<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_____
Quarterly Report pursuant to Section 13 or 15(d) of the Securities
X Exchange Act of 1934 for the Quarterly period ended September 30,
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
--- ---
(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, 1997 (all one class): 51,503,973
THIS DOCUMENT CONTAINS 17 PAGES
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended September 30, 1997 and September 30, 1996
Nine Months Ended September 30, 1997 and September 30, 1996 3
Consolidated Balance Sheet
September 30, 1997 (unaudited) and December 31, 1996 4
Unaudited Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and September 30, 1996 5
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1997 7
Notes to the Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Not applicable
SIGNATURES 17
</TABLE>
2
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
----------------- -----------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------- -------
Revenues:
Product sales $ 1,374 1,745 $ 4,477 4,851
Cost of sales (845) (981) (2,885) (2,611)
------- ------- ------- -------
Gross Profit 529 764 1,592 2,240
Operating Expenses:
Research & development (1,153) (562) (3,173) (1,550)
General & administration (899) (699) (2,746) (1,907)
Marketing & promotion (1,278) (215) (2,788) (834)
Selling expenses (315) (223) (597) (712)
------- ------- ------- -------
Total Operating Expenses (3,644) (1,699) (9,304) (5,003)
Loss from operations (3,115) (935) (7,712) (2,763)
Interest Expense (22) -- (80) --
Interest income 132 2 196 14
Other income -- 14 1 62
------- ------- ------- -------
Loss before taxation (3,005) (919) (7,595) (2,687)
Taxation -- -- -- --
------- ------- ------- -------
Net Loss $(3,005) (919) $(7,595) (2,687)
======= ======= ======= =======
Net loss per ordinary
share outstanding $ (0.06) (0.02) $ (0.16) (0.07)
Weighted average
Ordinary shares
outstanding 51,222 41,606 48,282 40,958
------- ------- ------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
3
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited) (audited)
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 8,468 $2,975
Inventory 1,259 1,657
Trade Receivables 866 771
Non-Trade Receivables 405 88
Prepaids and Deposits 185 138
------- -------
Total Current Assets 11,183 5,629
Property and Equipment - net of depreciation 1,549 1,182
Goodwill and Other Intangible Assets -
net of amortization 1,933 2,128
Deferred Financial Costs -- 902
------- -------
Total Assets $14,665 $9,841
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft 900 230
Accounts Payable 988 1,236
Accrued Liabilities 370 412
8% Convertible Debentures -- 1,700
------- -------
2,258 3,578
======= =======
Stockholders' Equity:
Ordinary shares $0.08 (5p) par value:
Authorized shares: 100,000,000
Issued and outstanding shares:
September 30, 1997- 51,503,973
December 31, 1996 - 43,899,205 4,159 3,533
Share Premium 49,707 36,607
Accumulated deficit (41,530) (33,937)
Equity adjustment from foreign currency translation 71 60
------- -------
Total Stockholders' Equity $12,407 $ 6,263
------- -------
Total Liabilities and Stockholders' Equity $14,665 $ 9,841
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
4
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,595) $(2,687)
ADJUSTMENTS TO RECONCILE
NET LOSS TO NET CASH:
Depreciation and amortization 447 325
Write-off of assets under course
of construction -- 31
Interest on Convertible Debentures
effected by issue of shares 49 --
CHANGES IN ASSETS AND LIABILITIES:
Trade receivables (increase)/
decrease (95) (251)
Non-trade receivables (increase)/
decrease (317) (82)
Inventory (increase)/decrease 398 (521)
Prepaids and deposits
(increase)/decrease (47) (39)
Accounts payable and accrued
liabilities increase/(decrease) (190) 89
Other assets (increase)/decrease -- --
------- -------
Net cash (used) by operating activities $(7,350) $(3,135)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure (550) (110)
Proceeds for the sale of tangible fixed assets 8 --
------- -------
Net cash provided (used) by investing
activities $ (542) $ (110)
======= ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
5
<PAGE> 6
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of issuance of
Ordinary shares from exercise of Warrants, 12,715 1,050
Options and Convertible Debentures
Increase in bank overdraft 670 --
------- -------
Net cash provided by financing activities $13,385 1,050
======= =======
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,493 (2,195)
Cash and cash equivalents at the beginning
of the year 2,975 2,237
Effect of exchange rate changes on cash -- (6)
------- -------
Cash & cash equivalents at the end of the period $ 8,468 36
======= =======
</TABLE>
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
Amounts Paid
(in $ thousands)
----------------
1997 1996
----- ----
<S> <C> <C>
Interest 31 5
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
6
<PAGE> 7
SENETEK PLC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Nine Months Ended September 30, 1997
(In $ Thousands, Except For Share Data)
<TABLE>
<CAPTION>
Equity
Adjustment
from Foreign Net
$ Share Accumulated Currency Stockholders'
Shares Amount Premium $ Deficit $ Translation $ Equity $
------ ------ --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996: 43,899,205 3,533 36,607 (33,937) 60 6,263
Issuance of Ordinary shares in
Private Placements 5,151,518 422 10,818 11,240
Conversion of Debentures 2,215,750 184 1,919 2,103
Warrants issued in connection
with Convertible Debentures
Options exercised 237,500 20 363 383
Net Loss (7,593) (7,593)
Translation adjustment: 11 11
---------- ------ ------- -------- --- -------
Balance September 30, 1997: 51,503,973 $4,159 $49,707 $(41,530) $71 $12,407
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
7
<PAGE> 8
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, Senetek Drug Delivery Technologies Inc. ("SDDT") (formerly
MEIS) and Carme Cosmeceutical Sciences Inc.("CCSI") (formerly Carme
International, Inc.) (both Delaware corporations) for the nine months
ended September 30, 1997. CCSI was incorporated on September 21, 1995 and
commenced business 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.
2. 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 nine months ended September 30, 1997 are not
necessarily indicative of results to be achieved for the full fiscal year.
The accounts have been prepared in accordance with U.S. generally accepted
accounting principles (U.S.GAAP).
3. During the 9 months ended September 30, 1997, the Company issued 7,604,768
new Ordinary shares, through the conversion of 8% Convertible Debentures
into shares and the exercise of warrant entitlements and the exercise of
Options under the Company's approved plans at an average price of $1.94 per
share.
4. The Company issued 1,661,503 new Ordinary shares in the third quarter of
1997, through the conversion of 8% Convertible Debentures into shares and
the exercise of warrant entitlements and the exercise of Options under
the Company's approved plans at an average price per share of $2.62.
5. 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:
<TABLE>
<CAPTION>
Third Quarter 1997 First nine months 1997
Actual Weighted Average Actual Weighted Average
Equivalent EquIvalent
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of the period 49,842,470 49,842,470 43,899,205 43,899,205
Conversion of Debentures 141,486 104,980 2,215,750 1,631,038
Exercise of warrants 1,387,517 1,207,279 5,151,518 2,685,951
Exercise of Share Options 132,500 67,568 237,500 75,920
---------- ---------- ---------- ----------
Shares outstanding at the
end of the period 51,503,973 51,222,297 51,503,973 48,282,114
---------- ---------- ---------- ----------
Shares issued 1,661,503 -- 7,604,768 --
Average price per share $2.62 -- $1.94 --
</TABLE>
8
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6. Inventory at cost comprises:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(in $ thousands)
<S> <C> <C>
Finished Goods $ 557 $ 879
Raw Materials 695 776
Work in Progress 7 2
------- -------
$ 1,259 $ 1,657
------- -------
</TABLE>
7. During the third quarter of 1997, in connection with the consolidation of
the US operations to California, two officers at the Company received
relocation advances of $700,000. One of these advances, in the amount of
$400,000 was repaid during the quarter.
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 10-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, including those discussed under "Factors
Affecting the Company" below, 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 September 30, 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 RELIAJECT (TM) 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
fourth quarter of 1997 for the purpose of obtaining approval of its MSD product
from the Food and Drug Administration ( " FDA" ) in due course.
9
<PAGE> 10
The developed product is called INVICORP (TM) and is an injectable formulation
of vasointestinal peptide in combination with the drug phentalomine.
In December, 1993, the Company formed a wholly owned subsidiary, SDDT
Corporation based in St. Louis, Missouri, for the purposes of designing,
manufacturing and exploiting RELIAJECT (TM), 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. Epinephrine is
designed as an antidote against anaphylactic shock, triggered by allergic
reaction against conditions including food poisoning and insect stings. The
Company is hoping to obtain approval for marketing the product during the first
half of 1998, in which event it may be possible to commence commercial sales of
one of the dose ranges immediately thereafter. In addition, the Company plans
to file an ANDA with the FDA for a paediatric application for this product.
The Company is also involved with research on the impact of aging on the skin.
In September, 1995, the Company extended its interests by forming another
wholly owned subsidiary, CCSI Corporation, based in Novato, California, for the
acquisition, through CCSI, 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 emphasis to potential anti-aging aspects, and specifically to
provide a vehicle for the manufacture and distribution of a product featuring
the anti-aging KINETIN (TM) compound (formerly referred to as Factor X or
Vivakin) in a cosmetic format. CCSI completed its review of manufacturing
operations at its existing facility and decided to outsource production during
the third quarter of 1997, and it continues to revise its product range and
marketing strategy in order to identify the optimum product mix compatible with
its resources. The Company is seeking aggressively to market successfully a
range of cosmetic products incorporating KINETIN (TM). The Company is also
undertaking preliminary research on the possible application of KINETIN (TM) 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.
MATERIAL CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition that are, or may be considered to
be, material are included under "Financial Condition, Liquidity and Capital
Resources" below.
RESULTS OF OPERATIONS
SALES
World-wide sales for the third quarter of 1997 totalled $1.4 million, a
decrease of 21.3% from sales of $1.7 million for the third quarter of 1996.
In the Pharmaceutical Sector, sales increased by 110% from $0.2 million for the
third quarter of 1996, to $0.4 million for the third quarter of 1997. This is
due to additional sales of monoclonal antibodies to research organizations, and
INVICORP (TM) to named patients through clinical practitioners..
In the Health and Cosmetics Sector, sales decreased by 35.4% from $1.6 million
in the third quarter of 1996 to $1.0 million for the third quarter in 1997.
This is due to rationalization of the product portfolio and elimination of a
large number of low margin items.
World-wide sales for the first nine months of 1997 totalled $4.5 million, a
decrease of 7.7% from sales of $4.9 million for the first nine months of 1996.
Pharmaceutical Sector sales increased by 117.6% from $0.4 million for the first
nine months of 1996, to $0.8 million for the first nine months of 1997. This
is due to additional sales of monoclonal antibodies and INVICORP (TM).
10
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Health and Cosmetic Sector sales in 1997 decreased by 18.6% from $4.5 million
for the first nine months of 1996, to $3.6 million for the first nine months of
1997. This is due to rationalization of the product range taking effect in the
second and third quarters.
COST OF GOODS SOLD
Cost of goods sold for the third quarter of 1997, which includes manufacturing
and material costs, was 61.5% of sales, or $0.8 million, down 13.9% from $1.0
million in the third quarter of 1996.
In the Pharmaceutical Sector, cost of goods sold was 39.2% of sales, up 14.5%.
This is due to the reclassification of certain INVICORP (TM) development costs.
In the Health and Cosmetics Sector, cost of goods sold was 69.3% of sales, up
9.7%. This reflects restructuring costs for the product range rationalization.
Cost of goods sold for the first nine months of 1997 was 64.4% of sales, or
$2.9 million, up 10.5% from $2.6 million in the first nine months of 1996.
Pharmaceutical Sector cost of goods sold was 40.4% of sales , up 11.2%.
Health and Cosmetics cost of goods sold was 70% of sales, up 14%.
OPERATING EXPENSES
RESEARCH & DEVELOPMENT
R & D expenses for the third quarter of 1997 totalled $1.2 million of which
$0.67 million related to direct research and development costs. This
represents an increase of 105.3% from $0.6 million in the third quarter of
1996.
For the first nine months of 1997, R & D expenses totalled $3.2 million of
which $2 million related to direct research and development costs. This
represents an increase of 104.7% from $1.6 million in the first nine months
of 1996.
Pharmaceutical Sector R & D accounts for 98.2% of the total for the Company for
the third quarter of 1997, compared to 94% for the third quarter of 1996, and
96.9% of the total for the first nine months of 1997, compared to 92.9% for the
first nine months of 1996.
The increase in direct research and development costs for the first nine months
of 1997 compared with the first nine months of 1996 reflects the higher level
of non-clinical development work and an increased number of clinical trials
performed in connection with the licensing applications submitted for INVICORP
(TM) to the medicines evaluation agencies in several European countries and the
USA. The number of in-house clinical trials monitoring staff and temporary
support staff has also increased during 1997.
MARKETING AND PROMOTION
Marketing and promotion expenses in the third quarter of 1997 totalled $1.3
million, an increase of 494% from $0.2 million in the third quarter of 1996.
For the first nine months of 1997, marketing and promotion expenses totalled
$2.8 million, an increase of 234% from $0.8 million in the first nine months
of 1996.
Pharmaceutical Sector marketing and promotion expenses for the first nine
months of 1997 were $1.6 million, an increase of 217% from $0.5 million in the
first nine months of 1996. The increases relate to an ongoing, high-profile
Public/Investor relations campaign, highlighting the clinical success and the
commercialization potential of the INVICORP (TM) system.
Health and Cosmetics Sector marketing and promotion expenses for the first nine
months of 1997 were $1.2 million, an increase of 258% from $0.3 million in the
first nine months of 1996. The increases relate to the advertising costs
associated with the promotion of the KINETIN (TM) products.
11
<PAGE> 12
GENERAL AND ADMINISTRATION
General and Administration expenses for the third quarter of 1997 totalled $0.9
million, an increase of 28.6% from $0.7 million in the third quarter of 1996.
General and Administration expenses for the first nine months of 1997 totalled
$2.7 million, an increase of 44.0% from $1.9 million in the first nine months
of 1996.
Pharmaceutical Sector G & A expenses for the first nine months of 1997 were
$1.9 million, an increase of 65.8%, from $1.1 million in the first nine months
of 1996.
The increases relate to the costs of engagement of additional executive
management, effective from the third quarter of 1996. The cost of implementing
the public/investor relations program and the cost of retaining a proposed new
international Financial Adviser are also part of the increase for 1997.
Health and Cosmetic Sector G & A expenses for the first nine months were $0.9
million, an increase of 11.5% from $0.8 million in the first nine months of
1996. The increases relate to the costs of restructuring in the Cosmetic
Sector operations.
SELLING EXPENSES
Selling expenses are only incurred in the Health and Cosmetics Sector and
totalled $0.3 million for the third quarter of 1997, an increase of 41.3% from
$0.2 million in the third quarter of 1996.
Selling expenses for the first nine months of 1997 totalled $0.6 million, a
decrease of 16.2% from $0.7 million in the first nine months
of 1996. The reduction relates to decreased salaries and broker commissions
following the restructuring of the cosmetics business.
OPERATING LOSS
Operating loss from continued operations for the third quarter of 1997 totalled
$3.1 million, an increase of 233% from $0.9 million in the third quarter of
1996.
Operating loss from continued operations for the first nine months of 1997
totalled $7.7 million, an increase of 179% from $2.8 million in the first nine
months of 1996.
As explained above, increased Research & Development and Public/Investor
Relations spending, and restructuring of the Health & Cosmetics Sector were the
main reasons for the increased operating loss.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1997, the Company's liquidity represented by cash
and deposits at banks increased by $5.5 million to $8.5 million. New funding
amounted to $12.7 million from the exercise of Warrants and Options and the
conversion of Debentures. An increase of overdraft facilities from $0.2
million to $0.9 million was effected with The Bank of New York for the purpose
of effecting a major advertising campaign for the Health and Cosmetics sector.
Working capital increased from $1.0 million as of December 31,1996, to $1.35
million as of September 30,1997.
Net cash used by operating activities from continuing operations totalled $7.6
million in the first nine months of 1997, an increase of $4.5 million from the
same period in 1996.
Cash used for capital expenditure was $0.6 million in the first nine months of
1997, up $0.4 million from the same period in 1996.
The Company anticipates that expenditure could exceed income by approximately
$3 million through the ongoing development of its pharmaceutical products and
on its administrative and marketing structure during the fourth quarter of
1997. In addition, it is planned to incur further payments on capital
12
<PAGE> 13
equipment during the fourth quarter of $0.7 million, and a re-organization cost
related to the relocation of facilities estimated at $0.2 million.
Although management believes that there is a possibility of initial payments
from potential licensees of the MSD product, and the syringe, and that revenues
may be realized through CCSI, such revenues, even if received, will not be
sufficient to address the Company's projected financial requirements through
1998. The Company may, therefore, need to procure additional funds through the
issuance of new equity securities.
It is management's belief that the interest expressed by several major
organisations may lead to a license agreement of a substantial nature in due
course, although no assurance can be given that the Company will be successful
in securing such an agreement.
The objective of the investment in CCSI was to facilitate the development,
manufacture and marketing of a cosmetic compound containing the Company's
KINETIN (TM) 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 (TM) as a
pharmaceutical in addition to its use as 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 has received a "no action" letter from the SEC in
connection with this omission. The effect of the non-availability of the
3 years' audited financial statements was 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, incorporating CCSI, for the next 3 years. Management believes that
the receipt of audited financial statements for Carme Inc. for the period from
January 1, 1995 to September 25, 1995 and the subsequent change in requirements
by the SEC reduces this restriction to a 2 year period.
Notwithstanding this restriction, as indicated above, management may endeavor
to procure funding through equity subscriptions. No assurance can be given that
these funding arrangements 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 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 world-wide licensing rights, 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 of the Company 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 second quarter of 1998). However, production at what it is
hoped will be a substantial commercial volume is dependent upon the completion
and installation of additional specialized plant and machinery currently
contracted for at a cost, which is estimated to be in the region of $1.4
million over fiscal 1997 and 1998.
13
<PAGE> 14
With regard to the development and marketing of KINETIN (TM) and its potential
associated products, the Company has undertaken additional studies of its
effects on anti-aging and psoriasis and is seeking agreement on acceptable
terms with parties who have expressed interest in acquiring rights for various
skin care related applications.
In the case of monoclonal antibodies derived from the Company's sponsored
research into Alzheimer's disease, and from other sources, increased sales to
scientific institutions are being achieved at an encouraging volume and whilst
the amounts involved are unlikely to be substantial, the Company anticipates
that it should be possible to achieve and maintain a flow of revenue, although
such income is unlikely to make a significant contribution to the Company's
revenues.
It is not practicable at the present time to indicate the probable future
operating results and equity capital requirements, but it is anticipated that
some revenues may continue to 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 and KINETIN (TM) projects, and from
Ephinephrine, (ii) from the trading results, partial disposals or licensing
arrangements from CCSI, (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. Such revenues, if received, may not be
sufficient to address the anticipated expenditures and capital commitments of
the Company in the near future.
FACTORS AFFECTING THE COMPANY
HISTORY OF LOSSES
The Company, despite its inception over 13 years ago in October 1983, is
still developing its commercial objectives, and its business is subject to all
the significant risks inherent in the establishment of a relatively new
business enterprise. The likelihood of the success of the Company must be
considered in the light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the formation of a new
business, the development of new products and the competitive
and regulatory environment in which the Company is operating. Since
inception, the Company has only produced $14,201,000 in gross revenues and has
cumulative losses of $41,530,000 (including a net loss of
$4,020,000 in fiscal 1996). Although certain of the Company's products may be
marketed in the first half of 1998, there can be no assurance that marketing
will begin when the Company anticipates, if at all, or that sales from its
other products will rise to a level that will allow it to operate profitably
during the fiscal year ending December 31, 1998.
NEED FOR FINANCING
The Company's cash requirements have been and will continue to be significant.
Senetek currently has sufficient equity, cash flow or bank facilities to
continue its operations beyond fiscal 1997 but, as indicated, the Company may
endeavor to obtain financing through the sale of equity securities in the
Company. In the event that the Company is unable to receive adequate funding,
or the costs 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 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.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent, in particular, upon the services of Mr. Anthony
Cataldo, its Chief Executive Officer, Dr Gerlof Homan, its Chief Scientific
Advisor, Mr. Clifford Brune, its Chief Operating Officer, Mr Paul Logan, its
Company Secretary and former Chief Financial Officer, and Dr Roger Oakes,
President of Senetek's Pharmaceutical Division. If Mr. Cataldo, Dr Homan, Mr.
Brune, Mr Logan and Dr Oakes were unable to provide their services to the
Company for whatever reason, the Company's business could be adversely
affected. Since these executives are involved in most aspects of the Company's
business, there can be no assurance that suitable replacements could be found
if they were unable to perform services for the Company. In addition, the
Company's ability to market its products and fulfil its business plan will
depend, in large part, upon its ability to attract and retain qualified
personnel in its field. Competition for such personnel is intense and there
can be no assurance that the Company will be able to attract or retain such
personnel.
14
<PAGE> 15
FACTORS AFFECTING THE COMPANY'S INVICORP (TM) PRODUCT, AND THE RELIAJECT (TM)
AUTO-INJECTOR SYRINGE
Product Research and Technological Obsolescence
The Company is engaged in a field characterized by extensive research efforts.
Despite the Company's current access to leading expertise in the field, there
remains a risk that the research financed by the Company in the future could
prove unproductive. Furthermore, there can be no assurance that research and
discoveries by other companies will not render the Company's programs
superfluous or obsolete.
Proprietary Technology
The protection afforded by patents in the biotechnology and biomedical fields
can be limited. Other persons or institutions may be simultaneously developing
products similar to those being developed by the Company. Therefore, future
licenses and patents, which might be applied for, might not afford significant
infringement protection to the Company. Future licenses and patents will not
necessarily preclude competitors from developing products which can be marketed
in competition with those which may be developed for the Company and thus
substantially lessen the value of the Company's proprietary positions.
Moreover, persons or institutions which develop similar products could make
claims that the Company's proprietary rights actually belong in whole or in
part to such claimants. If one or more of such claims were to arise, the
Company might face a possibility that it might not prevail in any ensuring
legal action and, also, that it might not be able to afford the expense of any
litigation which may be necessary to enforce its patent or proprietary rights.
Governmental Regulation
Most of the Company's activities will be subject to some kind of governmental
regulation, as for example, approval by the US Food and Drug Administration
("FDA") in the United States. Approval or other clearance by the FDA is
required for clinical trials and for commercial distribution of some of the
Company's products in the United States regardless of whether the products are
dispensable by prescription or over-the-counter. Lengthy and detailed
laboratory and clinical testing procedures, sampling activities and other
costly and time consuming procedures may be required. Failure to obtain FDA
clearances, when necessary, or failure of clinical trials to demonstrate safety
or efficacy would prevent the Company from marketing the products in the United
States. In addition, the Company will be subject to any quantity limitations,
duties and tariffs imposed by countries within which the Company's products
will be sold.
Competition
Competition in the biotechnology and biomedical fields and in the cosmetics
industry is intense and is expected to increase. A major company has developed
and begun marketing in the United States and Europe a product that
competes with the MSD product. Many of the companies in the biotechnology and
biomedical fields and the cosmetics industry have substantially greater
research and development, marketing, financial and human resources than the
Company and, accordingly, may provide significant long-term competition.
Exposure to Liability for the Company's Products
During recent years, lawsuits resulting in very substantial liability have been
filed against companies engaged in the manufacture of pharmaceutical and other
medical-related products or devices which have subsequently provided harmful
to human health. Many of these cases have exposed companies to liability long
after the products have been brought to market, even though, at the time of
their development, based on extensive research, there were no perceived risks
of injury. Thus, notwithstanding FDA or other foreign governmental approval,
there can be no assurance that the Company will not be subject to liability
from the use of its products. There is no assurance that product liability
coverage will be adequate to protect against future claims. Management intends
to have third parties manufacture and distribute certain of the Company's
products and believes that the Company's exposure to liability will thereby be
lessened. However, there can be no assurance that this result will be
achieved.
15
<PAGE> 16
FACTORS AFFECTING THE COMPANY'S COSMETICS BUSINESS
Reliance on Suppliers
Although CSSI no contracts out manufacture of all of its own products, it
purchases raw materials from third-party suppliers. CCSI does not presently
have any long-term contracts with these suppliers and, as a consequence, any of
these relationships may be terminated by either party, at any time. Although
CCSI believes that other suppliers are available who can produce similar
materials and products, there can be no assurance that such materials would be
available to the Company on an immediate basis if needed, or at prices similar
to those now paid by CCSI.
Intense Competition
CCSI competes in the retail cosmetics and personal care products industry. The
industry comprises large discount chains, independent discount outlets,
department stores, supermarkets, drugstores, direct marketers and speciality
retailers and CCSI competes with all of these sellers of personal care
products. CCSI's competitors and potential competitors have substantially
greater resources, including capital, research and development personnel and
manufacturing and marketing capabilities, and also may offer well established,
broad product lines. Some of CCSI's competitors have long-term or preferential
supply arrangements with established retailers. Such arrangements may act as a
barrier to market entry. There can be no assurance that CCSI will be able to
compete successfully.
Trademark and Servicemark Protection for CCSI
CCSI has acquired certain trademarks in various countries in which CCSI's
products are sold. Although to date no claims have been brought against CCSI
alleging that it infringes the intellectual property rights of others, there
can be no assurance that such claims will not be brought against CCSI in the
future, or that if made, such claims will not be successful. In addition to
any potential monetary liability for damage, CCSI could be required to obtain a
license in order to continue to use the trademarks in question or could be
enjoined from using such trademarks if such a license were not made available
on acceptable terms. If CCSI becomes involved in such litigation, it may
divert significant resources, which could have a material adverse effect on
CCSI and the Company and its results or operations and, if such a claim were
successful, CCSI's business could be materially adversely affected.
Product Liability Risks of Cosmetics
CCSI is subject to the risk of products liability claims related to the use of
its products which are designed for application to human hair and skin. CCSI
carries product liability insurance which management believes will be adequate
to cover risks associated with such use; however, there can be no assurance
that existing or future insurance coverage will be sufficient to cover any
possible product liability risks or that such insurance will continue to be
available to CCSI on economically feasible terms.
16
<PAGE> 17
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
(REGISTRANT)
Date: November 11, 1997 /S/ANTHONY J. CATALDO
--------------------- -----------------------
ANTHONY J. CATALDO
CHAIRMAN &
CHIEF EXECUTIVE OFFICER
Date: November 11, 1997 /S/DAVID CAREY
--------------------- ----------------------------
DAVID CAREY
CHIEF FINANCIAL OFFICER
17
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