<PAGE> 1
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 March 31, 1998
or
_____
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ______
_____
Commission file number 0-14691
SENETEK PLC
__________________________________________________________________________
(Exact name of registrant as specified in its charter)
England 77-0039728
___________________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
23 Palace Street, London SW1E 5HW
_______________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code 011-44-171-828-4800
NOT APPLICABLE
________________________________________________________________________________
(former name, former address and former fiscal year, if changes since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
---
(2) Yes X No
---
Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest date practicable.
March 31, 1998 (all one class): 52,623,471
1.
<PAGE> 2
SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 1998
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Unaudited Consolidated Statement of Operations
Three Months Ended March 31, 1998 and March 31, 1997 3
Consolidated Balance Sheet
March 31, 1998 (unaudited) and December 31, 1997 4
Unaudited Consolidated Statement of Cash Flows
Three Months Ended March 31, 1998 and March 31, 1997 5 & 6
Consolidated Statement of Stockholders' Equity <Deficit>
Notes to the Unaudited Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Not applicable
SIGNATURES 18
</TABLE>
2.
<PAGE> 3
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended
March 31, March 31,
1998 1997
<S> <C> <C> <C>
------------ ----------------
Revenues:
Product Sales $1,615 $1,436
Cost of Sales <903> <906>
-------- ----------
Gross Profit 712 530
Operating Expenses:
Research & Development <1,545> <881>
General & Administration <1,842> <796>
Marketing & Promotion <419> <598>
Selling Expenses <153> <231>
---------- ------------
Total Operating Expenses <3,959> <2,506>
Loss from Operations <3,247> <1,976>
Interest income 41 28
Interest expense <19> <22>
Other income/<expense> 97 <4>
--------- ----------
Loss before Taxation <3,128> <1,974>
Taxation -- --
--------- ----------
Net Loss $<3,128> $<1,974>
--------- ----------
Net loss per ordinary
share outstanding $<0.06> $<0.04>
Weighted average Ordinary shares
outstanding 52,512 45,610
------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3.
<PAGE> 4
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
March 31, December 31, 1998 1997
(unaudited)
ASSETS
<TABLE>
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $1,625 $6,216
Inventory at cost 1,255 890
Trade Receivables 1,411 1,123
Non-Trade Receivables 39 113
Receivable from Employee 311 311
Prepaids and Deposits 1,091 939
---------- ------
Total Current Assets 5,732 9,592
Property and Equipment, net 2,120 1,909
Goodwill and Other Intangible Assets - net 1,866 1,900
Total Assets $9,718 $ 13,401
==== ====
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Line of Credit 0 900
Accounts Payable 1,600 1,754
Accrued Liabilities 722 1,353
Accrued Compensation on Stock Options
- Employees 3,570 3,048
- Non-employees 920 840
6,812 7,895
---------- ------------
Stockholders' Equity:
Ordinary shares $0.08 (5pence) par value:
Authorized shares: 100,000,000
Issued and outstanding shares:
March 31, 1998 - 52,623,471
December 31, 1997 - 52,186,821 4,251 4,215
Share Premium 51,212 50,711
Accumulated Deficit <52,604> <49,476>
Equity Adjustment from Foreign Currency Translation 47 56
---------- ------
Total Stockholders' Equity $2,906 $ 5,506
==== ====
Total Liabilities and Stockholders' Equity $9,718 $ 13,401
==== ====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4.
<PAGE> 5
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
<S> <C> <C>
Net loss $<3,128$ <1,974>
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH:
Depreciation and amortization 90 151
Gain on disposal of fixed assets <7> ---
Stock Option Compensation 602 --
CHANGES IN ASSETS AND LIABILITIES:
Trade Receivables <increase>/
decrease <288> <73>
Non-trade Receivables <increase>/
decrease 74 49
Inventory <increase>/decrease <365> <167>
Prepaids and deposits
<increase>/decrease <152> <139>
Accounts payable and accrued
liabilities increase/<decrease> <785> 45
Other Assets <increase>/decrease -- --
</TABLE>
----------- ----------
<TABLE>
<S> <C> <C>
Net Cash Used by Operating Activities $<3,959> $<2,108>
==== ====
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment $<268> $<276>
--------- ---------
Net Cash Used by Investing Activities $<268> $<276>
==== ====
</TABLE>
5.
<PAGE> 6
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
<TABLE>
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Issuance of Ordinary Shares from
Exercise of Warrants $ 537 1,733
NET REPAYMENT OF SHORT TERM LOANS AND
OVERDRAFTS <900> <30>
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ <363> 1,703
==== ====
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS $ <4,590> $<681>
Cash and cash equivalents at the beginning
of period 6,216 2,975
Effect of exchange rate changes on cash <1> 5
Cash and Cash Equivalents at the
end of the period $ 1,625 $2,299
==== ====
</TABLE>
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
1998 1997
<TABLE>
<S> <C> <C> <C>
Interest $ 41 22
Income Taxes -- --
</TABLE>
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
SENETEK PLC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN $ THOUSANDS)
<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 401,000 33 439 472
Conversion of Debentures
Warrants issued in connection
with Convertible Debentures
Options exercised 35,650 3 62 65
Net Loss (3,128) (3,128)
Translation adjustment:
Balance, March 31, 1998: $52,623,471 $4,251 $51,212 $(52,604) $47 $2,906
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
7.
<PAGE> 8
SENETEK PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements incorporate the accounts of
Senetek PLC ("Senetek") or ("the Company") and its wholly owned
subsidiaries, Senetek Drug Delivery Technologies Inc. ("SDDT") (formerly
MEIS Corporation) and Carme Cosmeceutical Sciences, Inc. ("CCSI")
(formerly Carme International Inc.) (both Delaware corporations) for the
three months ended March 31, 1998.CCSI 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.
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 three months ended March 31, 1998 are not
necessarily indicative of results to be achieved for the full fiscal year.
2. The accounts have been prepared in accordance with U.S. generally
accepted accounting principles (U.S.GAAP).
3. The Company follows currency principles established by Statement of
Financial Accounting Standards No. 52. All assets and liabilities in the
balance sheets of the UK parent Company, foreign branches and 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. Sales, recognized at the time of shipment, are stated at the net
invoiced value of goods and services supplied to customers after
deduction of a value added tax where applicable.
5. During the 3 months ended March 31, 1998, the Company issued 436,650 new
Ordinary shares in the form of American Depository Shares through the
exercise of warrant and option entitlements at an average price of $ 1.23
per share.
8.
<PAGE> 9
6. The loss per share is calculated on the basis of the weighted average of
the number of shares outstanding during the three month period as follows:
Three Months - January 1, 1998 through March 31, 1998
<TABLE>
<S> <C>
Actual Weighted Average
Equivalent
</TABLE>
_______________
<TABLE>
<S> <C> <C>
Shares outstanding at beginning
of the period 52,186,821 52,186,821
Exercise of warrants 401,000 296,250
Exercise of options 35,650 28,730
---------- ----------
Shares outstanding at the end
of the period 52,623,471 52,511,801
---------- ----------
</TABLE>
7. Inventory at cost comprises:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C> <C> <C>
(in $thousands)
--------
Finished Goods $ 647 $ 462
Raw Materials 607 427
Work in Progress 1 1
-------- --------
$ 1,255 $ 890
-------- --------
</TABLE>
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.
9.
<PAGE> 10
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.
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, 1998, 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 ageing
and the subsequent commercial exploitation of the results of such research.
The main area in which the Company is involved is the treatment of male sexual
dysfunction ("MSD") which includes the development, manufacture and sale of the
Company's patented self-administered automatic syringe RELIAJECT (TM) as a
delivery system. Following the successful conclusion of the Phase III clinical
trials in the United Kingdom the Company has filed a Product License
Application for the MSD product with the objective of obtaining the grant of a
Product License for the commercial exploitation of the product. Product
licensing applications were also filed for the MSD product with the medical
evaluation agencies in Ireland, Denmark, Switzerland and New Zealand.
In addition, the Company has received Investigational New Drug ("IND") approval
from the Food and Drug Administration ("FDA") and expects to file a New Drug
Application ("NDA") with the FDA in the 4th Quarter of 1998.
The developed product is called INVICORP (TM) and is an injectable formulation
of vasointestinal polypeptide in combination with the drug phentalomine
mesylate.
In December, 1993, the Company formed a wholly owned subsidiary, SDDT
Corporation based in St. Louis, Missouri, for the purposes of designing,
manufacturing and exploiting RELIAJECT (TM), initially as a delivery system for
its MSD product. Subsequently, possible other applications for the syringe
have been investigated, notably in the case of Epinephrine. Epinephrine is
designed as an antidote against anaphylactic shock, triggered by allergic
reaction against conditions including food poisoning and insect stings. The
Company is hoping to obtain approval for marketing the product during the 4th
Quarter of 1998, in which event it may be possible to commence commercial sales
of one of the dose ranges immediately thereafter. In addition, the Company
plans to file at the earliest possible date an Abbreviated New Drug
Application("ANDA") with the FDA for a pediatric application for this product.
The Company is also involved with research on the impact of aging on the skin.
In September, 1995, the Company extended its interests by forming another
wholly owned subsidiary, CCSI Corporation, based in Novato, California, for the
acquisition, through CCSI, of the majority of the assets of Carme Inc., an
organisation based in Novato, that had concentrated on the manufacture and
distribution of a wide range of health and beauty products. This acquisition
was designed to promote the Company's interest in the area of skin care, with
particular emphasis to potential anti-aging aspects, and specifically to
provide a vehicle for the manufacture and distribution of a product featuring
the patented anti-aging KINETIN compound (formerly referred to as Factor X or
Vivakin) in a cosmetic format. The Company is seeking aggressively to market
successfully a range of cosmetic products incorporating KINETIN. Research
activity relating to Kinetin continues to be carried out through research
groups in the US including the University of California at Irvine. 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. The Company also holds a patent for the use of kinetin in the
treatment of psoriasis. The pharmaceutical development of kinetin would require
the performance of extensive pivotal clinical studies prior to the filing of a
product licensing application. This activity is not subject to the Company's
presently planned activities.
10.
<PAGE> 11
CCSI completed its review of manufacturing operations during the second quarter
of 1997 and decided
to outsource production during the third quarter of 1997. CCSI continues to
revise its product range and
marketing strategy in order to identify the optimum product mix compatible with
its resources.
In July 1994, an agreement was entered into with the Research Foundation for
Mental Hygiene Inc ("the Foundation") whereby the Company was granted the
exclusive rights for the sale to the scientific community, for research and
diagnostic purposes, of a number of cell lines under the control and ownership
of the Foundation capable of producing certain monoclonal antibodies (including
those derived from Company sponsored research into diagnostic procedures for
Alzheimer's disease) in return for royalty payments to the Foundation.
MATERIAL CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition that are, or may be considered to
be, material are included under "Financial Condition, Liquidity and Capital
Resources" below.
RESULTS OF OPERATIONS
SALES
World-wide sales for the first quarter of 1998 totalled $1,615,000, an increase
of 12% from sales of $1,436,000 for the first quarter of 1997.
In the Pharmaceutical Sector, sales increased by 68% from $ 263,000 for the
first quarter of 1997, to $443,000 for the first quarter of 1998. This is due
to additional sales of monoclonal antibodies to research organizations, and
INVICORP (TM) to named patients through clinical practitioners.
In the Health and Cosmetics Sector, sales were unchanged at $1,171,000 for the
first quarter of 1998 compared to $1,173,000 for the first quarter of 1997.
COST OF GOODS SOLD
Cost of goods sold for the first quarter of 1998, which includes manufacturing
and material costs, was 55.9% of sales, or $903,000 down 7.3 percent from
$907,000 in the first quarter of 1997.
In the Pharmaceutical Sector, cost of goods sold was 38.4% of sales for the
first quarter of 1998, up 3 percent from the first quarter of 1997.
In the Health and Cosmetics Sector, cost of goods sold was 62.5% of sales for
the first quarter of 1998 down 6.9 percentage points from the first quarter of
1997. This decrease is due to low margin product deletions.
OPERATING EXPENSES
RESEARCH & DEVELOPMENT
Research and Development expenses for the first quarter of 1998 totalled
$1,544,000, an increase of 75.5% from Research and Development expenses of
$880,000 in the first quarter of 1997.
Pharmaceutical Sector Research and Development accounts for 99.8% of the total
for the Company for the first quarter of 1998, compared to 94.6% for the first
quarter of 1997.
The increase in research and development costs for the first quarter of 1998
compared with the first quarter of 1997 reflects additional non-clinical
development work in the area of carcinogenicity studies and increased activity
in the area of pivotal clinical studies performed in connection with the
licensing applications submitted for INVICORP (TM) to medicines evaluation
agencies in several European countries and the pending NDA with the FDA in the
United States. The number of in-house clinical trials monitoring staff shows
an increase of 2 for the first quarter of 1998 compared to the first quarter of
1997.
11.
<PAGE> 12
MARKETING AND PROMOTION
Marketing and promotion expenses for the first quarter of 1998 totalled
$419,000, a decrease of 30% from $598,000 in the first quarter of 1997. This is
due to a change in the basis of allocation of expenditure to marketing which
was revised for the 1998 Business Plan.
Pharmaceutical Sector marketing and promotion expenses for the first quarter of
1998 were $355,000, an increase of 14.5% from $310,000 for the first quarter of
1997. The increase relates to an ongoing, high-profile Public/Investor
relations campaign, highlighting the clinical success and the commercialization
potential of the INVICORP (TM) system.
Health and Cosmetics Sector marketing and promotion expenses for the first
quarter of 1998 were $64,000, a decrease of 78% from $288,000 for the first
quarter of 1997. The decrease is mainly due to a change in the allocation basis
of expenditure to marketing.
GENERAL AND ADMINISTRATION
General and Administration ( "G&A" ) expenses for the first quarter of 1998
totalled $1,843,000, an increase of 131% from $797,000 for the first quarter
of 1997.
Pharmaceutical Sector G&A expenses for the first quarter of 1998 were
$1,563,000, an increase of 180%, from $559,000 for the first quarter of 1997.
The increases are mainly due to a change in the basis of allocation of
expenditure from G&A to other cost centers and the recognition of $434,000 of
stock compensation expense for employee stock based option plans in accordance
with Accounting Principle Board Opinion No 25 ("APB 25") and $80,000 of stock
compensation expense relating to the grant of stock options to non-employees in
exchange for services rendered based on estimates for the fair value of the
awards at the grant date.
Health and Cosmetic Sector G&A expenses for the first quarter of 1998 were
$280,000, an increase of 18% from $238,000 for the first quarter of 1997.The
decrease is mainly due to the net effect of the re-organisation of the
Company's US operations at the end of 1997 and the recognition of $88,000 of
stock compensation expense for employee stock option plans in accordance with
APB 25.
SELLING EXPENSES
Selling expenses are only incurred in the Health and Cosmetics Sector and
totalled $153,000 for the first quarter of 1998, a decrease of 34% from
$231,000 from the first quarter of 1997.
The reduction relates to decreased salaries and broker commissions following
the restructuring of the cosmetics business.
OPERATING LOSS
Operating loss from continued operations for the first quarter of 1998 totalled
$3,246,000, an increase of 64% from $1,976,000 for the first quarter of 1997.
As explained above, increased Research & Development spending in the
pharmaceutical sector and the recognition of stock compensation expense for
employee and non-employee stock option plans were the main reasons for the
increase in operating loss.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the first quarter of 1998, the Company's liquidity represented by cash and
deposits at banks decreased by $4,546,000 to $1,625,000. Net new funding
amounted to $537,000 from the exercise of Warrants and Stock options. $900,000
of a $1,000,000 line of credit granted by the Bank of New York to CCSI was paid
down by the Company in the first quarter of 1998
Working capital increased from $285,000 as of December 31,1997, to $1,516,000
as of March 31,1998.
12.
<PAGE> 13
Net cash used by operating activities from continuing operations totalled
$3,959,000 in the first quarter of 1998, an increase of $1,851,000 from the
corresponding period in 1997.
Cash used for capital on fixtures and fittings and plant and machinery
expenditure was $268,000 in the first quarter of 1998, a decrease of $8,000 from
the corresponding period in 1997.
To date the Company has realized only modest revenues from its operations and
has, in the past, had to depend on raising additional equity funds to meet its
future requirements at planned levels.
The Company's most significant revenue commitments are its contract research
agreements, consulting agreements, employment agreements and its property
leases. In addition capital expenditure of approximately $3 million in addition
to $1.2 million already spent is envisaged for 1998 in connection with the
purchase of additional plant and machinery in order to achieve capacity at a
substantial level for the production and sub-assembly of the Company's Reliaject
components.
The Company anticipates spending approximately $14 million during 1998 on the
development and commercialization of its pharmaceutical products, including
Reliaject applications and on its administrative and marketing structure
generally. Management are of the opinion that revenues during 1998 from CCSI'S
trading activities, the sale of monoclonal antibodies and the sale of Invicorp
on a named patient basis although continuing at present levels will not be
sufficient to sustain the Company's short term financial requirements. On April
28,1998, the Company therefore entered into a Regulation 'S' Equity Purchase
agreement with Windsor Capital Limited for the procurement of additional funds
through arrangements that will include the issue of 1,100,000 5p Ordinary
shares at a purchase price of $3.00 per share under the terms and conditions of
Regulation 'S'. In addition to such share purchase 1,100,000 3 year Warrants
were issued entitling the subscriber to purchase a further 1,100,000 5p
Ordinary shares at $5.00 per share at any time from 90 days after the date of
closing until April 27, 2001. A 10% fee was paid to intermediaries for the
above arrangement and the Company received net proceeds of $2,970,000.
Financing arrangements also include a Credit Agreement dated April 28,1998 for
the establishment of an unsecured $10,000,000 line of credit from the
subscriber for the $3,300,000 equity issue. The credit line will be available
for a period of 2 years from the date of closing. The Company will issue 3 year
Warrants in the number of 142,860 to subscribe for Ordinary shares at an
exercise price of $3.50 for each $500,000 draw down of the credit facility. In
addition the Company will issue one 3 year Warrant for every five of the
aforementioned Warrants at an exercise price of $6.00. A condition of the
credit agreement is that Windsor Capital is granted cost free registration
rights on exercise of the Warrants.
It is management's belief that the interest expressed by several major
organisations may lead to license agreements of a substantial nature in due
course, for both the Company's MSD and Kinetin products 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 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 Epinephrine (for which, subject to FDA
approval, it may be possible to commence effecting sales in conjunction with
the syringe in the fourth quarter of 1998). However, production at what it is
hoped will be a substantial
13.
<PAGE> 14
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 $4.2 million in the period fiscal 1997 and 1998.
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.
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 projects, and from
Ephinephrine, (ii) from the trading results, 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 $17,061,000 in gross revenues and has cumulative losses of
$52,601,000 (including a net loss of $15,539,000 in fiscal 1997). Although
certain of the Company's products may be marketed in the first half of 1998,
there can be no assurance that marketing will begin when the Company
anticipates, if at all, or that sales from its other products will rise to a
level that will allow it to operate profitably during the fiscal year ending
December 31, 1998.
NEED FOR FINANCING
The Company's continuing development and subsequent commercialization of its
pharmaceutical products in a timely manner is dependent upon maintaining
adequate sources of finance during the period up to the marketing stage.
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 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.
Any amounts which the Company may receive as part of any proposed licensing,
distribution or joint venture arrangements whereby a partner may effect
contributions in consideration for the transfer of certain rights to the
Company's research projects have not been taken into account in the the
Company's financial projections. The Company's ability to enter into such
agreements depends in part on the of evaluation tests of the Company's
products, as well as on a number of economic and market factors over which the
Company may have little, if any, influence.
14.
<PAGE> 15
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
Competition in the biotechnology and biomedical fields and in the cosmetics
industry is intense and is expected to increase. A major company, Pfizer has
developed and begun marketing in the United States a product, Viagra that
competes with the Company's MSD product. Viagra is an oral therapy and the
sales achieved in a comparatively short period of time have been spectacular.
Many of the companies in the biotechnology and biomedical fields and the
cosmetics industry have substantially greater research and development,
marketing, financial and human resources than the Company and, accordingly, may
provide significant long-term competition.
15.
<PAGE> 16
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 CCSI no contracts out manufacture of all of its own products, it
purchases raw materials from third-party suppliers. CCSI does not presently
have any long-term contracts with these suppliers and, as a consequence, any of
these relationships may be terminated by either party, at any time. Although
CCSI believes that other suppliers are available who can produce similar
materials and products, there can be no assurance that such materials would be
available to the Company on an immediate basis if needed, or at prices similar
to those now paid by CCSI.
Intense Competition
CCSI competes in the retail cosmetics and personal care products industry. The
industry comprises large discount chains, independent discount outlets,
department stores, supermarkets, drugstores, direct marketers and speciality
retailers and CCSI competes with all of these sellers of personal care
products. CCSI's competitors and potential competitors have substantially
greater resources, including capital, research and development personnel and
manufacturing and marketing capabilities, and also may offer well established,
broad product lines. Some of CCSI's competitors have long-term or preferential
supply arrangements with established retailers. Such arrangements may act as a
barrier to market entry. There can be no assurance that CCSI will be able to
compete successfully.
Trademark and Servicemark Protection for CCSI
CCSI has acquired certain trademarks in various countries in which CCSI's
products are sold. Although to date no claims have been brought against CCSI
alleging that it infringes the intellectual property rights of others, there
can be no assurance that such claims will not be brought against CCSI in the
future, or that if made, such claims will not be successful. In addition to
any potential monetary liability for damage, CCSI could be required to obtain a
license in order to continue to use the trademarks in question or could be
enjoined from using such trademarks if such a license were not made available
on acceptable terms. If CCSI becomes involved in such litigation, it may
divert significant resources, which could have a material adverse effect on
CCSI and the Company and its results or operations and, if such a claim were
successful, CCSI's business could be materially adversely affected.
Product Liability Risks of Cosmetics
CCSI is subject to the risk of products liability claims related to the use of
its products which are designed for application to human hair and skin. CCSI
carries product liability insurance which management believes will be adequate
to cover risks associated with such use; however, there can be no assurance
that existing or future insurance coverage will be sufficient to cover any
possible product liability risks or that such insurance will continue to be
available to CCSI on economically feasible terms.
16.
<PAGE> 17
SAFE HARBOR STATEMENT ( FORWARD LOOKING 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 as of the date hereof. The Company
undertakes no obligation to release publicly the result 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.
RESIGNATION OF DIRECTOR
Dr G. Homan has chosen not to stand for re-election as a director of the
Company and has expressed no disagreements with the Company regarding matters
affecting the Company's operations, policies, practices and financial
statements.
FORM 8-K
No reports on Form 8-K were filed during the first quarter of 1998.
17.
<PAGE> 18
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)
<TABLE>
<S> <C> <C>
Date: May 14, 1998 /S/ANTHONY J. CATALDO
------------ ---------------------------
ANTHONY J. CATALDO
CHAIRMAN &
</TABLE>
CHIEF EXECUTIVE OFFICER
<TABLE>
<S> <C> <C>
Date: May 14, 1998 /S/DAVID CAREY
-------------- ----------------------------
DAVID CAREY
CHIEF FINANCIAL OFFICER
</TABLE>
18.
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