has been delayed indefinitely. If sufficient
funding is not obtained soon, the development program will likely never reach
commercial markets. During the last year, all of the Company's independent Board
members have resigned. There is no audit committee, no compensation committee
and there are only two members of the Board remaining, neither of whom has
substantial business experience in the United States or in the biotechnology
industry.
The Company was originally incorporated under the laws of the State of
Colorado in 1999 under the name Hercules Development Group, Inc. We subsequently
changed our name to Astralis Pharmaceuticals Ltd. and, in November 2001,
reincorporated under the laws of the State of Delaware under our present name.
Our main office is located at 75 Passaic Avenue, Fairfield, New Jersey 07004.
Recent Developments
The Company announced it is reviewing strategic alternatives.
On October 6, 2006, the Board of Directors of Astralis, Ltd. announced
that it has determined Astralis is unable to continue drug development
activities until additional funds are found and is considering strategic
alternatives including a sale of the assets or the stock of the Company. On
August 21, 2006 the Company announced that "As of the date of this press
release, the Company's liabilities exceed its cash. If the Company does not
acquire additional cash within days, it will be forced to cease operations."
During the last fifteen months, the Company has been unable to identify
sufficient funds to finance its continuing operations. The Company is actively
seeking potential new investors, a potential development partner(s) or offers to
acquire all or part of the Company.
Since the August 2006 and September 2006 private placements discussed
below, the Company raised only $150,000 of new capital from Blue Cedar Limited,
an existing investor. In December 2006, our stockholder Blue Cedar Limited
indicated to us that it would make an additional investment in the Company. In
December 2006, the Company received from Blue Cedar Limited a partial investment
of $150,000. The Company and Blue Cedar Limited have not yet determined the
terms of this $150,000 partial investment or the terms of and total amount to be
invested by Blue Cedar Limited. Additionally, the Company received $466,168
during December 2006 from the sale of New Jersey State research and development
tax credits.
Departure of Directors and Principal Officers.
On March 16, 2007, Gordon L. Schooley, Ph.D., a member of the Board of
Directors of Astralis, announced his resignation from the Board, effective March
16, 2007. Mr. Schooley's announcement did not refer to any disagreement with the
Company on any matter relating to the Company's operations.
On March 7, 2007, Samuel T. Barnett, a member of the Board of Directors of
Astralis, announced his resignation from the Board, effective March 7, 2007. Mr.
Barnett's announcement did not refer to any disagreement with the Company on any
matter relating to the Company's operations. Mr. Barnett was the sole
independent director on the Board of Directors of the Company and the sole
member of the Audit Committee prior to his resignation.
Limited Working Capital.
3
As of the date of this filing, Astralis' liabilities exceed its cash. As
of June 30, 2007, the Company has $3,272 in available cash and cash equivalents,
and accounts payable and accrued expenses of $299,473. Astralis has essentially
ceased all operations. The Company will need to raise additional funds
immediately to continue our operations. Furthermore, substantial additional
funds will be needed in order to fund our continued efforts to obtain FDA
approval of Psoraxine(R), especially given the failure of our Phase II study to
meet its primary endpoint. We could be forced to seek protection under Federal
bankruptcy laws at any time.
In December 2006, our stockholder Blue Cedar Limited indicated to us that
it would make an additional investment in the Company. In December 2006, the
Company received from Blue Cedar Limited a partial investment of $150,000. The
Company and Blue Cedar Limited have not yet determined the terms of this
$150,000 partial investment or the terms of and total amount to be invested by
Blue Cedar Limited.
September 2006 Private Placement ($12,500)
On September 29, 2006, the Company closed a private placement of
securities from which it received proceeds of $12,500. In connection therewith,
Astralis issued to Blue Cedar Limited, an accredited investor and a current
stockholder of Astralis ("Blue Cedar"); (i) a convertible promissory note in the
principal amount of $12,500, convertible into shares of Astralis' common stock
at $0.075 per share at any time prior to the redemption date (September 29,
2009), interest will be charged on the note at 6% per annum and (ii) a warrant
to purchase 166,667 shares of common stock at an exercise price of $0.113 per
share. The warrants expire five years from the date of issuance.
August 2006 Private Placement ($64,980)
On August 22, 2006, the Company closed a private placement of securities
from which it received proceeds of $64,980. In connection therewith, Astralis
issued to Blue Cedar; (i) a convertible promissory note in the principal amount
of $20,000, convertible into shares of Astralis' common stock at $0.075 per
share at any time prior to the redemption date (August 22, 2009), interest will
be charged on the note at 6% per annum and (ii) a warrant to purchase 266,667
shares of common stock at an exercise price of $0.113 per share. The warrants
expire five years from the date of issuance.
On July 27, 2006, Astralis issued to Lipworth and Company Limited
("Lipworth"), an accredited investor and a current stockholder of Astralis; (i)
a convertible promissory note in the principal amount of $9,980, convertible
into shares of Astralis' common stock at $0.075 per share at any time prior to
the redemption date (July 27, 2009), interest will be charged on the note at 6%
per annum and (ii) a warrant to purchase 133,067 shares of common stock at an
exercise price of $0.113 per share. The warrants expire five years from the date
of issuance.
On July 25, 2006, Astralis issued to SkyePharma, PLC ("Skye"), an
accredited investor and a current stockholder of Astralis; (i) a convertible
promissory note in the principal amount of $35,000, convertible into shares of
Astralis' common stock at $0.075 per share at any time prior to the redemption
date (July 25, 2009), interest will be charged on the note at 6% per annum and
(ii) a warrant to purchase 466,667 shares of common stock at an exercise price
of $0.113 per share. The warrants expire five years from the date of issuance.
On March 31, 2006, the Company closed a private placement of securities
from which it received proceeds of $250,000. In connection with such private
placement, the Company issued to Blue Cedar, an accredited investor and
currently a stockholder of the Company, (i) a convertible promissory note in the
principal amount of $250,000, convertible into shares of the Company's Common
Stock at $0.09 per share, and (ii) a warrant to purchase 2,777,778 shares of
Common Stock. Lipworth Capital Limited acted as the placement agent in
connection with this private placement. The securities offered and sold in this
private placement were sold in reliance on an exemption from the registration
requirements under Regulation D of the Securities Act of 1933.
Plan of Operation
Three Months Ended June 30, 2007 compared to the Three Months Ended June 30,
2006.
For the three months ended June 30, 2007:
For the three months ended June 30, 2007, we had no revenue from
operations and incurred operating expenses of $73,061 which consisted primarily
of:
4
o Research and development costs of $1,146 including evaluation of
clinical trial results, reformulation of Psoraxine(R) and activity
testing in animals.
o General and administrative costs of $70,767, including professional
fees, rent, salaries for management and our general corporate
expenditures.
As a result, during the three months ended June 30, 2007, we incurred a
net loss of $122,164.
For three months ended June 30, 2006:
For the three months ended June 30, 2006, we had no revenue from
operations and incurred operating expenses of $405,217 which consisted primarily
of:
o Research and development costs of $125,723 including evaluation of
clinical trial results, reformulation of Psoraxine(R) and activity
testing in animals.
o General and administrative costs of $276,778, including professional
fees, rent, salaries for management and our general corporate
expenditures.
As a result, during the three months ended June 30, 2006, we incurred a
net loss of $403,769.
Six Months Ended June 30, 2007 compared to the Six Months Ended June 30, 2006.
For the six months ended June 30, 2007:
For the six months ended June 30, 2007, we had no revenue from operations
and incurred operating expenses of $169,542 which consisted primarily of:
o Research and development costs of $6,032 including evaluation of
clinical trial results, reformulation of Psoraxine(R) and activity
testing in animals.
o General and administrative costs of $161,077, including professional
fees, rent, salaries for management and our general corporate
expenditures.
As a result, during the six months ended June 30, 2007, we incurred a net
loss of $263,326.
For six months ended June 30, 2006:
For the six months ended June 30, 2006, we had no revenue from operations
and incurred operating expenses of $835,359 which consisted primarily of:
o Research and development costs of $289,750 including evaluation of
clinical trial results, reformulation of Psoraxine(R) and activity
testing in animals.
o General and administrative costs of $539,796, including professional
fees, rent, salaries for management and our general corporate
expenditures.
As a result, during the six months ended June 30, 2006, we incurred a net
loss of $831,012.
Comparison
Our research and development expenses declined from $289,750 during the
six months ended June 30, 2006 to $6,032 during the six months ended June 30,
2007, primarily due to the cessation in R&D activities during 2007.
By comparison to the six months ended June 30, 2006, our general and
administrative costs for the six months ended June 30, 2007 decreased by
$378,719 primarily due to management's cost control initiatives and downsizing.
Losses of $169,542 for the six months ended June 30, 2007 were $665,817
less than losses for the six months ended June 30, 2006, reflecting management's
cost control initiatives implemented during 2006.
The Next Twelve Months
5
At June 30, 2007, the Company had cash and cash equivalents of $3,272.
Currently, the Company has $535,421 outstanding obligations. Accordingly, the
Company has effectively ceased operations.
Although the Company has no funding to continue any operating activities,
if sufficient funding is raised it will be used over the course of the next
twelve months as follows:
o Our primary focus would be to further development efforts of our
initial product candidate, Psoraxine(R). In March 2005, the Company
announced that the Phase II study of its novel immuno-stimulatory
product for the treatment of Psoriasis did not meet the primary
study endpoint upon completion of the treatment phase of the study.
In the study, Psoraxine(R) was found to be safe and well-tolerated.
Accordingly, we analyzed the data and developed an hypothesis that
may explain why we received these unexpected results. In this
regard, we would realign development activities to focus on such
things as formulation, manufacturing, analytical protocols and
potency; and we would test the hypothesis to explain unexpected
results and determine the best course for future development.
o The business plan would be implemented in phases: during the first
phase we would test the hypothesis developed recently to assess
causes for unexpected results in the Phase II trial. During the
second phase, test results would be used to design and begin a new
Phase II trial. We expect that we would be required to incur
expenses of approximately $1,000,000 to third parties in connection
with these two phases of the continuing development of Psoraxine(R).
o We would be required to hire new employees for which we would spend
approximately $250,000 to pay management salaries and salaries of
employees, a portion of which is treated as research and development
expense.
o We would have to identify new office and laboratory space which
could cost approximately $250,000 for our general administrative and
working capital requirements.
o In connection with the August 2005 Blue Cedar private placement,
because a registration statement covering the resale of the Blue
Cedar shares was not filed or effective by December 31, 2005, we are
required to pay liquidated damages payments of $10,000 per month,
being 0.5% of the aggregate purchase price plus 10% annum interest
until such time as a registration statement covering the resale of
securities sold to Blue Cedar is declared effective by the
Securities and Exchange Commission.
o We will need to raise additional funds immediately to recommence our
operations and to fund any of the activities described above.
Furthermore, substantial additional funds will be needed in order to
fund our continued efforts to obtain FDA approval of Psoraxine(R).
No assurance can be given that we will be able to obtain financing
on terms that we find acceptable, or that they will enable us to
satisfy our cash requirements. In addition, raising additional funds
by selling additional shares of our capital stock will dilute the
ownership interest of our stockholders. Presently, neither our
management nor our bankers have identified new sources of capital.
If we do not obtain additional funds, we could be required to cease
operations and to seek protection under the federal bankruptcy laws.
Item 3. Controls And Procedures.
(a) Evaluation of disclosure controls and procedures.
Based on his evaluation as of the end of the period covered by this Annual
Report on Form 10-KSB, our interim Chief Executive Officer has concluded that
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act are not effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
As a result of the audit of our 2006 financial statements by our
independent auditors we have become aware of certain deficiencies that exist in
the design and operation of our internal controls over financial reporting that
our independent auditors consider to be material weaknesses under standards of
the Public Company Accounting Oversight Board (PCAOB).
Our independent auditors identified certain errors in the financial
statements for the 2006 reporting period that were not initially identified by
the Company's internal control over financial reporting. The aggregate amount of
these errors was material to our financial statements and therefore represents a
material weakness in our internal control over financial reporting. Upon being
notified of these errors we corrected the information included in the financial
statements before such statements were filed with the Securities and Exchange
Commission or disclosed publicly to any parties.
6
(b) Changes in internal controls.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 6. Exhibits.
Exhibit No. Description
----------- -----------
31.1 Certification by the Interim Chief Executive Officer and the
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
7
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ASTRALIS LTD.
(Registrant)
Dated: August 20, 2007 By: /s/ Jose A. O'Daly
-----------------------------------------------
Dr. Jose A. O'Daly
Chief Scientific Officer, Interim CEO, Interim CFO,
& Chairman of the Board
(Authorized Signatory on behalf of Registrant)
8
Exhibit Index
Exhibit No. Description
----------- -----------
31.1 Certification by the Interim Chief Executive Officer and the
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002