<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 June 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 pages 14 and 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.
June 30, 1996 (all one class): 41,606,123
----------------------------------------------
1
<PAGE>
SENETEK PLC AND SUBSIDIARY
(A Development Stage Company)
-----------------------------
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1996
PART 1. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Unaudited Consolidated Statement of
Operations Three Months Ended June 30,
1996 and June 30, 1995, Six Months
Ended June 30, 1996 and June 30, 1995
and October 5, 1983 (Inception) to June
30, 1996 3
Consolidated Balance Sheet June 30,
1996 (unaudited) and December 31, 1995 4
Unaudited Consolidated Statement of
Cash Flows Six Months Ended June 30,
1996 and June 30, 1995, and October 5,
1983 (Inception) to June 30, 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
<PAGE>
SENETEK PLC
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share date)
(Unaudited)
<TABLE>
<CAPTION>
October 5, 1983
3 Months Ended 6 Months Ended (Inception) to
June 30, June 30, June 30,
1996 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 1,484 58 3,106 104 5,283
Contract service revenue -- -- -- -- 41
Development stage payments -- -- -- -- 1,020
______ _____ ______ _____ ______
Total Revenues 1,484 58 3,106 104 6,344
Cost of sales (763) (7) (1,630) (11) (2,861)
Cost of service revenue -- -- -- -- (8)
______ _____ ______ _____ ______
Gross Profit 721 51 1,476 93 3,475
Operating Expenses:
Research & development (578) (526) (988) (963) (14,217)
General & administration (662) (471) (1,208) (721) (15,324)
Marketing & promotion (307) (297) (619) (480) (6,036)
Selling Expenses (279) -- (489) -- (765)
______ _____ ______ _____ ______
Total Operating Expenses (1,826) (1,294) (3,304) (2,164) (36,342)
Loss from operations (1,105) (1,243) (1,828) (2,071) (32,867)
Interest income 2 144 12 275 1,637
Other income 25 -- 48 -- 218
Currency exchange gains -- -- -- -- 179
Loss on sale of investment -- -- -- -- (313)
Equity in joint venture (loss) -- -- -- -- (480)
Gain on sale of equity in joint venture -- -- -- -- 50
Loss on disposal of subsidiary -- -- -- -- (48)
______ _____ ______ _____ ______
Loss before taxation (1,078) (1,099) (1,768) (1,796) (31,624)
Taxation -- -- -- -- (61)
______ _____ ______ _____ ______
Net Loss $ (1,078) (1,099) (1,768) (1,796) (31,685)
Net loss per ordinary share
outstanding $ (.03) (.03) (.04) (.04)
Weighted average
Ordinary shares outstanding 40,650 40,593 40,628 40,565
______ _____ ______ _____
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
SENETEK PLC
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 1,008 $ 2,237
Inventory at cost 1,796 1,231
Trade Receivables 869 800
Non-Trade Receivables 19 41
Prepaids and Deposits 121 118
---------- ----------
Total Current Assets 3,813 4,427
Property and Equipment 1,055 1,087
Goodwill and Other Intangible Assets - net 2,259 2,391
---------- ----------
Total Assets $ 7,127 $ 7,905
========== ==========
Liabilities & Stockholders' Equity
Current Liabilities
Accounts Payable 799 955
Accrued Liabilities 306 205
---------- ----------
1,105 1,160
========== ==========
Stockholders' Equity:
Ordinary shares $0.08 (5p) par value:
Authorized shares: 58,000,000
Issued and outstanding shares:
June 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 stage ( 31,685) (29,917)
Equity adjustment from foreign currency translation 81 86
---------- ----------
Total Stockholders' Equity $ 6,022 $ 6,745
========== ==========
Total Liabilities and Stockholders' Equity $ 7,127 $ 7,905
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
SENETEK PLC
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended October 5, 1983
June 30, (Inception) to
1996 1995 June 30, 1996
---------- ---------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,768) (1,796) (31,685)
Adjustments to reconcile
net income to net cash:
Depreciation and amortization 206 109 1,465
Write-off of assets under course of construction 31 -- 88
Gain on sale of equipment -- -- (86)
Loss on disposal of subsidiary -- -- 48
Write-off of advances to Tessek -- -- 66
Equity in joint venture loss -- -- 480
Gain on sale of equity in joint venture -- -- (50)
Loss on sale of investments -- -- 313
Changes in assets and liabilities:
Trade receivables (increase)/decrease (69) 157 (390)
Non-trade receivables (increase)/decrease 22 (17) (27)
Inventory (increase)/decrease (565) 1 (716)
Prepaids and deposits ( increase )/decrease (3) (1) (120)
Accounts payable and accrued liabilities
increase/(decrease) (55) 75 1,151
Other assets (increase)/decrease -- -- (52)
------- ------- -------
Net cash used by operating activities (2,201) (1,472) (29,515)
======= ======= =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (73) (89) (1,921)
Purchase of certain assets of Carme Inc. -- -- ( 4,002)
Purchases of intangible assets -- -- (585)
Purchase of short-term investments -- (35) (4,366)
Proceeds of sale of short-term investments -- -- 4,178
Proceeds from disposals of property & equipment -- -- 119
Proceeds from disposal of investment -- -- 50
Investment in Tessek -- -- (537)
------- ------- -------
Net cash provided (used) by investing activities $ (73) (124) (7,064)
======= ======= =======
</TABLE>
5
<PAGE>
SENETEK PLC
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended October 5, 1983
June 30, (Inception) to
1996 1995 June 30, 1996
---------- --------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds of issuance of Ordinary shares and class A & B
warrants 1,050 827 36,911
Issue of Ordinary shares to acquire working capital of
Receptor Technologies, Inc. -- -- 671
------- ----- -------
$ 1,050 827 37,582
======= ======= =======
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,224) (769) 1,003
Cash and cash equivalents at the beginning of the period 2,237 5,088 --
Effect of exchange rate changes on cash (5) 33 5
------- ----- -------
Cash at the end of the period $ 1,008 4,352 1,008
======= ======= =======
</TABLE>
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
-----------------
1996 1995
---- ----
Interest 3,107 --
Income Taxes -- --
See accompanying notes to consolidated financial statements.
6
<PAGE>
SENETEK PLC AND SUBSIDIARY
(A Development Stage Company)
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.
("Cll") (both Delaware corporations) for the six months ended June 30,
1996 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 1995
Annual Report on Form 10-K.
Results of operations for the six months ended June 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 six months ended June 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
<PAGE>
Three Months - April 1, 1996 through June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Weighted Average
Actual Equivalent
------------ --------------------
Shares outstanding at beginning of period 40,606,123 40,606,123
Private placement 1,000,000 43,956
----------- -----------
Shares outstanding at end of period 41,606,123 40,650,079
----------- -----------
7. Inventory at cost comprises:
June 30, December 31,
1996 1995
------------ --------------------
(in $ thousands)
Finished Goods 849 635
Raw Materials 894 552
Work in Progress 53 44
--------- ---------
$ 1,796 1,231
--------- ---------
8. Prepaids and deposits comprise the following:
June 30, December 31,
1996 1995
------------ --------------------
(in $ thousands)
Deposits 60 51
Prepayments 61 67
--------- ---------
$ 121 118
--------- ---------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
9. Accounts payable and accrued liabilities comprise the following:
June 30, 1996 December 31, 1995
(in $ thousands)
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
--------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Trade creditors $ 3 $ 323 $ -- $ 413
Directors' fees and remuneration -- 35 -- 3
Staff salaries 58 3 50 4
Vacation pay accrual 72 -- 29 --
Taxes and social security 4 16 -- 26
Audit, accountancy and
taxation charges 57 48 108 19
Direct research costs -- 197 -- 324
Approved travel and accommodation expenses -- 3 -- 10
Legal and professional fees 40 20 18 1
Consultancy fees - 38 -- 37
Other liabilities and accruals 72 116 -- 118
------ ------ ------ ------
$ 306 $ 799 $ 205 $ 955
------ ------ ------ ------
</TABLE>
10. Commitments
As of June 30, 1996, the Company plans to provide funding for various
testing and approval requirements of approximately $500,000. 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.
Additional capital expenditure of approximately $500,000 is envisaged
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 of the Company's auto-injector syringe
components. 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
<PAGE>
SENETEK PLC AND SUBSIDIARY
(A Development Stage Company)
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 June 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 skincare 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
<PAGE>
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>
Six Months Ended
June 30,
1996 1995
(in $ thousands)
<S> <C> <C>
Loss From Operations:
Pharmaceuticals:
Revenues 217 104
--- ---
Gross Profit 146 93
Operating Expenses (1,936) (2,164)
---------- ----------
Loss from Operations (1,790) (2,071)
----------- ----------
Cosmetics:
Revenues 2,889 --
---------- ----------
Gross Profit 1,330 --
Operating Expenses (1,368) --
---------- ----------
Loss from Operations (38) --
---------- ----------
Total Loss from Operations (1,828) (2,071)
---------- ----------
Six Months Ended
June 30,
1996 1995
(in $ thousands)
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from Operations (1,790) (2,071)
Interest Income 12 275
-------- ---------
(1,778) (1,796)
------ ------
Cosmetics:
Loss from Operations (38) --
Other Income 48 --
------ ------
(Profit) 10
------ ------
------ ------
Total Overall Loss Before Taxation (1,768) (1,796)
----- -----
</TABLE>
11
<PAGE>
The decrease of $18,000 in the overall loss of the Company's pharmaceutical
division during the six months ended June 30, 1996 compared with the
corresponding period during 1995 is represented by an increase in gross profit
of $53,000 and a decrease in operating expenses of $228,000 as discussed in the
following sub-sections, these beneficial movements being largely offset by a
decrease of $263,000 in interest income.
The profit of $10,000 realised by the Company's cosmetics division during the
six months ended June 30, 1996 reflects the results of CII
Revenues
- --------
The Company's product sales revenues of $1,484,000 for the three months ended
June 30, 1996 comprised $110,000 from the sale of its pharmaceutical products,
and $1,374,000 from the sale of health and cosmetic beauty aids.
For the six months to June 30, 1996, sale revenues were $3,106,000 comprising
$217,000 from pharmaceutical products and $2,889,000 from health and cosmetic
beauty aids.
OPERATING EXPENSES
Research and Development
- ------------------------
Pharmaceutical Division
- -----------------------
Research and development expenses for the three months ended June 30, 1996 were
$544,000, of which $281,000 related to direct research costs, and $263,000 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 $526,000 with
direct and indirect research expenses accounting for $214,000 and $312,000
respectively.
For the six months ended June 30, 1996 research and development costs were
$912,000 of which $443,000 related to direct and $469,000 to indirect research
costs. For the equivalent six month period in 1995, the costs totalled $963,000
with direct and indirect research costs accounting for $420,000 and $543,000
respectively.
The increase of $23,000 in direct research costs for the six months ended June
30, 1996 compared with 1995 is accounted for by an increase of $87,000 in the
cost of the development of the Company's self-administered auto-injector
syringe. This increased expenditure was partially off-set by a temporary
decrease of $20,000 in the cost of clinical trials relating to the MSD compound,
together with a net saving of $44,000 in the Company's short-term research
program relating to certain aging projects.
The decrease of $74,000 in indirect research costs for six months ended June 30,
1996 compared with 1995 is due, in the main, to reductions in the compensation
payable to the Chief Executive Officer 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 June
30, 1996 totalled $34,000 representing indirect costs including a proportion of
salary costs and associated expenses, rent,
12
<PAGE>
utilities and general overheads attributable to this heading, together with
prototype and testing costs and minor items covering expensed equipment and
software.
For the six months ended June 30, 1996, these expenses totalled $76,000.
Marketing and Promotion
- -----------------------
Pharmaceutical Division
- -----------------------
Marketing and promotion expenses for the three months ended June 30, 1996
totalled $179,000 compared with $297,000 for the equivalent three month period
in 1995.
These expenses for the six months ended June 30, 1996 were $344,000 and for the
corresponding period in 1995, $480,000. The decrease of $136,000 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, and (iii) a non-recurrence of the cost of producing the
Company's Corporate Capabilities brochures in 1995.
Cosmetics Division
- ------------------
The marketing and promotional expenses incurred by CII for the three months
ended June 30, 1996 totalled $128,000 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 six months ended June 30, 1996, these expenses totalled $275,000.
General and Administration
- --------------------------
Pharmaceutical Division
- -----------------------
General and administration expenses for the three months ended June 30, 1996
were $404,000 and for the equivalent three month period in 1995, $471,000.
These expenses for the six months ended June 30, 1996 were $680,000 and for the
corresponding period in 1995, $721,000. The decrease of $41,000 for 1996
compared with 1995 is due to (i) savings resulting from the expiry of a
contractual obligation for consultancy services, (ii) the re-allocation to CII
of a proportion of the salary costs and associated expenses of an Executive Vice
President, (iii) the re-allocation of royalties payable on sales of the
Company's monoclonal antibodies to the heading "Cost of Sales", (iv) a
non-recurrence of the cost of due diligence work relating to the acquisition of
certain assets of Carme Inc. in 1995, (v) a saving on the cost of producing the
Company's Annual Report and Accounts, and (vi) a general reduction in the cost
of the Company's patent protection services. These decreases in expenditure are
partially off-set by (i) additional legal fees relating to a dispute with a
former employee, the renewal of the lease of the Company's UK offices and the
costs relating to the leasing of new premises in the UK for the Company's
pharmaceutical division, and (ii) the cost of obtaining a Directors' and
Officers' Liability Insurance, a condition required by certain potential
investors.
Cosmetics Division
- ------------------
The general and administration expenses incurred by CII for the three months
ended June 30, 1996 totalled $258,000, 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 six months ended June 30, 1996, these costs totalled $528,000.
13
<PAGE>
Selling Expenses
- ----------------
Cosmetics Division
- ------------------
Selling expenses incurred by CII in the three months ended June 30, 1996
amounted to $279,000 and include selling commissions paid to brokers together
with the cost of overheads allocated to this heading.
For the six months ended June 30, 1996 these costs totalled $489,000.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company's liquidity represented
by cash and deposits at banks decreased by $1,229,000 to $1,008,000. This
reduction is attributable to (i) the overall loss of $1,768,000 for the six
month period (after crediting interest income of $12,000 and other income of
$48,000), (ii) the purchase of capital and computer equipment totalling $73,000,
(iii) an increase of $565,000 in inventory held at cost, (iv) an increase of
$50,000 in trade and non-trade receivables, (v) a decrease of $55,000 in
accounts payable and accrued liabilities, and (vi) the adverse effect, totalling
$5,000 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 an amortization charge of
$206,000 also included in the calculation of the overall loss referred to above.
The Company anticipates that expenditure could exceed income by approximately
$1,700,000 through the development of its pharmaceutical products and on its
administrative and marketing structure during the 6 months to December 31, 1996.
In addition, it is proposed 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 are unlikely to be
sufficient to address the Company's projected financial requirements. The
Company is therefore currently attempting to procure adequate additional funds
through a proposed issuance of new equity securities. In the meantime, an
unsecured bank loan facility of $1,000,000 has been negotiated and may be
utilized since this may prove to be necessary in the short-term. Although
management believes that Senetek will be able to address its 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. See "Factors Affecting the Company - Need for Financing"
below.
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.
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, but in the meantime believes it may have succeeded in negotiating with
14
<PAGE>
the immediate former auditors of Carme Inc. 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 statements
is 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 CII, 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 may
reduce this restriction to a 2 year period. Notwithstanding this restriction, as
indicated above, management is endeavoring to procure funding through equity
subscriptions of a substantial nature. The success or otherwise of these
negotiations is likely, inter alia, to be dependent upon the terms for clearance
from the appropriate division of the SEC, which the Company believes may have
been agreed in principle. 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.
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.
The statements contained in this 10-Q may be deemed forward looking statements
and involve a number of risks and uncertainties. In addition to the factors
discussed elsewhere in this 10-Q and in the
15
<PAGE>
Company's Securities and Exchange Commission filings on Form 10-K for the fiscal
year ended December 31, 1995 and on Form 10-Q for the quarter ended March 31,
1996, other factors that could materially affect the Company's business,
financial condition and results of operation include, without limitation, the
following:
Factors Affecting the Company
- -----------------------------
Need for Financing
- ------------------
The Company's cash requirements have been and will continue to be significant.
Senetek currently does not have sufficient equity, cash flow or bank facilities
to continue its operations beyond October 1996 but, as indicated, the Company is
currently endeavoring 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.
Development Stage Company; History of Losses
- --------------------------------------------
The Company, despite its inception over 12 years ago in October 1983, is still
in the development stage, and its business is subject to all the significant
risks inherent in the establishment of a 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. It has only produced $6,344,000 in gross revenues and has cumulative
losses of $31,685,000 (including a net loss of $3,721,000 in fiscal 1995).
Because its MSD product is estimated to be approximately one year away from
being marketed, there an be no assurance that marketing will begin when the
Company contemplates, 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, 1997.
Dependence on Key Personnel
- ---------------------------
The Company is dependent, in particular, upon the services of Dr Gerlof Homan,
its Chief Executive Officer, Mr Paul Logan, its Chief Financial Officer and Dr
Roger Oakes, President of Senetek's Pharmaceutical Division. If Dr Homan, 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 Dr
Homan, Mr Logan and Dr Oakes 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 fulfill 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.
16
<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: August 12, 1996 By: /S/ GERLOF HOMAN
--------------- -------------------------
Gerlof Homan
President and Chief Executive Officer
By: /S/ P.A. LOGAN
-------------------------
Paul Anthony Logan
Secretary and Chief Financial Officer
17
<TABLE> <S> <C>
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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
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<CIK> 0000789944
<NAME> SENETEK PLC
<MULTIPLIER> 1000
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