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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
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X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended June 30,1998
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or
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Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ______
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Commission file number 0-14691
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SENETEK PLC
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code 011-44-171-828-4800
NOT APPLICABLE
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(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
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Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest date practicable.
June 30, 1998 (all one class): 54,540,692 Ordinary shares 5p par value
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This document contains pages
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1998
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended June 30, 1998 and June 30, 1997
Six Months Ended June 30, 1998 and June 30, 1997 ......... 3
Consolidated Balance Sheet
June 30, 1998 (unaudited) and December 31, 1997 .......... 4
Unaudited Consolidated Statement of Cash Flows
Nine Months Ended June 30, 1998 and June 30, 1997 ........ 5&6
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1998 ........................... 7
Notes to the Unaudited Consolidated Financial Statements . 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 10
</TABLE>
PART II. OTHER INFORMATION
Not applicable
SIGNATURES
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 6 Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales ................... $ 1,157 1,667 $ 2,772 3,103
Cost of sales ................... (767) (1,134) (1,670) (2,040)
------- ------- ------- -------
Gross Profit ....................... 390 533 1,102 1,063
Operating Expenses:
Research & development .......... (1,704) (1,139) (3,249) (2,020)
General & administration ........ (1,897) (911) (3,739) (1,707)
Marketing & promotion ........... (28) (912) (447) (1,510)
Selling expenses ................ (81) (192) (234) (423)
------- ------- ------- -------
Total Operating Expenses ...... (3,710) (3,154) (7,669) (5,660)
Loss from operations ............... (3,320) (2,621) (6,567) (4,597)
Interest Expense ................... (12) (36) (31) (58)
Interest income .................... 54 36 95 64
Other income ....................... -- 5 97 1
------- ------- ------- -------
Loss before taxation ............... (3,278) (2,616) (6,406) (4,590)
Taxation ........................... -- -- -- --
------- ------- ------- -------
Net Loss ...................... $(3,278) (2,616) $(6,406) (4,590)
======= ======= ======= =======
Net loss per ordinary
share outstanding ............... $ (0.06) (0.05) $ (0.12) (0.10)
Weighted average
Ordinary shares
outstanding ..................... 54,106 47,984 53,328 46,792
------- -------- ------- -------
</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>
June 30, December 31,
1998 1997
(unaudited) (audited)
----------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents ................................ $ 989 $ 6,216
Inventory ................................................ 2,007 890
Trade Receivables ........................................ 1,110 1,123
Non-Trade Receivables .................................... 89 113
Receivable from Employee ................................. 311 311
Prepaids and Deposits .................................... 1,286 939
-------- --------
Total Current Assets ............................... 5,792 9,592
Property and Equipment - net of depreciation ............. 2,738 1,909
Goodwill and Other Intangible Assets - net of amortization 1,833 1,900
-------- --------
Total Assets ....................................... $ 10,363 $ 13,401
======== ========
Liabilities & Stockholders' Equity
Current Liabilities
Bank Overdraft ........................................... 195 --
Line of Credit ........................................... -- 900
Accounts Payable ......................................... 1,458 1,754
Accrued Liabilities ...................................... 366 1,353
Accrued Compensation on Stock Options
-- Employees 3,846 3,048
-- Non Employee 920 840
Capital Leases ........................................... 199 --
-------- --------
6,984 7,895
======== ========
Long Term Liabilities
Capital Leases ........................................... 133 --
Stockholders' Equity:
Ordinary shares $0.08 (5p) par value:
Authorized shares: 100,000,000
Issued and outstanding shares:
June 30, 1998 - 54,540,692
December 31, 1997 - 52,186,821 ........................ 4,404 4,215
Share Premium ............................................... 54,677 50,711
Accumulated deficit ......................................... (55,878) (49,476)
Equity adjustment from foreign currency translation ......... 43 56
-------- --------
Total Stockholders' Equity .................................. $ 3,246 $ 5,506
-------- --------
Total Liabilities and Stockholders' Equity .................. $ 10,363 $ 13,401
======== ========
</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>
Six Months Ended
June 30,
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $(6,406) $(4,590)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization ..................... 225 327
Gain on disposal of fixed assets .................. (7)
Stock option compensation ......................... 878
Interest on Convertible Debentures
effected by issue of shares ....................... 45
Changes in assets and liabilities:
Trade receivables decrease/(increase) ................ 13 (266)
Non-trade receivables decrease/(increase) ............ 32 44
Inventory (increase)/decrease ........................ (1,117) 362
Prepaids and deposits (increase)/decrease ............ (347) (465)
Accounts payable and accrued liabilities (decrease) .. (952) (156)
------- -------
Net cash (used) by operating activities .............. $(7,681) $(4,699)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (987) (485)
------- -------
Net cash provided (used) by investing activities...... $ (987) $ (485)
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
5
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of issuance of
Ordinary shares from Private placements, 4,155 8,874
exercise of Warrants, Options and
Convertible Debentures
Options and Convertible Debentures
(Decrease)/increase in bank overdraft ....... (705) 355
------- -------
Net cash provided by financing activities ...... $ 3,450 9,229
======= =======
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS ......................... (5,218) 4,045
Cash and cash equivalents at the beginning
of the year .................................. 6,216 2,975
Effect of exchange rate changes on cash ........ (9) --
------- -------
Cash & cash equivalents at the end of the period $ 989 7,020
======= =======
</TABLE>
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
Amounts Paid
(in $ thousands)
--------------------
1998 1997
-------- -------
<S> <C> <C>
Interest ....................................... 31 13
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
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SENETEK PLC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Six Months Ended June 30, 1998
(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, 1997: ......................... 52,186,821 4,215 50,711 (49,476) 56 5,506
Issuance of Ordinary shares in Private Placements.. 1,100,500 90 2,880 2,970
Warrants exercised ................................ 458,706 33 652 685
Options exercised ................................. 794,665 66 434 500
Net Loss .......................................... (6,406) (6,406)
Translation adjustment: ........................... (9) (9)
---------- ------- -------- -------- ----- -------
Balance, June 30, 1998: .............................. 54,540,692 $ 4,404 $ 54,677 $(55,882) $ 47 $ 3,246
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
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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, Senetek Drug Delivery Technologies Inc. ("SDDT")
(formerly MEIS Corporation) and Carme Cosmeceutical Sciences
Inc.("CCSI") (formerly Carme International, Inc.), (both Delaware
corporations) for the six months ended June 30, 1998. 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 1997
Annual Report on Form 10-K.
Results of operations for the six months ended June 30, 1998 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
subsidiaries where the functional currency is other than U.S. dollars
are translated at period-end exchange rates. All income and
expenditure items in the profit and loss account of foreign branches
and subsidiaries whose functional currency is other than US dollars
are translated at average monthly 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. Translation gains and losses arising from the translation of
the financial statements of foreign branches and subsidiaries whose
functional currency is other than the US dollar are not included in
determining net income but are accumulated in a separate component of
stockholder' equity. Foreign currency transaction gains and losses are
included in the determination of net income in the period in which
they occur. The functional currency of the Company's UK operation is
the Pound Sterling.
4. Revenues are recognized at the time of Shipment (or time of rendering
in the case of services) and are stated at the net invoiced value of
goods and services supplied to customers after deduction of value
added tax where applicable.
5. During the 6 months ended June 30, 1997, the Company issued
2,353,871 new Ordinary shares, through the sale of Ordinary shares
under Regulation S and the exercise of warrant entitlements and the
exercise of Options under the Company's approved plans at an average
price of $1.77 per share.
6. The Company issued 1,917,221 new Ordinary shares in the second quarter
of 1998, through the sale of Ordinary shares under Regulation S and the
exercise of warrant entitlements and the exercise of Options under the
Company's approved plans at an average price per share of $1.89.
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7. 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>
Second Quarter 1998 First six months 1998
Actual Weighted Average Actual Weighted Average
Equivalent Equivalent
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of the period.... 52,623,471 52,623,471 52,186,821 52,186,821
Private Placements ........ 1,100,500 1,014,755 1,100,500 504,575
Exercise of warrants ...... 57,706 44,241 457,706 373,379
Exercise of Share Options.. 759,015 423,888 795,665 262,953
---------- ---------- ---------- ----------
Shares outstanding at the
end of the period ....... 54,540,692 54,106,355 54,540,692 53,327,728
---------- ---------- ---------- ----------
Shares issued ............. 1,917,221 -- 2,353,871 --
Average price per share ... $ 1.89 -- $ 1.77 --
</TABLE>
8. Inventory at cost comprises:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1997
-------- ------------
(in $ thousands)
<S> <C> <C>
Finished Goods ............................. $ 738 $ 879
Raw Materials .............................. 1,268 776
Work in Progress ........................... 1 2
------ ------
$2,007 $1,657
------ ------
</TABLE>
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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,
1997.
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.
BUSINESS
Senetek PLC ("Senetek" or "the Company") is a public limited company registered
in England in October, 1983 with the number 1759068 with the objective of
sponsoring research in the life sciences and biotechnology fields, with
particular emphasis on research relating to the diagnosis and treatment of
diseases related to senescence or aging, and the subsequent exploitation of the
results of such research.
The main areas in which the Company is involved are the treatment of male sexual
dysfunction ("MSD"), which includes the development, manufacture and sale of a
patented self-administered automatic injector syringe as a delivery system. The
patented auto injector system is referred to as Reliaject(TM) and the
combination therapy of vasoactive intestinal polypeptide and phentolamine
mesylate for the treatment of MSD administered with Reliaject(TM) is referred to
as the Invicorp(TM) product. Phase III Clinical Trials for Invicorp(TM) are now
complete and product licensing applications have been filed in the United
Kingdom ("UK"), Ireland, Denmark, Switzerland, South Africa and New Zealand. The
Company is planning to lodge a New Drug Application ("NDA") in the United States
("US") at the earliest practicable time, possibly in the second half of 1998. In
December, 1993, the Company formed a wholly owned subsidiary, Senetek Drug
Delivery Technologies Inc. "SDDT" (formerly named MEIS Corporation) -- a
Delaware Corporation formerly based in St. Louis and now based in Napa,
California, 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 and are being
investigated, notably in the case of Epinephrine, as an antidote against
anaphylactic shock.
The Company has a corporate research laboratory in St. Louis which investigates
the therapeutic viability of potential new products prior to further development
and supports the analytical measurement process in Phase II and III trials,
through the development of chemical assay methodology. The Company operates a
development center in Kettering, UK, whose staff are involved in the monitoring
of Phase III clinical trials in the UK and Europe, product licensing
applications and regulatory work with the relevant medicines evaluation agencies
in Europe.
In September 1995, the Company extended its interests by forming another wholly
owned subsidiary, Carme Cosmeceutical Sciences Inc. ("CCSI") (formerly named
Carme International Inc.) - a Delaware Corporation formerly based in Novato,
California but now located at Napa, California, for the acquisition of the
majority of the assets of Carme Inc., a corporation based in Novato, that
manufactured and distributed a wide range of health and beauty products. The
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 patented kinetin compound (formerly referred to as Factor
X or Vivakin) in cosmeceutical format. CCSI revised its supply chain strategy
during 1997 with the result that total manufacturing requirements were
outsourced from the fourth quarter of 1997. Additional resources have been
focused on the commercialization of kinetin and the revitalization of CCSI's
Mill Creek core brands. During the fourth quarter of 1997 Senetek re-located its
SDDT, CCSI and US Corporate activities to a single site in Napa, California. The
move was completed in January 1998 with the closure and relocation of the CCSI
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Novato facility, the SDDT St Louis syringe manufacturing facility and the New
York Corporate office. Senetek's Scientific Research Center continues to operate
out of the Tesson Grove Medical Center in St Louis.
Sales of monoclonal antibodies purchased from outside suppliers and, derived
from Company sponsored research into diagnostic procedures for Alzheimer's
disease and other cell lines are effected on a continuing basis to the
scientific community for research purposes.
Aspects of the business are discussed under "Product Research and Development",
"Manufacturing and Marketing", and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", below.
PRODUCT RESEARCH AND DEVELOPMENT
GENERAL
A significant proportion of the Company's historic and current operating
expenses have related to the discovery and development of biomedical products,
for which purpose the Company has established clinical research agreements with
consultants and research scientists. Under these agreements, the Company funds
agreed programs of the consultants', clinicians' or research scientists' work
and retains exclusive rights to manufacture and market worldwide any products
arising from such research. Currently no products, except for CCSI's sales of
its Mill Creek range of products incorporating the Company's kinetin compound,
and the sale of monoclonal antibodies, have reached the marketing stage but if
products arise from such research, certain of the researchers will become
entitled to a royalty under the terms of their individual agreements.
Typically, the research agreements referred to above oblige the Company to fund
research in amounts to be determined between the parties. The researchers are
responsible for filing progress reports with the Company. Currently, Senetek's
research and development efforts consist of the work being done under these
agreements, and through liaison with the research teams involved, and with
specialised consultants on matters such as formulation, stability, clinical
trials and regulatory matters covering the products involved in such research.
MALE SEXUAL DYSFUNCTION ("MSD") INVICORP(TM)
The Company has continued to liaise with research groups, clinicians and
consultants to conduct controlled clinical trials in the United Kingdom,
following the completion of the earlier stage trials in Denmark. Further liaison
is conducted with consultants and clinicians in the USA. The Company proposes to
expedite the development and subsequent commercialisation of its Invicorp(TM)
product either through its own resources where appropriate or commercially
advantageous, or in co-operation with potential pharmaceutical partners,
distributors or licensees.
In the second quarter of 1998, one of the active constituents of Invicorp(TM),
Vasoactive Intestinal Polypeptide; was granted a British Approved Name ("BAN")
- -- aviptadil.
Marketing Authorisation Applications ("MAA's") were filed for Invicorp(TM) in
1997 with the relevant regulatory bodies in the United Kingdom, Ireland,
Denmark, Switzerland, South Africa and New Zealand. A marketing permit for
Denmark was granted in the third quarter of fiscal year 1998 and the Company
seeks to obtain other marketing authorisations by the end of 1998. An
application under the European Mutual Recognition Procedure ("MRP") is pending
depending on the choice of Reference Member State ("RMS") in Europe. In the USA,
Invicorp(TM) received Investigational New Drug ("IND") approval from the Federal
Food & Drug Administration ("FDA") enabling the Company to conduct clinical
trials in the USA and the Company expects to file a New Drug Application ("NDA")
with the FDA during the second half of 1998.
SELF-ADMINISTERED AUTO-INJECTOR SYRINGE (RELIAJECT(TM))
The Company's patented auto-injection device ("ReliaJect(TM)") has now been
fully developed by SDDT, and is currently being used as the delivery device for
the Invicorp(TM) in both clinical trials and for supplies, in Europe, on a named
patient basis. The potential for parenteral delivery of other drugs using the
ReliaJect(TM) device, in additional to Invicorp(TM) and epinephrine (adrenaline)
referred to herein is under active review and investigations into other
potential applications.
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EPINEPHRINE IN THE RELIAJECT(TM) AUTO-INJECTION DEVICE
The Company has filed an Abbreviated New Drug Application ("ANDA") with the
US FDA during 1998 fo for the proposed administration of epinephrine by
sub-cutanus injection delivered via the ReliaJect(TM) auto-injection device,
under the proposed brand name "AdrenaJect". The Company plans to file a MAA with
the Medicines Control Agency ("MCA") in the United Kingdom during the second
half of 1998. Epinephrine (adrenaline in Europe) is a well recognised and
documented compound that is used as an emergency antidote in anaphylactic shock
- -- a life threatening condition triggered by a severe allergic reaction to
insect stings, insect bits and to certain foodstuffs. It is hoped that marketing
approval in the USA may be gained in the last quarter of 1998 with commercial
sales commencing in 1999. In addition, the Company is developing a pediatric
formulation for epinephrine in the ReliaJect(TM) auto-injection device with a
view to filing an ANDA with the FDA at the earliest practicable date.
Identification of, and negotiations with, prospective commercial partners for
epinephrine in the ReliaJect(TM) device are in early stages.
SKIN AGING
Research activity relating to the Company's anti-aging compound continues to be
carried out through research groups in the US including the University of
California, Irvine.
With regard to the commercial exploitation of products incorporating kinetin,
the Company has, through its subsidiary CCSI, commenced the successful marketing
of its Mill Creek line of products as an "Age Defiant", "over-the-counter"
consumer product, and conducted a major advertising campaign in mid-1997.
Evidence to date, suggests that the patented kinetin product could represent a
major breakthrough in the prevention or delay of aging characteristics in human
fibroblasts. Specifically, kinetin preparations have revealed in trials at the
University of California the reduction of fine lines and wrinkles, mottled
hyperpigmentation, telangiectasia and tactile skin roughness.
The Company also holds a patent for the use of kinetin in the treatment of
psoriasis.This pharmaceutical application of kinetin would require further
extensive pivotal clinical studies and toxicology testing prior to the filing of
product licensing applications. This additional activity is not subject to the
Company's presently planned activities.
GENERAL
Research and Development expenditure amounted to $5,026,000, $2,187,000 and
$1,925,000 for fiscal 1997, 1996 and 1995 respectively.
MANUFACTURING AND MARKETING
The Company's subsidiary, SDDT, has installed plant and machinery for the
manufacture and assembly of the components for Reliaject(TM) on a limited
production basis and has now either purchased or entered into the necessary
capital commitments to provide high volume manufacturing at the new facility at
Napa, California which is planned to begin during the fourth quarter of 1998.
SDDT has responsibility for the supply chain activities of providing
Reliaject(TM) components to specialized contract manufacturers who will perform
the assembly of Reliaject(TM) and fill the syringe with compounds such as the
Invicorp(TM) and Epinephrine formulations, perform final assembly and complete
pack preparation prior to distribution. The active materials, vasoactive
intestinal polypeptide and phentolamine mesylate which are formulated in the
Invicorp(TM) preparation are currently available in commercial quantities from
two suppliers. These suppliers have developed synthetic methods which are
included in the product licensing applications. There is therefore a degree of
reliance on these specialized suppliers for continued supply of materials.
In the case of CCSI, manufacture, filling and labelling of its products are now
outsourced. In South Africa and the United Kingdom licenses to manufacture have
been granted for the Mill Creek line of skincare products. CCSI's products are
distributed internationally, with the majority of the products being sold within
the North American Free Trade Area ("NAFTA") through its marketing organization
covering two main sectors, natural products, and speciality mass markets.
Distribution agreements have been signed within the US and abroad. There is no
significant reliance on main or specialised suppliers, and it is not anticipated
that problems will arise over the question of access to raw materials that are
generally available and that will be required for CCSI's contract manufacturing
processes.
In accordance with an agreement entered into with the Research Foundation for
Mental Hygiene Inc. ("the Foundation"), the Company, which has been granted
the exclusive right to certain of the
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Foundation's cell lines capable of producing certain monoclonal antibodies,
including those applicable to the early diagnosis of Alzheimer's disease, and
continues to effect sales of such antibodies, which are sourced from outside
suppliers to the scientific community for research purposes in consideration for
a royalty entitlement in favor of the Foundation. The Company is reliant on the
sourcing of the monoclonal antibodies from a specific biotech organization at
the present time.
In the case of any emerging products, the Company anticipates that any
manufacturing and marketing activities may be arranged through co-development
and marketing agreements with companies which have already established a
majority presence in specialised fields. In this event, any revenues to be
generated will arise primarily through third party distribution or licensing
arrangements or co-ventures whereby the Company will seek to receive a
percentage of sales, licence fees and/or milestone payments in consideration for
its grant of specified marketing rights to its products, or by profit
participation through a third party equity investment or joint venture.
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 second quarter of 1998 totalled $1,157,000, a decrease
of 30.6% from sales of $1,667,000 for the second quarter of 1997.
In the Pharmaceutical Sector, sales increased by 60.4% from $222,000 for the
second quarter of 1997, to $356,000 for the second quarter of 1998. This is due
mainly to additional sales of monoclonal antibodies to research organizations.
In the Cosmetics Sector, sales decreased by 44.6% from $1,445,000 in the
second quarter of 1997 to $801,000 for the second quarter of 1998. This is
primarily due to rationalization of the CCSI product portfolio and the
elimination of a large number of low margin items.
World-wide sales for the first six months of 1998 totalled $2,772,000, a
decrease of 10.7% from sales of $3,103,000 for the first six months of 1997.
Pharmaceutical Sector sales increased by 64.5% from $485,000 for the first
six months of 1997, to $798,000 for the first six months of 1998. This is due
mainly to additional sales of monoclonal antibodies.
Cosmetic Sector sales decreased by 24.6% from $2,618,000 for the first
six months of 1997, to $1,974,000 for the first six months of 1998. This
is primarily due to rationalization of the CCSI product portfolio and the
elimination of a large number of low margin items.
COST OF GOODS SOLD
Cost of goods sold for the second quarter of 1998, which includes contract
manufacturing and material costs, was 66% of sales, or $767,000, down 32.4% from
$1,134,000 in the second quarter of 1997. The decrease is due mainly to
decreased sales volume in the cosmetics sector.
In the Pharmaceutical Sector, cost of goods sold for the second quarter of 1998
was 48% of sales, or $172,000 up 62.3% from $106,000 in the second quarter of
1997. This is due primarily to the increased sales volume of monoclonal
antibodies.
In the Cosmetics Sector, cost of goods sold for the second quarter of 1998 was
74% of sales, or $595,000 a decrease of 42.1% from $1,028,000 in the second
quarter of 1997. This is primarily due to the decreased sales volumes of CCSI
products following the rationalization of the product range and the elimination
of low gross margin products.
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Cost of goods sold for the first six months of 1998 was 60% of sales, or
$1,670,000, down 18.1% from $2,040,000 for the first six months of 1997. The
decrease is due mainly to decreased sales volume in the cosmetics sector which
was partly offset by a favourable product mix.
In the Pharmaceutical Sector, cost of goods sold for the first six months of
1998 was 43% of sales, or $342,000 up 71.9% from $199,000 for the first six
months of 1997. This is due primarily to the increased sales volume of
monoclonal antibodies.
In the Cosmetics Sector, cost of goods sold for first six months of 1998 was 67%
of sales, or $1,328,000 a decrease of 27.9% from $1,841,000 for the first six
months of 1997. This is primarily due to the decreased sales volumes of CCSI
products following the rationalization of the product range and the elimination
of low gross margin products.
OPERATING EXPENSES
RESEARCH & DEVELOPMENT
Research and Development ("R&D") expenditure for the second quarter of 1998
totalled $1,705,000, an increase of 49.7% from $1,139,000 in the second quarter
of 1997.
In the Pharmaceutical Sector R&D accounted for 99.7% of the total for the
Company for the second quarter of 1998, compared to 97.4% for the second quarter
of 1997.The increased expenditure was due mainly to additional spending on
pivotal clinical studies, regulatory approvals and toxicological studies, in
particular for the upcoming New Drug Application ("NDA") submission with the FDA
in the United States.
R&D expenditure for the first six months of 1998 totalled $3,249,000, an
increase of 60.8% from $2,020,000 for the first six months of 1997.
In the Pharmaceutical Sector R&D accounted for 99.8% of the total for the
Company for the first half of 1998, compared to 96.1% for the first half of
1997.The increased expenditure was due mainly to additional clinical spending on
pivotal clinical studies , regulatory approvals and toxicological studies, in
particular for the upcoming NDA submission with the FDA in the United States.
GENERAL AND ADMINISTRATION
General and Administration ("G&A") expenses for the second quarter of 1998
totalled $1,897,000, an increase of 82.3% from $911,000 in the second quarter of
1997.
Pharmaceutical Sector G&A expenses for the second quarter of 1998 totalled
$1,532,000, an increase of 152.0% from $608,000 in the second quarter of 1997.
The increase is due mainly to the ongoing costs of retaining (1) a Public
relations company in the second half of 1997 to focus on investor relations and
the product development status of Invicorp and Kinetin and (2) a Consulting
company in the second half of 1997 focusing on Marketing opportunities and
product licensing negotiations with potential Pharmaceutical partners for
Invicorp and also the setting up of raw materials supply and contract
manufacturing agreements for Invicorp to ensure commercial supply chain
capability. Other reasons for the increased expenditure are the recognition of
$147,000 of stock compensation expense for employee based stock option plans in
accordance with Accounting Principle Board Opinion No. 25 ("APB 25") and for non
employee based stock option plans in accordance with Financial Accounting
Standard No 123 ("FAS 123"). Also, a change in the basis of the allocation of
salaries and welfare and benefits to G&A , indicated in the 1998 Business Plan
shows an increase compared to the same basis period in 1997.
Cosmetic Sector G & A expenses for the second quarter of 1998 totalled
$365,000, an increase of 20.5% from $303,000 in the second quarter of 1997. The
increase is mainly due to the recognition of $129,000 of stock compensation
expense for employee based stock option plans in accordance with APB 25. This
increase is partly offset by a reduced level of allocated G&A costs following
the relocation of most of the US operations to one site (in Napa, California)
in 1998 compared to the same basis period in 1997.
G&A expenses for the first six months of 1998 totalled $3,739,000, an increase
of 119.0% from $1,707,000 in the first six months of 1997.
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Pharmaceutical Sector G&A expenses for the first six months of 1998 totalled
$3,094,000, an increase of 165.1% from $1,167,000 in the first six months of
1997. The increase is due mainly to the ongoing costs of retaining (1) a Public
relations company in the second half of 1997 to focus on investor relations and
the product development status of Invicorp and Kinetin and (2) a Consulting
company also in the second half of 1997 focusing on Marketing opportunities and
product licensing negotiations with potential Pharmaceutical partners for
Invicorp and also the setting up of raw materials supply and contract
manufacturing agreements for Invicorp to ensure commercial supply chain
capability. Other reasons for the increased expenditure are the recognition of
$661,000 of stock compensation expense for employee based stock option plans in
accordance with Accounting Principle Board Opinion No. 25 ("APB 25") and for non
employee based stock option plans in accordance with Financial Accounting
Standard No 123 ("FAS 123"). Also, a change in the basis of the allocation of
salaries and welfare and benefits to G&A , indicated in the 1998 Business Plan
shows an increase compared to the same basis period in 1997.
Cosmetic Sector G & A expenses for the first six months of 1998 totalled
$645,000, an increase of 19.4% from $540,000 for the first six months of 1997.
The increase is mainly due to the recognition of $217,000 of stock compensation
expense for employee based stock option plans in accordance with APB 25. This
increase is partly offset by a reduced level of allocated G&A costs from US
shared services following the relocation of most of the US operations to one
site (in Napa, California) in 1998 compared to the same basis period in 1997.
MARKETING AND PROMOTION
Marketing and promotion expenses in the second quarter of 1998 totalled $28,000,
a decrease of 96.9% from $912,000 in the second quarter of 1997.
Pharmaceutical Sector marketing and promotion expenses for the second quarter of
1998 were $(27,000), a decrease of 104.3% from $633,000 in the second quarter of
1997. The decrease is due mainly to reclassification of public/investor
relations and marketing/product licensing consultancy costs to G&A.. These costs
are referred to in the General and Administration note above. A revision to the
basis of salary allocations as adopted in the 1998 Business Plan is also part of
the decrease.
Cosmetics Sector marketing and promotion expenses for the second quarter of
1998 were $55,000, a decrease of 80.3% from $279,000 in the second quarter of
1997. The decrease is due mainly to the advertising costs associated with the
promotion of the Kinetin (TM) products in 1997 which are non recurring in 1998.
Marketing and promotion expenses for the first six months of 1998 totalled
$447,000, a decrease of 70.4% from $1,510,000 for the first six months of 1997.
Pharmaceutical Sector marketing and promotion expenses for the first six months
of 1998 were $328,000, a decrease of 65.2% from $943,000 for the first six
months of 1997. The decrease is due mainly to reclassification of
public/investor relations and marketing/product licensing consultancy costs to
G&A, as referred to in General and Administration above. A revision to the basis
of salary allocations as adopted in the 1998 Business Plan is also part of the
decrease.
Cosmetics Sector marketing and promotion expenses for the first six months of
1998 were $119,000, a decrease of 79.0% from $567,000 for the first six months
of 1997. The decrease is due mainly to the advertising costs associated with the
promotion of the Kinetin(TM) products in 1997 which are non recurring in 1998.
SELLING EXPENSES
Selling expenses are only recorded in Cosmetics Sector and totalled $81,000 for
the second quarter of 1998, a decrease of 57.8% from $279,000 in the second
quarter of 1997.
Selling expenses for the first six months of 1998 totalled $234,000, a decrease
of 44.7% from $423,000 in the first six months of 1997. The reduction relates to
decreased salaries and broker commissions following the restructuring of the
cosmetics business in the third quarter of 1997.
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OPERATING LOSS
Operating loss from continued operations for the second quarter of 1998 totalled
$3,321,000, an increase of 26.7% from $2,621,000 in the second quarter of 1997.
Operating loss from continued operations for the first six months of 1998
totalled $6,567,000, an increase of 42.9% from $4,597,000 for the first six
months of 1997.
As explained above, increased R&D, Public/Investor Relations, Marketing/product
licensing, supply chain set up spending and the recognition of stock
compensation expense were the main reasons for the increased operating loss.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the first six months of 1998, the Company's liquidity represented by cash
and deposits at banks decreased by $5,227,000 to $989,000. New funding amounted
to $4,415,000 from the exercise of Warrants and Options and the sale of
1,100,000 ordinary shares at $3.00 per share less 10% commission to Windsor
Capital Limited under the terms and conditions of Regulation S.
Working capital increased from $269,000 as of December 31,1997, to $2,641,000 as
of June 30,1998.
Net cash used by operating activities from continuing operations totalled
$7,681,000 in the first six months of 1998, an increase of $2,982,000 from
the first six months of 1997.
Cash used for capital expenditure was $987,000 in the first six months of 1998,
an increase of $502,000 from the first six months of 1997.
The Company anticipates that expenditure could exceed income by approximately
$6,000,000 through the ongoing development of its pharmaceutical products and on
its administrative and marketing structure during the second half of 1998. In
addition, it is planned to incur further payments on capital equipment during
the second half of 1998 of approximately $1,500,000 and raw materials during the
second half of 1998 of approximately $1,000,000.
On July 7,1998 $6,600,000 less 10% commission was received by the Company under
the terms of a credit agreement with Windsor Capital dated 28 April 1998. The
terms of this agreement also provide that the Company agrees to issue 2,857,143
warrants to purchase 2,857,143 Ordinary shares (represented by ADRs) at $3.50
per share and 571,429 warrants to purchase 571,429 Ordinary shares (represented
by ADRs) at $6.00 per share.
Additionally, outstanding warrant holders at June 30,1998 may exercise their
right to convert their warrants into shares upon payment to the Company of the
exercise price. Such potential proceeds approximate $7,200,000.
Although management believes that there is a possibility of initial payments
from potential licensees of Invicorp, AdrenaJect, and kinetin, such revenues,
even if received, may not be sufficient to meet the Company's projected
financial requirements through 1998.
It is management's belief that the interest expressed by several major
pharmaceutical companies 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.
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
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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 first quarter of 1999). 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 $4,200,000 in the
period fiscal 1997 through 1998.
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 is seeking agreement on acceptable terms with parties
who have expressed interest in acquiring rights for various skin care related
applications. In June 1998 the Company entered into an agreement with Osmotics
Corporation whose Customers include Saks (5th Avenue) and Harrods (of London)
for the supply of kinetin anti-aging preparations.
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 1998,
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
$18,218,000 in gross revenues and has cumulative losses of $55,878,000
(including a net loss of $15,539,000 in fiscal 1997). Although certain of the
Company's products may be marketed in the second 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 during fiscal 1998 but, as indicated, the Company has
obtained additional financing through the sale of equity securities in the
Company and the grant of a line of credit. 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
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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 and Mr Paul Logan, its
Company Secretary and former Chief Financial Officer. If Mr. Cataldo, Dr Homan,
Mr. Brune and Mr Logan 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.
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
The biomedical, drug delivery, biopharmaceutical and pharmaceutical industries
are highly competitive and the Company's business and research efforts compete
with drug discovery and development programs at biomedical, drug delivery and
biopharmaceutical companies as well as with the internal drug discovery
development programs of pharmaceutical companies, acting independently or in
collaboration with other companies. In addition, academic institutions,
government agencies throughout the world and their public and private
organisations may seek intellectual property
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protection; discover what could be considered as competing products, or
establish collaborative arrangements in the Company's areas of research and
development.
The vast majority of the Company's existing or potential competitors have
substantially greater financial, technical and human resources and name
recognition than the Company and are better equipped to research, develop,
patent, conduct pre-clinical testing and human clinical trials, manufacture, and
market products. These Companies may develop or in license, or acquire products
and/or technologies and introduce products competitive with or superior to those
of the Company. The timing of the market introduction of competitors' products
will be important competitive factors. Accordingly, the relative speed with
which the Company can develop products and technologies; complete pre-clinical
testing; conduct human clinical trials; initiate the necessary regulatory
approval processes, and supply commercial quantities of the products to the
market will be critical to the Company's success.
Once products have been approved for sale, the Company believes that competition
will be based, inter alia, on product efficacy, product safety, product
reliability, price and patent position. The Company's competitive position also
depends upon its ability to attract and retain suitably qualified an experienced
personnel to develop proprietary products or processes or technologies and to
commercialise them and the degree of intellectual property protection
obtainable. The Company expects competition to intensify in all fields in which
it is involved as new products in these areas are developed and become more
widely known. Moreover, the patent position in this field is complex, and the
protection afforded by patents in any particular jurisdiction can be limited.
The Company cannot predict the extent to which any of the products currently in
the course of development or registration may become commercially viable.
Assuming that marketing authorisation approval is granted for the Invicorp(TM)
within a reasonable time, it is hoped that this product will then be available
for marketing in the United Kingdom by the fourth quarter of 1998. In the case
if Invicorp(TM) in particular, certain competing products have been or are being
developed for the indication being pursued by the Company and in particular,
three other US companies - Pharmacia & Upjohn, (Caverject); Pfizer Inc. (Viagra)
and VIVUS Inc. (MUSE) - have developed, and/or are marketing in certain
territories, products that compete in the same market place as Invicorp(TM).
There are indications that there should be a substantial potential demand for a
product in this field but there can be no assurance that the Company will be
successful in penetrating this potential market.
With regard to Reliaject(TM), there are already a number of auto-injection
devices and other syringes on the market and there are two direct competitors
whose products are being used extensively, mainly in the US. For regulatory
approval purposes, auto-injection devices have to be identified with the
medicinal compound that they are designated to deliver and, in the opinion of
the Company and based upon the extensive clinical trials conducted in the UK
where the Reliaject(TM) device was used for the delivery of Invicorp(TM);
Reliaject(TM), which utilizes a standard glass dental cartridge to hold a drug
in a 29 gauge needle to reduce pain on injection; is of an extremely high
standard and capable of competing successfully with products currently on the
market and one which can, after instruction, be utilized by the patient without
medical supervision.
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.
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
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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
In the case of CCSI, bearing in mind that the vast health and beauty care market
is dominated by large multi-national organizations, who have far greater
resources and market exposure than the Company and CCSI, CCSI's products are
designed to meet specific niche segments of the market. CCSI's products include
the Mill Creek line, which features the kinetin compound, Sleepy Hollow
Botanticals and Biotene H-24. The speciality mass market lines are Silver Fox -
a product for gray hair, and the Allercreme, hypoallergenic range for sensitive
skins, that was developed in conjunction with dermatologists. The DuBarry range,
a long established cosmetic line acquired from Carme Inc., was sold during 1997.
The Mill Creek range, including kinetin, has been launched as a next generation
skin care product, and is designed to replace alpha hydroxy acid lines, marketed
by other organizations, as a product of choice. However, major companies may
introduce competitive lines of similar or superior quality and may be able to
effect a greater marketing impact than the Company can achieve.
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.
SAFE HARBOR STATEMENT
The statements in this report that relate to future plans, events or
performances are forward-looking statements that involve risks and
uncertainties, including risks associated to uncertainties pertaining to
customer orders, demand for product and services , development of markets for
the Company's products and services and other risks identified in the Company's
Commission filings. Actual results, events and performance may differ
materially. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only of the date hereof. The Company
undertakes no obligation to release publicly the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART II
FORM 8K
No reports on Form 8-K were filed during the second quarter of 1998.
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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: August 14, 1998 /S/ANTHONY J. CATALDO
--------------- ---------------------
Anthony J. Cataldo
Chairman &
Chief Executive Officer
Date: August 14, 1998 /S/DAVID CAREY
--------------- ---------------------
David Carey
Chief Financial Officer
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