U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended December 31, 2002

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from _____ to _____

                        Commission file number 000-30997

                                  ASTRALIS LTD.
                 (Name of small business issuer in its charter)

                    Delaware                                     84-1508866
         (State or other jurisdiction of                      (I.R.S. Employer
          Incorporation or organization)                     Identification No.)

    75 Passaic Avenue, Fairfield, New Jersey                        07004
    (Address of principal executive offices)                      (Zip Code)

                            Issuer's telephone number
                                 (973) 227-7168

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, $.0001 par value
                                (Title of class)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|

      Check whether discharge of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's

<PAGE>

knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
|_|

      State issuer's revenues for its most recent fiscal year. $0

      The aggregate market value of the voting and non-voting Common Stock held
by non-affiliates as of March 27, 2003, was approximately $ 5,146,465.

      As of March 27, 2003, there were 37,538,189 shares of Common Stock
outstanding.

      Transitional Small Business Disclosure Format (check one):

      Yes |_| No |X|

<PAGE>

                                     PART I

Item 1. Description of Business

General

      We are a development-stage biotechnology company, incorporated under the
laws of the State of Delaware and based in New Jersey, which primarily engages
in research and development of treatments for immune system disorders and skin
diseases. Our main office is located at 75 Passaic Avenue, Fairfield, New Jersey
07004.

      We were originally incorporated under the laws of the State of Colorado on
June 30, 1999 under the name "Hercules Development Group, Inc." and 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 between us on the one side and
Astralis, LLC, a New Jersey limited liability company formed on March 12, 2001
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, 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 members of Astralis, LLC 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. The officers and managers of Astralis, LLC
replaced them as our officers and directors.

      We accounted for this combination as a recapitalization. We were the legal
acquirer in the merger. Astralis, LLC was the accounting acquirer since its
members acquired a majority interest in our stock. Consequently, all historical
financial information prior to November of 2001 represent the operations of
Astralis, LLC.

      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.


                                       1
<PAGE>

Business of Astralis Ltd.

      We are primarily engaged in research and development of treatments for
immune system disorders and skin diseases. Our current activities focus on the
development of a product candidate named Psoraxine for the treatment of the skin
disease psoriasis. Currently, we are engaged in the following activities to
further our development efforts of our initial product candidate:

      o     Ongoing research and development of Psoraxine;

      o     Production of drug supply for use in clinical trials in the United
            States; and

      o     Doctor and site enrollment for clinical trials in the United States.

      Dr. William Abramovits of the Texas Dermatology Research Institute has
agreed to be our prinicipal investigator for our first clinical trials based in
the United States. We are currently engaged in negotiations with other possible
clinical sites to conduct additional U.S. based trials. In addition, we are
preparing documents in accordance with FDA Guidance Phase I/II for
Investigational New Drug Applications. These documents will likely include an
investigational plan, clinical protocols, manufacturing controls and an
investigator's brochure to obtain approval from the independent ethical review
board of the investigational site.

      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 remission of the plaque psoriasis lesion that
had been present on the patient's leg for the past 12 years. 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, preliminary clinical trials were undertaken
in Caracas, Venezuela during the eight year period from 1992 to 2000. During the
preliminary clinical trials, the prevalence of psoriasis was monitored using the
Psoriasis Area and Severity Index. The results of the preliminary clinical
trials yielded positive evidence of remission of psoriasis lesions. Of the 2,770
patients involved in the preliminary clinical trials, approximately 74% had
between 70% and 100% remission of psoriasis lesions as compared with initial
PASI values. We have not sought, nor have we obtained, regulatory approval for
the commercialization of Psoraxine in Venezuela because, among other things, we
do not have the financial resources to acquire manufacturing facilities in that
country and such facilities are required by regulatory authorities in Venezuela
before granting commercial approval for a proposed drug. We do, however, have
the approval of regulatory authorities in Venezuela to continue clinical trials
of Psoraxine in the country. We are now seeking approval for Psoraxine from the
United States Food and Drug Administration,


                                       2
<PAGE>

which is a necessary and critical step toward the commercialization of
Psoraxine. The FDA requires disclosure of previous human clinical trials in any
application seeking FDA approval of a new drug. Therefore, we will use data from
our clinical trials in Venezuela to support our attempt to obtain FDA approval.

      Representatives of Astralis, LLC sent a briefing document to the FDA and
held pre-Investigational New Drug conference calls with representatives of the
FDA to review the clinical results of Dr. O'Daly's work with Psoraxine in
Venezuela. On March 28, 2003, we filed an Investigational New Drug application
with the FDA to conduct Phase I.B studies of Psoraxine. The purpose of Phase I.B
studies is to test the safety of a drug and determine appropriate dosage ranges
in patients suffering with the disease or condition that the product is intended
to treat. Phase I.B studies would involve the administration of dosages of
Psoraxine in a controlled setting to groups of volunteers. 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. During the fiscal year ended December 31, 2002, we spent
approximately $7,761,542 on research and development activities. From March 12,
2001, which was the date of our inception, through December 31, 2001, we spent
approximately $3,231,775 on research and development activities. See "Government
Regulation".

Patient Populations

      According to the National Psoriasis Foundation, 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 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 National Psoriasis Foundation, 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.


                                       3
<PAGE>

      Psoriasis is a chronic illness that, in many cases, requires continuous
treatment. Patients with psoriasis often pay for costly medications and face
ongoing visits with physicians. 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.

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 the failure to
prevent frequent relapses.

Competition and Psoriasis Treatments in Development

      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 disease as Psoraxine. The
National Psoriasis Foundation has identified not less than 41 treatments under
development which are in various stages of the FDA approval process, including
several of which are in the final phase of clinical trials in humans required by
the FDA approval process. In addition, on January 31, 2003, Biogen announced
that the U.S. Food and Drug Administration approved its product, Amevive(R)
(alefacept) to treat moderate-to-severe chronic plaque psoriasis in adult
patients who are candidates for systemic therapy or phototherapy. This is the
first biologic medicine approved to treat psoriasis. If we succeed in obtaining
FDA approval of Psoraxine, Amevive may compete directly with our product. In
addition to Biogen, our competitors may include Amgen, Genentech, SmithKline
Beecham, Protein Design Labs, Ligand Pharmaceuticals, Schering-Plough, Pfizer
and Novartis. 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.


                                       4
<PAGE>

      Developments by others may render our product obsolete or noncompetitive.
We will face intense competition from other companies for collaborative
arrangements with 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:

o     preclinical laboratory and animal tests;

o     submission of an Investigational New Drug application, which must become
      effective before clinical trials may begin;

o     adequate and well controlled human clinical trials to establish the safety
      and efficacy of the proposed drug for its intended use; and

o     FDA approval of a new drug application or biologics license application.

      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, a company must submit an Investigational New Drug
application to the FDA. On March 28, 2003, we filed our Investigational New Drug
application with the FDA. The Investigational New Drug 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 Investigational New Drug sponsor and the FDA must resolve
any outstanding concerns before the clinical trial can begin. Our submission of
an Investigational New Drug application may not result in FDA authorization to
commence a clinical trial. Further, an independent institutional review board
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


                                       5
<PAGE>

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 new drug application or biologics
license application. The FDA may deny a new drug application or biologics
license application if the applicable regulatory criteria are not satisfied or
may require additional clinical data. Even if such data is submitted, the FDA
may ultimately decide that the new drug application or biologics license
application 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 receives 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, registration procedures are
available to


                                       6
<PAGE>

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. To date, we have obtained regulatory approval for clinical
testing of Psoraxine in Venezuela, but we have not obtained final regulatory
approval for the manufacture and commercial distribution of Psoraxine in
Venezuela.

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. The patent application
process may take up to two years to complete. Pursuant to a License Agreement
dated as of April 26, 2001 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, by and between Astralis, LLC and us,
Astralis, LLC assigned to us all of its rights under the License Agreement. Dr.
O'Daly has not assigned the patent application to us and he will continue to
maintain ownership rights thereto.

      We filed a petition for special status of the patent application in order
to obtain expedited review. On February 8, 2002, the United States Patent and
Trademark Office granted special status for the patent application. On March 4,
2002, we also filed an application to obtain patent protection internationally
under the Patent Cooperation Treaty. Both applications are currently pending.

      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 the ability of Dr. O'Daly to obtain the
patent for Psoraxine, and our ability to 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.

Agreements with SkyePharma

      We entered into a Purchase Agreement dated as of December 10, 2001 with
SkyePharma PLC, a company incorporated under the laws of England and Wales.
Pursuant to the Purchase Agreement, as of December 31, 2002, SkyePharma
purchased 1,750,000 shares of our Series A Convertible Preferred Stock, par
value $.001 per share, at a purchase price of $10.00 per share,


                                       7
<PAGE>

or an aggregate purchase price of $17.5 million. The Purchase Agreement provides
that SkyePharma would make a total equity investment of $20 million. The
remaining $2.5 million investment involved the sale of an additional 250,000
shares of preferred stock to SkyePharma on January 31, 2003. Each share of
preferred stock issued pursuant to the Purchase Agreement was initially
convertible into four shares of common stock at the option of SkyePharma at a
conversion price of $2.50 per share of common stock. The conversion price is
subject to multiple adjustments for three years from the date of the Purchase
Agreement depending on our stock price maintaining certain levels. The
conversion price is also subject to anti-dilution protection. However, the
conversion ratio will not adjust to a level greater than approximately 50 shares
of common stock for each share of preferred stock (conversion price of $0.20).
On December 10, 2002, the conversion price was reset to $1.60 per share of
common stock. As a result of the Purchase Agreement, SkyePharma is the
beneficial owner of 25.41% 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 66.07% 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 and, once
SkyePharma no longer owns its preferred stock, to elect a nominee designated 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.

      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 Option Agreement, dated
December 10, 2001, we paid to SkyePharma a $5 million fee for the option to
acquire a license for DepoFoam and other relevant drug delivery technologies
owned by SkyePharma. SkyePharma owns over twenty patents for the drug delivery
technologies in several countries, including the United States, Japan,
Australia, New Zealand and Canada. The majority of these patents will continue
in force until 2014. Under the terms of the Technology Access Option Agreement,
if we exercise our option, we must pay a royalty of 5% of net sales of all
products manufactured or sold that use or exploit the drug delivery technologies
that we license from SkyePharma. In addition, if we exercise our option,
SkyePharma retains the right during the term of the Technology Access Option
Agreement to undertake the manufacture of all of our products that incorporate
or utilize the drug delivery technologies. The option we received under the
Technology Access Option Agreement expires on December 10, 2008. The Technology
Access Option Agreement may be terminated by either party if (i) the other party
commits any irremediable breach of the agreement, (ii) the other party commits
any remediable breach and fails to remedy such breach within sixty days of
service of notice of the breach, (iii) a court makes an administration order
with respect to the other party or any composition in satisfaction of the debts
of, or scheme of arrangement of the affairs of, the other party, or (iv) the
other party becomes insolvent, has a receiver appointed over any of its assets,
enters into any composition with creditors generally or has an order made or
resolution passed for it to be wound up.


                                       8
<PAGE>

      In addition, we entered into a Service Agreement, dated December 10, 2001,
pursuant to which SkyePharma will provide us with 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
during 2002 for second generation Psoraxine. The Service Agreement terminated on
December 31, 2002. We have entered into an Amendment to the Service Agreement
with SkyePharma, effective as of January 1, 2003, to extend the term of the
Service Agreement and modify the services to be provided by SkyePharma such that
SkyePharma will continue to provide certain services to us through December 31,
2004 in consideration for payments made during 2002. In addition, the amendment
sets forth milestones expected to be reached during the twenty-four month period
following January 1, 2003 with respect to which prior payments will also be
credited.

      SkyePharma has the right of first negotiation 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.

Other Research and Development Efforts

      We are developing a second product for the treatment of leishmaniasis.
Since leishmaniasis is not prevalent in the United States, we intend to market
this product primarily in other countries. We have not named this product yet
and we do not have any approvals from, nor has any application been filed with,
the FDA or any foreign governmental regulatory authority for this product.
Currently, we do not have any collaborators for this product. However, our
Technology Access Option Agreement permits us to use the technology we may
license from SkyePharma for our leishmaniasis treatment. We are also engaged in
preliminary research of treatments for rheumatoid arthritis, severe dermatitis,
papilomas, hiperkeratosis, melanomas, prostate enlargement and Chagas disease.

Employees

      As of December 31, 2002, we employed 8 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.

Forward-Looking Statements

      This annual report on Form 10-KSB 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 or Plan of
Operation", as well as any other cautionary language in this annual report,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in the "Risk Factors" section,
the "Management's Discussion and Analysis of


                                       9
<PAGE>

Financial Condition or Plan of Operation" section and elsewhere in this annual
report could seriously harm our business.

Risk Factors

      We Have No Sales, We Will Not Have Sales In The Foreseeable Future, We Are
In An Early Stage of Development And We May Never Sell Products Or Become
Profitable.

      We commenced our current operations in 2001 and such operations remain in
an early stage of development. We have no products approved for sale and
therefore, no means to generate revenue. We have not commercialized any
products, had no revenues and had incurred a net loss of approximately
$18,388,998 as of December 31, 2002 which has increased to date. We expect that
substantial losses will continue for the foreseeable future. In order 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. Commercialization of any of our products will
take a significant amount of time and successful commercialization may not occur
at all. As a result, we may never become profitable.

      We Will Need To Obtain Additional Funds To Support Our Future Operation
Expenses. Our Auditors Have Expressed Uncertainty Regarding Our Ability To
Continue As A Going Concern.

      Based on our current plans, we believe that we currently have sufficient
funds to meet our operating expenses and capital requirements through
approximately the third quarter of 2003. We will need additional funds to
continue our operations following that period. Furthermore, substantial
additional funds will be needed in order to fund our continued efforts to obtain
FDA approval of Psoraxine. No assurance can be given that we will be able to
obtain financing, or successfully sell assets or stock, or, even if such
transactions are possible, that they will be on terms reasonable to us or that
they will enable us to satisfy our cash requirements. In addition, raising
additional funds by selling additional shares of our capital stock will dilute
the ownership interest of our stockholders. If we do not obtain additional
funds, we will likely be required to eliminate programs, delay development of
our products, alter our business plans, or in the extreme situation, cease
operations.

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

      We May Not Be Successful In The Development And Commercialization Of
Products.

      We may not develop products that prove to be safe and effective, that meet
applicable regulatory standards or that we can manufacture at reasonable costs
or market successfully.


                                       10
<PAGE>

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

      The Development Of Our Initial Product Remains In An Early Stage Of
Development And Substantial Additional Funds And Effort Will Be Necessary For
Further Development And Commercialization.

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

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

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

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

o     slower than expected rate of patient recruitment;

o     unforeseen safety issues; or

o     government or regulatory delays.

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

      Our Potential Therapeutic Products Face A Lengthy And Uncertain Regulatory
Process. If We Do Not Obtain Regulatory Approval Of Our Potential Products, We
Will Not Be Able To Commercialize These Products.


                                       11
<PAGE>

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

      Because our initial product candidate, Psoraxine, involves the application
of new technologies and may be used upon new therapeutic approaches, government
regulatory authorities may subject this product to more rigorous review and may
grant regulatory approvals more slowly for this product than for products using
more conventional technologies. We have not conducted any clinical trials for
Psoraxine in the United States, nor have we received approval from 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. To date, although we have obtained regulatory approval for
clinical testing of Psoraxine in Venezuela, we have not obtained final
regulatory approval for the manufacture or commercial distribution of Psoraxine
in Venezuela.

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

      We Are Exposed To International Risks As A Result Of Our Conduct Of
Clinical Studies In Venezuela.

      We are continuing clinical trials of Psoraxine in Venezuela. During recent
months, Venezuela has suffered from political instability and popular unrest. As
a result, at times, participants in our clinical trials were unable to reach the
facilities where our studies are conducted. This may have impaired the results
of our studies. Since the FDA requires that we report all studies conducted on
human subjects, in the event our Investigational New Drug application is
approved, we must include our Venezuela studies as previous human experience in
our annual reporting to the FDA. This data will be used only as supporting
information and will not likely increase the chance of faster FDA approval of
Psoraxine.

      Even If Product Candidates Emerge Successfully From Clinical Trials, We
May Not Be Able To Successfully Manufacture, Market And Sell Them.


                                       12
<PAGE>

      We have not completed development of our initial product candidate,
Psoraxine, and we have not received approval for its use in clinical trials in
the United States. 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 or sell our products on a
commercial scale. In order 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 development, manufacturing, pre-clinical and
clinical development services for Psoraxine until December 31, 2004. However, we
do not currently have a written agreement covering any period after December 31,
2004 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.

      We License And Do Not Own Our Intellectual Property. Any Inability To
Protect Our Proprietary Technologies Adequately Could Harm Our Competitive
Position.

      Dr. Jose Antonio O'Daly has filed a patent application for Psoraxine, and
under the terms of a license agreement and assignment of license agreement, we
have the right to use any patent issued pursuant to that application. We
license, and do not own, the intellectual property rights to Psoraxine. In
addition, 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.

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


                                       13
<PAGE>

management in defending the patent. In addition, we do not control the patent
prosecution of technology that we license from others. Accordingly, we cannot
exercise the same degree of control over this intellectual property as we would
over technology we own.

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

      Many Potential Competitors Which Have Greater Resources And Experience
Than We Do May Develop Products And Technologies That Make Ours Obsolete.

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

      We face, and will continue to face, intense competition from organizations
such as large biotechnology and pharmaceutical companies, as well as academic
and research institutions and government agencies. Our competitors may include
Biogen, Amgen, Genentech, SmithKline Beecham, Protein Design Labs, Ligand
Pharmaceuticals, Schering-Plough, Pfizer and Novartis. These organizations may
develop technologies that provide superior alternatives to our technologies.
Further, our competitors may be more effective at implementing their
technologies to develop commercial products.

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

      If We Lose Our Key Personnel Or Fail To Attract And Retain Additional
Personnel, We May Be Unable To Discover And Develop Our Products.

      We depend on the services of Dr. Jose Antonio O'Daly, the 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 can successfully attract and retain
qualified personnel, we face intense competition for experienced scientists.
Failure to attract and retain skilled personnel would


                                       14
<PAGE>

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 sufficiently cover any claims made against us. Clinical trial liability
insurance may be 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 consuming the
time and attention of our management. Law suits for any injuries caused by our
products may result in liabilities that exceed our total assets.

      Some Of Our Existing Stockholders Can Exert Control Over Us And May Not
Make Decisions That Further The Best Interests Of All Stockholders.

      Our officers, directors and principal stockholders (greater that 5%
stockholders) together control approximately 75.75% of our outstanding common
stock. In addition, as a result of the application of certain preferred stock
adjustment rights, SkyePharma's percentage ownership may increase substantially
from its current 25.41% and may result in it having control of the company. As a
result, these stockholders, if they act individually or together, may exert a
significant degree of influence over our management and affairs and over matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change in control of us and might affect the
market price of our 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 will likely continue to
be highly volatile. From the date trading of our common stock commenced until
March 27, 2003, the range of our stock price has been between $0.22 and $7.15.
Factors including announcements of technological innovations by us or other
companies, regulatory matters, new or existing products or procedures, concerns
about our financial position, operating results, government regulation,
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


                                       15
<PAGE>

shares of common stock by stockholders and by us could have an adverse effect on
the price of our common stock.

      A Large Number Of Shares Of Our Common Stock May Be Sold In The Market,
Which May Depress The Market Price Of Our Common Stock.

      Sales of substantial amounts of our common stock in the public market, or
the perception that these sales might occur, could materially and adversely
affect the market price of our common stock or our future ability to raise
capital through an offering of our equity securities. We have an aggregate of
37,538,189 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
at the current conversion price of $1.60, there will be approximately 57,233,416
shares of common stock outstanding. The conversion price of preferred stock may
be further adjusted through 2004, increasing substantially the number of shares
of common stock that may be outstanding. Of the outstanding shares, up to
13,163,114 shares are freely tradable without restriction or further
registration under the Securities Act, unless the shares are held by one of our
"affiliates" as such term is defined in Rule 144 of the Securities Act. The
remaining shares may be sold only pursuant to a registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act. The sale and distribution of these shares may cause a decline in
the market price of our common stock.

      Our Common Stock Qualifies As A "Penny Stock" Under SEC Rules Which May
Make It More Difficult For Our Stockholders To Resell Their Shares Of Our Common
Stock.

      Our common stock trades on the 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 does not trade on a stock
exchange or on the Nasdaq National Market or the Nasdaq Small-Cap Market, and
the market price of the common stock is less than $5.00 per share, the common
stock qualifies as a "penny stock." SEC Rule 15g-9 under the Securities Exchange
Act of 1934 imposes additional sales practice requirements on broker-dealers
that recommend the purchase or sale of penny stocks to persons other than those
who qualify as an "established customer" or an "accredited investor." This
includes the requirement that a broker-dealer must make a determination on the
appropriateness of investments in penny stocks for the customer and must make
special disclosures to the customer concerning the risks of penny stocks.
Application of the penny stock rules to our common stock could adversely affect
the market liquidity of the shares, which in turn may affect the ability of
holders of our common stock to resell the stock.

Item 2. Description of Property

      We lease our executive offices and research laboratory located at 75
Passaic Avenue, Fairfield, New Jersey 07004. The yearly rent for such office and
laboratory space is $77,500. We previously conducted research at Centro Para La
Investigacion y Tratamiento De La Psoriasis, Avenue Las Gencias Calle Codazzi
Urb. Los Chaguaramos, Caracas, Venezuela.

Item 3. Legal Proceedings


                                       16
<PAGE>

      Neither we, nor any of our properties, are presently a party to any
material legal proceeding, nor, to our knowledge, is any such proceeding
threatened against us or any of our properties.

                                     PART II

Item 5. Market For Common Equity and Related Stockholder Matters

Market Information

      Our common stock is traded on the 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
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. We began trading our common
stock in March 2001.

                                            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
Second Quarter                             $3.35                     $0.91
Third Quarter                              $1.06                     $0.32
Fourth Quarter                             $0.66                     $0.22

----------
*     After stock split

Holders of Common Stock

      As of March 27, 2003, there were approximately 2,862 holders of record of
our common stock.

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


                                       17
<PAGE>

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 our 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.

      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.

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 owned by them to Manolo
Tarabay for consulting services rendered by Mr. Tarabay in connection with their
efforts to raise capital for our company. Messrs. 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 dated as of December 10, 2001 with
SkyePharma PLC, a company incorporated under the laws of England and Wales.
Pursuant to the Purchase Agreement, as of December 31, 2002, SkyePharma
purchased 1,750,000 shares of our Series A Convertible Preferred Stock, par
value $.001 per share, at a purchase price of $10.00 per share, or an aggregate
purchase price of $17.5 million. The Purchase Agreement provides that SkyePharma
would make a total equity investment of $20 million. The remaining $2.5 million
investment involved the sale of an additional 250,000 shares of preferred stock
to SkyePharma on January 31, 2002. Each share of preferred stock issued pursuant
to the Purchase Agreement was initially convertible into four shares of common
stock at the option of SkyePharma at a conversion price of $2.50 per share of
common stock (an aggregate of 8 million shares of common stock). The conversion
price is subject to multiple adjustments for three years from the date of the
Purchase Agreement depending on our stock price maintaining certain levels. The
conversion price is also subject to anti-dilution protection. However, the
conversion price will not adjust to a level greater than approximately 50 shares
of common stock for each share of preferred stock (an equivalent conversion
price of $0.20 per share). On December 10, 2001, the conversion price was reset
to $1.60 per share of common stock (convertible into an aggregate of 12,500,000
shares 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.


                                       18
<PAGE>

      During November of 2001, we completed a private placement offering
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 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.

      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, the members of Astralis, LLC, 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 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 this
transaction. We relied on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933. We relied on the fact that this transaction
did not constitute a public offering.

      During October of 2001, we issued a promissory note of $50,000 to Michael
Garnick. The promissory note had a maturity date of November 13, 2001. We also
issued to the lender 12,000 shares of common stock. The promissory 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 promissory note did not constitute
a public securities offering. No underwriter was used in connection with the
issuance of the promissory note.

      On September 1, 2001, Richard Genovese, David Stevenson, Grizzly
Consulting Ltd., Wolver Limited and Logarithmic, Inc. purchased units from
Astralis, LLC consisting of an aggregate of 2,700,000 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


                                       19
<PAGE>

Act of 1933, the offer to purchase the 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 the 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
warrants did not constitute a public securities offering. No underwriter was
used in connection with the issuance of the warrants.

      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 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 11-51-304
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
sale of the shares, upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933 and Section 11-51-308(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


                                       20
<PAGE>

controlling stockholders at the time of the sales, to make the exemptions
available. No underwriter was used in connection with this transaction.

Item 6. Management's Discussion and Analysis of Financial Condition or Plan of
Operation

      The following discussion of our financial condition and plan of operation
should be read in conjunction with our financial statements and the related
notes included elsewhere in this annual report on Form 10-KSB. This annual
report contains certain statements of a forward-looking nature relating to
future events or our future financial performance. We caution prospective
investors that such statements involve risks and uncertainties, and that actual
events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this annual report, including the matters set forth under the
caption "Risk Factors" which could cause actual results to differ materially
from those indicated by such forward-looking statements. We disclaim any
obligation to update information contained in any forward-looking statement.

Overview

      We were formerly named Astralis Pharmaceuticals Ltd. and Hercules
Development Group, Inc., 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 prior to November 2001 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.

      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 acquirer, Astralis, LLC. In effect
the merged company was recapitalized and its stockholders' equity reflects the
capital structure of the legal entity (Astralis Ltd.) and the retained earnings
of Astralis, LLC. Pro forma 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.

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


                                       21
<PAGE>

      o     Ongoing research and development of Psoraxine;

      o     Production of drug supply for use in clinical trials in the United
            States; and

      o     Doctor and site enrollment for clinical trials in the United States.

Fiscal year ended December 31, 2002 compared to the period from March 12, 2001
(date of inception) through December 31, 2001

For fiscal year ended December 31, 2002:

      In 2002, we sold to SkyePharma pursuant to a Purchase Agreement dated
December 10, 2001, an aggregate of 750,000 shares of our Series A Convertible
Preferred Stock, par value $.001 per share at a purchase price of $10.00 per
share, for an aggregate purchase price of $7,500,000. We received net proceeds
of approximately $5,505,000 from this placement after we netted out from the
proceeds $1,995,000 due to SkyePharma for services they provided under our
Service Agreement with them which were treated as an expense at the time of
payment.

      For the fiscal year ended December 31, 2002, we had no revenue and
incurred operating expenses of $9,151,521 which consisted primarily of:

      o     Research and development costs of $7,761,542, including $5,985,000
            that was paid to SkyePharma for services provided under our Service
            Agreement with them and amortization of approximately $714,288 under
            our technology option license which is being amortized over a seven
            year period.

      o     General and administrative costs of approximately $1,374,251,
            including professional fees and our general corporate expenditures.

      We also had a non-cash preferred stock dividend in April of 2002 in the
amount of $270,000. The April 30, 2002 sale of convertible preferred stock to
SkyePharma had a conversion rate to our common stock which was lower than the
market price of our common stock on that date. Therefore, under the requirements
of Emerging Issues Task Force No. 98-5 "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios", the issuance of this preferred stock with a beneficial conversion
feature resulted in a preferred stock dividend.

      We recorded an additional preferred stock dividend in December of 2002 in
the amount of $9,078,750. The contingent beneficial conversion feature arose for
the reset of the conversion price of our preferred stock on December 10, 2002
from $2.50 per share of preferred stock to $1.60 per share. EITF No. 98-5 and
EITF No. 00-27 "Application of Issue No. 98-5 to Certain Convertible
Instruments" required that we record this preferred stock dividend.

      As a result, during the fiscal year ended December 31, 2002, we incurred a
net loss of $18,388,998.


                                       22
<PAGE>

      In March 2003, we amended our Service Agreement with SkyePharma, effective
as of January 1, 2003, to extend the term of the agreement and modify the
services to be provided by SkyePharma. The amended service agreement provides
that, in consideration for payments we previously made to SkyePharma, it will
continue to provide services to us through December 31, 2004. Consequently, as
of December 31, 2002, we recorded a prepaid expense in the amount of $1,995,000
which was a portion of what we paid to SkyePharma during 2002 in connection with
the Service Agreement. This prepaid amount will be expensed during the remaining
period of the amended service agreement.

For the period March 12, 2001 (date of inception) through December 31, 2001:

      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 under the following agreements:

      o     Under the Contribution Agreement dated September 10, 2001, Richard
            Genovese, David Stevenson, Grizzly Consulting Ltd., Wolver Limited
            and Logarithmic, Inc. purchased units from Astralis, LLC consisting
            of an aggregate of 2,700,000 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. The aggregate purchase price for such units was $1,350,000
            and was paid with subscription notes. 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
            subscription notes were 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 share 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:

            o     $5,000,000 payment due to SkyePharma in connection with our
                  purchase of the technology option license from SkyePharma,


                                       23
<PAGE>

            o     $3,000,000 payment due to SkyePharma for services they
                  provided under our Service Agreement with them which was
                  expensed at the time of payment, and

            o     offering costs of approximately $50,000.

      During the period March 12, 2001 (inception) through December 31, 2001, we
incurred operating expenses of $4,084,619 which consisted primarily of:

      o     Research and development costs of $3,231,775, including $3,000,000
            that was paid to SkyePharma 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.

      o     General and administrative costs of 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
$2,120,000. This resulted from our December 10, 2001 sale of preferred stock to
SkyePharma 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.

The Next Twelve Months

      At December 31, 2002 we had cash balances of $227,193 and marketable
securities of $1,207,179.

      In January 2003, pursuant to the Purchase Agreement, we sold 250,000
shares of our Series A Convertible Preferred Stock to SkyePharma for an
aggregate purchase price of $2,500,000. We received net proceeds of $2,480,000
after we netted out from the proceeds $20,000 due to SkyePharma in connection
with the Service Agreement.

      We anticipate collecting our subscription notes receivable. These
subscription notes receivable were originally due in two installments during
2002. We did not receive the installment payments. We entered into a payment
plan agreement with the note holders of the subscription notes receivable. The
note holders agreed to make a $200,000 initial payment and make payments of
$150,000 per month from July 2002 until January 2003 and a payment of $100,000
in February 2003. As of December 31, 2002, the note holders failed to make
scheduled payments in the aggregate amount of $635,000 and the aggregate
outstanding balance was $885,000.

      Based on our current operating plan, we anticipate conducting the
following activities and using our cash over the course of the next twelve
months as follows:


                                       24
<PAGE>

      Our primary focus is to further our development efforts of our initial
      product candidate, Psoraxine. Upon receiving approval of our
      Investigational New Drug application, we will conduct clinical trials in
      the process of obtaining FDA approval of Psoraxine. We will maintain
      ongoing research and development of Psoraxine. We will expend
      approximately $ 2,800,000 in connection with these activities.

      o     We intend to implement our business plan and facilitate the
            operations of our company. We will spend approximately $800,000 to
            pay management salaries and salaries of employees.

      o     We also expect to expend approximately $1,100,000 million for our
            public relations, general administrative and working capital
            requirements.

      We will need to raise additional funds to continue our operations for the
period following the third quarter of 2003. Furthermore, substantial additional
funds will be needed in order to fund our continued efforts to obtain FDA
approval of Psoraxine. No assurance can be given that we will be able to obtain
financing, or successfully sell assets or stock, or, even if such transactions
are possible, that they will be on terms reasonable to us or that they will
enable us to satisfy our cash requirements. In addition, raising additional
funds by selling additional shares of our capital stock will dilute the
ownership interest of our stockholders. If we do not obtain additional funds, we
will likely be required to eliminate programs, delay development of our
products, or in the extreme situation, cease operations.

Item 7. Financial Statements

      The financial statements required by this Item 7 are listed in Item 13 and
begin at page F-1 of this annual report.

Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

      As more fully set forth in our annual report on Form 10-KSB filed with the
Securities and Exchange Commission on April 1, 2002, we dismissed Cordovano and
Harvey, P.C. as our independent auditor, effective November 28, 2001 and engaged
L J Soldinger Associates Ltd. as our new independent auditor, effective November
2, 2001.


                                       25
<PAGE>

                                    PART III

Item 9. Executive Officers and Directors; Compliance With Section 16(a) of the
Exchange Act.

Executive Officers and Directors

      The names, ages and positions of our current directors and executive
officers are as follows:

<TABLE>
<CAPTION>
Name                                    Age         Position
<S>                                     <C>         <C>
Jose Antonio O'Daly, MD, PhD            61          Chairman of the Board of Directors; President of
                                                    Research and Development

Mike Ajnsztajn                          38          Chief Executive Officer; Director

Gaston Liebhaber                        68          Director of International Affairs; Director

Gina Tedesco                            39          Chief Financial Officer; Director

Michael Aston                           57          Director

Steven Fulda                            70          Director

Fabien Pictet                           44          Director

James Leyden, MD                        62          Chairman, Medical Advisory Board

Bruce Epstein                           39          Marketing Affairs Director
</TABLE>

      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
<PAGE>

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 sole founder of Center for Research and Treatment for
Psoriasis in Caracas, Venezuela and has served as its president since 1998. From
1972 to 1998, Dr. O'Daly served as Director and Head of Research of the
Microbiology Center of the Venezuelan Institute of Scientific Investigations.
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. From 1986 to 1992, Mr. Ajnsztajn worked for
Rhone Poulenc as both an Export Manager for the Far East based in France, and as
the Marketing Director in China. From 1992 to 2001, Mr. Ajnsztajn was the
president of Blowtex, a Brazilian condom manufacturer. 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. Since 1982, Mr.
Liebhaber has served as the Managing Director of Latin America of Sankyo
Pharmaceutical, the largest Japanese pharmaceutical company, based in Venezuela.
Since 1987, Mr. Liebhaber also has served on the Board of Directors 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 a
co-founder of Opus International and has served as its President since 1997. Ms.
Tedesco has extensive experience in the pharmaceutical industry and in all
aspects of finance and business planning. From 1989 to 1996, Ms. Tedesco held
various positions with Rhone Poulenc ranging from controller for the European
pharmaceutical subsidiaries to Director of Finance and Investor Relations for a
Brazilian subsidiary. Ms. Tedesco earned a MBA from George Washington University
in International Business.

Michael Ashton. Mr. Ashton has served as one of our directors since January 31,
2002. Since 1977, Mr. Ashton has been employed by SkyePharma PLC, a London based
drug delivery technology provider. Since 1999, Mr. Ashton has served as the
Chief Executive Officer of SkyePharma PLC. Mr. Ashton is a member of the board
of directors of Transition Inc. Mr. Ashton has thirty years of experience in the
pharmaceutical industry.


                                       27
<PAGE>

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. Since 1989, Mr. Fulda has served as
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. Since 1992, Mr. Fulda has been
an Adjunct 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. Since 1998, Mr. Pictet has served as
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, from
1986 to 1997, 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 has been a Professor of Dermatology at
the Hospital of the University of Pennsylvania in Philadelphia since 1983. 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. Since 2000, Mr. Epstein has served as 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. From 1996 to 2000, Mr. Epstein worked at Klemtner
Advertising, the healthcare division of Saatchi and Saatchi. From 1986 to 1996,
Mr. Epstein worked 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
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors and persons who own more than 10% of our
common stock ("Reporting Persons") to file reports of ownership and changes in
ownership with the SEC. Reporting Persons are required by SEC regulations to
furnish us with copies of all Section 16(a) forms they file.

      Based solely on our review of the copies of such forms received or written
representations from Reporting Persons, we believe that with respect to the
fiscal year ended December 31, 2002, all the Reporting Persons complied with all
applicable filing requirements.

Item 10. 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 any other executive officer who received
compensation greater than $100,000 during any of the last three fiscal years.

                           Summary Compensation Table

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                              Annual Compensation
------------------------------------------------------------------------------------------------------

                                                                                    Other Annual
                                                               Salary               Compensation
      Name and Principal Position         Year                   ($)                    ($)
------------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>                   <C>
Mike Ajnsztajn,                           2002                 150,000               4,613 (3)
Chief Executive Officer (1)               ------------------------------------------------------------
                                          2001                  81,164                  --
======================================================================================================
Jose Antonio O'Daly,                      2002                 150,000               56,671 (4)
Chairman of the Board of Directors and
President of Research and Development     ------------------------------------------------------------
(2)                                       2001                 63,500                   --
======================================================================================================
</TABLE>

----------
(1) Mr. Ajnsztajn became our Chief Executive Officer on November 13, 2001.

(2) Dr. O'Daly became one of our employees on July 1, 2002. Prior to July 1,
2002, Dr. O'Daly provided services as a consultant to the company.

(3) For the fiscal year ended December 31, 2002, this amount includes $4,613 in
health insurance premiums paid by us for Mr. Ajnsztajn's benefit.


                                       29
<PAGE>

(4) For the fiscal year ended December 31, 2002, this amount includes $9,929 in
health insurance premiums paid by us for Dr. O'Daly's benefit, an automobile
allowance of $5,729 and $41,013 for a furnished apartment.

2001 Stock Option Plan

      Our 2001 Stock Option Plan ("2001 Plan") was unanimously adopted by the
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 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, 2002, options
to purchase 315,000 shares of common stock have been granted under the 2001
Plan. On March 24, 2003, our Board of Directors approved a grant to Steven Fulda
of options to purchase 50,000 shares of common stock effective April 2, 2003, at
an exercise price equal to the fair market value of our common stock on such
date.

      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 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, ours 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 Code
(currently Section 424(d)), stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "10%
Shareholder") 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 be determined in accordance with the applicable provisions
of the Code and shall in no 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% Shareholder 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% Shareholder 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.


                                       30
<PAGE>

      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
Exchange Act, 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 shareholder approval
unless (i) shareholder approval is required to preserve incentive stock option
treatment for federal income tax purposes or (ii) the Board of Directors
otherwise concludes that shareholder approval is advisable.

Compensation of Directors

      Our directors do not receive compensation pursuant to any standard
arrangement for their services as directors. We reimburse all outside directors
for travel and lodging expenses related to scheduled Board meetings. During the
fiscal year ended December 31, 2002, we paid $1,000 to each outside director for
each Board meeting attended and paid an additional $4,500 to each member of 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. The O'Daly Employment Agreement does not contain
any change of control provisions. None of our other executive officers receive
compensation pursuant to any standard arrangement for their services as
executive officers.

Item 11. Security Ownership of Certain Beneficial Owners and Management


                                       31
<PAGE>

      The following table sets forth the names and beneficial ownership of our
common stock owned as of March 27, 2003, by (i) each of our directors, (ii) each
person named in the Summary Compensation Table, (iii) all our directors and
executive officers as a group, and, to the best of our knowledge, (iv) all
holders of 5% or more of the outstanding shares of our common stock. Unless
otherwise noted, the address of all the individuals and entities named below is
care of Astralis Ltd. at 75 Passaic Avenue, Fairfield, NJ 07004.

<TABLE>
<CAPTION>
Name and Address                  Number of Shares of Common Stock            Percentage of Common Stock
                                  Beneficially                                Owned
                                  Owned (1)
<S>                                                     <C>                                       <C>
Dr. Jose Antonio O'Daly                                 13,640,000                                36.34%

Mike Ajnsztajn (2)                                       8,680,000                                23.12%

Gina Tedesco (2)                                         8,680,000                                23.12%

Gaston Liebhaber                                         2,480,000                                 6.61%

Michael Ashton (3)                                      12,720,000                                25.41%

Fabien Pictet (4)                                          549,000                                 1.45%

Steven Fulda (5)                                             4,700                                     *

Bruce Epstein                                               50,000                                     *

SkyePharma PLC (6) (7)                                  12,720,000                                25.41%
   105 Piccadilly
   London W1J 7NJ
   England
All Officers and Directors                              38,123,700                                75.75%
as a Group
</TABLE>

----------
*     Less than 1%

(1) Beneficial ownership is determined in accordance with the Rule 13d-3(a) of
the Securities Exchange Act of 1934 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. The beneficial ownership percentage is based on
37,538,189 shares of our common stock outstanding as of March 27, 2003.


                                       32
<PAGE>

(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 27, 2003 by her
husband, Mike Ajnsztajn. Ms. Tedesco disclaims beneficial ownership of such
shares.

(3) Includes 12,720,000 shares of common stock beneficially owned by SkyePharma.
Mr. Ashton is Chief Executive Officer of SkyePharma.

(4) Includes 180,000 shares of common stock and warrants to purchase 36,000
shares of common stock owned by Pictet Private Equity Investors. Also includes
100,000 shares of common stock and warrants to purchase 233,333 shares of common
stock owned by Perly Ltd.

(5) Includes 4,700 shares of common stock owned as of March 27, 2003 by Mr.
Fulda's spouse. Mr. Fulda disclaims beneficial ownership of such shares.

(6) SkyePharma is the beneficial owner of 200,000 shares of our common stock,
2,000,000 shares of our preferred stock and warrants to purchase 20,000 shares
of common stock. Accordingly, SkyePharma has beneficial ownership of 12,720,000
shares of common stock, assuming the conversion of all shares of preferred stock
owned by SkyePharma into common stock at the current conversion rate of 6.25
shares of common stock for each share of preferred stock. The conversion price
of the preferred stock owned by SkyePharma is subject to further adjustment
through 2004 to a maximum of 50 shares of common stock for each share of
preferred stock. Michael Ashton, Chief Executive Officer of SkyePharma and a
member of our Board of Directors, exercises voting control over the shares held
by SkyePharma.

(7) In order to facilitate the consummation of the transaction contemplated by
the Purchase Agreement, we, certain of our stockholders holding an aggregate of
66.07% of our outstanding common stock and SkyePharma executed a Stockholders'
Agreement, dated as of December 10, 2001, 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.


                                       33
<PAGE>

      The following table provides information with respect to the equity
securities that are authorized for issuance under our compensation plans as of
December 31, 2002:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                    EQUITY COMPENSATION PLAN INFORMATION
-------------------------------------------------------------------------------------------------------------
                                                                                           Number of
                                      Number of                                      securities remaining
                                  securities to be                                      available for
                                issued upon exercise        Weighted-average            issuance under
                                   of outstanding           exercise price of        equity compensation
                                 options, warrants        outstanding options,         plans (excluding
                                     and rights            warrants and rights       securities reflected
                                         (a)                       (b)                  in column (a))
-------------------------------------------------------------------------------------------------------------
<S>                                   <C>                         <C>                      <C>
Equity compensation plans
approved by security                  315,000                     $2.73                    4,685,000
holders
-------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security                --                         --                         --
holders
-------------------------------------------------------------------------------------------------------------
Total                                 315,000                     $2.73                    4,685,000
-------------------------------------------------------------------------------------------------------------
</TABLE>

Item 12. Certain Relationships and Related Transactions.

General

      On November 13, 2001, pursuant to the Contribution Agreement, the members
of Astralis, LLC 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.

      During the nine months ended September 30, 2001, we advanced $207,000 to
two of our stockholders, FAC Enterprises, Inc. and 1025 Investments, Inc., in
exchange for promissory notes. The stockholders repaid the total amount prior to
November 30, 2001.

      Centro Para La Investigacion y Tratmiento De La Psoriasis, a research
entity owned by Helen O'Daly, the spouse of Dr. Jose Antonio O'Daly, provided
assistance in the research and development of Psoraxine in Venezuela commencing
in November 2001 and terminating in May 2002. We paid approximately $275,000 to
CITP for the services it provided.

      Dr. Jose Antonio O'Daly, a founding member of our company, a principal
stockholder and a member of our Board of Directors 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, in exchange for
$10, we 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.


                                       34
<PAGE>

Relationship with SkyePharma

      We entered into a Purchase Agreement dated as of December 10, 2001 with
SkyePharma PLC, a company incorporated under the laws of England and Wales.
Pursuant to the Purchase Agreement, as of December 31, 2002, SkyePharma
purchased 1,750,000 shares of our Series A Convertible Preferred Stock, par
value $.001 per share, at a purchase price of $10.00 per share, or an aggregate
purchase price of $17.5 million. The Purchase Agreement provides that SkyePharma
would make a total equity investment of $20 million. The remaining $2.5 million
investment involved the sale of an additional 250,000 shares of preferred stock
to SkyePharma on January 31, 2003. Each share of preferred stock issued pursuant
to the Purchase Agreement was initially convertible into four shares of common
stock at the option of SkyePharma at a conversion price of $2.50 per share of
common stock. The conversion price is subject to multiple adjustments for three
years from the date of the Purchase Agreement depending on our stock price
maintaining certain levels. The ratio is also subject to anti-dilution
protection. However, the conversion ratio will not adjust to a level greater
than approximately 50 shares of common stock for each share of preferred stock.
On December 10, 2002, the first anniversary date, the conversion price was reset
to $1.60 per share of common stock. If on the second or third anniversary of the
original issuance date, the current market price per share of common stock is
less than the current conversion price, then the conversion price will be reset
to the average closing price of the stock for the ten days prior to the
anniversary date. However, the conversion price will not be reset for the second
anniversary date lower than the lower of (a) $1.60 or (b) the price which
results from multiplying $1.60 by a fraction the numerator of which is the then
applicable conversion price (taking into account the reset provisions not
contingent on stock price and which generally provide anti-dilution protection
and ignoring any reset provision related to the first anniversary date) and the
denominator of which is $2.50. The conversion price will not be reset for the
third anniversary date lower than the lower of (a) $0.20 or (b) the price which
results from multiplying $0.20 by a fraction the numerator of which is the
conversion price (taking into account the reset provisions not contingent on
stock price and which generally provide anti-dilution protection and ignoring
any applicable conversion price related to the previous anniversary dates) and
the denominator of which is $2.50. The conversion price will not be reset on the
third anniversary date if, prior to that date, the United States Patent and
Trademark Office has issued a patent or notice of allowance with claims having
substantially the same scope as the patent application filed by Dr. O'Daly and
covering a psoriasis vaccine marketed and commercialized by us. Furthermore, the
conversion price will not be reset if the average closing price calculated is
greater than the conversion price.

      As a result of the Purchase Agreement, SkyePharma is the beneficial owner
of 25.41% of our outstanding common stock based on our current conversion price.
In addition to other rights under the Purchase Agreement, SkyePharma, as the
sole holder of shares of our preferred stock, holds the 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 66.07% 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
and, once SkyePharma no longer owns its preferred stock, to elect a nominee
designated by SkyePharma to our Board of


                                       35
<PAGE>

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.

      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 Option Agreement, dated
December 10, 2001, we paid to SkyePharma a $5 million fee for the option to
acquire a license for DepoFoam and other relevant drug delivery technologies
owned by SkyePharma. The option we received under the Technology Access Option
Agreement expires on December 10, 2008. In addition, pursuant to a Service
Agreement, dated December 10, 2001, SkyePharma agreed to provide us with
development, manufacturing, pre-clinical and clinical development services. We
paid SkyePharma $7,980,000 in 2002 for the services provided. The Service
Agreement terminated on December 31, 2002. We have entered into an Amendment to
the Service Agreement with SkyePharma, effective as of January 1, 2003, to
extend the term of the Service Agreement and modify the services to be provided
by SkyePharma such that SkyePharma will continue to provide certain services to
us through December 31, 2004 in consideration for payments made during 2002. In
addition, the amendment sets forth milestones expected to be reached during the
twenty-four month period following January 1, 2003.

Item 13. Exhibits and Reports on Form 8-K.

      (a)   Exhibits

Exhibit Number                               Description
--------------                               -----------

3.1 *                   Certificate of Incorporation of Astralis Ltd.
3.2 *                   Bylaws of Astralis Ltd.
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 **                 Sub-Lease 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
10.10 ++                Agreement for Services dated December 10, 2001 between
                        SkyePharma Inc. and Astralis Ltd.
10.11 ++                Technology Access Option Agreement dated December 10,
                        2001 by and among SkyePharma Inc., SkyePharma Holding AG
                        and Astralis Ltd.
10.12                   Employment Agreement dated December 10, 2001, between
                        Dr. Jose Antonio O'Daly and Astralis Ltd.
10.13                   Amendment #1 to Agreement for Services dated March 18,
                        2003 between SkyePharma Inc. and Astralis Ltd.
99.1                    Certification pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002


                                       36
<PAGE>

----------

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

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

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

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

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

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


                                       37
<PAGE>

      (b)   Reports on Form 8-K

      On December 12, 2002, we filed a current report on Form 8-K reporting that
we mailed a marketing brochure to our shareholders. The current report provides
the text of the brochure.

Item 14. Controls and Procedures

      (a)   Evaluation of disclosure controls and procedures.

      Based on their evaluation as of a date within 90 days of the filing date
of this Annual Report on Form 10-KSB, our chief executive officer and chief
financial officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.

      (b)   Changes in internal controls.

      There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.


                                       38
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 and 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                               ASTRALIS LTD.
                                               (Registrant)


                                               By: /s/ Mike Ajnsztajn
                                                   -----------------------------
                                                   Mike Ajnsztajn
                                                   Chief Executive Officer

      In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
         Signature                             Title                          Date
         ---------                             -----                          ----
<S>                                 <C>                                 <C>
/s/ Jose Antonio O'Daly             Chairman of the Board               March 28, 2003
-----------------------------
Dr. Jose Antonio O'Daly

/s/ Mike Ajnsztajn                  Chief Executive Officer and         March 28, 2003
-----------------------------       Director
Mike Ajnsztajn                      (principal executive officer)

/s/ Gina Tedesco                    Chief Financial Officer and         March 28, 2003
-----------------------------       Director
Gina Tedesco                        (principal financial and
                                    accounting officer)

                                    Director                            March 28, 2003
-----------------------------
Steven Fulda

                                    Director                            March 28, 2003
-----------------------------
Gaston Liebhaber

                                    Director                            March 28, 2003
-----------------------------
Fabien Pictet

/s/ Michael Ashton                  Director                            March 28, 2003
-----------------------------
Michael Ashton
</TABLE>


                                       39
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)

                        INDEX TO THE FINANCIAL STATEMENTS

                                                                        Page
                                                                    ------------

Independent Auditors' Report                                             F2

Balance Sheets                                                           F3

Statements of Operations                                                 F4

Statements of Stockholders' Equity                                       F5

Statements of Cash Flows                                                 F9

Notes to Financial Statements                                           F10


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Astralis Ltd.
Florham Park, New Jersey

We have audited the accompanying balance sheets of Astralis Ltd. (a development
stage entity) as of December 31, 2002 and 2001, and the related statements of
operations, stockholders' equity, and cash flows for the period March 12, 2001
(date of inception) through December 31, 2002. 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, 2002 and 2001, and the results of operations, changes in stockholders'
equity and its cash flows for the period March 12, 2001 (date of inception)
through December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred a net loss of $24,584,362 (including
a non-cash preferred dividend of $11,468,750) during the period from March 12,
2001 (date of inception) to December 31, 2002. Also, the Company does not have
sufficient funds to execute its business plan. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

L J SOLDINGER ASSOCIATES


Arlington Heights, Illinois

March 6, 2003


                                      F-2
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                                 Balance Sheets

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                              -----------------------------
                                                                                  2002              2001
                                                                              ------------     ------------
<S>                                                                           <C>              <C>
Current Assets
   Cash and cash equivalents                                                  $    227,193     $  4,451,874
   Marketable securities - current                                               1,207,179               --
   Interest receivable (net of allowance for doubtful accounts of $16,088)           5,891               --
   Prepaid expense - related party                                               1,995,000               --
   Prepaid expenses                                                                 73,249           38,461
   Supplies                                                                         30,239               --
                                                                              ------------     ------------

                    Total Current Assets                                         3,538,751        4,490,335

Intangible Assets, Net - Related Party                                           4,226,188        4,940,476
Other Intangible Assets, Net                                                        43,833           25,054
Property and Equipment, Net                                                        362,713            1,586
Deposits                                                                            29,953               --
                                                                              ------------     ------------

                                                                              $  8,201,438     $  9,457,451
                                                                              ============     ============

                                   LIABILITIES

Current Liabilities
   Accounts payable and accrued expenses - related party                      $         --     $    142,446
   Accounts payable and accrued expenses                                           263,245          240,637
                                                                              ------------     ------------

                    Total Current Liabilities                                      263,245          383,083
                                                                              ------------     ------------

Commitments and Contingencies

Stockholders' Equity
   Convertible preferred stock, Series A, $.001 par value;
     2,000,000 shares authorized at 2002 and 2001; 1,750,000 and
     1,000,000 issued and outstanding at 2002 and 2001, respectively
     (liquidation preference - $18,435,343 at 2002)                                  1,750            1,000
   Common stock; $.0001 par value; 75,000,000 shares authorized at
     2001; 37,538,189 and 37,588,179 issued and outstanding at
     2002 and 2001, respectively                                                     3,754            3,759
   Additional paid-in capital                                                   33,429,396       17,013,223
   Deferred compensation                                                           (12,164)        (398,250)
   Common stock subscriptions receivable                                          (885,000)      (1,350,000)
   Accumulated other comprehensive loss                                            (15,181)              --
   Deficit accumulated in the development stage                                (24,584,362)      (6,195,364)
                                                                              ------------     ------------

                    Total Stockholders' Equity                                   7,938,193        9,074,368
                                                                              ------------     ------------

                                                                              $  8,201,438     $  9,457,451
                                                                              ============     ============
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-3
<PAGE>

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

<TABLE>
                                                               March 12, 2001  March 12, 2001
                                                Year Ended     (Inception) to  (Inception) to
                                               December 31,      December 31,    December 31,
                                                   2002             2001             2002
                                               ------------     ------------     ------------
<S>                                            <C>              <C>              <C>
Revenues                                       $         --     $         --     $         --
                                               ------------     ------------     ------------

Operating Expenses
   Research and development - related party       6,834,399        3,203,235       10,037,634
   Research and development                         927,143           28,540          955,683
   Depreciation and amortization                     15,728              831           16,559
   General and administrative                     1,374,251          852,013        2,226,264
                                               ------------     ------------     ------------

                   Total Operating Expenses       9,151,521        4,084,619       13,236,140
                                               ------------     ------------     ------------

Loss From Operations                             (9,151,521)      (4,084,619)     (13,236,140)

Investment Income                                   111,273            9,255          120,528
                                               ------------     ------------     ------------

Net Loss                                         (9,040,248)      (4,075,364)     (13,115,612)

Preferred Stock Dividends                        (9,348,750)      (2,120,000)     (11,468,750)
                                               ------------     ------------     ------------

Net Loss to Common Stockholders                $(18,388,998)    $ (6,195,364)    $(24,584,362)
                                               ============     ============     ============

Pro Forma Information
   Net loss                                                     $ (6,195,364)
   Pro forma tax provision                                                --
                                                                ------------

   Pro forma net loss                                           $ (6,195,364)
                                                                ============

Basic and Diluted Loss per Common Share        $      (0.49)    $      (0.23)
                                               ============     ============

Basic and Diluted Weighted Average
 Common Shares Outstanding                       37,541,339       27,348,030
                                               ============     ============
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-4
<PAGE>

                                                                     Page 1 of 4

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>

                                                Preferred Stock                  Common Stock              Additional
                                         ----------------------------    ----------------------------       Paid-In
                                            Shares          Amount          Shares          Amount          Capital
                                         ------------    ------------    ------------    ------------    ------------
<S>                                         <C>          <C>               <C>           <C>             <C>
Balances, March 12, 2001
 (Date of Inception)                               --    $         --              --    $         --    $         --

Members' capital contributions, 3/15/2001          --              --      25,300,000           2,530          30,653

Capital contributions received,
 3/1 - 8/13/2001                                   --              --              --              --              --

Members' contributed services,
 3/15 - 6/30/2001                                  --              --              --              --          12,986

Members' capital contributions, 9/1/2001           --              --       2,700,000             270       1,349,730

Warrants to purchase 6,300,000 shares of
 common stock at $1.60 per share
 issued  in private placement                      --              --              --              --              --

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 415,237 shares of
 common stock at $4.00 per share issued
  in private placement, 11/13/2001                 --              --              --              --              --

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

Options to purchase 200,000 shares of
  common stock at $1.77 (based on
  valuation) issued for legal services,
 12/31/2001                                        --              --              --              --         354,000

Options to purchase 100,000 shares of
 common stock at $1.77 (based on
 valuation) issued for consulting
 services,
 12/31/2001                                        --              --              --              --         177,000

Amortization of deferred compensation              --              --              --              --              --

Net loss                                           --              --              --              --              --
                                         ------------    ------------    ------------    ------------    ------------

Balance, December 31, 2001                  1,000,000    $      1,000      37,588,179    $      3,759    $ 17,013,223
                                         ------------    ------------    ------------    ------------    ------------
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-5
<PAGE>

                                                                     Page 2 of 4

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                          Deficit
                                                                        Accumulated     Accumulated
                                                                           Other         During the                         Total
                                          Subscription     Deferred    Comprehensive     Development                   Comprehensive
                                           Receivable    Compensation       Loss            Stage          Total            Loss
                                          ------------   ------------   ------------    ------------   ------------    -------------
<S>                                       <C>            <C>            <C>             <C>            <C>              <C>
Balances, March 12, 2001
 (Date of Inception)                      $         --   $         --   $         --    $         --   $         --

Members' capital contributions,                (33,183)            --             --              --             --
 3/15/2001

Capital contributions received,
 3/1 - 8/13/2001                                33,183             --             --              --         33,183

Members' contributed services,
 3/15 - 6/30/2001                                   --             --             --              --         12,986

Members' capital contributions, 9/1/2001    (1,350,000)            --             --              --             --


Warrants to purchase 6,300,000 shares
 of common stock at $1.60 per share
 issued  in private placement                       --             --             --              --             --

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                                 --             --             --              --      3,190,637

Warrants to purchase 415,237 shares of
 common stock at $4.00 per share issued
  in private placement, 11/13/2001                  --             --             --              --             --

Net assets and liabilities acquired in
 merger with Hercules                               --             --             --              --       (302,320)

Preferred stock issued, net of issuance
  costs, 12/10/2001; 1,000,000 shares
  at $10.00 per share                               --             --             --              --      9,947,496

Preferred stock dividend, 12/10/2001                --             --             --      (2,120,000)            --

Options to purchase 200,000 shares of
  common stock at $1.77 (based on
  valuation) issued for legal
  services, 12/31/2001                              --       (354,000)            --              --             --

Options to purchase 100,000 shares of
 common stock at $1.77 (based on
 valuation) issued for consulting
 services, 12/31/2001                               --       (177,000)            --              --             --

Amortization of deferred compensation               --        132,750             --              --        132,750

Net loss                                            --             --             --      (4,075,364)    (4,075,364)    $(4,075,364)
                                          ------------   ------------   ------------    ------------   ------------     -----------

Balance, December 31, 2001                $ (1,350,000)  $   (398,250)  $         --    $ (6,195,364)  $  9,074,368     $(4,075,364)
                                          ------------   ------------   ------------    ------------   ------------     ===========
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-6
<PAGE>

                                                                     Page 3 of 4

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                          Preferred Stock               Common Stock              Additional
                                                   ---------------------------   ----------------------------       Paid-In
                                                       Shares        Amount         Shares          Amount          Capital
                                                   ------------   ------------   ------------    ------------    ------------
<S>                                                   <C>         <C>              <C>           <C>             <C>
Balances Brought Forward                              1,000,000   $      1,000     37,588,179    $      3,759    $ 17,013,223

Oversubscription of common stock issued
 in private placement, 11/13/2001; 49,990
 shares cancelled at $1.60 per share, 1/24/2002              --             --        (49,990)             (5)        (79,995)

Preferred stock issue, net of issuance costs,
 1/31/2002; 250,000 shares at $10.00 per share          250,000            250             --              --       2,499,750

Preferred stock issue, net of issuance costs,
 4/30/2002; 250,000 shares at $10.00 per share          250,000            250             --              --       2,499,750

Preferred stock dividend, April 30, 2002                     --             --             --              --         270,000

Preferred stock issue, net of issuance costs,
 7/31/2002; 250,000 shares at $10.00 per share          250,000            250             --              --       2,499,750

Collection of subscription receivable, July 2002             --             --             --              --              --


Collection of subscription receivable,
 August 2002                                                 --             --             --              --              --

Collection of subscription receivable,
 September 2002                                              --             --             --              --              --

Options issued for consulting services,
 9/10/2002; 15,000 options at $0.38 per
 option, based on valuation                                  --             --             --              --           5,700

Collection of subscription receivable,
 November 2002                                               --             --             --              --              --

Preferred stock dividend, 12/10/2002                         --             --             --              --       9,078,750

Amortization of deferred compensation                        --             --             --              --              --

Fair value adjustment on deferred
 Compensation                                                --             --             --              --        (357,532)

COMPREHENSIVE LOSS

  Net loss                                                   --             --             --              --              --

  Other comprehensive loss:

  Unrealized gain (loss) on
  available-for-sale securities                              --             --             --              --              --
                                                   ------------   ------------   ------------    ------------    ------------

        Total Comprehensive Loss

Balance, December 31, 2002                            1,750,000   $      1,750     37,538,189    $      3,754    $ 33,429,396
                                                   ============   ============   ============    ============    ============
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-7
<PAGE>

                                                                     Page 4 of 4

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                              Deficit
                                                                             Accumulated    Accumulated
                                                                                 Other       During the                     Total
                                                Subscription     Deferred   Comprehensive   Development                Comprehensive
                                                 Receivable    Compensation      Loss          Stage          Total         Loss
                                                ------------   ------------ -------------  ------------   ------------ ------------
<S>                                             <C>            <C>           <C>           <C>            <C>           <C>
Balances Brought Forward                        $ (1,350,000)  $  (398,250)  $        --   $ (6,195,364)  $  9,074,368

Oversubscription of common stock issued
 in private placement, 11/13/2001; 49,990
 shares cancelled at $1.60 per share, 1/24/2002           --            --            --             --        (80,000)

Preferred stock issue, net of issuance costs,
 1/31/2002; 250,000 shares at $10.00 per share            --            --            --             --      2,500,000

Preferred stock issue, net of issuance costs,
 4/30/2002; 250,000 shares at $10.00 per share            --            --            --             --      2,500,000

Preferred stock dividend, April 30, 2002                  --            --            --       (270,000)            --

Preferred stock issue, net of issuance costs,
 7/31/2002; 250,000 shares at $10.00                      --            --            --             --      2,500,000
 per share

Collection of subscription receivable, July 2002     280,000            --            --             --        280,000

Collection of subscription receivable,
 August 2002                                          65,000            --            --             --         65,000

Collection of subscription receivable,
 September 2002                                       48,000            --            --             --         48,000

Options issued for consulting services,
 9/10/2002; 15,000 options at $0.38
 per option, based on valuation                           --        (5,700)           --             --             --

Collection of subscription receivable,
 November 2002                                        72,000            --            --             --         72,000

Preferred stock dividend, 12/10/2002                      --            --            --     (9,078,750)            --

Amortization of deferred compensation                     --        34,254            --             --         34,254

Fair value adjustment on deferred
 compensation                                             --       357,532            --             --             --

COMPREHENSIVE LOSS

  Net loss                                                --            --            --     (9,040,248)    (9,040,248) $(9,040,248)


  Other comprehensive loss:

  Unrealized loss on available-for-sale
  securities                                              --            --       (15,181)            --        (15,181)     (15,181)
                                                ------------   -----------   -----------   ------------   ------------  -----------

        Total Comprehensive Loss                                                                                        $(9,055,429)
                                                                                                                        ===========

Balance, December 31, 2002                      $   (885,000)  $   (12,164)  $   (15,181)  $(24,584,362)  $  7,938,193
                                                ============   ===========   ===========   ============   ============
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          March 12, 2001        March 12, 2001
                                                                        Year Ended        (Inception) to        (Inception) to
                                                                     December 31, 2002   December 31, 2001     December 31, 2002
                                                                     -----------------   -----------------     -----------------
<S>                                                                    <C>                  <C>                  <C>
Cash Flows from Operating Activities
   Net loss                                                            $ (9,040,248)        $ (4,075,364)        $(13,115,612)
   Adjustments to reconcile net loss to net cash used in
   operating
    activities
      Depreciation and amortization                                         786,740               60,355              847,095
      Amortization of net premium paid on investments                        48,814                   --               48,814
      Dividend income reinvested                                             (9,796)                  --               (9,796)
      Members' contributed salaries                                              --               12,986               12,986
      Research and development service fee netted against
       proceeds received from preferred stock issuance                    1,995,000            3,000,000            4,995,000
      Operating expenses paid by related parties on behalf of
       Company                                                                   --               17,587               17,587
       Amortization of deferred compensation                                 34,254              132,750              167,004
       Compensatory common stock                                                 --              135,000              135,000
       Loss on sale of available-for-sale securities                          7,145                   --                7,145
   Changes in assets and liabilities
      Prepaid expenses                                                   (2,029,788)             (38,461)          (2,068,249)
      Interest receivable                                                    (5,891)                  --               (5,891)
      Supplies                                                              (30,239)                  --              (30,239)
      Deposits                                                              (29,953)                  --              (29,953)
      Accounts payable - related party                                     (142,446)             142,446                   --
      Accounts payable and accrued expenses                                  22,608              240,637              263,245
                                                                       ------------         ------------         ------------

Net Cash Used in Operating Activities                                    (8,393,800)            (372,064)          (8,765,864)
                                                                       ------------         ------------         ------------

Cash Flows from Investing Activities
   Purchases of available-for-sale securities                            (7,638,437)                  --           (7,638,437)
   Proceeds from sale of available-for-sale securities                    6,369,914                   --            6,369,914
   Expenditures related to patent                                           (20,914)             (10,255)             (31,169)
   Purchases of property and equipment                                     (431,444)              (1,620)            (433,064)
                                                                       ------------         ------------         ------------

Net Cash Used in Investing Activities                                    (1,720,881)             (11,875)          (1,732,756)
                                                                       ------------         ------------         ------------

Cash Flows from Financing Activities
   Repurchase of common stock                                               (80,000)                  --              (80,000)
   Collection of subscription receivable                                    465,000                   --              465,000
   Issuance of common stock, net of offering and transaction                     --            2,888,317            2,888,317
   costs
   Issuance of preferred stock, net of research and development
    service fee, technology option and costs of offering                  5,505,000            1,947,496            7,452,496
                                                                       ------------         ------------         ------------

Net Cash Provided by Financing Activities                                 5,890,000            4,835,813           10,725,813
                                                                       ------------         ------------         ------------

Net Increase (Decrease) in Cash and Cash Equivalents                     (4,224,681)           4,451,874              227,193

Cash and Cash Equivalents, Beginning of Period                            4,451,874                   --                   --
                                                                       ------------         ------------         ------------

Cash and Cash Equivalents, End of Period                               $    227,193         $  4,451,874         $    227,193
                                                                       ============         ============         ============
</TABLE>

              See independent auditors' report and the accompanying
                         notes to financial statements.


                                      F-9
<PAGE>

                                  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 Pharmaceuticals, 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, prior to November 13,
2001, 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 Pharmaceuticals, 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 November 19, 2001, the Company changed its name to Astralis Ltd. and
reincorporated in 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").

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 of Astralis, LLC into the Company,
the 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


                                      F-10
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 ("SFAS") 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 engaged in raising
capital through private placement stock offerings 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 an original
maturity of 90 days or less at the time of purchase to be cash equivalents.

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
and office equipment, three to four years for lab equipment, five-year for
automobile, seven-year for furniture and fixtures and three-year for leasehold
improvements.

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 it is more likely than not
that the realization of deferred tax assets will not be realized 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.


                                      F-11
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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,
consisted of:

                                                            2002         2001
                                                         ----------   ----------

              Options                                       315,000      300,000
              Warrants                                    6,780,237    6,790,237
              Convertible preferred stock                10,937,500    4,000,000
                                                         ----------   ----------

                                                         18,032,737   11,090,237
                                                         ==========   ==========

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, which
includes depreciation of the Company's laboratory and amortization of the
technology access option, are charged to expense as they are incurred. Research,
development and product improvement costs included in operating expenses
amounted to $3,231,775 and $7,761,542 for the periods from March 12, 2001 (date
of inception) to December 31, 2001 and the year ending December 31, 2002,
respectively.

Included in this amount were payments to related parties (see Note 11).

Recent Accounting Pronouncements

In June 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. SFAS No. 143
is not expected to affect the Company.


                                      F-12
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (continued)

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections."
For most companies, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. Extraordinary treatment will be required for certain extinguishments as
provided in Accounting Principles Board Opinion No. 30. SFAS No. 145 also amends
SFAS No. 13 to require certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). SFAS No. 145 is effective for
financial statements issued on or after May 15, 2002, and is not expected to
have a material impact on the results of operations or financial position of the
Company.

FASB Statement 146, "Accounting for Costs Associated with Exit or Disposal
Activities," addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between Statement 146 and Issue 94-3 relates to Statement 146`s
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. Statement 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by the FASB in this Statement is that an
entity's commitment to a plan, by itself, does not create an obligation that
meets the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, and is
not expected to have a material impact on the results of operations or financial
position of the Company.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosure in
both annual and interim financial statements. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. The Company did not adopt the fair value method of
valuing stock options and will continue to apply Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for stock options. The adoption of the disclosure
provisions of SFAS No. 148 did not have an impact on the Company's financial
condition or results of operations for the year ended December 31, 2002.

NOTE 3 - GOING CONCERN

The Company incurred net losses of $18,388,998 and $6,195,364 during the year
ended December 31, 2002 and the period from March 12, 2001 (date of inception)
to December 31, 2001, respectively. Included in these net losses were non-cash
preferred stock dividends generated from beneficial conversion features of
preferred stock sales in the amounts of $9,348,750 and $2,120,000 for 2002 and
2001, respectively (see Note 8).


                                      F-13
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 3 - GOING CONCERN (Continued)

Pharmaceutical products must undergo an extensive process, including testing in
compliance with U.S. Food and Drug Administration ("FDA") regulations, before
they can be commercially sold and distributed in the United States. FDA testing
occurs in various phases over a multiple number of years. The Company expects to
commence clinical testing of Psoraxine in 2003. The Company will need
significant additional funds to complete all of the testing required by the FDA.
Currently, the Company has no products approved for commercial sale and
therefore no means to generate revenue.

Consequently, the aforementioned items raise substantial doubt about the
Company's ability to continue as a going concern.

Management plans to raise additional capital through private placement equity
offerings in 2003. These funds, in addition to its cash and marketable
securities held at December 31, 2002 and the $2,500,000 in proceeds received in
January 2003 from the final installment sale of its Series A Preferred stock
(see Note 8), will be needed in order to finance the Company's currently
anticipated needs for operating and capital expenditures for 2003, including the
cost to complete Phase II of the FDA testing process for Psoraxine. The Company
will also need to raise significant additional funds from outside sources in
future years in order to complete future phases of FDA required testing.

The Company's ability to continue as a going concern is dependent upon raising
capital through debt and equity financing. There can be no assurance that the
Company will successfully raise the required future financing on terms desirable
to the Company or that the FDA will approve Psoraxine for use in the United
States. If the Company does not obtain the needed funds, it will likely be
required to delay development of its products, alter its business plan, or in
the extreme situation, cease operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

NOTE 4 - MARKETABLE SECURITIES

The Company's marketable equity securities consisted of certificates of deposit
and mutual funds that have a readily determinable fair market value. Management
determines the appropriate classifications of its investments using SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities" at the time
of purchase, and re-evaluates such determinations at each balance sheet date.

The securities reflected in these financial statements are deemed by management
to be "available-for-sale" and, accordingly, are reported at fair value, with
unrealized gains and losses reported in other comprehensive income and reflected
as a separate component within the Stockholders' Equity section of the balance
sheets. Realized gains and losses on securities available-for-sale are included
in other income/expense and, when applicable, are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on the
sale of available-for-sale securities are determined using the specification
method.


                                      F-14
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 4 - MARKETABLE SECURITIES (Continued)

There were no marketable securities at December 31, 2001. As of December 31,
2002, available-for-sale securities consist of the following:

<TABLE>
<CAPTION>
                                                              Gross            Gross
                                             Amortized     Unrealized       Unrealized
                              Due              Cost           Loss             Gains          Fair Value
                          -----------       -----------   ------------      -----------       -----------
<S>                        <C>              <C>            <C>             <C>                <C>
 *  Certificates of        1/2003 to
      Deposit               11/2014         $   512,584    $    (8,294)    $         24       $   504,314

    Fixed Income Funds     current              709,776         (6,911)              --           702,865
                                            -----------    -----------     ------------       -----------
                                            $ 1,222,360    $   (15,205)    $         24       $ 1,207,179
                                            ===========    ===========     ============       ===========
</TABLE>

* It will be necessary for the Company to utilize the proceeds from these
certificates of deposits to fund its operations in 2003 and therefore they have
been classified as short-term investments.

NOTE 5 - 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 of application
for the patent or 17 years from the date of grant, whichever is longer. The
Company's policy is to amortize these capitalized costs on a straight-line basis
over the remaining portion of the 20-year period, which commenced on March 16,
2001, the date the patent application was filed.

The Company paid $5,000,000 for a technology access option from SkyePharma, PLC
("SkyePharma"), a related party. This option gives the Company the right, until
December 10, 2008, to enter into a non-exclusive license agreement to utilize
any of three drug delivery systems of SkyePharma in connection with any
immunotherapeutic drugs it develops to treat psoriasis or leishmaniasis. 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
the viability and efficacy of Psoraxine. In accordance with SFAS 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 SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets".

The Company has amortized $2,135 and $797of patent costs and $714,288 and
$59,524 of the cost of the technology option license in 2002 and 2001,
respectively. The amortization related to the technology option license is
recorded as research and development cost as required by SFAS No. 2.


                                      F-15
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 5 - INTANGIBLE ASSETS (Continued)

Intangible assets consisted of the following at December 31,

                                                       2002             2001
                                                   -----------      -----------

      Patent                                       $    46,765      $    25,851

      Technology access fee                          5,000,000        5,000,000

      Less accumulated amortization                   (776,744)         (60,321)
                                                   -----------      -----------

                                                   $ 4,270,021      $ 4,965,530
                                                   ===========      ===========

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31,

                                                         2002            2001
                                                      ---------       ---------

      Furniture and Fixtures                          $  27,813       $      --
      Computer Equipment                                 17,120           1,620
      Leasehold Improvements                            181,604              --
      Lab Equipment                                     195,962              --
      Automobiles                                         8,945              --
                                                      ---------       ---------
                                                      $ 431,444       $   1,620

      Accumulated depreciation and amortization         (68,731)            (34)
                                                      ---------       ---------

                                                      $ 362,713       $   1,586
                                                      =========       =========

Depreciation expense amounted to $34 and $68,697 for the period from March 12,
2001 (date of inception) to December 31, 2001 and the year ending December 31,
2002, respectively. The depreciation related to the Company's laboratory and
related equipment is recorded as research and development as required by SFAS
No. 2.


                                      F-16
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 7 - 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:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                           ---------------------------
                                                               2002            2001
                                                           -----------     -----------
      <S>                                                  <C>             <C>
      Deferred tax assets:
          Prepaid research and development                 $ 1,062,100     $        --
          Accumulated depreciation and amortization            173,100          13,300
          Research and development credits carryforward        437,200         204,700
          Net operating loss carryforwards                   3,838,000       1,436,800
                                                           -----------     -----------
                                                             5,510,400       1,654,800

      Less valuation allowance                              (5,510,400)     (1,654,800)
                                                           -----------     -----------

      Total deferred tax assets                            $        --     $        --
                                                           ===========     ===========
</TABLE>

As of December 31, 2002, the Company had losses, which resulted in net operating
loss carryforwards for tax purposes amounting to approximately $8,000,000 that
may be offset against future taxable income. These carryforwards start to expire
in 2021. The Company has also generated research and development credits of
$360,000 that will 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
$3,855,600 and $1,654,800 as of December 31, 2002 and 2001, respectively.

In accordance with federal income tax regulations, the net loss incurred by
Astralis, LLC from inception to the date of its merger with the Company 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 its capital structure changed to that of a corporation as of
March 12, 2001 (Astralis, LLC's inception) (see Note 2).


                                      F-17
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 7 - INCOME TAXES (Continued)

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%.

<TABLE>
<CAPTION>
                                                                                     March 12, 2001
                                                                     Year Ended     (Inception) to
                                                                     December 31,     December 31,
                                                                         2002             2001
                                                                     -----------      -----------
<S>                                                                  <C>              <C>
      Federal income tax benefit at statutory rate                   $ 3,165,000      $ 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)        600,800          207,700
      Non-deductible expenses                                           (142,700)        (118,200)
      Research and development credit                                    232,500          204,700
      Change in valuation allowance                                   (3,855,600)      (1,654,800)
                                                                     -----------      -----------

          Income Tax Benefit                                         $        --      $        --
                                                                     ===========      ===========

          Effective Income Tax Rate                                            0%               0%
                                                                     ===========      ===========
</TABLE>

NOTE 8 - CAPITAL STOCK ACTIVITY

The Company's Certificate of Incorporation authorizes the issuance of 75,000,000
shares of common stock, $0.0001 par value per share, of which 37,538,189 were
outstanding as of December 31, 2002.

As discussed in Note 1, the combination of Astralis, LLC and Hercules was
treated as a recapitalization of Astralis, LLC 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.

On September 1, 2001, five new members 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. Pursuant to a contribution agreement, the
aforementioned Units were exchanged for an aggregate of 2,700,000 shares of
common stock and warrants to purchase 6,300,000 shares of 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 were due in two installments, with $850,000 being due on February 13,
2002 and the remaining $500,000 due on May 13, 2002. Warrants to purchase
3,150,000 shares of commons stock expire on December 13, 2003 and warrants to
purchase 3,150,000 shares of common stock expire on November 13, 2006.

The $1,350,000 due to the Company, under stock subscription agreements, on
February 13, and May 13, 2002 was not paid causing the notes to be in default.
The Company entered into a payment plan agreement with the stockholders, whereby
the stockholders were to pay the amounts due, in approximately equal amounts,
over a nine-


                                      F-18
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 8 - CAPITAL STOCK ACTIVITY (Continued)

month period commencing in June 2002. The stockholders are subject to forfeiture
of a percentage of their shares for not making the required payments. The
Company has also agreed to extend the expiration date of warrants to purchase
3,150,000 shares of its common stock from December 13, 2003 to December 13,
2004.

As of December 31, 2002, the stockholders were late on the scheduled payments in
the aggregate amount of $635,000 and the aggregate outstanding balance was
$885,000.

Common Stock

In September 2001, Astralis, LLC granted 500,000 membership units to a
consultant in return for services rendered. The membership units were
subsequently exchanged for shares of common stock of the Company. 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
pursuant to which it sold 103.81 units at $32,000 per unit for an aggregate
amount of $3,321,887. 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 on November 13, 2006. The holders of these shares of
common stock and warrants received registration rights. The Company was required
to file a registration statement by March 13, 2002 to register the sale of these
shares and the shares underlying the 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,
payable in 24 equal monthly installments of $6,000.

In April 2001, the Company issued warrants to purchase 75,000 shares of common
stock at an exercise price of $1.75 per share. These warrants expire in April
2004.

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 49,990 shares of common stock. The Company cancelled
the respective shares and returned the corresponding subscription amount of
$80,000 to the investor.

Preferred Stock

The Company's Certificate of Incorporation authorize 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 purchase agreement for the Series A
Preferred.

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, SkyePharma received both piggyback and demand
registration rights on the common stock underlying its Series A Preferred
shares. On the first closing date in December 2001, the Company sold 1,000,000
shares of Series A Preferred for a purchase price of $10,000,000.


                                      F-19
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 8 - CAPITAL STOCK ACTIVITY (Continued)

The second, third and fourth closings occurred in January 2002, April 2002, and
July 2002. On each closing, the Company sold 250,000 shares of Series A
Preferred for a purchase price of $2,500,000. On the final closing date, January
31, 2003, the Company sold 250,000 shares of Series A Preferred for a purchase
price of $2,500,000.

Preferred Stock (Continued)

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"
("EITF 98-5"), as amended by EITF 00-27, 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.

The Company's stock price on April 30, 2002 was $2.77; consequently, pursuant to
the requirements of EITF 98-5, as amended by EITF 00-27, 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 $270,000.

Since the conversion price of the Series A Preferred was subject to reset
provisions as described above, there was a beneficial conversion feature
applicable to the Series A Preferred. Using the potential conversion price of
$1.60 for the first anniversary date as specified in the purchase agreement, the
beneficial conversion feature resulted in an additional preferred stock dividend
of $9,078,750 in December 2002.

There are two additional reset provisions on the second and the third
anniversary of the purchase agreement for the Series A Preferred. The second
reset provision called for a conversion price of $1.60 (same as the first
reset). Since the first reset provision was triggered, the second reset does not
apply since it is for the same amount. The third reset provision will be
triggered if on the third anniversary of the agreement, the average closing
price is less than $1.60 with a floor of $0.20. This reset provision will become
void if, prior to the third reset date, the patent entitled "Composition and
Methods For The Treatment And Clinical Remission Of Psoriasis" filed with the
Untied States Patent and Trademark Office is approved. The contingent beneficial
conversion feature, related to the third reset provision, would result in an
additional preferred stock dividend of $6,031,250.

Stock Warrants

At December 31, 2002, the Company had the following outstanding warrants to
purchase its common stock:

                                             Number of           Exercise Price
                                          Warrants Issued           Per Share
                                          ---------------        ---------------

                                             6,780,237            $1.60 - $4.00
                                          ===============        ===============

These warrants were primarily issued in connection with the exchange with
Astralis, LLC and the private placement offering.

NOTE 9 - STOCK OPTION PLAN

On September 10, 2001, the Company adopted its 2001 Stock Option Plan that
provides for the granting of options to officers, directors, employees, and
consultants. The number of shares of common stock that can be purchased under
this plan is limited to 5,000,000 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


                                      F-20
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 9 - STOCK OPTION PLAN (Continued)

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 of 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.

During July 2002, the Company granted 15,000 stock options with a strike price
of $2.50, as compensation to a consultant.

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.

NOTE 10 - DEFERRED COMPENSATION

The components of deferred compensation for the options granted are as follows
at December 31,

                                                        2002          2001
                                                     ---------     ---------

      Beginning balance                              $ 398,250     $      --
         Deferred compensation recorded                  5,700       531,000
         Fair value adjustments                       (357,532)           --
         Amortization to stock-based compensation      (34,254)     (132,750)
                                                     ---------     ---------

      Balance at December 31, 2002 (audited)         $  12,164     $ 398,250
                                                     =========     =========

Exercise prices for stock options outstanding as of December 31, 2002 and the
weighted average remaining contractual life are as follows:

<TABLE>
<CAPTION>
                                                        Weighted Average                              Weighted
                                                           Remaining               Number             Average
         Exercise Prices     Options Outstanding        Contractual Life        Exercisable        Exercise Price
         ---------------     -------------------        ----------------        -----------        --------------
         <S>                       <C>                      <C>                   <C>                 <C>
         $  2.50 - 2.75            315,000                  2.5 years             150,000             $    2.73
</TABLE>

In accordance with SFAS 123, the fair value of the options granted was
calculated as of the date of the grant using the Black-Scholes option-pricing
model. The fair value of options granted on 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. The fair value of options granted December 31,
2001 and September 10, 2002, which had not vested, were revalued at December 31,
2002, using a volatility of 130%, a risk-free interest rate of 2.4% and a
dividend yield of zero.


                                      F-21
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 11 - RELATED PARTY - TRANSACTIONS/COMMITMENTS/INDEMNIFICATIONS

Patent

Jose O'Daly, a founding member of the Company, a principal stockholder and a
member of our Board of Directors 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 during the 2001
year. 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.

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 8).

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 pursuant to this license agreement is 5% of the net
sales of any product the Company sells that uses any of the three drug delivery
systems. 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 immunotherapeutic drugs that treat
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 certain
development, manufacturing, pre-clinical and clinical development services. The
contract recognized that SkyePharma performed $3,000,000 of these services in
the fourth quarter of 2001 and that SkyePharma would perform and be paid for the
remaining $8,000,000 of services in 2002 and 2003. The payment terms for the
services agreement were 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.


                                      F-22
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 11 - RELATED PARTY - TRANSACTIONS/COMMITMENTS/INDEMNIFICATIONS (Continued)

The service agreement terminated on December 31, 2002. In March 2003, the
Company and SkyePharma amended the original service agreement, effective as of
January 1, 2003, to extend the term of the agreement and modify the services to
be provided by SkyePharma. SkyePharma will continue to provide certain services
to the Company through December 31, 2004 in consideration for payments it
received from the Company during 2002. In addition, the amendment sets forth
milestones expected to be reached during the twenty-four month period following
January 1, 2003. Consequently, as of December 31, 2002, the Company recorded
$1,995,000, that it paid to SkyePharma during 2002 in connection with this
agreement, as a prepaid expense. This prepaid amount will be expensed during the
remaining period of the amended service agreement. In 2002, the Company expensed
$5,985,000 in connection with the services agreement.

SkyePharma has the right of first negotiation 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.

Other

A research entity owned by the spouse of the majority shareholder provided
research and development services to the Company totaling $143,711 and $135,111
for the periods from March 12, 2001 (date of inception) to December 31, 2001 and
the year ending December 31, 2002, respectively.

NOTE 12 - OPERATING LEASES

The Company shared office space in Florham Park, New Jersey with a related party
for part of 2001 and 2002. The value of the shared space was minimal.

On March 13, 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 material basis.

On March 15, 2002, the Company leased an apartment for one key employee and
officer. The lease commenced on April 15, 2002 and expires on April 14, 2003.
Monthly rent of $2,865 is being paid by the Company.

On June 22, 2002, the Company leased an automobile for an officer of the Company
for 39 months. The lease commenced on June 22, 2002 and expires on September 22,
2005. Monthly payments are $477, which are being paid by the Company.

On June 26, 2002, the Company leased an apartment for a key employee for one
year. The lease commenced on July 1, 2002 and expires on June 30, 2003. Monthly
rent of $1,175 is being paid by the Company.


                                      F-23
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 12 - OPERATING LEASES (Continued)

The Company incurred $80,071 of rent in 2002.

The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancellable lease terms
of one year or greater, as of December 31, 2002:

             Year ending December 31:

                             2003                         $  83,224
                             2004                            83,224
                             2005                            49,501
                                                          ---------

                                                         $  215,949
                                                         ==========

NOTE 13 - COMPREHENSIVE LOSS

Excluding net loss, the Company's source of comprehensive loss is from the net
unrealized loss on its marketable debt securities, which are classified as
available-for-sale.

NOTE 14 - 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 products to be offered by the Company.
These changes could materially affect the price of the Company's products or
render them obsolete.

In 2003, the Company's sole source of funding is expected to be generated from
the final installment of $2,500,000, of its Series A Preferred shares purchase
agreement with SkyePharma, which was received January 31, 2003, and collection
of outstanding subscription receivables.

NOTE 15 - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                2002        2001
                                                                              --------    -------
      <S>                                                                     <C>         <C>
      Supplemental Disclosures

           Cash Paid for Interest and Taxes                                   $     --    $   236
                                                                              ========    =======

           Non-Cash Transactions
              Intangible expenses paid by Members on behalf of the Company    $     --    $15,596
                                                                              ========    =======
</TABLE>

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 in December 2001.

The Company received stock subscriptions during 2001 in the amount of
$1,350,000, which remained outstanding as of December 31, 2001.


                                      F-24
<PAGE>

                                  ASTRALIS LTD.
                          (A Development Stage Entity)
                          Notes to Financial Statements

NOTE 15 - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION (Continued)

The Company recorded preferred stock dividends in the amount of $2,120,000 and
$9,348,750 in 2001 and 2002, respectively, for the beneficial conversion feature
of the preferred stock issued in 2001 and 2002.

Payment of the January, April and July 2002 service fees totaling $1,995,000
were netted against the SkyePharma January 31, 2002 and April 30, 2002, and July
31, 2002 installment purchases of the Company's Series A Preferred stock.

The Company recorded an unrealized loss on its securities available-for-sale of
$15,181 for the year ending December 31, 2002.

In December 2002 the Company financed $39,000 of business insurance.

NOTE 16 - COMMITMENT AND CONTINGENCIES

In December of 2002 Astralis, Ltd. entered into an agreement with MPI Research
("MPI"), in which the Company will pay MPI for services relating to Toxicology I
and Toxicology II studies, which are required by the FDA. The total expected
cost of the two studies is expected to be $426,000 and to be completed by
September of 2003. $107,400 is included as an accrued expense as of December 31,
2002.

NOTE 17 - SUBSEQUENT EVENTS

The Company received a total of $48,000 and $91,315 for payment of stock
subscription receivables during January 2003 and February 2003, respectively.

On January 31, 2003, the Company sold 250,000 shares of its Series A Preferred
stock for $2,500,000 in the final installment of the purchase agreement with
SkyePharma.

On March 24, 2003, the Company's Board of Directors approved a grant, to a
director of the Company, of options to purchase 50,000 shares of common stock.


                                      F-25
<PAGE>

                         Certification of Annual Report

      I, Mike Ajnsztajn, certify that:

1. I have reviewed this annual report on Form 10-KSB of Astralis Ltd.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

<PAGE>

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003                             /s/ Mike Ajnsztajn
                                                 ------------------------------
                                                 Name: Mike Ajnsztajn
                                                 Title: Chief Executive Officer


                                       2
<PAGE>

                         Certification of Annual Report

      I, Gina Tedesco, certify that:

1. I have reviewed this annual report on Form 10-KSB of Astralis Ltd.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and


                                       3
<PAGE>

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003                              /s/ Gina Tedesco
                                                  ------------------------------
                                                  Name: Gina Tedesco
                                                  Title: Chief Financial Officer


                                        4