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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For The Fiscal Year Ended December 31, 1998.
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________________ TO __________________.
Commission File No. 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 SW1E 5HW
LONDON, UNITED KINGDOM (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (011) 44-171-828-4800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
AMERICAN DEPOSITARY SHARES
(each American Depositary Share represents
1 Ordinary Share, pound sterling0.05 par value)
(Title of Class)
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.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( ).
As of April 14, 1999, the Registrant had 57,332,516 Ordinary Shares outstanding,
including 56,958,168 represented by American Depositary Shares. The aggregate
market value of voting stock held by non-affiliates of the Registrant as of
April 14, 1999 was $89,219,622 based on the average bid and asked prices as
quoted on the Nasdaq Stock Market. This sum excludes shares held by directors,
officers and stockholders whose ownership exceeded 5% of the outstanding shares
at April 14, 1999, in that such persons may be deemed affiliates of the
Registrant. This calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates information by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders, to be held on July 27, 1999.
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INDEX
Page
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PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on 27
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers or the Registrant 28
Item 11. Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
Signatures and Power of Attorney 32
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PART I
The information set forth below includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations, intentions and assumptions and other statements
that are not historical facts. Because these forward-looking statements involve
risks and uncertainties, including but not limited to our ability to obtain
regulatory approvals for our products and market acceptance of our products.
Actual results may differ materially from those expressed or implied by these
forward-looking statements.
ITEM 1--BUSINESS
OVERVIEW
Senetek PLC is a science-driven biotechnology company that develops,
manufactures and markets proprietary products for the enhancement of quality of
life, primarily products for the diagnosis and treatment of aging-related
healthcare problems. Our business divisions include biopharmaceuticals, drug
delivery and skincare. In connection with product development activities, we
sponsor research in the life sciences and biotechnology fields.
Senetek PLC is a public limited company that was registered in England in 1983
(registration number 1759068). We have two wholly owned subsidiaries, Senetek
Drug Delivery Technologies Inc. and Carme Cosmeceutical Sciences Inc., both of
which are Delaware corporations. In January 1998, we completed the relocation of
our Novato, California research facility, our St. Louis, Missouri automatic
injector manufacturing facility and our New York corporate office to a single
U.S. headquarters facility in Napa, California.
PRODUCT RESEARCH AND DEVELOPMENT
Biopharmaceuticals
Invicorp(TM). We estimate that 100 million men worldwide suffer from some source
of male erectile dysfunction. Our Invicorp product uses our patented
self-administered automatic injector syringe, Reliaject(TM), to deliver a
combination therapy of two specific drugs, vasoactive intestinal polypeptide and
phentolamine mesylate, for the treatment of male erectile dysfunction. Phase III
clinical trials for Invicorp are now complete. In clinical trials, more than 80%
of patients responded successfully to treatment with Invicorp. Of these
patients, 60% had withdrawn from previous treatment with alternative erectile
dysfunction therapies. Invicorp was approved for marketing in Denmark in July
1998. In March 1999, the United Kingdom's Committee on Safety of Medicines
informed us that it was prepared to advise the United Kingdom's licensing
authority to grant a marketing authorization for Invicorp upon our compliance
with specified conditions. We are currently in the process of complying with
these conditions and do not foresee any obstacles to obtaining a final marketing
authorization for Invicorp in the United Kingdom. We are awaiting approval of
marketing authorization applications for Invicorp in The Republic of Ireland,
Switzerland, New Zealand and South Africa. Invicorp has received Investigational
New Drug approval from the U.S. FDA. We plan to file a New Drug Application for
Invicorp with the FDA as soon as possible.
Adrenaject(TM). Adrenaject uses our Reliaject automatic injector syringe to
deliver a self-injectable formulation of epinephrine, an emergency antidote for
anaphylactic shock. Anaphylactic shock is a life
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threatening condition triggered by a severe allergic reaction to insect stings,
insect bites and certain foods. In 1998, we filed an Abbreviated New Drug
Application with the U.S. FDA for the Adrenaject. In October 1998, we entered
into an agreement with ICN Pharmaceuticals Inc. in which we granted to ICN the
worldwide rights to market and sell Adrenaject upon receipt of necessary
regulatory approvals. Pursuant to the agreement, ICN has committed to purchase
an initial quantity of Adrenaject valued at $1.5 million and will pay licensing
fees of up to $3 million upon achievement of certain milestones. We are also
developing a pediatric formulation of epinephrine for the Reliaject, for which
we plan to file an Abbreviated New Drug Application with the U.S. FDA as soon as
possible.
Monoclonal Antibodies. We market monoclonal antibodies to the scientific
community for research on Alzheimer's disease under an exclusive agreement with
the Research Foundation for Mental Hygiene. Our customers include Glaxo, Pfizer,
Wyeth Ayerst, Amgen, Pharmacia UpJohn, Eli Lilly and Genentech.
Drug Delivery
Reliaject(TM). Reliaject is a compact, disposable, fully automatic, pre-filled
self-injection system. Reliaject is equipped with an ultra-fine gauge needle for
virtually pain-free use and uses a dental cartridge to hold the drug to be
injected. The needle is not visible to the user during use. Reliaject is
convenient to transport and can be used discreetly. In addition to Invicorp,
upon receipt of necessary regulatory approvals, Reliaject may be used in
therapies for anemia, anti-cancer, migraine and pain management. Reliaject also
may have military and civil defense applications. We are currently investigating
these and other applications for our Reliaject syringe.
Skincare and Beauty Products
Kinetin. We manufacture and distribute a range of health and beauty products,
particularly skin care products with anti-aging ingredients. Some of our
products contain Kinetin (N6-furfuryladenine), a patented plant growth factor
that retards aging of plants and delays age-related changes in cultured human
skin cells. In clinical studies conducted over the past two years at the
University of California, Irvine, Kinetin showed a good-to-excellent response in
the majority of patients in partially reversing the clinical signs of
photodamaged skin and in restoring normal skin barrier function. In contrast to
other anti-aging products such as retinoids and alpha-hydroxy acids, Kinetin did
not produce any clinical signs or subjective symptoms of irritation.
We currently market a line of skincare products that incorporates our patented
Kinetin compound. In July 1998, we granted to Osmotics Corporation an exclusive
license to supply other Kinetin-based products to the high-end prestige market,
including department stores. The Osmotics license agreement provides for
performance-based minimum guaranteed payments over a ten-year period. In October
1998, we granted to ICN Pharmaceuticals Inc. an exclusive license to supply
Kinetin-based products to the North American ethical skin care market, which
includes dermatologists and cosmetic surgeons. The ICN license agreement
includes a supply guarantee, royalty on net sales and minimum purchase
guarantee. In addition, ICN agreed to spend at least $3.5 million for
advertising and promotional activities for Kinetin-based products in the first
year of the agreement.
Zeatin. We hold patents for anti-aging on a promising new cytokinin, Zeatin. We
have formulated a plan for development of Zeatin in 1999.
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Other Products. Our other products are designed to meet specific niche segments
of the market. These include Sleepy Hollow Botanicals and Biotene H-24. We also
have two specialty mass market lines: Silver Fox, a product for gray hair, and
Allercreme, a hypoallergenic range of skincare products for sensitive skin,
developed in conjunction with dermatologists.
Research and Development
We sponsor research in the life sciences and biotechnology fields, with
particular emphasis on research relating to the diagnosis and treatment of
healthcare problems related to aging. We develop and market biopharmaceutical
and skincare products based upon the results of this research.
A significant proportion of our historic and current operating expenses have
related to our clinical research agreements with consultants, clinicians and
research scientists. Under these agreements, we fund agreed-upon programs of the
consultants', clinicians' or research scientists' work and retain exclusive
rights to manufacture and market worldwide any products arising from this
research. Currently, none of our products have reached the marketing stage
except for our Mill Creek line of products, which incorporates our patented
Kinetin compound, other products incorporating Kinetin (sold by Osmotics
Corporation and ICN Pharmaceuticals Inc. under license agreements with us) and
monoclonal antibodies. If other products arise from research that we fund,
certain researchers will become entitled to royalties under the terms of their
agreements with us.
Typically, our research agreements oblige us to fund research in amounts to be
determined between the parties. The researchers are responsible for filing
progress reports with us. We work with these researchers and with specialized
consultants on matters such as product formulation, stability, clinical trials
and regulatory matters. In addition, our corporate research laboratory in St.
Louis, Missouri investigates the therapeutic viability of potential new products
and supports analytical measurement processes in Phase II and III clinical
trials. We also operate a development center in Kettering, United Kingdom. Our
Kettering facility is responsible for monitoring Phase III clinical trials in
the United Kingdom and Europe, European product licensing applications and
European regulatory approvals.
Our research and development expenditures amounted to $7,980,000, $5,026,000 and
$2,187,000 for 1998, 1997 and 1996, respectively. For more information see Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANUFACTURING AND MARKETING
General
In the case of any emerging products, we anticipate that manufacturing and
marketing activities may be arranged through co-development and marketing
agreements with companies which have already established a majority presence in
specialized fields. In this event, any revenues will arise primarily through
third party distribution or licensing arrangements or co-ventures whereby we
will seek to receive a percentage of sales, license fees and/or milestone
payments in consideration for our grant of specified marketing rights to our
products, or by profit participation through third party equity investments or
joint ventures.
Reliaject
We anticipate completing the installation of required machinery for the
manufacture of needle case assemblies and assembly of other components for
Reliaject during the second quarter of 1999.
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We have entered into two agreements with manufacturers, each of whom will supply
an important component of the Reliaject drug delivery device. We will provide
these Reliaject components to specialized contract manufacturers in Europe and
North America who will assemble Reliaject and fill the syringe with compounds
such as the Invicorp and epinephrine formulations, perform final assembly and
complete pack preparation prior to distribution.
Invicorp
The active materials, vasoactive intestinal polypeptide and phentolamine
mesylate, for the Invicorp are currently available in commercial quantities from
two suppliers. These suppliers have developed synthetic methods which are
included in the product licensing applications. We rely on these specialized
suppliers for continued supply of materials.
Skincare
We outsource the manufacture, filling and labeling of our skincare and health
and beauty products. We have granted licenses to manufacture our Mill Creek line
of skincare products in South Africa and the United Kingdom. The majority of our
skincare and health and beauty products are sold within the North American Free
Trade Area ("NAFTA") through our marketing organization covering two main
sectors, natural products and specialty mass markets. We have signed
distribution agreements for distribution within the U.S. and abroad. We do not
significantly rely on any main or specialized suppliers for our skincare and
health and beauty products, and we do not anticipate that problems will arise
over access to raw materials that are generally available and that will be
required for our contract manufacturing processes.
Monoclonal Antibodies
In accordance with an agreement entered into with the Research Foundation for
Mental Hygiene Inc., we have been granted the exclusive right to certain of the
Foundation's cell lines capable of producing certain monoclonal antibodies,
including those applicable to Alzheimer's disease. We continue to sell these
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. We rely on the sourcing of the monoclonal antibodies
from a specific biotech organization at the present time.
COMPETITION
General
The biomedical, drug delivery, biopharmaceutical and pharmaceutical industries
are highly competitive. Our business and research efforts compete with drug
discovery programs at biotechnology, drug delivery, biopharmaceutical and
pharmaceutical companies, as well as with internal drug discovery efforts of
pharmaceutical companies acting independently or in collaboration with other
companies. In addition, academic institutions, government agencies throughout
the world and public and private organizations conducting research may seek
intellectual property protection, discover competing products, or establish
collaborative arrangements in our area of research and development.
The vast majority of our existing or potential competitors have substantially
greater financial, technical and human resources and name recognition than we
do. These competitors are often better equipped to research, develop, patent,
conduct pre-clinical testing and human clinical trials, manufacture, and market
products. In addition, many of these companies have extensive experience in
pre-clinical testing and
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human clinical trials. These companies may develop, license or acquire products
that compete with our products. The timing of the market introduction of our and
our competitors' products will be important competitive factors. Accordingly,
the relative speed with which we 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 our success.
We cannot predict the extent to which any of the products we are currently
developing may become commercially viable. Once products have been approved for
sale, we believe that competition will be based, among other things, on product
efficacy, product safety, product reliability, price and patent position. Our
competitive position also depends upon our ability to attract and retain
qualified and experienced personnel to develop proprietary products, processes
or technologies that we can market and sell and the degree of intellectual
property protection obtainable for those products. We expect competition to
intensify in all fields in which we are involved as new products in these areas
are developed and become more widely known. Moreover, the patent situation in
this field is complex, and the protection afforded by patents in any particular
jurisdiction may be limited.
Invicorp
Our management is presently discussing the possibility of entering into
licensing arrangements with major pharmaceutical companies, assuming that a
marketing authorization approval is granted by the United Kingdom's regulatory
agency, the MCA, for Invicorp during the second quarter of 1999. Certain
products that compete with Invicorp have been or are being developed by our
competitors, including Pfizer ("Viagra"), Pharmacia & Upjohn ("Caverject") and
Vivus ("Muse"). Although our management believes that there will be a
substantial demand for Invicorp, we cannot assure that Invicorp or future
products will obtain necessary regulatory approvals or that we will be able to
successfully market these products.
Reliaject
There are already a number of syringes on the market. In particular, products
developed by two of our competitors are being used extensively, mainly in the
U.S. For regulatory approval purposes, auto-injector devices must be identified
with the medicinal compound which they are designed to deliver.
Based upon extensive clinical trials conducted in the United Kingdom in which
the Reliaject device was used for the delivery of Invicorp, we believe that
Reliaject, which can, after instruction, be used by patients without medical
supervision, is capable of competing successfully with products currently on the
market.
Skincare and Beauty Products
The vast health and beauty care market is dominated by large multi-national
organizations, who have far greater resources and market exposure than we do.
Our products are designed to meet specific niche segments of the market. Our
products include the Mill Creek line, Sleepy Hollow Botanicals and Biotene
H-24. The speciality mass market lines are Silver Fox (a proudct for grey hair)
and the Allercreme Hypoallergenic range for sensitive skins, that was developed
in conjunction with determatologists and are currently being marketed under a
distribution agreement entered into with Quinlan Inc. This agreement provides
for minimum purchase order guarantees.
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GOVERNMENT REGULATION
General
Our research, pre-clinical development, clinical trials, manufacturing and
marketing of its products are subject to extensive regulation, rigorous testing
and approval processes of the FDA and equivalent foreign regulatory agencies.
Product Approval--U.S.
In the U.S., the Federal Food, Drug and Cosmetic Act and the Public Health
Service Act governs the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising, and promotion of our products.
Product development and approval within this regulatory framework takes a number
of years and involves the expenditure of substantial resources. Many products
ultimately do not reach the market because of toxicity or lack of effectiveness
as demonstrated by required testing. In addition, there can be no assurance that
this regulatory framework will not change or that additional regulations will
not arise at any stage of our product development that may affect approval,
delay an application, or require additional expenditures.
The steps required before a pharmaceutical product may be marketed in the U.S.
include:
o preclinical laboratory testing;
o submission to the FDA of an Investigational New Drug application
which must become effective before human clinical trials may be
commenced;
o adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug;
o submission of a New Drug Application to the FDA; and
o FDA approval of the New Drug Application prior to any commercial
sale or shipment of the drug.
Invicorp has received Investigational New Drug approval from the FDA, and we
plan to file a New Drug Application with the FDA for Invicorp at the earliest
practicable opportunity.
Clinical testing of new compounds in humans is designed to establish both safety
and efficacy in treating a particular disease or condition. These studies are
usually conducted in three phases of testing. In Phase I, a small number of
volunteers are given the new compound in order to identify toxicities and
characterize the compound's behavior in humans. In Phase II, small numbers of
patients with the targeted disease are given the compound to test its efficacy
in treating the targeted disease and to establish dose levels. Phase III
studies, which we have concluded for Invicorp, are large-scale studies designed
to confirm a compound's efficacy for the targeted disease and identify
toxicities that might not have been seen in smaller studies. Once adequate data
has been obtained in clinical testing to demonstrate that the compound is both
safe and effective for the intended use, all available data is submitted to the
FDA as part of the New Drug Application.
Our clinical trials for future products will generate safety data as well as
efficacy data and will require substantial time and significant funding. We
cannot assure that clinical trials related to future products would be completed
successfully within any specified time period, if at all. Furthermore, the FDA
may suspend clinical trials at any time if it is believed that the subjects
participating in such trials are being exposed to unacceptable health risks.
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Under current regulations, the market introduction of the majority of
non-medicated cosmetics and skin care products do not require prior formal
registration or approval by the FDA, although this could change in the future.
The Cosmetics Division of the FDA monitors matters of safety and adulteration.
The situation for non-medicated cosmetic and skin care products is the same for
Europe.
Product Approval--Other Countries
Marketing of products in other countries requires regulatory approval from the
relevant medicines evaluation in a particular country. The current approval
process varies from country to country, and the time to approval may vary from
that required for FDA approval. The review of clinical studies by regulatory
agencies in foreign jurisdictions follows a similar process to that in the U.S.
In July 1998, we received Marketing Authorization from the Danish government for
Invicorp. In March 1999, the United Kingdom's Committee on Safety of Medicines
informed us that it was prepared to advise the United Kingdom's licensing
authority to grant a marketing authorization for Invicorp upon our compliance
with specified conditions. The Company has submitted Marketing Authorization
Applications for Invicorp in several other countries. We anticipate approvals
from the United Kingdom in the second quarter of 1999 and from Ireland during
1999. However, these applications will be subject to rigorous approval
processes. We cannot assure that approval in these or other countries will be
granted or that these approvals if granted, will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to condition of use. Any delay in obtaining, or failure to obtain such
approval would adversely affect our ability to generate product revenue.
In addition, in certain European countries, the sales price of a product must be
approved. The pricing review period often begins after market approval is
granted. Thus, even if a product is approved by a regulatory authority,
satisfactory prices will be approved for such product.
Noncompliance
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. In addition, the marketing and
manufacturing of pharmaceutical products are subject to continuing FDA and other
regulatory review, and later discovery of previously unknown problems with a
product, manufacturer or facility may result in the FDA and other regulatory
agencies requiring further clinical research or restrictions on the product or
the manufacturer, including withdrawal of the product from the market. The
restriction, suspension or revocation of regulatory approvals or any other
failure to comply with regulatory requirements would have a material adverse
effect on our business, financial condition and results of operations.
Post-Approval
After regulatory approval is obtained, our products are subject to continual
review. Manufacturing, labeling and promotional activities are continually
regulated by the FDA and equivalent foreign regulatory agencies, and we must
also report certain adverse events involving our drugs to these agencies.
Previously unidentified adverse events or an increased frequency of adverse
events that occur post-approval could result in labeling modifications of
approved products, which could adversely effect future marketing of a drug.
Finally, approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing. The
restriction, suspension
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or revocation of regulatory approvals or any other failure to comply with
regulatory requirements would have a material adverse effect on our business,
financial condition and results of operations.
We obtain certain materials and components for the manufacture of our products
from third parties. In addition, we outsource the manufacture of certain
products (see "Business--Manufacturing and Marketing"). These parties are
required to comply with strict standards established by us. Certain
manufacturers and suppliers are required by the Federal Food, Drug, and Cosmetic
Act, as amended, and by FDA regulations, to follow Good Manufacturing Practices,
or GMP, requirements and are subject to routine periodic inspections by the FDA
and certain state and foreign regulatory agencies for compliance with GMP and
other applicable regulations. Upon routine inspection of these facilities, we
cannot assure that the FDA and other regulatory agencies will find the
manufacturing process or facilities to be in compliance with GMP and other
regulations. Failure to achieve satisfactory GMP compliance as confirmed by
routine inspections could have a material adverse effect on our ability to
continue to manufacture and distribute our products and, in the most serious
case, result in the issuance of a regulatory warning letter or seizure or recall
of products, injunction and/or civil fines or closure of our manufacturing
facility until GMP compliance is achieved.
Import Restrictions and Duties
Because Senetek may be importing certain of its products or product ingredients
into the United States, Senetek could be subject to quantity limitations, duties
and tariffs imposed by countries in which the products are to be sold. The
United States does not have quantity restrictions for goods such as Senetek's
proposed products but does impose tariffs based on the value of the products
imported. Other countries may have different restrictions and duties.
PATENTS
We believe that patents and other proprietary rights are an essential element of
our business. As part of our grant agreements with various researchers, we have
exclusive license rights to any commercially valuable products developed by the
contracted researchers within the scope of the agreements, in exchange for
royalty entitlements. Our policy is to file patent applications to protect
inventions and improvements that we consider important to the development of our
business. Typically, patents in the U.S. expire 19 years after the grant date.
We also rely upon trade secrets, know-how, continuing technological innovations
and licensing opportunities to develop and maintain our competitive position. We
have filed patent applications for our products in most major countries,
including those that are signatories to the Patent Conference Treaty. Thus far,
Reliaject is patented in most of these countries and in major areas in Asia and
South America. We have also received patent approvals covering our technology
for the treatment of:
o the effects of aging on skin in the U.S.;
o psoriasis and other related skin diseases in the U.S., Canada
and Australia; and
o male sexual dysfunction in the U.S., Australia, Czech Republic,
Hungary, Israel, Latvia, Lithuania, Mexico and Taiwan.
Patent positions generally, including those for pharmaceutical and health
service organizations such as us, are uncertain and involve complex legal and
factual questions for which important legal principles are largely unresolved.
In addition, the coverage claimed in a patent application can be significantly
reduced
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before a patent is issued. Consequently, we cannot be sure that any patents that
are or may be issued to us will provide significant proprietary protection or
will not be circumvented or invalidated. Because patent applications in the U.S.
are maintained in secrecy until patents issued, and publication of discoveries
in the scientific or patent literature often lags behind actual discoveries, we
cannot be certain that we or any licensor was the first creator or that we or
our licensor was the first to file patent applications for these inventions.
Moreover, we might have to participate in interference proceedings declared by
the U.S. Patent and Trademark Office to determine priority of inventions, which
could result in substantial cost to us, whether or not the eventual outcome was
favorable to us. We cannot assure that our patents, if issued, would be held
valid by a court or that a competitor's technology or product would be found to
infringe such patents.
A number of pharmaceutical and health services companies and research and
academic institutions have developed technologies, filed patent applications, or
received patents in areas that may be related to our business. Some of these
technologies applications, or patents may conflict with our development efforts
or patent applications.
In 1995, we acquired numerous trademarks formerly owned by Carme Inc. To the
best of our knowledge, there has been no indication to date that such trademarks
are invalid or are subject to challenge.
Typically, we require our employees, consultants and sponsored researchers to
execute confidentiality agreements as part of their employment, consulting or
research arrangements with us. We cannot assure, however, that these agreements
will produce meaningful or adequate protection for our trade secrets.
EMPLOYEES
As of December 31, 1998, we employed 52 full-time employees. Senetek employees
comprised 10 persons in the United Kingdom, of whom seven are employed at our
drug development center at Kettering, and five in the U.S., of whom four are
employed in our research center in St. Louis and one in our executive offices in
Napa. As of December 31, 1998, our wholly owned subsidiary, Senetek Drug
Delivery Technologies, Inc., employed five persons in the U.S. who concentrate
on the scientific, engineering and production aspects of Reliaject. Our other
wholly owned subsidiary, Carme Cosmeceutical Sciences Inc., has 32 employees
covering the production, marketing, advertising and distribution of our health
and beauty products, including a team covering the management and financial
aspects of this portion of our business.
ITEM 2--PROPERTIES
Our United Kingdom administrative offices are located in London, United Kingdom.
We leased this 1,124 square foot space in 1998 under a three-year lease that
expired in March 1999. We recently renewed our lease for this space until May
1999. We lease approximately 40,000 square feet in Napa, California for our U.S.
headquarters. Our headquarters facility includes approximately 13,000 square
feet of manufacturing space and 27,000 square feet of research, marketing and
administrative space. Our lease for the Napa facility expires in December 2007.
We also lease an approximately 5,000 square foot building in Kettering, United
Kingdom under a 15-year lease with a break option after five years. We have
sublet approximately 1,000 square feet of this space to an unaffiliated company
for a term of three years. In 1997, we entered into a three-year lease for a
3,600 square foot laboratory facility in St. Louis, Missouri. We believe that
our leased facilities are adequate for our current operations.
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ITEM 3--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 under
a breach of contract claim for Mad Dogs' failure to perform its obligations
under this contract. Mad Dogs served us with an answer to our complaint in
August 1998.
Ronald Trahan Associates, Inc. and Ronald C. Trahan have filed a lawsuit against
Senetek PLC claiming breach of an alleged contract between Senetek and Ronald
Trahan Associates, Inc. The plaintiff alleges damages approximating $170,000.
The plaintiff also claims a right to treble damages. This breach of contract
claim was filed around January 25, 1999 in Middlesex Superior Court in
Massachusetts. On March 8, 1999, we removed the lawsuit to the U.S. District
Court for the District of Massachusetts. On March 24, 1999, we moved to dismiss
one of the claims of the lawsuit. We believe that the claims in this lawsuit
have no merit and intend to defend against the lawsuit vigorously.
In January and February 1999, we received several letters from counsel to David
Pettit, a former consultant to Senetek. Mr. Pettit voluntarily resigned from his
consulting position with us in early November 1998. Mr. Pettit alleges that his
consulting agreement with Senetek was terminated following a change in Senetek's
management and has threatened a lawsuit seeking damages of $127,000. No suit has
yet been filed. We believe that Mr. Pettit's claims have no merit and, in the
event a lawsuit is filed, intend to defend against such claims vigorously.
On March 11, 1999, our legal counsel received a letter from counsel to Clifford
Brune, former Chief Operating Officer of Senetek, who left his position as COO
in late 1998. The letter threatened a lawsuit seeking damages of $777,600,
representing amounts allegedly owed to Mr. Brune under an alleged consulting
contract with Senetek. No suit has yet been filed. We believe that Mr. Brune's
claims have no merit and, in the event a lawsuit is filed, intend to defend
against such claims vigorously.
Paul Logan, former Chief Financial Officer and Secretary of Senetek and a
current member of our board of directors, filed a lawsuit against Senetek on
March 12, 1999 in the United Kingdom's Employment Tribunal. Mr. Logan alleges
that he entered into a verbal agreement with our former Chief Executive Officer
and Chairman under which Mr. Logan was to provide consulting services to Senetek
for three years beginning on October 1, 1999, in exchange for consulting fees of
109,000 pounds per year. Mr. Logan seeks three month's unpaid consulting fees
under the alleged consulting agreement. On April 1, 1999, Senetek filed a
dissent with the Employment Tribunal. We believe that the claims in this lawsuit
have no merit and intend to defend against the lawsuit vigorously.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) GENERAL DISCUSSION
There is currently no established public trading market for our Ordinary
Shares in the United Kingdom. Our American Depositary Shares (each
representing one Ordinary Share and evidenced by one American Depositary
Receipt) were traded on the over-the-counter market in the United States
beginning in November 1984 and have been traded through The Nasdaq Stock
Market since our public offering in the U.S. in May 1986.
The following table sets out the range of high and low closing bid
prices for our American Depositary Shares during each quarter of our two
most recent fiscal years, as reported by the Nasdaq Smallcap Stock
Market.
FISCAL YEAR ENDED DECEMBER 31, 1998
QUARTER ENDED: HIGH LOW
---- ---
March 31 $ 4.97 $ 3.00
June 30 5.00 3.25
September 30 4.75 1.97
December 31 2.88 1.53
FISCAL YEAR ENDED DECEMBER 31, 1997
QUARTER ENDED: HIGH LOW
---- ---
March 31 $ 3.66 $ 3.13
June 30 4.53 4.25
September 30 4.78 4.50
December 31 4.91 4.63
As of April 14, 1999 there were approximately 209 holders of record of
our Ordinary Shares, including approximately 1,108 holders of record of
American Depositary Shares. The share price at April 14, 1999 was a high
of $1.6875 and a low of $1.50.
We have not paid, nor do we presently contemplate the payment of, any
cash dividends on our Ordinary Shares. The decision whether to pay, and
the amount of such dividends, will be based upon, among other things,
our earnings, capital requirements and financial conditions. Any
dividend, either cash or stock, must be recommended by our board of
directors and approved by our shareholders. The board of directors is,
however, empowered to declare interim dividends. Under the English
Companies Act of 1985, a limited company may not declare or pay cash
dividends while it has an accumulated deficit. We had an accumulated
deficit of $71,968,000 at December 31, 1998. Accordingly, we will not be
in a position to consider the question of dividends until the
accumulated deficit has been absorbed by profits or by the application
against the deficit with the approval of stockholders and the United
Kingdom Companies' Court, which forms part of the Chancery Division of
the High Court, of an equivalent figure forming part of the share
premium on our balance sheet.
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(b) SALES OF UNREGISTERED SECURITIES
FISCAL 1996
During the fourth quarter of 1996, we raised funds through the following
offerings under the terms and conditions of Regulation S of the
Securities Act of 1933, as amended:
1. DATE OF TRANSACTION
October 11, 1996
SECURITIES SOLD
$2,500,000 three-year unsecured debentures, convertible
into shares at the lower of (a) the average closing bid
price of our American Depositary Receipts for 5 days
preceding the closing date or (b) 70% of the average
closing bid price for the 5 days prior to conversion.
Two-year warrants with a total value of $2,700,000
entitling the holder to convert into Ordinary Shares of
Senetek PLC at a price of $1.70 per share.
CONSIDERATION RECEIVED
$2,500,000 in cash (a further $2,500,000 in cash was
received in 1997 and applied against the exercise of
two-year warrants and the issue of an equivalent number
of Ordinary Shares at a price of $1.70 per share
referred to below).
NAMES OF SUBSCRIBERS
Lionhart Global Appreciation Fund
Nelson Fernandes
Rajan Bhasin
NAMES OF WARRANT HOLDERS
Global Emerging Markets
Investment Perspectives (Tradewinds) Limited
Cavendish Limited
Settondown Capital Investments Limited
2. DATE OF TRANSACTION
December 5, 1996
SECURITIES SOLD
Two-year warrants to the value of $100,000 entitling the
warrantholder to convert into shares of Senetek PLC at a
price of $1.125 per share.
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15
Two-year warrants to the value of $1,733,333 entitling
the warrantholder to convert into Ordinary Shares of
Senetek PLC at a price of $1.4625 per share.
$1,000,000 two-year unsecured debentures convertible
into Ordinary Shares at $0.84375 per Ordinary Share.
CONSIDERATION RECEIVED
$1,000,000 in cash.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Brentwood Financial Limited
NAME OF WARRANT HOLDER
HIG Securities Investments Limited
FISCAL 1997
During the second and fourth quarters of 1997, we raised funds through
the following offerings under the terms and conditions of Regulation S
of the Securities Act of 1933, as amended:
1. DATE OF TRANSACTION
April 4, 1997
SECURITIES SOLD
$1,500,000 three-year unsecured debentures, convertible
into shares at the lower of (a) the average closing bid
price of our American Depositary Receipts for five days
preceding the closing date or (b) 74% and 80% of the
average closing bid price for the five days prior to
conversion.
Two-year warrants to the total value of $1,575,000
entitling the holder to convert into Ordinary Shares of
Senetek PLC at a price of $4.4375.
CONSIDERATION RECEIVED
$1,500,000 in cash.
NAMES OF SUBSCRIBERS
Raphael Enterprises Ltd
Onn Sithawalla
NAMES OF WARRANT HOLDERS
Raphael Enterprises Ltd
Onn Sithawalla
13
16
R. Nangalia
2. DATE OF TRANSACTION
December 8, 1997
SECURITIES SOLD
Two-year warrants entitling the warrant holder to
convert into Ordinary Shares of Senetek PLC at a price
of $1.4625 per share.
CONSIDERATION RECEIVED
$1,170,000 ($585,000 was received and applied against
the exercise of 400,000 warrants into the issue of an
equivalent number of Ordinary Shares in 1997. The second
transaction on a similar basis for $585,000 occurred in
the first quarter of 1998).
NAME OF SUBSCRIBER AND WARRANT HOLDER
Brentwood Financial Limited
FISCAL 1998
During 1998, we raised funds through the following offerings under the
terms and conditions of Regulation S of the Securities Act of 1933, as
amended:
1. DATE OF TRANSACTION
April 7, 1998
SECURITIES SOLD
1,100,000 5p Ordinary Shares
Three-year warrants to purchase 1,100,000 5p Ordinary Shares of
Senetek PLC at $5.00 per share.
CONSIDERATION RECEIVED
$3,300,000 less 10% commission from the sale of 1,100,000
Ordinary Shares at $3.00 per share.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Windsor Capital Limited
2. DATE OF TRANSACTION
July 8, 1998
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SECURITIES SOLD
Three-year warrants to purchase 1,885,715 Ordinary Shares of
Senetek PLC at $3.50 per share.
Three-year warrants to purchase 220,000 Ordinary Shares of
Senetek PLC at $6.00 per share.
We subsequently amended these warrants and issued 2,105,715
Ordinary Shares upon exercise of the warrants.
CONSIDERATION
We issued the foregoing warrants to Windsor Capital Management,
Ltd. in connection with a credit agreement under which we
borrowed $6,600,000 from Windsor. We subsequently amended the
warrants and issued Ordinary Shares upon exercise of the amended
warrants in exchange for cancellation of indebtedness to Windsor
in the amount of $4,211,430.
Name of Subscriber and Warrant Holder
Windsor Capital Management, Ltd.
FISCAL 1999 (TO DATE)
In 1999 (to date), we issued the following securities in transactions
exempt from registration under Regulation D under the Securities Act of
1933, as amended:
1. DATE OF TRANSACTION
April 14, 1999
SECURITIES SOLD
a. $7,388,570 aggregate principal amount of three-year
promissory notes of Senetek PLC (the "Investment
Notes"). The Investment Notes bear interest at a rate of
8.0% per year. The principal amount of the Investment
Notes is due and payable in 2002.
b. Series A Warrants to purchase an aggregate of 3,000,000
Ordinary Shares at an initial exercise price of $1.50
per share (subject to downward adjustment).
c. Series B Warrants to purchase an aggregate of 3,333,333
Ordinary Shares at an exercise price of $1.50 per share.
d. Series C Warrants to purchase an aggregate of 1,194,285
Ordinary Shares at an exercise price of $2.00 per share.
15
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CONSIDERATION RECEIVED
We received $5,000,000 in cash (less expenses) and the
refinancing of $2,388,570 of our previously outstanding
indebtedness for issuing the Investment Notes, the Series B
Warrants, the Series C Warrants and Series A Warrants to
purchase an aggregate of 738,857 Ordinary Shares. We issued the
remaining Series A Warrants to purchase an aggregate of
2,261,143 Ordinary Shares in settlement of certain disputes with
a third party.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Oakwood Holdings, Ltd.
(c) TAXATION
General
The following is a summary of the principal U.S. federal and United
Kingdom tax consequences applicable to the ownership of Ordinary Shares
and American Depositary Shares, by a beneficial holder that is a citizen
or resident of the United States, a corporation or partnership created
or organized under the laws of the U.S. or any state thereof or that
otherwise is subject to U.S. Federal income tax on a net income basis in
respect of the Ordinary Shares or American Depositary Shares (a "U.S.
Holder"). This summary is not exhaustive of all possible tax
considerations, and U.S. Holders are advised to consult their own tax
advisers as to the overall tax consequences, including specifically the
consequences under state and local laws, of the purchase, ownership and
disposition of Ordinary Shares or American Depositary shares.
This summary does not address the United Kingdom tax consequences to a
U.S. Holder who is resident or (in the case of an individual) ordinarily
resident in the United Kingdom or who carries on business there through
a branch or agency. A disposition of Ordinary Shares or American
Depositary shares, by such a person may be subject to United Kingdom
tax.
This summary also does not address the U.S. tax consequences to a U.S.
Holder (i) controlling, directly or indirectly, together with
associates, 10% or more of the voting shares of Senetek PLC, (ii) who
does not hold the Ordinary Shares or American Depositary Shares as
capital assets, (iii) who does not use the U.S. dollar as the U.S.
Holder's functional currency or (iv) who holds the Ordinary Shares or
American Depositary Shares as part of a larger integrated financial
transaction or straddle.
The statements regarding U.S. federal and United Kingdom tax laws set
out below are based on those laws as in force on the date of this Form
10-K.
For the purposes of the current U.S./United Kingdom double taxation
conventions (the "Income Tax Convention") and for the purposes of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), U.S.
Holders of American Depositary Shares will be treated as owners of the
underlying Ordinary Shares.
16
19
Taxation of Dividends
No tax will be withheld from dividend payments by Senetek PLC to United
Kingdom resident shareholders. An individual shareholder resident in the
United Kingdom is treated for United Kingdom tax purposes as having
taxable income equal to the sum of the dividend plus a tax credit equal
to 10% of the sum of the dividend plus the tax credit (such aggregate
sum being hereinafter referred to as the "Gross Dividend"). The tax
credit is available as a tax credit against the individual's tax
liability on the relevant dividend.
Prior to April 6, 1999, U.S. resident shareholders were normally
entitled to a refund from the United Kingdom Inland Revenue of taxation
as a result of the dividends paid to them. After April 6, 1999, a
corporate U.S. Holder (which is not also a resident of the United
Kingdom for the purposes of the Income Tax Convention) who controls,
directly or indirectly (either alone or with one of more associated
Corporations) 10% or more of the voting power of Senetek PLC may still
apply for a refund but generally other shareholders may not.
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20
ITEM 6--SELECTED FINANCIAL DATA
The selected consolidated statement of operations data presented below for each
of the years in the three-year period ended December 31, 1998 and the selected
consolidated balance sheet data as of December 31, 1997 and 1998 has been
derived from and should be read in conjunction with our financial statements
included in Part IV of this Report on Form 10-K. The selected consolidated
statements of operations data for the years ended December 31, 1994 and 1995 and
the selected consolidated balance sheet data as of December 31, 1994, 1995 and
1996 has been derived from the audited financial statements contained in our
annual reports to shareholders.
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues $ 4,672 5,722 6,486 1,931 212
Loss from operations (17,089) (15,626) (4,066) (3,904) (3,476)
Net loss $(22,492) (15,539) (4,020) (3,721) (2,982)
======== ======= ====== ====== ======
Net loss per Ordinary Share $ (0.41) (0.32) (0.10) (0.09) (0.08)
outstanding
AS OF DECEMBER 31,
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
Assets:
Cash and cash equivalents $ 808 6,216 2,975 2,237 5,088
Government bonds at fair value -- -- -- -- 3,128
Inventory 731 890 1,657 1,231 42
Trade receivables and other
current assets 2,754 2,486 997 959 401
-------- ------- ------- ------- -------
Total current assets 4,293 9,592 5,629 4,427 8,659
Property & equipment, net 3,366 1,909 1,182 1,087 749
Goodwill and other intangible
assets, net 1,766 1,900 2,128 2,391 349
Deferred financing costs 1,241 -- 902 -- --
Other assets -- -- -- -- 4
-------- ------- ------- ------- -------
Total assets 10,666 13,401 9,841 7,905 9,761
Long term liabilities:
8% convertible debentures -- -- 1,700 -- --
Capital Leases 46 -- -- -- --
Accumulated deficit (71,968) (49,476) (33,937) (29,917) (26,196)
Stockholders' equity $ (821) 5,506 6,263 6,745 9,203
======== ======= ======= ======= =======
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ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We received our initial funding from a public issuance of Ordinary Shares in the
United Kingdom in November 1983. In May 1986, we completed a public financing in
the U.S. resulting in the issuance of 1,322,500 Units, each consisting of one
Ordinary Share and one "A" and one "B" warrant for the purchase of an equivalent
number of Ordinary Shares. The Ordinary Shares were issued as American
Depositary Shares, evidenced by American Depositary Receipts, and together with
the "A" and "B" warrants, were traded under the Nasdaq Automated Quotations
System. 143,018 unexercised "A" and 1,285,400 unexercised "B" warrants ceased
trading upon the lapsing of their respective extended exercise dates in May
1997. Since May 1986, we have relied on private placements of Ordinary Shares,
convertible debentures, and warrants to add to our capital base.
Our accounts set forth in Part IV of this Report have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP). Our
financial information included in this Form 10-K is presented in U.S. dollars.
MATERIAL CHANGES IN FINANCIAL CONDITION
During the year ended December 31, 1998, our liquid position, represented by
cash and deposits at banks and liquid investments, decreased by $5,402,000 to
$808,000. This decrease is attributable to the excess of our operational losses,
capital investments and the net movements in working capital over the net
proceeds of private placements and draw downs of credit facilities as discussed
in "Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
Our operations are carried out through biopharmaceuticals, drug delivery and
research and development fields ("pharmaceuticals") and the supply of skincare
and beauty products ("cosmetics").
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS)
Loss from Operations:
Pharmaceuticals:
Revenues 1,517 1,167 499
------- ------- -------
Gross profit 906 692 317
Operating expenses (16,284) (13,368) (4,427)
------- ------- -------
Loss from operations (15,378) (12,676) (4,110)
------- ------- -------
Cosmetics:
Revenues (3,155) (4,555) (5,987)
------- ------- -------
Gross Profit 725 1,042 2,530
Operating expenses (2,436) (3,992) (2,486)
------- ------- -------
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(Loss)/profit from operations (1,711) (2,950) 44
------- ------- -------
Total loss from operations (17,089) (15,626) (4,066)
------- ------- -------
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS)
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from operations (15,378) (12,676) (4,110)
Interest income 188 279 --
Interest (expense) -- (50) (21)
Other expense (5,744) (--) (4)
------- ------- ------
Loss before tax (20,934) (12,447) (4,135)
------- ------- ------
Cosmetics:
(Loss)/profit from operations (1,711) (2,950) 44
Other income/(expense) 194 (92) 74
Interest expense (41) (50) (3)
------- ------- ------
(Loss)/profit before tax (1,558) (3,092) 115
------- ------- ------
Total overall loss before taxation (22,492) (15,539) (4,020)
======= ======= ======
Under U.S. GAAP, we apply Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issues to Employees" ("APB 25"), and related interpretations in
accounting for our employee stock option plans. We have recognized $1,669,000 of
expense for stock based employee compensation in accordance with APB 25 in
fiscal 1998 and $3,048,000 in fiscal 1997.
Also, during fiscal 1998, we recognized $863,000 of expense relating to the fair
value of all stock options awarded to non-employees and consultants in
accordance with Financial Accounting Standard No. 123 ("FAS 123"). The expense
in fiscal 1997 was $840,000.
REVENUES
Our product sales revenues of $4,672,000 for the year ended December 31, 1998
comprised $401,000 from the sale of pharmaceutical products, $1,116,000 from the
sale of monoclonal antibodies, and $3,155,000 from the sale of health and
cosmetic beauty aids.
Our product sales revenues of $5,722,000 for the year ended December 31, 1997
comprised $276,000 from the sale of our pharmaceutical products, $891,000 from
the sale of monoclonal antibodies, and $4,555,000 from the sale of health and
beauty aids.
The 45.3% increase in sales of pharmaceutical products is due to a 37.3%
increase in volume and an 8% increase in prices.
The 25.3% increase in sales of monoclonal antibodies is due to an increase in
sales volume.
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The 30.7% decrease in sales of skincare and beauty products is due to a
streamlining of the product range. At the time we acquired Carme Cosmeceutical
Sciences Inc. in September 1995, the acquired business had approximately 1,000
stock keeping units ("SKU's"). At the end of 1998, this had been reduced to
approximately 150 SKU's.
Our sales revenues of $6,486,000 for 1996 comprised $84,000 from the sale of
pharmaceutical products, $415,000 from the sales of monoclonal antibodies and
$5,987,000 from the sale of health and cosmetic beauty aids. Comparing 1997 to
1996, the 229% increase in is due to a 237% increase in volume and an 8%
decrease in price. The 115% increase in sales of monoclonal antibodies is due to
an increase in sales volume. The 24% decrease in sales of health and cosmetic
beauty aids is due to a decrease in volume due to the downsizing of the product
portfolio.
RESEARCH AND DEVELOPMENT
Pharmaceutical Division
Research and development expenses in the year ended December 31, 1998 were
$7,955,000, compared with $4,913,000, and $2,040,000 in 1997 and 1996,
respectively.
The increase of $3,042,000 in 1998 compared with 1997 was primarily due to (i)
additional clinical spending on pivotal clinical studies, regulatory approvals
and toxicological studies, in particular for the preparation of the Abbreviated
New Drug Application submission for Adrenaject and the future New Drug
Application submission for Invicorp with the FDA in the U.S. and (ii) the
purchase of $1,200,000 of vasoactive intestinal polypeptide and phentolamine
mesylate for our Invicorp product under supply arrangements with third party
vendors.
The increase of $2,873,000 in 1997 compared with 1996 was primarily due to:
o increases in pharmacology studies, toxicology studies, Phase III
Clinical Trials, regulatory consultancy costs and the lodging of
Marketing Authorization Applications with a number of European
medicines evaluation agencies;
o increases in the payments to contract research organizations
carrying out stability tests and other tests and the purchase of
the active materials relating to the Invicorp therapy; and
o additional research costs relating to the availability to us of
monoclonal antibodies.
Cosmetics Division
Research and development expenses in the year ended December 31, 1998 were
$25,000, compared with $113,000 and $147,000 in 1997 and 1996, respectively.
The decrease of $88,000 in 1998 compared with 1997 is primarily due to the
streamlining of our cosmetic product portfolio and the elimination of production
development expense following the outsourcing of manufacturing in the second
half of 1997.
The decrease of $34,000 in 1997 compared with 1996 was primarily due to the
streamlining of our cosmetic product portfolio.
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GENERAL AND ADMINISTRATIVE
Pharmaceutical Division
General and administrative ("G&A") expenses totaled $7,482,000 for 1998,
compared with $6,305,000 and $1,627,000 for 1997 and 1996, respectively.
The increase of $1,177,000 in 1998 compared to 1997 was primarily due to:
o the full year effect of retaining a public relations company in
the second half of 1997 to focus on investor relations and
development status of the Invicorp and Kinetin products; and
o the full year effect of retaining a marketing consulting company
in the second half of 1997 to focus on product licensing
opportunities for Invicorp with potential pharmaceutical
partners and the setting up of raw material supply and contract
manufacturing arrangements for Invicorp supply chain.
Also, a change in the basis of the allocation of salaries and welfare and
benefits to G&A expenses to more correctly allocate staff costs to their
operational activity resulted in an increase in G&A expenses in 1998 compared to
1997. The 1998 costs also include the ongoing recognition of stock compensation
expense:
o for employee stock compensation plans in accordance with APB 25,
for 1997 grants vesting in 1998 and beyond; and
o under FAS 123 relating to the grant of stock options to
non-employees in exchange for services rendered, based on the
fair value of the awards at the grant date.
The increase of $4,678,000 in G&A expenses in 1997 compared with 1996 was
primarily due to:
o charges for the full year of the hire of additional executive
management with effect from the third quarter of 1996;
o the cost of implementing public/investor relations program;
o the costs of retaining a new financial adviser;
o an increase in legal and professional charges;
o an increase in salaries, rent, travel, utilities and general
overhead associated with the increase in members of the
management team; and
o recognition of $2,533,000 of compensation expense for employee
stock based compensation plans in accordance with APB 25 and
$840,000 compensation expense under FAS 123 relating to the
grant of stock options to non-employees in exchange for services
rendered, based on the fair value of the awards at the grant
date.
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Cosmetics Division
G&A costs for the year ended December 31, 1998 were $1,680,000, compared with
$1,762,000 and $962,000 for 1997 and 1996, respectively. The 1998 costs reflect
stock compensation expense relating to the grant of employee stock options in
1997 which vest in 1998 and beyond, in accordance with APB 25.
The decrease of $82,000 in 1998 compared to 1997 was primarily due to decreased
operating costs of Carme Cosmeceutical Sciences Inc. following an out-sourcing
of manufacturing in 1997.
The increase of $800,000 in G&A costs for 1997 compared with 1996 was primarily
due to:
o recognition of $515,000 of compensation expense for employee
stock based compensation plans in accordance with APB 25; and
o costs of putting in place the out-sourcing of manufacturing in
the Carme Cosmeceutical Sciences Inc. operations.
MARKETING AND PROMOTION
Pharmaceutical Division
Marketing and promotion expenses totaled $847,000 for 1998, compared with
$2,149,000 and $760,000 for 1997 and 1996, respectively.
The $1,302,000 decrease in 1998 compared to 1997 was primarily due to the
reclassification of public/investor relations from marketing expense to G&A
expense in 1998 to more correctly allocate expense to the related activity.
The increase of $1,389,000 in G&A costs in 1997 compared to 1996 was primarily
due to an ongoing high profile public/investor relations campaign highlighting
the clinical success and commercial potential of Invicorp and Reliaject.
Cosmetics Division
Marketing and promotion expenses totaled $276,000 for 1998, compared with
$1,376,000 and $459,000 for 1997 and 1996, respectively.
The decrease of $1,100,000 in 1998 compared to 1997 was primarily due to one
time advertising costs associated with the promotion of Kinetin products in
1997.
The increase of $917,000 in 1997 compared to 1996 is was primarily to one time
advertising costs associated with the promotion of Kinetin products in 1997.
SELLING EXPENSES
Cosmetics Division
Selling expenses relating to our cosmetics products totaled $456,000 for 1998,
compared with $742,000 and $918,000 for 1997 and 1996, respectively.
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The decrease of $286,000 in 1998 compared to 1997 was primarily due to reduced
salaries and broker commissions following the out-sourcing of manufacturing in
the cosmetics division in the second half of 1997.
The decrease of $176,000 in 1997 compared to 1996 was primarily due to reduced
salaries and broker commissions following the out-sourcing of manufacturing in
the cosmetics division in the second half of 1997.
OTHER INCOME AND EXPENSE
Included in other expense is $2,389,000 for debt modification expense under the
Windsor Capital line of credit. Also, included in other expense is $3,355,000
relating to the amortization of deferred financing costs represented by the fair
value of warrants attached to the line of credit and the 10% fee on the
placement of the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $5,402,000 during 1998 to $808,000. This
decrease is due to the excess of our operational losses, capital expenditure and
net movements in working capital over the proceeds of private placements of
shares, convertible debt and the exercise of employee share options for the
year. To date, we have realized only modest revenues from our operations. We
continue, as in the past, to depend upon raising equity funds from private
placements. Our independent auditors report on our consolidated financial
statements included in Item 8 states that "[Senetek] has suffered recurring
losses from its operations and... its ability to continue research activities
to a stage where it has a product able to be commercialised is dependent upon
securing additional sources of financing, which raises substantial doubt about
[Senetek's] ability to continue as a going concern."
In April 1999, we issued $7,388,570 in aggregate principal amount of secured
promissory notes. The notes bear interest at a rate of 8.0% per year, payable
semi-annually, and are due and payable in full in April 2002. The repayment of
the notes is secured by all of the assets of Senetek PLC and its subsidiaries.
In exchange for the issuance of the notes, we received $5,000,000 in cash (less
expenses) and refinancing of $2,388,570 of our previously outstanding debt. We
also issued warrants to purchase Ordinary Shares in connection with the issuance
of the notes. Although we have received no commitment for the advance of any
further funds, other lenders who advance up to an additional $7,611,430 may
share in the collateral securing the notes described above on a pari passu basis
with the existing noteholders.
Our other most significant revenue commitments are our research agreements,
consulting agreements, employment agreements and property leases. In addition,
capital expenditure amounted to $2,081,757 in 1998 in connection with the set up
of supply chain capability for the manufacture of Reliaject components in
advance of the commercialization of the Invicorp and Adrenaject products.
In the event of the use of Kinetin as a pharmaceutical, as opposed to a cosmetic
product, we would have to commit considerable additional expenditure, and the
speed at which this work can be undertaken will depend upon our financial
resources.
We anticipate spending approximately $8.5 million during 1999 on the development
of our pharmaceutical products, including Reliaject applications, and on our
administrative and marketing structure operations. Although our management
believes that we will generate revenues from the sale of our cosmetic product
lines, monoclonal antibodies and the Invicorp product to named-patients, these
will not be sufficient to address our projected short-term financial
requirements.
Additionally, certain holders of a substantial number of warrants may exercise
their right to convert their warrants into shares upon payment to us of the
exercise price as the conversion dates approach.
24
27
Our management is discussing the possibility of entering into licensing
arrangements with several major pharmaceutical companies. Although these
discussions may lead to a license agreement of a substantial nature in due
course, we cannot assure that we will be successful in securing such an
agreement.
GOVERNMENT POLICY
It is the opinion of our board of directors that there are no aspects of
government policy which, as far as can be foreseen, are likely to have a
material effect on the conduct of our business, except as generally described in
Part I, Item 1, of this Form 10-K under the heading "Government Regulation."
IMPACT OF INFLATION
We believe that inflation has not had any material effect on the results of our
operations to date.
YEAR 2000
The Problem
The term "Year 2000 issue" is used to describe the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other machinery as the year 2000 approaches. These problems
generally arise from the fact that most of the world's computer hardware and
software have used only two digits to identify the year in a date, often meaning
that the computer will fail to distinguish dates in the "2000's" from those in
the "1900's." This could result in system failure or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Our State of Readiness
We have instituted a year 2000 assessment and remediation project. As a part of
this project, we have completed an initial evaluation of our computer systems
and significant software programs, including our network hardware and operating
systems and accounting and business process software, as well as our
non-information technology systems. In anticipation of potential year 2000
system problems, we have begun to replace our management information systems
with a platform designed to be year 2000 compliant. We expect to complete this
process in the second quarter of 1999. We have retained a consulting firm to
coordinate successful system implementation, including testing of year
2000-related problems. We will commence testing for year 2000 compliance upon
full implementation of our new system and will continue this testing throughout
1999. We presently believe that upon completion of successful system
conversions, the year 2000 issue will not pose significant operational problems
for us. However, although our new systems are designed to be year 2000
compliant, we cannot assure you that the systems contain all necessary data code
changes. If we do not complete our conversions in a timely fashion, the year
2000 issue could have a material impact on our operations.
As a part of our year 2000 project, we have assessed our products in connection
with year 2000 issues. Our products do not contain any software, date-sensitive
fields or embedded microprocessors; therefore, we do not believe that our
products will present year 2000 issues.
We are also in the process of contacting our vendors and other third parties on
which we rely to obtain information about their year 2000 compliance. We plan to
complete these contacts by the end of the second quarter of 1999. Based on our
review of responses we have received to date, we do not expect this issue to
have a material adverse effect on our business.
25
28
The Costs to Address Our Year 2000 Issues
In 1998, we spent approximately $130,000 to address year 2000 issues, including
the purchase of new software. We expect that our assessment, remediation and
contingency planning activities for its internal systems will be ongoing through
1999. We currently expect the total cost for these activities to be
approximately $20,000 in 1999. This cost estimate does not include replacement
of internal software and hardware in the normal course of business. We do not
believe that these costs will materially affect our liquidity or financial
condition. The costs of our year 2000 project and the date established for
completion of year 2000 modifications are based on our management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. We cannot guarantee that we will achieve
these estimates; actual results could differ materially from those we currently
anticipate.
The Risks Associated With Our Year 2000 Issues
Our failure to resolve year 2000 issues by December 31, 1999 could result in
system failures or miscalculation, causing disruptions in our operations and
normal business activities. In addition, the failure of our vendors or other
third parties on whom we rely to remediate their year 2000 issues could result
in disruptions in our ability to obtain parts and materials or other problems
related to our daily operations. Since third party year 2000 compliance is not
within our control, and since we have not completed the process of obtaining
compliance information from vendors and others, we cannot assure that a vendor's
or other third party's failure to achieve year 2000 compliance would not have a
material adverse effect on our business.
Contingency Plan
We are currently working on a contingency plan for all critical aspects of our
year 2000 issues and expect to have completed such a plan by the third quarter
of 1999.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits," which revises employer's
disclosures about pensions and other post-retirement plans. SFAS 132 is
effective for the periods beginning after December 15, 1997 and requires
comparative information for earlier years to be restated. The standard currently
does not apply to Senetek.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 Requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as hedge, the object of which is to
match the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Historically, we have not entered in to
derivative contracts either to hedge existing risks or for speculative purposes.
26
29
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks include fluctuations in interest rates, variability in
interest rate spread relationships (i.e., Prime to LIBOR spreads) and exchange
rate variability. We manage these market risks using derivative financial
instruments in accordance with established polices and procedures. We do not
use derivative financial instruments for trading purposes.
We believe that fluctuations in interest rates and currency exchange rates in
the near term would not materially affect our consolidated operating results,
financial position or cash flows as we have limited risks related to interest
rate and currency exchange rate fluctuations.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)(1) and 14(a)(2) of Part IV of this Report on Form 10-K.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The disclosure called for by Item 9 has been previously reported by Senetek PLC.
See Item 14(b) of Part IV of this Report on Form 10-K.
27
30
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Directors and
Executive Officers of Registrant" and is incorporated by reference herein.
ITEM 11--EXECUTIVE COMPENSATION
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Executive
Compensation" and is incorporated by reference herein.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated by
reference herein.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Certain
Relationships and Related Transactions" and is incorporated by reference herein.
28
31
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements are included in Item 8:
Page
----
Reports of Independent Auditors F-1
Consolidated Balance Sheet as of December 31, 1998 and 1997 F-3
Consolidated Statement of Operations for the Years Ended F-4
December 31, 1998, 1997 and 1996
Consolidated Statement of Stockholders' (Deficit)/Equity for
the Years Ended December 31, 1998, 1997, and 1996 F-5
Consolidated Statement of Cash Flows for the Years Ended F-6
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-8
(a)(2) The following financial statement schedules are submitted herewith:
All Schedules are omitted because they are not required or the
information required is not applicable or not present in amounts
sufficient to require submission of the schedule or the required
information is shown in the financial statements or notes thereto.
(a)(3) The following Exhibits are filed or incorporated by reference as part of
this Report on Form 10-K:
3.1 Certificate of Incorporation of Senetek PLC.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
3.2 Memorandum and Articles of Association of Senetek PLC (defining the
rights of security holders, subject to the provisions of the United
Kingdom Companies Act 1985).
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
10.3 Senetek No. 1 Share Option Scheme for Employees.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.4 Asset Purchase Agreement dated as of July 31, 1995, between Carme
International, Inc. a wholly owned subsidiary of Senetek PLC and Carme
Inc.
29
32
Filed as an Exhibit on Form 8-K, dated October 10, 1995 (as amended),
and incorporated herein by reference.
10.18 Senetek No. 2 Executive Share Option Scheme for non-Executive Directors
and Consultants.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.29 Amended and restated Deposit Agreement dated November 6, 1992 between
Senetek PLC and The Bank of New York.
The form of such Agreement was filed as an Exhibit on Form F-6 with the
Securities and Exchange Commission on March 19, 1992, Registration No.
33-46638, and is incorporated herein by reference.
10.32 Consulting Agreement dated May 1, 1994 between Senetek PLC and Dr. G.D.
Frentz.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.33 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Dr. G. Homan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.34 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Mr. P.A. Logan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.35 Service Agreement dated September 1, 1996 between Senetek PLC and Mr.
A.J. Cataldo.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.36 Service Agreement dated October 1, 1996 between Senetek PLC and Mr. C.D.
Brune.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.37 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. A.J.
Cataldo
10.38 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. G.
Homan.
10.39 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. C.D.
Brune.
30
33
10.40 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. R.A.
Oakes.
10.41 Service Agreement dated December 30, 1998 between Senetek PLC and Mr. F.
J. Massino.
10.42 Settlement Agreement dated April 13, 1999 by and among Senetek PLC,
Windsor Capital Management, Ltd. and certain other parties thereto.
10.43 Securities Purchase Agreement dated April 13, 1999 by and among Senetek
PLC and certain other parties thereto.
21 Subsidiaries of Senetek PLC.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual report on Form 10 -K for the year ended December 31, 1995 and
incorporated herein by reference.
24 Power of Attorney.
Included on the signature page to this Annual Report on Form 10-K.
27 Financial Data Schedule.
(b) 8 K Disclosures - Fourth quarter of 1998.
A report on Form 8-K, dated November 2, 1998, was filed with the
Commission on November 6, 1998 reporting the resignation of Price
Waterhouse as independent accountant.
A report on Form 8-K, dated November 5, 1998, was filed with the
Commission on November 6, 1998 reporting the appointment of Deloitte &
Touche as independent accountant.
A report on Form 8-K/A, dated November 13, 1998, was filed with the
Commission on November 18, 1998 reporting that Price Waterhouse,
Senetek's former independent accountant, agreed with the statements
contained in Form 8-K dated November 2, 1998.
8 K Disclosures - Subsequent to year end.
A report on Form 8-K, dated January 26, 1999, was filed with the
Commission on February 1, 1999 reporting the resignation of Deloitte &
Touche as independent accountant.
A report on Form 8-K, dated February 23, 1999, was filed with the
Commission on March 1, 1999 reporting the appointment of BDO - Stoy
Hayward as independent accountant.
(c) Exhibits.
The Company has filed as part of this Report on Form 10-K the exhibits
in Item 14(a)(3) as set forth above.
(d) Financial Statement Schedules.
See Item 14(a)(2) of this Report on Form 10-K.
31
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Napa State
of California, on this 15th day of April, 1999.
SENETEK PLC
BY: /s/ F. J. Massino
-------------------------------------
FRANK J. MASSINO
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
does hereby constitute and appoint Frank J. Massino and Paul A. Logan, and each
of them, with full power of substitution and full power to act without the
other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities to sign any or all amendments
to this Annual Report on Form 10-K, and to file the same, with all exhibits
hereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to all intents and purposes, as they or he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ F. J. Massino Chairman of the Board April 15, 1999
- ------------------------------- and Chief Executive Officer
Frank J. Massino (Principal Executive Officer)
/s/ S. W. Slade Chief Financial Officer April 15, 1999
- ------------------------------- (Principal Financial and
Stewart W. Slade Accounting Officer)
/s/ P. A. Logan Director April 15, 1999
- -------------------------------
P.A. Logan
/s/ A. Tobler Director April 15, 1999
- -------------------------------
A. Tobler
Director April 15, 1999
- -------------------------------
G.D. Frentz
/s/ U. Thieme Director April 15, 1999
- ------------ ------------------
U. Thieme
/s/ S. Georgiev Director April 15, 1999
- -------------------------------
S. Georgiev
32
35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of BDO Stoy Hayward, Independent Auditors F1
Report of Price Waterhouse, Independent Auditors F2
Consolidated Balance Sheets F3
December 31, 1998 and 1997
Consolidated Statements of Operations F4
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders Equity F5-F6
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows F6-F7
for the years ended December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements F8-F30
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Senetek PLC
We have audited the accompanying consolidated balance sheet of Senetek PLC and
its subsidiaries as of December 31, 1998 and the related consolidated statement
of operations and stockholder's equity and of cash flow for the period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Senetek
PLC and its subsidiaries as of December 31, 1998, and the results of their
operations and their cash flow for the period ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from its operations and, as described in Note 17, its ability
to continue research activities to a stage where it has a product able to be
commercialised is dependent upon securing additional sources of financing, which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
17. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ BDO STOY HAYWARD
- -----------------------------------
BDO STOY HAYWARD
8 Baker Street
LONDON WIM 1DA
England
15 April 1999
F-1
37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Senetek PLC
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations and stockholder's equity and of cash flows as of and
for each of the two years in the period ended December 31, 1997 (appearing on
pages F-3 through F-30 of the Senetek PCL Form 10-K Annual Report for the year
ended December 31, 1998) present fairly, in all material respects, the
financial position, results of operations and cash flows of Senetek PCL and its
subsidiaries as of and for each of the two years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable reassurance about whether the financial
statements are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Senetek PLC for any period subsequent to December 31, 1997.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from its pharmaceutical operations and, as described in Note 17, its
ability to continue research activities to a stage where it has a product able
to be commercialised is dependent upon securing additional sources of
financing, which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 17. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE
32 London Bridge Street
LONDON SE1 9SY
England 7 April 1998
F-2
38
SENETEK PLC
CONSOLIDATED BALANCE SHEET
December 31,
-----------------------------------
1998 1997
------------- -------------
(in $ thousands, except share amounts)
ASSETS
Cash and Cash Equivalents $ 808 6,216
Inventory (Note 3) 731 890
Trade Receivables
(net of provisions of $455,474 in 1998 & $37,000 in 1997) 1,265 1,123
Non-trade Receivables 129 113
Receivable from Employee -- 311
Prepaids and Deposits (Note 6) 1,360 939
------------- -------------
Total Current Assets 4,293 9,592
Property & Equipment - net (Note 4) 3,366 1,909
Goodwill & Other Intangible Assets - net (Note 5) 1,766 1,900
Deferred Financing Costs (Note 9) 1,241 --
------------- -------------
Total Assets 10,666 13,401
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Line of Credit (Note 8) $ 2,389 900
Accounts Payable (Note 7) 1,602 1,754
Accrued Liabilities (Note 7) 1,630 1,353
Accrued Compensation on Stock Options (Note 13)
-- Employees 4,112 3,048
-- Non-employees 1,708 840
------------- -------------
11,441 7,895
============= =============
Commitments and Contingencies (Note 17) -- --
Long Term Liabilities
Capital Leases 46 --
Stockholders' (Deficit)/Equity
Ordinary shares
Authorized Shares:
$0.08 (5 pence) par value: 100,000,000
Issued and Outstanding Shares 1998: 57,215,856
(1997: 52,186,821) 4,625 4,215
Share Premium 66,472 50,711
Accumulated Deficit (71,968) (49,476)
Accumulated other comprehensive income -- currency translation 50 56
------------- -------------
Total Stockholders' (Deficit)/Equity (821) 5,506
============= =============
Total Liabilities and Stockholder's (Deficit)/Equity $ 10,666 13,401
============= =============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
39
SENETEK PLC
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
(IN $ THOUSANDS, EXCEPT FOR PER SHARE DATA)
Revenues $ 4,672 5,722 6,486
Cost of Revenues (3,040) (3,988) (3,640)
-------- -------- --------
Gross Profit 1,632 1,734 2,846
-------- -------- --------
Operating Expenses:
Research & Development (7,980) (5,026) (2,187)
General & Administrative (9,162) (8,067) (2,588)
Marketing & Promotion (847) (3,525) (1,219)
Selling Expenses (732) (742) (918)
-------- -------- --------
Total Operating Expenses (18,721) (17,360) (6,912)
Loss from Operations (17,089) (15,626) (4,066)
Interest Income 188 279 34
Other (Expense)/Income - net 194 (92) 69
Debt modification expense (Note 8) (2,389) -- --
Interest Expense (including amortization
of deferred financing cost) (3,396) (100) (57)
-------- -------- --------
Loss Before Taxation (22,492) (15,539) (4,020)
Taxation -- -- --
Net Loss $(22,492) (15,539) (4,020)
======== ======== ========
Net Loss per Ordinary Share Outstanding
Basic (0.41) (0.32) (0.10)
Diluted (0.41) (0.32) (0.10)
Weighted Average Ordinary Shares
Outstanding, basic and diluted 54,229 49,178 41,235
-------- -------- --------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
40
SENETEK PLC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)/EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)
Accumulated
Other
Comprehensive
Income- Net
Share Accumulated Currency Stockholders'
Shares Amount Premium Deficit Translation Equity
---------- ------- ------- ----------- ----------- --------
Balances, December 31, 1995: 40,606,123 $ 3,266 $33,310 $(29,917) $ 86 $ 6,745
Issuance of Ordinary Shares in Private 1,000,082 78 972 -- -- 1,050
Placements
Conversion of Debentures 2,093,000 172 604 -- -- 776
Options Exercised 200,000 17 133 -- -- 150
Warrants Issued in Connection with
Convertible Debentures -- -- 1,588 -- -- 1,588
Comprehensive Income (Loss): --------- ------- ------- -------- ---- --------
Net Loss -- -- -- (4,020) -- (4,020)
Translation Loss -- -- -- -- (26) (26)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (4,020) (26) (4,046)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1996: 43,899,205 $ 3,533 $36,607 $(33,937) $ 60 $ 6,263
Issuance of Ordinary Shares in Private 200 -- -- -- -- --
Placements
Warrant Conversions 5,669,166 432 11,002 -- -- 11,434
Options Exercised 402,500 66 1,179 -- -- 1,245
Conversion of Debentures 2,215,750 184 1,923 -- -- 2,107
Comprehensive Income (Loss):
Net Loss -- -- -- (15,539) -- (15,539)
Translation Loss -- -- -- -- (4) (4)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (15,539) (4) (15,543)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1997: 52,186,821 $ 4,215 $50,711 $(49,476) $ 56 $ 5,506
Issuance of Ordinary Shares in Private 1,100,500 90 3,485 -- -- 3,575
Placements
Warrant Conversions 458,706 38 534 -- -- 572
Deferred Financing Costs -- -- 3,936 -- -- 3,936
Conversion of Debt to Equity (Note 8) 2,105,714 173 4,038 -- -- 4,211
Debt Modification Expense (Note 8) -- -- 2,389 -- -- 2,389
Options Exercised 1,364,115 109 1,379 -- -- 1,488
Comprehensive Income (Loss):
Net Loss -- -- -- (22,492) -- (22,492)
Translation Loss -- -- -- -- (6) (6)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (22,492) (6) (22,498)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1998: 57,215,856 $ 4,625 $66,472 $(71,968) $ 50 $ (821)
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
41
42
SENETEK PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- -------
(IN $ THOUSANDS)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(22,492) $(15,539) $(4,020)
Adjustments to reconcile net loss to net cash:
Depreciation and Amortization 540 548 450
Write-off of Assets -- 136 31
Loss/(Gain) on Sale of Equipment 29 (1) --
Stock Option Compensation 2,532 3,888 --
Debt Modification Expense 2,389 -- --
Deferred Finance Amortisation 3,355 -- --
Interest on Convertible Debentures effected by
Issue of Shares -- 47 --
Changes in Assets and Liabilities:
Trade Receivables (increase)/decrease (142) (389) 25
Non-trade Receivables (increase)/decrease (16) (25) (47)
Receivable from Employee (increase)/decrease 311 (311) --
Inventory decrease/(increase) 159 767 (432)
Prepaids (increase)/decrease (421) (801) (21)
Accounts Payable and Accrued Liabilities increase 171 1,559 420
-------- -------- -------
Net Cash Used by Operating Activities $(13,585) $(10,121) $(3,594)
-------- -------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Property & Equipment (1,892) (1,130) (318)
Proceeds from Disposals of Property & Equipment -- 108 4
-------- -------- -------
Net Cash Used by Investing Activities $ (1,892) $ (1,022) $ (314)
F-6
43
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- ------- ------
(IN $ THOUSANDS)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds of Issuance of Ordinary Shares
from exercise of Warrants and Options 2,646 12,537 1,200
Proceeds from line of credit 6,600 -- --
Proceeds from issuance of 8% Convertible Debentures -- 1,500 3,500
Costs of Financing (660) (330) (250)
Short-term Loans and Overdrafts 1,489 670 230
-------- ------- ------
Net Cash Provided by Financing Activities 10,075 14,377 4,680
-------- ------- ------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (5,402) 3,234 772
Cash and Cash Equivalents at the Beginning
of the period 6,216 2,975 2,237
Effects of Exchange Rate Changes on Cash (6) 7 (34)
-------- ------- ------
Cash and Cash Equivalents at the End of the Period $ 808 6,216 2,975
======== ======= ======
Supplemental disclosures of cash flow information
Interest $ 41 100 57
Income Taxes $ -- -- --
In addition, the Company issued 2,105,714 shares to settle part of its line of
credit for which no cash was received.
See accompanying summary of accounting policies and notes to consolidated
financial statements
F-7
44
SENETEK PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACTIVITIES
Senetek PLC (the "Company") was incorporated in England on October 5,
1983 as a public company with limited liability under the Companies Act
1985 to exploit commercially the products which may arise as a result of
Company sponsored research in the fields of life science and
biotechnology with particular reference to the diagnosis and treatment
of diseases relating to senescence or aging.
Since incorporation, the Company has concentrated on its research and
development activities together with the requirement of procuring the
necessary supportive equity financing.
The main area in which the Company is involved is the development of
therapies for Male Sexual Dysfunction ("MSD"). Completion of Phase III
clinical trials for Invicorp(TM), a drug combination therapy of
vasoactive intestinal polypeptide and phentolamine mesylate, in
conjunction with a patented auto-syringe (Reliaject(TM)), took place in
1997 and Marketing Authorization Applications ("MAA's")for Invicorp(TM)
have been filed with the medicines evaluation agencies in the United
Kingdom, Ireland, Denmark, Switzerland and New Zealand. An MAA was
received from the Danish medicines agency during the third quarter of
1998. In March 1999, the United Kingdom's Committee on Safety of
Medicines informed the Company that it was prepared to advise the United
Kingdom's licensing authority to grant an MAA for Invicorp upon the
Company's compliance with specified conditions. The Company is currently
in the process of complying with these conditions.
The Company also filed in 1998 an Abbreviated New Drug Application with
the Federal Food and Drug Administration in the United States for the
marketing approval of Adrenaject, which is the Reliaject drug delivery
device filled with Epinephrine to be used for the treatment of
anaphylactic shock. A license agreement was entered into with a major
pharmaceutical company during the fourth quarter of 1998, granting them
the worldwide rights for the Adrenaject system in return for licensing
fees and royalty payments conditional on the Company achieving certain
milestones. No revenues have been recognized for Adrenaject in 1998.
The Company also sells monoclonal antibodies purchased from outside
suppliers and derived from sponsored research into diagnostic procedures
for Alzheimer's disease and other cell lines to the scientific community
for research purposes.
In September 1995, the Company extended its range of interests by
acquiring, through its newly formed and now renamed subsidiary Carme
Cosmeceutical Sciences, Inc. ("CCSI"), formerly named Carme
International, Inc. ("CII") - a Delaware Corporation the majority of the
assets of Carme Inc., an organization based in Novato, California that
had concentrated on the manufacture and distribution of health and
beauty products. This
F-8
45
acquisition was designed to extend the Company's interest in the areas
of skin-care and to provide a vehicle for the development and
distribution of a product featuring the Kinetin compound (formerly
referred to as Factor X or Vivakin) in a cosmetic format. During 1997,
CCSI revised its business strategy resulting in a rationalized core
brand portfolio and the outsourcing of manufacturing requirements.
During 1998 the Company has entered into license agreements with two
companies for the use of Kinetin in the prestige and dermatological
markets.
Subsidiary Undertakings
SDDT (formerly named MEIS Corporation) was incorporated in the State of
Delaware in December 1993. Its main activity is the development,
production and distribution of the auto-injector (Reliaject(TM)) syringe
for use with the Company's MSD compound.
Carme Cosmeceutical Sciences Inc. (formerly named Carme International,
Inc.) was incorporated in the State of Delaware in June 1995. Its main
activity is the supply of health and beauty aids to various segments of
the cosmetics market.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Consolidation
The consolidated financial statements incorporate the accounts
of Senetek PLC and its wholly owned subsidiaries, CCSI and SDDT
Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation. The accounts
have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) requiring management to make
estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
Certain prior year balances have been re-classified in order to
conform to current year presentation.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's ability to continue as a going concern may depend on
its ability to obtain financing sufficient to support its
operations and business development plans.
(b) Revenues
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 sales and value added tax where applicable.
F-9
46
(c) Inventories
Inventories, constituting finished goods, raw materials and
work-in-progress are stated at the lower of cost or market
value. Cost is determined using the first in first out method.
(d) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight line
basis using the following estimated useful lives:
Fixtures, fittings and equipment 3 to 15 years.
Motor vehicles 4 years.
(e) Intangible Assets
Intangible assets representing patents and proprietary
technology are stated at cost less accumulated Amortisation.
Amortisation is calculated on a straight line basis over an
estimated useful life of 5 years.
Goodwill is being amortized on the straight line method over 15
years. Goodwill included in the consolidated financial
statements relates to the Company's acquisition on September 26,
1995 of certain assets of Carme Inc.
(f) Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to Be Disposed Of", the Company
reviews the carrying value of its property and equipment and
intangible assets for impairment in value whenever events or
changes in circumstances indicate that the carrying amount of
assets may not be recoverable. The Company considers various
valuation factors including discounted cash flows, fair values,
and replacement costs to assess any impairment of such assets.
(g) Research and Development
Expenditures on research and development are written off as
incurred.
(h) Foreign Exchange
The Company follows currency translation principles established
by SFAS No. 52. All assets and liabilities in the balance sheets
of foreign branches and subsidiaries whose functional currency
is other than U.S. dollars are translated at period-end exchange
rates. All income and expenditure items in the profit and
F-10
47
loss account of foreign branches and subsidiaries whose
functional currency is other than U.S. dollars are translated at
average monthly exchange rates. Translation gains and losses
arising from the translation of the financial statements of
foreign branches and subsidiaries whose functional currency is
other than the U.S. dollar are not included in determining net
income but are accumulated in a separate component of
stockholders' 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 United Kingdom operation is the Pound Sterling.
(i) Calculation of the Number of Shares in Issue and Net Loss per
Share
The loss per share for all periods presented is calculated on
the basis of the weighted average of the number of shares in
issue during each period. The net loss calculations include
fully paid Ordinary share equivalents. Ordinary share
equivalents have been excluded from diluted earnings per share
because of their anti-dilutive effect.
(j) Cash and Cash Equivalents
For the purposes of the statement of cash flows and balance
sheet, the Company considers any highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
(k) Financial Instruments
The carrying value of the Company's financial instruments, being
cash, receivables and current liabilities, approximate fair
value due to the short term value of these items. Fair value is
the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a
forced sale or liquidation.
(l) Income Taxes
The Company's recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns.
Accordingly, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax
basis of assets and liabilities using enacted rules in effect
for the year in which differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
A valuation allowance is established to reduce the deferred tax
assets when management determines it is more likely than not
that the related tax benefits will not be realized.
F-11
48
(m) Recent Accounting Pronouncements Not Yet Implemented
In February 1998 the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits",
which revises employer's disclosures about pensions and other
post-retirement plans. SFAS 132 is effective for the periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The standard
currently does not apply to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the object of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are
attributable to the hedged risk, or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for
speculative purposes.
3. INVENTORY
Inventory at cost comprises the following:
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
Finished Goods $465 $462
Raw Materials 265 427
Work in Progress 1 1
---- ----
$731 $890
==== ====
F-12
49
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
Cost:
Fixtures, fittings, plant and
laboratory equipment $ 2,898 $ 2,028
Motor vehicles 31 31
Assets in the course of construction 1,357 396
------- -------
4,286 2,455
------- -------
Accumulated depreciation:
Fixtures, fittings, plant and
laboratory equipment (894) (528)
Motor vehicles (26) (18)
(920) (546)
------- -------
$ 3,366 $ 1,909
------- -------
NOTES:
1. Depreciation charge during the year amounted to $406,000 (1997:
$237,000, 1996: $187,000).
2. The tangible fixed assets of the Group include plant and
laboratory equipment owned under Capital leases as follows:
1998 1997
----- ----
(in $ thousands)
Cost $ 519 $ 26
Depreciation (55) (3)
----- ----
Net book value $ 464 $ 23
===== ====
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The amount in the Company's Balance Sheet represented by these
intangible assets is made up as follows:
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
Goodwill:
Cost $ 2,202 $ 2,202
Amortisation (436) (302)
------- -------
F-13
50
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
Net 1,766 1,900
------- -------
Other Intangible Assets:
Cost 635 635
Amortisation (635) (635)
------- -------
Net $ -- $ --
------- -------
Total $ 1,766 $ 1,900
------- -------
In October 1992, the Company acquired from the inventor, the patent
rights and related proprietary technology for a self-administered
auto-injector syringe. It is anticipated that initially this will be
used as the delivery system for the Company's MSD compound. The total
consideration for these intangible assets was $635,000. Future royalties
will become payable by the Company to the inventor based on the number
of syringes sold.
The Goodwill relates to the acquisition of certain of the assets of
Carme by CCSI in 1995.
6. PREPAIDS AND DEPOSITS
Prepaids and deposits include $977,000 and $813,000 paid to capital
goods suppliers for the automation of the manufacture and sub assembly
of the autosyringe ( Reliaject) components in SDDT at December 31, 1998
and 1997, respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprise the following:
December 31, 1998 December 31, 1997
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
----------- -------- ----------- ---------
(in $ thousands)
Trade Creditors 625 1,522 -- 874
Staff Salaries 9 -- 41 3
Vacation Pay Accrual 141 -- 53 --
Taxes and Social Security 33 -- 25 --
Audit and Accountancy Fees 232 28 173 8
Research Grants and Costs -- -- 64 631
Legal and Professional Fees 45 52 39 71
Consultancy Fees 35 -- 300 167
Other Liabilities and Accruals 510 -- 658 --
------ ------ ------ ------
$1,630 $1,602 $1,353 $1,754
====== ====== ====== ======
8. LINE OF CREDIT
On July 8, 1998 the Company received $5,940,000 ($6,600,000 less a 10%
fee) under the terms of a $10m Credit Agreement with a third party. This
line of credit is non interest bearing and fell due in April 2000. In
connection with this line of credit 1,885,714
F-14
51
warrants at an exercise price of $3.50 and 377,150 warrants at an
exercise price of $6 were granted. The fair value of these warrants,
calculated using the Black Scholes model, was calculated at $3,936,000.
The fair value of these warrants will be amortized, using the interest
rate method, over the term of the credit agreement. (See note 9).
In September 1998, the $3.50 warrants were exercised, without payment,
and 1,885,714 Ordinary shares issued by the Company to extinguish this
line of credit. Subsequent to that date the Company entered into
discussions with the third party involving a dispute over the actual
exercise price of the warrants and whether any amounts remained
outstanding under the original $6.6 million loan agreement.
Pursuant to these discussions, the Company agreed to reduce the exercise
price of the warrants from $3.5 to $2 and sell an additional 220,000
shares at $2 per share. As a result of these transactions, approximately
$4.2 million of the original $6.6 million credit agreement was exchanged
for approximately 2,105,000 shares of common stock. As a result of the
Company reducing the exercise price of the warrants, the Company
recognized an expense totaling $2,389,000.
8. THE BALANCE ON DECEMBER 31, 1997
Relates to a $1,000,000 line of credit granted by The Bank of New York
to CCSI. The outstanding balance is payable on demand and accumulates
interest at 2 percentage points above the higher of the prime rate or
the federal funds rate plus .5 percentage points. The line of credit
is guaranteed by the Company and is secured by the personal property
and fixtures of the Company. The line of credit was paid down by the
Company in the first quarter of 1998 and the account was closed.
9. DEFERRED FINANCING COSTS
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
Deferred financing costs
arising on line of credit (Note 8) $ 3,936 $--
------- ---
Accumulated Amortisation (2,695) --
------- ---
$ 1,241 $--
------- ---
10. STOCKHOLDERS' EQUITY
(a) During the year ended December 31, 1998, the outstanding
Ordinary shares of the Company increased by 5,029,035 to
57,215,856. During 1998, the Company sold 1.1 million ordinary
shares to Windsor Capital in exchange for $3.3 million in cash.
The agreement requires the Company to issue an additional
625,000 ordinary shares if the market price for the Company's
American Depository Shares (ADS) as of June 30, 1998 was less
than $5 per share. The Company's price of its ADS was less than
$5 per share as of June 30, 1998. The Company expects to issue
the additional shares in the second quarter of fiscal 1999 as
part of the settlement agreement (note 18).
(b) The following warrants, mainly issued in association with
private placements, were outstanding at December 31, 1998:
F-15
52
Lapsed/ Warrants Unexercised
Warrants Issued Exercise Price Expiry Date Cancelled at December 31, 1998
--------------- -------------- ------------- --------- --------------------
25,000 1.15625 December 1999 -- 25,000
1,100,00 5.00000 April 2001 -- 1,100,000
--------- ----- ---------
1,125,000 -- 1,125,000
--------- ----- ---------
The warrants referred to above entitle the holder to purchase
American Depository Receipts of the Company at the purchase
prices referred to above at any time commencing 90 days from the
date of subscription and prior to the expiration date. The offer
and sale of the warrants is being made in compliance with and in
reliance upon the provision of Regulation S under the United
States Securities Act of 1933, as amended.
(c) The following warrants, mainly issued in association with
private placements, were outstanding at December 31, 1997:
Lapsed/ Warrants Unexercised
Warrants Issued Exercise Price Expiry Date Cancelled at December 31, 1997
--------------- -------------- ------------- --------- --------------------
633,000 3.00 May 1996 40,000 --
1,215,920 3.00 June 1997 171,931 --
1,036,517 3.00 July 1997 -- --
25,00 1.15625 December 1999 -- 25,000
2,085,185 1.4625 December 1998 -- 400,000
--------- ------- -------
4,995,622 211,931 425,000
--------- ------- -------
(1) 1,037,591 "A" warrants at an exercise price of $2.50 per
Ordinary share, initially expiring May 15, 1990. The
Board of Directors had approved the extension of the
expiry date of the "A" warrants to May 15, 1997. During
May 1997, 894,573 "A" warrants were exercised at $2.50
per warrant. The remaining "A" warrants then lapsed.
(2) 1,322,500 "B" warrants at an exercise price of $3.25 per
Ordinary share, initially expiring May 15, 1990. The
Board of Directors had approved the extension of the
expiry date of the "B" warrants to May 15, 1997. During
May 1997, 37,100 "B" warrants were exercised at $3.25
per warrant. The remaining "B" warrants then lapsed.
(d) The following Regulation S Convertible Warrants, issued in
association with the placement of Convertible Debentures, remain
unexercised as follows:
Warrants Issued Exercise Price Expiry Date Warrants Unexercised
--------------- -------------- ----------- --------------------
1,558,235 $1.70 10/10/1999 58,941
354,930 $4.4375 04/01/2000 354,930
The Warrants referred to above entitle the holder thereof to
purchase American Depositary Receipts ("American Depositary
Receipts") of the Company at a purchase price per American
Depositary Receipt equal to 115% of the average closing bid
price of the Company's American Depositary Receipt for the five
(5) days preceding the Closing Date, such Warrants to be
exercisable at any time on or after the 90th day from the
Closing Date until the expiry date. The offer and the sale of
the Warrants is being made in compliance with and in reliance
upon the provision of Regulation S under the United States
Securities Act of 1933, as amended.
F-16
53
11. STOCK OPTIONS
(a) On October 8, 1993, 4,550,000 options, representing the total
number of options available for grant at that time were
registered with the Securities and Exchange Commission on Form
S-8.
In December 1985, the Company adopted a share option plan (the
"No. 1 Plan") for employees. Under the Plan, options to purchase
Ordinary shares are granted by the Board of Directors, subject
to the exercise price of the option being not less than the
market value of an Ordinary share twenty-one days prior to the
grant date. After the first twelve months following the date of
the grant, options are exercisable at the rate of 25 percent,
for each full year of employment. In the event the optionee's
employment is terminated, the option may not be exercised unless
the Board of Directors so permits. The options expire seven
years from the date of the grant. On May 16, 1997 shareholders
approved the extension of the Plan until December 1, 2005 and an
increase in the number of shares available for grant to
6,000,000.
The following table summarizes option transactions under the No.
1 Plan for the three years ended December 31, 1998:
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- ---------- ----------
Balance at December 31, 1995 891,000 1,109,000 444,500 $0.75-2.00
Exercised -- (200,000) (200,000) $ 1.75
Granted (1,436,000) 1,436,000 -- $1.25-4.00
Options Vested -- -- 201,750 $0.75-2.00
---------- ---------- ---------- ----------
Balance at December 31, 1996 (545,000) 2,345,000 446,250 $0.75-4.00
Authorised 4,000,000 -- -- --
Cancelled 65,000 (65,000) (65,000) $1.47-2.00
Exercised -- (278,625) (278,625) $1.30-2.00
Granted (690,000) 690,000 -- $1.25-4.88
Options Vested -- -- 1,009,500 $1.25-2.00
---------- ---------- ---------- ----------
Balance at December 31, 1997 2,830,000 2,691,375 1,112,125 $0.75-4.88
---------- ---------- ---------- ----------
Authorised -- -- -- --
Cancelled 404,000 (404,000) (18,250) $ 3.50
F-17
54
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- ---------- ----------
Exercised -- (664,115) (664,115) $1.25-2.00
Granted (1,751,000) 1,751,000 -- $2.00-3.75
Options Vested -- -- 633,655 $1.25-4.88
---------- ---------- ---------- ----------
Balance at December 31, 1998 1,483,000 3,374,260 1,063,415 $0.75-4.88
---------- ---------- ---------- ----------
Not included in the above are options granted to directors and certain employees
outside the No. 1 Plan, 350,000 and 150,000 options were granted to Dr. G. Homan
and Mr. P.A. Logan respectively, under the general powers granted to directors
for the allotment of equity securities, approved at an Extraordinary General
Meeting held on 6 March 1991. In June 1997, in conjunction with the issuance of
new employment agreements, 1.8 million options were granted to the directors and
certain employees of the company. The following table summarises option
transactions outside the No. 1 Plan in the year ended 31 December 1998. Except
for the granting of the above options, there were no transactions prior to 1998.
OPTIONS OUTSTANDING OPTIONS VESTED EXERCISE PRICE
------------------- -------------- --------------
Balance at 31 December 1997 2,300,000 1,100,000 $0.75 - $1.50
Exercised (700,000) (700,000) $0.75 - $1.50
Options Vested -- --
Cancelled (200,000) -- $1.50
--------- ---------
Balance at 31 December 1998 1,400,000 900,000 $1.50
--------- ---------
(b) In May 1987 the Company adopted a share option plan ("the No. 2
Plan") for non-Executive Directors and Consultants. Under the
No. 2 Plan, options to purchase Ordinary shares are granted by
the Board of Directors, subject to the exercise price being not
less than the market value of an Ordinary share 21 days prior to
the grant date. Options granted under this plan are exercisable
in their entirety one year after the date of grant. In the event
the optionee ceases to be a non-executive Director or
consultant, the option may not be exercised unless the Board of
Directors so permits. The options expire seven years from the
date of grant. On May 16, 1997 shareholders approved an
extension of the Plan until December 1, 2005 and an increase in
the number of shares available for grant to 4,000,000.
F-18
55
The following table summarizes option transactions under the No.
2 Plan for the three years ended December 31, 1998:
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- -------- ----------
Balance at December 31, 1995 1,780,000 220,000 201,000 $0.75-2.00
Granted (7,500) 7,500 -- $1.21
Options Vested -- -- 19,000 $1.75
---------- -------- -------- ----------
Balance at December 31, 1996 1,772,500 227,500 220,000 $0.75-2.00
---------- --------
Authorised 2,000,000 -- --
Granted (230,000) 230,000 -- $1.22-3.53
---------- --------
Cancelled 35,000 (35,000) (35,000) $2.00
Exercised -- (123,875) (123,875) $0.75-2.00
--------
Options Vested -- -- 7,500 $1.22
---------- -------- -------- ----------
Balance at December 31, 1997 3,577,500 298,625 68,625 $1.22-3.53
Granted (415,000) 415,000 -- $2.00-4.28
Vested -- -- 230,000 --
---------- -------- -------- ----------
Balance at December 31, 1998 3,162,500 713,625 298,625 $1.22-4.28
---------- -------- -------- ----------
F-19
56
Not included in the above are options granted to non-executive directors
and consultants outside the No. 2 Plan under the general powers granted
to the directors for the allotment of equity securities, approved at the
Annual General Meeting of the Company held on May 16,1997. The following
table summarizes option transactions outside the No. 2 Plan during 1997
and 1998. There were no transactions prior to 1997.
Options Outstanding Options Vested Exercise Price
Balance at 31 December 1996 -- --
Granted 132,500 -- $1.22 - $4.50
Options Vested -- 110,000 $1.22 - $2.90
------- -------
Balance at 31 December 1997 132,500 110,000 $1.22 - $4.50
Granted 60,000 -- $1.50
Options Vested -- 22,500 $2.90 - $4.50
------- -------
Balance at 31 December 1998 192,500 132,500 $1.22 - $4.50
F-21
57
12. CALCULATION OF THE NUMBER OF SHARES IN ISSUE
Shares Weighted
Issued and Average Shares
Outstanding Outstanding
----------- --------------
Twelve Months January 1, 1996 through December 31, 1996
Shares outstanding at the beginning of the period 40,606,123 40,606,123
Private Placements and Conversion of Debentures 3,093,082 604,115
Options Exercised 200,000 25,205
---------- ----------
Shares outstanding at the end of the period 43,899,205 41,235,443
---------- ----------
Twelve Months January 1, 1997 through December 31, 1997
Shares outstanding at the beginning of the period 43,899,205 43,899,205
Exercise and Conversion of Warrants 5,669,166 3,362,332
Options Exercised 402,500 138,075
Private Placements and Conversion of Debentures 2,215,950 1,778,417
---------- ----------
Shares outstanding at the end of the period 52,186,821 49,178,029
---------- ----------
Twelve Months January 1, 1998 through December 31, 1998
Shares outstanding at the beginning of the period 52,186,821 52,186,821
Exercise and Conversion of Warrants 458,706 416,793
Options Exercised 1,364,115 665,038
Private Placements and Conversion of Debentures 3,206,214 960,752
---------- ----------
Shares outstanding at the end of the period 57,215,856 54,229,404
---------- ----------
13. SHARE OPTION PLANS
Under U.S. GAAP, the Company applies Accounting Principle Board Opinion
No. 25, "Accounting for Stock Issues to Employees" and related
interpretations in accounting for its option plans. $1,664,000 (1997:
$3,048,000; 1996: nil) of expense has been recognized for stock based
employee compensation in accordance with APB 25. Had compensation
expense been determined based upon the fair value at the grant date for
awards as an alternate provided by SFAS 123, "Accounting for Stock-Based
Compensation", the Company's net loss and loss per share would be
$24,394,000 and $0.45 per share respectively in 1998, $16,489,000 and
$0.34 per share respectively in 1997, and $4,298,000 and $0.11 per
share, respectively in 1996. These amounts are for disclosure purposes
only and may not be representative of future calculations, since the
estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
The fair value of the options granted are estimated using the
Black-Scholes option pricing model with the following assumptions:
Dividend yield of nil, volatility of 76% (1997 - 94% and 1996 - 93%),
risk-free investment rate of 6.1% (1997 - 6.1%, 1996 - 6.37%), and an
expected life of 6 years.
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58
The average fair values of the options granted for each Ordinary share
American Depositary Receipt during 1998, 1997 and 1996 are estimated at:
EXERCISE PRICE ON
DATE OF GRANT 1998 1997 1996
----------------- ----- ---- ----
equals market price $2.48 3.26 1.06
exceeds market price -- 2.54 --
below market price -- 3.84 --
All options $2.48 3.61 1.06
During 1998, the Company recognized $868,000 (1997:$840,000; 1996:$nil)
of general and administrative expense relating to all stock options
awarded to non-employees and consultants in exchange for services based
upon the fair value of the awards at the grant date which were estimated
using the Black-Scholes option pricing model with the following
assumptions.
Dividend yield of nil, (1997:nil) volatility of 74%, (1997:85%) risk
free investment rate of 6.1% (1997:63%) and an expected life of 4 years
(1997: 4 years). The average fair values of the options granted during
1998 and 1999 are estimated as being $2.32 for each Ordinary share
American Depositary Receipt.
14. TAXATION
The Company is incorporated in England with two U.S. subsidiaries. The
Company is subject to United Kingdom corporation tax on a worldwide
basis with relief for foreign taxes in cases where double taxation
relief agreements have been established. The Company will be liable for
United States tax (including state taxes) through the U.S. subsidiaries.
No income tax charges/(credits) have been reflected in the Consolidated
Statement of Operations due to the net operating losses in the year
which substantially accounts for the deferred tax asset.
Provisional tax losses available to the Company in the United Kingdom
are estimated to be approximately $47,363,045 at the end of fiscal year
1998. The deferred tax asset value of these losses is approximately
$14,682,544 but no benefit has been recognized in the financial
statements as the benefit is offset by an equal valuation allowance as
it is more likely than not that the Company will not generate taxable
income in the foreseeable future to utilize the deferred tax asset.
Provisional tax losses available to the Company in the U.S. are
estimated to be approximately $9,702,874 at the end of fiscal year 1998.
The deferred tax asset value of these losses is approximately $3,201,948
but no benefit has been recognised in the financial statements as the
benefit is offset by an equal valuation allowance as it is more
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59
likely than not that the Company will not generate taxable income in the
foreseeable future to utilize the deferred tax asset. Net operating loss
carryforwards and expiration dates are:
YEAR LOSS EXPIRATION DATE
---- ---- ---------------
1993 $44,917 2008
1994 $64,491 2009
1995 $850,344 2010
1996 $915,651 2011
1997 $3,400,000 2012
1998 $4,427,471 2013
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60
15. INDUSTRY AND GEOGRAPHIC AREA SEGMENT
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued effective for fiscal years ending
after December 15, 1998. The Company's reportable segments are strategic
business units that offer different products and services. They are
managed separately because each business requires different technology
and marketing strategies. The Company has two reportable segments:
Pharmaceutical operations and Cosmetics operations. The Pharmaceutical
operations comprise Senetek PLC and SDDT and include biopharmaceuticals,
drug development, drug delivery development and the sale of monoclonal
antibodies. The Cosmetics operation comprises CCSI and includes the
distribution of skin care and beauty products to a number of markets in
North America. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. All
intersegment sales prices are market based. The Company evaluates
performance based on operating results of the respective business units.
INDUSTRY SEGMENTS 1998 1997 1996
----------------- -------- -------- --------
($ IN THOUSANDS)
Net Sales
Pharmaceuticals $ 1,517 $ 1,167 $ 499
Cosmetics 3,155 4,555 5,987
-------- -------- --------
Net Sales for reportable segments
and consolidated net sales 4,672 5,722 6,486
-------- -------- --------
Operating (Loss)/Profit
Pharmaceuticals (15,378) (12,676) (4,110)
Cosmetics (1,711) (2,950) 44
Total Operating (Loss) for reportable segments (17,089) (15,626) (4,066)
Interest Income/(expense) 147 229 (23)
Other (Expense)/Income 194 (142) 69
Debt modification expense (2,389) -- --
Amortisation of DFC (3,355) -- --
-------- -------- --------
Loss Before Taxation $(22,492) $(15,539) $ (4,020)
-------- -------- --------
Assets:
Pharmaceuticals 3,842 2,303 1,090
Cosmetics 3,258 3,920 5,318
Total assets for reportable segments 7,100 6,223 6,408
Corporate 3,566 7,178 3,433
-------- -------- --------
Total Consolidated Assets $ 10,666 $ 13,401 $ 19,841
-------- -------- --------
Capital Expenditure:
Pharmaceuticals 1,105 1,130 254
Cosmetics 68 -- 64
Total capital expenditure for
reportable segments 1,173 1,130 318
General Corporate 719 --
-------- -------- --------
Total consolidated capital expenditure $ 1,892 $ 1,130 $ 318
======== ======== ========
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INDUSTRY SEGMENTS 1998 1997 1996
----------------- -------- -------- --------
($ IN THOUSANDS)
Depreciation and Amortization:
Pharmaceuticals 147 370 278
Cosmetics 134 178 172
Total Depreciation and
Amortization of Reportable
Segments 281 548 450
Corporate 259 -- --
-------- -------- --------
Total Consolidated Depreciation
and Amortization $ 540 $ 548 $ 450
======== ======== ========
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GEOGRAPHIC AREAS 1998 1997 1996
---------------- -------- -------- -------
(IN $ THOUSANDS)
Net Sales
United States 3,954 5,167 6,189
United Kingdom 628 464 260
Other foreign countries 90 91 37
-------- -------- -------
Total Consolidated
4,672 5,722 6,486
-------- -------- -------
Long Lived Assets
United States 6,284 3,716 3,253
United Kingdom 891 931 107
-------- -------- -------
6,373 3,809 3,360
The Company's registered office is located in the United Kingdom from
which the financial controls, administration and scientific research and
development activities are operated. The Company's Chairman is based in
the United States from where liaison is effected with the U.S. investing
public and from where the development of the activities of SDDT
Corporation and Carme Cosmeceutical Sciences, Inc. are directed.
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63
16. COMMITMENTS AND CONTINGENCIES
(a) Research
Under existing agreements, the Company is committed to provide
funding for research programs and clinical trials of
approximately $2.50-3.0 million during the year ending December
31, 1999.
(b) Capital expenditure
Commitments of approximately $1.0 million have been given for
the automation of the auto injector assembly line at SDDT
(c) Commitments Under Operating Leases
The Company leases certain office, laboratory and factory space
and equipment under operating leases in the United Kingdom and,
through its subsidiaries SDDT Inc and Carme Cosmeceutical
Sciences Inc., in the United States.
Minimum future lease payments under non-cancellable leases are
as follows:
YEARS ENDING DECEMBER 31 FUTURE MINIMUM PAYMENT
------------------------ ----------------------
(IN $ THOUSAND)
1999 $384
2000 371
2001 388
2002 339
2003 287
------
$1,769
======
Rent expense was approximately $575,000, $676,000 and $552,000
in 1998, 1997 and 1996 respectively.
(d) Litigation
Various claims, suits and complaints, such as those involving
patents, commercial transactions and employee matters, arise in
the ordinary course of the Company's business. In the opinion of
management, all such pending matters are without merit or
involve such amounts, which would not have a material adverse
effect on the Company's consolidated financial position,
liquidity, cashflows or results of operations for any year.
17. GOING CONCERN
The financial statements reflect a loss for the year ended December 31,
1998 of $22,492,000, which, when taken with the previous years result,
results in an accumulated
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64
deficit of $71,968,000 at December 31, 1998. Cash and cash equivalents
decreased by $5,408,000 during fiscal 1998, from $6,216,000 to $808,000.
The Company has been able to fund this deficit from existing resources
and through the sale of equity securities and issuance of debt.
Management has taken steps to reduce the amount of cash used by
operations, including reducing staffing levels, however the Company's
operations may not provide sufficient internally generated cash flows to
meet its projected requirements in the short term and to meet the cost
of developing the Company's pharmaceutical products. Management is also
discussing the possibility of entering into licensing agreements with
several pharmaceutical companies.
Subsequent to the year end the Company has entered into a securities
purchase agreement and related agreements and borrowed $5m in cash
before expenses (see note 19).
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 the Company will be able to obtain
the necessary financing.
18. RELATED PARTY TRANSACTIONS
During the third quarter of 1997, in connection with the re-location of
all the Company's US operations (with the exception of Corporate
Research & Development based in St Louis) to Napa, California, one
Senetek Director and two employees (one of whom was a Director of SDDT)
received relocation loans from SDDT repayable with interest at 6% per
annum in the total amount of $750,000. The employee loans amounted to
$350,000 of which $300,000 remained outstanding at December 31, 1997.
The loan to the Senetek Director in the amount of $400,000 was made on
August 6, 1997 and repaid on September 30, 1997. The interest element
amounting to $11,038 on these loans remain outstanding at December 31,
1997.
19. SUBSEQUENT EVENTS
In April 1999, the Company entered into a Securities Purchase Agreement
with an affiliate of the creditor who originally loaned the Company $6.6
million in July 1998. The terms of the agreement have the Company
receiving $5 million in cash and refinanced the remaining balance owed
of $2,389,000 under its current Credit Agreement, in exchange for new
interest at 8%. The notes require semi-annual payments of interest only
until maturity and are secured by all of the Company's assets. Series A
Warrants to purchase an aggregate of 738,857 ordinary shares at $1.50
per share (subject to downward adjustment under certain circumstances),
expiring in five years, were issued in connection with the Securities
Purchase Agreement. Series B and C Warrants to purchase approximately
3.3 million and 1.2 million ordinary shares at $1.50 and $2 per share
were also issued in connection with the Securities Purchase Agreement
but are only exercisable to the extent $7,389,000 note is not repaid in
cash. The Series B and C Warrants expire in 10 years.
In April 1999, the Company entered into a Settlement Agreement to
resolve the terms of various transactions originally entered into by
previous management of the Company. The settlement agreement results in
the clarification of the terms of certain agreements and the issuance of
approximately 2.3 million additional Series A Warrants. The estimated
fair value of these warrants is approximately $2.4 million and will be
recorded as an expense in the quarter ended June 30, 1999.
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65
EXHIBIT INDEX
3.1 Certificate of Incorporation of Senetek PLC.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
3.2 Memorandum and Articles of Association of Senetek PLC (defining the
rights of security holders, subject to the provisions of the United
Kingdom Companies Act 1985).
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
10.3 Senetek No. 1 Share Option Scheme for Employees.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.4 Asset Purchase Agreement dated as of July 31, 1995, between Carme
International, Inc. a wholly owned subsidiary of Senetek PLC and Carme
Inc.
Filed as an Exhibit on Form 8-K, dated October 10, 1995 (as amended),
and incorporated herein by reference.
10.18 Senetek No. 2 Executive Share Option Scheme for non-Executive Directors
and Consultants.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.29 Amended and restated Deposit Agreement dated November 6, 1992 between
Senetek PLC and The Bank of New York.
The form of such Agreement was filed as an Exhibit on Form F-6 with the
Securities and Exchange Commission on March 19, 1992, Registration No.
33-46638, and is incorporated herein by reference.
10.32 Consulting Agreement dated May 1, 1994 between Senetek PLC and Dr. G.D.
Frentz.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.33 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Dr. G. Homan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.34 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Mr. P.A. Logan.
66
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.35 Service Agreement dated September 1, 1996 between Senetek PLC and Mr.
A.J. Cataldo.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.36 Service Agreement dated October 1, 1996 between Senetek PLC and Mr. C.D.
Brune.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.37 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. A.J.
Cataldo
10.38 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. G.
Homan.
10.39 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. C.D.
Brune.
10.40 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. R.A.
Oakes.
10.41 Service Agreement dated December 30, 1998 between Senetek PLC and Mr. F.
J. Massino.
10.42 Settlement Agreement dated April 13, 1999 by and among Senetek PLC,
Windsor Capital Management, Ltd. and certain other parties thereto.
10.43 Securities Purchase Agreement dated April 13, 1999 by and among Senetek
PLC and certain other parties thereto.
21 Subsidiaries of Senetek PLC.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual report on Form 10 -K for the year ended December 31, 1995 and
incorporated herein by reference.
24 Power of Attorney.
Included on the signature page to this Annual Report on Form 10-K.
27 Financial Data Schedule.