<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, 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 14)
(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, 1997 (all one class): 46,468,460
________________________________________
1
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1997
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended June 30, 1997 and June 30, 1996
Six Months Ended June 30, 1997 and June 30, 1996 3
Consolidated Balance Sheet
June 30, 1997 (unaudited) and December 31, 1996 4
Unaudited Consolidated Statement of Cash Flows
Six Months Ended June 30, 1997 and 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 II. OTHER INFORMATION
Not applicable
SIGNATURES 18
2
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share date)
(Unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Product sales $ 1,667 1,484 3,103 3,106
Cost of sales (1,134) (763) (2,040) (1,630)
Gross Profit 533 721 1,063 1,476
Operating Expenses:
Research & development (1,139) (578) (2,020) (988)
General & administration (911) (662) (1,707) (1,208)
Marketing & promotion (912) (307) (1,510) (619)
Selling expenses (192) (279) (423) (489)
--- --- --- ---
Total Operating Expenses (3,154) (1,826) (5,660) (3,304)
Loss from operations (2,621) (1,105) (4,597) (1,828)
Interest Expense (36) -- (58) --
Interest income 36 2 64 12
Other income 5 25 1 48
----- ----- ----- -----
Loss before taxation (2,616) (1,078) (4,590) (1,768)
Taxation -- -- -- --
----- ----- ----- -----
Net Loss $ (2,616) (1,078) (4,590) (1,768)
======= ======= ====== =======
Net loss per ordinary
share outstanding $ (0.05) (0.03) (0.10) (0.04)
Weighted average
Ordinary shares
outstanding 47,984 40,650 46,792 40,628
------ ------ ------ ------
See accompanying notes to unaudited consolidated financial statements.
3
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1997 1996
(unaudited) (audited)
Assets
Current Assets:
Cash and Cash Equivalents $ 7,020 $ 2,975
Inventory 1,295 1,657
Trade Receivables 1,037 771
Non-Trade Receivables 44 88
Prepaids and Deposits 603 138
------ ------
Total Current Assets 9,999 5,629
Property and Equipment, Net 1,546 1,182
Goodwill and Other Intangible Assets - net 1,998 2,128
Deferred Financial Costs -- 902
------ ------
Total Assets $ 13,543 $ 9,841
==== ===
Liabilities & Stockholders' Equity
Current Liabilities
Bank Overdraft 585 230
Accounts Payable 1027 1,236
Accrued Liabilities 364 412
8% Convertible Debentures 354 1,700
----- ------
2,330 3,578
=== ===
Stockholders' Equity:
Ordinary shares $0.08 (5p) par value:
Authorized shares: 58,000,000
Issued and outstanding shares:
June 30, 1997- 49,842,470
December 31, 1996 - 43,899,205 4,020 3,533
Share Premium 45,656 36,607
Accumulated deficit (38,527) (33,937)
Equity adjustment from foreign currency
translation 64 60
Total Stockholders' Equity $ 11,213 $ 6,263
------- ------
Total Liabilities and Stockholders' Equity $ 13,543 $ 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)
Six Months Ended
June 30,
1997 1996
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,590) (1,768)
Adjustments to reconcile
net income to net cash:
Depreciation and amortization 327 206
Write-off of assets under course
of construction -- 31
Interest on Convertible Debentures
effected by issue of shares 45 --
Changes in assets and liabilities:
Trade receivables (increase)/
decrease (266) (69)
Non-trade receivables (increase)/
decrease 44 22
Inventory (increase)/decrease 362 (565)
Prepaids and deposits
(increase)/decrease (465) (3)
Accounts payable and accrued
liabilities increase/(decrease) (156) (55)
Other assets (increase)/decrease --
-------- -------
Net cash used by operating activities $ (4,699) (2,201)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (485) (73)
-------- --------
Net cash provided (used) by investing
activities $ (485) (73)
==== ====
5
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
1997 1996
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of issuance of
Ordinary shares from exercise of Warrants, 8,874 1,050
Options and Convertible Debentures
Increase in bank overdraft 355 --
------ ------
Net cash provided by financing activities $ 9,229 1,050
=== ===
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,045 (1,224)
Cash and cash equivalents at the beginning
of the period 2,975 2,237
Effect of exchange rate changes on cash -- (5)
------ ------
Cash at the end of the period $ 7,020 1,008
=== ===
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
----------------
1997 1996
----
Interest 13 3
Income Taxes -- --
See accompanying notes to consolidated financial statements.
6
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SENETEK PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements incorporate the accounts
of Senetek PLC ("Senetek") or ("the Company") and its wholly owned
subsidiaries, MEIS Corporation ("MEIS") now renamed Senetek Drug
Delivery Technologies Inc. ("SDDT") and Carme International, Inc.
("CII") now renamed Carme Cosmeceutical Sciences Inc. ("CCS") (both
Delaware corporations) for the six months ended June 30, 1997. 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. 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 six months ended June 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. 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 6 months ended June 30, 1997, the Company issued 5,943,265
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 $2.13 per share.
6. The loss per share is calculated on the basis of the weighted average
of the number of shares outstanding during the three month period as
follows:
7
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Three Months - April 1, 1997 through June 30, 1997
- --------------------------------------------------
Actual Weighted Average
Equivalent
------ ---------------
Shares outstanding at beginning
of the period 46,468,460 46,468,460
Conversion of Debentures 779,083 282,823
Exercise of warrants 2,489,927 1,185,413
Exercise of Share Options 105,000 47,033
------------ -------------
Shares outstanding at the end
of the period 49,842,470 47,983,729
---------- ----------
7. Inventory at cost comprises:
June 30, December 31,
1997 1996
(in $ thousands)
---------- ------------
Finished Goods $ 406 $ 879
Raw Materials 882 776
Work in Progress 7 2
-------- --------
$ 1,295 $ 1,657
-------- --------
8. Prepaids and deposits comprise the following:
March 31, December 31,
1997 1996
(in $ thousands)
Deposits $ 74 $ 67
Prepayments 529 71
--------- ---------
$ 603 $ 138
--------- ---------
8
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9. Accounts payable and accrued liabilities comprise the following:
June 30, 1997 December 31, 1996
(in $ thousands)
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
Trade creditors $ 42 324 $ -- 495
Staff salaries 50 10 60 8
Vacation pay accrual 69 -- 71 --
Taxes and social security 10 17 -- 28
Audit, accountancy and 102 -- 107 18
taxation charges
Direct Research costs 15 449 -- 368
Approved travel and
accommodation expenses -- 1 -- 15
Legal and professional fees 40 46 20 52
Consultancy fees 15 8 15 15
Other liabilities and accruals 21 172 39 237
Accrued financing costs on
issue of Convertible Debentures -- -- 100 --
-------- -------- -------- ---------
$ 364 1,027 $ 412 1,236
-------- -------- -------- ---------
10. Commitments
-----------
As of June 30, 1997, the company plans to provide funding for various
testing and approval requirements of approximately $2,000,000. This
development expenditure is scheduled to be incurred 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 $700,000 is envisaged
during the remainder of 1997 representing part-payments towards the
acquisition of additional plant and machinery over the next twelve
months for the bulk manufacture and assembly of the Company's
auto-injector syringe components. This proposed expenditure is designed
to increase production capacity to commercial volume. Such expenditure
is subject to the adequacy of the Company's financial resources or the
availability of leasing or loan facilities.
9
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SENETEK PLC AND SUBSIDIARIES
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, 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.
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.
10
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HISTORICAL DISCLOSURE (CONTINUED)
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.
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.
11
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RESULTS OF OPERATIONS
The Company's operations are carried out through research and development in the
life science and biotechnology fields ("pharmaceuticals") and, through CII, the
manufacture and distribution of health and beauty aids ("cosmetics"). CII
commenced operations on September 26, 1995.
Six Months Ended
June 30,
1997 1996
(in $ thousands)
Loss From Operations:
Pharmaceuticals:
Revenues 485 287
--- ----
Gross Profit 285 146
Operating Expenses (4,050) (1,936)
Loss from Operations (3,765) (1,790)
Cosmetics:
Revenues 2,618 2,889
----- -----
Gross Profit 777 1,330
----- -----
Operating Expenses (1,608) (1,368)
----- -----
Loss from Operations ( 831) (38)
Total Loss from Operations (4,597) (1,828)
Six Months Ended
June 30,
1996 1995
(in $ thousands)
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from Operations (3,765) 2,790)
Interest Income 61 12
Interest Expense (48) --
Other Expense ( 4) --
----- ----
(3,756) (1,778)
Cosmetics:
Loss from Operations (831) (38)
Other Income 5 48
Interest Expense (8) --
(834) 10
----- --
Total Overall Loss Before Taxation (4,590) (1,768)
The increase of $1,978,000 in the overall loss of the Company's pharmaceutical
division during the six months ended June 30, 1997 compared with the
corresponding period during 1996 is represented by an increase in gross profit
of $139,000 and an increase in operating expenses of $2,114,000 as discussed in
the following sub-sections.
The Cosmetics division realised a loss of $834,000 compared with a profit of
$10,000 in he corresponding period of 1996 due mainly to a reduction in gross
margins of $553,000 and an increase in operating expenses of $240,000 as
discussed in the following sub-sections.
12
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Revenues
- --------
The Company's product sales revenues of $1,667,000 for the three months ended
June 30, 1997 comprised $222,000 from the sale of its pharmaceutical products,
and $1,445,000 from the sale of health and cosmetic beauty aids.
This compares with $1,484,000 for the three months ended June 30, 1996.
For the six months to June 30, 1997, sale revenues were $3,103,000 comprising
$485,000 from pharmaceutical products and $2,618,000 from health and cosmetic
beauty aids. During the same period of 1996 the sales were $3,106,000 comprising
$287,000 for pharmaceuticals and $2,889,000 for cosmetics. The increase of
$198,000 in pharmaceuticals is due to additional sales of monoclonal antibodies
and Invicorp, whilst the reduction in cosmetics is due to a rationalisation of
the product line.
OPERATING EXPENSES
Research and Development
- ------------------------
Pharmaceutical Division
- -----------------------
Research and development expenses for the three months ended June 30, 1997 were
$1,108,000, of which $854,000 related to direct research costs, and $254,000 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 $544,000 with
direct and indirect research expenses accounting for $281,000 and $263,000
respectively.
For the six months ended June 30, 1997 research and development costs were
$1,941,000 of which $1,366,000 related to direct and $575,000 to indirect
research costs. For the equivalent six month period in 1996, the costs totalled
$912,000 with direct and indirect research costs accounting for $443,000 and
$469,000 respectively.
The increase in direct research costs for the six months ended June 30, 1997
compared with 1996 is accounted for by an increase in expenditure with a wide
range of medical institutions on the conduct of clinical trials in connection
with the application to certain regulatory authorities of applications for the
approval of the MSD compound and the auto-injector. Additional staff costs were
also incurred in progressing all the documentation required for such
submissions.
The increase of $106,000 in indirect research costs for six months ended June
30, 1997 compared with 1996 is due, in the main, to the cost of additional
support staff, mostly temporary, in the preparation of the aforementioned
submissions.
Cosmetics Division
- ------------------
Expenditure on research and development by CII in the three months ended June
30, 1997 totalled $31,000 compared with $34,000 for the same period in 1996.
For the six months ended June 30, 1997, these expenses totalled $79,000 compared
to $76,000 in the first six months of 1996.
Marketing and Promotion
- -----------------------
Pharmaceutical Division
- -----------------------
Marketing and promotion expenses for the three months ended June 30, 1997
totalled $633,000 compared with $179,000 for the equivalent three month period
in 1996.
These expenses for the six months ended June 30, 1997 were $943,000 and for the
corresponding period in 1996, $344,000. The increase of $599,000 for 1997
compared to 1996 is mainly due to the work undertaken by the Public/Investor
Relations Consultancy in giving a greater public awareness of the Company and
its objectives.
13
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Cosmetics Division
- ------------------
The marketing and promotional expenses incurred by CII for the three months
ended June 30, 1997 totalled $279,000 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.
This compares with expenditure of $128,000 during the three months ended June
30, 1996.
For the six months ended June 30, 1997, these expenses totalled $567,000, which
is a similar rate to the first three months.
1997 totalled $279,000 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, 1997, these expenses totalled $567,000
representing a similar rate of expenditure to that incurred in the first three
months.
General and Administration
- --------------------------
Pharmaceutical Division
- -----------------------
General and administration expenses for the three months ended June 30, 1997
were $609,000 and for the equivalent three month period in 1996, $404,000.
These expenses for the six months ended June 30, 1997 were $1,168,000 and for
the corresponding period in 1996, $680,000. The increase of $488,000 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.
Cosmetics Division
- ------------------
The general and administration expenses incurred by CII for the three months
ended June 30, 1997 totalled $302,000, 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, 1997, these costs totalled $539,000, compared
to $528,000 in the six months ended June 30, 1996.
Selling Expenses
- ----------------
Cosmetics Division
- ------------------
Selling expenses incurred by CII in the three months ended June 30, 1997
amounted to $192,000 and include selling commissions paid to brokers together
with the cost of overheads allocated to this heading. This compares with
$258,000 in the three months ended 30 June 1996.
For the six months ended June 30, 1997 these costs totalled $423,000, which was
a reduction of $66,000 compared with the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997, the Company's liquidity represented
by cash and deposits at banks increased by $4,045,000 to $7,020,000. New funding
amounted to $8,874,000 from the exercise of Warrants and Options and the
conversion of Debentures. A further $355,000 was raised from an increase of
overdraft facilities.
These amounts funded :
i) the net loss for the 6 month period of $4,590,000
ii) capital expenditure of $485,000
14
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i) an increase in receivables, prepaids and deposits of $687,000 and
ii) a reduction of $156,000 in accounts payable.
Inventory was reduced by $362,000 and after taking into consideration
depreciation, amoritzation and other non-cash items totalling $372,000, the
overall effect was for an increase in cash and cash equivalents of $4,045,000
from December 31, 1996 to 30 June 1997.
The Company anticipates that expenditure could exceed income by approximately
$4,200,000 through the development of its pharmaceutical products and on its
administrative and marketing structure during the 6 months to December 31, 1997.
In addition, it is proposed to incur further payments on capital equipment
during fiscal 1997 of $700,000 and a re-organization cost related to the
combination of facilities estimated at $250,000, 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 1997, and also that revenues may be realized through CII, such
revenues may not be sufficient to address the Company's projected financial
requirements. The Company may, therefore, continue to procure additional funds
through the issuance of new equity securities.
It is management's belief that the interest expressed by a major organisation
may lead to a license agreement of a substantial nature although no assurance
can be given that the Company will be successful in securing such an agreement.
The objective of the 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 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
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
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 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 and the
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. 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.
15
<PAGE>
FACTORS AFFECTING THE COMPANY
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 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 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. It has only produced $12,827,000 in gross
revenues and has cumulative losses of $38,463,000 (including a net loss of
$4,020,000 in fiscal 1996). Because its main product is estimated to be
approximately one year away from being marketed, there can 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, 1998.
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 Financial Officer, Mr Paul Logan, its
Company Secretary 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.
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 worldwide 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 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.
16
<PAGE>
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 to be incurred over fiscal 1997 and 1998, which is estimated to be
in the region of $1.4 million.
With regard to the development and marketing of Kinetin 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. CII continues to provide the necessary production and
marketing facilities for the incorporation of Kinetin 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, increased 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 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 projects, 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.
17
<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: August 12, 1997
18
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