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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For The Fiscal Year Ended December 31, 2004.

For the transition period from                      to                     .

Commission File No. 0-14691

SENETEK PLC

(Exact Name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (707) 226-3900

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

AMERICAN DEPOSITARY SHARES

(each American Depositary share represents

1 Ordinary share, pound sterling 0.05 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    x.

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  ¨  No  x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of June 30, 2004 was $33,793,967.

As of March 24, 2005, the Registrant had 60,960,625 Ordinary shares outstanding, including 60,296,947 represented by American Depositary shares.

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements herein which are not of historical fact may constitute such forward-looking statements. In particular, words such as “may”, “could”, “would”, “should”, “can”, “might”, “expect”, “estimate”, “project”, “anticipate” and the like identify the statement to which they refer as forward-looking. Forward-looking statements by their nature involve substantial uncertainty, and actual results may differ materially from those expressed in such statements. Important factors identified by the Company that it believes could result in such material differences are described in this Annual Report in the sections titled “Competition”, “Government Regulation” and “Intellectual Property” on pages 11 through 15 of this Annual Report, “Risk Factors”, on page 16 through 19 of this Annual Report, and “Management’s Discussion and Analysis of Results of Operations and Financial Condition”, on pages 29 through 40. However, the Company can give no assurance that it has identified all of the important factors that may result in material differences between actual results and its forward-looking statements, and the Company assumes no obligation to correct or update any forward-looking statements which may prove to be inaccurate, whether as a result of new information, future events or otherwise, except as may be required in connection with future reports of the Company pursuant to the Securities Exchange Act of 1934, as amended.

PART I

ITEM 1—BUSINESS

Overview

Senetek PLC, together with its subsidiaries (the “Company” which may be referred to as “Senetek”, “we”, “us”, or “our”), is a public limited company organized under the laws of England in 1983 (registration number 1759068). Senetek has four wholly-owned subsidiaries, Senetek Drug Delivery Technologies Inc. (“SSDT”), Senetek Asia (“HK”) Limited and Senetek Denmark ApS, corporations formed by Senetek under the laws of Delaware, Hong Kong and Denmark, respectively, and Carme Cosmeceutical Sciences Inc. (“CCSI”), a Delaware corporation acquired by Senetek in 1995.

You should read the “Risk Factors” section beginning on page 11 of this document to ensure you understand the risks associated with the Company. For detailed financial information, please consult the Company’s financial statements included in this annual report.

Our corporate website is located at www.senetekplc.com. Our annual reports on Form 10-K for the 2003, 2002, 2001 and 2000 fiscal years, in addition to our interim financial reports on Form 10-Q for fiscal 2004 and 2003, are available on our website, and subsequent SEC filings will similarly be available as soon as practicable after they are filed with the SEC. Our other SEC filings may be obtained from us in electronic or paper format free of charge by writing us at ir@senetek.net or at Investor Relations, 620 Airpark Road, Napa, California, 94558.

Senetek is a life sciences-driven enterprise engaged in developing and marketing proprietary products that fulfill important unmet consumer needs related to aging. Our business is comprised of two business segments: dermatological/skincare compounds principally addressing photoaging and other skincare needs (the “Skincare Segment”); and biopharmaceuticals, currently principally those addressing sexual dysfunction and drug delivery of liquid injectable products (automatic injectors) (“Pharmaceutical Segment”).

In early 2004 the Company completed an in-depth review of Senetek’s business model and strategic direction aimed at broadening the Company’s base of proprietary skincare and dermatological technology, more systematically pursuing new higher potential Kinetin licensing opportunities and maximizing the return on the Company’s pharmaceutical assets. As part of this strategic program, the Company announced it would:

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The progress of various elements of the Company’s strategic program during 2004 is reviewed below in the detailed discussion of the Company’s business.

Dermatological and Skincare Products

Skincare Technology

We have developed and patented multiple cytokinins, including Kinetin and Zeatin, plant growth factors that are naturally occurring.

Kinetin (N6-furfuryladenine) has been found to retard aging of plants and, in research done on human skin fibroblasts, Kinetin delayed the signs of cell aging, multi-nucleation and loss of organizational structure, as well as other biochemical and morphologic changes associated with aging. Kinetin also has been shown to be a powerful antioxidant, acting as a free radical scavenger. In clinical studies at the University of California, Irvine, Kinetin showed excellent response rates in partially reversing the clinical signs of photodamage, including the appearance of fine lines and wrinkles, and in contrast to other anti-aging products such as retinoids and alpha-hydroxy acids, Kinetin did not produce any clinical signs or symptoms of skin irritation, did not result in skin sensitivity to the sun, and did not break down the skin’s natural barrier function causing moisture loss but in fact significantly reduced trans-epidermal moisture loss.

Zeatin, currently under development, is an analog of Kinetin. In an in vitro study completed early in 2004 at the University of Aarhus, Denmark, evaluating the effects of two concentrations of Zeatin on cultured human skin fibroblasts over their approximately 300 day lifespan, uniformly positive results were obtained. These results were confirmed and broadened in more recent in vivo studies conducted at the Department of Dermatology, University of California at Irvine. See “Research and Development.” We and our licensees and research partners are evaluating other cosmeceutical as well as pharmaceutical applications for Kinetin and Zeatin and are identifying and screening new cytokinins for commercial development.

Kinetin Licensing and Product Development

Our strategy is to build a global distribution system across all channels of distribution for our lead skincare technology, Kinetin.

In June 1998, we granted Osmotics Corporation (“Osmotics”) an exclusive license to market Kinetin-based products to the worldwide prestige market, comprised of department stores and perfumeries, in exchange for specified royalties, and Osmotics launched its initial line in February 1999. In May 2001, the parties entered into a settlement of various disputes involving Osmotics’ performance under the license, providing, among other things, for payment by Osmotics of back royalties and the grant by Senetek of a non-exclusive license to

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manufacture and market specified Kinetin-based products to the prestige class of trade worldwide in exchange for specified royalties.

In October 1998, we granted Valeant Pharmaceuticals International, then called ICN Pharmaceuticals, Inc. (“Valeant”), an exclusive worldwide license to market Kinetin in the ethical skincare market (dermatologists and cosmetic surgeons’ patients outside of North American, Europe and Australia). The Valeant license agreement provided for royalties on Valeant’s net sales of licensed products and a profit on Senetek’s sales of products to Valeant, in each case subject to prescribed minimums. In March 1999, Valeant launched cream and lotion formulations under the Kinerase^® trademark in the United States and Canada, followed by launches in various Latin American and Far East markets. In August 2003, Valeant signed an amendment to its license agreement authorizing it to manufacture as well as market Kinerase, in exchange for an increase in royalty rate to compensate for Senetek’s lost profits on products sales. The amendment also granted Valeant exclusivity in the ethical channel of trade in Europe and Australia, in addition to its existing North America exclusivity, added non-exclusive rights in the prestige, spa/salon, travel retail, and direct-to-consumer channels of trade, and approved five additional Kinetin products for the Kinerase line. In May 2004, Valeant provided Senetek with a $5 million unrestricted, non-refundable cash infusion, which we are investing in expanded research and development for new cytokinin active ingredients, and Senetek agreed to reductions in royalties from Valeant of $250,000 per quarter in order to provide incentive for its further investment in the Kinerase^® line and resultant increased sales. Also in May 2004, Valeant was granted an option to receive an exclusive global license for Zeatin in all classes of trade on commercial terms equivalent to its Kinetin license except for minimum net sales or minimum royalty covenants, which the option agreement states are to reflect the scope of Valeant’s exclusivity for Zeatin. In July 2004 Valeant’s license was further broadened to include non-exclusive rights for Kinetin based products in the global mass market, the latter channel becoming available under a June 2004 amendment to the Company’s license agreement with Revlon Consumer Products Corporation, described below. In October 2004, we entered into a new agreement that requires Valeant to meet certain levels of minimum royalty payments in exchange for exclusivity in the ethical channel of distribution for the United States, Canada, the European Union and Australia.

In November 1999, we entered into a license and supply agreement with Obagi Medical Products, Inc., the predecessor of OMP, Inc. (“OMP”), for the exclusive marketing and distribution of specified Kinetin-based products in the mass market channel of distribution in China, Hong Kong, Japan, Malaysia, Singapore, South Korea, the Philippines and other designated Asian countries in exchange for a licensing fee, paid in installments in 1999 and 2000, and specified royalties on net sales of licensed products. Subsequent litigation was settled in January 2002 for a $375,000 lump sum settlement payment to Senetek for past royalties, with the parties agreeing to terminate the original license, use best efforts to negotiate a new license agreement and pay a royalty on net sales during the negotiating period (which totaled $248,000). The parties failed to reach agreement and at the end of the prescribed negotiating period, as extended, Senetek terminated all of OMP’s rights in Asia, which became part of the exclusive mass market territory covered by the license granted to Revlon Consumer Products Corporation, described below. In April 2003, Senetek commenced a lawsuit against OMP alleging breach of the January 2002 settlement agreement. This lawsuit and related litigation were settled in March 2004, with Senetek receiving a lump sum payment of $1.5 million and being entitled to an additional $500,000 based on OMP’s future sales to its existing retailer accounts in Japan of skin care products having Kinetin concentrations not greater than a specified level.

In May 2000, we entered into a license and supply agreement with Buth-Na-Bodhaige, Inc., doing business as The Body Shop. Under the terms of the license agreement, as amended in November 2000, The Body Shop was granted the right to sell Kinetin-based products supplied by Senetek in The Body Shop retail stores in North America, in The Body Shop’s catalogue and on The Body Shop’s Internet website, in exchange for a specified royalty based on the suggested retail prices of products sold by The Body Shop to consumers, and Senetek agreed not to enter into Kinetin licenses with specified other retailers. The Body Shop launched its initial line of licensed products in April 2001. On November 4, 2002, we signed an expansion of the license agreement with The Body Shop under which in 2003 The Body Shop launched its Kinetin line of exclusively formulated skin care products in its retail stores, kiosks, catalogs and websites in Europe and Asia.

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On June 8, 2000, we entered into an agreement with Revlon Consumer Products Corporation (“Revlon”) granting it an exclusive license worldwide (subject to the prior rights of OMP under its then license agreement, described above) to manufacture and market Kinetin skin care and cosmetic products in the mass market (drug stores, mass volume retailers and supermarkets), subject to achieving certain minimums. Revlon paid a $3 million license fee at signing and agreed to specified royalties based on Revlon’s net sales of licensed products. The agreement also granted Revlon non-exclusive rights to sell such products in perfumeries and department stores in Europe, South and Central America, Mexico, Puerto Rico, South Africa, Australia, New Zealand, Israel, China, Hong Kong, Taiwan and certain additional Asian markets other than Japan, subject to Revlon’s royalty payments meeting certain additional minimums. Revlon launched the Almay Kinetin Skincare Advanced Anti-Aging Series of products in the United States in mid-2001, followed by launches in other territories including the United Kingdom, Canada, New Zealand, and South Africa and the launch in 2002 of a line of Almay color cosmetics containing Kinetin. Effective June 2004, the Company and Revlon entered into an amendment in which Revlon agreed that its license would be non-exclusive in the global mass market.

In December 2000, we entered into a license and supply agreement with Med-Beauty AG (“Med-Beauty”), a Swiss company based in Zurich, in consideration of a product license fee. Under the agreement as amended in September 2001, Med-Beauty is granted an exclusive right to sell specified Kinetin-based products to estheticians and beauty salons in Switzerland and a non-exclusive right to sell such products in those classes of trade in Germany and Russia, all subject to achieving certain minimum purchase levels of bulk product. Med-Beauty’s initial launch of covered products was made in May 2001. Med Beauty is in the process of expanding the number of kinetin based products offered.

In November 2001, we entered into an arrangement to collaborate with Allure Cosmetics (“Allure”), a California-based skincare manufacturing and marketing company, under which the parties undertook to develop new Kinetin-based products to be manufactured by Allure and marketed by the Company directly or through licensees, the parties agreed to jointly market Kinetin-based products to Allure’s existing customer base, and the Company granted Allure a non-exclusive license to manufacture and market specified Kinetin-based products to health food stores, estheticians, beauty salons, spas and by direct mail, in exchange for specified royalties.

On April 16, 2002 we executed a license agreement with C. J. Enprani Co., Ltd. (“Enprani”) of Seoul, Republic of Korea, to manufacture and market Kinetin based products in South Korea in the Cosmetics Specialty Stores channel of distribution under the Enprani brand. Enprani gained functional care approval for Kinetin from the Korean Food and Drug Administration, and in 2003 launched a line of creams, lotions and serums containing Kinetin and ursolic acid . This line was repositioned for the direct selling channel in 2004 and Enprani expects to launch a new collection in the specialty store channel in Korea by mid-2005.

On October 22, 2002 we signed an agreement with Vivier Pharma Inc. (“Vivier”), of Montreal, Canada, granting Vivier the right manufacture and sell to dermatologists, pharmacies and other ethical channels in Canada and the United States dermatological products containing Kinetin in combination with Vivier’s proprietary formulation of highly stable Vitamin C (L-Ascorbic Acid serum. Vivier launched in the fourth quarter of 2003. In addition, Vivier granted us the right to sell, and license third parties to sell, the Kinetin-Vitamin C combination products as well as Vivier’s line of Vitamin C serums in certain global markets. The Agreement calls for the parties to collaborate on future developmental projects and clinical evaluations.

On March 12, 2003 we signed a non-exclusive license agreement with Panion & BF Biotech Inc. (“Panion”), a manufacturer and marketer of pharmaceuticals and cosmeceuticals based in Taipei, Republic of China. Under the agreement, Panion launched lines of Kinetin-based skin care products in the ethical (physician) and beauty spa channels of distribution in Taiwan and Hong Kong and, subject to agreement on royalty levels, it will be authorized to launch in The Peoples Republic of China. In February 2004 the license agreement was broadened to include the ethical channel in the Republic of Korea and the Association of Southeast Asian Nations (“ASEAN”) member countries, including the key markets of Indonesia, Malaysia, The Philippines, Singapore and Thailand, and its authorized trading channels were expanded to include prestige department and specialty stores and salons and spas except in Korea. In December 2004 the license was further amended to

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permit Panion to manufacture a line of Kinetin products for sale in department and specialty stores owned or controlled by Formosa Biomedical Technology Corporation under the latter’s trademarks. Further products featuring Kinetin in combination with effective synergistic ingredients are scheduled to be submitted to the Taiwan Department of Health for registration as functional skin care products during 2005.

In April 2003 we signed a license agreement with Lavipharm S.A. of Athens, Greece, a major manufacturer and marketer of pharmaceutical, cosmetic and consumer health products with an extensive Research and Development (“R&D”) activity, for Lavipharm to launch a line of Kinetin-based skin care products in the ethical and pharmacy market under its well-known brand name “Castalia” in Greece, Cyprus and, subject to agreement on royalty levels, a number of Near East, Asian and Latin American markets. The launch in Greece and Cyprus occurred in the fourth quarter of 2003. In addition, the two companies will work together to develop additional proprietary Kinetin-based products using Lavipharm’s proprietary technologies.

In December 2004, the Company entered into a global non-exclusive license agreement for Ferrosan A/S (“Ferrosan”), an international consumer healthcare and medical devices company headquartered in Copenhagen, Denmark, to launch a collection of Kinetin skin care products as a line extension of Ferrosan’s Imedeen^® brand of oral skin care supplements. Imedeen, a unique line of nutritional tablets and capsules for improvement of the skin’s basic quality, structure and appearance, is distributed in 50 markets worldwide. Under the agreement, Ferrosan will manufacture and market its topical Kinetin Imedeen line in the prestige, natural products and direct-to-consumer channels of distribution in addition to the mass market. Senetek and Ferrosan also plan to jointly develop oral nutriceutical formulations featuring the proven antioxidant properties of Kinetin.

In September 2003, the Company completed development of its proprietary product line, Kinetin Plus^™ Age Defiant^®. The Kinetin Plus product line consists of eight products: Chest & Neck Treatment Lotion, Eye Area Eraser Plus Vitamin C & E Booster, Gentle Foaming Cleanser, Intense Serum Plus 10% Vitamin C Booster, Night Renewal Cream, Refresh Finishing Toner, Smoothing Lip Balm SPF 20, and Sun Protection Lotion SPF 15 (the latter two bearing the Skin Cancer Foundation seal). As part of this product launch, the Company established its own website (www.kinetinplus.com and www.kinetin.com.) where the products can be purchased. The Company is continuing to evaluate its opportunities to marketing this line. In January 2005, the line was sampled to invited celebrities and the fashion press at the Levi’s^® Ranch venue at The Sundance Film Festival in Park City, Utah.

Developing and marketing our own proprietary skin care collection allows us to showcase new formulations combining Kinetin with other synergistic active ingredients, for direct sale and out-licensing to existing and new licensees, while potentially establishing a significant new revenue stream more fully under our control than licensing revenue. However, our business plan is to continue focusing on building a high-margin, royalty-based revenue stream by actively developing additional licensing opportunities for those territories and categories of trade for which we have not granted exclusive licenses under the agreements described above. These include the mass market, the prestige/cosmetic specialty store market, the ethical market, the multi-level market, direct response market, salon-esthetician market, infomercials and the natural products market throughout the world.

Other Products

The Company previously developed or acquired a number of skincare products designed to meet specific niche segments of the market: Mill Creek, Sleepy Hollow Botanicals and Biotene H-24, sold in the health store channel, as well as Silver Fox, a product for gray hair (the “Mill Creek Line”) and Allercreme, a hypoallergenic range of skincare and cosmetic products for women with sensitive skin, developed in conjunction with dermatologists and sold in the mass market (the “Allercreme Line”). The Company determined that continued marketing of these lines was outside of its strategic direction.

In 1999 the Company entered into a license agreement with United States International Trading Corporation (“USITC”) under which USITC purchased the Company’s inventories of finished goods and componentry for the Mill Creek Line and paid a licensing fee for the exclusive right to manufacture and market these products in exchange for royalties subject to specified annual minimums. Under the license agreement USITC was granted

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an option to purchase the rights to the Mill Creek Line for $2.8 million. In September 2002 USITC exercised this option and we conveyed to USITC the trademarks and all other rights to the Mill Creek Line for $2.7 million ($100,000 having been previously paid), of which $400,000 was paid in cash at closing, and the balance of $2.3 million was represented by a secured promissory note providing for twenty-three consecutive quarterly payments of $100,000 each beginning in September 2003 with interest at an annual rate of 10%. As of July 2004, however, only $188,000 had been paid by USITC, all of which was allocated to interest under the terms of the note, and the Company gave notice of default to USITC. On November 10, 2004, the Company and USITC entered into an agreement to restructure the note. Under the terms of the restructuring, Senetek received $240,000 from August through November 2004 and in December received $1,120,000 together with a $400,000, two and one half year, secured amortizing note bearing interest at 8% per annum. Under the terms of the agreement, if USITC fails to pay any of the quarterly payments due under the new $400,000 note, all of its obligations under the original $2.3 million note, less amounts actually paid, will be reinstated and subject to acceleration for non-performance.

Also in 1999, an existing distribution agreement with Quimlam, Inc. covering the Allercreme Line was terminated and these distribution rights were granted to USITC on a non-exclusive basis. However, USITC found that its Mill Creek business was adversely affected as trade accounts took Allercreme returns allowances against Mill Creek Line invoices, and USITC therefore discontinued the Allercreme Line effective December 31, 2001. We believe that the old Allercreme Line inventory has now cleared the marketplace and intend to seek to exploit this trademark either by “private branding” a line for a mass market retail chain or licensing or selling the trademark to a skin care product manufacturer.

Biopharmaceuticals and Drug Delivery Technology

Sexual Dysfunction

We developed, patented and initiated the process of securing pan-European marketing approvals for Invicorp, an intracavernous injection therapy for the treatment of erectile dysfunction (“ED”). Senetek’s patent covers several alternative combinations of active ingredients, though the formulation for which clinical trials were conducted and regulatory filings made is limited to one of these, a combination of vasoactive intestinal peptide (“VIP”), a 28-amino-acid peptide found naturally in the human male and female urogenital tracts and central and peripheral nervous systems, and phentalomine mesylate (“PMS”), which was found to enhance VIP’s ability to cause erection by binding to smooth-muscle receptors in the corpus cavernosum, inducing smooth-muscle relaxation and increased blood flow.

The commercial potential of products for the treatment of ED is significant. The most recent study by the pharmaceuticals market research firm of Decision Resources, Inc., released in 2002 (the “2002 Study”), estimated that in 2001 some 70 million men in the seven major pharmaceutical markets covered by the study (the United States, France, Germany, Italy, Spain, the United Kingdom and Japan) suffered from some degree of ED. The incidence of ED increases with age, and therefore is expected to grow as the median age of the world’s population increases. ED is also associated with a number of common conditions including arteriosclerosis, diabetes, hypertension and the use of such medications as beta blockers and tricyclic antidepressants. According to the 2002 Study, seven-market sales of drugs and devices to treat ED totaled $1.3 billion in 2001 and are expected to grow at an annual rate of 10%, reaching $3.6 billion in 2011. Oral medications (principally Pfizer, Inc.’s sildenafil product Viagra^®) represented substantially all of total 2001 sales of ED products in the studied markets but these oral therapies are ineffective, medically contraindicated or otherwise unsuitable for significant numbers of ED sufferers, who opt for “second line” injection therapies or penile implants, or who may forego therapy altogether. Specifically, the 2002 Study found that men whose ED is classified as moderate to severe (those most likely to seek treatment) show a markedly lower response rate to sildenafil and other oral therapies than do those with mild ED; that certain patient groups (including diabetics, who have a high incidence of ED) experience particularly low response rates to sildenafil; that sildenafil is contraindicated for patients who take any form of nitrates (a group that represents 5-10% of men with ED); and that men who take both sildenafil and drugs such as erythromycin or cholesterol-lowering agents, which are metabolized by the same isoenzymes as sildenafil, are at risk for developing higher than desirable serum levels of sildenafil.

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Clinical trials of Invicorp suggest that it could become the preferred therapy for all of these patient types, as it has been found to have a favorable side-effect and drug-interaction profile, permitting it to be prescribed for men with the various contraindications referred to above, and has been shown to be highly safe and effective in patients of all etiologies, as well as patients who have failed previous therapy. Marketing authorizations were received from Denmark, which was designated the Reference State for purposes of the Mutual Recognition Procedure for coordinating European national approvals, and New Zealand, as well as from England for a modified dosage, and on November 12, 2002 we signed a marketing and distribution agreement for Invicorp in New Zealand with Douglas Pharmaceuticals (“Douglas”), under which Douglas assumed full marketing responsibility for Invicorp in New Zealand in exchange for specified payments. The New Zealand launch of Invicorp occurred in September 2004.

However, as part of our new strategic business plan, in early 2004 we concluded that we did not have the financial or technical resources efficiently to complete the necessary regulatory filings for Invicorp in Europe or effectively to re-initiate the regulatory process in the United States or initiate it in other world markets. Accordingly, we determined to seek commercial partners that had the requisite financial and technical resources to move forward aggressively with the Mutual Recognition Procedure for Europe and enter into discussions with the U.S. Food and Drug Administration to develop a program of pre-clinical and clinical trials in the U.S.

In June 2004 the Company entered into an exclusive agreement with Ardana Bioscience Ltd, a privately-held specialty pharmaceutical company dedicated to improving reproductive health, for Ardana to manufacture and market Invicorp in the European Union and European Free Trade Area. Under the license agreement, Ardana assumes full responsibility for completing the European drug regulatory process for Invicorp^® and seeking national marketing approvals throughout Europe. Senetek will receive royalties based on s and its sub-licensees’ net sales of Invicorp plus milestone payments upon regulatory approvals in specified major markets and achievement of specified cumulative net sales in Europe. Senetek intends to seek similar arrangements to advance Invicorp through regulatory approval and market entry in other world markets. Under its agreement, Ardana has certain rights with respect to these other markets including North America, subject to its contacting the United States Food and Drug Administration by mid-June 2005 to arrange an exploratory meeting.

Drug Delivery Technology

The 2002 Study found that the mode of administration of injectable ED therapies is an important factor affecting patient acceptance. A portion of the clinical trials and subsequent “named patient” supply of Invicorp in England involved the use of Senetek’s patented Reliaject^® disposable autoinjector, and patient response was highly favorable. Reliaject is a modular self-injection system assembled using highly automated precision equipment acquired and developed by Senetek for in excess of $3 million (though currently carried at $250,000). Reliaject is assembled using a pre-filled dental cartridge and is equipped with an ultra fine gauge needle, manufactured by a laser process for pain-free administration, which is visually undetectable by the patient during administration of the drug and is preset to achieve the appropriate penetration before drug flow occurs, thereby reducing reliance upon the patient’s technique for accuracy and safe delivery.

While originally developed for self-administration of Invicorp, Reliaject’s modular design will accommodate multiple therapeutic applications including for anaphylactic shock, migraine treatment, infertility regimens, human growth hormones and analgesics. The Company has developed the parts required for the use of Reliaject with epinephrine for anaphylactic shock, a significant acute indication appropriate for this technology. The Company is currently seeking a transaction whereby a commercial partner would assume primary responsibility for regulatory approvals and for marketing Reliaject for anaphylactic shock and other indications. The Company’s license agreement with Ardana provides that in negotiating any such transaction the Company will seek a manufacturing agreement on Ardana’s behalf for Reliaject pre-filled with Invicorp.

Diagnostic Monoclonal Antibodies

In 1995, we entered into a license agreement with the Research Foundation for Mental Hygiene (“RFMH”), an agency of the State of New York, under which the Company was granted exclusive rights to certain of RFMH’s cell

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lines capable of producing monoclonal antibodies for research on various diseases including Alzheimer’s Disease. The license was to expire 10 years from inception as to the cell lines originally covered and, as to cell lines subsequently added to the license, 10 years from their inclusion. Until mid 2000 the Company marketed these cell lines to major pharmaceutical companies including Glaxo, Pfizer, Wyeth Ayest, Amgen, Pharmacia Upjohn, Eli Lilly and Genentech. In August 2000, we determined that the marketing of diagnostic monoclonal antibodies was not a core business and entered into an agreement for the remaining term of the RFMH license with Signet Laboratories, Inc., a leading medical diagnostic and research company, under which Signet assumed the marketing of these monoclonal antibodies and development of new antibodies and assays based on the cell lines covered by the RFMH license, Senetek received royalties on Signet’s sales, subject to certain minimum royalty guarantees, and Senetek remitted a portion to RFMH in accordance with the terms of its license.

In May 2004 the Company entered into an interim extension of its agreement with RFMH which provided that the licenses for three cell lines that would have expired in July 2004 were extended through September 2005, Senetek would submit to RFMH a business plan for the continued manufacture, marketing and sale of all of the antibodies covered by the RFMH licenses by December 31, 2004, and upon approval of the business plan by RFMH all licenses would be extended through June 2011. Senetek paid RFMH a one-time extension fee and guaranteed to RFMH that its royalty receipts for the twelve months ending June 30, 2005 would not be less than the preceding two years. During April 2005, the Company expects to finalize a further amendment of the agreement with RFMH under which the licenses on all existing cell lines and any new cell lines were extended through June 2011, subject to renewal, on substantially the same terms as the existing licenses as amended except that the above guaranty of royalty receipts will remain in effect through the new term of the licenses. In connection therewith, the Company entered into a new agreement with Signet Laboratories, Inc., effective as of April 1, 2004 for its continued manufacture, marketing and sale of all monoclonal antibodies produced from the cell lines licensed by RFMH on revised royalty terms but subject to a guaranty that the Company’s net revenue from such sales will not be significantly less than under the original agreement, for the term of the new agreement. The Company also is in discussions with RFMH and Signet concerning the terms on which the Company and Signet may be offered RFMH’s excess production of certain polyclonal antibodies for resale to research and diagnostic institutions.

Research and Development

A key element of the Company’s strategic business plan is to add to our portfolio of cytokinins and other compounds with strong anti-senescent properties by working through our dedicated research facility in Aarhus, Denmark with institutions conducting basic and applied research in our field of interest such as the Institute of Experimental Botany of the Czech Academy of Sciences, and with current and prospective future licensees such as Beiersdorf, AG, under the direction of our Chief Scientist, Dr. Brian Clark, in association with Dr. Suresh Rattan, the co-discoverers of Kinetin’s anti-senescent and other dermatological bioactivity, both of the University of Aarhus in Denmark.

Historically our strategy had been to leverage our available research and development resources by channeling our efforts through research agreements with third-party consultants, clinicians and research scientists having particular expertise in our areas of interest with a direct focus on getting our products into the market. Under these agreements, we were granted exclusive rights to patents for the manufacture and marketing of products arising from this research, with the researchers in certain cases being entitled to royalties or other payments in connection with commercialization of resulting products.

In furtherance of this strategy, in October 2001 we established a research professorship at the University of Aarhus, Denmark, at its Center for Molecular Gerontology, where previous research programs had resulted in Senetek acquiring the patent rights to certain compounds, including Kinetin and Zeatin for certain applications. Under the terms of the grant, which is administered by the University’s Natural Science Faculty, we have a right of first refusal on discoveries resulting from the sponsored research. Dr. Brian Clark, Senetek’s Chief Scientist, who is one of the founders of Senetek PLC and a co-discoverer and patentee of the therapeutic properties of the cytokinin group which includes Kinetin and Zeatin, and Dr. Suresh Rattan, the other co-discoverer and patentee, closely manage this important relationship. The annual cost of the research professorship is $100,000.

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To further focus the Company’s new compound evaluative capabilities and assure the confidentiality of our project work, during 2004 we completed the building out, equipping and staffing of our own dedicated laboratory facility in leased space at the Science Park adjacent to the University of Aarhus. Under the overall management of Dr. Clark and the operational control of Dr. Rattan as Supervising Consultant, the facility, which became fully operational in the fourth quarter of 2004, consists of two fully equipped laboratories and three administrative offices. In addition to Dr. Clark and Dr. Rattan, the facility is currently staffed full time by the Ph.D. candidate who was Chief Research Assistant in the 300-day Zeatin tests and new cytokinin evaluations described below, and by a cellular biochemistry technician with a number of years’ experience on Senetek projects at the University.

To increase our throughput of new active ingredients for evaluation, in June 2003 the Company signed a cooperative research agreement with the Institute of Experimental Botany in Prague, Czech Republic. The Institute was created in 1962 from the Department of Plant Physiology and the Department of Phytopathology of the Institute of Biology of the Czechoslovak Academy of Sciences. In 1990, it was divided into two independent units, one of which became The Institute of Experimental Botany (“IEB”) in Prague and Olomouc. The principal fields of scientific work in the Institute consist of plant physiology, genetics and biotechnology. In genetic research, the Institute carries out work on induced mutagenesis and DNA repair, induction of genetic variability in tissue and cell cultures in vitro, and the molecular genetics of pollen. Physiological subjects include adaptation and acclimation mechanisms of photosynthesis, hormonal and ecological control of plant growth and development, the mechanisms of action of growth regulators, physiology of plant viruses and plant pathophysiology. Senetek’s agreement with the Institute, as initially signed, provided for a “one off” relationship in which Senetek would have a specified period of access to the Institute’s then existing portfolio of compounds with the right to an exclusive license of any selected compounds in the fields of medical and cosmetic skin care, on pre-set terms. In October 2004, this agreement was expanded to provide Senetek with ongoing access to all of the Institute’s developing technology with dermatological potential with a right to an exclusive worldwide license of selected compounds for all fields of use, plus a right of first offer on any other technology for an exclusive worldwide license within the field of dermatological anti-aging applications. Senetek is also granted a 50% ownership interest in any new patents for which Senetek elects a license. Two such patent applications are currently in preparation.

In order to gain the commercial perspective of a world class skin care company and the benefit of its proprietary evaluative procedures, in June 2003 the Company entered into a research collaboration agreement with Beiersdorf AG for it to undertake and fund laboratory and in vivo evaluations of compounds selected by Senetek for its review. Under the terms of that agreement, if Beiersdorf determines that one of these compounds would be appropriate for its product lines, it would have the right to negotiate an exclusive license for the mass market worldwide, with Senetek retaining all rights to that compound for other channels of trade as well as Beiersdorf’s study reports on all other submitted compounds evaluated by it. Beiersdorf’s Nivea^® is the world’s largest selling skin care brand.

As new active ingredients clear the laboratory, Senetek typically turns to the Department of Dermatology of the University of California at Irvine for comprehensive consulting and pre-clinical and clinical testing services. The Department’s faculty has extensive experience in collaborating with the pharmaceutical and cosmetic industries in new product development and is internationally recognized for its contributions in both basic and clinical dermapharmacology. The initial clinical trials of Kinetin, applying the same protocols as the Department used for the FDA New Drug Application evaluations of Johnson & Johnson’s Renova^®, were performed there under the direction of Dr. Jerry Weinstein, then Department Chairman, and its current Chairman, Dr. Jerry McCullough. Dr. McCullough, with whom we have a consulting agreement, remains closely involved in Senetek’s in vivo studies.

These relationships form the basis for a continuous, interactive flow of new product identification, evaluation and testing activity between the University of Aarhus, Senetek’s dedicated laboratory, the Institute, the University of California-Irvine and, as appropriate, Beiersdorf. In addition to its ongoing studies of Zeatin,

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during 2004 our laboratory studied and reported upon four new compounds, and it currently is studying six additional compounds, all of which were sourced from the Institute or another facility in Olomouc, Czech Republic, of which Beiersdorf is evaluating six of these. As an example of the interplay among these facilities, in March 2004 the Company announced completion at the University of Aarhus of a multi-faceted laboratory study of the effects of two concentrations of Zeatin on cultured human skin fibroblasts over their approximately 300 day lifespan in laboratory culture. The new results were consistent with the University’s earlier studies of Zeatin and Kinetin, which suggested that at higher concentrations Zeatin was more effective than Kinetin in certain measures of bioactivity. The new study showed that Zeatin does not interfere with the genetic control of cellular lifespan in early passage (young) or late passage (old) cells, that Zeatin promotes maintenance of small cell size (a key determinant of youthful skin) and structural and functional integrity, and that Zeatin prevents accumulation of macromolecular damage in the cell. The study further found that Zeatin increases the activity of the antioxidant enzymes catalase and glutathione peroxidase, to counteract free radical-induced oxidative damage during cell aging, and that Zeatin-treated cells are more resistant to ethanol- and hydrogen peroxide-induced cell death, suggesting enhanced stress tolerance of the treated cells. Based on these results, the Company worked with the University of California-Irvine to develop a multi-faceted pre-clinical study of the effects of Zeatin and two new classifications of cytokinins (sourced through the Institute and pre-screened at our dedicated laboratory in Denmark) code named AK801 and PRK124. The study was conducted over a three week period at the University’s Department of Dermatology using the hairless mouse model, which is designed to evaluate new compounds for safety and efficacy in the potential treatment of skin anti-aging and to investigate the mechanisms by which they affect the skin aging process. The study evaluated three groups of mice that received daily applications of Zeatin, AK801 and PRK124, respectively, versus a “placebo control” group that received applications of only the topical vehicle and a “therapeutic control” group that received topical tretinoin 0.05%, tradenamed Renova^®, the only prescription drug approved for anti-aging in the United States. The “therapeutic control” group exhibited significant skin irritation and thickening of the dermis and epidermis and a significant decrease in skin conductance, a measure of moisture retention, while the groups treated with Zeatin, AK801 and PRK124 showed very low levels of skin irritation, equivalent to the placebo, and significant increases in skin moisture content compared to both the “placebo control” and “therapeutic control” groups. In addition, an absence of thickening of the dermis and epidermis also was equivalent to the “placebo control” group over the three week treatment period. Additional testing is underway in preparation for submissions to the institutional review board of the laboratory selected for full clinical studies, which are expected to begin by mid-2005.

Our research and development expenditures amounted to $1,504,000, $1,560,000 and $1,332,000 for 2004, 2003 and 2002, respectively. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Under the terms of our skincare license agreements, our licensees are responsible for gaining product marketing approvals where required for the technologies covered by the licenses.

We expect research and development spending for our skincare segment to continue to increase as we accelerate development of our pipeline of proprietary technologies, although we expect that a portion of the overall research and development effort behind our licensing business will continue to be absorbed by our existing and future commercial partners.

Research and Development expenditures associated with our sexual dysfunction products are expected to significantly decline in fiscal 2005, as under the terms of our license with Ardana Bioscience Ltd. it has undertaken responsibility for any further clinical trials and regulatory filings to progress with the Mutual Recognition Procedure (“MRP”) in Europe and prepare for discussions with the U.S. FDA.

Marketing and Manufacturing

Marketing

Consistent with our strategy of building a high-margin revenue stream, virtually all of our current Kinetin revenues are derived from license agreements under which our licensees assume responsibility for marketing and maintaining required government approvals within their respective licensed territories. We expect to maintain

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this business model in the case of emerging products in our Skincare Segment for those channels of trade for which a broad-based sales and distribution network is necessary, although we expect to develop our own distribution capability within certain channels which can be efficiently serviced without such infrastructure.

In the case of Invicorp and Reliaject, we have determined to seek alliances with companies having the appropriate technical, sales and distribution infrastructure to assume regulatory responsibility and assure effective market penetration.

Manufacturing

Most of our existing licenses for core products in the Skincare Segment grant our licensees the right to manufacture as well as market licensed products. In the case of those licenses which grant only marketing rights or require the licensee to produce and package product from Senetek-supplied bulk, we contract with third parties for the manufacture and/or filling and labeling of the skincare products covered by such licenses. While we rely on particular suppliers for the raw materials and componentry used in the manufacture of such products we do not anticipate any problems with supply of such materials. We have licensed a third party to manufacture and sell the monoclonal antibodies produced from the cell lines licensed to us.

With regard to our ED medication, Invicorp, the active ingredients, VIP and PMS, are currently available from suppliers in quantities believed to be adequate for the Company’s requirements following marketing approval in Europe. These suppliers have developed synthetic production methods that are included in the product marketing application updates with regulatory authorities in Europe. We believe that, should these suppliers become unavailable or unable to supply in required volumes, alternative sources of approvable supplies are available, although the Company could experience regulatory delays associated with qualifying the new active ingredient manufacturers.

Competition

The bulk of our current revenues are derived from licenses to manufacture and/or market products containing our patented Kinetin ingredient, with smaller amounts being derived from agreements for the manufacture and sale of monoclonal antibodies used in research and from “named patient” sales of Invicorp in England. While our patents and patent licenses currently protect us from competition from sales of products within the specific scope of our patents and license rights, many companies are engaged in the development and marketing of products competitive with our patented and licensed products. Regarding our ED products, all necessary governmental marketing approvals have been obtained and Invicorp has been commercially launched only in New Zealand. Assuming such approvals are obtained we or our commercial partners will compete directly with other companies having established ED injectable products in the marketplace, including Pfizer, Schwarz Pharma, and Vivus, which market Caverject^®, Edex^® and Muse^®, respectively, although we believe Invicorp offers advantages over these therapies including a favorable side effect profile, high level of efficacy in organic ED, natural erection and termination, and shorter time to onset. Pfizer, the manufacturer of the oral sildenafil product Viagra^®, and two other recent market entrants, Eli Lilly’s Cialis and Bayer/GlaxoSmithKline’s Levitra, control the bulk of the ED therapy market, which currently represents in excess of 92% of the worldwide ED market. However, we consider Invicorp to be complimentary to rather than competitive with these oral therapies as it addresses the needs of patients for whom the oral therapies are not effective or well-tolerated.

The biopharmaceutical, pharmaceutical and cosmeceutical industries are highly competitive. We compete and will continue to compete with research and development programs at biotechnology, biopharmaceutical, pharmaceutical and cosmeceutical companies, as well as academic institutions, government agencies and public and private organizations throughout the world. Virtually all of our existing or potential competitors have substantially greater financial, technical and human resources. Our commercial competitors have the capability and resources to develop or acquire and market products that compete with our existing and planned products, and the timing of the market introduction of our own and our competitors’ products will be important competitive factors affecting our future results.

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We cannot predict the extent to which any of the products we are currently developing, including Invicorp and Reliaject, will become commercially viable. Assuming that these products are approved for sale in the countries in which approvals would be sought, we believe that competition for Invicorp will be based, among other things, on product efficacy, ease of administration, convenience, speed of onset and third party reimbursement while competition for Reliaject will be based, among other things, on price, entry into additional therapeutic categories and marketing acumen. Our competitive position and ability to remain viable in the future also depends upon our ability to contract for effective and productive research and attract and retain qualified personnel to develop and effectively exploit the results of such research. We expect competition to intensify in all fields in which we are involved.

Government Regulation

General

The research, pre-clinical development, clinical trials, manufacturing and marketing of the products comprising our Pharmaceuticals Segment are subject to extensive regulation, including pre-marketing approval requirements, of the FDA and equivalent foreign regulatory agencies. Product development and approval within this regulatory framework take a number of years and involve 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. Furthermore, regulatory agencies 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. In addition, there can be no assurance that this regulatory framework will not change or that additional regulations will not arise at any stage during product development that may affect approval, delay an application, or require additional expenditures. Accordingly, we cannot assure that clinical trials related to any products currently in development will be completed successfully within any specified time period, if at all, or that pre-marketing approvals based on such trials will be granted.

While the business currently comprising our existing Skincare Segment generally is not subject to pre-marketing approval, various statutes and regulatory restrictions apply to this business in the United States and most other countries. For future compounds the Company will consider taking some through the drug approval process, not necessarily mutually exclusive of the cosmeceutical route.

Product Approval-United States

In the United States, the Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our pharmaceuticals. The steps required before a pharmaceutical product may be marketed in the United States include:

Clinical trials of new pharmaceuticals in humans are designed to establish both the safety and the efficacy of the pharmaceutical 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

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levels. Phase III studies 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 have 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.

Senetek’s Investigational New Drug application to the FDA for Invicorp was withdrawn. Under the terms of our license agreement with Ardana Bioscience Ltd., it has agreed to prepare for and request (currently by mid-June 2005) a meeting with the FDA to discuss reinstatement of the Investigational New Drug application and the clinical trials and other support that would be required for approval, but Ardana has no obligation to enter into a license for the United States and pursue FDA approval.

Current FDA regulations govern the manufacture, labeling, advertising and marketing of over-the-counter drug products covered by the Federal Food, Drug and Cosmetics Act, which are required to obtain pre-market approval if they do not fall within the parameters of FDA-issued “monographs”. These regulations cover sunscreen products, including the Company’s Kinetin Plus Age Defiant^® lotion with SPF 15 and lip balm, which must comply with applicable monograph requirements. Currently, such regulations do not apply to non-drugs, including the other products in our Kinetin Plus Age Defiant line or the current products of our domestic licensees, though the FDA does regulate issues such as labeling and has the power to seize products found to be mislabeled or adulterated.

There can be no assurance that the Federal Food, Drug and Cosmetics Act or the regulations thereunder will not be changed so as to increase the pre-marketing approval and pharmacovigilence requirements for products subject to regulation as drugs or to subject non-drug products to increased regulation.

Product Approval-Other Countries

Marketing of pharmaceutical products in other countries requires regulatory approval from the notified bodies in each particular country. The current approval process varies from country to country, and the time to approval may vary from that required for FDA approval, although the review of clinical studies by regulatory agencies in foreign jurisdictions to establish the safety and efficacy of the product generally follows a similar process to that in the United States. Similarly, non-pharmaceutical products generally are not subject to pre-marketing approval requirements in foreign countries although they are regulated in a manner similar to the United States and, in the case of certain countries such as Japan, such products may require reformulation to remove ingredients, such as certain preservatives, not considered acceptable by the particular country.

Invicorp was approved for marketing in Denmark in July 1998 and renewed in May 2003. In June 2000 the New Zealand Medicines Assessment Advisory Committee granted a Marketing Authorization Approval for Invicorp in New Zealand. In October 2000, the United Kingdom Medicines Control Agency granted a Marketing Authorization for a modified formulation of Invicorp in the United Kingdom, where it is currently sold to physicians for prescribing on a “named patient” basis. An application for Marketing Authorization Approvals under the European Mutual Recognition Procedure (“MRP”) has been initiated, with Denmark being selected as the Reference Member State. Following Denmark’s approval of the MRP dossier for Invicorp and release of translated copies to those Member States selected to receive it, such Member States will have a period in which they may review and comment upon the dossier, following which each State may grant or withhold marketing authorization or impose conditions or limitations upon such authorization. No assurance can be given as to the number of Member States that will ultimately authorize marketing following release of the MRP dossier.

Post-Approval

The marketing and manufacture of pharmaceutical products are subject to post-approval regulatory review, and later discovery of previously unknown problems with a product, manufacturer or facility may result in the regulatory agencies requiring further clinical research or imposing restrictions on the product or the

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manufacturer, including withdrawal of the product from the market. Additionally, any adverse reactions or events involving such products must be reported to these agencies. Previously unidentified adverse events or an increased frequency of adverse events occurring post-approval could result in labeling modifications, additional contraindications and other restrictions that could adversely affect future marketability. Ultimately, marketing approvals may be withdrawn if compliance with regulatory standards is not maintained or if a product is found to present an unacceptable risk. Any such restriction, suspension or revocation of regulatory approvals could have a material adverse effect on us.

Third-Party Reimbursement

We believe that the availability of third-party reimbursement of all or a portion of the cost of Invicorp therapy may affect the overall marketability of Invicorp and its related delivery systems.

In the United States, government-funded and private insurance programs reimburse or pay directly all or a portion of the cost of many medical treatments, prescription drugs and medical devices. The U.S. Health Care Financing Administration (“HCFA”) sets reimbursement policy for the Medicare program in the United States, and has established a national coverage policy for the diagnosis and treatment of ED in Medicare beneficiaries. Private insurance coverage for ED treatment, however, varies widely across the United States, and the introduction and popularity of Pfizer’s Viagra^® resulted in some plans establishing broad coverage exclusions for ED treatment. It is not clear whether such plans would include injectable therapy for moderate to severe ED within the same exclusion as these oral therapies.

Outside of the United States, most third-party reimbursement programs are governmentally funded. In some countries, no reimbursement currently is made for ED therapy, while other countries limit the amount of reimbursement or require that ED treatment is related to specific other medical conditions. 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. Restrictions on the pricing of Invicorp could adversely affect the profitability of the Pharmaceuticals Segment.

Intellectual Property

We rely on a combination of patents, trade secrets, trademarks and confidentiality agreements to protect our business interests. We believe that patents are of material importance to the success of our royalty-driven business model and that trademarks are also of significance. Our policy is to file patent applications to protect inventions and improvements considered important to the development of our business in the principal countries where protection from manufacture or marketing of infringing products is commercially warranted. Typically, U.S. patents expire 17 years after the grant date and foreign patents expire up to 20 years after filing of the patent application. As of December 31, 2004 we held approximately 87 issued patents, including patents covering certain combinations of active ingredients for the treatment of ED, granted in 18 countries and pending in 16 other countries, patents for the class of cytokinins including Kinetin and Zeatin for ameliorating the effects of aging on skin, granted in 26 countries and pending in eight other countries, patents for such cytokinins for ameliorating the effects of hyperproliferative skin diseases, including psoriasis, granted in 15 countries, and autoinjector patents for the delivery of therapeutic ingredients, granted in 20 countries and pending in seven other countries. In January 2003 we were assigned a United States patent for the use of a class of cytokinins (including Kinetin) in the treatment of inflammatory diseases.

It is noted, however, that patents, including those for pharmaceuticals and skincare ingredients, generally involve complex legal and factual issues. In the United States, for example, the first person to conceive and document a novel invention is generally entitled to patent it, even if another person who subsequently conceived the invention was the first person to file a patent application on it. This issue of priority of invention is further complicated by the fact that patent applications in the United States are maintained in secrecy until a patent is issued or denied, generally years after filing. Accordingly, a patent-holder may be subject to interference

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proceedings in the U.S. Patent and Trademark Office (“PTO”) long after the patent was issued based upon another party’s claim of earlier invention. Furthermore, as only novel inventions are patentable, a patent-holder may be subject to proceedings in the PTO or in federal court attacking the validity of the patent based on alleged obviousness or so-called “prior art”, or based on alleged improprieties in prosecuting the patent in the PTO. Issues of novelty and abuse of patent also arise under the laws of most foreign countries in which we hold patents or have filed patent applications. We have successfully defended against claims of invalidity and unenforceability of our Kinetin patents. However, while we believe that our patents are valid and enforceable, there can be no assurance that if, in the future, we must enforce any one or more of our patents, or such patents are challenged by a third party, such patents ultimately would be upheld. Similarly, while we believe that our products do not infringe the valid claims of any third party’s patents, there can be no assurance that we would prevail if a third party sought to enforce its patent against us by a suit for an injunction or damages.

Interference and similar proceedings in the PTO or equivalent foreign patent offices, whether brought by us to protect our patents or brought by a third party challenging such patents, are time-consuming, disruptive of management and highly costly, and injunctive and other patent litigation in court is likely to be many times more time-consuming, disruptive and costly. Furthermore, in the United States (unlike many foreign countries) a party generally is not entitled to reimbursement of any portion of its legal fees and expenses even if it is wholly successful in its prosecution or defense, so that we could be exposed to costs which could have a material adverse effect on our business even if we were successful in enforcing our patents against an infringer or successful in defending against proceedings to invalidate our patents or proceedings alleging breach by us of a third party’s patents. Additionally, if we were unsuccessful in proceedings challenging our patents, third parties licensed by us under those patents might seek to terminate such licenses and cease paying royalties. If we were unsuccessful in defending against a claim that we had infringed a third party’s patent, even unknowingly, we could be subject to a permanent injunction against engaging in the infringing business as well as an award of damages measured by the profits obtained from past infringement. Additionally, because of our relative lack of financial and management resources, we could be less able than our competitors to bear such risks.

Employees

As of December 31, 2004, we had eleven full-time employees and one part time employee, comprised of one employee located in our office in St. Neots, United Kingdom, two employees at our research facility in Denmark, and nine persons at our Napa, California headquarters.

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RISK FACTORS

As stated in the preamble to this Annual Report on Form 10-K, this document contains numerous forward-looking statements which we believe to be a fair reflection of our risks and opportunities. However, such statements by their nature are future-related and involve substantial uncertainties. In addition to those factors referred to elsewhere in Part I of this Annual Report, particularly the Sections in Item 1 entitled “Competition”, “Government Regulation” and “Intellectual Property”, and in Part II of this Annual Report, particularly in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we have identified the following factors that may affect whether future events may differ materially from the expectations described in such forward-looking statements.

Limited Product Portfolio and Relatively Fixed Revenue Stream.    Substantially all of our current revenue base is derived from license fees, which are amortized into income over the terms of the licenses, or royalties earned on licensees’ sale of such licensed products, which generally are paid quarterly. In addition, part of current revenues reflect the royalties received from Signet on sales of monoclonal antibodies produced from cell lines licensed to the Company from RFMH. If our patents on Kinetin were successfully challenged and our Kinetin licensees sought to terminate their licenses, our revenue stream could be substantially curtailed, and if RFMH’s patents were successfully challenged or the State of New York ceased supporting the Foundation, our sublicense royalties from Signet would be reduced or eliminated. Additionally, our present licensee revenue stream is tied to our licensees’ sales of licensed product and accordingly is limited to the growth in their sales of licensed products, unless new territories are added to existing licenses or licenses are signed with new licensees. Should we be faced with significant cash requirements in excess of our internally generated funds, our capital resources might be inadequate to fund our capital needs, as described below. Although the Company is confident in its ability to increase its royalties from new and existing license agreements, the skincare business has become increasingly competitive. These increasingly difficult market conditions, coupled with the time required to negotiate a new license and achieve new product launches, make it difficult for us to significantly increase our revenue is a short time frame.

Concentrated Revenue Base.    In 2004, four of our licensees, Valeant, Signet, The Body Shop and Revlon, accounted for 27%, 17%, 16% and 12%, respectively, of our total revenue and 44%, 26%, 1% and 16%, respectively, of our year-end net trade receivables. During January and February 2005, approximately 90% of the above mentioned accounts receivable were collected in full, and while we have no security for payment of such trade receivables, we believe that all of these customers are credit-worthy and committed to fully performing their license obligations. Nevertheless, should any of these customers cease paying receivables when due or cease performing under their respective licenses, our results would be adversely affected. Additionally, included in 2004 revenue is $1.6 million related to the OMP settlement, of which $1.5 million is a one time settlement payment. The Company will continue to receive quarterly royalties from OMP until approximately $400,000 of additional royalties are received. The level of OMP royalty income, which approximated 21% of total revenue in 2004, will be substantially less in future years.

Reliance on Other Organizations for Research and Development, Sales and Marketing Functions.    We rely on a number of significant collaborative relationships for a large part of our research and development, sales and marketing. The collaborations with Valeant, The Body Shop, Revlon and other licensees and our research collaborations pose a number of risks including our inability to control whether our counter-parties will devote adequate resources to their efforts or fully perform their contractual undertakings, failure of which could lead to delays in commercializing products, revenue curtailment and the expense and management distraction of dispute resolution.

Limited Capital Resources.    As described under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, all of our indebtedness is from a single note financing pursuant to agreements under which the note holders have substantial control over our ability to incur additional debt, sell

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equity or dispose of assets, substantially all of which are pledged as security for our borrowings under this financing. In the event that we are unable to fund continued product development and governmental marketing approvals of our pharmaceutical products or such unbudgeted expenses as the defense of our position in patent litigation through our operating cash flow or by raising additional cash through equity offerings, we would currently be largely dependent upon the willingness of the existing noteholders to provide additional funding, and if we were unable to arrange for funding upon acceptable terms or to repay this debt from other sources, our business could be materially adversely affected. Our significant reduction in the amount of this indebtedness in 2004 has not eliminated any of these rights of the holders of the remaining debt, although it has made more feasible the repayment of the remaining debt from funds generated by other financings or from operations. In the event that we are required to obtain equity financing to replace this indebtedness, such financing may result in the substantial dilution of stockholders’ interests and may result in future investors being granted rights superior to those of existing stockholders.

Fluctuating Operating Results and American Depository Shares (‘ADS”) Price.    Our operating revenues are largely dependent upon the growth and cyclicality of our licensees’ Kinetin businesses, and have fluctuated in the past and are likely to do so in the future. Because many of our expenses are relatively fixed in the short-term, our earnings will decline if revenue declines in a given quarter. Such declines could result from delays in recognizing revenue or for other reasons. In particular, research and development and general and administrative expenses are not affected directly by variations in revenue. Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance. In future quarters, our operating results could be below the expectations of securities analysts or investors. In that case, our stock price could fluctuate significantly or decline.

Delisting of ADSs.    The market price of Senetek’s ADSs declined significantly following announcement of our results of operations for 2003, which generated a significant loss as a result of a number of factors, many of them non-recurring or non-cash in nature. In August 2004 the Listing Qualifications Division of The Nasdaq Stock Market, Inc. notified Senetek of its decision to delist Senetek’s American Depositary Shares from the Nasdaq SmallCap Market due to non-compliance with the minimum continued listing standards set forth in Marketplace Rule 4320(e)(2)(B), which requires a market value of listed securities of at least $35 million, or net income from continuing operations of at least $500,000 in the most recently completed fiscal year or two of the last three most recently completed fiscal years, or shareholders’ equity of $2.5 million. Senetek appealed the Staff’s determination to a Listing Qualifications Panel of Nasdaq, which had the effect of staying the delisting of the Company’s securities pending the Panel’s decision, but following an oral presentation by Company management, the Panel upheld the Staff’s determination. While Senetek further appealed the delisting decision to Nasdaq’s Listing and Hearing Review Council (which appeal is still pending), this action did not further stay the delisting, which became effective November 10, 2004. Senetek ADSs were immediately eligible to trade on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “SNTKY.OB,” but the Company believes that the subsequent further declines in the ADSs’ market prices is in part attributable to the Nasdaq delisting, that this depressive effect may continue so long as Senetek ADSs are traded on the OTCBB, and that no longer being listed on a national stock market may negatively impact prospects for a successful equity financing should such become necessary. Senetek intends to seek either to regain its listing on the Nasdaq SmallCap Market or to list on the American Stock Exchange as soon as the Company achieves eligibility under applicable initial listing standards, but there can be no assurance of the timing or success of such efforts.

Acquisition-Related Risks.    In July 2004 Senetek’s Board of Directors unanimously approved retaining Tri-Artisan Partners LLC, a New York-based merchant bank, to assist the Company in expanding and diversifying its portfolio of proprietary technologies within its core businesses of skin care and dermatologicals, through synergistic corporate acquisitions using the Company’s securities. On October 27, 2004 the Company and IGI, Inc. announced the signing of a non-binding letter of intent for an acquisition of IGI by Senetek that would result in Senetek shareholders receiving 60% of the shares of a newly formed holding company and IGI shareholders receiving 40%, and on January 14, 2005 Senetek announced a revised offer under which shareholders of the two companies each would receive 50% of the shares of the new holding company. This offer expired by its term on

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February 28, 2005. Completion of any such transaction would be subject to numerous contingencies, including satisfactory completion by each company of its due diligence review of the other, approval of definitive terms by each Board of Directors, negotiation and execution of definitive agreements, and approval by each company’s shareholders. Furthermore, completion of any significant business acquisition by Senetek would involve substantial risks, including that the Company’s small management cadre would be diverted from the operating needs of Senetek’s business, that the professional fees of attorneys, accountants, proxy solicitors and others incurred in executing such a transaction would divert needed financial resources from the Company’s business, that these expenses and the costs of integrating the two companies’ assets and operations could result in dilution of earnings, at least in the short term, and that management might be unable successfully to achieve the synergies from the combination of the two companies upon which forecasts of longer term incremental earnings were based.

There is also a risk, particularly for so long as our ADSs’ market price remains at historically depressed levels, that the Company could become the subject of an unsolicited acquisition by a third party, through a tender offer or other transaction that might not assure the Company’s ADS holders of fair value of their interests in the Company. The English Companies Act, under which Senetek is incorporated, does not permit adoption of so-called defensive provisions in a company’s Articles of Association to make such a transaction more difficult or to force such an acquirer to negotiate terms with the Company’s Board of Directors on behalf of the Company’s shareholders.

Intellectual Property and Enforcement.    Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our technologies, both in the United States and in other countries. We rely on our issued patents and pending patent applications in the United States and in other countries to protect our intellectual property and our competitive position. We cannot assure that any of the currently pending or future patent applications will issue as patents, or that any patents issued to us will not be challenged, invalidated or held unenforceable. Further, we cannot assure that our intellectual property rights will be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. We enter into confidentiality agreements with our employees, consultants and prospective commercial partners upon commencement of a relationship, but we cannot assure that these agreements will provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information.

Our commercial success also depends in part on avoiding the infringement of other parties’ patents or proprietary rights and the breach of any licenses pursuant to which we practice our technologies. We believe that we do not infringe third parties’ patents or other rights but cannot assure that we will not be found in the future to infringe these or other proprietary rights of third parties, either with products we are currently developing or with new products that we may seek to develop in the future. If third parties assert infringement claims against us, we will be forced either to defend or enter into license arrangements with them. The expenses of such defense could divert funds from needed investment in our business, but we cannot assure that we could enter into licenses on commercially reasonable terms to avoid such expense. Further, an adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Regulation by Government Agencies.    The production and sale of pharmaceutical products is highly regulated. Our ability and the ability of our partners to secure regulatory approval for our products and to continue to satisfy regulatory requirements will determine our future success. We may not receive required regulatory approvals for our products or receive approvals in a timely manner. In particular, the United States Food and Drug Administration and comparable agencies in foreign countries, including the Danish Medicines Agency, which is Reference Member State for the European Union Mutual Recognition Procedure, and the Medicines and Healthcare Regulatory Agency in the United Kingdom, must approve human therapeutic and preventive products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. Delays in obtaining

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regulatory approvals could adversely affect the marketing of products and our ability to receive product revenues or royalties. We can give no assurance that we will be able to obtain the necessary approvals for clinical testing or for the manufacturing and marketing of any products that we develop.

New Product Pipeline.    As a result of regulatory and competitive uncertainties, along with potentially limited funding sources, no assurance can be given that new products can be successfully developed and marketed. We have a pipeline of new products and new indications for existing products in development, however success in developing and obtaining marketing approvals for these products and locating an appropriate licensee, to the extent required, is essential to the success of our business plan.

Competitive ED Therapies.    There can be no assurance that new ED medications will not be developed to fulfill many if not all of ED patients’ needs that are currently unmet, or that our injection therapy will in fact gain acceptance. Oral medications currently represent substantially all of the worldwide market for ED treatment because of their ease of use and non-invasive path of administration. Pfizer’s Viagra, Eli Lilly’s Cialis and Bayer/GlaxoSmithKline’s Levitra represent virtually all of this oral medication market. We believe that there will nevertheless be a market for our Invicorp ED injectable therapy because of its greater efficacy, favorable side-effect and contraindication profiles, and relatively aesthetic delivery systems, but there can be no assurance of this.

Research and Development.    Our field is characterized by extensive research efforts. Our research could prove unproductive. Furthermore, other companies could engage in research or development which renders our programs superfluous or obsolete. Other companies with which we compete generally have substantially greater financial resources to undertake additional and more effective research. In particular we face intense competition for the discovery and development of ingredients to address signs of photoaging and other skincare conditions from large, global companies with far greater research, development and marketing resources than ours, and there can be no assurance that our existing products or new products developed for our Skincare Segment will maintain market acceptance in competition with existing and new offerings of our competitors.

Potential Product Liability.    During recent years, lawsuits resulting in very substantial liability have been filed against companies engaged in the sale of pharmaceutical and other medical-related products or devices which have subsequently proved harmful to human health. Many of these cases have exposed companies to liability long after the products have been brought to market even though, at the time of their development, based on extensive research, there were no perceived risks of injury. Thus, notwithstanding United States Food and Drug Administration or other foreign governmental approval, if granted, there can be no assurance that we will not be subject to liability from the use of our products, or that our product liability coverage will be adequate to protect against future claims. Management intends to have third parties manufacture and distribute our products and require that they maintain liability cover in order to lessen our liability. However, we cannot assure that this result will be effective.

Management Infrastructure.    We currently employ 12 people, and have a very small, though we believe highly qualified and motivated, management team. Should we lose any management resources and be unable to attract high caliber replacements to continue implementing our business plan, we could be materially adversely affected. There can be no assurance that we will be able to staff our requirements in a manner adequate to support our planned future growth.

ITEM 2—PROPERTIES

We lease approximately 31,000 square feet in Napa, California for our headquarters. The headquarters facility includes approximately 7,300 square feet of manufacturing space and 23,700 square feet of research, marketing and administrative space. The lease for the Napa facility expires in December 2007. We also lease 900 square feet of office space in St. Neots, United Kingdom, under a 5-year lease with a 3 month rolling break option. The Company expects to terminate the lease in the United Kingdom in mid 2005. During October 2003, the Company entered into a quarterly lease agreement at a business park adjacent to Aarhus University in

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Denmark for approximately 2,000 square feet. The facility is used for research and development and was renovated and equipped in 2004. The lease requires quarterly payment and can be cancelled by giving 3 months notice.

ITEM 3—LEGAL PROCEEDINGS

On April 11, 2003, the Company filed lawsuit against OMP in the Los Angeles County Superior Court for common law misappropriation, breach of confidence, breach of contract, breach of implied covenant of good faith and fair dealing, intentional and negligent interference with prospective economic advantage, statutory and common law unfair competition, and unjust enrichment, and on October 28, 2003, OMP filed a lawsuit against Senetek in the United States District Court for the Northern District of California for violation of the Sherman Act and unfair competition as a result of Senetek’s alleged abuse of patents. In March 2004, the Company entered into a settlement agreement with OMP under which, in exchange for Senetek granting OMP the ongoing non-exclusive right to market and sell specified Obagi-K products containing Kinetin in Japan limited to its existing channel of trade, Senetek received an up front payment of $1.5 million in April 2004 and is to receive an additional $500,000 of quarterly royalty payments based on sales in Japan of skin care products containing Kinetin under the Obagi name. Through December 31, 2004, the Company had earned $104,000 of the total $500,000.

On June 2, 2003, the Company commenced a lawsuit in the High Court of Justice, Chancery Division, in London, England against Eagle-Picher Technologies, LLC and Eagle-Picher Industries Inc., both Ohio corporations (“Eagle-Picher”) alleging that the Defendants failed to perform under an April 1998 agreement pursuant to which they agreed to manufacture and supply phentalomine mesylate meeting required pharmacopoeial specifications for use as an active ingredient in the Company’s proprietary Invicorp^® erectile dysfunction drug. In September 2004, the Company entered into a settlement agreement with Eagle-Picher under which in December 2004 the Company received a lump sum payment of $235,000 in release of all claims.

In the course of responding to a document request in April 2003 as part of an unrelated Securities and Exchange Commission (“SEC”) investigation focused on a firm not affiliated with the Company, the Company became aware of certain documents suggesting that during 2002, Company executives might have supplied non-public financial information to two securities analysts in an effort to correct draft research reports that contained information the executives considered overly-optimistic. The Board of Directors appointed an independent Committee of non-management Directors which engaged outside securities counsel to conduct a full internal investigation and in June 2003 voluntarily reported the results to the Commission’s office conducting the unrelated investigation. In March 2004, the Securities and Exchange Commission staff sent to the Company’s legal counsel a letter advising that the staff was considering recommending commencement of a proceeding alleging violations of Section 13(a) of the Securities Exchange Act of 1934 and Commission Regulation FD, and inviting the submission of a response. The independent Committee and the Committee’s counsel responded, and in September 2004, the Company reached an agreement with the Commission in settlement of the SEC inquiry under which, without admitting or denying the findings of the SEC, Senetek consented to the entry of an order by the SEC finding that Senetek’s communication of the information to the analysts without simultaneously or promptly releasing the information to the public violated Regulation FD, and ordering Senetek to cease and desist from causing future violations of Regulation FD. The SEC order notes that in determining to accept Senetek’s offer of settlement, the SEC considered the remedial acts promptly undertaken by Senetek and the cooperation afforded by Senetek to the staff of the SEC. The SEC took no action against any individual at Senetek and imposed no monetary penalty.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 10, 2004 the Company conducted its Annual General Meeting related to fiscal 2003. At the meeting, the shareholders approved the re-election of directors Uwe Thieme and Andreas Tobler. Continuing as directors for the Company but not subject to re-election were directors Frank Massino, George Fellows, Kevin McCarthy, Anthony Williams and Dr. Franklin Pass. Subsequent to the annual general meeting Mr. Fellows and Mr. McCarthy resigned as directors.

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The following will summarize the matters that were put to vote at the annual general meeting and the vote received.

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PART II

ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is currently no established public trading market for our Ordinary shares. Senetek American Depositary shares (each representing one Ordinary share and evidenced by one American Depositary Receipt) began trading on the over-the-counter market in the United States in November 1984 were traded through The NASDAQ Smallcap Market from May 1986 through November 10, 2004. On November 10, 2004, the Company’s Common Stock was delisted from the Nasdaq Stock Market and began trading on the electronic over-the-counter quotation system of the National Association of Securities Dealers (the “NASD”), the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol “SNTKY.OB” The OTCBB is a regulated quotation service for subscribing members of the NASD that displays the real-time quotes, last-sale prices and volume information in over-the-counter securities. The OTCBB market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The depository for these shares is the Bank of New York.

The following table sets out the range of high and low closing bid prices for the American Depositary shares during each quarter of our two most recent fiscal years, as reported by the NASDAQ Smallcap Market through November 10, 2004. For the period following November 10, 2004 the table sets forth the high and low bid prices per share for the American Depositary Shares as reported to the NASD by the NASD’s member firms.

Fiscal Year Ended December 31, 2004

Fiscal Year Ended December 31, 2003

As of March 24, 2005 there were approximately 210 holders of record of our Ordinary shares, and approximately 1,400 holders of record of American Depositary shares. The bid price of American Depositary Shares at March 24, 2005 was a high of $0.26 and a low of $0.25

Dividends.    Senetek has not paid, nor does it currently contemplate the payment of, any cash dividends on the Ordinary shares. The decision whether to pay, and the amount of any dividends, will be based upon, among other things, our earnings, capital requirements, financial conditions and applicable law. Any dividend, either cash or stock, must be recommended by the Board of Directors and approved by the shareholders through the Board of Directors. The Board of Directors is, however, empowered to declare interim dividends. However, 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 $90,986,000 at December 31, 2004. Accordingly, the

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Board of Directors 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 shareholders 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.

Taxation

The following discussion describes the material US Federal income tax and UK tax consequences of the purchase, ownership and disposition of our shares or ADSs (evidenced by American Depository Receipts (“ADRs”)) for beneficial owners:

The statements of US federal income tax and UK tax laws set out below:

No assurance can be given that taxing authorities or the courts will agree with this analysis.

This discussion does not address all aspects of US and UK taxation that may be relevant to you and is not intended to reflect the individual tax position of any beneficial owner, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of investors or that are generally assumed to be known by investors. The portions of this summary relating to US Federal taxation are based upon the US Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed US Treasury regulations promulgated thereunder, published rulings by the US Internal Revenue Service (“IRS”), and court decisions, all in effect as at the date hereof, all of which authorities are subject to change or differing interpretations, which changes or differing interpretations could apply retroactively. This summary is limited to investors who hold our shares or ADSs as capital assets within the meaning of Section 1221 of the Code, generally property held for investment, and this summary does not purport to deal with the US Federal or UK taxation consequences for investors in special tax situations, such as dealers in securities or currencies, persons whose functional currency is not the US Dollar, life insurance companies, tax exempt entities, financial institutions, traders in securities that elect to use a “mark-to-market” method of accounting for their securities holdings, regulated investment companies, persons holding our shares or ADSs as part of a hedging, integrated, conversion or constructive sale transaction or straddle or persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. In particular, the following summary does not address the adverse tax treatment to you that would follow if you own, directly or by attribution, 10% or more of our outstanding voting share capital and we are classified as a “controlled foreign corporation” for US Federal tax purposes.

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As used herein, the term “US holder” means a beneficial owner of our shares or ADSs who or which is:

If a partnership (or an entity that is treated as a partnership for US Federal income tax purposes) holds our shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our shares or ADSs, you should consult your tax advisors.

The summary does not include any description of the tax laws of any State or local government or of any jurisdictions other than the United States and the United Kingdom that may be applicable to the ownership of our shares or ADSs. You are urged to consult your own tax advisor regarding the US Federal, State, and local tax consequences to you of the ownership of our shares or ADSs, as well as the tax consequences to you in the United Kingdom and any other jurisdictions.

For the purposes of the Conventions and the Code, you will be treated as the owner of our shares represented by the ADSs evidenced by the ADRs.

New Income Tax Convention

The United States and the United Kingdom have recently concluded a new income tax convention (the “New Income Tax Convention”). The New Income Tax Convention has been ratified by the competent authorities in both countries. The New Income Tax Convention is effective:

except that a person entitled to the benefit of the existing Income Tax Convention may elect to remain subject to the terms of that convention and not the New Income Tax Convention for a further period of one year.

The New Income Tax Convention contains rules that modify the treatment under the Income Tax Convention of US holders who own shares or ADSs of a UK corporation in several aspects. Throughout the following discussions, we have included specific references to the new rules under the New Income Tax Convention as appropriate. You should consult your own tax advisors as to how the Income Tax Convention and New Income Tax Convention would affect you with respect to your ownership of our shares or ADSs (including the application of the anti-conduit rules contained in the New Income Tax Convention) and if and how you should elect to defer the application of the New Income Tax Convention.

Taxation of Capital Gains

United Kingdom

If you are not resident or ordinarily resident in the United Kingdom for UK tax purposes, you will not be liable for UK tax on capital gains realized or accrued on the sale or other disposition of shares or ADSs unless the

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shares or ADSs are held in connection with your trade or business (which for this purpose includes a profession or a vocation) carried on in the United Kingdom through a branch or agency and the shares or ADSs are or have been used, held or acquired for the purposes of such trade or business or such branch or agency.

A US holder who is an individual who has on or after 17 March 1998 ceased to be resident or ordinarily resident in the United Kingdom in the preceding five years and who disposes of shares or ADSs during that period may also be liable for UK tax on capital gains notwithstanding that the person may not be resident in the United Kingdom at the time of the disposal.

United States

Subject to the Passive Foreign Investment Company discussion below, gain or loss realized by you on the sale or other disposition of the shares or ADSs will be subject to US Federal income tax as capital gain or loss in an amount equal to the difference between your tax basis in the shares or ADSs and the amount realized on the disposition. The capital gain or loss will be long-term capital gain or loss if the US holder has held the shares or ADSs for more than one year at the time of the sale or exchange. A gain or loss realized by you generally will be treated as US source gain or loss for US foreign tax credit purposes.

Passive Foreign Investment Company Considerations

Generally, for US Federal income tax purposes, we will be a “passive foreign investment company”, or a “PFIC”, for any taxable year if either (1) 75% or more of our gross income is “passive” income or (2) 50% or more of the value of our assets, determined on the basis of a quarterly average, is attributable to assets that produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties and rents not arising from the active conduct of a trade or business, and gains from the sale of assets that produce such income. If we are a PFIC in any taxable year that you own our shares or ADSs, you may be subject to tax at the highest ordinary income rates applicable to you and pay interest on such tax based on your holding period in the shares of ADSs, on (1) a portion of any gain recognized on the sale of our shares or ADSs and (2) any “excess distribution” paid on our shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years).

Based on our current activities and assets, we do not believe that we are a PFIC, and we do not expect to become a PFIC in the foreseeable future for US Federal income tax purposes. Our belief that we are not a PFIC and our expectation that we will not become a PFIC in the future are based on our current and planned activities, and may change in the future. The determination of whether we are a PFIC is made annually. Accordingly, it may be possible that we will become a PFIC in the current or any future year due to changes in our asset or income composition.

UK Inheritance and Gift Tax

If you are an individual domiciled in the United States and are not a national of the United Kingdom for the purposes of the Estate and Gift Tax Convention, any share or ADS beneficially owned by you will not be subject to UK inheritance tax on your death or on a gift made by you during your lifetime, provided that any applicable US Federal gift or estate tax liability is paid, except where the share or ADS is part of the business property of your UK permanent establishment or pertains to your UK fixed base used for the performance of independent personal services. The Estate and Gift Tax Convention generally provides for tax paid in the United Kingdom to be credited against tax payable in the United States, based on priority rules set out in that Convention, in the exceptional case where a share or ADS is subject to both UK inheritance tax and US Federal gift or estate tax. Where the shares or ADSs have been placed in trust by a settlor who, at the time of the settlement, was a US holder, the shares or ADSs will generally not be subject to UK inheritance tax if the settlor, at the time of the settlement, was domiciled in the United States for the purposes of the Estate and Gift Tax Convention and was not a national of the United Kingdom.

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US Gift and Estates Taxes

If you are an individual US holder, you will be subject to US gift and estate taxes with respect to the shares or ADSs in the same manner and to the same extent as with respect to other types of personal property.

UK Stamp Duty and Stamp Duty Reserve Tax

Subject to certain exemptions, stamp duty will be charged at the rate of 1.5% rounded up to the nearest £5, or there will be a charge to the stamp duty reserve tax at the rate of 1.5% on the amount or value of the consideration paid, or in some circumstances the issue price or open market value, on a transfer or issue of shares (1) to, or to a nominee for, a person whose business is or includes the provision of clearance services, or (2) to, or to a nominee for, a person whose business is or includes the issuing of depositary receipts. It is understood that the UK Inland Revenue Stamp Office considers the depositary to fall within one or the other of the above two categories. The stamp duty reserve tax on the deposit of ordinary shares with the depositary will be payable by the person depositing those shares. Where stamp duty reserve tax is charged on a transfer of shares and ad valorem stamp duty is chargeable on the instrument effecting the transfer, the amount of the stamp duty reserve tax charged is an amount equal to the excess, if any, of the stamp duty reserve tax charge due on the transfer after the deduction of the stamp duty paid.

You will not be entitled to a foreign tax credit with respect to any UK stamp duty or stamp duty reserve tax, but may be entitled to a deduction subject to applicable limitations under the Code. You are urged to consult your own tax advisors regarding the availability of a deduction under their particular circumstances.

Transfers of ADRs

No UK stamp duty will be payable on an instrument transferring an ADR or on a written agreement to transfer an ADR provided that the instrument of transfer or the agreement to transfer is executed and remains at all times outside the United Kingdom. Where these conditions are not met, the transfer of, or agreement to transfer an ADR could, depending on the circumstances, attract a charge to ad valorem stamp duty at the rate of 0.5% of the value of the consideration (rounded up to the nearest £5) plus interest and penalties if not stamped within 30 days of execution.

No stamp duty reserve tax will be payable in respect of an agreement to transfer an ADR, whether made in or outside the United Kingdom.

Where no sale is involved and no transfer of beneficial ownership has occurred, a transfer of shares by the depositary or its nominee to the holder of an ADR upon cancellation of the ADR is subject to UK stamp duty of £5 per instrument of transfer.

Issue and Transfer of Ordinary Shares in Registered Form

Except in relation to persons whose business is or includes the issue of depositary receipts of the provision of clearance services or their nominees, the allotment and issue of shares by us will not normally give rise to a charge to UK stamp duty or stamp duty reserve tax.

Transfers of shares, as opposed to ADSs, will attract ad valorem stamp duty normally at the rate of 0.5% of the value of the consideration (rounded up to the nearest £5). A charge to stamp duty reserve tax, normally at the rate of 0.5% of the consideration, arises, in the case of an unconditional agreement to transfer shares, on the date of the agreement, and in the case of a conditional agreement the date on which the agreement becomes unconditional. The stamp duty reserve tax is payable on the seventh day of the month following the month in which the charge arises. Where an instrument of transfer is executed and duly stamped before the expiry of a period of six years beginning with the date of that agreement, any stamp duty reserve tax that has not been paid ceases to be payable, and if any stamp duty reserve tax has been paid a claim may be made for its repayment.

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Information Reporting and Backup Withholding

Payments that relate to the ordinary shares or ADSs that are made in the United States or by a US related financial intermediary will be subject to information reporting. Information reporting generally will require each paying agent making payments, which relate to a share or ADS, to provide the IRS with information, including the beneficial owner’s name, address, taxpayer identification number, and the aggregate amount of dividends paid to such beneficial owner during the calendar year. These reporting requirements, however, do not apply to all beneficial owners. Specifically, corporations, securities broker-dealers, other financial institutions, tax-exempt organizations, qualified pension and profit sharing trusts and individual retirement accounts are all exempt from reporting requirements.

If you are a depositary participant or indirect participant holding shares or ADSs on behalf of a beneficial owner, or paying agent making payments for a share or ADS, you may be required to backup withhold, as a backup against the beneficial owner’s US Federal income tax liability, a portion of each payment of dividends on our shares or ADSs in the event that the beneficial owner of a share or ADS:

This backup withholding tax is not an additional tax and may be credited against US Federal income tax liability if the required information is furnished to the IRS.

Taxation of Dividends

We have not included a detailed discussion of the tax consequences to holders of ordinary shares or ADSs of the payment of dividends in light of the Company’s present inability to pay dividends. As noted above, pursuant to the English Companies Act of 1985 a company may not pay a dividend while it has an accumulated deficit. As of December 31, 2004, the Company’s accumulated deficit is approximately $91 million.

EQUITY COMPENSATION PLAN INFORMATION

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ITEM 6—SELECTED FINANCIAL DATA

The selected consolidated statements of operations data presented below for each of the years in the three-year period ended December 31, 2004 and the selected consolidated balance sheet data as of December 31, 2004 and 2003 have been derived from and should be read in conjunction with our audited consolidated 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, 2000 and 2001 and the selected consolidated balance sheet data as of December 31, 2000, 2001 and 2002 have been derived from the audited consolidated financial statements contained in our annual reports to shareholders. The presentation of consolidated balance sheet data below for all periods presented reflects a reclassification of accrued compensation on stock option grants to share premium in stockholders’ deficit.

In accordance with the Financial Accounting Standards Board (“FASB”) Interpretation No. 44, which became effective July 2000, we changed our accounting principles for the recognition of stock compensation expense for our non-executive directors. We have non-executive directors within the scope of Accounting Principles Bulletin (“APB”) No. 25 and have reported the cumulative effect of changing to this new accounting principle in net income for the period of the change. This change in accounting principle increased net income in 2000 by $1,038,000.

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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                  RESULTS OF OPERATIONS

General

Senetek is a life sciences-driven product development and licensing company focused on the high growth market for dermatological and skincare products primarily addressing photoaging and age-related skin conditions. Senetek’s patented compound Kinetin, from which we generate the majority of our revenue, is a naturally occurring cytokinin that has proven effective in treating the appearance of aging skin. Senetek has licensed Kinetin to leading global and regional dermatological and skin care marketers including Valeant, The Body Shop and Revlon. Senetek works with leading researchers at the University of Aarhus, Denmark and also is collaborating with the Institute of Experimental Botany, Prague, and to a lessor extent with Beiersdorf AG, Hamburg, to identify and evaluate additional new biologically active compounds for the dermatological and skin care field. Senetek relies on collaborations with it licensees and with research organizations to generate substantially all of the Company’s sales and to perform research and development. The Company considers this business its Skincare Segment and the Company intends to emphasize the operations of this business in 2005, including spending additional research and development funds.

The Company also has developed and patented an intracavernous injection therapy (Invicorp) for the treatment of erectile dysfunction and a compact, disposable, fully automatic, pre-filled injection system (Reliaject). Our license agreement with RFMH and sales and marketing agreement with Signet provide us royalties on the sale of monoclonal and polyclonal antibodies used for research on various diseases including Alzheimer’s Disease. The Company considers this particular business part of its Pharmaceutical Segment. The Company is actively seeking business partners to assist with the financial and technical requirement of its sexual dysfunction and drug delivery business. In June 2004 the Company entered into an exclusive agreement with Ardana Bioscience Ltd, a privately-held specialty pharmaceutical company dedicated to improving reproductive health, for Ardana to manufacture and market Invicorp in the European Union and European Free Trade Area. Ardana is not initially planning on using the Reliaject in connection with the sale of Invicorp and the Company continues to actively pursue a partner for alternative uses of this specialized drug delivery equipment. The Company currently generates substantially all its revenue in the Pharmaceutical Segment from royalties from monoclonal antibodies while the majority of its research and development expenditures in the Pharmaceutical Segment have related to Invicorp. During 2004 the Company contributed to the expense of certain product stability studies of Invicorp conducted by Ardana. In 2005, the Company expects to scale back the research and development expense associated with Invicorp.

The financial statements set forth in Part IV of this Report have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are presented in U.S. dollars.

Material Changes in Financial Condition

During the year ended December 31, 2004, our liquid position, represented by cash, cash equivalents and short term investments increased by $3,335,000 to $4,522,000. The improvement in cash and short term investments was primarily the result of the $1.5 million OMP settlement, receipt of $5 million from Valeant related to an amendment to its license agreement, $1.4 million from the settlement of the USITC transaction, receipt of $625,000 from the exercise of Series D warrants, and receipt of $235,000 from the Eagle-Picher settlement, offset by lower revenues from Valeant and Revlon, higher legal fees including over $600,000 incurred in connection with the OMP settlement and repayment of $1.6 million of notes payable. As a result of these transactions, our current ratio at December 31, 2004 had improved to 2.55 compared to .74 at December 31, 2003.

Significant Trends

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RESULTS OF OPERATIONS

Our operations are carried out in the areas of monoclonal antibodies, pharmaceuticals development and drug delivery systems development (the “Pharmaceuticals Segment”) and the supply of proprietary skincare products (the “Skincare Segment”) to licensees.

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Administration, Sales and Marketing Expenses have been historically allocated equally to each Segment. For 2004, approximately $400,000 of legal fees has been specifically allocated to skincare and all other expenses have been allocated equally. For fiscal 2003, approximately $400,000 of marketing related costs, including the development of an infomercial, has been allocated to the skincare segment, all other administration, sales and marketing expenses have been allocated equally between the segments.

Revenues (Continuing Operations)

Substantially all of the Company’s current revenue base is derived from license fees and royalties on its patented Kinetin skin care ingredient and revenues on licensees’ sales of such licensed products. In addition, part of current revenues reflects the retained portion of royalties received from Signet on sales of monoclonal antibodies produced from cell lines licensed from RFMH that are not retained by Signet under the terms of the Company’s agreement with Signet. If the Company’s patents on Kinetin were successfully challenged and the Company’s Kinetin licensees sought to terminate their licenses, the Company’s revenue stream would be substantially curtailed, and if the RFMH’s patents were successfully challenged, the Company’s license agreements could yield substantially reduced royalties’ revenues. Additionally, the Company’s present revenue stream is tied to its licensees’ sales of licensed product and accordingly is relatively fixed by supply of product to meet consumer demand.

The 14.7% decrease in sales and royalties from skin care products during 2004 compared to 2003 was due to a $3.5 million decrease in product sales to Valeant only partially offset by a $1.1 million increase in Valeant royalty income, a decrease in royalties from Revlon of $690,000 offset by the $1.5 million of revenue from the OMP settlement and a $418,000 increase in royalties from The Body Shop. The majority of revenues are now royalties as a result of the amended license agreement, signed with Valeant in August 2003 (“the August 2003 Valeant amendment”) under which Valeant was permitted to manufacture its own products in exchange for paying a higher royalty rate. Valeant assumed manufacturing of its own products in the spring of 2004. Valeant purchased a high volume of product in 2003 as a precaution against manufacturing delays or other problems before they commenced manufacturing their own product in 2004. We expect our royalty revenues from Valeant and The Body Shop will continue to grow as they expand their product lines and geographical sales territories. Our royalties from Revlon are likely to continue to decline as their support of the product line containing Kinetin has been continuously declining as they focus on color cosmetics and less on skincare technology. The Company hopes to recoup its declining Revlon royalty revenues from other licensees such as Ferrosan. Although the Company is confident in its ability to increase its royalties from new and existing license agreements, the skincare business has become increasingly competitive. These increasingly difficult market conditions, coupled with the time required to negotiate a new license and achieve new product launches, make it difficult for us to significantly increase our revenue is a short time frame.

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The 42.3% increase in sales of and royalties on pharmaceutical products was due to the amendment to our agreement with Signet, effective April 2004, related to sales and marketing of diagnostic monoclonal and polyclonal antibodies. Under the new agreement with Signet, which was intended to create added incentives for Signet to increase sales, the Company expects to generate a more consistent quarterly royalty stream by accepting a lower royalty rate but on a larger revenue base. Under the previous agreement, the Company earned a higher royalty rate but on a lower base of revenue. In connection with the amended Signet agreement, we are now responsible for a larger portion of the license fee due to RFMH. The new license agreement with Signet will result in higher revenue, but also a higher cost of sales. Our gross profit dollars on an annual basis from the revenue of antibodies is expected to be approximately the same after April 2004 as it was before that date, but our gross profit percentage will be lower after the amendment with Signet as compared to before. Additionally, our overall sales and gross profit could fluctuate as the sales of antibodies follow sales patterns determined by project driven research organizations and are subject to fluctuation.

The 12.9% decrease in sales of and royalties on skincare products during the twelve months ended December 31, 2003 compared to the twelve months ended December 31, 2002 was due to a number of factors including the loss of OMP as a licensee. OMP had provided approximately $1.1 million in 2002 royalties, primarily the result of unamortized license fees being recognized as revenue when the contract terminated. There was no revenue from the Japanese market during the twelve months ended December 31, 2003 because of activities that were subject of the OMP settlement. The decrease in sales and royalties during 2003 compared to 2002 was also due to decreased royalties from Revlon. The decrease in Revlon royalty income of approximately $1,800,000 was primarily due to a lower average royalty rate resulting from Revlon’s reformulation of certain of its skin care products in 2003 to include its own patented active ingredient, which reduced our royalty rate but did not produce additional unit volume. Revlon also had lower unit sales compared to the prior year partially as a result of a significant product launch by Revlon in the second quarter of 2002 that was nonrecurring in 2003. The above mentioned reduction in revenues was partially offset by the increased product sales and royalty income from Valeant of approximately $1.6 million and increased royalty income from The Body Shop, both domestic and international, of approximately $300,000.

The 10.2% decrease in sales of and royalties on pharmaceutical products in 2003 compared to 2002 was due primarily to the timing of orders received. The sales of monoclonal antibodies follow sales patterns determined by project driven research organizations and are subject to fluctuations.

Cost of Sales

Cost of sales for 2004, which includes contract manufacturing and royalty fees, was $345,000 lower than the comparable periods in 2003. Cost of sales as a percentage of revenue declined from 17.0% in 2003 to 14.0% in 2004. The decrease in actual cost of sales and an increase in our gross profit was due to significantly lower product sales in skincare which have a higher cost of sales compared to royalty revenue. The $786,000 decrease in the skincare cost of sales during 2004 was partially offset by an increase of $441,000 in the 2004 cost of sales

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associated with Pharmaceutical products, primary antibodies. The increase in the Pharmaceutical cost of sales was directly related to the amendment to the sales and marketing agreement with Signet and costs associated with the extension of the RFMH license agreement. While we expect our gross profit on the total sale of antibodies to remain relative consistent, our gross profit percentage for antibodies will be lower as a result of the amendment with Signet, which became effective April 1, 2004, compared to the gross profit percentage before the amendment. We typically earn a lower gross margin on product sales than we do on royalty income.

Cost of sales for the year ended December 31, 2003 was $1,401,000, an increase of $409,000 or 41.2% from the year ended December 31, 2002. Cost of sales as a percentage of sales was 17.0% for the year ended December 31, 2003 compared to 10.5% for the year ended December 31, 2002. The cost of sales expressed as a percentage of net revenues increased in 2003 compared to 2002 due to a higher percentage of revenue being from direct product sales of skin care products versus royalty income from skin care products. The increase in the cost of sales for products was directly correlated to the 83.5% increase in product sales during 2003, mostly all to Valeant. The decrease in the cost of sales associated with Pharmaceutical products was related to a decrease in Pharmaceutical Revenue during 2003 compared to 2002.

Research and Development

Skincare Segment

Research and development expenses in 2004 were $729,000 compared with $602,000 in 2003. The increase was the result of the establishment and commencement of our own dedicated research and development space in Denmark during the fourth quarter of 2004 and increased work on the testing of Zeatin. Additionally, during 2004 we incurred approximately $250,000 of capital expenditures related to the build out of the laboratory space and the purchase of certain testing equipment.

Research and development expenses in the year ended December 31, 2003 were $602,000 compared with $171,000 in 2002. The increase of $431,000 in 2003 compared with 2002 is mainly due to increased expenditures relating to the testing, evaluation and review of the new skin care compounds included in our proprietary Kinetin Plus line.

We anticipate that our research and development expenditures related to skincare products will increase in 2005 as we complete development of Zeatin and progress development of other new patented compounds. For fiscal 2005, we expect to spend approximately $375,000 on testing of Zeatin. We will continue to seek to use strategic commercial partners in order to leverage these expenditures.

Pharmaceutical Segment

Research and development expenses in 2004 were $775,000 compared with $958,000 in 2003. The decrease was directly attributed to our June 2004 license agreement with Ardana whereby it took increased responsibility

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for the regulatory progression of Invicorp. We continue to expect our research and development expenditures related to the Pharmaceutical Segment to decline as a percentage of total research and development costs.

Research and development expenses in 2003 were $958,000 compared with $1,161,000 in 2002. The decrease of $203,000 in 2003 compared with 2002 was primarily due to lower consulting fees related to regulatory filing requirements associated with Invicorp. Included in Research and Development for 2003 is a $141,000 inventory reserve related to write-off of specialized inventory components for our drug delivery equipment.

We expect future research and development spending for our sexual dysfunction products to decrease substantially based upon the Ardana agreement and other possible strategic relationships with companies that can assume the cost of obtaining the necessary regulatory approvals and market the product in the United States or other geographical areas.

We are continuing with minimal development of our drug delivery device, Reliaject, while we attempt to sell the equipment. The majority of our focus is pursuing strategic relationships with companies that can provide the requisite financial and technical support. The Company does not anticipate spending any significant research dollars on this product or on antibodies during 2005.

Administration, Sales and Marketing

Administration, Sales and Marketing Expenses historically have been allocated equally to each Segment. For 2004, approximately $400,000 of legal fees has been specifically allocated to skincare and all other expenses have been allocated equally. For fiscal 2003, approximately $400,000 of marketing related costs, including the development of an infomercial, have been allocated to the skincare segment, all other administration, sales and marketing expenses have been allocated equally between the segments. Total administration, sales and marketing expense decreased from $6,301,000 in 2003 to $5,115,000 in 2004 as a result of reduced legal fees and related costs of $600,000 resulting from the settlement of certain legal matters in early 2004 and the elimination of approximately $400,000 of expenses incurred in 2003 related to Kinetin Plus product line.

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For the years ended December 31, 2004, 2003 and 2002, the following Administration, Sales and Marketing expenses were incurred:

Skincare Segment

Administration, Sales and Marketing expenses totaled $2,757,000 for 2004 compared with $3,352,000 for 2002. The $595,000 decrease between 2004 and 2003 is primarily due to 2003 expenditures of approximately $400,000 related to our proprietary product line Kinetin Plus, including the creation, test marketing and production of an infomercial, website and order fulfillment network that were non-recurring in 2004, and to a lesser extent, reduced legal fees.

Administration, Sales and Marketing expenses totaled $3,352,000 for 2003, compared with $2,402,000 for 2002, respectively. The $950,000 increase between 2002 and 2003 is primarily due to increased legal fees associated with litigation matters that were ongoing during 2003 and approximately $400,000 spent related to our proprietary product line Kinetin Plus, including the creation, test marketing and production of an infomercial, website and order fulfillment network in 2003.

The Company expects Administration, Sales and Marketing expenses to decline in 2005 from the 2004 level as a result of anticipated continued reductions in legal fees. Legal fees could be substantially more than budgeted if we aggressively pursue activities related to mergers or acquisitions.

Pharmaceutical Segment

Administration, Sales and Marketing expenses totaled $2,358,000 for 2004, compared with $2,949,000 for 2003. The $591,000 decrease between 2004 and 2003 is primarily due to decreased legal fees associated with litigation matters that were ongoing during almost all of 2003 but were mostly resolved by the early part of fiscal 2004.

Administration, Sales and Marketing expenses totaled $2,949,000 for 2003 compared with $2,402,000 for 2002. The $547,000 increase between 2002 and 2003 is primarily due to increased legal fees associated with litigation matters that were ongoing during 2003.

The Company expects Administration, Sales and Marketing expenses to decline in 2005 from the 2004 level as a result of anticipated continued reductions in legal fees. Legal fees could be substantially more than budgeted if we aggressively pursue activities related to mergers or acquisitions.

Impairment Charge

During the fourth quarter of 2003, the Company determined in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 ,”Accounting for the Impairment of Long Lived Assets”, that the

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specialized manufacturing drug delivery equipment known as Reliaject was impaired because the carrying value of the equipment was greater than the estimated fair value of $250,000. In making this decision, the Company considered the history of the Reliaject, current alternatives for the equipment, status of ongoing negotiations with possible acquirers, internal expertise for the specialized equipment, and the financial condition of the Company. As a result, a non-cash impairment charge of $2,451,000 was recorded against the pharmaceutical segment. The asset is now separately classified on the balance sheet as “Asset Held for Sale”. The fair value of the asset was written down to a minimum value that would be expected to be received excluding any future payments that the Company might receive and are not contingent upon future product sales, regulatory approval and other operational issues that the purchaser will likely need to resolve. During fiscal 2004, the Company actively worked with a specific company to sell the Reliaject. The Company had expected to have a transaction consummated by early 2005 and it continues to work with this potential buyer but is also actively pursuing other interested parties. Once a transaction is consummated, the Company is expected to have some ongoing involvement with the equipment, including the receipt of possible future royalties depending on the ultimate success of installing and utilizing the equipment.

Other Income and Expense

In April 1999, we issued $7,389,000 in aggregate principal amount of secured promissory notes. In connection with the issuance of these promissory notes, the Company issued Series A, B and C warrants purchasing an aggregate of 3 million Ordinary shares at $1.20 per share, 3.3 million ordinary shares at $1.50 per share and 1.2 million ordinary shares at $2.00 per share. The Series A, B and C warrants originally expired 10 years from the date of issuance, April 14, 2009. The estimated fair value of the warrants was recorded as notes payable discount and is being amortized as additional interest expense over the terms of the promissory notes. On June 20, 2001 under an amendment to the Securities Purchase Agreement, the maturity of these notes was extended to April 2004. During 2003 and 2004, the Company further amended the promissory notes and Series A, B and C warrants, including making principal payments of $4.1 million. As of December 31, 2004, the remaining unpaid principal balance of $3,289,000 bears interest at 8.5% and is due April 1, 2007. The notes require semi annual payment of interest only until maturity and are secured by all assets of the Company. Interest may be paid in cash or in Ordinary shares of Senetek. See note 8 to the consolidated financial statements for additional information related to the terms of the notes payable.

The primary component of other income and expense is interest expense. Interest expense, including both cash based payments and amortization of the discounts on the notes payable, has continued to decline as a result of the approximately $4.1 million of principal that was paid between September 2003 and September 2004. Total interest expense was $930,000, $1,584,000, and $1,442,000 for 2004, 2003 and 2002, respectively. The amortization of the discount on the notes, which is included in interest expense, amounted to $515,000 for 2004 compared to $770,000 for 2003 and $864,000 for 2002. Also included in interest expense for the year ended December 31, 2003 is $277,000 related to the debt modification in September 2003. Our annual interest expenses related to cash payments due under the notes will continue to be approximately $280,000 until the notes mature in April 2007. The annual interest expense associated with the amortization of the notes payable discount will increase on an annual basis until the notes mature in April 2007 as a result of the use of the effective interest method.

Included in Other income (expense) for 2004 is a $235,000 legal settlement, net of approximately $45,000 legal fees incurred during the third quarter of 2004, from Eagle-Picher Technologies Inc. The $235,000 was received in December 2004.

Discontinued Operations

On December 31, 2002, we closed a transaction in which USITC purchased our rights to the Mill Creek personal care line, the Silver Fox hair care line and other brands acquired by us in our 1995 acquisition of Carme Inc. (which are referred to hereafter as the “intellectual property”) for $400,000 cash, a promissory note of $2.3

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million payable in 23 quarterly installments commencing September 30, 2003 and the application of a deposit of $100,000 made by USITC in 1999 towards the agreed-upon purchase price of $2.8 million. We have accounted for this transaction as a sale of assets. Based on the prior history with the customer, the gain on the transaction will be recognized when collection is probable, which is deemed to be when cash is received. All gains arising from this transaction will be classified as a component of discontinued operations. Additionally, royalty and license income earned prior to the transaction date have been reclassified to discontinued operations.

During 2003 only $113,000 was paid and the amount was recognized as interest income. As a result of USITC’s noncompliance with the note agreement, during 2004 the Company gave notice of default to USITC. On November 10, 2004, the Company and USITC entered into an agreement to restructure the note. Under the terms of the restructuring, Senetek was to receive total payments in 2004 aggregating $1,435,000 and a $400,000, two and one half year, secured amortizing note bearing interest at 8% per annum. Under the terms of the agreement, if USITC fails to pay any of the quarterly payments due under the new $400,000 note, all of its obligations under the original $2.3 million note, less amounts actually paid, will be reinstated and subject to acceleration for non-performance. During 2004, payments totaling $1,435,000 were received of which $435,000 of the payments were classified as interest income and $1 million was classified as a Gain on Sale of Operation.

Taxation

Refer to Note 12 to the Financial Statements for discussion of our net operating loss carry-forwards.

Liquidity and Capital Resources

As of December 31, 2004, our liquid position, represented by cash, cash equivalents and short term investments totaled $4,522,000, an increase of over $3.3 million from December 31, 2003. The improvement in cash was primarily the result of the $1.5 million OMP settlement, receipt of $5 million from Valeant related to an amendment to its license agreement, $1.4 million from the settlement of the USITC transaction, receipt of $625,000 from the exercise of Series D warrants, and $235,000 from the Chemsyn settlement, offset by lower revenues from Valeant and Revlon, higher legal fees including over $600,000 incurred in connection with the OMP settlement and repayment of $1.6 million of notes payable. As a result of these transactions, our current ratio at December 31, 2004 improved to 2.55 compared to .74 at December 31, 2003. Additionally, as a result of the amendment to the Valeant license agreement, the Company’s royalty payments from Valeant beginning in 2005 will be reduced by $250,000 per quarter in connection with the $5 million received. The continued strength of our balance sheet will depend upon our ability to increase our revenue base and maintain, if not reduce, our operating expenses. If this does not happen, our cash position and strong current ratio could quickly decline.

During fiscal 2005, the Company may have periods where additional working capital will be required. The level of our research and development expenditures in 2005 could be dictated by the availability of working capital. Many of our planned expenditures can be quickly scaled back if funds are not available. As a result of the Company receiving the majority of its revenue only on a quarterly basis, the Company might have periods of time when additional cash could be required. Should the Company be faced with significant cash requirements in connection with gaining regulatory approvals of its products currently in development or in connection with protecting its patents or defending against patent infringement litigation, the Company’s capital resources might be inadequate to fund its capital needs. Additionally, if a transaction is consummated, such as with IGI, that could adversely impact our cash position and accelerate our need for additional financing, although the exact impact of such a transaction cannot now be completely evaluated.

Because substantially all of the Company’s borrowings are from a small number of noteholders who have substantial control over the Company’s ability to incur additional secured debt or dispose of assets, substantially all of which are pledged as security for the Company’s borrowings, in the event that the Company is unable to fund through its operating cash flow or proceeds from the sale of equity securities, continued product development and governmental marketing approvals of its pharmaceutical products or such unbudgeted expenses

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as the defense of its position in patent litigation, it would currently be dependent upon these noteholders for additional funding, and if it were unable to arrange for funding upon acceptable terms, the Company’s business could be materially adversely affected.

Our other most significant expenditure commitments are our research agreements, consulting agreements, employment agreements and property leases, whose details are outlined in the footnotes to the consolidated financial statements.

Based upon projected operating results for the year and the Company’s ability to manage discretionary expenditures, the Company presently believes it will have adequate cash in 2005 to fund operations. The Company is not anticipating any significant capital expenditures in 2005.

Contractual Obligations

The Company has contractual obligations only through 2007 to make future payments under its long-term note, non-cancelable lease agreements and employment contracts. The following table sets forth these contractual obligations: