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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 September 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
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(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 November 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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ASTRALIS LTD.
INDEX
FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
Part I Financial Information........................................ 3
Item 1 Financial Statements
Balance Sheets (unaudited)................................... 3
Statements of Operations (unaudited)......................... 4
Statements of Cash Flows (unaudited)......................... 5
Notes to Financial Statements (unaudited).................... 6
Item 2 Management's Discussion and Analysis or Plan of Operation.... 7
Item 3 Controls and Procedures...................................... 10
Part II Other Information............................................ 10
Item 6 Exhibits..................................................... 10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ASTRALIS LTD.
(A Development Stage Company)
Balance Sheets
(unaudited)
ASSETS
September 30, December 31,
2007 2006
------------ ------------
Current Assets
Cash and cash equivalents $ 217 $ 211,495
Prepaid expenses 48,533 101,650
------------ ------------
Total Current Assets 48,750 313,145
Property and Equipment, Net 2,302 5,752
Deposits 5,000 5,000
------------ ------------
$ 56,052 $ 323,897
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses $ 350,771 $ 313,762
Note payable advance, pending loan negotiations 150,000 150,000
------------ ------------
Total Current Liabilities 500,771 463,762
------------ ------------
Long-Term convertible debenture - net of discounts 97,491 70,430
Total Liabilities 598,262 534,192
------------ ------------
Commitments and Contingencies -- --
Stockholders' Deficit:
Common stock; $.0001 par value; 150,000,000 shares authorized at
2007 and 2006; 91,454,873 issued and outstanding for both periods 9,145 9,145
Additional paid-in capital 32,162,346 32,157,772
Deficit accumulated during the development stage (32,713,701) (32,377,212)
------------ ------------
Total Stockholders' Deficit (542,210) (210,295)
------------ ------------
$ 56,052 $ 323,897
============ ============
See the accompanying notes to financial statements.
3
ASTRALIS LTD.
(A Development Stage Company)
Statements of Expenses
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30, March 12, 2001
-------------------------------- ------------------------------- (Inception) to
2007 2006 2007 2006 September 30, 2007
------------ ------------ ------------ ------------ ------------------
Operating Expenses
Research and development - related party $ -- $ -- $ -- $ -- $ 16,278,822
Research and development 1,018 173,688 7,050 463,438 6,527,361
Depreciation and amortization -- 2,310 -- 8,123 107,696
Impairment of intangibles -- -- -- -- 2,912,588
Realized loss on asset exchange -- -- -- -- 28,957
General and administrative 19,039 306,248 182,549 844,879 8,057,348
------------ ------------ ------------ ------------ ------------
Loss From Operations (20,057) (482,246) (189,599) (1,316,440) (33,912,772)
Other (income) expense
Interest income (26) (273) (2,179) (4,620) (217,700)
Other income - sale of state tax credits -- -- -- -- (1,288,186)
Interest expense 18,008 -- 46,266 -- 78,356
Registration rights penalty 35,124 20,835 102,803 20,835 228,459
------------ ------------ ------------ ------------ ------------
Net Loss (73,163) (502,808) (336,489) (1,332,655) (32,713,701)
Preferred Stock Dividends -- -- -- -- (22,218,750)
------------ ------------ ------------ ------------ ------------
Net Loss to Common Stockholders $ (73,163) $ (502,808) $ (336,489) $ (1,332,655) $(54,932,451)
============ ============ ============ ============ ============
Basic and Diluted Loss per Common Share $ (0.00) $ (0.01) $ (0.00) $ (0.01) n/a
============ ============ ============ ============ ============
Basic and Diluted Weighted Average
Common Shares Outstanding 91,454,873 91,454,873 91,454,873 91,454,873 n/a
============ ============ ============ ============ ============
See the accompanying notes to financial statements.
4
ASTRALIS LTD.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Nine Months Ended September 30, March 12, 2001
------------------------------- (Inception) to
2007 2006 September 30, 2007
------------ ------------ ------------------
Cash Flows from Operating Activities
Net loss $ (336,489) $ (1,332,655) $(32,713,701)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 3,451 50,128 2,742,157
Impairment of intangible asset -- 2,912,588
Amortization of note discount 27,061 35,219 37,092
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 4,574 107,593 223,081
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 53,117 32,816 (1,733)
Supplies -- -- (32,108)
Accounts payable and accrued expenses 39,498 59,275 48,450
------------ ------------ ------------
Net Cash Used in Operating Activities (208,788) (1,047,624) (20,826,137)
------------ ------------ ------------
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 -- 427,480 427,480
Borrowings on debt -- -- 108,329
Principal payments on debt (2,490) -- (108,330)
Repurchase of common stock -- -- (80,000)
Proceeds from loan advance -- -- 150,000
Proceeds from exercise of stock options -- -- --
Issuance of common stock, net of offering and transaction costs -- -- 11,333,263
Issuance of preferred stock -- -- 14,914,893
------------ ------------ ------------
Net Cash Provided by Financing Activities (2,490) 427,480 26,745,635
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (211,278) (620,144) 217
Cash and Cash Equivalents, Beginning of Period 211,495 633,468 --
------------ ------------ ------------
Cash and Cash Equivalents, End of Period $ 217 $ 13,324 $ 217
============ ============ ============
See the accompanying notes to financial statements.
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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., 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 for the nine-month period
ended September 30, 2007 and has a working capital deficit as of September 30,
2007. Astralis has no funds to continue its operations. If it is unable to raise
additional funds immediately it will cease operations.
These conditions 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. These 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
There was $4,574 of compensation cost related to non-qualified stock options
recognized in operating results for the nine months ended September 30, 2007
related to option grants from prior years that vested in 2007. No options were
granted in 2007.
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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. The factors listed in the section captioned "Risk Factors," as
well as any other cautionary language in this filing, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of certain
of the events described in the Risk Factors section could seriously harm our
business.
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, including the matters set forth under the
caption "Risk Factors" 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
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 by
a substantial amount. Consequently all operations and 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 Satisfy our substantial liabilities
o Continue ongoing research and development of Psoraxine(R); and
o Recommence clinical trials to obtain the approval of the United
States Food and Drug Administration for the marketing of
Psoraxine(R);
Because the Company has not been able to secure sufficient funding to
continue the development of Psoraxine(R) on a timely basis, all development
efforts with respect to 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.
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Recent Developments
The Company announced it is reviewing strategic alternatives.
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.
No Working Capital
As of the date of this filing, Astralis' liabilities exceed its cash by a
substantial amount. As of September 30, 2007, the Company has $217 in available
cash and cash equivalents, and accounts payable and accrued expenses of
$350,771. Astralis has essentially ceased all operations. The Company will need
to raise additional funds immediately to satisfy its obligations and 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.
Plan of Operation
Three Months Ended September 30, 2007 compared to the Three Months Ended
September 30, 2006.
For the three months ended September 30, 2007:
For the three months ended September 30, 2007, we had no revenue from
operations and incurred operating expenses of $20,057 which consisted primarily
of:
o Research and development costs of $1,018.
o General and administrative costs of $19,039, including professional
fees, rent, salaries for management and our general corporate
expenditures.
We had interest expense of $18,008 and penalty for failing to file a
registration statement for the benefit of our stockholder of $35,124. As a
result, during the three months ended September 30, 2007, we incurred a net loss
of $73,163.
For three months ended September 30, 2006:
For the three months ended September 30, 2006, we had no revenue from
operations and incurred operating expenses of $482,246 which consisted primarily
of:
o Research and development costs of $173,688 including evaluation of
clinical trial results and reformulation of Psoraxine(R).
8
o General and administrative costs of $306,248, including professional
fees, rent, salaries for management and our general corporate
expenditures.
We had no interest expense and penalty for failing to file a registration
statement for the benefit of our stockholder of $20,835. As a result, during the
three months ended September 30, 2006, we incurred a net loss of $502,808.
Nine Months Ended September 30, 2007 compared to the Nine Months Ended September
30, 2006.
For the nine months ended September 30, 2007:
For the nine months ended September 30, 2007, we had no revenue from
operations and incurred operating expenses of $189,599 which consisted primarily
of:
o Research and development costs of $7,050.
o General and administrative costs of $182,549, including professional
fees, rent, salaries for management and our general corporate
expenditures.
We had interest expense of $46,266 and penalty for failing to file a
registration statement for the benefit of our stockholder of $102,803. As a
result, during the nine months ended September 30, 2007, we incurred a net loss
of $336,489
For nine months ended September 30, 2006:
For the nine months ended September 30, 2006, we had no revenue from
operations and incurred operating expenses of $1,316,440 which consisted
primarily of:
o Research and development costs of $463,438 including evaluation of
clinical trial results, reformulation of Psoraxine(R) and activity
testing in animals.
o General and administrative costs of $844,879, including professional
fees, rent, salaries for management and our general corporate
expenditures.
We had no interest expense and penalty for failing to file a registration
statement for the benefit of our stockholder of $20,835. As a result, during the
nine months ended September 30, 2006, we incurred a net loss of $1,332,655.
Comparison
Our research and development expenses declined from $463,438 during the
nine months ended September 30, 2006 to $7,050 during the nine months ended
September 30, 2007, primarily due to the cessation in R&D activities during
2007.
By comparison to the nine months ended September 30, 2006, our general and
administrative costs for the nine months ended September 30, 2007 decreased by
$662,330 primarily due to the termination of all but one of our employees during
2007 and the substantial cessation of our activities.
Losses of $336,489 for the nine months ended September 30, 2007 were
$996,166 less than losses for the nine months ended September 30, 2006,
reflecting the termination of all but one of our employees during 2007 and the
substantial cessation of our activities.
The Next Twelve Months
At September 30, 2007, the Company had cash and cash equivalents of $217.
Currently, the Company has $598,262 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 To satisfy its outstanding obligations;
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.
9
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 satisfy our
outstanding obligations, 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
Quarterly Report on Form 10-QSB, our interim Chief Executive Officer and Interim
Chief Financial 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.
(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
Interim 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
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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: November 19, 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)
11
Exhibit Index
Exhibit No. Description
----------- -----------
31.1 Certification by the Interim Chief Executive Officer and the
Interim 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
12