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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ASTRALIS LTD.
(Name of small business issuer in its charter)
Delaware 6531 84-1508866
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code Number)
organization)
135 Columbia Turnpike, Suite 301
Florham Park, New Jersey 07932
(973) 377-8008
(Address and telephone number of principal executive offices
and principal place of business)
Mike Ajnsztajn
Chief Executive Officer
Astralis Ltd.
135 Columbia Turnpike, Suite 301
Florham Park, New Jersey 07932
(973) 377-8008
(Name, address and telephone number of agent for service)
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Copies of Communications to:
Jeffrey A. Baumel, Esq.
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4096
(973) 622-4444
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Approximate date of commencement of proposed sale of the
securities to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEES
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered (1) Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price
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Common Stock par 2,431,415 $ 2.16 $ 5,251,856 $ 483
value $.0001
per Share
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(1) Includes 405,236 shares of Common Stock issuable upon the exercise of
Common Stock Purchase Warrants.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED MARCH 14, 2002
ASTRALIS LTD.
2,431,415 Shares of Common Stock
Certain of our stockholders (the "Selling Stockholders") wish to sell
shares of our common stock, $.0001 par value ("Common Stock"), under this
prospectus. Of the 2,431,415 shares of Common Stock included in this prospectus,
405,236 shares of Common Stock are issuable upon the exercise of Common Stock
Purchase Warrants ("Warrants") exercisable for $4.00 per share until November
13, 2006. See "Selling Stockholders and Plan of Distribution." Our Common Stock
is listed on the Nasdaq Over-the-Counter Bulletin Board ("OTC Bulletin Board")
under the symbol ASTR. On March 12, 2002, the last reported sale price of our
Common Stock on the OTC Bulletin Board was $2.20 per share.
Our Common Stock being offered through this prospectus may be offered from
time to time by the Selling Stockholders through ordinary brokerage transactions
in the over-the-counter markets, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices. We will
not receive any of the proceeds from the sale of our Common Stock by the Selling
Stockholders although we will receive proceeds upon the exercise of any
Warrants. See "Selling Stockholders and Plan of Distribution."
Investing in our Common Stock involves risks. Please read the "Risk
Factors" section beginning on page 7 to read about certain risks that you should
consider before buying shares of our Common Stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is , 2002
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by us, the Selling Stockholders or any
underwriter. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any security other than the Common Stock offered
by this prospectus, or an offer to sell or a solicitation of an offer to buy any
security by any person in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, imply that the information in this
prospectus is correct as of any time subsequent to the date of this prospectus.
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TABLE OF CONTENTS
Page
SUMMARY ......................................................................3
RISK FACTORS..................................................................7
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.................13
USE OF PROCEEDS..............................................................13
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION.....................................15
BUSINESS ....................................................................19
MANAGEMENT...................................................................26
EXECUTIVE COMPENSATION.......................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............34
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION................................36
DESCRIPTION OF CAPITAL STOCK.................................................40
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING
AND FINANCIAL DISCLOSURE............................................45
LEGAL MATTERS................................................................46
EXPERTS .....................................................................46
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................46
(i)
SUMMARY
You should read this summary together with the more detailed information,
including our financial statements and related notes, appearing elsewhere in
this prospectus. In this prospectus, "we", "us", "our" and "the Company" refer
to Astralis Ltd. unless the context requires otherwise. All information
contained in this Prospectus, except where otherwise indicated, gives effect to
a 10-for-1 stock dividend effected on March 14, 2001.
Astralis Ltd.
We are a development-stage biotechnology company, incorporated under the
laws of the State of Delaware and based in New Jersey, which engages in research
and development of treatments for immune system disorders and skin diseases. We
are currently developing a product candidate called Psoraxine(TM) for the
treatment of psoriasis.
Recent Developments
Combination with Astralis LLC. We were originally incorporated under the
laws of the State of Colorado on June 30, 1999 under the name "Hercules
Development Group, Inc." and we were engaged in the business of managing real
estate. Our real estate operations ceased in the second half of 2001. On
November 13, 2001, we entered into a Contribution Agreement, dated as of
September 10, 2001 ("Contribution Agreement"), between us on the one side and
Astralis LLC, a New Jersey limited liability company formed on March 12, 2001
("Astralis LLC") and Dr. Jose Antonio O'Daly, Gaston Liebhaber, Mike Ajnsztajn,
Richard Genovese, David Stevenson, Grizzly Consulting Ltd., Wolver Limited and
Logarithmic Inc., being all of the members of Astralis LLC, (the "Astralis
Members") on the other side. At such time, we began our current business which
was the prior business of Astralis LLC.
Pursuant to the business combination set forth in the Contribution
Agreement, the Astralis Members transferred all of their respective membership
interests in Astralis LLC to us in exchange for 28,000,000 shares of our Common
Stock and Warrants to purchase 6,300,000 shares of our Common Stock at an
exercise price of $1.60 per share. Pursuant to the Contribution Agreement, on
November 13, 2001, all of our officers and directors resigned from their
respective positions with us and were replaced by the officers and managers of
Astralis LLC. See "Management; Executive Officers and Directors".
In addition, on November 14, 2001, we filed an amendment to our Articles
of Incorporation which changed our name from "Hercules Development Group, Inc."
to "Astralis Pharmaceuticals, Ltd." On November 19, 2001, we reincorporated in
the State of Delaware under our current name.
3
Private Placement. During November of 2001, we completed a private
placement offering (the "Private Placement") pursuant to which we sold an
aggregate of 2,076,179 shares of our Common Stock and issued warrants to
purchase an aggregate of 415,237 shares of our Common Stock, at an exercise
price of $4.00 per share, for an aggregate purchase price of $3,321,887. We will
use the net proceeds of the Private Placement to conduct Phase I.B clinical
trials and Phase II clinical trials for our initial product candidate, to
continue funding the prosecution of our patent application, for the lease of a
research and development facility and corporate headquarters, to repay certain
indebtedness, to pay salaries to our executive officers and for working capital
and general corporate purposes. In addition, we agreed to file a registration
statement with the Securities and Exchange Commission covering the shares of
Common Stock sold in the Private Placement no later than March 13, 2002.
Purchase Agreement. We entered into a Purchase Agreement, ("Purchase
Agreement") dated as of December 10, 2001 with SkyePharma PLC, a company
incorporated under the laws of England and Wales ("SkyePharma"). As of March 12,
2002, SkyePharma has purchased 1,250,000 shares of our Series A Convertible
Preferred Stock, $.001 par value per share ("Preferred Stock"), at a purchase
price of $10.00 per share, or an aggregate purchase price of $12.5 million.
Pursuant to the Purchase Agreement, SkyePharma will make a total equity
investment of up to $20 million. The remaining $7.5 million investment will
involve the sale of an additional 750,000 shares of Preferred Stock, to
SkyePharma in three equal installments on April 30, 2002, July 31, 2002 and
January 31, 2003. Each share of Preferred Stock sold pursuant to the Purchase
Agreement is convertible into four shares of our Common Stock at the option of
SkyePharma. The conversion ratio is subject to adjustment annually for three
years if the price of our Common Stock trades on average below $2.50 for 10 days
prior to the adjustment date. However, the conversion ratio will not adjust to a
level greater than 6.25 shares of Common Stock for each share of Preferred
Stock.
Service and Technology Access Agreement. We also entered into two
agreements with SkyePharma relating to the formulation and development of our
product candidate, Psoraxine. Under the terms of the Technology Access
Agreement, dated December 10, 2001 (the "Technology Access Agreement"), we paid
to SkyePharma a $5 million license fee, for access to DepoFoam and other
relevant drug delivery technologies owned by SkyePharma. In addition, pursuant
to a Service Agreement, dated December 10, 2001 (the "Service Agreement"),
SkyePharma will provide us with all of our development, manufacturing,
pre-clinical and clinical development services for a period lasting until our
completion of Phase II studies of Psoraxine in consideration of an aggregate of
$11 million payable in 2001 and 2002.
4
The Offering
Shares of Common Stock offered 2,431,415
Use of Proceeds We will not be receiving any
proceeds from this offering although
we will receive proceeds upon the
exercise of any Warrants. Certain
Selling Stockholders may wish to
offer to sell shares of our Common
Stock that they acquired from us in
a private placement of shares of our
Common Stock.
OTC Bulletin Board Symbol ASTR
Summary Financial Information
The summary financial data is derived from the historical financial
statements of Astralis Ltd. This summary financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Plan of Operations" as well as our historical financial statements and the
related notes thereto, included elsewhere in this prospectus.
March 12 (Date of Inception)
To December 31, 2001
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Statement of operations data:
Revenue $ 0
Net loss applicable to common stockholders (6,195,364)
Net loss per share to common stockholders (.23)
Weighted average shares outstanding 27,348,000
Balance sheet data:
Working capital (deficit) 4,107,252
Total assets 9,457,451
Total liabilities 383,083
Stockholders' equity $ 9,074,368
5
Our Offices
Our principal executive offices are located at 135 Columbia Turnpike,
Suite 301, Florham Park, New Jersey 07932, and our telephone number is (973)
377-8008. Our Internet address is www.astralisltd.com. The information on our
web site is not incorporated by reference into, and does not constitute part of,
this prospectus.
6
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this prospectus, in connection
with an investment in the Common Stock offered hereby. This prospectus contains
certain forward-looking statements, which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this prospectus. An investment in the Common Stock
offered hereby involves a high degree of risk and is suitable only for investors
who are able to afford to lose their entire investment.
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 are still
in an early stage of development. We have no products approved for sale and
therefore, no means to generate revenue. Astralis LLC had not commercialized any
products, had no revenues, had incurred a net loss of $6,195,364 as of December
31, 2001 which has increased to date. We expect that substantial losses will
continue for the foreseeable future. If we are ever to obtain revenue from the
sales of our product candidate, Psoraxine, 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 at least the next several years as we continue our research
and development efforts for Psoraxine and any subsequent product candidates. The
amount of time necessary to successfully commercialize any of our product
candidates is long and uncertain and successful commercialization may not occur
at all. As a result, we may never become profitable.
We May Not Be Successful In The Development And Commercialization Of
Products.
Our technologies are new and our sole product candidate to date,
Psoraxine, is in an early stage of development. We may not develop products that
prove to be safe and effective, meet applicable regulatory standards, are
capable of being manufactured at reasonable costs, or can be marketed
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 sole
product candidate, Psoraxine. Our research and development and clinical trials
may not indicate that our products are safe and effective, in which case
regulatory authorities are not likely to approve them. In addition, even if our
research and development efforts are successfully completed, our initial product
candidate, Psoraxine, may not perform in the manner we anticipate, and may not
be accepted for use by the public.
Our Initial Product Is In An Early Stage Of Development And Substantial
Additional Funds and Effort Will Be Necessary For Development And
Commercialization.
Our initial product candidate, Psoraxine, is in an early stage of
development and will require the
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commitment of substantial resources to move it towards commercialization.
Psoraxine will require extensive preclinical and clinical testing before we can
submit any applications for regulatory approval. Before obtaining regulatory
approvals for the commercial sale of Psoraxine we must demonstrate though
preclinical testing and clinical trials that our product candidate is safe and
effective in humans. Conducting clinical trials is 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. Our clinical trials, when
commenced, may be suspended at any time if we or the U.S. Food and Drug
Administration ("FDA") believe the patients participating in our studies are
exposed to unacceptable health risks. We may encounter problems in our studies
which will cause us or the FDA to delay or suspend the studies. Our commencement
and rate of completion of clinical trials may be delayed by many factors,
including:
- ineffectiveness of the study compound, or perceptions by physicians
that the compound is not effective for a particular indication;
- inability to manufacture sufficient quantities of compounds for use
in clinical trials;
- failure of the FDA to approve our clinical trial protocols;
- slower than expected rate of patient recruitment;
- unforeseen safety issues; or
- government or regulatory delays.
If any future clinical trials are not successful, our business, financial
condition and results of operations will be harmed.
Our Potential Therapeutic Products Are Subject To A Lengthy And Uncertain
Regulatory Process. If Our Potential Products Are Not Approved, 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 can file a new drug application license with the
FDA, the product must undergo extensive testing, including animal and human
clinical trials, which can take many years and require substantial expenditure.
Data obtained from such testing are 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. The regulatory process is expensive and time consuming.
Because our initial product candidate, Psoraxine, involves the application
of new technologies and may be used upon new therapeutic approaches, it may be
subject to more rigorous review by government regulatory authorities, and
government regulatory authorities may grant regulatory approvals more slowly for
this product than for products using more
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conventional technologies. We have not conducted any clinical trials for
Psoraxine in the United States nor have we submitted any applications with the
FDA or any other regulatory authority to test any potential products in humans
or to market any product candidate. We may not be able to conduct clinical
testing or obtain the necessary approvals from the FDA or other regulatory
authorities to market our product. The regulatory agencies of foreign
governments must also approve any therapeutic product we may develop before the
product can be sold in those countries.
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, once regulatory approval is obtained, a marketed product and
its manufacturer are subject 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.
Our initial product candidate, Psoraxine, has not been developed
sufficiently or been approved for clinical trials. If Psoraxine emerges
successfully from clinical trials, 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 and sell our products on a commercial scale. For us to
commercialize Psoraxine directly, we would need to develop or obtain through
outsourcing arrangements the capability to manufacture, market and sell
products. We have an agreement with SkyePharma under which SkyePharma will
provide all development, manufacturing, pre-clinical and clinical development
services for Psoraxine for a period lasting until the completion of our Phase II
clinical studies; however, we do not currently have a similar agreement covering
the period following the completion of our Phase II clinical studies and we may
not be able to enter into such an agreement on commercially reasonable terms, or
at all. 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.
Any Inability To Adequately Protect Our Proprietary Technologies Could
Harm Our Competitive Position.
Although a patent application has been filed covering certain technology,
we do not have any protection from issued patents covering any of our
technology. 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.
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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 our proprietary technologies are covered by valid and
enforceable patents or are effectively maintained 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 the use or validity of any of our patents is ever
challenged, 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 are unable to exercise the same degree of
control over this intellectual property as we would over technology we own.
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 Who Have Greater Resources And Experience Than
We Do May Develop Products And Technologies That Make Ours Obsolete.
The biotechnology industry is characterized by rapid technological change
and is 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. These organizations may
develop technologies that are 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
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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.
We Will Need To Obtain Additional Funds To Support Our Future Operation
Expenses.
Based on our current plans, we believe that we currently have sufficient
funds to fund our operating expenses and capital requirements through at least
the next 12 months. However, the actual amount of funds that we will need during
or after the next 12 months will be determined by many factors, including those
discussed in this section. We will need additional funds to commence Phase III
studies for our product candidate. When additional funds are required and we are
unable to obtain them on terms favorable to us, we may be required to delay,
scale back or eliminate some or all or our research and development programs or
to license third parties to develop or market products or technologies that we
would otherwise seek to develop or market ourselves. If we raise additional
funds by selling additional shares of our capital stock, the ownership interest
of our stockholders will be diluted.
If We Lose Our Key Personnel Or Are Unable To Attract And Retain
Additional Personnel, We May Be Unable to Discover And Develop Our Products.
We are highly dependent on the services of Dr. Jose Antonio O'Daly, the
loss of whose services would adversely impact the achievement of our objectives.
Our key personnel have no prior experience managing a start-up biotechnology
company. We do not currently have sufficient executive management personnel to
execute our business plan fully. 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 will be successful in attracting
and retaining qualified personnel, competition may be intense 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 our initial product candidate, Psoraxine,
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. We currently do not maintain clinical
liability insurance coverage. Even if we obtain such an insurance policy, it may
not be sufficient to cover claims that may be made against us. Clinical trial
liability insurance is expensive, difficult to obtain 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
11
consuming the time and attention of our management. If we are sued for any
injuries caused by our products, our liability could exceed our total assets.
Some Of Our Existing Stockholders Can Exert Control Over Us, And May Not
Make Decisions That Are In The Best Interests Of All Stockholders.
Our officers, directors and principal stockholders (greater that 5%
stockholders) together control approximately 84.58% of our outstanding Common
Stock. As a result, these stockholders, if they act together, will be able to
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. In addition, this concentration
of ownership may delay or prevent a change in control of us and might affect the
market price of Common Stock, even when a change in control may be in the best
interest of all stockholders. 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.
The Market Price Of Our Common Stock May Be Highly Volatile.
The market price of our Common Stock has been and is expected to continue
to be highly volatile. 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, 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 stockholders and by us, including the Selling Stockholders
pursuant to this prospectus and subsequent sale of Common Stock by SkyePharma
and the holders of warrants and options, could have an adverse effect on the
price of our Common Stock.
There Is A Large Number Of Shares That 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
37,538,179 shares of our Common Stock outstanding. If all options and warrants
currently outstanding to purchase shares of our Common Stock are exercised and
all of the 2,000,000 shares of Preferred Stock are converted into Common Stock,
there will be approximately 52,618,416 shares of Common Stock outstanding. Of
the outstanding shares, up to 9,931,415 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. If the sale and distribution of our shares
were to occur, the market price of our Common Stock could decline as a result of
the introduction of these shares into the public market.
12
Our Common Stock Is Classified 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 is traded on the Nasdaq Over-The-Counter 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 is not
traded 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 is classified as a "penny stock." SEC Rule 15g-9
under the Securities and Exchange Act of 1934, as amended ("Exchange Act")
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 an "accredited investor." This includes the
requirement that a broker-dealer must make a determination that investments in
penny stocks are suitable 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.
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus 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 sections captioned "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations", as well as any other cautionary language in this prospectus,
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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders. We will receive proceeds upon the exercise of any
Warrants. The principal
13
reason for this offering is to allow for the resale of the shares currently held
by the Selling Stockholders that were acquired from us in a private placement of
shares of our Common Stock.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the Nasdaq Over-the-Counter Bulletin Board
("OTC Bulletin Board") under the symbol ASTR. The following table sets forth,
for the periods indicated, the range of high and low bid quotations for the
shares of our Common Stock as quoted on the OTC Bulletin Board. The reported bid
quotations reflect inter-dealer prices, without retail markup, markdown or
commissions, and may not necessarily represent actual transactions. As of March
12, 2002, there were 37,538,179 shares of Common Stock, par value $.0001 per
share, outstanding which were held by 187 holders of record. We began trading
our Common Stock in March 2001.
Market Price
High Low
2001
First Quarter* $3.93 $0.43
Second Quarter $6.85 $2.50
Third Quarter $7.15 $1.70
Fourth Quarter $3.80 $2.50
2002
First Quarter $2.75 $1.50
The closing price for our Common Stock on March 12, 2002, was $2.20.
----------
* After stock split
Dividends
On March 14, 2001, we declared a stock dividend to stockholders of record
as of 8:00 a.m., eastern standard time, on March 14, 2001, on the basis of ten
shares of Common Stock for each one share of Common Stock then issued and
outstanding. The payment date and time for the stock dividend were March 15,
2001, at 8:00 a.m., eastern standard time. As a result of the stock dividend,
each of our stockholders received nine additional shares of Common Stock for
each one share of Common Stock owned of record as of the record date and time.
We have never paid or declared a cash dividend on the Common Stock. We intend,
for the foreseeable future, to retain all future earnings for use in our
business. The amount of dividends we pay in the future, if any, will be at the
discretion of our Board of Directors and will depend upon our earnings, capital
requirements, financial condition and other relevant factors.
14
All accrued and unpaid dividends on the outstanding shares of our
Preferred Stock must be paid before we pay any dividends on our Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
The Following Discussion Of Our Financial Condition And Results Of Operations
Should Be Read In Conjunction With Our Financial Statements And The Related
Notes Included Elsewhere In This Prospectus. This Prospectus 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 Prospectus,
Including The Matters Set Forth Under The Caption "Risk Factors" Contained
Elsewhere In This Prospectus, 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
We were formerly named Astralis Pharmaceutical, Ltd. and Hercules
Development Group, Inc. ("Hercules"), and were incorporated under the laws of
the state of Colorado on June 30, 1999. Subsequently we were reincorporated in
the state of Delaware on December 10, 2001 and changed our name to Astralis Ltd.
In November 2001, we were a public shell company, defined as an inactive,
publicly quoted company with nominal assets and liabilities.
Our operations and financial statements are those of Astralis LLC, a New
Jersey limited liability company formed on March 12, 2001. Astralis LLC was
merged into us on November 13, 2001 pursuant to the terms of the Contribution
Agreement.
In connection with the merger, we issued 28,000,000 shares of our Common
Stock along with warrants to purchase 6,300,000 shares of our Common Stock at
$1.60 per share to the members of Astralis LLC in a one-for-one exchange for all
of the 28,000,000 outstanding Astralis LLC member units of ownership and all of
the 6,300,000 outstanding options to purchase member units. As a result of the
transaction, the former members of Astralis LLC acquired a majority interest of
our shares.
The effect of our combination with Astralis LLC was a reverse merger. We
were the legal acquirer in the merger. Astralis LLC was the accounting acquirer
since its members acquired a majority ownership interest in us. Consequently,
the historical financial information included in our financial statements prior
to November 2001 are those of the accounting acquiror, Astralis LLC. The
stockholders' equity of the merged company was recapitalized to reflect the
capital structure of the legal entity (Astralis Ltd.) and the retained earning
of Astralis LLC. Pro forma
15
financial information is not presented since the combination is a
recapitalization and not a business combination.
We are a development stage biotechnology company engaged primarily in the
research and development of treatments for immune system disorders and skin
diseases. Our initial product candidate, Psoraxine, is a protein extract used
for the treatment of the skin disease psoriasis.
We are primarily engaged in identifying a gene for psoriasis, developing
the second generation drug, applying for the patent at the United States Patent
and Trademark Office, discussing clinical trial design with the FDA and
preparing an Investigation of New Drug application ("IND Application") for the
FDA which we anticipate filing in the second half of 2002.
Results of Operations
Our current operations began on March 2001 and therefore, we have no prior
period with which to compare our results of operations.
For the period from March 12, 2001, which was the date of our inception,
through December 31, 2001 we had no revenue and incurred a net loss of
$6,195,364.
During 2001 we raised funds from the following private placement offerings
and agreements:
o Under a contribution agreement dated September 10, 2001 (the
"Contribution Agreement"), five investors purchased units ("Units")
from Astralis LLC consisting of an aggregate of 2,700,000 membership
interests (the "Membership Interests") in Astralis LLC and options
to purchase 6,300,000 additional Membership Interests in Astralis
LLC for an exercise price of $1.60 per Membership Interest. On
November 13, 2001 at the closing of the transaction under the
Contribution Agreement, the aforementioned Units were exchanged for
an aggregate of 2,700,000 shares of our Common Stock and warrants to
purchase 6,300,000 shares of our Common Stock at an exercise price
of $1.60 per share. The aggregate purchase price for such Units was
$1,350,000 and was paid with subscription notes. These subscription
notes receivable are due in two installments with $850,000 having
been due on February 13, 2002 and the remaining $500,000 due on May
13, 2002.
o During November of 2001, we engaged in a private placement pursuant
to which we sold an aggregate of 2,076,179 shares of our Common
Stock and issued warrants to purchase an aggregate of 415,237 shares
of our Common Stock at an exercise price of $4.00 per share. We
received proceeds, net of offering costs and payments of pre-merger
shell costs, in the amount of $2,752,495.
o In December of 2001, we sold to SkyePharma under the Purchase
Agreement 1,000,000 shares of our Series A Convertible Preferred
Stock, par value $.001 per
16
share ("Preferred Stock") at a purchase price of $10.00 per share,
or an aggregate purchase price of $10,000,000. We received net
proceeds of approximately $1,950,000 from this placement after the
following expenditures were netted out from the proceeds:
i.) $5 million payment due to SkyPharma in connection with our
purchase of the technology option license from SkyPharma,
ii.) $3 million payment due to SkyPharma for services they provided
under our Service Agreement with them which was expensed at
the time of payment, and
iii.) offering costs of approximately $50,000.
During 2001 we incurred operating expenses amounting to $4,084,619 which
consisted primarily of:
- Research and development costs amounting to $3,231,775, including
$3 million that was paid to SkyPharma for services provided under
our Service Agreement with them and amortization of approximately
$60,000 of our technology option license which is being amortized
over a seven year period.
- General and administrative costs amounting to approximately
$850,000, including professional fees related to our merger with
Astralis LLC and the related investor relations and marketing
expenses and our general corporate expenditures.
We also had a non-cash preferred stock dividend in 2001 in the amount of
$2.12 million. This resulted from our December 10, 2001 sale of convertible
preferred stock to SkyPharma which had a conversion rate to our Common Stock
which was lower than the market price of our Common Stock on that date.
Therefore, we were required to record a preferred dividend calculated by
multiplying the number of preferred shares sold on that date by the difference
between the conversion price and the market price.
Plan of Operation
At December 31, 2001 we had cash balances of $4,452,000.
On January 31, 2002 we sold 250,000 shares of our Preferred Stock to
SkyPharma at a purchase price of $10.00 per share, or an aggregate purchase
price of $2,500,000. We received net cash proceeds of approximately $1,835,000
from this sale after our required monthly payment of $665,000 to SkyPharma under
the Service Agreement was netted from the proceeds.
SkyePharma has agreed to purchase for $750,000 an additional 750,000
shares of Preferred Stock, in three equal installments on April 30, 2002, July
31, 2002 and January 31, 2003.
17
We anticipate collecting our subscription notes receivable. These
subscription notes receivable are due in two installments with $850,000 having
been due on February 13, 2002 and the remaining $500,000 due on May 13, 2002.
However, as of March 11, 2002 we have not received payment on the initial notes
due.
We anticipate using our cash and expected net proceeds of the Purchase
Agreement over the course of the next 12 months as follows:
- Approximately $10 million to conduct clinical trials to obtain FDA
approval of Psoraxine and transfer the research and development to the United
States, which includes leasing appropriate laboratory and corporate office
facilities. Included in this amount are payments required under the Service
Agreement with SkyPharma which will amount to $8 million in 2002 and are
required to be paid in equal monthly amounts;
- Approximately $1.5 million to pay management salaries and those of new
employees;
- Approximately $1.5 million for public relations and general
administrative and working capital requirements
Based on the current operating plan, we anticipate that our existing
capital resources and, together with the net proceeds of the Private Placement
and the Purchase Agreement, will be adequate to satisfy our capital requirements
for approximately the next 12 months. However, our plans may change as we reach
milestones and as our circumstances may change.
Financial Condition
As of December 31, 2001, we had total current assets in the amount of
$4,490,335, total liabilities of $383,083 and working capital of $4,107,252. We
had a deficit accumulated during the development stage of $6,195,364 as of
December 31, 2001; however, our total shareholders' equity as of December 31,
2001, was $9,074,368. We expect to continue to operate at a deficit until such
time, if ever, our operations generate sufficient revenues to cover our costs.
There can be no assurance that our financial condition will improve.
Net cash used in operating activities was $382,319 for our initial period
ended December 31, 2001. During this same period net cash provided by financing
activities was $4,835,813. Cash increase by $4,451,874, from $0 at the beginning
of the period to $4,451,874 as of December 31, 2001.
Inflation
We do not believe that inflation has had a material impact on our
business.
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Seasonality
We do not believe that our business is seasonal.
BUSINESS
You should read the following description of our business in conjunction
with the information included elsewhere in this prospectus. This description
contains certain forward-looking statements that involve risk and uncertainties.
Our actual results could differ significantly from the results discussed in the
forward-looking statements as a result of certain of the factors set forth in
the "Risk Factors" section and elsewhere in this prospectus.
Description of Business
General
We are a development-stage biotechnology company incorporated under the
laws of the State of Delaware which engages in research and development of
treatments for immune system disorders and skin diseases. Our main office is
located at 135 Columbia Turnpike, Suite 301, Florham Park, New Jersey 07932.
We were originally incorporated under the laws of the State of Colorado on
June 30, 1999 under the name "Hercules Development Group, Inc." We were
originally engaged in the business of managing real estate, however, on November
13, 2001, pursuant to the Contribution Agreement ("Contribution Agreement"),
dated as of September 10, 2001 between us on the one side and Astralis LLC, a
New Jersey limited liability company formed on March 12, 2001 ("Astralis LLC")
and Dr. Jose Antonio O'Daly, Gaston Liebhaber, Mike Ajnsztajn, Richard Genovese,
David Stevenson, Grizzly Consulting Ltd., Wolver Limited and Logarithmic Inc.,
being all of the members of Astralis LLC (the "Astralis Members"), on the other
side, we discontinued our real estate management business and began our current
business of engaging in research and development of treatments for immune system
disorders and skin diseases.
Pursuant to the business combination set forth in the Contribution
Agreement, the Astralis Members transferred all of their respective membership
interests in Astralis LLC to us in exchange for 28,000,000 shares of our Common
Stock and warrants to purchase 6,300,000 shares of our Common Stock at an
exercise price of $1.60 per share. Pursuant to the Contribution Agreement, on
November 13, 2001, we filed an amendment to our Articles of Incorporation which
changed our name from "Hercules Development Group, Inc." to "Astralis
Pharmaceuticals Ltd." On November 19, 2001, we reincorporated in the State of
Delaware under our current name.
On November 13, 2001, pursuant to the Contribution Agreement, all of our
officers and directors resigned from their respective positions and were
replaced by the officers and managers of Astralis LLC. See " Management;
Executive Officers and Directors".
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Business of Astralis Ltd.
Our sole business is engaging in research and development of treatments
for immune system disorders and skin diseases. Our first product candidate is a
new drug named Psoraxine, which we are developing as a treatment for the skin
disease psoriasis.
Psoriasis is a genetically based inflammatory and scaly skin disease of
currently unknown origins that generally lasts a lifetime and for which there is
presently no known cure. While performing a field trial in Caracas, Venezuela in
1992 for a vaccine for leishmaniasis, a disease transmitted by parasites, Dr.
O'Daly discovered that a patient, after receiving a third dose of the
leishmaniasis vaccine, experienced complete remission of the plaque psoriasis
lesion that had been present on the patient's leg for the past 12 years. Human
leishmaniasis infections are caused by at least 20 different species of
parasites of the genus Leishmania. After researching and improving the
leishmaniasis vaccine, Dr. O'Daly developed Psoraxine specifically for use in
clinical trials for the remission of psoriasis.
Psoraxine is a synthesized immuno-therapeutic agent, presented in liquid
form and is packed in 0.5 mg ampules for intra-muscular injection. After
researching and improving Psoraxine, clinical trials (the "Trials") were
undertaken in Caracas, Venezuela during the eight year period from 1992 to 2000.
The results of the Trials yielded positive evidence of remission of psoriasis
lesions. Almost 3000 patients treated by Dr. O'Daly experienced significant
remission of their psoriasis lesions. Astralis LLC lacked the financial
resources to commercialize Psoraxine in Venezuela, although it is still being
used by Dr. O'Daly for the ongoing clinical treatment of Venezuelan patients. We
are now seeking approval for Psoraxine from the United States Food and Drug
Administration ("FDA"), which is a necessary and critical step toward the
commercialization of Psoraxine.
Representatives of Astralis LLC sent a briefing document to the FDA and
held a pre-IND (Investigation of New Drug) conference call with representatives
of the FDA on May 16, 2001 to review the clinical results of Dr. O'Daly's work
with Psoraxine in Venezuela. Based upon this conference call, we are presently
preparing an IND application to be filed with the FDA in the second half of 2002
to conduct Phase I.B. studies of Psoraxine. Phase I.B studies will focus on
determining safe dosage ranges for Psoraxine as well as efficacy in several
sites in the United States with patients suffering from psoriasis. We anticipate
that it will take at least one year to complete the Phase I.B studies at a cost
of not less than $500,000. Astralis Ltd. and Astralis LLC have spent
approximately $3,231,775 on research and development activities over the past
fiscal year. See "Government Regulation".
Patient Populations
According to the National Psoriasis Foundation ("NPF"), psoriasis affects
about 2.6% of the U.S. population, or more than 7 million people in the United
States. Psoriasis also affects 2% to 3% of the world's population. Approximately
150,000 to 260,000 new cases of psoriasis are diagnosed each year. No special
blood test or other diagnostic tool exists for psoriasis. The diagnosis is
usually determined through examination of the skin by a physician or other
health care provider. Less commonly, a skin biopsy is examined under a
microscope for biological
20
evidence of psoriasis. The presence of small pits in the fingernails is also an
indicator of psoriasis.
Approximately 400 people die from complications caused by psoriasis each
year in the United States. Primarily, such complications occur in relation to a
severe, extensive form of psoriasis such as generalized Pustular Psoriasis or
Erythrodermia Psoriasis, where large areas of skin are shed. Because the skin
plays an important role in regulating body temperature and serving as a barrier
to infection, when a person's skin is compromised to such a great extent,
secondary infections are possible. Fluid loss is a complicating factor in these
serious forms of psoriasis, and a great strain is also placed on the circulatory
system.
According to the NPF, between 10% and 30% of people who have psoriasis
will also develop psoriatic arthritis, which is similar to rheumatoid arthritis,
but generally milder. Psoriatic arthritis causes inflammation and stiffness in
the soft tissue around joints, and it frequently involves the fingers and toes.
Other parts of the body can be affected as well, including the wrists, neck,
lower back, knees and ankles. In severe cases, psoriatic arthritis can be
destructive to joints and disabling. For the most part, people with psoriasis
function normally, although some people experience low self-esteem caused by the
unsightly effect of the disease on the skin.
Psoriasis is a chronic illness that, in may cases, requires continuous
treatment. The cost of medications is high and visits to a physician are
ongoing. Severe cases may require periods of hospitalization. It is estimated
that 56 million hours of work are lost each year due to psoriasis, and that
between $1.6 billion and $3.2 billion is spent annually on treating psoriasis.
21
Current Psoriasis Therapies
The topical treatment for psoriasis has been based on the use of
emollients, keratolytic agents, coal tar, anthralin, corticosteroids of medium
to strong potency and calcipotriene. Each of these treatments has variable
efficacy, with side effects and cosmetic problems in addition to their failure
to prevent frequent relapses.
Psoriasis Treatments in Development
We currently face competition from a number of pharmaceutical companies
who have psoriasis treatments under development that have substantially greater
financial and other resources than we have. The NPF has identified not less than
41 treatments under development which are in various stages of the FDA approval
process, including at least five of which are in Phase III of the FDA approval
process.
The available developmental psoriasis treatments include topical
ointments, systemic treatments, oral treatments and UV light therapy treatments.
We understand that several of the largest pharmaceutical companies in the world
have more than one psoriasis treatment under development.
Competition
The pharmaceutical and biotechnology industries are intensely competitive.
Many companies, including biotechnology, chemical and pharmaceutical companies,
are actively engaged in activities similar to ours, including research and
development of drugs for the treatment of the same diseases and conditions as
Psoraxine. Many of these companies have substantially greater financial and
other resources, larger research and development staffs, and more extensive
marketing and manufacturing organizations than we have. In addition, some of
these companies have considerable experience in preclinical testing, clinical
trials and other regulatory approval procedures. There are also academic
institutions, governmental agencies and other research organizations that are
conducting research in areas in which we are working. They may also market
commercial products, either on their own or through collaborative efforts.
Our major competitors include fully integrated pharmaceutical companies
that have extensive drug discovery efforts. We face significant competition from
organizations that are pursuing the same or similar technologies as the
technologies used by us in our drug discovery efforts. We expect to encounter
significant competition for any of the pharmaceutical products we develop.
Companies that complete clinical trials, obtain required regulatory approvals
and commence commercial sales of their products before their competitors may
achieve a significant competitive advantage. We are aware that many other
companies or institutions are pursuing development of drugs and technologies
directly targeted at applications for the treatment and eventual cure of
psoriasis.
Developments by others may render our product obsolete or noncompetitive.
We will face intense competition from other companies for collaborative
arrangements with
22
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions and for licenses to additional technologies.
These competitors may succeed in developing technologies or products that are
more effective than Psoraxine.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our potential products.
The process required by the FDA before our product candidate, Psoraxine,
may be marketed in the United States generally involves the following:
- preclinical laboratory and animal tests;
- submission of an IND application, which must become effective before
clinical trials may begin;
- adequate and well controlled human clinical trials to establish the
safety and efficacy of the proposed drug for its intended use; and
- FDA approval of a new drug application ("NDA"), or biologics license
application ("BLA").
The testing and approval process requires substantial time, effort, and
financial resources, and there can be no assurance that any approvals for
Psoraxine or any other potential products will be granted on a timely basis, if
at all.
Prior to commencing clinical trials, which are typically conducted in
three sequential phases, we must submit an IND application to the FDA. The IND
application automatically becomes effective 30 days after receipt by the FDA,
unless the FDA, within the 30-day time period, raises concerns or questions
about the conduct of the trial. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Our
proposed submission of an IND application may not result in FDA authorization to
commence a clinical trial. Further, an independent institutional review board at
the medical center proposing to conduct the clinical trial must review and
approve the plan for any clinical trial before it commences.
We may not successfully complete any of the three phases of testing of
Psoraxine within any specific time period, if at all. Furthermore, the FDA or an
institutional review board or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
The results of product development, pre-clinical studies and clinical
studies are submitted to the FDA as part of a NDA or BLA. The FDA may deny a NDA
or BLA if the applicable regulatory criteria are not satisfied or may require
additional clinical data. Even if such data are
23
submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy
the criteria for approval. Once issued, the FDA may withdraw product approval if
compliance with regulatory standards is not maintained or if problems occur
after the product reaches market. In addition, the FDA may require testing and
surveillance programs to monitor the effect of approved products which have been
commercialized, and the FDA has the power to prevent or limit further marketing
of a product based on the results of these post-marketing programs.
Satisfaction of FDA requirements or similar requirements of state, local
and foreign regulatory agencies typically takes several years and the actual
time required may vary substantially based upon the type, complexity and novelty
of the product or indication. Government regulation may delay or prevent
marketing of potential products or new indications for a considerable period of
time and impose costly procedures upon our activities. Success in early stage
clinical trials does not assure success in later stage clinical trials.
Data obtained from clinical activities is not always conclusive and may be
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Even if a product received regulatory approval, the
approval may be significantly limited to specific indications and dosages.
Further, even after regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. Delays in
obtaining, or failures to obtain additional regulatory approvals for any of our
product candidates would have a material adverse effect on our business.
Any products manufactured or distributed by us pursuant to FDA approvals
are subject to continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with good manufacturing practices, which impose certain procedural
and documentation requirements upon us and any third party manufacturers we may
utilize. We cannot be certain that our present or future suppliers will be able
to comply with the good manufacturing practices, regulations and other FDA
regulatory requirements.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union (the "EU"), registration
procedures are available to companies wishing to market a product in more than
one EU Member State. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process involves
all of the risks associated with FDA clearance.
24
Intellectual Property
On March 16, 2001, Dr. O'Daly filed a patent application entitled
"Compositions and Methods for the Treatment and Clinical Remission of Psoriasis"
with the United States Patent and Trademark Office. Preliminary searches have
been conducted to ensure that no product similar to Psoraxine has already
secured full patent protection. The patent application process may take up to
two years to complete. Pursuant to a License Agreement dated as of April 26,
2001 ("License Agreement") between Dr. O'Daly and Astralis LLC, Dr. O'Daly
granted Astralis LLC the exclusive right and license to use and exploit his
patent if and when such patent is issued. Pursuant to an Assignment of License
Agreement, dated November 13, 2001 ("Assignment of License Agreement"), by and
between Astralis LLC and us, Astralis LLC assigned to us all of its rights under
the License Agreement.
Our intellectual property consists of our license to Dr. O'Daly's
application of a patent for Psoraxine, our rights under the Assignment of
License Agreement and trade secrets and know-how. Our ability to compete
effectively depends in large part on our ability to obtain the patent for
Psoraxine, maintain trade secrets and operate without infringing the rights of
others and to prevent others from infringing on our proprietary rights. We will
be able to protect our technologies from unauthorized use by third parties only
to the extent that they are covered by valid and enforceable patents or
copyrights or are effectively maintained as trade secrets. Accordingly, patents
or other proprietary rights are an essential element of our business. There can
be no assurance that proprietary information will not be disclosed, that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets or that we can
meaningfully protect our trade secrets.
Employees
As of March 12, 2001, we employed 5 full-time employees and no part-time
employees. None of these employees are covered by a collective bargaining
agreement and we believe that our employee relations are good.
Legal Proceedings
We are not currently party to any material legal proceeding. In addition,
none of our directors or executive officers are involved in or subject to any
pending legal proceedings, whether material or otherwise. None of our directors
or executive officers has an interest, material or otherwise, against us.
Property
Our executive offices are located at 135 Columbia Turnpike, Suite 301,
Florham Park, New Jersey 07932 which is the same address as Opus International,
Ltd. ("Opus International"), a company owned by Gina Tedesco, our Chief
Financial Officer. We have been occupying the office space on a rent-free basis
that has been paid for by our current officers and we expect to continue to do
so until May 2002 when we are expected to move into new office space. The value
of the office space is a nominal amount, is
25
inconsequential and is not included in the accompanying financial statements. On
May 1, 2002 we shall move into new office and laboratory space located at 75
Passaic Ave, Fairfield, New Jersey 07004. The yearly rent for such office and
laboratory space shall be $77,500.
MANAGEMENT
Executive Officers and Directors
The names, ages and positions of our current directors and executive
officers are as follows:
Name Age Position
Jose Antonio O'Daly, MD, PhD 60 Chairman of the Board of
Directors; President of
Research and Development
Mike Ajnsztajn 37 Chief Executive Officer;
Director
Gaston Liebhaber 67 Director of International
Affairs; Director
Gina Tedesco 38 Chief Financial Officer;
Director
Michael Ashton 55 Director
Steven Fulda 69 Director
Fabien Pictet 43 Director
James Leyden, MD 61 Chairman, Medical Advisory Board
Bruce Epstein 38 Marketing Affairs Advisor
With the exception of Mr. Ajnsztajn and Ms. Tedesco who are husband and
wife, and Mr. Liebhaber who is Mr. Ajnsztajn's uncle, there are no familial
relationships among our directors and/or officers. Directors hold office until
the next annual meeting of our stockholders or until their respective successors
have been elected and qualified. Officers serve at the pleasure of the Board of
Directors.
26
On November 13, 2001, pursuant to the Contribution Agreement, Shai Stern,
who served as our Chief Executive Officer, President and sole director since
February 28, 2001 and Steven Harrington, who served as our Vice President since
April 9, 2001, resigned from all of their respective positions with us. At the
time of their resignations, Messrs. Stern and Harrington constituted all of our
executive officers and directors.
Jose Antonio O'Daly, MD, PhD. Dr. O'Daly has served as our Chairman of the Board
of Directors and President of Research and Development since November 13, 2001.
Dr. O'Daly is the President and sole founder of Center for Research and
Treatment for Psoriasis ("CITP") in Caracas, Venezuela. Dr. O'Daly is also the
Director and Head of Research of the Microbiology Center of the Venezuelan
Institute of Scientific Research. Dr. O'Daly attended the Central University of
Venezuela, Caracas receiving his Doctorate of Medical Sciences in 1968. In 1971,
Dr. O'Daly earned a Doctorate of Philosophy from the Johns Hopkins University in
Baltimore, Maryland. Dr. O'Daly is an honorary member of the Venezuelan Medical
Academy. Dr. O'Daly has dedicated the last 15 years of his life working on a
cure for Psoriasis.
Mike Ajnsztajn. Mr. Ajnsztajn has served as our Chief Executive Officer and as a
director since November 13, 2001. Mr. Ajnsztajn gained 15 years of extensive
experience in the pharmaceutical field while working for Rhone Poulenc as both
an Export Manager for the Far East based in France, and as the Marketing
Director in China. Mr. Ajnsztajn is also co-founder of Opus International, a New
Jersey based import/export company that distributes hospital examination gloves
and raw materials for the latex industry. Opus International also provides
business-consulting services.
Gaston Liebhaber. Mr. Liebhaber has served as our Director of International
Affairs since November 13, 2001 and as a director since January 31, 2002. Mr.
Liebhaber has 35 years of experience in the pharmaceutical industry. Mr.
Liebhaber founded Fundafarmacia in Caracas, Venezuela, a non-profit organization
that distributes medicine, at discounted prices, to the poor and homeless.
Fundafarmacia is the largest pharmacy chain in Venezuela. Currently, Mr.
Liebhaber is the Managing Director of Latin America of Sankyo Pharmaceutical,
the largest Japanese pharmaceutical company, based in Venezuela. He is also the
President of the Venezuelan Association of Pharmaceutical Companies. Mr.
Liebhaber has received several honorary medals and prizes from the Venezuelan
government.
Gina Tedesco. Ms. Tedesco has served as our Chief Financial Officer since
November 13, 2001 and as a director since January 31, 2002. Ms. Tedesco is the
President and co-founder of Opus International. Ms. Tedesco has extensive
experience in the pharmaceutical industry and in all aspects of finance and
business planning. During her 10-year tenure with Rhone Poulenc, Ms. Tedesco
held various positions ranging from controller for the European pharmaceutical
subsidiaries to Director of Finance and Investor Relations for a Brazilian
subsidiary. Ms. Tedesco recently completed a certificate program at Farleigh
Dickinson University, earning a second MBA in Entrepreneurial Finance
complimenting the MBA she acquired from George Washington University in
International Business.
Michael Ashton. Mr. Ashton has served as one of our directors since January 31,
2002. Mr. Ashton is the Chief Executive Officer of SkyePharma PLC, a London
based drug delivery
27
technology provider. Mr. Ashton has thirty years of experience in the
pharmaceutical industry. Prior to joining SkyePharma PLC, Mr. Ashton was
Chairman and Chief Executive Officer of Faulding, Australia's largest
pharmaceutical company located in the United States. Mr. Ashton has a Bachelor
of Pharmacy Degree from Sydney University and a MBA Degree from Rutgers
University.
Steven Fulda. Mr. Fulda has served as one of our directors and a member of our
audit committee since February 6, 2002. Mr. Fulda is Managing Director of Fulda
Business Planners. Mr. Fulda has forty years of management and consulting
experience spanning all facets of business strategy, planning, development and
financing. Mr. Fulda has identified and managed growth opportunities for over
250 emerging businesses. Mr. Fulda is a Professor of Entrepreneurship and
Director of the Small Business Institute at Fairleigh Dickinson University. Mr.
Fulda holds a Master's Degree in Quantitative Business Analysis from New York
University and a Master's Degree in Systems Engineering from Bell Laboratories'
New York University Graduate Program.
Fabien Pictet. Mr. Pictet has served as one of our directors and a member of our
audit committee since February 6, 2002. Mr. Pictet is Chairman of Fabien Pictet
and Partners, a London based firm which invests in the emerging markets arena.
Mr. Pictet has twenty years of experience in investing in emerging markets.
During his eleven year tenure with Pictet and Cie, Mr. Pictet held various
positions ranging from Manager responsible for U.S. equity investments to
Partner responsible for all of the firm's institutional activities in Geneva,
Zurich and London. Mr. Pictet has a Master of International Management Degree
from American Graduate School of International Management and a Bachelor's
Degree in Economics from the University of San Francisco.
James Leyden, MD. Dr. Leyden has served as the Chairman of our Medical Advisory
Board since November 31, 2001. Dr. Leyden is a Professor of Dermatology at the
Hospital of the University of Pennsylvania in Philadelphia. He has served on the
boards of many of the nation's key dermatological committees, including those of
the American Academy of Dermatology and the Dermatology Foundation. Dr. Leyden
has also served as a consultant to the U.S. Food and Drug Administration and the
Federal Trade Commission, and to drug regulation agencies in England, Germany
and Austria. Dr. Leyden has also been instrumental in the development, testing
and commercialization of Accutane, Bactroban, Nizoral, Cleocin, Benzamycin,
Benzaclin, Minocin and the use of bicarbonate to control body odor. Dr. Leyden
has a Bachelor's Degree from Saint Joseph's College and a MD for the University
of Pennsylvania School of Medicine.
Bruce Epstein. Mr. Epstein has served as our Marketing Affairs Advisor since
November 13, 2001. Mr. Epstein is the General Manager of Noesis Healthcare
Interactions, a full-service healthcare communications company managing a
creative and support staff focused on the marketing and advertising of multiple
pharmaceutical brands with leading pharmaceutical companies. Mr. Epstein is a
specialist in strategic planning and tactical implementation of pharmaceutical
products. Mr. Epstein worked 10 years for Roche Laboratories, a Swiss
pharmaceutical company with a U.S. division based in Nutley, New Jersey. Mr.
Epstein obtained a MBA from New York University, Stern School of Business, and a
Registered Pharmacist Degree from Rutgers, College of Pharmacy.
28
Board Composition and Committees
We currently have seven directors, each serving a term until the next
annual meeting of stockholders. At each annual meeting of stockholders, six
directors will be elected by the holders of our Common Stock and one director
will be nominated and elected by the holders of our Series A Convertible
Preferred Stock ("Preferred Stock"). SkyePharma PLC, a company incorporated
under the laws of England and Wales ("SkyePharma") is the only holder of our
Preferred Stock. In addition, pursuant to a Stockholder Agreement between us,
SkyePharma and certain of our stockholders holding an aggregate of 66.58% of the
issued and outstanding Common Stock (the "Stockholders' Agreement") each
stockholder agreed to vote its shares of Common Stock and to take all other
actions necessary to elect the independent directors nominated by our Board of
Directors and to elect the nominee nominated by the Board of Directors of
SkyePharma when all of the Preferred Stock held by SkyePharma has been converted
into shares of Common Stock.
Messrs. Fulda and Pictet serve as the only members of the audit committee
of the Board of Directors. The audit committee makes recommendations to the
Board of Directors regarding the selection of independent auditors, reviews the
results and scope of audits and other accounting-related services and reviews
and evaluates our internal control functions.
Indemnification Matters
Our Certificate of Incorporation eliminates the personal liability of
directors to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of Delaware. In
addition, our Certificate of Incorporation includes provisions to indemnify our
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against those persons by reason of serving or having served
as officers, directors or in other capacities to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware.
Our bylaws provide the power to indemnify our officers, directors,
employees and agents or any person serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise to the fullest extent permitted by Delaware law.
Under Delaware law, we may indemnify our officers and directors for
various expenses and damages resulting from their acting in those capacities.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
29
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by us and our predecessors during each of the last three fiscal years to
our Chief Executive Officer and to each of our four most highly compensated
executive officers, if any such other executive officer received compensation
greater than $100,000 during any of the last three fiscal years.
Summary Compensation Table
Annual Compensation ($)
-----------------------------------------------------------
Name and Principal
Position
Year Salary
-----------------------------------------------------------
Mike Ajnsztajn 2001 $81,164
CEO
-----------------------------------------------------------
Shai Stern, Sole Director, CEO and 2001 --
President
-----------------------------------------------------------
Mr. Shai Stern served as our President, Chief Executive Officer and
director from February 28, 2001 through November 13, 2001. Mr. Stern received no
compensation in any form for the services provided to us. Mr. Ajnsztajn
has served as our Chief Executive Officer since November 13, 2001. Mr. Ajnsztajn
shall receive a salary of $150,000 for services performed during the year 2002.
We do not provide our officers or employees with pension, stock
appreciation rights, long-term incentive or other plans and have no present
intention of implementing any of these plans, with the exception of our 2001
Stock Option Plan. On December 31, 2001, we granted stock options to two
consultants to purchase an aggregate of 300,000 shares of our Common Stock in
exchange for their services. These options vest ratably at 75,000 per year over
a four year period commencing in 2001. The expiration terms of the options are 4
years, 3 years, 2 years and 1 year for options vesting in 2001, 2002, 2003 and
2004, respectively. The strike price of all these options is $2.75. In the
future, we may offer additional stock options to employees, non-employee members
of the Board of Directors and/or consultants. It is possible that we may, in the
future, establish various executive incentive programs and other benefits,
including reimbursement for expenses incurred in connection with our operations,
company automobiles and life and health insurance, but none have yet been
granted. The provisions of these plans and benefits will be at the discretion of
the Board of Directors.
30
Compensation of Directors
The executive directors will not receive compensation pursuant to any
standard arrangement for their services as directors. We will reimburse all
outside directors for travel and lodging expenses related to scheduled Board
meetings. We will also pay $3,500 during 2002 and $1,000 per meeting, for the
directors serving on the audit committee.
Employment Agreements
Pursuant to an Employment Agreement dated December 10, 2001 (the "O'Daly
Employment Agreement"), Dr. O'Daly receives a salary of $150,000 per year for
his services as Chairman of the Board and President of Research and Development.
The O'Daly Employment Agreement has a term of three (3) years and requires Dr.
O'Daly to refrain from competing with us for a period of one (1) year following
termination of his employment. None of our other executive officers receive
compensation pursuant to any standard arrangement for their services as
executive officers.
2001 Stock Option Plan
Our 2001 Stock Option Plan ("2001 Plan") was unanimously adopted by our
Board of Directors on November 1, 2001 and approved by our stockholders at a
special meeting held on November 1, 2001. The 2001 Plan contains 5,000,000
shares of Common Stock, par value $.0001 per share ("Common Stock") underlying
stock options available for grant thereunder. The purpose of the 2001 Plan is to
provide additional incentive to our directors, officers, employees and
consultants who are primarily responsible for our management and growth. Each
option shall be designated at the time of grant as either an incentive stock
option (an "ISO") or as a non-qualified stock option (a "NQSO"). As of December
31, 2001, options to purchase 300,000 shares of Common Stock have been granted
under the 2001 Plan.
The 2001 Plan shall be administered by our Board of Directors, or by any
committee that we may in the future form and to which the Board of Directors may
delegate the authority to perform such functions (in either case, the
"Administrator").
Every person who at the date of grant of an option is an employee of ours
or of any affiliate of ours is eligible to receive NQSOs or ISOs under the 2001
Plan. Every person who at the date of grant is a consultant to, or non-employee
director of, us or any affiliate of ours is eligible to receive NQSOs under the
2001 Plan.
The exercise price of a NQSO shall be not less than 85% of the fair
market value of the stock subject to the option on the date of grant. To the
extent required by applicable laws, rules and regulations, the exercise price of
a NQSO granted to any person who owns, directly or by attribution under the
Internal Revenue Code (currently Section 424(d)), stock possessing more than 10%
of the total combined voting power of all classes of our stock or of any
Affiliate (a "10% Stockholder") shall in no event be less than 110% of the fair
market value of the stock covered by the option at the time the option is
granted. The exercise price of an ISO shall in no
31
event be less than the fair market value of the stock covered by the option at
the time the option is granted. The exercise price of an ISO granted to any 10%
Stockholder shall in no event be less than 110% of the fair market value of the
stock covered by the option at the time the Option is granted.
The Administrator, in its sole discretion, shall fix the term of each
option, provided that the maximum term of an option shall be ten years. ISOs
granted to a 10% Stockholder shall expire not more than five years after the
date of grant. The 2001 Plan provides for the earlier expiration of options in
the event of certain terminations of employment of the holder.
Options may be granted and exercised under the 2001 Plan only after there
has been compliance with all applicable federal and state securities laws. The
2001 Plan shall terminate within ten years from the date of its adoption by the
Board of Directors.
If for any reason other than death or permanent and total disability, an
optionee ceases to be employed by us or any of our Affiliates (such event being
called a "Termination"), options held at the date of Termination (to the extent
then exercisable) may be exercised in whole or in part at any time within three
months of the date of such Termination, or such other period of not less than
thirty days after the date of such Termination as is specified in the Option
Agreement or by amendment thereof (but in no event after the expiration date of
the option (the "Expiration Date")); provided, however, that if such exercise of
the option would result in liability for the optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, then such three-month period
automatically shall be extended until the tenth day following the last date upon
which optionee has any liability under Section 16(b) (but in no event after the
Expiration Date).
The Board of Directors may at any time amend, alter, suspend or
discontinue the 2001 Plan. Without the consent of an optionee, no amendment,
alteration, suspension or discontinuance may adversely affect outstanding
options except to conform the 2001 Plan and ISOs granted under the 2001 Plan to
the requirements of federal or other tax laws relating to ISOs. No amendment,
alteration, suspension or discontinuance shall require stockholder approval
unless (i) stockholder approval is required to preserve incentive stock option
treatment for federal income tax purposes or (ii) the Board of Directors
otherwise concludes that stockholder approval is advisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
On June 30, 1999, we issued and sold an aggregate of 23,800,000 shares of
Common Stock to J. Peter Garthwaite and Bradley A. Scott in consideration for
services performed for us by each individual. Messrs. Garthwaite and Scott
served as our President/Chief Executive Officer/Treasurer and Secretary,
respectively, and directors from the date of our inception on June 30, 1999,
until their resignation from their respective positions on February 28, 2001.
Messrs. Garthwaite and Scott sold their shares of Common Stock to Mr. Shai Stern
on February
32
28, 2001. Mr. Stern served as our President, Chief Executive Officer and sole
director from February 28, 2001 until November 13, 2001.
On November 13, 2001, pursuant to the Contribution Agreement, the Astralis
Members transferred all of their respective membership interests in Astralis LLC
to us in exchange for 28,000,000 shares of our Common Stock and 6,300,000
warrants to purchase our Common Stock at an exercise price of $1.60 per share.
Pursuant to the Contribution Agreement, we cancelled 23,800,000 of the
23,820,000 shares of Common Stock held by Mr. Shai Stern who served as our Chief
Executive Officer and sole director until his resignation, pursuant to the
Contribution Agreement, on November 13, 2001.
Our executive offices are located at 135 Columbia Turnpike, Suite 301,
Florham Park, New Jersey 07932 which is the same address as Opus International,
Ltd. ("Opus International"), a company owned by Gina Tedesco, our Chief
Financial Officer. We have been occupying office space on a rent-free basis that
has been paid for by our current officers. The value of the office space is a
nominal amount, is inconsequential and is not included in the accompanying
financial statements. On May 1, 2002, we expect to move into new offices and
laboratory space located at 75 Passaic Ave, Fairfield, New Jersey 07004. The
yearly rent for such office and laboratory space shall be $77,500.
During the nine months ended September 30, 2001, we advanced $207,000 to
our stockholders in exchange for promissory notes. The stockholders repaid the
total amount prior to November 30, 2001.
Relationship with SkyePharma
We entered into a Purchase Agreement dated as of December 10, 2001
("Purchase Agreement") with SkyePharma PLC, a company incorporated under the
laws of England and Wales ("SkyePharma"). Pursuant to the Purchase Agreement,
SkyePharma purchased 1,250,000 shares of our Series A Convertible Preferred
Stock, $.001 par value per share ("Preferred Stock"), at a purchase price of
$10.00 per share, or an aggregate purchase price of $12.5 million. Pursuant to
the Purchase Agreement, SkyePharma will make a total equity investment in our
company of up to $20 million. The remaining $7.5 million investment, will
involve the sale of up to an additional 750,000 shares of Preferred Stock, to
SkyePharma in three equal installments on April 30, 2002, July 31, 2002 and
January 31, 2003. As a result of the Purchase Agreement, SkyePharma is the
beneficial owner of 18% of our outstanding Common Stock. In addition to other
rights under the Purchase Agreement, Skyepharma, as the holder of shares of
Preferred Stock, holds the exclusive right to elect one member of our Board of
Directors. Pursuant to the Purchase Agreement, we and certain of our
stockholders holding an aggregate of 66.58% of our outstanding Common Stock
executed a Stockholders' Agreement, dated as of December 10, 2001, with
SkyePharma, whereby each stockholder agreed to vote its shares of Common Stock
to elect the independent directors nominated by our Board of Directors to our
Board of Directors and, once SkyePharma no longer owns its Preferred Stock, to
elect a nominee nominated by SkyePharma to our Board of Directors. We also
granted SkyePharma certain registration rights effective as of December 10, 2002
pursuant to a Registration Rights Agreement, dated as of December 10, 2001.
33
We also entered into two agreements concerning the formulation and
development of our initial injectable product candidate, Psoraxine, with
SkyePharma. Under the terms of the Technology Access Agreement, dated December
10, 2002, SkyePharma received from us during 2001 a $5 million license fee, for
access to DepoFoam and other relevant drug delivery technologies. In addition,
pursuant to a Service Agreement, dated December 10, 2002, SkyePharma will
continue to provide all of our development, manufacturing, pre-clinical and
clinical development services in consideration of $11 million of which $3
million was paid in 2001 with the remaining $8 million payable through 2002 for
second generation Psoraxine, for a period lasting until our completion of Phase
II studies.
Private Placement
On September 1, 2001, Richard Genovese, David Stevenson, Grizzly
Consulting Ltd., Wolver Limited and Logarithmic, Inc. purchased units ("Units")
from Astralis LLC consisting of an aggregate of 2,700,000 membership interests
(the "Membership Interests") in Astralis LLC and 6,300,000 options to purchase
additional Membership Interests in Astralis LLC for an exercise price of $1.60
per Membership Interest. The aggregate purchase price for such Units was
$1,350,000. On November 13, 2001 at the closing of the Contribution Agreement,
the aforementioned Units were exchanged for an aggregate of 2,700,000 shares of
our Common Stock and 6,300,000 warrants to purchase Common Stock at an exercise
price of $1.60 per share.
During October of 2001, we issued a promissory note of $50,000 to an
unrelated third party (the "Note"). The Note had a maturity date of November 13,
2001. We also issued to the lender 12,000 shares of Common Stock. The Note was
repaid by us out of the proceeds of the Private Placement.
During November of 2001, we completed a private placement offering (the
"Private Placement") pursuant to which we sold an aggregate of 2,026,179 shares
of our Common Stock and issued Warrants to purchase an aggregate of 405,236
shares of our Common Stock, for an exercise price of $4.00 per share, for an
aggregate purchase price of $3,241,887. We granted certain registration rights
to the purchasers of the shares.
Pictet Private Equity Investors purchased 180,000 shares of our Common
Stock and Warrants to purchase another 36,000 shares of Common Stock. Pictet
Private Equity Investors is controlled by Fabien Pictet, a member of our Board
of Directors.
During the period from March 15 through April 26, 2000, we issued and sold
an aggregate of 750,000 shares of Common Stock to a total of fifty persons, all
of whom are residents of the State of Colorado, for cash consideration totaling
$75,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the names and beneficial ownership of our
Common Stock beneficially owned, directly or indirectly, by (i) each person who
is a director or executive officer of our company, (ii) all our directors and
executive officers as a group, and, to the best of our knowledge, (iii) all
holders of 5% or more of the outstanding shares of our Common Stock.
34
As of March 12, 2002, there were 37,538,179 shares of our Common Stock
outstanding. Unless otherwise noted, the address of all the individuals named
below is care of Astralis Ltd. at 135 Columbia Turnpike, Suite 301, Florham
Park, NJ 07932.
Number of shares of Percentage of
Common Stock Beneficially Common Stock
Name and Address Owned (1) Owned
Dr. Jose Antonio O'Daly 13,640,000 36.34%
Mike Ajnsztajn (2) 8,680,000 23.12%
Gina Tedesco (2) 0 --
Gaston Liebhaber 2,480,000 6.60%
Michael Ashton 0 --
Fabien Pictet (3) 216,000 *
Steven Fulda 0 --
SkyePharma PLC (4)(5) 8,220,000 18%
All Officers and Directors 25,016,000 66.58%
as a Group
----------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the Rule 13d-3(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
generally includes voting or investment power with respect to securities. Except
as indicated by footnotes and subject to community property laws, where
applicable, the person named above has sole voting and investment power with
respect to all shares of the Common Stock shown as beneficially owned by him.
(2) Ms. Tedesco, our Chief Financial Officer, may be deemed to be the beneficial
owner of the 8,680,000 shares of Common Stock owned as of March 12, 2002 by
her husband, Mike Ajnsztajn. Ms. Tedesco disclaims beneficial ownership of such
shares.
(3) All of the shares indicated include shares owned by Pictet Private Equity
Investors. Also includes Warrants to purchase 36,000 shares of Common Stock.
35
(4) SkyePharma is the beneficial owner of 200,000 shares of our Common Stock,
1,250,000 shares of our Preferred Stock and Warrants to purchase 20,000 shares
of Common Stock, and may acquire another 750,000 shares of Preferred Stock
within the next sixty days pursuant to the Purchase Agreement, dated as of
December 10, 2001, between us and SkyePharma (the "Purchase Agreement").
Accordingly, SkyePharma has beneficial ownership of 8,220,000 shares of Common
Stock, assuming its purchase of the 750,000 additional shares of Preferred Stock
and the conversion of all shares of Preferred Stock owned or to be purchased by
SkyePharma into Common Stock at the current conversion rate of four to one.
(5) In order to facilitate the consummation of the transaction contemplated by
the Purchase Agreement, we, certain of our stockholders holding an aggregate of
66.58% of our outstanding Common Stock and SkyePharma executed a Stockholders'
Agreement, dated as of December 10, 2001 (the "Stockholders' Agreement"),
whereby each stockholder agreed to vote its shares of Common Stock and take all
other actions necessary to elect the independent directors nominated by our
Board of Directors and to elect the nominee nominated to our Board of Directors
by SkyePharma when all of the shares of Preferred Stock owned by SkyePharma have
been converted into Common Stock. SkyePharma does not have the right to dispose
(or direct the disposition of) any of the 25,016,000 shares of Common Stock
owned by the other parties to the Stockholders' Agreement and accordingly
SkyePharma disclaims beneficial ownership of all such shares.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 2,431,415 shares of our Common Stock may be offered
and sold pursuant to this prospectus by the Selling Stockholders. The Selling
Stockholders acquired these shares of Common Stock from us in a private
placement of shares of our Common Stock completed in November 2001 (the "Private
Placement"). In this Private Placement, we issued and sold an aggregate of
2,026,179 shares of our Common Stock and issued Warrants to purchase an
aggregate of 405,236 shares of our Common Stock, at an exercise price of $4.00
per share, resulting in gross proceeds to our company of $2,341,887. We intend
to use the proceeds of the sale of the shares of Common Stock to fund Phase I.B
trials and Phase II clinical trials, to continue funding our patent application,
for the possible lease or construction of a small scale manufacturing facility,
to repay certain indebtedness, to pay salaries to our executive officers and for
working capital and general corporate purposes. We will not receive any of the
proceeds resulting from the sale of the shares of Common Stock held by the
Selling Stockholders, although we will receive the proceeds from the exercise of
any of the Warrants.
In connection with the Private Placement, we agreed to file a registration
statement with the Securities and Exchange Commission covering all of the shares
of Common Stock sold in the private placement.
The following table sets forth certain information as of March 12, 2002
regarding the sale by the Selling Stockholders of 2,431,415 shares of Common
Stock in this offering.
One of the Selling Stockholders, SkyePharma is the beneficial owner of 18%
of our Common Stock. SkyePharma, as a result of its ownership of all of the
outstanding shares of our
36
Series A Convertible Preferred Stock has the right to elect a director to our
Board of Directors. In addition, Skyepharma has entered into (i) a Technology
Access Agreement, dated December 10, 2001 with us pursuant to which Skyepharma
will receive from us a $5 million dollar license fee, which will be recognized
as revenue over the lifetime of the contract, for access to DepoFoam and other
relevant drug delivery technologies, and (ii) a Service Agreement, dated
December 10, 2001 with us pursuant to which SkyePharma will provide us with all
of our development, manufacturing, pre-clinical and clinical development
services for second generation Psoraxine, for a period lasting until our
completion of Phase II studies.
Pictet Private Equity Investors is controlled by Fabien Pictet, a member
of our Board of Directors.
No other Selling Stockholders has held any position or office or had a
material relationship with us within the past three years other than as a result
of the ownership of our Common Stock and other securities.
37
----------------------------------------------------------------------------------------------------------------------
Selling Stockholder Beneficial Ownership of Shares to be Sold Shares Beneficially Owned
Shares of Common Stock in the Offering After the Offering(2)
Prior to Sale(1)
----------------------------------------------------------------------------------------------------------------------
Deutsche Bank 144,000 144,000 --
----------------------------------------------------------------------------------------------------------------------
Pictet Private Equity Investors 216,000 216,000 --
----------------------------------------------------------------------------------------------------------------------
FPP Emerging Hedge Fund 192,000 192,000 --
----------------------------------------------------------------------------------------------------------------------
Unicor Inc. 60,000 60,000 --
----------------------------------------------------------------------------------------------------------------------
Nigel William Wray 59,988 59,988 --
----------------------------------------------------------------------------------------------------------------------
The SOG Fund 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
Brahman Capital Fund 24,000 24,000 --
----------------------------------------------------------------------------------------------------------------------
Michael Garnick 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
Fidulex Management Inc. 24,000 24,000 --
----------------------------------------------------------------------------------------------------------------------
Fidulex Management Inc. 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
Fidulex Management Inc. 24,000 24,000 --
----------------------------------------------------------------------------------------------------------------------
Fidulex Management Inc. 143,981 143,981 --
----------------------------------------------------------------------------------------------------------------------
Galba Ansalt 144,000 144,000 --
----------------------------------------------------------------------------------------------------------------------
Ming Capital Enterprises 179,986 179,986 --
----------------------------------------------------------------------------------------------------------------------
Maria and Greg Savettiere 96,000 96,000 --
----------------------------------------------------------------------------------------------------------------------
Vega Investments Inc. 29,986 29,986 --
----------------------------------------------------------------------------------------------------------------------
Sean Fitzpatrick 18,000 18,000 --
----------------------------------------------------------------------------------------------------------------------
N. Herrick Irrevocable Securities Trust 216,000 216,000 --
----------------------------------------------------------------------------------------------------------------------
Heritage Finance and Trust Company 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
Citco Global Custody NV Cash 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
Dr. Jacques Gonella 119,994 119,994 --
----------------------------------------------------------------------------------------------------------------------
SkyePharma Plc 8,220,000 120,000 8,220,000
----------------------------------------------------------------------------------------------------------------------
Banque Privee Edmond de Rothchild SA 187,481 187,481 --
----------------------------------------------------------------------------------------------------------------------
CBG Compagnie 72,000 72,000 --
----------------------------------------------------------------------------------------------------------------------
(1) Beneficial ownership is determined in accordance with rules and regulations
of the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person, shares of Common Stock subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of the date of this prospectus are deemed outstanding. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares beneficially owned by them. In this
instance, the Selling Stockholders each own Warrants with respect to which they
are deemed to be the beneficial owner of the shares of Common Stock issuable
upon the exercise of such Warrants.
(2) Assumes the holders of the Warrants will exercise the Warrants and purchase
the Common Stock issuable thereunder. Assumes all of the shares of Common Stock
offered hereby are sold by the Selling Stockholders. The percentage of the class
of Common Stock owned after the offering will be 0% for all Selling Stockholders
except SkyePharma Plc, which will be the beneficial owner of 18% after the
offering.
38
The Common Stock held by the Selling Stockholders may be offered and sold
from time to time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. The Selling
Stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. The shares offered hereby may be sold
by one or more of the following methods, without limitation: (a) a block trade
in which a broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated. Such brokers and dealers and any other
participating brokers and dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
connection with such sales.
The Selling Stockholders may also pledge shares of Common Stock as
collateral for margin accounts and such shares could be resold pursuant to the
terms of such accounts. We have been advised by the Selling Stockholders that
they have not made any arrangements relating to the distribution of the shares
covered by this prospectus.
In addition, any shares covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
39
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 78,000,000 shares of capital stock of which (i)
75,000,000 shares shall be designated as Common Stock, par value $.0001 per
share, and (ii) 3,000,000 shares shall be designated as preferred stock, par
value $.001 per share, of which 2,000,000 shares shall be designated as Series A
Convertible Preferred Stock. As of March 12, 2002 there are outstanding (a)
37,538,179 shares of Common Stock owned by approximately 187 holders of record
and (b) 1,250,000 shares of Series A Convertible Preferred Stock owned by one
holder of record. There are also outstanding Warrants to purchase 6,780,237
shares of our Common Stock.
Common Stock
The holders of our Common Stock are entitled to one vote for each share
held of record in the election of directors and in all other matters to be voted
on by the stockholders. There is no cumulative voting with respect to the
election of directors. As a result, the holders of more than 50% of the shares
voting for the election of directors can elect all of the directors. Holders of
Common Stock are entitled:
40
- to receive any dividends as may be declared by the Board of Directors
out of funds legally available for such purpose after payment of accrued
dividends on the outstanding shares of Preferred Stock; and
- in the event of our liquidation, dissolution, or winding up, to share
ratably in all assets remaining after payment of liabilities and after provision
has been made for each class of stock having preference over the Common Stock.
All of the outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Holders of our Common Stock have no preemptive right to
subscribe for or purchase additional shares of any class of our capital stock.
Pursuant to a Stockholders Agreement, dated as of December 10, 2001, by
and among us, certain of our stockholders owning 66.58% of our Common Stock and
SkyePharma, each stockholder agreed to vote its shares of Common Stock and take
all other actions necessary to elect the independent directors nominated by the
Board of Directors and to elect the nominee nominated by the Board of Directors
of SkyePharma when all of the Series A Convertible Preferred Stock owned by
SkyePharma has been converted into shares of Common Stock.
Series A Convertible Preferred Stock
The holders of Series A Convertible Preferred Stock have the power to
elect one member to our Board of Directors. In addition, the affirmative vote of
the holders of two-thirds of the Series A Convertible Preferred Stock is
required for (i) us to authorize or create any class or series of capital stock
ranking senior or on parity to the Series A Convertible Preferred Stock and (ii)
any amendment, alteration or repeal of our certificate of incorporation,
certificate of designations or bylaws which would serve to affect the rights,
powers or preferences of the Series A Convertible Preferred Stock. Holders of
Series A Convertible Preferred Stock are entitled:
- to receive noncumulative cash dividends equal to 6% of the Preferred
Stock price or the amount such holders would have received had the holders
converted their shares to Common Stock immediately prior to the record date for
payment of dividends to holders of Common Stock when, as and if declared by the
Board of Directors out of funds that are legally available therefor;
- to convert each share of Series A Convertible Preferred Stock into
Common Stock. The current conversion ratio is four shares of Common Stock for
each share of Series A Convertible Preferred Stock. The conversion ratio is
subject to adjustment annually for three years if the price of our Common Stock
trades on average below $2.50 for 10 days prior to the adjustment date. However,
the conversion ratio will not adjust to a level greater than 6.25 shares of
Common Stock for each share of Preferred Stock; and
41
- in the event of our liquidation, dissolution, or winding up, to be paid
a preference, before any distribution or payment is made upon any Common Stock
or any other equity security that ranks junior to the Series A Convertible
Preferred Stock.
42
Preferred Stock
Our Board of Directors has the authority, within the limitations set forth
in our certificate of designations and certificate of incorporation and the
rights of the holders of Series A Convertible Preferred Stock set forth above,
to provide by resolution for the issuance of preferred stock, in one or more
classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series.
Warrants
As of March 12, 2002, we have outstanding Warrants to purchase 6,780,237
shares of our Common Stock. We issued Warrants to purchase 405,237 shares of our
Common Stock at an exercise price of $4.00 per share pursuant to the Private
Placement. We issued Warrants to purchase 6,300,000 shares of our Common Stock
at an exercise price of $1.60 per share pursuant to the Contribution Agreement.
We have outstanding Warrants to purchase 75,000 shares of our Common Stock at an
exercise price of $1.75 per share.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is American Stock
Transfer and Trust Company, 59 Maiden Lane, Plaza Level, New York, New York
10038.
Reports to Stockholders
We have and will continue to comply with the periodic reporting, proxy
solicitation and other applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Shares Eligible for Future Sale
We currently have 37,538,179 shares of Common Stock outstanding. Of the
37,538,179 shares of Common Stock outstanding up to 9,931,415 shares are freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate", which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
All of the remaining shares of Common Stock currently outstanding are
"restricted securities" or owned by "affiliates", as those terms are defined in
Rule 144, and may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. The restricted securities are not eligible for sale without
registration under Rule 144. As of March 12, 2002, there were outstanding
options to purchase 7,090,237 shares of our Common Stock.
43
All of the 1,250,000 shares of Series A Convertible Preferred Stock that
are currently outstanding are "restricted securities" or owned by "affiliates",
as those terms are defined in Rule 144, and may not be sold publicly unless they
are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration.
Lock-Up Agreements
None of the currently outstanding Common Stock or Series A Convertible
Preferred Stock are subject to lock-up agreements.
Rule 144
Generally, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including any of our
affiliates or person whose shares are aggregated with an affiliate, who has
owned restricted shares of Common Stock beneficially for at least one year, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of our then outstanding shares of Common Stock; or
- the average weekly trading volume of shares of our Common
Stock during the four calendar weeks preceding such sale.
A person who is not an affiliate, has not been an affiliate within three
months prior to sale, and has beneficially owned the restricted shares for at
least two years is entitled to sell such shares under Rule 144(k) without regard
to any of the limitations described above.
Market for Common Stock
Shares of our Common Stock are listed on the Nasdaq Over-the-Counter
Bulletin Board under the symbol ASTR.
Charter and Bylaws Provisions and Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder", or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder", unless (i) the transaction in which such stockholder
became an "interested stockholder" is approved by the board of directors prior
to the date the "interested stockholder" attained such status; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
"interested stockholder", the "interested stockholder" owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding those shares owned by persons who are directors and also
officers; or (iii) on or after the date the "interested stockholder" attained
such status the
44
business combination is approved by the board of directors and authorized at an
annual or Special Meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned by the "interested
stockholder".
Our certificate of incorporation and bylaws do not provide for cumulative
voting in the election of directors. Our bylaws eliminate the right of
stockholders to call Special Meetings of stockholders. The authorization of
1 million shares of undesignated preferred stock makes it possible for the Board
of Directors to issue a class of preferred stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
our control. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in the control or management of Astralis Ltd. even
if doing so would be beneficial to our stockholders.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF
ACCOUNTING AND FINANCIAL DISCLOSURE
Our Board of Directors appointed the independent certified accounting firm
of L J Soldinger Associates Ltd. to audit our financial statements for the year
ended December 31, 2001. Accordingly, our prior accounting firm, Cordovano and
Harvey, P.C., was dismissed as our independent auditors effective November 28,
2001, the date when written notification was delivered to that firm. The
appointment of L J Soldinger Associates Ltd. as our independent auditors was
effective as of November 2, 2001. Our Board of Directors approved the change in
independent accountants and our stockholders approved the change in independent
accountants at a Special Meeting held on November 1, 2001.
The audit reports of Cordovano and Harvey, P.C. on our financial
statements as of December 31, 2000 and 1999, for the fiscal year ended December
31, 2000 and for the period from June 30, 1999 (the date our inception) through
December 31, 1999, did not contain any adverse opinion or disclaimer of opinion,
nor were such audit reports qualified or modified as to uncertainty, audit scope
or accounting principals. In addition, there were no disagreements between us
and Cordovano and Harvey, P.C. on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Cordovano and Harvey, P.C., would
have caused Cordovano and Harvey, P.C. to make reference to the matter in their
reports. A letter from Cordovano and Harvey, P.C. is incorporated by reference
to this registration statement as Exhibit 16.1.
45
LEGAL MATTERS
The validity of the Common Stock offered by this prospectus will be passed
upon by McCarter & English, L.L.P.
EXPERTS
L J Soldinger Associates Ltd., independent auditors, have audited our
financial statements for the year ended December 31, 2001, as set forth in its
report. We've included our financial statements in the prospectus and elsewhere
in this registration statement in reliance on the L J Soldinger Associates Ltd.
reports, given on their respective authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Common Stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information, with respect to us and the Common Stock
offered by this prospectus, reference is made to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Additionally, we file annual, quarterly and current reports, proxy statements
and other documents with the Securities and Exchange Commission. You may read
and copy any materials we file with the Securities and Exchange Commission at
the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of the Securities and
Exchange Commission's Web site is http://www.sec.gov.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide prospective investors with any different
or additional information. This prospectus is not an offer to sell nor is it
seeking an offer to by these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date hereof, regardless of the time of delivery of this
prospectus or any sale of these securities.
46
ASTRALIS, LTD.
(A Development Stage Entity)
December 31, 2001
INDEX TO THE FINANCIAL STATEMENTS
Page(s)
-------
Independent Auditors' Report .................................. F2
Balance Sheet ................................................. F3
Statement of Operations ....................................... F4
Statement of Stockholders' Equity ............................. F5-F6
Statement of Cash Flows ....................................... F7
Notes to Financial Statements ................................. F8-F21
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Astralis, Ltd.
Florham Park, New Jersey
We have audited the accompanying balance sheet of Astralis, Ltd. (a development
stage entity) as of December 31, 2001, and the related statements of operations,
stockholders' equity, and cash flows, for the period March 12, 2001 (date of
inception) through December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Astralis, Ltd. as of December
31, 2001, and the results of operations, changes in stockholders' equity and its
cash flows for the period then ended in conformity with accounting principles
generally accepted in the United States of America.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
February 4, 2002
F-2
ASTRALIS, LTD.
(A Development Stage Entity)
Balance Sheet
December 31, 2001
ASSETS
Current Assets
Cash and cash equivalents $4,451,874
Prepaid expenses 38,461
----------
Total Current Assets 4,490,335
Intangible Assets, Net - Related Party 4,940,476
Other Intangible Assets, Net 25,054
Property and Equipment, Net 1,586
----------
$9,457,451
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - related party $ 142,446
Accounts payable and accrued expenses 240,637
----------
Total Current Liabilities 383,083
----------
Commitments and Contingencies
Stockholders' Equity
Convertible preferred stock, Series A,
$.001 par value; authorized - 2,000,000 shares;
issued and outstanding - 1,000,000 shares
(liquidation preference - $10,034,521) 1,000
Common stock; $.0001 par value; authorized -
75,000,000 shares;
issued and outstanding - 37,588,179 shares 3,759
Additional paid-in capital 17,013,223
Deferred compensation (398,250)
Common stock subscriptions receivable (1,350,000)
Deficit accumulated in the development stage (6,195,364)
----------
Total Stockholders' Equity 9,074,368
----------
$9,457,451
==========
The accompanying notes are an integral part of the financial statements.
F-3
ASTRALIS, LTD.
(A Development Stage Entity)
Statements of Operations
March 12, 2001 (Date of Inception) to December 31, 2001
Revenues $ --
-----------
Operating Expenses
Research and development - related party 3,203,235
Research and development 28,540
Depreciation and amortization 831
General and administrative 852,013
-----------
Total Operating Expenses 4,084,619
-----------
Loss From Operations 4,084,619
-----------
Other Income
Interest income (9,255)
-----------
Net Loss (4,075,364)
Preferred Stock Dividends (2,120,000)
-----------
Net Loss to Common Stockholders $(6,195,364)
===========
Pro Forma Information (Unaudited)
Net loss $(6,195,364)
Pro forma tax provision --
-----------
Pro forma net loss $(6,195,364)
===========
Basic and diluted loss per common share $ (0.23)
===========
Basic and diluted weighted average common shares outstanding 27,348,030
===========
The accompanying notes are an integral part of the financial statements.
F-4
Page 1 of 2
ASTRALIS, LTD.
(A Development Stage Entity)
Statement of Stockholders' Equity
March 12, 2001 (Date of Inception) to December 31, 2001
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
--------------- ----------------- Paid-In Subscription Deferred Development
Shares Amount Shares Amount Capital Receivable Compensation Stage
------ ------ ------ ------ ------- ---------- ------------ ------------
Balances, March 12, 2001
(Date of Inception) -- $ -- -- $ -- $ -- $ -- $ -- $ --
Members' capital
contributions, 3/15/2001 -- -- 25,300,000 2,530 30,653 (33,183) -- --
Capital contributions received,
3/1 -- 8/13/2001 -- -- -- -- -- 33,183 -- --
Members' contributed services,
3/15 -- 6/30/2001 -- -- -- -- 12,986 -- -- --
Members' capital
contributions, 9/1/2001 -- -- 2,700,000 270 1,349,730 (1,350,000) -- --
Warrants to purchase common
stock issued in private
placement; 6,300,000 shares
at $1.60 per share -- -- -- -- -- -- --
Common stock issuable for
consulting services, 9/1/2001;
500,000 shares -- -- -- -- 135,000 -- -- --
Common stock issued in private
placement net of issuance
costs, 11/13/2001; 2,076,179
shares at $1.60 per share -- -- 2,076,179 208 3,190,429 -- -- --
Warrants to purchase common
stock issued in private
placement, 11/13/2001; 415,237
shares at $4.00 per share -- -- -- -- -- -- -- --
----- ------ ---------- ----- --------- ---------- ------ ------
Balances Brought Forward -- -- 30,076,179 3,008 4,718,798 (1,350,000) -- --
----- ------ ---------- ----- --------- ---------- ------ ------
The accompanying notes are an integral part of the financial statements.
F-5
Page 2 of 2
ASTRALIS, LTD.
(A Development Stage Entity)
Statement of Stockholders' Equity
March 12, 2001 (Date of Inception) to December 31, 2001
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
---------------- ------------------ Paid--In Subscription Deferred Development
Shares Amount Shares Amount Capital Receivable Compensation Stage
------ ------ ------ ------ ------- ---------- ------------ -----
Balances Brought Forward -- $ -- 30,076,179 $3,008 $4,718,798 $(1,350,000) $ -- $ --
Net assets and liabilities
acquired in merger
with Hercules -- -- 7,512,000 751 (303,071) -- -- --
Preferred stock issued, net
of issuance costs,
12/10/2001; 1,000,000 shares
at $10.00 per share 1,000,000 1,000 -- -- 9,946,496 -- -- --
Preferred stock dividend,
12/10/2001 -- -- -- -- 2,120,000 -- -- (2,120,000)
Options issued for legal
services, 12/31/2001; 200,000
options at $1.77 per
option, based on valuation -- -- -- -- 354,000 -- (354,000) --
Options issued for consulting
services, 12/31/2001; 100,000
options at $1.77 per option,
based on valuation -- -- -- -- 177,000 -- (177,000) --
Amortization of deferred
compensation -- -- -- -- -- -- 132,750 --
Net loss -- -- -- -- -- -- -- (4,075,364)
--------- ------ ---------- ------ ----------- ----------- --------- -----------
Balance, December 31, 2001 1,000,000 $1,000 37,588,179 $3,759 $17,013,223 $(1,350,000) $(398,250) $(6,195,364)
========= ====== ========== ====== =========== =========== ========= ===========
The accompanying notes are an integral part of the financial statements.
F-6
ASTRALIS, LTD.
(A Development Stage Entity)
Statement of Cash Flows-Audited
March 12, 2001 (Inception) to December 31, 2001
Cash Flows from Operating Activities
Net loss $(4,075,364)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 60,355
Members' contributed salaries 12,986
Research and development service fee netted
against proceeds received from
preferred stock issuance 3,000,000
Operating expenses paid by related parties on
behalf of Company 17,587
Amortization of deferred compensation 132,750
Compensatory common stock 135,000
Changes in assets and liabilities
Prepaid expenses (38,461)
Intangible assets (10,255)
Accounts payable-related party 142,446
Accounts payable and accrued expenses 240,637
-----------
Net Cash Used in Operating Activities (382,319)
Cash Flows from Investing Activities
Purchases of property and equipment (1,620)
-----------
Net Cash Used in Investing Activities (1,620)
-----------
Cash Flows from Financing Activities
Issuance of common stock, net of offering and
transaction cost 2,888,317
Issuance of preferred stock, net of research and
development service fee, technology option and
costs of offering 1,947,496
-----------
Net Cash Provided by Financing Activities 4,835,813
-----------
Net Increase in Cash and Cash Equivalents 4,451,874
Cash and Cash Equivalents, Beginning of Year --
Cash and Cash Equivalents, End of Year $ 4,451,874
===========
The accompanying notes are an integral part of the financial statements.
F-7
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Operations
Astralis, Ltd. (the "Company") is an emerging biotechnology company based in New
Jersey and engaged primarily in the research and development of novel treatments
for immune system disorders and skin diseases. The Company is currently
developing two products. Its primary product, Psoraxine, is an innovative
vaccine under development for the treatment of psoriasis. The Company's second
product is for the treatment of leishmaniasis.
History
The Company, formerly Astralis Pharmaceutical, Ltd. and Hercules Development
Group, Inc. ("Hercules"), was incorporated under the laws of the state of
Colorado on June 30, 1999 and reincorporated in the state of Delaware on
December 10, 2001. In November 2001, the Company was a public shell company,
defined as an inactive, publicly quoted company with nominal assets and
liabilities.
The operations and financial statements of the Company are those of Astralis,
LLC, ("Astralis, LLC") a New Jersey limited liability company formed on March
12, 2001. Astralis, LLC was merged into the Company on November 13, 2001 at
which time the Company changed its name to Astralis Pharmaceutical, Ltd. The
Company is the surviving legal entity.
In connection with the merger, the Company issued 28,000,000 shares of its
common stock along with warrants to purchase 6,300,000 shares of the Company's
common stock at $1.60 per share to the members of Astralis, LLC in a one-for-one
exchange for all of the 28,000,000 outstanding Astralis, LLC member units of
ownership and all of the 6,300,000 outstanding options to purchase member units.
As a result of the transaction, the former members of Astralis, LLC acquired a
majority interest in the Company.
On December 10, 2001, the Company changed its name to Astralis, Ltd. and
reincorporated to the state of Delaware.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements are prepared on the accrual basis of
accounting in accordance with United States generally accepted accounting
principles ("US GAAP").
F-8
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The combination of the Company and Astralis, LLC has been treated as a
recapitalization of the Company. The Company was the legal acquirer in the
merger. Astralis, LLC was the accounting acquirer since its members acquired a
majority ownership interest in the Company. Consequently, the historical
financial information included in the financial statements of the Company prior
to November 2001 is that of Astralis, LLC. Pro forma financial information is
not presented since the combination is a recapitalization and not a business
combination.
Pro Forma Financial Information
As discussed in Note 1, Astralis, LLC was originally organized in the form of a
Limited Liability Company. Upon the Merger, its capital structure changed to
that of a corporation. The change resulted in the Company retaining the tax
benefit for the portion of the losses generated subsequent to November 13, 2001,
whereas the previous losses were passed through to the Astralis, LLC members.
Pursuant to Staff Accounting Bulletin Number 1B.2 "Pro Forma Financial
Statements and Earnings per Share" ("SAB 1B.2"), a pro forma income statement
has been presented which reflects the impact of the Company's change in capital
structure as if it had occurred March 12, 2001 (Astralis LLC's inception). This
presentation reflects the Company generating a tax benefit, which has been
offset with a valuation allowance, which includes the net operating losses
incurred by Astralis LLC during the period from March 12, 2001 to November 13,
2001, the operating period prior to Astralis, LLC's termination.
Development Stage Enterprise
The Company is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards No. 7 "Accounting and Reporting for Development
Stage Enterprises" ("SFAS No. 7"). Under SFAS No. 7, certain additional
financial information is required to be included in the financial statements for
the period from inception of the Company to the current balance sheet date.
Since the inception of the Company, management has been in the process of
raising capital through private placement stock offerings, effecting its
business merger, and performing research and development activities.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments in money market
funds. The Company considers all highly liquid instruments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents.
F-9
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits at financial institutions. To
mitigate this risk, the Company places its cash deposits only with high credit
quality institutions.
Property and Equipment
Furniture and equipment are recorded at cost, less accumulated depreciation
computed on a straight-line basis over the estimated useful lives of the
respective assets. Depreciation is computed using a four-year life for computer
equipment.
Income Taxes
Income taxes are recorded in the period in which the related transactions are
recognized in the financial statements, net of the valuation allowances which
have been recorded against deferred tax assets. Deferred tax assets and
liabilities are recorded for the expected future tax consequences of temporary
differences between the tax basis and the financial reporting of assets and
liabilities. Net deferred tax assets and liabilities, relating primarily to
federal and state net operating loss carryforwards and research and development
credits that have been deferred for tax purposes, have been offset by a
valuation reserve because management has determined that the realization of
deferred tax assets is less likely than not and, accordingly, has established a
valuation allowance.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts payable and accrued expenses, are carried at cost, which approximates
fair value.
Loss Per Share
Loss per common share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("FAS 128"). Basic loss per
common share is computed based upon the weighted average number of shares of
common stock outstanding for the period and excludes any potential dilution.
Shares associated with stock options, warrants and convertible preferred stock
are not included because their inclusion would be antidilutive (i.e., reduce the
net loss per share).
The common shares potentially issuable arising from these instruments, which
were outstanding during the periods presented in the financial statements, are
as follows:
Exercise
Price Shares
---------- ----------
Options $ 2.79 300,000
Warrants $1.60-4.00 6,790,237
Convertible preferred stock $ 2.50 4,000,000
----------
11,090,237
==========
F-10
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information
The Company has determined it has one reportable operating segment as defined by
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information."
Research and Development Costs
The cost of research, development and product improvement expenditures are
charged to expense as they are incurred. Research, development and product
improvement costs included in operating expenses amounted to $3,231,775 for the
period from March 12, 2001 (date of inception) to December 31, 2001.
Included in this amount were payments to related parties - see Note 8.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board, or FASB, approved
Statements of Financial Accounting Standards ("SFAS"), No. 141, "Business
Combinations" ("SFAS No. 141") and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). The statements eliminate the pooling-of-interests
method of accounting for business combinations and require that goodwill and
intangible assets with indefinite lives not be amortized. Instead, these assets
will be reviewed for impairment annually with any related losses recognized when
incurred. SFAS 141 is generally effective for business combinations after June
2001.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"), which is effective for fiscal years beginning
after June 15, 2002. This Statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 requires, among other
things, that the retirement obligations be recognized when they are incurred and
displayed as liabilities on the balance sheet. In addition, the asset's
retirement costs are to be capitalized as part of the asset's carrying amount
and subsequently allocated to expense over the asset's useful life.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which is effective for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. This Statement develops one accounting model for long-lived assets that
are to be disposed of by sale, as well as addressing the principal
implementation issues.
The adoption of SFAS 141, 142, 143 and 144 is not expected to have any impact on
the Company's financial statements.
F-11
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 3 - INTANGIBLE ASSETS
The Company's policy is to capitalize the costs of purchased and internally
developed patents and those expenses in connection with patent rights licensed
to the Company. The life of the patent is 20 years from the date the patent is
applied for or 17 years from when it is granted, whichever is longer. The
Company's policy is to capitalize direct costs related to the rights it has
licensed, and amortize them on a straight-line basis over the remaining portion
of the 20-year period, which commenced on March 16, 2001, the date the
application was filed for the patent the Company has licensed.
The Company paid $5,000,000 for a technology access option from SkyePharma PLC
("SkyePharma"). This option gives the Company the right, until December 13,
2008, to enter into a non-exclusive license agreement to utilize any of three
drug delivery systems of SkyePharma in connection with any drugs it develops to
treat two specific immunotherapies. Upon exercise of the option, the Company
will be required to pay a license fee of 5% of net sales of any product
utilizing the drug delivery systems. All other terms of the license agreement
will be determined upon exercise of the option.
Management has taken the position that the technology access option fee is a
license fee which allows the Company, prior to commercialization of its drugs,
to utilize the established delivery system technologies of SkyePharma to test
for viability and enhancement of the Company's Psoraxine vaccine. In accordance
with Financial Accounting Standard No. 2 - Research and Development Costs ("SFAS
No. 2"), the Company has capitalized the technology access option as a research
and development intangible asset and is amortizing it over its seven year life.
The Company will evaluate this intangible for impairment annually under FAS 121
Accounting For The Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
As of December 31, 2001, the Company has amortized $797 of patent cost and
$59,524 of the cost of the technology option license. The amortization related
to the technology option license is recorded as research and development cost as
required by SFAS No. 2.
Intangible assets consisted of:
December 31, 2001
-----------------
Patent $ 25,851
Technology access fee 5,000,000
Less accumulated amortization (60,321)
----------
$4,965,530
==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, 2001
-----------------
Computer equipment $1,620
Less accumulated depreciation (34)
------
$1,586
======
F-12
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 4 - PROPERTY AND EQUIPMENT (Continued)
Depreciation expense for the period from March 12, 2001 (date of inception) to
December 31, 2001 was $34.
NOTE 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary timing
differences between the carrying amounts of assets and liabilities reflected on
the financial statements and the amounts used for income tax purposes. The tax
effects of temporary differences and net operating loss carryforwards and tax
credits that give rise to significant portions of the deferred tax assets
recognized are presented below:
December 31, 2001
-----------------
Deferred tax assets:
Accumulated depreciation and amortization $ 13,300
Research and development credits carryforward 204,700
Federal and state deferred tax benefit arising from
net operating loss carryforwards 1,436,800
------------
1,654,800
Less valuation allowance (1,654,800)
------------
Total deferred tax assets $ --
============
Income tax benefit consists of the following:
December 31, 2001
-----------------
Deferred
Federal $ 11,300
State 2,000
Federal and state tax benefit of net operating
loss carryforward 1,436,800
Tax benefit from research and development
credits carryforward 204,700
------------
1,654,800
Less valuation allowance (1,654,800)
------------
Total $ --
============
F-13
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 5 - INCOME TAXES (Continued)
As of December 31, 2001, the Company had losses which resulted in net operating
loss carryforwards for tax purposes amounting to approximately $3,500,000 that
may be offset against future taxable income. These carryforwards expire in 2021.
The Company has also generated research and development credits of $204,700 that
will also expire in 2021. However, these carryforwards and credits may be
significantly limited due to changes in the ownership of the Company as a result
of future equity offerings.
Recognition of the benefits of the deferred tax assets and liabilities will
require that the Company generate future taxable income. There can be no
assurance that the Company will generate any earnings or any specific level of
earnings in future years. Therefore, the Company has established a valuation
allowance for deferred tax assets (net of liabilities) of approximately
$1,654,800 as of December 31, 2001.
In accordance with federal income tax regulations, the net loss incurred by
Astralis, LLC from inception to the date of the merger has been excluded from
the benefits of the net operating loss carryforwards reflected in this footnote.
The pro forma presentation on the statement of operations reflects the effect on
the Company had the change in capital structure to a corporation been effective
as of March 12, 2001 (Astralis LLC inception) (see Note 2).
The following table presents the principal reasons for the difference between
the Company's effective tax rates and the United States federal statutory income
tax rate of 35%.
December 31, 2001
-----------------
Federal income tax benefit at statutory rate $ 1,426,400
Federal income tax benefit passed through to the
members of Astralis, LLC (65,800)
State income tax benefit (net of effect of
federal benefit) 207,700
Non-deductible expenses (118,200)
Research and development credit 204,700
Valuation allowance (1,654,800)
-----------
Income Tax Benefit $ --
===========
Effective Income Tax Rate 0%
===========
NOTE 6 - CAPITAL STOCK ACTIVITY
The Company's Articles of Incorporation authorizes the issuance of 75,000,000
shares of common stock, $0.0001 par value per share, of which 37,588,179 were
outstanding as of December 31, 2001.
F-14
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 6 - CAPITAL STOCK ACTIVITY (Continued)
As discussed in Note 1, the combination of Astralis and Hercules was treated as
a recapitalization of Astralis, whereby the Company issued to the members of
Astralis, LLC, 28,000,000 shares of common stock and warrants to purchase
6,300,000 shares of Company common stock for $1.60 per share in a one-for-one
exchange for all of the outstanding 28,000,000 Astralis, LLC member units of
ownership and 6,300,000 options to purchase member units.
Astralis LLC issued 25,300,000 units on April 25, 2001 to various members for an
aggregate subscription receivable amount of $33,183. During the year, the
members paid $33,183 on behalf of the Company to satisfy their subscription
receivable.
Under a contribution agreement dated September 1, 2001, five new members were
admitted as members of the LLC through the execution of a subscription
agreement. These new members subscribed to units ("Units") from Astralis LLC
consisting of an aggregate of 2,700,000 membership interests (the "Membership
Interests") in Astralis LLC and 6,300,000 options to purchase additional
Membership Interests in Astralis LLC for an exercise price of $1.60 per
Membership Interest. On November 13, 2001 at the closing of the Contribution
Agreement, the aforementioned Units were exchanged for an aggregate of 2,700,000
shares of our common stock and 6,300,000 warrants to purchase common stock at an
exercise price of $1.60 per share. The aggregate purchase price for such Units
was $1,350,000 and was paid with subscription notes. These subscription notes
receivable are due in two installments with $850,000 being due on February 13,
2002 and the remaining $500,000 due on May 13, 2002. 3,150,000 of these warrants
expire December 13, 2003 and 3,150,000 expire November 13, 2006.
Common Stock
In September 2001, Astralis, LLC granted a consultant 500,000 membership units
in return for services rendered. Common shares of Company stock were transferred
to the consultant subsequent to December 31, 2001. The cost of the services,
based on an independent valuation of the units granted, which amounted to
$135,000, were recorded at the time the services were rendered in 2001.
In November 2001, the Company completed a $3,321,887 private placement offering
aggregating 103.81 units at $32,000 per unit. Each unit consisted of 20,000
shares of common stock and warrants to purchase 4,000 shares of the Company's
common stock at $4.00 per share. The warrants expire November 13, 2006. The
holders of these common shares and warrants received registration rights. The
Company has an obligation to file a registration statement by March 13, 2002 to
commence registration of these shares and warrants. Upon consummation of the
private placement, the Company paid a $100,000 investment banking fee and
entered into an agreement for future investment banking services amounting to
$144,000 and payable in 24 equal monthly installments of $6,000.
In April 2001, the Company issued warrants to purchase 75,000 shares of the
Company stock at an exercise price of $1.75 per share. These warrants expire in
April 2004.
F-15
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 6 - CAPITAL STOCK ACTIVITY (Continued)
Preferred Stock
The Company's Articles of Incorporation authorizes the issuance of 3,000,000
shares of Preferred Stock, with a $0.001 par value per share. On December 13,
2001, the Company authorized 2,000,000 shares to be designated as "Series A
Convertible Preferred Stock" ("Series A Preferred"). If the Company declares a
dividend, holders of each share of Series A Preferred are entitled to
non-cumulative cash dividends which shall be the greater of i) 6% of the
preferred share purchase price; or ii) the amount such holders would have
received had the holders converted to common stock immediately prior to record
date for payment of a dividend to holders of common stock. No dividend can be
declared or paid on common stock without an equal or greater dividend being paid
or declared on the Series A Preferred. Holders of each share of Series A
Preferred are also entitled to vote on all matters at stockholder meetings.
Holders of each share of the Series A Preferred may convert their shares to
common stock at an initial conversion price of $2.50. This conversion price may
be adjusted and reset as set forth in the Series A Preferred agreement.
On December 10, 2001, the Company and SkyePharma entered into a purchase
agreement whereby SkyePharma agreed to purchase 2,000,000 shares of Series A
Preferred at a price of $10 per share over a 13-month period with five separate
closings. On December 10, 2002, the one-year anniversary of the agreement,
SkyePharma will receive registration rights on the common stock underlying its
Series A Preferred shares. The first closing occurred in December 2001 and the
Company sold 1,000,000 shares of Series A Preferred for a purchase price of
$10,000,000. The second closing occurred in January 2002 and the Company sold
250,000 shares of Series A Preferred for a purchase price of $2,500,000. The
remaining 750,000 shares of Series A Preferred totaling $7,500,000 are
contracted to be sold in three equal installments which are scheduled to close
on April 30, 2002, July 31, 2002 and January 31, 2003.
The Company's stock price on December 10, 2001 was $3.03; consequently, pursuant
to the requirements of EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
the issuance of the Series A Preferred, which are convertible initially at $2.50
per share at any time, resulted in a beneficial conversion feature recorded as a
preferred stock dividend in the amount of $2,120,000.
Stock Warrants
At December 31, 2001, the Company had the following outstanding common stock
warrants to purchase its securities:
Number of Exercise Price
Warrants Issued Per Share
--------------- --------------
6,790,237 $1.60-$4.00
========= ===========
These warrants were primarily issued in connection with the exchange with
Astralis LLC and the private placement offering.
F-16
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 7 - STOCK OPTION PLAN
On September 10, 2001 the Company adopted its 2001 Stock Option Plan which
provides for the granting of options to officers, directors, employees, and
consultants. The number of shares of common stock which can be purchased under
this plan is limited to 25,000,000 shares, adjustable for changes in the capital
structure of the Company. No options can be granted under this plan after
September 10, 2011. Options granted under this plan may be either incentive
stock options or non-qualified stock options. Options terms are not to exceed 10
years. The options have limited transferability, and will be subject to various
vesting provisions as determined at the date of grant. The Board of Directors or
a committee thereof will determine the exercise price of options granted in
accordance with the provisions of this plan. The Board has the ability to amend,
suspend or terminate this plan at any time, subject to restrictions imposed by
applicable law.
On December 31, 2001, the Company granted two consultants options to purchase an
aggregate 300,000 shares of the Company's common stock in exchange for their
services. These options vest ratably, at 75,000 per year, over a four-year
period commencing in 2001. The expiration terms of these options are 4 years, 3
years, 2 years and 1 year, for options vesting in 2001, 2002, 2003 and 2004,
respectively. The strike price for all of these options is $2.75.
The Company records deferred compensation when it makes compensatory stock
option grants to employees, members of the Board of Directors, consultants or
advisory board members. For the options granted to consultants, the amount of
deferred compensation recorded is the fair value of the stock options on the
grant date as determined using a Black-Scholes option-pricing model. The Company
records deferred compensation as a reduction to shareholders' equity with an
offsetting increase to additional paid-in capital. The Company then amortizes
deferred compensation into stock based compensation expense over the performance
period, which typically coincides with the vesting period of the stock based
award.
The components of deferred compensation for the options granted are as follows:
Consultants
-----------
Balance at December 31, 2001
Deferred compensation recorded $ 531,000
Amortization to stock-based compensation (132,750)
---------
Balance at December 31, 2001 $ 398,250
=========
F-17
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 7 - STOCK OPTION PLAN (Continued)
Exercise prices for stock options outstanding as of December 31, 2001 and the
weighted average remaining contractual life are as follows:
Weighted Average
Remaining Number Weighted
Exercise Prices Options Outstanding Contractual Life Exercisable Exercise Price
--------------- ------------------- ----------------- ----------- --------------
$ 2.75 300,000 2.5 years 75,000 $ 2.75
FAS 123 were estimated as of the date of the grant using a Black-Scholes
option-pricing model. The fair value of options granted December 31, 2001 were
determined under the Black-Scholes option-pricing model using a volatility of
110%, a risk-free interest rate of approximately 4.1%, an expected life of 1-4
years and a dividend yield of zero.
NOTE 8 - RELATED PARTY - TRANSACTIONS/COMMITMENTS/INDEMNIFICATIONS
Patent
A founding member of the Company is the owner of a patent application, filed
March 16, 2001 with the United States Patent and Trademark Office, entitled
"Compositions and Methods for the Treatment and Clinical Remission of Psoriasis"
(the "Invention"). On April 26, 2001, the Company, in exchange for $10, entered
into an exclusive license agreement to use and exploit the Invention, the
technology related thereto, and the related patent rights, including the ability
to license foreign patent rights. The term of the license agreement expires on
the last date of expiration of the patent or earlier date as specified in the
license agreement.
During the term of the license agreement, the Company is required to pay all
fees and costs relating to the filing, prosecution, and maintenance of the
patent and associated rights. In addition, the Company is required to pay all
reasonable attorneys' fees of the Company, or patent owner, in the pursuit of
any patent infringement litigation.
Contributed Services
Certain members of the Company have provided services to the Company without
compensation. In accordance with the accounting treatment proscribed in the SEC
Staff Accounting Bulletin Topic 5-T, the Company has recorded as expense an
amount representing the value of these services totaling $12,986. An offsetting
entry was recorded to members' capital.
SkyePharma PLC Agreements
On December 10, 2001, the Company executed three agreements with SkyePharma, a
pharmaceutical company located in England.
F-18
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 8 - RELATED PARTY-TRANSACTIONS/COMMITMENTS/INDEMNIFICATIONS (Continued)
The Company entered into a stock purchase agreement whereby SkyePharma agreed to
purchase 2,000,000 shares of Series A Preferred at a price of $10 per share in
five separate closings over a 13-month period commencing in December 2001 (See
Note 6).
The Company entered into a technology option agreement whereby it agreed to pay
SkyePharma $5,000,000 in return for the right, for 7 years, to enter into a
non-exclusive license agreement with SkyePharma to utilize three drug delivery
systems ($2,000,000, $2,000,000, and $1,000,000, respectively per delivery
system). The royalty fee in this license agreement is specified to be 5% of the
net sales of any product the Company sells utilizing a SkyePharma drug delivery
system. All other terms of this license agreement would need to be determined
upon exercise of the option. The Company can transfer this option to another
party, subject to approval by SkyePharma. This license would only allow the
Company to use these delivery systems for drugs that treat two particular
immunotherapies-psoriasis and leishmaniasis. The $5,000,000 fee was required to
be paid on December 10, 2001 and was netted (for convenience purposes) out of
the first $10,000,000 installment purchase of preferred stock by SkyePharma.
The Company entered into a services agreement whereby it agreed to pay
$11,000,000 to SkyePharma in return for SkyePharma providing all development,
manufacturing, pre-clinical and clinical development services for the Company's
primary product-second generation Psoraxine, up to the completion of Phase II
clinical studies. The contract recognized that SkyePharma performed $3,000,000
of these services in the fourth quarter of 2001 and that SkyePharma will perform
and be paid for the remaining $8,000,000 of services in 2002. The payment terms
for the services agreement are fixed. $3,000,000 was required to be paid on
December 10, 2001 and was netted (for convenience purposes) out of the first
$10,000,000 installment purchase of preferred stock. This $3,000,000 was
expensed in 2001.
The remaining $8,000,000 is required to be paid in eleven equal monthly
installments of $665,000, and a final payment of $685,000 for all months in
2002.
SkyePharma has the right of first refusal to acquire the worldwide licensing and
distribution rights to Psoraxine up to the completion of the Phase II studies.
On completion of Phase II studies, Astralis will offer SkyePharma the option to
acquire the worldwide licensing and distribution rights to Psoraxine. If
SkyePharma does not take the option, Astralis will seek a marketing partner to
fund Phase III clinical studies and to provide a sales and marketing
infrastructure.
Indemnification
The Company has agreed, subject to specific provisions in the Technology Access
Agreement, to indemnify SkyePharma, its directors and employees against any and
all losses, claims, demands, proceedings, actions, etc. which may be brought or
established against them as a result of, among other items, i) negligence of
Company personnel or contractors or ii) death, personal injury or property
damage or loss caused by the Company selling a product containing a SkyePharma
delivery system which is defective or not merchantable. However, this
indemnification does not apply to any death or personal injury arising from
defects inherent in the delivery systems or technical know-how of SkyePharma
licenses with the delivery system technology.
F-19
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 8 - RELATED PARTY-TRANSACTIONS/COMMITMENTS/INDEMNIFICATIONS (Continued)
Other
A research entity owned by the spouse of the majority shareholder provided
research and development services to the Company totaling $143,711. The full
amount remained unpaid as of December 31, 2001.
NOTE 9 - OPERATING LEASES
The Company shares office space for its principal executive offices in Florham
Park, New Jersey with a related party at no expense. The value of the shared
space is minimal.
NOTE 10 - CONCENTRATIONS
The Company currently has two products that are under development. Lack of
product development or customer interest could have a materially adverse effect
on the Company. Further, significant changes in technology could lead to new
products or services that compete with the product to be offered by the Company.
These changes could materially affect the price of the Company's products or
render them obsolete.
In 2002, the Company's sole source of funding is expected to be generated from
sales of its Series A Preferred shares under a purchase agreement with
SkyePharma. Should the remaining purchases of shares not occur as specified by
the purchase contract, the Company would need to find alternative sources of
financing, alter its business plan or curtail its operations.
NOTE 11 - LIQUIDITY AND CONTINGENCIES NOT DESCRIBED ELSEWHERE
There are many steps to the process that pharmaceutical products must undergo
before they can be commercially sold and distributed in the United States. Drugs
must undergo testing in compliance with US Food and Drug Administration ("FDA")
regulations and ultimately receive FDA approval. The Company's Psoraxine product
is expected to enter initial FDA testing in 2002. FDA testing occurs in various
phases over a multiple number of years.
The Company anticipates that their current liquid resources, together with the
$7,500,000 in proceeds to contractually be received from the sale of their
Series A Preferred (see Note 6) will be sufficient to finance its currently
anticipated needs for operating and capital expenditures for the next twelve
months and through the completion of Phase II of the FDA testing process in
connection with its Psoraxine vaccine. However, the Company will need to raise
additional funds from outside sources in order to complete future phases of FDA
required testing.
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.
F-20
ASTRALIS, LTD.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 12 - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Supplemental Disclosures
Cash Paid for Interest and Taxes $ 236
=======
Non-Cash Transactions
Intangible expenses paid by Members
on behalf of the Company $15,596
=======
The technology access option in the amount of $5,000,000 and services fees of
$3,000,000 were deducted from proceeds of preferred stock.
The Company received stock subscriptions during the year in the amount of
$1,350,000 which remained outstanding as of December 31, 2001.
The Company recorded a preferred stock dividend in the amount of $2,120,000 for
the beneficial conversion feature of the preferred stock issued.
NOTE 13 - SUBSEQUENT EVENTS
In January 2002, the Company agreed to amend a subscription agreement with one
of the investors who participated in the November 2001 private placement
offering. The Company consented to reduce the number of shares in the
subscription agreement by 50,000 shares of common stock. The Company cancelled
the respective shares and returned the corresponding amount of funds to the
investor amounting to $80,000.
In February 2002, the Company entered into a lease agreement for laboratory and
office space. The lease period is for three years and rent will be $77,500
annually. The Company also entered into a concurrent service agreement with the
lessor of the laboratory space on a time and materials basis.
As of March 11, 2002, the Company had not received payment on the initial
subscription notes receivable, which were due February 13, 2002 and amounted to
$850,000.
F-21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Certificate of Incorporation eliminates the personal liability of
directors to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of Delaware. In
addition, our Certificate of Incorporation includes provisions to indemnify our
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against those persons by reason of serving or having served
as officers directors or in other capacities to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware.
Our bylaws provide the power to indemnify our officers, directors,
employees and agents or any person serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise to the fullest extent permitted by Delaware law.
Under Delaware law, we may indemnify our officers and directors for
various expenses and damages resulting from their acting in those capacities.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
Expenses payable in connection with the issuance and distribution of the
securities being registered (estimated except in the case of the registration
fee) are as follows:
Amount
------
Registration Fee $ 483
Printing $7,500
Legal Fees and Expenses $ *
Accounting Fees and Expenses $ *
Transfer Agents and Registrars Fees $ *
TOTAL $ *
*To be added by amendment.
The above fees will be paid by our company and not by the Selling
Stockholders.
II-1
Item 26. Recent Sales of Unregistered Securities
On January 10, 2002 Messrs. Ajnsztajn, O'Daly and Liebhaber, who each
serve on our Board of Directors and who respectively serve as our Chief
Executive Officer, Chairman of the Board of Directors and President of Research
and Development, and Director of International Affairs, transferred respectively
175,000, 275,000 and 50,000 shares of our Common Stock owed by them to Manolo
Tarabay for consulting services rendered by Mr. Tarabay in connection with their
efforts to raise capital for our company. Messres. Ajnsztajn, O'Daly and
Liebhaber relied on the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933. They relied upon the fact that the transfer to Mr.
Tarabay did not constitute a public offering. No underwriter was used in
connection with the transfer.
We entered into a Purchase Agreement ("Purchase Agreement") dated as of
December 10, 2001 with SkyePharma PLC, a company incorporated under the laws of
England and Wales ("SkyePharma"). As of March 12, 2002, pursuant to the Purchase
Agreement, SkyePharma purchased 1,250,000 shares of our Series A Convertible
Preferred Stock, $.001 par value per share ("Preferred Stock"), at a purchase
price of $10.00 per share, or an aggregate purchase price of $12,500,000.
Pursuant to the Purchase Agreement, SkyePharma will make a total equity
investment in our company of up to $20,000,000. SkyePharma has agreed to
purchase for $7,500,000 an additional 750,000 shares of Preferred Stock in three
equal installments on April 30, 2002, July 31, 2002 and January 31, 2003. Each
share of Preferred Stock issued pursuant to the Purchase Agreement is
convertible into four shares of Common Stock at the option of SkyePharma
initially at a conversion rate of $2.50 per share of Common Stock. We relied on
the exemption from registration with the Securities and Exchange Commission
provided under Section 4(2) and Rule 506 of Regulation D under the Securities
Act of 1933. We relied on the fact that the offering was only made available to
"Accredited Investors" as defined in Rule 501 of Regulation D, the offering of
Preferred Stock pursuant to the Purchase Agreement was made available to less
than 35 purchasers as required by Rule 506(a)(2) of Regulation D and the
required number of manually executed originals and true copies of Form D were
duly and timely filed with the Securities and Exchange Commission. No
underwriter was used in connection with the offering.
During November of 2001, we completed a private placement offering (the
"Private Placement") pursuant to which we sold an aggregate of 2,076,179 shares
of our Common Stock and issued warrants to purchase an aggregate of 415,237
shares of its Common Stock, at an exercise price of $4.00 per share, for an
aggregate purchase price of $3,321,887. We relied on the exemption from
registration with the Securities and Exchange Commission provided under Section
4(2) of the Securities Act of 1933 and Rule 506 of Regulation D under the
Securities Act of 1933. We relied on the fact that the offering was only made
available to "Accredited Investors" as defined in Rule 501 of Regulation D, the
offering was made available to less than 35 purchasers as required by Rule
506(a)(2) of Regulation D and the required number of manually executed originals
and true copies of Form D were duly and timely filed with the Securities and
Exchange Commission. No underwriter was used in connection with the Private
Placement.
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On November 13, 2001, pursuant to the Contribution Agreement, dated as of
September 10, 2001, by and among us and the members of Astralis LLC, a New
Jersey limited liability company ("Astralis LLC"), the members of Astralis LLC
transferred all of their respective membership interests in Astralis LLC to us
in exchange (the "Exchange") for 28,000,000 shares of our Common Stock and
6,300,000 warrants to purchase Common Stock at an exercise price of $1.60 per
share. Pursuant to the Contribution Agreement, we cancelled 23,800,000 of the
23,820,000 shares of Common Stock owned by Mr. Shai Stern who served as our
Chief Executive Officer and sole director until his resignation, pursuant to the
Contribution Agreement, on November 13, 2001. No underwriters were used in
connection with the Exchange. We relied on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. We relied on the fact
that the Exchange did not constitute a public offering. No underwriter was used
in connection with the Exchange.
During October of 2001, we issued a promissory note of $50,000 to an
unrelated third party (the "Note"). The Note had a maturity date of November 13,
2001. We also issued to the lender 12,000 shares of Common Stock. The Note was
repaid out of the proceeds of the Private Placement. We relied on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933. We
relied upon the fact that our issuance of the Note did not constitute a public
securities offering. No underwriter was used in connection with the issuance of
the Note.
On September 1, 2001, Richard Genovese, David Stevenson, Grizzly
Consulting Ltd., Wolver Limited and Logarithmic, Inc. purchased units ("Units")
from Astralis LLC consisting of an aggregate of 2,700,000 membership interests
(the "Membership Interests") in Astralis LLC and 6,300,000 options to purchase
additional Membership Interests for a purchase price of $1.60 per Membership
Interest. The aggregate purchase price for such Units was $1,350,000. Pursuant
to the Contribution Agreement, on November 13, 2001 the Units were exchanged for
an aggregate of 2,700,000 shares of Common Stock and 6,300,000 warrants to
purchase Common Stock at an exercise price of $1.60 per share. Astralis LLC
relied on the exemption from registration with the Securities and Exchange
Commission provided under Section 3(b) of the Securities Act of 1933 and Rule
505 of Regulation D under the Securities Act of 1933. Astralis LLC relied on the
fact that the aggregate offering price for the Units did not exceed $5 million,
less the aggregate offering price for all securities sold within the twelve
months before the start of and during the offering in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of, the Securities Act of
1933, the offer to purchase Units was made available to under 35 purchasers and
the required number of manually executed originals and true copies of Form D
were duly and timely filed with the Securities and Exchange Commission. No
underwriter was used in connection with the sale of Units.
During April of 2001, we issued warrants to purchase 75,000 share of our
Common Stock at an exercise price of $1.75 per share in connection with a loan.
We relied on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. We relied upon the fact that our issuance of the
Promissory Notes did not constitute a public securities offering. No underwriter
was used in connection with the issuance of the Promissory Notes.
During the period from March 15 through April 26, 2000, we issued and sold
an aggregate of 750,000 shares (7,500,000 shares post stock dividend) of Common
Stock to a total
II-3
of fifty persons, all of whom are residents of the State of Colorado, for cash
consideration totaling $75,000. We made the sales in reliance upon the exemption
from registration with the U.S. Securities and Exchange Commission provided
under Section 3(b) of the Securities Act of 1933 and Rule 504 of Regulation D
under the Securities Act of 1933, and via registration by qualification with the
Colorado Division of Securities under Section 1151304 of the Colorado Uniform
Securities Act. Our Application for Registration by Qualification became
effective with the Colorado Division of Securities on March 15, 2000. No
underwriter was employed in connection with the offering and sale of the shares.
The facts that we relied upon to make the federal exemption available include,
among others, that: (i) the aggregate offering price for the offering of the
shares of Common Stock did not exceed $1,000,000, less the aggregate offering
price for all securities sold within the twelve months before the start of and
during the offering in reliance on any exemption under Section 3(b) of, or in
violation of Section 5(a) of, the Securities Act of 1933; (ii) the required
number of manually executed originals and true copies of Form D were duly and
timely filed with the Securities and Exchange Commission; (iii) we conducted no
general solicitation or advertising in connection with the offering of any of
the shares and (iv) at the time of the offering, we were not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act of 1934.
On June 30, 1999, we issued and sold 23,800,000 shares of Common Stock to
each of Messrs. J. Peter Garthwaite and Bradley A. Scott in consideration for
services performed by each individual in connection with our organization valued
at $119 in each case (a total of $238 at the rate of $.0001 per share). Messrs.
Garthwaite and Scott served as our President/Chief Executive Officer/Treasurer
and Secretary, respectively, and directors from the date of our inception on
June 30, 1999, until their voluntary resignations on February 28, 2001. Messrs.
Garthwaite and Scott sold their 2,380,000 shares of Common Stock representing
approximately 76% of our then 3,130,000 outstanding shares of Common Stock, to
Mr. Shai Stern, who served as our President, Chief Executive Officer and sole
director from February 28, 2001 until his resignation pursuant to the
Contribution Agreement on November 13, 2001. We relied, in connection with the
sales of the shares, upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933 and Section 1151308(1)(p) of the Colorado
Uniform Securities Act. We relied upon the fact that the issuance and sale of
the shares did not constitute a public securities offering together with the
fact that Messrs. Garthwaite and Scott were our executive officers, directors
and controlling stockholders at the time of the sales, to make the exemptions
available. No underwriter was used in connection with this transaction.
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Item 27. Exhibits
Exhibit Number Description
-------------- -----------
3.1 * Certificate of Incorporation of Astralis Ltd.
3.2 * Bylaws of Astarlis Ltd.
5.1 ** Opinion of McCarter & English, LLP
10.1 * Agreement and Plan of Merger
10.2 # Contribution Agreement dated September 10, 2001
10.3 ## Purchase Agreement dated December 10, 2001
10.4 ## Stockholder Agreement dated December 10, 2001
10.5 + 2001 Stock Option Plan
10.6 SubLease Agreement
10.7 License Agreement dated April 26,2001 between
Jose Antonio O'Daly and Astralis LLC
10.8 Assignment of License
10.9 Form of Warrant
16.2 ++ Letter of Cordovano and Harvey, P.C.
23.1 Consent of LJ Soldinger Associates Ltd.
23.2 Consent of McCarter & English, LLP (included in
Exhibit 5.1 to this Registration Statement)
* Previously filed with the Securities and Exchange Commission as an Exhibit to
the Preliminary Proxy Statement for Astralis Pharmaceuticals Ltd. on November
16, 2001.
** To be filed by amendment.
# Previously filed with the Securities and Exchange Commission as an Exhibit to
the Current Report on Form 8K for Astralis Pharmaceuticals Ltd. on November 14,
2001.
## Previously filed with the Securities and Exchange Commission as an Exhibit to
the Current Report on Form 8K for Astralis Ltd. on December 12, 2001.
+ Previously filed with the Securities and Exchange Commission as an Exhibit to
the Preliminary Proxy Statement for Hercules Development Group Inc. on October
14, 2001.
++ Previously filed with the Securities and Exchange Commission as an Exhibit to
the Current Report for Astralis Pharmaceuticals Ltd. on November 29, 2001.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
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(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing
II-6
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Florham
Park, State of New Jersey, on March 12, 2002.
ASTRALIS LTD.
By: /s/ Mike Ajnsztajn
-----------------------
Mike Ajnsztajn
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby constitutes
and appoints Mike Ajnsztajn and Gina Tedesco, or either of them, as such
person's true and lawful attorney-in-fact and agent with full power of
substitution for such person and in such person's name, place and stead, in any
and all capacities, to sign and to file with the Securities and Exchange
Commission, any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documents in connection
therewith, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or any substitute therefor, may lawfully
do or cause to be done by virtue thereof.
Signature Title Date
s/ Dr. Jose Antonio O'Daly
--------------------------- Chairman of the Board March 12, 2002
Dr. Jose Antonio O'Daly
s/ Mike Ajnsztajn
----------------------- Chief Executive Officer and March 12, 2002
Mike Ajnsztajn Director
(principal executive officer)
II-8
s/ Gina Tedesco
----------------------- Chief Financial Officer and March 12, 2002
Gina Tedesco Director
(principal financial and
accounting officer)
s/ Steven Fulda
----------------------- Director March 12, 2002
Steven Fulda
s/ Gaston Liebhuber
----------------------- Director March 12, 2002
Gaston Liebhuber
----------------------- Director March , 2002
Fabien Pictet
----------------------- Director March , 2002
Michael Ashton
II-9