<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-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 March 31, 1997
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.
March 31, 1997 (all one class): 46,468,460
------------------------------------------
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PART 1. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended March 31, 1997 and March 31, 1996 3
Consolidated Balance Sheet
March 31, 1997 (unaudited) and December 31, 1996 4
Unaudited Consolidated Statement of Cash Flows
Three Months Ended March 31, 1997 and March 31, 1996, 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 11. OTHER INFORMATION
Not applicable
SIGNATURES 17
2
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(Unaudited)
3 Months Ended 3 Months Ended
March 31, March 31,
1997 1996
-------------- --------------
Revenues:
Product Sales $1,436 $1,622
Cost of Sales (906) (867)
------ ------
Gross Profit 530 755
Operating Expenses:
Research & Development (881) (410)
General & Administration (796) (546)
Marketing & Promotion (598) (312)
Selling Expenses (231) (210)
------ ------
Total Operating Expenses (2,506) (1,478)
Loss from Operations (1,976) (723)
Interest income 28 10
Interest expense (22) --
Other income/(expense) (4) 23
------- ------
Loss before Taxation (1,974) (690)
------- ------
Taxation -- --
Net Loss $(1,974) $(690)
Net loss per ordinary _______ _______
share outstanding $(0.04) $(0.02)
Weighted average Ordinary shares
outstanding 45,610 40,606
------ ------
See accompanying notes to unaudited consolidated financial statements.
3
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, December 31,
1997 1996
unaudited)
------------ -------------
Assets
Current Assets:
Cash and Cash Equivalents $2,299 $2,975
Inventory at cost 1,824 1,657
Trade Receivables 844 771
Non-Trade Receivables 39 88
Prepaids and Deposits 277 138
----- -----
Total Current Assets 5,283 5,629
Property and Equipment, net 1,528 1,182
Goodwill and Other Intangible Assets - net 2,131 2,128
Deferred Financing Costs 292 902
------ ------
Total Assets $9,234 $9,841
====== ======
Liabilities & Stockholders' Equity
Current Liabilities
Bank Overdraft (secured 1997) 200 230
Accounts Payable 1,384 1,236
Accrued Liabilities 309 412
8% Convertible Debentures 1999 600 1,700
----- -----
2,493 3,578
----- -----
Stockholders' Equity:
Ordinary shares $0.08 (5 pence) par value:
Authorized shares: 58,000,000
Issued and outstanding shares:
March 31, 1997 - 46,468,460
December 31, 1996 - 43,899,205 3,744 3,533
Share Premium 38,771 36,607
Accumulated Deficit (35,845) (33,937)
Equity Adjustment from Foreign Currency
Translation 71 60
-------- -------
Total Stockholders' Equity $6,741 $6,263
===== =====
Total Liabilities and Stockholders' Equity $9,234 $9,841
===== =====
See accompanying notes to unaudited consolidated financial statements.
4
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
1997 1996
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,974) $ (690)
Adjustments to reconcile net loss to net cash: 151 81
Depreciation and amortization
Changes in assets and liabilities:
Trade Receivables (increase)/ decrease (73) (132)
Nontrade Receivables (increase)/decrease 49 23
Inventory (increase)/decrease (167) (453)
Prepaids and deposits(increase)/decrease (139) (24)
Accounts payable and accrued
liabilities increase/(decrease) 45 (179)
Other Assets (increase)/decrease -- --
---- ----
Net Cash Used by Operating Activities $(2,108) $(1,374)
======= =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment $ (276) $ (13)
-------- ------
Net Cash Used by Investing Activities $ (276) $ (13)
======== =======
5
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
1997 1996
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Issuance of Ordinary Shares from
Exercise of Warrants $1,733 --
Net repayment of Short term loans and overdrafts (30) --
------ -----
Net Cash Provided By Financing Activities $1,703 --
===== ====
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (681) $(1,387)
Cash and cash equivalents at the beginning of period 2,975 2,237
Effect of exchange rate changes on cash 5 (7)
----- ------
Cash and Cash Equivalents at the
end of the period $2,299 $ 843
===== =====
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
----------------
1997 1996
---- ----
Interest $22 --
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 and its wholly owned subsidiaries, MEIS Corporation and Carme
International, Inc. ("CII") (both Delaware corporations) for the three
months ended March 31, 1997 and from inception. CII was incorporated on
June 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. The accounts for the Company's former Danish subsidiary,
Senetek A/S, are included in the results from inception. 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 1996 Annual Report
on Form 10-K.
Results of operations for the three months ended March 31, 1997 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
7
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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 3 months ended March 31, 1997, the Company issued 2,569,255 new
Ordinary shares through the conversion by debentureholders of 8%
Convertible Debentures into shares and the exercise of warrant entitlements
at an average price of $1.15 per share.
8
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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:
Three Months - January 1, 1997 through March 31, 1997
-----------------------------------------------------
Weighted Average
Actual Equivalent
------ ----------------
Shares outstanding at beginning
of the period 43,899,205 43,899,205
Exercise of warrants 1,285,185 495,852
Conversion of Debentures 1,284,070 1,215,3443
---------- ----------
Shares outstanding at the end
of the period 46,468,460 45,610,400
---------- ----------
7. Inventory at cost comprises:
March 31, December 31,
1997 1996
(in $ thousands)
---------------------------
Finished Goods $ 881 $ 879
Raw Materials 937 776
Work in Progress 6 2
----- -----
$1,824 $1,657
----- -----
8. Prepaids and deposits comprise the following:
March 31, December 31,
1997 1996
(in $ thousands)
---------------------------
Deposits $ 73 $ 67
Prepayments 204 71
--- ---
$277 $138
--- ---
9
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9. Accounts payable and accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1997
(in $ thousands)
-----------------------------------------------------------
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
<S> <C> <C> <C> <C>
Trade creditors $ -- 401 $ -- 495
Staff salaries 23 10 60 8
Vacation pay accrual 79 -- 71 --
Taxes and social security 13 18 -- 28
Audit and accountancy fees 99 13 107 18
Research grants & costs -- 530 -- 368
Approved travel and
accommodation expenses -- 9 -- 15
Legal and professional fees 39 62 20 52
Consultancy fees 13 -- 15 15
Other liabilities and accruals 43 341 39 237
Accrued financing costs on
issue of convertible debentures -- -- 100 --
---- ----- ---- -----
$ 309 1,384 $ 412 1,236
----- ----- ----- -----
</TABLE>
10. Commitments
-----------
As of March 31, 1997, under various research agreements and proposed testing
procedures, the Company plans to provide funding to research programs of
approximately $1.1 million which fall due during the remaining portion of the
year ending December 31, 1997. Other commitments include obligations under
employment and consulting agreements and property leases.
Additional capital expenditure of approximately $1.4 million is anticipated
during the remainder of 1997 in connection with the proposed purchase of
additional plant and machinery for increasing the production facilities for the
Company's auto-injector syringe.
10
<PAGE>
SENETEK PLC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HISTORICAL DISCLOSURE
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto and with the Company's
audited financial statements, notes to the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations relating thereto included or incorporated by reference in the
Company's Annual Report on Form 1O-K for the fiscal year ended December 31,
1996.
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.
Senetek PLC ("Senetek" or the "Company") 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 March 31, 1997, approximately 95 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 in the field of the life sciences with particular
emphasis on research relating to diseases associated with senescence or aging
and the subsequent commercial exploitation of the results of such research. The
main area in which the Company is involved is the treatment of male sexual
dysfunction ("MSD") which includes the development, manufacture and sale of the
Company's patented self-administered automatic syringe as a delivery system.
Following the successful conclusion of the Phase III clinical trials in the
United Kingdom the Company filed a Product License Application for the MSD
product in April 1997 with the objective of obtaining the grant of a Product
License for the commercial exploitation of the product. In addition the Company
plans to commence clinical trials in the US during the second half of 1997 for
the purpose of obtaining approval of its MSD product from the Food and Drug
Administration ("FDA") in due course.
11
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In December, 1993, the Company formed a wholly owned subsidiary, MEIS
Corporation (a Delaware Corporation) based in St. Louis, Missouri, for the
purposes of designing, manufacturing and exploiting the syringe, initially as a
delivery system for its MSD product. Subsequently, possible other applications
for the syringe have been investigated, notably in the case of Epinephrine, an
antidote against anaphylactic shock.
The Company has filed an Abbreviated New Drug Application ("ANDA") with the FDA,
for the proposed application of Epinephrine by subcutaneous injection delivered
through its syringe and is also planning to file for U.K. approval during 1997.
Epinephrine is designed as an antidote against anaphylactic shock, triggered by
allergic reaction against conditions including food poisoning and insect stings.
It is hoped that approval for marketing may be obtained during the last quarter
of 1997, in which event it may be possible to commence commercial sales of one
of the dose ranges during the current fiscal year. In addition, the Company
plans to file an ANDA with the FDA for a pediatric application for this product.
In September, 1995, the Company extended its interests by forming another wholly
owned subsidiary, Carme International Inc ("CII"), a Delaware Corporation based
in Novato, California, for the acquisition, through CII, of the majority of the
assets of Carme Inc., an organisation based in Novato, that had concentrated on
the manufacture and distribution of a wide range of health and beauty products.
This acquisition was designed to promote the Company's interest in the area of
skin care, with particular reference to potential anti-aging aspects, and
specifically to provide a vehicle for the manufacture and distribution of a
product featuring the anti-aging Kinetin compound (formerly referred to as
Factor X or Vivakin) in a cosmetic format. CII is reviewing manufacturing
activities at the existing premises and revising its product range and marketing
strategy in order to identify the optimum product mix compatible with its
resources. The successful marketing of a range of cosmetic products
incorporating Kinetin is being treated as a matter of priority. The Company is
also undertaking preliminary work on the possible application of Kinetin as a
pharmaceutical product for certain skin disorders.
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.
12
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(in thousands of dollars)
<S> <C> <C>
Loss From Operations:
Pharmaceuticals:
Revenues $ 263 $ 107
Gross Profit 170 68
Operating Expenses (1,701) (808)
----- ----
Loss from Operations (1,531) (740)
----- ---
Cosmetics:
Revenues 1,173 1,515
Gross Profit 359 687
Operating Expenses (805) (670)
--- ---
(Loss)/Profit from Operations (446) 17
--- ---
Total Loss from Operations $(1,977) $ (723)
----- ---
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from Operations $(1,531) $ (740)
Interest Income 27 10
Interest Expense (20) --
Other Expense (3) --
---- ---
(1,527) $ (730)
----- ---
Cosmetics:
(Loss) /Profit from Operations $ (446) $ 17
Other Income -- 23
Interest Expense (1) --
--- --
(447) 40
--- ---
Total Overall Loss Before Taxation $(1,974) $ (690)
----- ---
</TABLE>
13
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The increase of $797,000 in the overall loss of the Company's pharmaceutical
division during the three months ended March 31, 1997 compared with the
corresponding period during 1996 is represented by an increase in operating
expenditure of $893,000 as discussed in the following sub-sections, partially
offset by an increase of $102,000 in gross profit resulting from increased
revenues.
The loss of $447,000 realised by the Company's cosmetics division ("CII") during
the three months ended March 31, 1997 is due to reduced gross revenues and
margins, and an increase of $135,000 in operating expenditure as discussed
below. These results reflect reduced overseas sales, a general decrease in mass
market sales, the discontinuance of certain mass market product lines, and a
substantial increase in marketing and advertising expenses for the development
of the Kinetin products.
Revenues
- --------
The Company's product sales revenues of $1,436,000 for the three months ended
March 31, 1997 comprised $263,000 from the sale of its pharmaceutical products,
and $1,173,000 from the sale of health and cosmetic beauty aids.
Research and Development
- ------------------------
Pharmaceutical Division
- -----------------------
Research and development expenses for the three months ended March 31, 1997 were
$832,000, of which $512,000 related to direct research costs, and $320,000 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 1996, the costs totalled $369,000, with
direct and indirect research expenses accounting for $162,000 and $207,000
respectively.
The increase of $350,000 in direct research costs for the three months ended
March 31, 1997 compared with 1996 represents the additional costs involved in
the conclusion of the Phase III clinical trials in the UK for the Company's MSD
product together with additional charges incurred for further research into the
potential pharmaceutical aspects of the Kinetin compound, and expenditure in
connection with a potentially promising product relating to skin treatment. In
the event, the Company decided that the financial commitment involved for this
last potential product would be excessive at the present stage of the Company's
development.
The increase of $113,000 in indirect research costs for the three months ended
March 31, 1997 compared with 1996 is due mainly to additional outside scientific
and consulting fees and to specialist
14
<PAGE>
fees relating to the procedures for filing an Abbreviated new Drug Application
("ANDA") with the FDA for the proposed application of Ephinephrine by
sub-cutaneous injection delivered through the Company's syringe, and to an
increased depreciation charge as a result of the acquisition of additional
equipment for syringe production.
Cosmetics Division
- ------------------
Expenditure on research and development by CII in the three months ended March
31, 1997 totalled $48,000 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. The charge for the
equivalent period in 1996 was $41,000.
Marketing and Promotion
- -----------------------
Pharmaceutical Division
- -----------------------
Marketing and promotion expenses for the three months ended March 31, 1997
totalled $310,000 compared with $165,000 for the equivalent three month period
in 1996.
The increase of $145,000 is mainly due to advertising and public relations
expenditure of $116,000, and travel and accommodation costs associated with
corporate promotion.
Cosmetics Division
- ------------------
The marketing and promotional expenses incurred by CII for the three months
ended March 31, 1997 totalled $288,000 compared with $147,000 for the equivalent
period in 1996 and represents the cost of promoting the Company's products in
magazines, trade journals and at trade shows, together with the cost of a market
study for the development of a major advertising program aimed at increasing
CII's sales coverage over the longer term.
General and Administrative
- --------------------------
Pharmaceutical Division
- -----------------------
General and administrative expenses for the three months ended March 31, 1997
were $559,000 compared with $275,000 for the equivalent period in 1996. The
increase of $284,000 is mainly due to the cost of the engagement of additional
US personnel, including the Company's Chairman, and the implementation of the
Company's public and investor relations program, professional charges relating
to the issuance of convertible debentures and warrants to investors, and a
charge of $34,000 representing the amortization of the item designated "Deferred
Financial Costs" in the Consolidated Balance Sheet. This last item reflects a
deemed cost to the Company arising through the issuance of Warrants attached to
Convertible Debentures. In
15
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accordance with US Financial Accounting Standards Board No. 123 ("Accounting for
Stock Based Compensation") the deemed cost must be amortized over the period
during which the Debentures remain in existence.
Cosmetics Division
- ------------------
The general and administration expenses incurred by CII for the three months
ended March 31, 1997 totalled $237,000, compared with $272,000 in the first
three months of 1996. This reduction was attributable to the non-recurrence of
certain professional and consultants charges incurred in 1996.
Selling Expenses
- ----------------
Cosmetics Division
- ------------------
Selling expenses incurred by CII in the three months ended March 31, 1997
amounted to $231,000 compared with $210,000 for the three months ended March 31,
1996. These charges include salaries and expenses of sales personnel, selling
commission paid to brokers together with the cost of overheads allocated to this
heading.
The increase of $21,000 in 1997 compared to 1996 was accounted for by one-time
recruitment costs and subscriptions to trade periodicals.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been and will continue to be significant.
Senetek currently has sufficient liquidity and bank facilities to continue its
operations for the foreseeable future. In the event that the Company is unable
to receive additional funding, or the costs of development, operations or
pre-marketing 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.
During the three months ended March 31, 1997, the Company's liquidity
represented by cash and deposits at banks decreased by $676,000 to $2,299,000.
This reduction is attributable to (i) the overall loss of $1,974,000 for the
three month period, (ii) the purchase of capital equipment totalling $276,000,
(iii) an increase of $167,000 in inventory held at cost and an increase of
$163,000 in trade and non-trade receivables, pre-payments and deposits. These
liquidity outgoings were off-set by non-cash depreciation and amortization
charges of $151,000 included in the calculation of the overall loss referred to
above, to the receipt of net proceeds of $1,703,000 relating primarily to the
exercise of Warrants, and the effect of a favorable Exchange Rate movement of
$5,000.
16
<PAGE>
The Company anticipates that expenditure could exceed income by approximately
$1,250,000 through the development of its pharmaceutical products and its
administrative and marketing structure during the 3 months to June 30, 1997. In
addition, it is proposed to incur further expenditure on capital equipment
during fiscal 1997, as indicated in the "Notes to the Unaudited Consolidated
Financial Statements", Item 10, above. Although management believes that there
may be a possibility of initial payments being received in 1997 from potential
licensees or trading partners for the MSD product, for Ephinephrine and for the
syringe, that funds may be realized through the exercise by warrantholders of
their conversion rights into Ordinary shares, and in addition that revenues may
be realized through CII, such revenues even if realized would be unlikely to be
sufficient to address the Company's projected financial requirements during
fiscal 1997.
The Company is therefore involved in active discussions with potential major
investors with the objective of obtaining firm investment commitments covering
the Company's anticipated financial requirements during fiscal 1997 and has
effected a secured loan of $1 million in favour of CII to assist that
organization to effect its major advertizing campaign. Although management
believes that the Company 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 will be able to obtain the additional 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
Kinetin 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 Kinetin 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.
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"). Carme Inc. was the subject of a Chapter 11 bankruptcy suit and as a
result of this, together with other administration problems, the parent company
of Carme' Inc., International Research and Development Corporation, had been
unable to procure audited financial statements for the 3 years in question.
Senetek having received a "no action" letter from the SEC in connection with
this omission, was subsequently able to reach an agreement with the former
auditors of Carme' Inc. to undertake a special project for the provision of
audited financial statements, for the period from January 1, 1995 to September
25, 1995. The effect of the non-availability of the 3 years' audited financial
17
<PAGE>
statements had been to preclude Senetek from effecting registration statements
under the Securities Act of 1933 covering a public issuance of securities until
the Company has filed audited financial statements, partly incorporating CII,
for a period of 3 years. A recent SEC release indicated that some relaxation of
the 3 year restricted period may be possible. The Company now believes that it
may be able to effect a registration statement S-1 under the terms of the
release and is actively pursuing this proposed course of action. In the
meantime, management will endeavour to procure funding through equity
subscriptions or through other sources if this proves to be necessary. However
no assurances can be given that any actual or potential funding negotiations
will be consummated - or that the proposed registration will be approved.
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 partners or licensees. The Company continues to
seek agreements on acceptable terms with parties who have expressed interest in
acquiring 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 its own
account for certain territories. In this event, the pre-marketing costs for this
activity are likely to be substantial.
Following the successful conclusion of the Phase III clinical trials in the UK
for the MSD product, and the filing of a Product License Application in April
1997, the immediate objective is to obtain the grant of a Product License
Pending this all-important grant, it is anticipated that sales of MSD, which at
present are restricted to clinicians for use on a "named-patient" basis, may
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 is available for
commercialization. It has been utilized for testing purposes as a delivery
system for the MSD product and for Ephinephrine (for which, subject to FDA
approval, it may be possible to commence effecting sales in conjunction with the
syringe in the final quarter of 1997). 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 fiscal
1997, which is estimated to be in the region of $1.4 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 Kinetin and its potential
associated products, the acquisition of CII was designed
18
<PAGE>
to provide 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 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.
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 1997, possibly, through
(i) the receipt of licensing fees or contributions from intending partners
relating to the MSD project, and from Ephinephrine, (ii) from the trading
results, partial disposals or licensing arrangements from CII, (iii) from the
sales of monoclonal antibodies, (iv) from sales or licensing of the syringe and
(v) from sales of the MSD product to clinicians on a named-patient basis.
However, no assurances can be given that this course of events will transpire.
19
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
/S/ANTHONY J. CATALDO
Anthony J. Cataldo
Chairman & Chief
Executive Officer
/S/CLIFFORD D. BRUNE
Clifford D. Brune
Chief Financial Officer
Date: May 13, 1997
------------
20
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