<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended March 31, 2000
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
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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.)
620 Airpark Road, Napa, California 94558
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code (707) 226-3900
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.
At May 11, 2000, there were 58,414,017
of the Registrants Ordinary shares outstanding
1
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SENETEK PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 2000
PART I. FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 2000 and March 31, 1999 3
Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999 4
Unaudited Consolidated Statement of Stockholders' Equity
and Comprehensive Loss Three Months ended March 31, 2000 5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and March 31, 1999 6
Notes to the Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 16
2
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Part I Financial Information
SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
3 Months Ended 3 Months Ended
March 31, March 31,
2000 1999
-------------- --------------
Revenues $ 980 $ 934
Cost of Sales 422 593
-------------- --------------
Gross Profit 558 341
Operating Expenses:
Research & Development 290 869
General & Administration 1,140 1,585
Marketing & Promotion -- 91
-------------- --------------
Total Operating Expenses 1,430 2,545
-------------- --------------
Loss from Operations (872) (2,204)
Interest income 7 1
Interest expense (including amortization
of deferred financing costs and discount) (498) (205)
Other income/(expense)- net (2) (12)
-------------- --------------
Net Loss available to common
Stockholders $ (1,365) $ (2,420)
============== ==============
Basic and Diluted Loss per Ordinary
share outstanding $ (0.02) $(0.04)
Weighted average Ordinary shares
outstanding 58,272 57,216
-------------- --------------
See accompanying notes to unaudited consolidated financial statements.
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 502 $ 1,840
Trade Receivables
(net of provisions of $776,306 at March 31, 2000 and
December 31, 1999) 1,346 1,234
Non-Trade Receivables
(net of provisions of $261,504 at March 31, 2000 and
December 31, 1999) 108 188
Inventory
(net of provisions of $160,065 at March 31, 2000 and
December 31, 1999) 315 511
Prepaids and Deposits 207 183
----------- -----------
Total Current Assets 2,478 3,956
Property & Equipment, net 3,960 4,060
Goodwill - net 1,598 1,631
Deferred Financing costs - net 2,281 2,581
TOTAL ASSETS $ 10,317 $ 12,228
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable 1,389 2,230
Accrued Liabilities 907 1,095
Capital Leases 42 42
Convertible Short Term Debt 700 700
Accrued Compensation on Stock Options
- Employees 2,213 2,213
- Non-employees 2,484 2,484
----------- -----------
7,735 8,764
----------- -----------
Long Term Liabilities
Notes Payable, net of unamortized discount of $256,292 7,132 7,101
Deferred License Fees 531 543
Commitments and Contingencies -- --
Stockholders' (Deficit)/ Equity:
Ordinary shares $0.08 (5 pence) par value:
Authorized shares: 100,000,000
Issued and outstanding shares:
March 31, 2000 - 58,414,017
December 31, 1999 - 58,148,517 4,718 4,697
Share Premium 75,346 74,903
Accumulated Deficit (85,195) (83,830)
Equity Adjustment from Foreign Currency Translation 50 50
----------- -----------
Total Stockholders' Equity $ (5,081) $ (4,180)
=========== ===========
Total Liabilities and Stockholders' Equity $ 10,317 $ 12,228
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(in thousands, except shares outstanding)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
Ordinary Shares Share Accumulated Currency Net
Shares Amount Premium Deficit Translation(1) Equity
---------- ------ ------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000: 58,148,517 $4,697 $74,903 $ (83,830) $ 50 $ (4,180)
Exercise of options 265,500 21 443 -- -- 464
Comprehensive Loss
Net loss -- -- -- (1,365) -- (1,365)
Translation loss, net of tax -- -- -- -- -- --
Total Comprehensive Loss (1,365) -- (1,365)
Balances, March 31, 2000 58,414,017 $4,718 $75,346 $ (85,195) $ 50 $ (5,081)
</TABLE>
(1) For the quarter ended March 31, 1999 the translation loss was $94 and
comprehensive loss was $2,514.
See accompanying notes to unaudited consolidated financial statements.
5
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,365) $ (2,420)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 505 417
Stock Option Compensation -- 372
Changes in assets and liabilities:
Trade Receivables (increase)/
decrease (112) 566
Non-trade Receivables decrease 80 9
Inventory decrease 196 200
Prepaids and deposits (increase) (24) (783)
Accounts payable and accrued
liabilities increase/(decrease) (1,029) 1,247
Deferred License Fees (decrease) (12) --
-------- --------
Net Cash Used by Operating Activities $ (1,761) $ (392)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment $ (41) $ --
-------- --------
Net Cash Used by Investing Activities $ (41) $ --
======== ========
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SENETEK PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2000 1999
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Issuance of Ordinary shares from
Exercise of Options and Warrants $ 464 $ 6
-------- --------
Net Cash Provided By Financing Activities $ 464 6
======== ========
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (1,338) $ (386)
Cash and cash equivalents at the beginning
of period 1,840 808
Effect of exchange rate changes on cash -- (94)
Cash and Cash Equivalents at the
end of the period $ 502 $ 328
======== ========
Supplemental disclosures of cash flow information are as follows:
Amounts Paid
(in $ thousands)
2000 1999
-------- --------
Interest $ 295 1
Income Taxes -- --
See accompanying notes to unaudited consolidated financial statements
7
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SENETEK PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
1. Basis of Presentation
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, 2000 and March 31, 1999. CCSI was incorporated on June 21,
1995 and commenced its operations 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 have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP)
and 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. 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 1999 Annual Report
on Form 10-K.
Results of operations for the three months ended March 31, 2000 are not
necessarily indicative of results to be achieved for the full fiscal year.
2. Liquidity
The Company has been able to fund the loss of $1.4 million for the three
months ended March 31, 2000 from existing resources and through the
exercise of stock options. Management has taken steps to reduce the amount
of cash used by operations. However the Company's operations may not
provide sufficient internally generated cash flows to meet its projected
short-term requirements and to meet the cost of developing the Company's
pharmaceutical products. For the three months ended March 31, 2000 the
Company reported a net loss available to Ordinary shareholders of
$1,365,000.
Research and development spending is decreasing as our current products
reach the final stages of development with the majority of costs being
recognized by March 31, 2000.
Our patented Kinetin product was made commercially available during the
first quarter of 1999 by way of distribution agreements entered into with
ICN Pharmaceuticals Inc. and Osmotics Corporation. In December 1999 we
entered into a license and supply arrangement with Obaji Medical Products
Inc. for the distribution of Kinetin in a number of Asian countries. These
arrangements are expected to generate additional operating cash flows in
2000.
Management is engaged in continuing efforts to obtain sufficient financing
to fund its operations for the foreseeable future, however there can be no
assurance given that we will be able to obtain the necessary financing.
Should we not obtain additional financing or generate sufficient revenues
to cover our cash outflows, it is reasonably possible this would adversely
impact our ability to continue as a going concern.
8
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3. Inventory at cost comprises:
March 31, December 31,
2000 1999
(in thousands)
------------ ------------
Finished Goods $ 87 $ 44
Raw Materials 228 467
------------ ------------
$ 315 $ 511
------------ ------------
4. Options during the three months ended March 31, 2000:
The Company issued 265,500 new Ordinary shares through the exercise of
options under the Company's approved plans at an average price of $1.75 per
share.
5. Earnings per Share
Earnings per share were computed under the provisions of Statement of
Financial Accounting Standards No.128, Earnings Per Share. The following is
a reconciliation of the numerators and denominators of basic and diluted
earnings per share computations.
Three Months Ended
March 31,
(in thousands)
2000 1999
Numerator:
Basic and Diluted Net Loss
per Ordinary share outstanding $(1,365) $(2,420)
Denominator:
Basic and diluted weighted average
shares outstanding 58,272 57,215
Options and warrants to purchase 14,012,173 and 8,067,385 shares of stock
were outstanding at March 31, 2000 and 1999, respectively, but were not
included in the computation of diluted loss per Ordinary share outstanding
because the effect would have been antidilutive.
6. Segment Reporting
Three months ended March 31, 2000
(in thousands)
Pharmaceutical Skincare Total
Net sales to external customers $ 302 $ 678 $ 980
Operating loss (1,023) 151 (872)
Loss available to common stockholders (1,461) 96 (1,365)
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Three months ended March 31, 1999
(in thousands)
Pharmaceutical Skincare Total
Net sales to external customers $ 295 $ 639 $ 934
Operating loss (1,787) (417) (2,204)
Loss available to common stockholders (1,928) (492) (2,420)
7. Contingencies
The Company has disputed a third quarter 1999 invoice from a supplier, in
the amount of $350,000 for the supply of vasoactive intestinal polypeptide
under a supply agreement dated April 2, 1998. Management is of the opinion
that an accrual for this invoice is not necessary because loss is
reasonably possible but not probable. The invoice was outside the scope of
contractual obligations between the Company and the supplier and the
products were neither ordered nor received by Senetek.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
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,
1999.
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 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.
RESULTS OF OPERATIONS
Revenues
- --------
Our product sales revenues of $980,000 for the first quarter of 2000 were
comprised of $25,000 from the sale of named patient pharmaceutical products,
$277,000 from the sale of monoclonal antibodies and $678,000 from the sale of
kinetin products and skincare products.
Our product sales revenues of $934,000 for the first quarter of 1999 comprised
$77,000 from the sale of named patient pharmaceutical products, $218,000 from
the sale of monoclonal antibodies and $639,000 from the sale of skincare
products.
The 67.5% decrease in sales of named patient pharmaceutical products was due to
a halt in supply to patients while we had our products re-tested to extend the
expiry dates. This was successfully accomplished for Invicorp 2.
The 27.1% increase in sales of monoclonal antibodies was due to increased volume
of sales. Sales of monoclonal antibodies, some of which are used for the early
diagnosis of Alzheimers disease, follow sales patterns determined by project
driven research organizations, and are subject to fluctuation.
10
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The 6.1% increase in sales of skincare products was mainly due to two factors.
Increased sales of Kinetin products to Obaji Medical Products which were offset
by a decrease in direct sales of Mill Creek products. During the second quarter
of 1999 our Mill Creek products were licensed to United States International
Trading Corporation ("USITC") and in return we now receive royalties. We
therefore have decreased volumes of sales for Mill Creek products but higher
gross profit. Sales of Kinetin products to ICN Pharmaceuticals ("ICN") were
depressed during the three months ended March 31, 2000 due to ICN selling out
its year-end inventory position in advance of the planned launch of an enhanced
Kinerase product incorporating new packaging.
Cost of Goods Sold
- ------------------
Cost of goods sold for the first quarter of 2000, which includes contract
manufacturing and material costs, was $422,000, down 28.8% from $593,000 in the
first quarter of 1999. Cost of goods sold as a percentage of sales was 43.1% for
the first quarter of 2000 compared to 63.5% for the first quarter of 1999. The
cost of goods sold as a percentage of sales decrease is due to increased sales
of higher margin Kinetin products and the substitution of Mill Creek direct
sales with royalty arrangements.
In the Pharmaceutical Sector, cost of goods sold for the first quarter of 2000
was $117,000, down 7.1% from $126,000 in the first quarter of 1999. This is due
to a decrease in sales volume following the temporary halt of Invicorp named
patient sales in the United Kingdom.
In the Skincare Sector, cost of goods sold for the first quarter of 2000 was
$305,000, a decrease of 34.7% from $467,000 in the first quarter of 1999. This
is mainly due to a favorable change in sales mix, arising from the sale of
Kinetin products and the substitution of direct Mill Creek sales with royalties.
OPERATING EXPENSES
Research and Development
- ------------------------
Research and Development expenditure for the first quarter of 2000 was $290,000,
a substantial decrease of 66.6% from $869,000 in the first quarter of 1999.
Research spending on our Invicorp product has decreased as the project
approaches its final development stage.
The Pharmaceutical Sector research and development accounted for 95.1% of our
total research and development spending for the first quarter of 2000, compared
to 98.0% for the first quarter of 1999.
In August 1999 Senetek announced that it had received word from the Medicine
Control Agency in the United Kingdom and the FDA of the US that a competitor's
safety trial on phentolamine mesylate revealed pre-clinical tumors
(proliferation of brown fat cells). These findings are preliminary . The FDA
definition of tumor is very broad and encompasses any growth, inflammatory or
non inflammatory, benign or malignant and includes proliferation of brown fat
cells. In Spain, Holland and some other European Union ("EU") countries, a
product containing phentolamine mesylate has been recently approved for use in
erectile dysfunction.
General and Administration
- --------------------------
General and Administration expenses for the first quarter of 2000 totaled
$1,140,000, a decrease of 28.1% from $1,585,000 in the first quarter of 1999.
Pharmaceutical Sector general and administrative expenses for the first quarter
of 2000 totaled $932,000, a decrease of 27.4% from $1,285,000 in the first
quarter of 1999. This decrease is mainly due to the net savings arising from our
cost reduction programs which were implemented during the second quarter of 1999
combined with stricter management controls. During the first quarter of 1999 we
recognized $360,000 of stock compensation expense as compared to $0 in the first
quarter of 2000.
11
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Skincare Sector general and administration expenses for the first quarter of
2000 totaled $208,000, a decrease of 30.7% from $300,000 in the first quarter
of 1999. This change is due mainly to a decrease in administrative activities
following the set up of licensing arrangements for the Mill Creek product line.
The majority of the Carme business now involves the supply of Kinetin products
to ICN Pharmaceuticals and Obaji Medical Products.
Marketing and Promotion
- -----------------------
No Marketing and Promotion expenses have been recorded for the first quarter of
2000, a decrease of $91,000 from the first quarter of 1999. The decrease is due
to the elimination of non-essential public relations, advertising and marketing
consulting spending.
OPERATING LOSS
Operating loss for the first quarter of 2000 totaled $872,000, a decrease of
60.4% from an operating loss of $2,205,000 in the first quarter of 1999.
The operating loss in the pharmaceuticals sector for the first quarter of 2000
totaled $1,023,000, a decrease of 42.8% from $1,787,000 in the first quarter of
1999. This is mainly due to decreased research and development spending and
reduced general and administrative costs.
Operating profit in the skincare sector for the first quarter of 2000 totaled
$151,000, an increase of 136% from an operating loss of $417,000 in the first
quarter of 1999. This was due mainly to sales of the high margin Kinetin
products and the substitution of direct Mill Creek sales with royalties and
decreased operating expenditure.
OTHER INCOME AND EXPENSE
Included in other expense for the first quarter of 2000 is $300,000 relating to
the amortization of the deferred financing costs arising from the calculation of
the fair value of the Series A and B warrants issued in connection with the
issuance of Notes Payable in April 1999.
Included in other expense was interest payable on the $7.4 million Notes
amounting to $166,000 for the three months ended March 31, 2000.
During the first quarter of 1999 other expense included $205,000 relating to the
amortization of deferred financing costs arising from the calculation of the
fair value of warrants issued in connection with the 1998 Line of Credit which
was extinguished in April 1999.
For a full discussion of the April 1999 financing activities please refer to
notes 10 and 11 to the financial statements included in the Company's 1999
annual report on Form 10-K.
TAXATION
Gross deferred tax assets, which approximate $28.4 million, and relate
periodically to substantial cumulative net operating losses incurred are 100%
reserved as realization is not considered more probable than not.
12
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LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, the Company's liquidity represented by cash
and deposits at banks decreased by $1,338,000 to $502,000. Net cash used by
operating activities from continuing operations totaled $1,761,000 in the first
quarter of 2000, an increase of $1,369,000 from the first quarter of 1999. The
overall decrease was attributed primarily to the payment of outstanding payables
during the quarter ended March 31, 2000. Our consolidation and corporate
restructuring programs have reduced our operating costs. The financing
completed in April 1999 has so far proved sufficient to fund our activities.
History of Losses
- -----------------
Although we were formed almost 17 years ago in October 1983, our business is
subject to the risks inherent in the establishment of a relatively new business
enterprise in the field of biopharmaceuticals.
The likelihood of the success of our business must be considered in light of the
problems, expenses, difficulties and delays frequently encountered in connection
with the development of new products and the competitive and regulatory
environment in which we are operating. Since inception, the Company has only
produced $29,361,000 in gross revenues and has cumulative losses of
$85,195,000(including a net loss of $11,862,000 in fiscal 1999).
There can be no assurance that marketing of our biopharmaceutical products will
begin when we anticipate, if at all, or that revenues from our other products,
including Kinetin, will rise to a level that will allow us to operate profitably
during the fiscal year ending December 31, 2000.
With respect to our recurring operating cash losses, we implemented major cost
reduction programs in 1999 to reduce operating expenses to include:
. In the UK, effective May 31, 1999 we combined two offices into one with
a reduction in headcount of 7.
. In the US, effective August 31, 1999 we closed our St Louis research
facility with a reduction in headcount of 4.
. Effective January 1999 we substantially reduced costs in the areas of
public relations, advertising and travel.
. In the US, the licensing of our Mill Creek product line in the second
quarter of 1999, enabled us to reduce substantially our Carme Cosmeceutical
Sciences operation. In May 2000 we entered into an agreement to sublet the
warehouse at our Napa facility to a third party.
13
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Need for Financing
- ------------------
The company expects to require additional sources of liquidity, either through
an increase in revenue or external funding sources, to fund its operations
during fiscal year 2000 and beyond. Additional revenue sources will not have an
immediate effect on liquidity due to our investment in net working capital. If
the company fails to obtain the necessary external financing or to generate
sufficient revenues from its continuing operation it will be required to curtail
its operations. There can be no assurance that we will generate sufficient
revenues in fiscal year 2000 or that we will be able to obtain necessary
financing from external sources. If our cash requirements cannot be successfully
addressed, there would be a material adverse effect on our business, financial
condition and results of operations. Further, our independent auditors report on
our 1999 consolidated financial statements stated that "[Senetek] has suffered
recurring losses from its operations and . . . its ability to continue research
activities to a stage where it has a product available for sale is dependent
upon [Senetek's] ability to continue as a going concern."
FACTORS AFFECTING THE COMPANY
Product Research and Technological Obsolescence
- -----------------------------------------------
We are engaged in a field characterized by extensive research efforts. Despite
our current access to leading expertise in the field, there remains a risk that
the research financed by us in the future could prove unproductive. Furthermore,
there can be no assurance that research and discoveries by other companies will
not render our programs superfluous or obsolete. This is true for all companies
who operate in the same field.
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 proved 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 we will not be subject to liability from the use of our
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 our products and believes that our
exposure to liability will thereby be lessened. However, there can be no
assurance that this result will be achieved.
Reliance on Suppliers
- ---------------------
We contract out manufacture of all of our products and purchase raw materials
from third-party suppliers. We recently established a dual supply chain for
Kinetin.
Although we believe that other suppliers are available who can produce similar
materials and products, there can be no assurance that such materials would be
available to us on an immediate basis if needed, or at prices similar to those
now paid by us.
14
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Product Liability Risks of Cosmetics
- ------------------------------------
We are subject to the risk of product liability claims related to the use of our
products which are designed for application to human hair and skin. We carry
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 us on
economically feasible terms.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On June 11, 1998 we filed a lawsuit against Mad Dogs & Englishmen Inc. and Mad
Dog Enterprises d/b/a Mad Dogs & Englishmen (together "Mad Dogs") in the
Supreme Court of New York. On December 11, 1996 we entered into a written
agreement with Mad Dogs under which Mad Dogs agreed to promote our cosmetics
business and to hire a consultant familiar with the Cosmetics industry in
connection therewith. We are seeking damages of approximately $10 million for a
breach of that agreement. Mad Dogs served us with an answer to our complaint in
August 1998. There have been no substantive developments in the lawsuit since
the filing of the answer to our complaint.
During January 2000, Senetek and CCSI terminated the licensing agreement with
Osmotics Corporation for multiple breaches of contract, including non-payment of
royalties and selling outside its authorized channel of distribution. The
dispute is now pending before the American Arbitration Association (AAA). In
February 2000, Osmotics Corporation simultaneously instituted proceedings before
the AAA and in state court in Colorado, seeking injunctive and declaratory
relief, on the grounds that Senetek and CCSI wrongly terminated the license
agreement. Senetek and CCSI successfully removed the case to the United States
District Court for the District of Colorado. The federal court dismissed the
complaint with prejudice, ruling that the matter must first be decided by the
AAA, pursuant to the arbitration provisions of the license agreement. In the AAA
proceeding, Senetek and CCSI have filed a counterclaim for breach of contract
and patent infringement, on grounds that Osmotics breached the contract by
failing to pay royalties and selling outside its authorized channel of
distribution (department stores and perfumeries). Senetek and CCSI have also
moved for interim relief, seeking an injunction prohibiting Osmotics from
selling Kinetin products and the imposition of a constructive trust on past due
royalties. The dispute will be decided by a panel of AAA arbitrators in Los
Angeles, California. Management does not feel that the termination of the
Osmotics license agreement, nor the AAA dispute, will have a material adverse
effect on the company.
Item 2. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of 2000.
15
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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: May 15, 2000 /S/ FRANK J MASSINO
------------------ ------------------------
Frank J Massino
Chief Executive Officer
Date: May 15, 2000 /S/ CHARLES M BIAMA
------------------ ------------------------
Charles M Biama
Chief Financial Officer
16
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 502
<SECURITIES> 0
<RECEIVABLES> 1,346
<ALLOWANCES> 0
<INVENTORY> 315
<CURRENT-ASSETS> 2,478
<PP&E> 3,960
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,317
<CURRENT-LIABILITIES> 7,735
<BONDS> 0
0
0
<COMMON> 4,718
<OTHER-SE> (9,799)
<TOTAL-LIABILITY-AND-EQUITY> 10,317
<SALES> 980
<TOTAL-REVENUES> 980
<CGS> 422
<TOTAL-COSTS> 422
<OTHER-EXPENSES> 1,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> (1,365)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,365)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
