<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
- -----
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended September 30, 1996
- -----
or
- -----
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
- -----
Commission file number 0-14691
SENETEK PLC
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
England 77-0039728
- ----------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
23 Palace Street, London SW1E 5HW
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code 011-44-171-828-4800
NOT APPLICABLE
- ------------------------------------------------------------------------------
(former name, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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.
(1) Yes [X] No [ ]
(see page 15)
(2) Yes [X] No [ ]
Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest date practicable.
September 30, 1996 (all one class): 41,606,123
1
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended September 30, 1996 and September 30, 1995,
Nine Months Ended September 30, 1996 and September 30, 1995 3
Consolidated Balance Sheet
September 30, 1996 (unaudited) and December 31, 1995 4
Unaudited Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996 and September 30, 1995, 5
Notes to the Unaudited Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 5 - Management changes 17
Item 6 - Exhibit 19
SIGNATURES 20
2
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SENETEK PLC
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share date)
(Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Product sales $1,745 (48) 4,851 56
Contract service revenue -- -- -- --
Development stage payments -- 25 -- 25
----- ----- ------ -----
Total Revenues 1,745 (23) 4,851 81
Cost of sales (981) (10) (2,611) (21)
Cost of service revenue -- -- -- --
----- ----- ------ -----
Gross Profit 764 (33) 2,240 60
Operating Expenses:
Research & development (562) (395) (1,550) (1,358)
General & administration (699) (398) (1,907) (1,119)
Marketing & promotion (215) (144) (834) (624)
Selling Expenses (223) -- (712) --
------ ------ ------ ------
Total Operating Expenses (1,699) (937) (5,003) (3,101)
Loss from operations (935) (970) (2,763) (3,041)
Interest income 2 106 14 381
Other income 14 -- 62 --
Currency exchange gains -- -- -- --
Loss on sale of investment -- (252) -- (252)
Equity in joint venture (loss) -- -- -- --
Gain on sale of equity in joint venture -- -- -- --
Loss on disposal of subsidiary -- -- -- --
------ ------ ------ ------
Loss before taxation (919) (1,116) (2,687) (2,912)
Taxation -- -- -- --
------ ------ ------ ------
Net Loss $ (919) (1,116) (2,687) (2,912)
------ ------ ------ ------
Net loss per ordinary
share outstanding $ (.02) (.03) (.07) (.07)
Weighted average
Ordinary shares
outstanding 41,606 40,606 40,958 40,451
------ ------ ------ ------
See accompanying notes to unaudited consolidated financial statements.
3
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SENETEK PLC
CONSOLIDATED BALANCE SHEET
(in thousands)
September 30, December 31,
1996 1995
(unaudited) (audited)
Assets
Current Assets:
Cash and Cash Equivalents $ 36 $ 2,237
Inventory at cost 1,752 1,231
Trade Receivables 1,051 800
Non-Trade Receivables 123 41
Prepaids and Deposits 157 118
-------- --------
Total Current Assets 3,119 4,427
Property and Equipment 1,038 1,087
Goodwill and Other Intangible Assets - net 2,194 2,391
-------- -------
Total Assets $ 6,351 $ 7,905
=== ===
Liabilities & Stockholders' Equity
Current Liabilities
Accounts Payable 1,033 955
Accrued Liabilities 216 205
------- -------
1,249 1,160
------- -------
Stockholders' Equity:
Ordinary shares $0.08 (5p) par value:
Authorized shares: 58,000,000
Issued and outstanding shares:
September 30, 1996 - 41,606,123
December 31, 1995 - 40,606,123 3,346 3,266
Share Premium 34,280 33,310
Deficit accumulated during the development (32,604) (29,917)
stage
Equity adjustment from foreign currency
translation 80 86
Total Stockholders' Equity $ 5,102 $ 6,745
=== ===
Total Liabilities and Stockholders' Equity $ 6,351 $ 7,905
=== ===
See accompanying notes to unaudited consolidated financial statements.
4
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SENETEK PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1996 1995
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,687) (2,912)
Adjustments to reconcile
net income to net cash:
Depreciation and amortization 325 164
Write-off of assets under course
of construction 31 --
Gain on sale of equipment -- --
Loss on disposal of subsidiary -- --
Write-off of advances to Tessek -- --
Equity in joint venture loss -- --
Gain on sale of equity in joint venture -- --
Loss on sale of investments -- --
Changes in assets and liabilities:
Trade receivables (increase)/
decrease (251) 95
Non-trade receivables (increase)/
decrease (82) 4
Inventory (increase)/decrease (521) (4)
Prepaids and deposits
(increase)/decrease (39) 2
Accounts payable and accrued
liabilities increase/(decrease) 89 (24)
Other assets (increase)/decrease -- --
------- -------
Net cash used by operating activities $ (3,135) (2,423)
=== ===
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (110) (148)
Purchase of certain assets of Carme Inc. -- (3,800)
Purchases of intangible assets -- --
Purchase of short-term investments -- (52)
Proceeds of sale of short-term investments -- 3,378
Proceeds from disposals of property
& equipment -- 4
Proceeds from disposal of investment -- --
Investment in Tessek -- --
-------- --------
Net cash provided (used) by investing
activities (110) (618)
=== ===
5
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SENETEK PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1996 1995
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of issuance of
Ordinary shares and cl;ass A & B warrants 1,050 827
Issue of Ordinary shares to acquire working
capital of Receptor Technologies Inc -- --
-------- --------
Net cash provided by financing activities $ 1,050 827
=== ===
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,195) (2,214)
Cash and cash equivalents at the beginning
of the period 2,237 5,088
Effect of exchange rate changes on cash (6) (31)
-------- --------
Cash at the end of the period $ 36 2,843
== ===
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
--------------
1996 1995
----- -----
Interest 5 --
Income Taxes -- --
See accompanying notes to consolidated financial statements.
6
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SENETEK PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements incorporate the accounts
of Senetek PLC ("Senetek" or "the Company") and its wholly owned
subsidiaries, MEIS Corporation ("MEIS") and Carme International, Inc.
("CII") (both Delaware corporations) for the nine months ended
September 30, 1996, CII was incorporated on September 21, 1995 and
commenced trading on September 26, 1995 when it acquired certain assets
of Carme Inc. (a Nevada corporation) in an arms-length transaction. All
significant intercompany balances and transactions have been eliminated
in consolidation.
The interim consolidated financial statements reflect all adjustments
(which include only normal, recurring adjustments) which, in the
opinion of management, are necessary for the fair presentation of the
results of the Company at the dates of the balance sheets. The interim
consolidated financial statements have been prepared by the Company
without audit and are subject to year-end adjustment. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
These interim statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1995
Annual Report on Form 10-K.
Results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of results to be achieved for the full
fiscal year.
2. The accounts have been prepared in accordance with U.S. generally
accepted accounting principles (U.S.GAAP).
3. The Company follows currency principles established by Statement of
Financial Accounting Standards No. 52. All assets and liabilities in
the balance sheets of the UK parent Company, foreign branches and the
former subsidiary where the functional currency is other than U.S.
dollars are translated at period-end exchange rates. Gains and losses
arising from such translation are not included in determining net
income but are accumulated in a separate component of stockholders'
equity. Effective January 1, 1987, the functional currency of the
Company's foreign operations is the applicable local currency. At the
present time, the day-to-day operations are not dependent on the
economic environment of the relevant functional currency to any
significant extent. Foreign currency transactions representing items of
a revenue nature are recorded using the average monthly US dollar
exchange rate ruling at the time of the transactions, and any gain or
loss is included in the determination of net income or loss in the
period in which they occurred. Prior to December 31, 1986, the
Company's functional currency was UK pounds sterling.
4. Sales, recognized at the time of shipment, are stated at the net
invoiced value of goods and services supplied to customers after
deduction of a value added tax where applicable.
5. During the nine months ended September 30, 1996, the Company issued
1 million new Ordinary shares by way of a private placement at a price
of $1.05 per share.
6. The loss per share is calculated on the basis of the weighted average
of the number of shares outstanding during the three month period as
follows:
7
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Three Months - July 1, 1996 through September 30, 1996
- ------------------------------------------------------
Actual Weighted Average
Equivalent
------ ---------------
Shares outstanding at beginning
and end of period 41,606,123 41,606,123
========== ==========
7. Inventory at cost comprises:
September 30, December 31,
1996 1995
(in $ thousands)
------------- -------------
Finished Goods 857 635
Raw Materials 847 552
Work in Progress 47 44
-------- --------
$ 1,751 1,231
-------- --------
8. Prepaids and deposits comprise the following:
September 30, December 31,
1996 1995
(in $ thousands)
------------- -------------
Deposits 63 51
Prepayments 94 67
--------- ---------
$ 157 118
--------- ---------
8
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9. Accounts payable and accrued liabilities comprise the following:
September 30, 1996 December 31, 1995
(in $ thousands)
------------------ ----------------
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
Trade creditors $ -- 430 -- 413
Directors' fees and
remuneration -- -- -- 3
Staff salaries 22 -- 50 4
Vacation pay accrual 88 -- 29 -
Taxes and social security -- 20 -- 26
Audit, accountancy and
taxation charges 76 22 108 19
Direct research costs -- 207 -- 324
Approved travel and
accommodation expenses -- 18 -- 10
Legal and professional fees 12 92 18 1
Consultancy fees -- 32 - 37
Other liabilities and
accruals 18 212 -- 118
-------- -------- --------- ---------
$ 216 1,033 $ 205 955
-------- -------- --------- ---------
10. Commitments
-----------
As of September 30, 1996, the Company plans to provide funding for
various testing and approval requirements of approximately $390,000.
This development expenditure is scheduled to be incurred during the
remaining portion of the year ending December 31, 1996. Other
commitments include obligations under employment and consulting
agreements and property leases.
In addition, capital expenditure of approximately $425,000 is
anticipated during the remainder of 1996 representing part-payments
towards the acquisition of additional plant and machinery over the next
18 months for the manufacture and assembly, at a commercial volume, of
the Company's auto-injector syringe components at MEIS, for
photographic equipment at CII, and for protective facilities for the
storage of testing data at the Company's new scientific base at
Kettering in the UK. This proposed expenditure is designed to increase
production capacity to a commercial volume. Such expenditure is subject
to the adequacy of the Company's financial resources or the
availability of leasing or loan facilities.
9
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SENETEK PLC AND SUBSIDIARIES
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HISTORICAL DISCLOSURE
Senetek was formed in the United Kingdom in October 1983 and received its
initial funding from a November 1983 public issuance of Ordinary shares in the
U.K. A subsequent public financing was completed in the United States in May
1986. Since that date, save for an additional registration in May 1993 of shares
issued to a US holder, the Company has relied on private placements of Ordinary
shares to overseas investors to add to its capital base. As of September 30,
1996, approximately 97 per cent. of its outstanding shares were quoted in
American Depositary Share format on the National Association of Securities
Dealers Automated Quotations System.
The Company sponsors research and development in the field of the life sciences,
with particular emphasis on research relating to diseases associated with
senescence or aging. In September 1995, the Company extended its range of
interests by acquiring, through its newly formed wholly-owned subsidiary CII,
the majority of the assets of Carme Inc., an organization based in Novato,
California that had concentrated on the manufacture and distribution of health
and beauty products. This acquisition was designed to promote the Company's
interest in the area of skin-care and ultimately to provide a vehicle for the
development and distribution of VivaKin, (formerly designated "Factor X") in a
cosmetic format. In the meantime, after allergenic studies, the Kinetin compound
has been introduced into CII's Mill Creek product range.
The main research areas in which the Company is involved are the treatment of
male sexual dysfunction ("MSD"), for which a Clinical Trial Exemption
application has been approved in the UK, and an Investigational Drug Application
("IND") filed with the US Food and Drug Administration ("FDA"). Phase III
clinical trials are currently in progress in the UK. In addition, the Company
plans to develop, manufacture and sell its self-administered automatic injector
syringe, through MEIS, and to manufacture and distribute a wide range of health
and skin care products through CII. The Company is currently working to develop
and sell additional cosmetic products incorporating the Kinetin compound, and
also at a later stage, to develop VivaKin as a pharmaceutical product for the
amelioration of age related skin disorders, including premature aging.
In July 1994, an agreement was entered into with the Research Foundation for
Mental Hygiene Inc ("the Foundation") whereby the Company was granted the
exclusive rights for the sale to the scientific community, for research and
diagnostic purposes, of a number of cell lines under the control and ownership
of the Foundation capable of producing certain monoclonal antibodies (including
those derived from Company sponsored research into diagnostic procedures for
Alzheimer's disease) in return for royalty payments to the Foundation.
MATERIAL CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition that are, or may be considered to
be, material are included under "Liquidity and Capital Resources" below.
10
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RESULTS OF OPERATIONS
The Company's operations are carried out through research and development in the
life science and biotechnology fields ("pharmaceuticals") and, through CII, the
manufacture and distribution of health and beauty aids ("cosmetics"). CII
commenced operations on September 26, 1995.
Nine Months Ended
September 30,
1996 1995
(in $ thousands)
Loss From Operations:
Pharmaceuticals:
Revenues 387 81
Gross Profit 274 60
Operating Expenses (3,074) (3,101)
----- -----
Loss from Operations (2,800) (3,041)
Cosmetics:
Revenues 4,464 --
----- ------
Gross Profit 1,966 --
Operating Expenses (1,929) --
----- ------
Profit from Operations 37 --
----- ------
Total Loss From Operations (2,763) (3,041)
Nine Months Ended
September 30,
1996 1995
(in $ thousands)
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from Operations (2,800) (3,041)
Interest Income 14 381
Loss on sale of investments -- (252)
(2,786) (2,912)
Cosmetics:
Profit from Operations 37 --
Other Income 62 --
------- -------
Profit 99 --
Total Overall Loss Before Taxation (2,687) (2,912)
The decrease of $126,000 in the overall loss of the Company's pharmaceutical
division during the nine months ended September 30, 1996 compared with the
corresponding period during 1995 is represented by an increase in gross profit
of $214,000 and a decrease in operating expenses of $27,000 as discussed in the
following sub-sections and from the non-recurrence of a loss of $252,000 on the
sale of investments arising in 1995; these beneficial movements were largely
offset by a decrease of $367,000 in interest income.
11
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The profit of $99,000 realised by the Company's cosmetics division during the
nine months ended September 30, 1996 reflects the results of CII.
Revenues
- --------
The Company's product sales revenues of $1,745,000 for the three months ended
September 30, 1996 comprised $170,000 from the sale of its pharmaceutical
products, and $1,575,000 from the sale of health and cosmetic beauty aids.
For the nine months to September 30, 1996, sale revenues were $4,851,000
comprising $387,000 from pharmaceutical products and $4,464,000 from health and
cosmetic beauty aids.
OPERATING EXPENSES
Research and Development
- ------------------------
Pharmaceutical Division
- -----------------------
Research and development expenses for the three months ended September 30, 1996
were $528,000, of which $300,000 related to direct research costs, and $228,000
was accounted for by indirect research activities consisting primarily of the
allocation to this heading of travel and accommodation in connection with
matters relating to research and development and the depreciation and
amortization of scientific research equipment and proprietary technology. For
the equivalent three month period in 1995, the costs totalled $395,000 with
direct and indirect research expenses accounting for $143,000 and $252,000
respectively.
For the nine months ended September 30, 1996 research and development costs were
$1,440,000 of which $743,000 related to direct and $697,000 to indirect research
costs. For the equivalent nine month period in 1995, the costs totalled
$1,358,000 with direct and indirect research costs accounting for $563,000 and
$795,000 respectively.
The increase of $180,000 in direct research costs for the nine months ended
September 30,1996 compared with 1995 is accounted for by an increase of $97,000
in the cost of the development of the Company's self-administered auto-injector
syringe, an increase of $75,000 in the cost of clinical trials relating to the
MSD compound, and an additional net cost of $8,000 in the research program
relating to certain aging projects.
The decrease of $98,000 in indirect research costs for nine months ended
September 30, 1996 compared with 1995 is due mainly to reductions in the
compensation payable to the Chief Executive Officer attributable to this heading
and a saving in outside scientific consulting fees. These decreases in
expenditure are partially off-set by an increase in rental charges relating to
the Company's new premises in the UK and the USA.
Cosmetics Division
- ------------------
Expenditure on research and development by CII in the three months ended
September 30, 1996 totalled $34,000 representing indirect costs including a
proportion of salary costs and associated expenses, rent, utilities and general
overheads attributable to this heading, together with prototype and testing
costs and minor items covering expensed equipment and software.
For the nine months ended September 30, 1996, these expenses totalled $110,000.
12
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General and Administration
- --------------------------
Pharmaceutical Division
- -----------------------
General and administration expenses for the three months ended September
30, 1996 were $461,000 and for the equivalent three month period in 1995,
$398,000.
These expenses for the nine months ended September 30, 1996 were $1,141,000 and
for the corresponding period in 1995, $1,119,000, representing a net increase
of $22,000.
Cosmetics Division
- ------------------
The general and administration expenses incurred by CII for the three months
ended September 30, 1996 totalled $238,000, and includes a proportion of salary
costs and associated expenses, together with consultancy services, professional
fees, the cost of amortization of goodwill, and the allocation of general
overheads and costs to this heading.
For the nine months ended September 30, 1996, these costs totalled $766,000.
Marketing and Promotion
- -----------------------
Pharmaceutical Division
- -----------------------
Marketing and promotion expenses for the three months ended September 30,
1996 totalled $149,000 compared with $144,000 for the equivalent three
month period in 1995.
These expenses for the nine months ended September 30, 1996 were $493,000 and
for the corresponding period in 1995, $624,000. The decrease of $131,000 for
1996 compared to 1995 is mainly due to (i) a non-recurrence of additional
compensation payable to a former Director of the Company in 1995, (ii) the
re-allocation to CII of the salary costs and associated expenses of an Executive
Vice President, (iii) a non-recurrence of the cost of producing the Company's
Corporate Capabilities brochures in 1995, and (iv) a saving in outside
consulting fees in the area of investor relations.
Cosmetics Division
- ------------------
The marketing and promotional expenses incurred by CII for the three months
ended September 30, 1996 totalled $66,000 and represents the cost of advertising
the Company's products in magazines, trade journals and at trade shows, together
with a proportion of general overheads allocated to this heading.
For the nine months ended September 30, 1996, these expenses totalled $341,000.
13
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Selling Expenses
- ----------------
Cosmetics Division
- ------------------
Selling expenses incurred by CII in the three months ended September 30, 1996
amounted to $223,000 and include selling commissions paid to brokers together
with the cost of overheads allocated to this heading.
For the nine months ended September 30, 1996 these costs totalled $712,000.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, the Company's liquidity
represented by cash and deposits at banks decreased by $2,201,000 to $36,000.
This reduction is attributable to (i) the overall loss of $2,687,000 for the
nine month period (after crediting interest income of $14,000 and other income
of $62,000), (ii) the purchase of capital and computer equipment totalling
$110,000, (iii) an increase of $521,000 in inventory held at cost, (iv) an
increase of $372,000 in trade and non-trade receivables, (v) the adverse effect,
totalling $6,000 of exchange rate movements on non-US cash and cash equivalents
when converted to US dollars for the purpose of the Company's Financial
Statements. These liquidity outgoings were off-set by (i) the receipt of
$1,050,000 in equity subscriptions for new Ordinary shares in the Company, (ii)
a charge to revenue representing the cost of assets under the course of
construction totalling $31,000 (which after review have now been deemed to cover
prototype development and included in the calculation of the overall loss
referred to above), and (iii) the non-cash depreciation and amortization charge
of $325,000 also included in the calculation of the overall loss referred to
above, and (iv) an increase of $89,000 in accounts payable and accrued
liabilities.
The Company anticipates that expenditure could exceed income by approximately $1
million through the development of its pharmaceutical products and on its
administrative and marketing structure during the 3 months to December 31, 1996.
In addition, the Company proposes to incur further expenditure on capital
equipment during fiscal 1996, as indicated in the "Notes to the Unaudited
Consolidated Financial Statements", Item 10, above. Although management believes
that there is a possibility of initial payments from potential licensees of the
MSD product, and also for the syringe, being received in 1996, and also that
revenues may be realized through CII, such revenues even if realized will not be
sufficient to address the Company's projected financial requirements. The
Company has therefore effected funding arrangements through the issuance of a
series of 8% Debentures with attached Warrant entitlements, convertible within a
3 year period. The interest element attaching to the Debentures is payable, at
the Debenture holders option, either in cash or shares at the time of
conversion. These arrangements were consummated in October 1996, and resulted in
the Company receiving gross proceeds of $3.5 million. Although management
believes that Senetek will be able to address its longer term commercial
objectives and financial needs, no assurances can be given that the Company will
be successful in achieving either revenues at a reasonable level in the short to
medium term, or capital funding at an adequate level in the near future.
The objective of the major investment in CII was to facilitate the development,
manufacture and marketing of a cosmetic compound containing the Company's
VivaKin product together with the prospect, through the installation of a new
management team, of utilising the assets acquired from Carme Inc. for the
purpose of making a positive contribution to the Company's consolidated results.
However, in the case of the development of VivaKin as a pharmaceutical as
opposed to a cosmetic product, considerable expenditure would need to be
committed to this project and the speed at which this work can be undertaken
will depend upon the Company's financial resources.
14
<PAGE>
Upon the acquisition of the assets of Carme Inc., the Company incurred the
obligation of including 3 prior years audited financial statements for that
organisation when filing Form 8-K with the Securities Exchange Commission
("SEC"). The Company has been unable to obtain audited financial statements for
the 3 years in question and has only been able to procure audited financial
statements for the period from January 1, 1995 to September 25, 1995. The
non-availability of the 3 years' audited financial statements means that Senetek
is precluded from effecting registration statements under the Securities Act of
1933 covering a public issuance of registered securities until the Company has
filed audited financial statements, incorporating CII, for a 3 year period.
However, management has been advised that under new regulations promulgated by
the US Securities and Exchange Commission it is possible that this period of
restriction may now be reduced to 1 year. If this is feasible, it may be
possible to re-commence the registration of the Company's securities during the
first half of 1997. In the meantime, management will endeavour to procure
funding through equity subscriptions or through other sources. However no
assurances can be given that these funding negotiations, that are currently at
an advanced stage, will be consummated.
FUTURE PROSPECTS
The Company proposes to expedite the development and subsequent
commercialization of the MSD product either through its own resources or in
co-operation with one or more licensees. The Company continues to seek
agreements on acceptable terms with parties who have expressed interest in
acquiring licensing rights for certain major territories and although
discussions are in progress regarding licensing rights for individual areas in
Europe, there can be no assurance that agreements on acceptable terms will
ultimately be effected with the parties concerned. However, in the event that
terms cannot be negotiated on a sufficiently attractive basis, the Company may
decide, financial considerations permitting, to undertake the commercial
exploitation for certain territories for its own account.
The immediate objective is to achieve the successful completion of Phase III
clinical trials in the UK for the MSD product leading to a Product License
Application in early 1997 and the subsequent granting of a Product License.
Pending these developments, it is anticipated that sales, which at present are
restricted to clinicians for use on a "named-patient" basis, will continue to
increase although such income is unlikely to make a material contribution to the
Company's revenues.
The auto-injector syringe has been fully developed and the syringe is available
for commercialization and for testing purposes as a delivery system for the MSD
product. However, production at what it is hoped will be a substantial
commercial volume is dependent upon the acquisition of additional specialized
plant and machinery at a cost, to be incurred over an 18 month period, estimated
to be in the region of $2.2 million. There can be no assurance that the Company
will be able to acquire this equipment upon acceptable terms, or at all.
With regard to the development and marketing of VivaKin and its potential
associated products, the acquisition of CII has provided the necessary
production and marketing facilities for its incorporation into cosmetic products
which, it is hoped may, at a later stage make a positive contribution to the
Company's revenues, although no assurance can be given as to the successful
consummation of this objective.
In the case of monoclonal antibodies derived from the Company's sponsored
research into Alzheimer's disease, and from other sources, sales to scientific
institutions are being achieved at an encouraging volume in 1996, and whilst the
amounts involved are unlikely to be substantial, it is anticipated that it
should be possible to achieve and maintain a flow of revenue at a reasonable
level.
15
<PAGE>
It is not practicable at the present time to indicate the probable future
operating results and equity capital requirements, but it is anticipated that
revenues may be generated by the Company during fiscal 1996, possibly, through
(i) the receipt of licensing fees relating to the MSD project, (ii) from the
trading results of CII, (iii) from the sales of monoclonal antibodies and (iv)
from sales or licensing of the syringe. However, no assurances can be given that
this course of events will transpire.
Except for the historical information contained herein, the statements contained
in this 10-Q may be deemed forward looking statements that involve risks and
uncertainties. There are certain important factors and risks, including, without
limitation, the Company's need for additional financing, its history of losses
and its dependence on key personnel and the other risks detailed from time to
time in the Company's Securities and Exchange Commission filings on Form 10-K
and 10-Q, that could cause results or prospects to differ materially from those
anticipated by the statements made herein.
The Company's cash requirements have been and will continue to be significant.
Senetek currently has sufficient equity, cash flow and bank facilities to
continue its operation for a period of approximately 6 months which will cover,
in particular the estimated timing of the submission of a Product Licence
application in the UK, Ireland and Denmark for its MSD product. In the event
that the Company is unable to receive additional funding, or the cost of
development and operations prove greater than anticipated, the Company could be
required to curtail its operations or to seek alternative financing
arrangements. There can be no assurances that such additional financing, if
available, will be on terms acceptable to the Company. If the Company's future
cash requirements cannot be successfully addressed there would be a material
adverse effect on the Company's business, its financial condition and results of
operations.
16
<PAGE>
PART II OTHER INFORMATION
Item 5 Management Change
On September 1, 1996 the Company entered into an Employment Agreement with Mr
Anthony J. Cataldo whereby he was appointed Chairman of the Board of Directors
and Chief Executive Officer of the Company. Mr Cataldo, (age 45) has focused on
the financing and management of emerging companies, particularly in the
technology and medical sectors. He was Chairman and Chief Executive Officer of
Management Technologies inc. covering a period from 1990 to 1995 and has acted
as a financial consultant to Palomar Medical Technologies Inc. Dr Gerlof Homan,
the Company's former Chairman and Chief Executive Officer has resigned from
these positions but remains a Director of the Company. As the Company's Chief
Scientific Advisor he will continue to make his extensive experience and
expertise available to the Company.
Item 6 Exhibit
Employment Agreement with Mr Cataldo as referred to herein.
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
10.35 Employment Agreement dated September 1, 1996 between the
Company and Mr Anthony J. Cataldo
18
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SENETEK PLC
Dated: November 13 1996 By: /S/ANTHONY J. CATALDO
----------------- ----------------------------
Anthony J. Cataldo
President and Chief Executive
/S/ P.A. LOGAN
----------------------------
By: Paul Anthony Logan
Secretary and Chief Financial
Officer
19
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 1st day of September, 1996
("Agreement"), by and between SENETEK, PLC, having a place of business at 62A
Weldon Parkway, Maryland Heights, Missouri 63048 (hereinafter referred to as
"EMPLOYER") and ANTHONY J. CATALDO, residing at 63 North East Village Road,
Concord, New Hampshire 03301 (hereinafter referred to as "EMPLOYEE").
W I T N E S S E T H :
WHEREAS, the EMPLOYER is engaged in the business of developing various
biomedical products in the areas of male sexual dysfunction and age-related skin
disorders, as well as the manufacture and distribution of a wide range of health
and cosmetic beauty products; and
WHEREAS, the EMPLOYER wishes to employ EMPLOYEE and EMPLOYEE wishes to
be employed by EMPLOYER in accordance with the terms and conditions set forth in
this Agreement;
--------------
NOW, THEREFORE, in consideration of the mutual covenants and promises
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is mutually agreed as follows:
FIRST: The EMPLOYER does hereby employ, engage and hire the EMPLOYEE
as Chairman of the Board of Directors and Chief Executive Officer of EMPLOYER
for a period of two years commencing September 1, 1996 and terminating August
30, 1998, subject to the provisions stated herein ("Term"). The duties of the
EMPLOYEE shall include, but not be limited to, assisting the EMPLOYER in
managing its relationship with current and potential investors, obtaining the
support of a well-established, well-known market-maker for the EMPLOYER's
securities and obtaining financing for EMPLOYER.
SECOND: The EMPLOYEE agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talent, perform all
of the duties that may be required of and from him pursuant to the express and
implicit term hereof.
THIRD: The EMPLOYER shall pay to the EMPLOYEE and the EMPLOYEE agrees
to accept from the EMPLOYER in full payment for the EMPLOYEE's services
hereunder, compensation at the rate of $250,000 per year of the Term. Such
payments shall be paid pursuant to the procedures regularly established, as they
may be
<PAGE>
amended, by the EMPLOYER during the course of the term of this Agreement.
FOURTH: Upon the due execution and delivery of this Agreement,
EMPLOYER shall grant to EMPLOYEE stock options to purchase: (a) 500,000 ordinary
shares of the EMPLOYER at an exercise price of $1.25 per share upon the EMPLOYEE
obtaining the support of a well-known, well-established market-maker for the
EMPLOYER's securities; (b) 150,000 ordinary shares at the exercise price of
$1.50 per share at the end of the first year of this Agreement; and (c) 150,000
options at an exercise price of $4.00 at the end of the second year of the
Agreement. Subject to all securities and other applicable laws, the Company will
use reasonable efforts to register under a Form S-8 Registration Statement all
stock options granted to EMPLOYEE, or EMPLOYEE will shall have cost-free demand
registration rights on two occasions for the underlying shares. EMPLOYEE will
also have reasonable piggy-back registration rights for the shares underlying
these options. All stock options are exercisable over a period of the greater of
three (3) years from the date of grant and one (1) year following the
termination of this Agreement.
FIFTH: EMPLOYEE may act as a consultant for other companies, provided,
such arrangement does not interfere with the business of EMPLOYER, does not
directly or indirectly compete with EMPLOYER, does not cause any loss of time in
EMPLOYEE's duties with EMPLOYER, and does not interfere with the EMPLOYEE's
ability to diligently and faithfully serve and endeavor to further the
EMPLOYER's interest. EMPLOYER recognizes that EMPLOYEE is currently a consultant
for the other companies listed on Schedule A hereto. In the event that EMPLOYEE,
during the term of the Agreement, wishes to act as a consultant to any other
company, EMPLOYEE will notify EMPLOYER in writing and EMPLOYEE must obtain
EMPLOYER's written consent, which will not be unreasonably withheld. EMPLOYER
represents and warrants that this Agreement has been ratified, adopted and
confirmed by the Board of Directors of EMPLOYER.
SIXTH: Subject to Paragraph FIFTH, the EMPLOYEE shall devote
all of his working time, attention, knowledge and skill solely and exclusively
to the business and interest of the EMPLOYER. The EMPLOYEE expressly agrees that
he will not, during the term hereof or for two (2) years from the termination of
this Agreement, be involved directly or indirectly, in any form, fashion or
manner, as a partner, officer, director, stockholder, advisor, consultant or
employee in any other business similar to or in any way competing with the
business of the EMPLOYER. Nothing herein contained shall, however, limit the
rights of the EMPLOYEE to own up to 35% of the capital stock or other securities
of any corporation whose stock or securities are publicly owned or traded
regularly on a public exchange or in the over-the-counter market, or to prevent
the EMPLOYEE from investing financially in, or limiting the EMPLOYEE's rights to
invest financially in, other businesses not allied with or
2
<PAGE>
competing with the business of the EMPLOYER, as long as EMPLOYEE continues to
devote all of his working time, attention, knowledge and skill solely and
exclusively to the business and interest of the EMPLOYER.
SEVENTH: During the course of EMPLOYEE's employment under this
Agreement, and for five (5) years thereafter, the EMPLOYEE specifically agrees
that he will not, at any time, in any fashion, form or manner, either directly
or indirectly, use, divulge, disclose or communicate to any person, firm or
corporation, in any manner whatsoever, any confidential or proprietary
information of any kind, nature or description concerning any matters affecting
or relating to the business of the EMPLOYER, including, without limiting the
generality of the foregoing, any of its customers, its manner of operations, its
plans, its ideas, processes, programs, its intellectual property or other data,
information or materials of any kind, nature or description without regard to
whether any or all of the foregoing matters shall be deemed confidential,
material or important. The parties hereto stipulate that as between them the
same are important, material, confidential and gravely affect the effective and
successful conduct of the business of the EMPLOYER and its good will, and that
any breach of the terms of this paragraph is a material breach thereof, except
where the EMPLOYEE shall be acting on behalf of the EMPLOYER. EMPLOYEE
understands and agrees that in the event that EMPLOYEE violates the terms and
conditions as stated in this paragraph, that he will be subject to an injunction
and damages, and understands and agrees that EMPLOYER's remedy to prevent
further or continued damages will include a petition for injunctive relief.
EMPLOYEE expressly acknowledges that the restrictions contained in this
paragraph are reasonable and are properly required for the adequate protection
of the EMPLOYER's interests.
EMPLOYEE further understands and agrees that EMPLOYER, in entering
into this Agreement, is relying upon EMPLOYEE's representation and warranty that
all trade secrets and other proprietary information of EMPLOYER will be kept
strictly confidential by EMPLOYEE and not utilized by EMPLOYEE in any manner
whatsoever other than on EMPLOYER's behalf during the course of EMPLOYEE's
employment with EMPLOYER.
EIGHTH: Employee agrees that during the term of this Agreement, and
for two (2) years after termination hereof, he shall not, for himself or any
third party, directly or indirectly divert or attempt to divert from the
EMPLOYER or its subsidiaries or affiliates any business of any kind in which it
is engaged or employ, solicit for employment, or recommend for employment any
person employed by the EMPLOYER or by any of its subsidiaries or affiliates,
during the period of such person's employment and for a period of two (2) years
thereafter. EMPLOYEE expressly acknowledges that the restrictions contained in
this paragraph are reasonable and are properly required for the adequate
protection of the EMPLOYER's interests.
3
<PAGE>
NINTH: It is expressly understood and agreed that the terms of this
Agreement, except for Paragraphs SIXTH, SEVENTH and EIGHTH, may be terminated by
the EMPLOYER prior to August 30, 1998 upon the occurrence of any of the
following events:
(a) Automatically and without notice upon the death of the EMPLOYEE;
it is also understood that EMPLOYEE will be entitled to six months' salary which
will be payable to his estate;
(b) Persistent absenteeism on the part of the EMPLOYEE, which in the
reasonably judgment of the Board of Directors of the Company is having or will
have a material adverse effect on the performance of the EMPLOYEE's duties under
this Agreement;
(c) Deliberate and wilful failure to perform normal services and
duties required of EMPLOYEE pursuant to this Agreement, except if the
performance of such duties or services would result in a violation of EMPLOYEE's
fiduciary responsibility to the Company and its shareholders or is in a
violation of applicable laws;
(d) any wilful act or failure to act, which in the reasonable opinion
of the Board, is in bad faith and to the material detriment of the EMPLOYER;
(e) Conviction of a felony involving moral turpitude or dishonesty;
(f) Total or partial disability of the EMPLOYEE for a period of three
(3) consecutive months or ninety (90) days in the aggregate so that he is
prevented from satisfactorily performing a substantial part of his duties; it
being further understood and agreed that any proceeds received by EMPLOYER from
a policy of disability benefits insurance or any other proceeds received from
any Federal, State or Municipal agency of government will be credited to the
amount of compensation paid to EMPLOYEE by EMPLOYER; and
(g) Fraudulent misconduct of the EMPLOYEE.
In the event of a material change in the Board of Directors of
EMPLOYER (other than with the acknowledgment of EMPLOYEE) or the wilful failure
of the Company to fulfill its material obligations under this Agreement, upon
thirty (30) days written notice by EMPLOYEE to EMPLOYER, EMPLOYEE may also
terminate this Agreement, except that Paragraphs SIXTH, SEVENTH and EIGHTH shall
survive for the terms set forth in such paragraphs.
TENTH: EMPLOYER agrees that EMPLOYEE will be entitled during the Term
to all fringe benefits in effect for executive officers of the EMPLOYER, such as
Blue Cross/Blue Shield and
4
<PAGE>
Major Medical insurance benefits which are afforded to key employees of the
EMPLOYER.
ELEVENTH: This Agreement contains the total and entire agreement
between the parties and shall, as of the effective date hereof, supersede any
and all other agreements between the parties. The parties acknowledge and agree
that neither of them has made any representations that are not specifically set
forth herein and each of the parties hereto acknowledge that he or it has relied
upon his or its own judgment in entering into the same.
TWELFTH: The parties hereto do further agree that no waiver or
modification of this Agreement or of any covenant, condition or limitation
herein contained, shall be valid, unless in writing and duly executed by the
party to be charged therewith and that no evidence of any proceedings or
litigation between either of the parties arising out of or affecting this
Agreement or the rights and obligations of any party hereunder shall be valid
and binding unless such waiver or modification is in writing, duly executed, and
the parties further agree that the provisions of this paragraph may not be
waived except as herein set forth.
THIRTEENTH: The parties hereto agree that it is their intention and
covenant that this Agreement and the performance hereunder shall be construed in
accordance with and under the laws of the State of Missouri and that the terms
hereof may be enforced in any court of competent jurisdiction in an action for
specific performance which may be instituted under this Agreement.
FOURTEENTH: EMPLOYER indemnifies and holds harmless EMPLOYEE from any
claims of any type against EMPLOYER that arise prior to the date of the
commencement of this Agreement.
FIFTEENTH: EMPLOYEE warrants and represents to EMPLOYER that EMPLOYEE
has had sufficient and adequate opportunity to consult with Employee's counsel
concerning the within agreement and is aware that EMPLOYER is relying upon the
within representation concerning entering into the agreement herein.
SIXTEENTH: All notices required or permitted to be given by either
party hereunder shall be in writing and mailed by registered mail, return
receipt requested and by regular mail to the other party addressed as follows:
If to EMPLOYER at: SENETEK, PLC
62A Weldon Parkway
Maryland Heights, Missouri 63043
If to EMPLOYEE at: 63 North East Village Road
Concord, New Hampshire 03301
5
<PAGE>
Any notice mailed as provided above shall be deemed completed on the
date of receipt, or five (5) days from the postmark on said postal receipt.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals the day, month and year first above written.
SENETEK, PLC
By: _____________________________
ANTHONY J. CATALDO
6
<PAGE>
SCHEDULE A
The companies for which EMPLOYEE provides consulting services are:
None
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
</LEGEND>
<CIK> 0000789944
<NAME> SENETEK PLC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 1,051
<ALLOWANCES> 0
<INVENTORY> 1,752
<CURRENT-ASSETS> 3,119
<PP&E> 1,038
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,351
<CURRENT-LIABILITIES> 1,249
<BONDS> 0
<COMMON> 3,346
0
0
<OTHER-SE> 1,756
<TOTAL-LIABILITY-AND-EQUITY> 6,351
<SALES> 4,851
<TOTAL-REVENUES> 4,927
<CGS> 2,611
<TOTAL-COSTS> 7,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,687
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,687
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
