================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 quarterly period ended March 31, 2006.

|_|   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|

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 91,454,873 shares of Common
Stock outstanding as of May 15, 2006.

      Transitional Small Business Disclosure Format (check one):

      Yes |_| No |X|

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                                  ASTRALIS LTD.

                                      INDEX

                  FOR THE QUARTERLY PERIOD ENDED March 31, 2006

Part I         Financial Information........................................   3
      Item 1   Financial Statements
               Condensed Balance Sheets.....................................   3
               Condensed Statements of Operations (unaudited)...............   4
               Condensed Statements of Cash Flows (unaudited)...............   5
               Notes to Condensed Financial Statements (unaudited)..........   6
      Item 2   Management's Discussion and Analysis or Plan of Operation....  10
      Item 3   Controls and Procedures......................................  13
               Risk Factors.................................................  15
Part II        Other Information............................................  21
      Item 2   Unregistered Sales of Equity Securities and Use of Proceeds..  21
      Item 6   Exhibits.....................................................  21


                                      -2-


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                            Condensed Balance Sheets



                                     ASSETS

                                                                             March 31,       December 31,
                                                                                2006             2005
                                                                            ------------     ------------
                                                                            (Unaudited)
                                                                                       
Current Assets
   Cash and cash equivalents                                                $    276,789     $    633,468
   Prepaid expenses                                                              125,933           64,207
   Supplies                                                                       32,110           32,108
                                                                            ------------     ------------

                    Total Current Assets                                         434,832          729,783

Property and Equipment, Net                                                       80,075          101,371
Deposits                                                                          25,000           25,000
                                                                            ------------     ------------

                                                                            $    539,907     $    856,154
                                                                            ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Accounts payable and accrued expenses                                    $    300,990     $    475,102
                                                                            ------------     ------------

                    Total Current Liabilities                                    300,990          475,102
                                                                            ------------     ------------

Convertible notes, net - related party, $250,000 face value (see Note 5)              --               --
                                                                            ------------     ------------

                    Total Liabilities                                            300,990          475,102
                                                                            ------------     ------------

Commitments and Contingencies

Stockholders' Equity
   Common stock; $.0001 par value; 150,000,000 shares authorized at
     2006 and 2005; 91,454,873 issued and outstanding at 2006 and 2005             9,145            9,145
   Additional paid-in capital                                                 54,273,531       53,988,423
   Deficit accumulated in the development stage                              (54,043,759)     (53,616,516)
                                                                            ------------     ------------

                    Total Stockholders' Equity                                   238,917          381,052
                                                                            ------------     ------------

                                                                            $    539,907     $    856,154
                                                                            ============     ============


          See the accompanying notes to condensed financial statements.


                                      -3-


                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Condensed Statements of Operations
                                   (Unaudited)



                                                                                March 12, 2001
                                                Three Months Ended March 31,    (Inception) to
                                               -----------------------------       March 31,
                                                    2006             2005             2006
                                               ------------     ------------     ------------
                                                                        
Revenues                                       $         --     $         --     $         --
                                               ------------     ------------     ------------

Operating Expenses
   Research and development - related party              --               --       16,278,822
   Research and development                         164,027        1,086,664        9,123,776
   Share based compensation                          35,108               --           35,108
   Depreciation and amortization                      3,097            7,922          101,466
   General and administrative                       227,910          596,509        7,237,950
                                               ------------     ------------     ------------

                   Total Operating Expenses         430,142        1,691,095       32,777,122
                                               ------------     ------------     ------------

Loss From Operations                               (430,142)      (1,691,095)     (32,777,122)

Other (income) expense
     Investment (income) loss                        (2,899)         (10,898)        (213,095)
     Registration rights penalty                         --               --           83,000
                                               ------------     ------------     ------------

Loss before income tax benefit                     (427,243)      (1,680,197)     (32,647,027)

Income tax benefit                                       --               --          822,018
                                               ------------     ------------     ------------

Net Loss                                           (427,243)      (1,680,197)     (31,825,009)

Preferred Stock Dividends                                --               --      (22,218,750)
                                               ------------     ------------     ------------

Net Loss to Common Stockholders                $   (427,243)    $ (1,680,197)    $(54,043,759)
                                               ============     ============     ============

Basic and Diluted Loss per Common Share        $         --     $      (0.02)    $      (1.00)
                                               ============     ============     ============

Basic and Diluted Weighted Average
 Common Shares Outstanding                       91,454,873       73,224,166       53,805,172
                                               ============     ============     ============


          See the accompanying notes to condensed financial statements.


                                      -4-


                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Condensed Statements of Cash Flows
                                   (Unaudited)



                                                                          Three Months Ended March 31,    March 12, 2001
                                                                         -----------------------------    (Inception) to
                                                                             2006             2005        March 31, 2006
                                                                         ------------     ------------     ------------
                                                                                                  
Cash Flows from Operating Activities
   Net loss                                                              $   (427,243)    $ (1,680,197)    $(31,825,009)
   Adjustments to reconcile net loss to net cash used in operating
   activities
      Depreciation and amortization                                            21,296           40,052        2,706,329
      Impairment of intangible asset                                               --               --        2,912,588
      Amortization of net premium paid on investments                              --               --           54,551
      Dividend income reinvested                                                   --               --         (199,323)
      Members' contributed salaries                                                --               --           12,986
      Research and development service fee netted against proceeds
       received from preferred stock issuance                                      --               --        5,015,000
      Operating expenses paid by related parties on behalf of company              --               --           17,587
       Amortization of deferred compensation                                   35,108               --          232,597
       Investor relation fees netted against subscription receivable               --               --           60,000
       Compensatory common stock                                                   --           65,000          275,000
       Assignment of call option                                                   --               --          376,508
       Loss on sale of available-for-sale securities and fixed asset               --               --          160,736
       retirement
   Changes in assets and liabilities
      Prepaid expenses                                                          5,216           (8,569)         (20,660)
      Interest receivable                                                          --           (1,032)              --
      Supplies                                                                     --            6,927          (32,108)
      Deposits                                                                     --               --          (25,000)
      Accounts payable and accrued expenses                                  (241,056)         286,860          175,588
                                                                         ------------     ------------     ------------

Net Cash Used in Operating Activities                                        (606,679)      (1,290,959)     (20,102,630)
                                                                         ------------     ------------     ------------

Cash Flows from Investing Activities
   Purchases of available-for-sale securities                                      --               --      (13,858,181)
   Proceeds from sale of available-for-sale securities                             --               --       13,843,916
   Expenditures related to patent                                                  --           (4,113)         (98,496)
   Insurance proceeds from claim                                                   --               --            4,113
   Purchases of property and equipment                                             --           (2,453)        (570,584)
                                                                         ------------     ------------     ------------

Net Cash Used in Investing Activities                                              --           (6,566)        (679,232)
                                                                         ------------     ------------     ------------

Cash Flows from Financing Activities
   Proceeds from convertible debenture                                        250,000               --          250,000
   Repurchase of common stock                                                      --               --          (80,000)
   Collection of subscription receivable                                           --               --        1,290,000
   Proceeds from exercise of stock options                                         --               --           11,250
   Issuance of common stock, net of offering and transaction costs                 --               --        9,672,508
   Issuance of preferred stock                                                     --               --        9,932,496
   Private placement offering costs                                                --               --          (17,603)
                                                                         ------------     ------------     ------------

Net Cash Provided by Financing Activities                                     250,000               --       21,058,651
                                                                         ------------     ------------     ------------

Net Increase (Decrease) in Cash and Cash Equivalents                         (356,679)      (1,297,525)         276,789

Cash and Cash Equivalents, Beginning of Period                                633,468        2,312,401               --
                                                                         ------------     ------------     ------------

Cash and Cash Equivalents, End of Period                                 $    276,789     $  1,014,876     $    276,789
                                                                         ============     ============     ============


See the accompanying notes to condensed financial statements.


                                      -5-


NOTE 1 - BASIS OF PRESENTATION

The unaudited condensed 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 the Company 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
condensed or 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 the Company's 2005 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, 2006.

For comparability purposes, certain figures for the prior periods have been
reclassified where appropriate to conform with the financial statement
presentation used in 2006. These reclassifications had no effect on the reported
net loss.

NOTE 2 - DESCRIPTION OF BUSINESS

Astralis, Ltd. (the "Company") is an emerging stage biotechnology company, based
in New Jersey and incorporated under the laws of the State of Delaware, which
primarily engages in research and development of treatments for immune system
disorders and skin diseases. The Company is currently developing two products.
Its primary product, Psoraxine(R), administered by intramuscular injection, is
an innovative immunotherapuetic product under development for the treatment of
psoriasis. The Company's second product is for the treatment of arthritis. The
Company is engaged in on-going research of Psoraxine(R), and expects to
recommence clinical trials to obtain the approval of the United States Food and
Drug Administration for the marketing of Psoraxine(R), and development of the
technology underlying the Psoraxine(R), for the treatment of other indications,
such as eczema, leishmaniasis and seborrheic dermatitis.

NOTE 3 - GOING CONCERN

The Company incurred net losses to common stockholders of $427,243 and
$54,043,759 for the three-month period ended March 31, 2006 and for the period
March 12, 2001 (date of inception) to March 31, 2006, 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.

Pharmaceutical products must undergo an extensive process, including testing in
compliance with U.S. Food and Drug Administration ("FDA") regulations, before
they can be commercially sold and distributed in the United States. FDA testing
occurs in various phases over a multiple number of years. The Company expects to
continue clinical testing of Psoraxine in 2006 and beyond. The Company will need
significant additional funds to complete all of the testing required by the FDA.
Currently, the Company has no products approved for commercial sale and
therefore no means to generate revenue.

On March 14, 2005, the Company issued a press release to disclose the results of
its Phase II study for Psoraxine. The Phase II study of its novel
immuno-stimulatory product for the treatment of Psoriasis indicated no
statistical difference between the Company's product and a placebo. In the
study, Psoraxine was found to be safe and well tolerated.

Based on an analysis of the data from its Phase II study the Company has
developed a hypothesis to explain why the results differed from the long-term
improvement of the more than 2,700 patients who were treated with Psoraxine in
pre-clinical studies in Venezuela. The Company intends to reformulate the
product and reproduce the clinical studies performed in Venezuela. The Company
hopes to demonstrate an outcome that is more consistent with results from
pre-clinical studies.

The Company raised an additional $250,000 through a private placement in March
of 2006. These funds, in addition to its cash on hand at that time are
sufficient to meet the Company's needs for operating and capital expenditures
through mid-June 2006. The Company will need to raise significant additional
funds from outside sources immediately and in future years in order to complete
existing and future phases of FDA required testing and continue operations.


                                      -6-


Consequently, the aforementioned items raise substantial doubt about the
Company's 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 the
Company's currently anticipated needs for operating and capital expenditures for
the remainder of 2006, including the cost to continue clinical trials of
Psoraxine(R) and initiate development of pipeline products to treat arthritis
and leishmaniasis. The Company 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.

The Company's ability to continue as a going concern is dependent upon it
raising capital immediately through debt and/or equity financing. There can be
no assurance that the Company will successfully raise the required future
financing on terms desirable to the Company or that the FDA will approve
Psoraxine for use in the United States. If the Company does not obtain the
needed funds, it will be required to cease operations. The Company is actively
seeking sources of financing. The Company is considering and will implement
further dramatic cost reduction measures to extend the availability of its
capital. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets and
amounts and classifications of liabilities that might result from the outcome of
this uncertainty.

NOTE 4 - 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-Q have
not been restated to reflect the fair value method of recognizing compensation
cost relating to non-qualified stock options.

There was $35,108 of compensation cost related to non-qualified stock options
recognized in operating results for the three months ended March 31, 2006. Since
the Company has generated losses from its inception, no associated future income
tax benefit was recognized for the three months ended March 31, 2006.

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:

                                                      Three Months Ended
                                                        March 31, 2006
                                                      -------------------
       Expected volatility                            108.00 % - 128.00 %
       Expected annual dividend yield                              0.00 %
       Risk free rate of return                                    4.45 %
       Expected option term (years)                                5.00

If the Company had accounted for share based compensation in accordance with
SFAS No. 123R for the three months ended March 31, 2005, then $168,930 would
have been recorded as share based compensation expense. The following table
illustrates the effect on net loss and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Standards No. 123, Accounting for Stock-Based Compensation," to stock-based
compensation in the first quarter of 2005.


                                      -7-


                                                                   Three Months
                                                                       Ended
                                                                  March 31, 2005
                                                                  --------------
                                                                    (Unaudited)

Net loss to common stockholders, as reported                       $ (1,680,197)

Add: Stock-based employee/director compensation included in
    reported net loss                                                        --
Deduct: Total stock-based employee/director compensation expense
    under the fair value based method for all awards, net of tax       (168,930)
                                                                   ------------

Pro forma net loss                                                 $ (1,849,127)
                                                                   ============

    Loss per share basic and diluted - as reported                 $      (0.02)
    Loss per share basic and diluted - pro forma                   $      (0.03)

Shares used in basic and diluted loss per share amounts              73,224,166
                                                                   ============

At March 31, 2006, there was $245,043 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 8.00 years. The total fair value of
options vested during the three months ended March 31, 2006 was approximately
$4,353.

The effect of applying SFAS No. 123R in the first quarter of 2006 was an
additional $35,108 of compensation expense was recorded which increased the net
loss by a corresponding amount and had no effect on earnings per share.

Other than stock options covered by the Stock Incentive Plan, the Company has no
outstanding options to purchase shares of its common stock.

NOTE 5 - CONVERTIBLE NOTES - RELATED PARTY

On March 31, 2006, the Company issued to Blue Cedar Limited ("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 at any time prior
to the redemption date (March 31, 2009), interest will be charged on the note at
6% per annum and (ii) a warrant to purchase 2,777,778 shares of common stock at
an exercise price of $0.135 per share. The warrants expire five years from the
date of issuance.

The Company may at any time and from time to time, on 45 day's written notice to
Blue Cedar, redeem all or any part of the principal balance of this Note at a
price equal to (i) the "Interest Amount," determined pursuant to the note, of
the principal amount of the Notes to be prepaid, plus (ii) the principal amount
of Notes to be prepaid. The Interest Amount shall be equal to: (a) if such
prepayment occurs on or prior to the first anniversary of the date of the note,
six percent (6%) of the principal amount thereof; (b) if such prepayment occurs
after the first anniversary date and prior to the second anniversary date,
twelve percent (12%) of the aggregate principal amount thereof; and (c) if such
prepayment occurs after the second anniversary date, eighteen percent (18%) of
the aggregate principal price thereof.

Pursuant to EITF 98-5 "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios" and EITF 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments", the Company
has recorded a discount to the convertible note in the amount of $250,000 based
on the relative fair value of the debt and warrants in addition to the
beneficial conversion feature (the conversion price into common shares being
less than the market price of common shares on the date the loan was issued).
The discount will be amortized as interest expense over the life of the note.


                                      -8-


For a period ending four years from March 31, 2006, Blue Cedar shall have the
right to cause the Company to register the shares of Common Stock issuable upon
conversion or exercise of the Notes or Warrants under the Act, as amended, at
the Company's expense (exclusive of underwriting discounts and commissions and
fees of counsel to such Subscribers), subject to certain restrictions.

Also during the same period set forth above, Blue Cedar shall have the right, to
participate on a "piggyback basis" in a registration by the Company under the
Act, subject to certain restrictions, including underwriter hold-backs.

The Company evaluated its convertible debt instruments for possible application
of derivative accounting under Statement of Financial Accounting Standard
("SFAS") No 133: Accounting for Derivative Instruments and Hedging Activities,
Emerging Issues Task Force ("EITF") 00-19: Accounting for Derivative Financial
Instrument Indexed to, and Potentially Settled in, a Company's Own Stock, EITF
01-6: The Meaning of "Indexed to a Company's Own Stock" and EITF 05-2: The
Meaning of "Conventional Convertible Debt Instrument" in Issue No. 00-19. The
Company determined its convertible debt was deemed "conventional" and therefore
not subject to derivative accounting.

NOTE 6 - CAPITAL STOCK ACTIVITY

On January 27, 2006, the Company issued 182,000 options to a former Chief
Executive Officer ("CEO"). The options were issued with an exercise price equal
to the market price on the date of issuance ($0.03 on January 27, 2006) and with
a term of 5 years and vested immediately. Additionally, on January 27, 2007 an
additional 182,000 options will become vested exercisable at the market price on
that date for a term of 5 years. The options were issued pursuant to a
Separation Agreement and General Release, by and between the Company and former
CEO, which was signed on January 25, 2006.

NOTE 7 - NET LOSS PER SHARE

Basic and diluted net loss per common share are presented in accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS
128"), for all periods presented. In accordance with FAS 128, basic and diluted
net loss per common share have been computed using the weighted-average number
of shares of common stock outstanding during the period. Shares associated with
stock options, stock warrants, and convertible debt are not included because the
inclusion would be anti-dilutive (i.e., reduce the net loss per share). The
total numbers of such shares excluded from diluted net loss per common share
were 53,769,022 and 16,847,891 at March 31, 2006 and 2005, respectively.

NOTE 8 - SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION

In March 2006, the Company financed $66,944 of certain insurance premiums by
entering into a short-term note payable. The notes mature on September 10, 2006
and have an interest rate of 7.75% per annum. As of March 31, 2006, these notes
had an outstanding balance of $48,456.

NOTE 9 - SUBSEQUENT EVENTS

On May 5, 2006, the Company received the resignation of Fabien Pictet as a
member of the Board of Directors. Mr. Pictet's resignation was effective as of
May 4, 2006.


                                      -9-


          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

      We are a development stage biotechnology company engaged primarily in the
research and development of treatments for immune system disorders and skin
diseases, such as psoriasis and psoriatic and rheumatoid arthritis. Our initial
product candidate, Psoraxine(R), is a protein extract used for the treatment of
the skin disease psoriasis.

      Currently, we are engaged in the following activities to further our
development efforts of our initial product candidate:

      o     Ongoing research and development of Psoraxine(R);

      o     Recommencing clinical trials to obtain the approval of the United
            States Food and Drug Administration for the marketing of
            Psoraxine(R); and

      o     Developing technology underlying Psoraxine(R) for the treatment of
            indications other than psoriasis, such as arthritis, eczema,
            seborrheic dermatitis and leishmaniasis.

      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.

      Based on our current plans we believe that we have sufficient funds to
meet our operating needs through approximately mid-June 2006. We will be able to
continue our operations beyond mid-June 2006 only if we can raise additional
capital immediately. We are actively seeking sources of financing. We are
considering and will implement further dramatic cost reduction measures to
extend the availability of our capital.


                                      -10-


Recent Developments

      Blue Cedar March 2006 Private Placement

      On March 31, 2006, the Company closed a private placement of securities
from which it received proceeds of $250,000. In connection with this private
placement, the Company issued to Blue Cedar Limited ("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 the 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, as amended (the "Securities Act").

      Departure of Directors and Principal Officer

      On December 11, 2005, Steven Fulda, a member of the Board of Directors and
Audit Committee of the Company, announced his resignation from the Board and
Audit Committee, effective December 30, 2005. Mr. Fulda's announcement did not
reference a disagreement with the Company on any matter relating to the
Company's operations. In addition, on May 5, 2006 Fabien Pictet resigned as a
member of the Board of Directors of the Company. Mr. Pictet's effective date of
resignation was May 4, 2006. Mr. Pictet's resignation did not reference a
disagreement with the Company on any matter relating to the Company's
operations.

      Additionally, on January 25, 2006, James Sharpe resigned as a member of
the Board of Directors, Chief Executive Officer and President of the Company,
pursuant to a Separation Agreement and General Release, by and between the
Company and Mr. Sharpe ("Separation Agreement"). Mr. Sharpe, whose resignation
was effective as of December 31, 2005, did not resign due to a disagreement with
the Company on any matter relating to the Company's operations. Michael Garone,
the Company's Chief Financial Officer, currently is serving as the Company's
interim President until the Company's Board of Directors elects a new Chief
Executive Officer and President to replace Mr. Sharpe.

      Proposed Amendment to the Certificate of Incorporation

      The Board of Directors has approved an amendment to the Certificate of
Incorporation of the Company, pursuant to which the Company will be authorized
to issue an additional 200,000,000 shares of Common Stock. The Amendment will be
subject to the approval of the stockholders of the Company to be sought at a
Special Meeting to be held during the second quarter of 2006.

                                Plan of Operation

Three months ended March 31, 2006 compared to three months ended March 31, 2005.

For three months ended March 31, 2006:

      For the three months ended March 31, 2006, we had no revenue from
operations and incurred operating expenses of $430,142 which consisted primarily
of:

      o     Research and development costs of $164,027 including evaluation of
            clinical trial results, reformulation of Psoraxine(R) and activity
            testing in animals.


                                      -11-


      o     General and administrative costs of $227,910 , including
            professional fees, rent, salaries for management and our general
            corporate expenditures.

      As a result, during the three months ended March 31, 2006, we incurred a
net loss of $427,243.

For three months ended March 31, 2005:

For the three months ended March 31, 2005, we had no revenue from operations and
incurred operating expenses of $1,691,095 which consisted primarily of:

      o     Research and development costs of $1,086,664, including $861,526 of
            costs relating to the Phase II study for Psoraxine(R). Research and
            development costs did not include any allocation of costs under our
            Services Agreement with SkyePharma, which expired in December 2004.

      o     General and administrative costs of $596,509, including professional
            fees, rents, salaries for management and our general corporate
            expenditures.

      o     As a result, during the three months ended March 31, 2005, we
            incurred a net loss of $1,680,197.

Comparison

      Our research and development expenses declined from $1,086,664 during the
three months ended March 31, 2005 to $164,027 during the three months ended
March 31, 2006, primarily due to the completion of the clinical trial of
Psoraxine(R) during the first quarter of 2005.

      By comparison to the three months ended March 31, 2005, our general and
administrative costs for the three months ended March 31, 2006 decreased by
$368,599 primarily due to management's cost control initiatives and downsizing.

      Losses of $427,243 for the three months ended March 31, 2006 were
$1,252,954 less than losses for the three months ended March 31, 2005,
reflecting the completion of the Psoraxine(R) clinical trial and management's
cost control initiatives implemented during 2006.

The Next Twelve Months

      At March 31, 2006 we had cash balances of $276,789, and accounts payable
of $107,810 which we estimate will last us through approximately mid-June 2006
and no marketable securities. If we do not obtain additional funds before June
15, 2006, we will have to cease operations. To the extent that we raise
additional funds, based on our current operating plan and subject to raising
more capital as discussed below, we anticipate conducting the following
activities and using our cash over the course of the next twelve months as
follows:

      o     Our primary focus is 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 a hypothesis that
            may explain why we received these unexpected results. In this
            regard, we are implementing cost containment measures; realigning
            development activities to focus on such things as formulation,
            manufacturing, analytical protocols and potency; and we are testing
            the hypothesis to explain unexpected results and determine the best
            course for future development. We remain committed to Psoraxine(R)
            and its future development, and hope to see it return to Phase II
            clinical trials in 2006.


                                      -12-


      o     We intend to implement our business plan and facilitate the
            operations of our company. The business plan will be implemented in
            phases: during the first phase we expect to test the hypothesis
            developed recently to assess causes for unexpected results in the
            Phase II trial. During the second phase, test results will be used
            to design and begin a new Phase II trial. We expect that we would be
            required to incur expenses of approximately $750,000 to third
            parties in connection with continuing development of Psoraxine(R).

      o     We will spend approximately $450,000 to pay management salaries and
            salaries of employees, a portion of which is treated as research and
            development expense.

      o     We also expect to expend approximately $700,000 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,
            commencing in January 2006 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 continue our
            operations for the period following the first quarter of 2006 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 will likely be required to cease
            operations.

ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

      Based on their evaluation as of the end of the period covered by this
Quarterly Report on Form 10-QSB, our interim Chief Executive Officer, interim
president and Chief Financial Officer has concluded that our disclosure controls
and procedures (as defined in Rules 13a-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 for the following reasons:

      As a result of the audit of our 2005 financial statements and the review
of our 2006 quarterly 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).

1.    Our independent auditors identified certain errors in the 2005 financial
      statements 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 represent 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.

2.    In connection with their review of our 2006 quarterly financial statements
      our independent auditors identified certain errors and departures from
      generally accepted accounting principles in the financial statements that
      were not initially identified by the Company's 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.

3.    The Company did not file its 2005 Form 10KSB - Annual Report within the
      time prescribed by regulations of the Securities and Exchange Commission.

(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.


                                      -13-


                                  RISK FACTORS

      You should carefully consider each of the following risk factors and all
of the other information in this report. The following risks relate principally
to the Company's business. If any of the following risks actually occur, the
business, financial condition or results of operations of the Company could be
materially adversely affected. As a result, the market price of shares of the
Company's common stock could decline significantly

      We will need to obtain additional funds immediately to support our future
operation expenses. Our auditors have expressed uncertainty regarding our
ability to continue as a going concern.

      As of May 15, 2006, we have $128,444 in available cash and accounts
payable of $75,803. Based on our current plans, we believe that we have
sufficient funds to meet our operating expenses and capital requirements through
approximately mid-June 2006. We will need to raise additional funds immediately
to continue our operations following that period. 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. No assurance can be given that we will be able to
obtain financing, or successfully sell assets or stock, or, even if such
transactions are possible, that they will be on terms reasonable to us 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. If we do not obtain additional funds
immediately we will have to cease operations. We are actively seeking sources of
financing. We are considering and will implement further dramatic cost reduction
measures to extend the availability of our capital. If we are able to identify
funds immediately, but not additional funds thereafter, we will likely be
required to eliminate programs, delay development of our products, alter our
business plans, or in the extreme situation, cease operations.

      As a result of our losses and the matters described in the preceding
paragraph, the Independent Auditors' Report on our financial statements includes
a paragraph indicating doubt about our ability to continue as a going concern.
The financial statements that accompany this report do not include any
adjustments that might be necessary if we are unable to continue as a going
concern.

      We have no sales; we will not have sales in the foreseeable future; we are
in an early stage of development and we may never sell products or become
profitable.

      We commenced our current operations in 2001 and such operations remain in
an early stage of development. We have no products approved for sale and
therefore, no means to generate revenue. We have not commercialized any
products, had no revenues and had incurred a cumulative net loss of $54,043,759
as of March 31, 2006 which has increased to date. The cumulative net loss
through March 31, 2006 includes non-cash preferred stock dividends of
$22,218,750. We expect that substantial losses will continue for the foreseeable
future. In order to obtain revenue from the sales of our product candidate,
Psoraxine(R), we must successfully develop, test, obtain regulatory approval
for, manufacture, market and eventually sell such product candidate. Our
expenses have consisted principally of costs incurred in research and
development and from general and administrative costs associated with our
operations. We expect our expenses to increase and to continue to incur
operating losses for the next several years as we continue our research and
development efforts for Psoraxine(R) and any subsequent product candidates.
Commercialization of any of our products will take a significant amount of time
and successful commercialization may not occur at all. As a result, we may never
become profitable.

      Psoraxine(R) may never be approved by the FDA because the results of our
Phase II study failed to meet its primary study endpoint.

      We have focused our development efforts to date on conducting clinical
trials for an immuno-stimulatory drug, Psoraxine(R), for the treatment of
psoriasis. We recently conducted a randomized, double-blinded,
placebo-controlled clinical study involving 120 patients with moderate to severe
psoriasis who received six (6) intramuscular injections of Psoraxine(R). The
primary endpoint of the study was a specified level of improvement of symptoms


                                      -14-


measured in accordance with the Psoriasis Area and Severity Index, or PASI,
which is a measurement scale that ranks the severity of symptoms of patients
suffering from psoriasis. Our initial analysis of the preliminary data showed no
statistically significant improvement of those Phase II study patients who
received six injections of Psoraxine(R) for a twelve week treatment period
compared to patients taking a placebo.

      The failure of our Phase II study to meet its primary endpoint makes FDA
approval of Psoraxine(R) substantially more uncertain. To continue
Psoraxine(R)'s development and to obtain FDA approval to market Psoraxine(R), we
must analyze the data from the Phase II study to identify why the Phase II study
failed to meet its primary endpoint. We must then undertake additional Phase I
or Phase II clinical trials that are adjusted to account for the cause or causes
of the initial Phase II study's failure. Although we have already identified a
number of possible reasons for the failure to demonstrate efficacy in the recent
Phase II trial, and we have also developed a preliminary plan for new clinical
studies, there can be no guarantee that we will be able to identify with
certainty why our Phase II study failed to meet its primary endpoint and that we
will be able to make the needed adjustments for further Phase II studies to be
successful. There is also no guarantee that the FDA would approve Psoraxine(R)
even if we deem additional clinical trials to be successful.

      We have devoted most of our resources to the development of Psoraxine(R)
and our business is dependent on its success. In the United States, the
marketing of Psoraxine(R) depends on FDA approval of the product. Analyzing the
Phase II study data and conducting additional Phase II clinical trials will
delay FDA approval. We may also decide to discontinue further clinical trials of
Psoraxine(R), which would prevent us from obtaining FDA approval. If we are not
able to obtain FDA approval for Psoraxine(R), we would be unable to sell the
product.

      Recent and future changes in senior management and board composition may
affect our ability to implement our business plan. In addition we only have one
member of our Audit Committee.

      On January 25, 2006, we accepted the resignation James Sharpe, effective
as of December 31, 2005 with respect to his position as Chief Executive Officer,
President and member of the Board of Directors. Michael Garone, our Chief
Financial Officer, currently serves as the interim Chief Executive Officer and
interim President. Mr. Sharpe is our third Chief Executive Officer and President
to resign in an 18 month period. Our ability to implement our business strategy
may be adversely affected if we continue to experience unplanned senior
management changes in the future or if we are unable to successfully integrate
our current and future senior management personnel into our organization.
Additionally there have been changes to the composition of our Board of
Directors. On May 5, 2006 The Company received the resignation of Fabien Pictet
as a member of the Board of Directors. Mr. Pictet's resignation was effective as
of May 4, 2006. Further, in December 2005, Steven Fulda resigned as a member of
the Audit Committee and member of the Board of Directors. As a result of Mr.
Fulda's resignation, we only have one member of the Audit Committee. Moreover,
our Audit Committee does not contain a member that qualifies as a financial
"expert" as defined by Item 401(e) of Regulation S-B of the Exchange Act.

      One of our existing stockholders can exert control over us and may not
make decisions that further the best interests of all stockholders.

      SkyePharma owns approximately 39.8% of our outstanding common stock. As a
result, SkyePharma may exert a significant degree of influence over our
management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Furthermore, the interests of SkyePharma may not always coincide
with our interests or the interests of other stockholders and accordingly, they
could cause us to enter into transactions or agreements which we would not
otherwise consider. In addition, this concentration of ownership may delay or
prevent a merger or acquisition resulting in a change in our control might
affect the market price of our common stock, even when such a change in control
may be in the best interest of all stockholders.


                                      -15-


      We may not be successful in the development and commercialization of
products.

      We may not develop products that prove to be safe and effective, that meet
applicable regulatory standards or that we can manufacture at reasonable costs
or market successfully. Successful products will require significant development
and investment, including testing, to demonstrate their safety and efficacy
prior to their commercialization. We have not proven our ability to develop and
commercialize products. We must conduct a substantial amount of additional
research and development before any regulatory authority will approve our
initial product candidate, Psoraxine(R). Our research and development and
clinical trials may not confirm the safety and efficacy of our products, in
which case regulatory authorities may not approve them. In addition, even if we
successfully complete our research and development efforts, Psoraxine(R) may not
perform in the manner we anticipate, and may not be accepted for use by the
public.

      Substantial additional funds and effort will be necessary for further
development and commercialization of Psoraxine(R).

      Our initial product candidate, Psoraxine(R), will require the commitment
of substantial resources to move it towards commercialization. Before obtaining
regulatory approvals for the commercial sale of Psoraxine(R), we must
demonstrate the safety and efficacy of our product candidate through preclinical
testing and clinical trials. Conducting clinical trials involves a lengthy,
expensive and uncertain process. Completion of clinical trials may take several
years or more. The length of time generally varies substantially according to
the type, complexity, novelty and intended use of the product. If we or the U.S.
Food and Drug Administration believe that our clinical trials expose
participating patients to unacceptable health risks, we may suspend such trials.
We may encounter problems in our studies which will cause us or the FDA to delay
or suspend the studies. Some of the factors that may delay our commencement and
rate of completion of clinical trials include:

      o     ineffectiveness of the study compound, or perceptions by physicians
            that the compound will not successfully treat a particular
            indication;

      o     inability to manufacture sufficient quantities of compounds for use
            in clinical trials;

      o     failure of the FDA to approve our clinical trial protocols;

      o     slower than expected rate of patient recruitment;

      o     unforeseen safety issues; or

      o     government or regulatory delays.

      The failure of future clinical trials may harm our business, financial
condition and results of operations.

      Our potential therapeutic products face a lengthy and uncertain regulatory
process. If we do not obtain regulatory approval of our potential products, we
will not be able to commercialize these products.

      The FDA must approve any therapeutic product before it can be marketed in
the United States. Before we obtain FDA approval of a new drug application or
biologics license application, the product must undergo extensive testing,
including animal and human clinical trials, which can take many years and
requires substantial expenditure. Data obtained from such testing may be
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. In addition, changes in regulatory policy for product
approval during the period of product development and regulatory agency review
of each submitted new drug application may cause delays or rejections. We must
devote a substantial amount of time and resources in the regulatory process in
order to obtain regulatory approval of our initial product candidate,
Psoraxine(R).

      Because our initial product candidate, Psoraxine(R), involves the
application of new technologies and may be used upon new therapeutic approaches,
government regulatory authorities may subject this product to more rigorous
review and may grant regulatory approvals more slowly for this product than for
products using more conventional technologies. We have not received approval
from the FDA to market or commercialize Psoraxine(R). The regulatory agencies of
foreign governments must also approve any therapeutic product we may develop
before the product can be sold in those countries. To date, although we have
obtained regulatory approval for clinical testing of Psoraxine(R) in Venezuela,
we have not sought, nor have we obtained, regulatory approval for the
commercialization of Psoraxine(R) in Venezuela because, among other things, we
do not have manufacturing facilities in that country and such facilities are
required by regulatory authorities in Venezuela before granting commercial
approval for a proposed drug.


                                      -16-


      Even after investing significant time and resources, we may not obtain
regulatory approval for our product. If we do not receive regulatory approval,
we cannot sell the product. Even if we receive regulatory approval, this
approval may place limitations on the indicated uses for which we can market the
product. Further, after granting regulatory approval, regulatory authorities
subject a marketed product and its manufacturer to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on the product, manufacturer and manufacturing facility,
including withdrawal of the product from the market. In certain countries,
regulatory agencies also set or approve prices.

      Even if product candidates emerge successfully from clinical trials, we
may not be able to successfully manufacture, market and sell them.

      We have not successfully completed clinical trials of Psoraxine(R). If
Psoraxine(R) emerges successfully from clinical trials and obtains regulatory
approval, we will either commercialize products resulting from our proprietary
programs directly or through licensing arrangements with other companies. We
have no experience in manufacturing and marketing, and we currently do not have
the resources or capability to manufacture, market or sell our products on a
commercial scale. In order to commercialize Psoraxine(R) directly, we would need
to develop or obtain through outsourcing arrangements the capability to
manufacture, market and sell products. In addition, we currently do not have any
agreements for the marketing or sale of any of our products and we may not be
able to enter into such agreements on commercially reasonable terms, or at all.

      We license and do not own our intellectual property. Any inability to
protect our proprietary technologies adequately could harm our competitive
position.

      We license, and do not own, the intellectual property rights to
Psoraxine(R). Dr. Jose Antonio O'Daly is the owner of the patent for
Psoraxine(R). Under the terms of a license agreement and assignment of license
agreement, we have the right to use any patent issued pursuant to Dr. O'Daly's
patent application. We also have rights to other patents filed by Dr. O'Daly
under the terms of our employment agreement with him. Our success will depend in
part on our ability to obtain patents and maintain adequate protection of other
intellectual property for our technologies and products in the United States and
other countries. If we do not adequately protect our intellectual property,
competitors may be able to use our technologies and erode or negate our
competitive advantage. The laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the United States, and we
may encounter significant problems in protecting our proprietary rights in these
foreign countries.

      The patent positions of biotechnology companies, including our patent
positions, involve complex legal and factual questions and, therefore, validity
and enforceability cannot be predicted with certainty. Patents may be
challenged, deemed unenforceable, invalidated or circumvented. We will be able
to protect our proprietary rights from unauthorized use by third parties only to
the extent that we cover our proprietary technologies with valid and enforceable
patents or we effectively maintain such proprietary technologies as trade
secrets. We will apply for patents covering both our technologies and product
candidates as we deem appropriate. However, we may fail to apply for patents on
important technologies or products in a timely fashion, or at all, and in any
event, the applications we do file may be challenged and may not result in
issued patents. Any future patents we obtain may not be sufficiently broad to
prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patented technologies. In addition, others may
challenge or invalidate our patents, or our patents may fail to provide us with
any competitive advantages. If we encounter challenges to the use or validity of
any of our patents, resulting in litigation or administrative proceedings, we
would incur substantial costs and the diversion of management in defending the
patent. In addition, we do not control the patent prosecution of technology that
we license from others. Accordingly, we cannot exercise the same degree of
control over this intellectual property as we would over technology we own.


                                      -17-


      We rely upon trade secrets protection for our confidential and proprietary
information. We have taken measures to protect our proprietary information.
These measures may not provide adequate protection for our trade secrets or
other proprietary information. We seek to protect our proprietary information by
entering into confidentiality agreements with employees, collaborators and
consultants. Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to meaningfully
protect our trade secrets. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise gain
access to our trade secrets.

      Many potential competitors, which have greater resources and experience
than we do, may develop products and technologies that could make ours obsolete.

      Companies in the biotechnology industry face rapid technological change in
a rapidly evolving field. Our future success will depend on our ability to
maintain a competitive position with respect to technological advances. Rapid
technological development by others may result in our products and technologies
becoming obsolete.

      We face, and will continue to face, intense competition from organizations
such as large biotechnology and pharmaceutical companies, as well as academic
and research institutions and government agencies. Our competitors may include
Biogen, Genentech/Xoma, Amgen, Wyeth, Abbott Laboratories and Novartis. These
organizations may develop technologies that provide superior alternatives to our
technologies. Further, our competitors may be more effective at implementing
their technologies to develop commercial products.

      Any products that we develop through our technologies will compete in
multiple, highly competitive markets. Many of the organizations competing with
us in the markets for such products have greater capital resources, research and
development and marketing staffs, facilities and capabilities, and greater
experience in obtaining regulatory approvals, product manufacturing and
marketing. Accordingly, our competitors may be able to develop technologies and
products more easily, which would render our technologies and products obsolete
and noncompetitive.

      If we lose our key personnel or fail to attract and retain additional
personnel, we may be unable to discover and develop our products.

      We depend on the services of Dr. Jose Antonio O'Daly, the Chairman of our
Board of Directors and our Chief Scientific Officer, and Michael Garone, interim
Chief Executive Officer, interim President and Chief Financial Officer, the loss
of whose services would adversely impact the achievement of our objectives. To
execute our business plan fully it is essential that we retain these executives.
In addition, recruiting and retaining qualified scientific personnel to perform
future research and development work will be critical to our success. Although
we believe we can successfully attract and retain qualified personnel, we face
intense competition for experienced scientists. Failure to attract and retain
skilled personnel would prevent us from pursuing collaborations and developing
our products and core technologies to the extent otherwise possible.

      Our planned activities will require additional expertise. These activities
will require the addition of new personnel, including management, and the
development of additional expertise by existing management personnel. The
inability to acquire or develop this expertise could impair the growth, if any,
of our business.

      If we face claims in clinical trials of a drug candidate, these claims
will divert our management's time and we will incur litigation costs.

      We face an inherent business risk of clinical trial liability claims in
the event that the use or misuse of Psoraxine(R) results in personal injury or
death. We may experience clinical trial liability claims if our drug candidates
are misused or cause harm before regulatory authorities approve them for
marketing. Although, we currently maintain clinical liability insurance
coverage, it may not sufficiently cover any claims made against us and may not
be available in the future on acceptable terms, if at all. Any claims against
us, regardless of their merit, could strain our financial resources in addition
to consuming the time and attention of our management. Law suits for any
injuries caused by our products may result in liabilities that exceed our total
assets.

Some of our existing stockholders can exert control over us and many not make
decisions that further the best interests of all stockholders.


                                      -18-


      Our officers, directors and principal stockholders (greater that 5%
stockholders) together control approximately 77.7% of our outstanding common
stock. As a result, these stockholders, if they act individually or together,
may exert a significant degree of influence over our management and affairs and
over matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Furthermore, the interests
of this concentration of ownership may not always coincide with our interests or
the interests of other stockholders and accordingly, they could cause us to
enter into transactions or agreements which we would not otherwise consider. In
addition, this concentration of ownership may delay or prevent a merger or
acquisition resulting in a change in control of us and might affect the market
price of our common stock, even when such a change in control may be in the best
interest of all stockholders.

      The market price of our common stock may be highly volatile.

      The market price of our common stock has been and will likely continue to
be highly volatile. From the date trading of our common stock commenced until
May 15, 2006, the range of our stock price has been between $0.02 and $7.15.
Factors including announcements of technological innovations by us or other
companies, regulatory matters, new or existing products or procedures, concerns
about our financial position, operating results, government regulation, or
developments or disputes relating to agreements, patents or proprietary rights
may have a significant impact on the market price of our stock. In addition,
potential dilutive effects of future sales of shares of common stock by us, our
stockholders, or the holders of warrants and options, could have an adverse
effect on the price of our common stock.

      A large number of shares of our common stock may be sold in the market,
which may depress the market price of our common stock.

      Sales of substantial amounts of our common stock in the public market, or
the perception that these sales might occur, could materially and adversely
affect the market price of our common stock or our future ability to raise
capital through an offering of our equity securities. We have an aggregate of
91,454,873 shares of our common stock outstanding. If all options and warrants
currently outstanding to purchase shares of our common stock are exercised,
there will be approximately 145,223,895 shares of common stock outstanding. Of
the outstanding shares, up to 73,173,055 shares are freely tradable without
restriction or further registration under the Securities Act, unless the shares
are held by one of our "affiliates" as such term is defined in Rule 144 of the
Securities Act. The remaining shares may be sold only pursuant to a registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act. The sale and distribution of these shares
may cause a decline in the market price of our common stock. In addition we will
be obligated to file a registration statement within approximately 30 days of
the final closing of our private placement covering the resale of all shares
included therein, as well as the shares underlying the warrants. Certain
existing stockholders have the right to include their securities in such
registration statement.

      Our common stock qualifies as a "penny stock" under SEC rules which may
make it more difficult for our stockholders to resell their shares of our common
stock.

      Our common stock trades on the OTC Bulletin Board. As a result, the
holders of our common stock may find it more difficult to obtain accurate
quotations concerning the market value of the stock. Stockholders also may
experience greater difficulties in attempting to sell the stock than if it were
listed on a stock exchange or quoted on the Nasdaq National Market or the Nasdaq
Small-Cap Market. Because our common stock does not trade on a stock exchange or
on the Nasdaq National Market or the Nasdaq Small-Cap Market, and the market
price of the common stock is less than $5.00 per share, the common stock
qualifies as a "penny stock." SEC Rule 15g-9 under the Securities Exchange Act
of 1934 imposes additional sales practice requirements on broker-dealers that
recommend the purchase or sale of penny stocks to persons other than those who
qualify as an "established customer" or one "accredited investor." This includes
the requirement that a broker-dealer must make a determination on the
appropriateness of investments in penny stocks for the customer and must make
special disclosures to the customer concerning the risks of penny stocks.
Application of the penny stock rules to our common stock could adversely affect
the market liquidity of the shares, which in turn may affect the ability of
holders of our common stock to resell the stock.


                                      -19-


                                    PART II.

                                OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      On March 31, 2006, the Company closed a private placement of securities
from which it received proceeds of $250,000. In connection with this 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 the 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.

Item 6. Exhibits

Exhibit Number                                                      Description

3.1 (1)                 Certificate of Incorporation of Astralis Ltd.

3.2 (2)                 Bylaws of Astralis Ltd.

4.1 (9)                 Specimen Stock Certificate

10.1 (2)                Agreement and Plan of Merger

10.2 (4)                Contribution Agreement dated September 10, 2001

10.3 (5)                Purchase Agreement dated December 10, 2001

10.4 (5)                Stockholder Agreement dated December 10, 2001

10.5 (7)                2001 Stock Option Plan

10.6 (3)                Sub-Lease Agreement

10.7 (3)                License Agreement dated April 26, 2001 between Jose
                        Antonio O'Daly and Astralis LLC

10.8 (3)                Assignment of License

10.9 (3)                Form of Warrant

10.10 (8)               Agreement for Services dated December 10, 2001 between
                        SkyePharma Inc. and Astralis Ltd.

10.11 (8)               Technology Access Option Agreement dated December 10,
                        2001 by and among SkyePharma Inc., SkyePharma Holding AG
                        and Astralis Ltd.

10.12 (6)               Employment Agreement dated December 10, 2001, between
                        Dr. Jose Antonio O'Daly and Astralis Ltd.

10.13 (6)               Amendment #1 to Agreement for Services dated March 18,
                        2003 between SkyePharma Inc. and Astralis Ltd.

10.14 (7)               Omnibus Conversion Agreement dated January 12, 2004
                        between Astralis Ltd. and SkyePharma PLC

10.15 (7)               Call Option Agreement dated January 20, 2004 between
                        Astralis Ltd. and SkyePharma PLC

10.16 (7)               Amendment No. 1 to Stockholders Agreement dated January
                        20, 2004 by and among Astralis Ltd., SkyePharma PLC,
                        Jose Antonio O'Daly, Mike Ajnsztajn, Gaston Liebhaber
                        and Gina Tedesco

10.17 (11)              Securities Purchase Agreement, dated August 17, 2005, by
                        and between Astralis Ltd. and Blue Cedar Limited.

10.18 (11)              Registration Rights Agreement, dated August 17, 2005, by
                        and between Astralis Ltd. and Blue Cedar Limited.


                                      -20-


10.19 (11)              Stockholder's Agreement, dated August 17, 2005, by and
                        between Astralis Ltd. and Blue Cedar Limited.

10.20 (11)              Long-term Common Stock Purchase Warrant, issued to Blue
                        Cedar Limited by Astralis Ltd.

10.21 (11)              Short-term Common Stock Purchase Warrant, issued to Blue
                        Cedar Limited by Astralis Ltd.

10.22 (11)              Long-term Common Stock Purchase Warrant, issued to
                        Lipworth Capital Limited by Astralis Ltd.

10.23 (12)              Separation Agreement and General Release, dated January
                        25, by and between James Sharpe and the Registrant.

10.24 (13)              Form of Subscription Agreement, dated March 31, 2006, by
                        and between Astralis Ltd. and Blue Cedar Limited.

10.25 (13)              Form of Warrant, dated March 31, 2006, issued to Blue
                        Cedar Limited by Astralis Ltd.

10.26 (13)              Form of Convertible Promissory Note in the principal
                        amount of $250,000, dated March 31, 2006, issued to Blue
                        Cedar Limited by Astralis Ltd.

14.1 (1)                Code of Ethics for Chief Executive Officer and Senior
                        Financial Officers

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

----------
(1) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Annual Report on Form 10-KSB on March 30, 2004.

(2) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Preliminary Proxy Statement for Astralis Pharmaceuticals Ltd. on November
16, 2001.

(3) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registration Statement on Form SB-2 for Astralis Ltd. on March 14, 2002.

(4) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K for Astralis Pharmaceuticals Ltd. on November
14, 2001.

(5) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K for Astralis Ltd. on December 14, 2001.

(6) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Annual Report on Form 10-KSB on March 31, 2003.

(7) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Preliminary Proxy Statement for Hercules Development Group Inc. on
October 4, 2001.

(8) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Amendment to the Registration Statement on Form SB-2 for Astralis Ltd. on
July 23, 2002.

(9) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registration Statement on Form SB-2 for Astralis Ltd. on May 28, 2004.

(10) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registration Statement on Form SB-2 for Astralis Ltd. on June 28, 2004.


                                      -21-


(11) Previously filed with the Securities and Exchange Commission as an Exhibit
on Form 10-QSB on August 19, 2005.

(12) Previously filed with the Securities and Exchange Commission as an Exhibit
on Form 8-K on March 30, 2006.

(13) Previously filed with the Securities and Exchange Commission as an Exhibit
on Form 8-K on April 6, 2006.


                                      -22-


                                   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: May 22, 2006                   By: /s/ Michael Garone
                                          --------------------------------------
                                      Michael Garone
                                      Interim Chief Executive Officer & Chief
                                      Financial Officer (Principal Executive
                                      Officer; Principal Financial and
                                      Accounting Officer, Authorized Signatory
                                      on behalf of Registrant)


                                      -23-