<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION NO. 333-12275
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------
INNOPET BRANDS CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 2047 65-0639984
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ONE EAST BROWARD BOULEVARD, SUITE 1100
FT. LAUDERDALE, FLORIDA 33301
(954) 356-0036
------
(Address and telephone number of principal executive offices and
principal place of business or intended principal place of business)
MARC DUKE
CHIEF EXECUTIVE OFFICER
INNOPET BRANDS CORP.
ONE EAST BROWARD BOULEVARD, SUITE 1100
FORT LAUDERDALE, FLORIDA 33301
(954) 356-0036
------
(Name, address and telephone number of agent for service)
Copies of all communications to:
Daniel I. DeWolf, Esq. Rubi Finkelstein, Esq.
Robert S. Matlin, Esq. Orrick, Herrington & Sutcliffe LLP
Camhy Karlinsky & Stein LLP 666 Fifth Avenue, Eighteenth Floor
1740 Broadway, Sixteenth Floor New York, New York 10103
New York, New York 10019-4315 (212) 506-5000
(212) 977-6600
------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box.
/ / If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box. /X/
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of
To Be Registered Registered Unit (1) Price (1) Registration Fee
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Units, each consisting of one
share of Common Stock, $.01 par
value, and one Redeemable
Warrant to purchase one share of
Common Stock (2) ............... 2,587,500 $4.00 $10,350,000.00 $ 3,568.97
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Redeemable Warrants (3) ........ 2,587,500 $6.00 $15,525,000.00 $ 5,353.45
- -------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders'
Redeemable Warrants (4) ........ 1,000,000 $0.25 $ 250,000.00 $ 86.21
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Selling Securityholders'
Redeemable Warrants (4) ........ 1,000,000 $6.00 $ 6,000,000.00 $ 2,068.97
- -------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants to
purchase Units ................. 225,000 .0001 $ 22.50 (5)
- -------------------------------------------------------------------------------------------------------------------------------
Units issuable upon the exercise
of the Underwriter's Warrants
(6) ............................ 225,000 $4.80 $ 1,080,000.00 $ 372.41
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Redeemable Warrants included in
the Underwriter's Warrants (7) . 225,000 $6.00 $ 1,350,000.00 $ 465.52
- -------------------------------------------------------------------------------------------------------------------------------
Total ..................................................................... $34,555,022.50 $11,915.53(8)
===============================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended (the "Securities Act"), for purposes of calculating the
registration fee.
(2) Includes 337,500 Units which the Underwriter has an option to purchase
from the Registrant to cover over-allotments, if any.
(3) Issuable upon the exercise of Redeemable Warrants to be offered to the
public. Pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of such Redeemable
Warrants.
(4) Offered by certain selling security holders of the Registrant and
registered for offer on a delayed basis pursuant to Rule 415 under the
Securities Act.
(5) No fee is required pursuant to Rule 457(g) under the Securities Act.
(6) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also
covers any additional Units which may become issuable by virtue of the
anti-dilution provision of the Underwriter's Warrants.
(7) Issuable upon the exercise of the Redeemable Warrants included in the
Underwriter's Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision
of the Redeemable Warrants.
(8) Previously paid.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
PROSPECTUS
LOGO
INNOPET BRANDS CORP.
2,250,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE WARRANT
This Prospectus relates to an offering (the "Offering") of 2,250,000 Units
(the "Units") by InnoPet Brands Corp., a Delaware corporation (the
"Company"). Each Unit consists of one share of common stock, par value $.01
per share (the "Common Stock") and one redeemable warrant (the "Redeemable
Warrants," collectively with the Units and the Common Stock hereinafter
sometimes referred to as the "Securities"). The shares of Common Stock and
Redeemable Warrants comprising the Units will be detachable and separately
transferable immediately upon issuance. See "Description of Securities."
Each Redeemable Warrant entitles the holder to purchase one share of
Common Stock at a price of $____ [150% of the initial public offering per
Unit] per share, subject to adjustment, at any time from issuance until ,
2001 [60 months from the date of this Prospectus] and is redeemable by the
Company, with the prior written consent of Joseph Stevens & Company, L.P.
(the "Underwriter"), at a redemption price of five cents ($.05) commencing ,
1997 [12 months from the date of this Prospectus] on thirty (30) days' prior
written notice, provided that the average closing bid price of the Common
Stock equals or exceeds $____ [150% of the Redeemable Warrant exercise
price], subject to adjustment, for any twenty trading days within a period of
thirty consecutive trading days ending on the fifth trading day immediately
prior to the notice of redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Redeemable Warrants and there can be no assurance that
any such market will develop after the completion of this Offering or, if
developed, that it will be sustained. It is currently anticipated that the
initial public offering price will be $4.00 per Unit. See "Underwriting" for
a discussion of the factors considered in determining the offering price.
Application has been made to include the Units, the Common Stock and the
Redeemable Warrants for quotation on the Nasdaq SmallCap Market (the "Nasdaq
SmallCap") under the proposed symbols "INBCU," "INBC," and "INBCW,"
respectively. The Company and the Underwriter may jointly determine, based
upon market conditions, to delist the Units upon the expiration of the 30 day
period commencing on the date of this Prospectus.
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND
"DILUTION," BEGINNING AT PAGE 7.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
==============================================================================
Price Underwriting Proceeds to
to public discounts (1) the Company (2)
- ------------------------------------------------------------------------------
Per Unit .... $ $ $
- ------------------------------------------------------------------------------
Total (3) ... $ $ $
==============================================================================
(1) Does not include additional compensation payable to the Underwriter in
the form of a 3% non-accountable expense allowance, warrants to purchase
225,000 Units (the "Underwriter's Warrants"), and a financial consulting
fee. The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$706,000, including the non-accountable expense allowance payable to the
Underwriter.
(3) The Company has granted the Underwriter an option to purchase up to
337,500 additional Units (the "Over-allotment Option"), on the same terms
as set forth above, solely for the purpose of covering over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts, and Proceeds to the Company will be $_____,
$_____ and $_____, respectively. See "Underwriting."
This Prospectus also relates to the registration by the Company, at its
expense, for the account of certain security holders (the "Selling
Securityholders") of 1,000,000 Redeemable Warrants (the "Selling
Securityholders' Warrants") and 1,000,000 shares of Common Stock underlying
such Warrants (the "Selling Securityholders' Shares"). The Selling
Securityholders' Warrants and the Selling Securityholders' Shares are
collectively referred to as the "Selling Securityholders' Securities." The
Selling Securityholders' Warrants will be issued upon consummation of the
Offering as a result of the automatic conversion of warrants (the "Private
Placement Warrants") issued to the Selling Securityholders in a private
placement financing by the Company which occurred in August 1996 (the
"Private Placement Financing"). The Selling Securityholders have agreed that
for a period of 18 months from the date of this Prospectus, they may not sell
the Selling Securityholders' Warrants or the Selling Securityholders' Shares
without the prior written consent of the Underwriter. Neither the Selling
Securityholders' Warrants nor the Selling Securityholders' Shares are being
offered or sold pursuant to this Offering. The Company will not receive any
proceeds from the conversion of the Private Placement Warrants. The Company
will, however, receive proceeds upon the exercise, if any, of the Selling
Securityholders' Warrants. See "Selling Securityholders."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriter reserve the right to withdraw, cancel or modify
the offering and to reject any order in whole or in part. It is expected that
delivery of the Units will be made against payment therefor at the offices of
Joseph Stevens & Company, L.P., New York, New York, on or about ____ ___,
1996.
JOSEPH STEVENS & COMPANY, L.P.
- ------ , 1996
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
the Company deems appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
and related notes thereto appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety. Unless
otherwise indicated, all information in this Prospectus: (i) assumes no
exercise of the Over-allotment Option, (ii) excludes shares of Common Stock
issuable upon exercise of the Redeemable Warrants included in the Units
hereby, (iii) excludes shares of Common Stock issuable upon exercise of the
Selling Securityholders' Warrants, and (iv) excludes securities issuable upon
exercise of the Underwriter's Warrants. See "Plan of Operations."
THE COMPANY
InnoPet Brands Corp. (the "Company") produces, markets and sells premium
dog food through supermarkets and grocery stores under the name InnoPet
Veterinarian Formula(TM )Dog Food ("InnoPet Foods"). The Company began
marketing InnoPet Foods in March 1996. In June 1996, it commenced sales of
its dog food to supermarkets located in the Greater Metropolitan New York
area. As of September 30, 1996, the Company has sold product into the
following markets: the Greater Metropolitan New York area; the Philadelphia,
Pennsylvania area and other areas in Pennsylvania; the Baltimore,
Maryland/Washington, D.C. area, and the Tampa Bay, Florida and South Florida
areas. Supermarket chains which have received product include: Great Atlantic
& Pacific Tea Company (representing A&P, Waldbaum, Super Fresh, Food Emporium
and Food Mart); Acme Markets, Inc.; Albertsons', Inc. (Florida Division); C&S
Wholesale Grocers (representing Grand Union Company and other supermarket
chains); Fleming Companies, Inc. (representing Hyde Park Markets and other
supermarket chains); Kash N' Karry Food Stores, Inc.; Key Food Stores
Cooperative, Inc.; Pathmark Stores, Inc.; Super Rite Foods and Weiss Markets,
Inc. As of September 30, 1996, the Company has recorded approximately
$1,373,000 in sales.
Retail sales of pet food in the United States in 1995 were approximately
$9.3 billion (an increase of 6% over 1994), of which approximately 20% was
premium pet food./1/ From 1991 through 1995, sales of premium pet food have
increased at a compound annual growth rate of approximately 18% in recent
years, compared to a compound annual growth rate of less than 3% for total
pet food sales.(1) The Company believes sales of premium pet food have
increased in recent years primarily due to heightened concern for animal
welfare and nutrition. Premium pet food is generally characterized by quality
ingredients, such as pure meat, higher nutritional value, increased
digestibility, increased nutrient absorption and higher pricing. The Company
believes that its product qualifies as premium because of, among other
things, its use of pure beef as the primary source of protein, corn gluten
instead of corn meal, and rice instead of other grains.
While sales of premium pet foods are increasing, the percentage of pet food
sales made through supermarkets and grocery stores decreased from
approximately 85% to 62%, from 1988 to 1995, due to increased sales of
premium pet foods through specialty pet stores. Between 1989 and 1995, sales
of pet foods through outlets other than the supermarket/grocery store
segment, have risen approximately 71%.(1) The Company believes supermarkets
and grocery stores have been unable to reverse their loss of pet food market
share because of their inability to obtain a full line of premium pet foods.
The Company believes that manufacturers of premium pet foods have not
supplied supermarkets and grocery stores in order to preserve their primary
distribution channel, the specialty pet store. Market research commissioned
by the Company, and conducted by Bruskin Goldring Research, indicates that
approximately one-half of households in the United States with one or more
dogs would be likely to try a line of premium dog food if it were available
in supermarkets.
- ---------
/1/ This information is derived from The Maxwell Consumer Report, Wheat First
Butcher Singer (May 24, 1996 and May 30, 1995); J. Palmer, Well, Aren't
You the Cat's Meow, Barron's, April 1, 1996 at p. 29; and Packaged Facts
for the Pet Food Market -- February 1995; The Information Catalogue,
Marketing Intelligence Studies, Find/SVP Worldwide Consulting Research and
Advisory Services (1995).
3
<PAGE>
The Company's objective is to become a national provider of premium pet
foods through supermarket and grocery store retail outlets. The Company
intends to achieve its objective by (i) providing exclusively to supermarkets
a brand of competitively-priced premium pet food to enable them to recapture
a share of the premium pet food market that they have lost to specialty pet
stores; (ii) expanding distribution to supermarket and grocery stores in the
majority of the eastern United States during approximately the next 12
months; (iii) increasing consumer awareness and market penetration throughout
the Company's market areas; (iv) expanding its product lines over the next 12
months to include dry dog food product line extensions, such as lamb and rice
formulations, dry cat food for the kitten and adult life stages; and (v)
packaging its products in unique single serving-sized inner-bags which are
designed to increase convenience of feeding, regulate portions, and to reduce
product deterioration and to prevent contamination.
THE OFFERING
Units to be Offered by the
Company...................... 2,250,000 Units, each Unit consisting of one
share of Common Stock and one Redeemable
Warrant. The Common Stock and Redeemable
Warrants will be detachable and separately
transferable immediately upon issuance.
Each Redeemable Warrant entitles the holder
to purchase one share of Common Stock for
150% of the initial public offering price
per Unit, subject to adjustment. Commencing
12 months from the date of this Prospectus,
the Redeemable Warrants will be subject to
redemption, subject to the prior written
consent of the Underwriter, at a price of
$.05 per Redeemable Warrant on 30 days'
written notice provided the average closing
bid price of the Common Stock equals or
exceeds 150% of the exercise price of the
Redeemable Warrant for any 20 trading days
within a period of 30 consecutive trading
days ending on the fifth trading day prior
to the date of the notice of redemption. See
"Description of Securities."
Securities Offered by Selling
Securityholders ............. 1,000,000 Selling Securityholders' Warrants,
which will be issued to the Selling
Securityholders upon the automatic
conversion of the Private Placement
Warrants, and an aggregate of 1,000,000
shares of Common Stock issuable upon
exercise of the Selling Securityholders'
Warrants. The Selling Securityholders'
Warrants and the shares of Common Stock
being registered for the account of the
Selling Securityholders at the Company's
expense are not being underwritten in the
Offering, but may be offered for resale at
any time on or after the date hereof by the
Selling Securityholders provided prior
consent is given by the Underwriter to the
Selling Securityholders. The Company will
not receive any proceeds from the sale of
these securities, although it will receive
proceeds from the exercise, if any, of the
Selling Securityholders' Warrants. See
"Recent Private Placement Financing" and
"Selling Securityholders."
4
<PAGE>
Common Stock Outstanding(1)
Before this Offering......... 1,878,378 shares.
After this Offering........... 4,128,378 shares.
Redeemable Warrants to be Outstanding After this
Offering .................... 3,250,000
Redeemable
Warrants.
Nasdaq SmallCap Symbols:
Units ....................... INBCU
Common Stock.................. INBC
Redeemable Warrants........... INBCW
Use of Proceeds ............... For repayment of the private placement notes;
purchase of inventory; marketing and sales;
expansion of retail distribution; development
of products; and working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors and Dilution ...... The purchase of the Units offered hereby
involves a high degree of risk and immediate
and substantial dilution. Prospective
investors should review carefully and consider
the information set forth under "Risk Factors"
and "Dilution."
- ------
1 Excludes 400,000 shares of Common Stock reserved for issuance upon exercise
of options available for future grant under the Company's 1996 Stock Option
Plan (the "Stock Option Plan"). See "Management--Stock Option Plan,"
"Description of Securities" and "Underwriting."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
January 11, 1996
(Inception)
to
August 31, 1996
-----------------------
<S> <C>
Statement of Operations Data:
Net sales .......................................... $ 812,216
Net (loss) ......................................... (3,520,220)
Net (loss) per common share ........................ $ (1.87)
Weighted average number of common shares outstanding 1,878,378
</TABLE>
<TABLE>
<CAPTION>
As of August 31, 1996
-------------------------------------
Actual As Adjusted (1)
-------------- ---------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficiency) .... $(2,021,466) $5,271,034
Total assets. ................... 4,850,833 9,467,082
Total liabilities ............... 5,760,495 3,538,858
Stockholders' equity (deficiency) $ (909,662) $5,928,224
</TABLE>
- ------
1 As adjusted to reflect the sale of the Units offered by the Company hereby
at the assumed initial public offering price of $4.00 per Unit and the
initial application of the net proceeds therefrom. Also adjusted to reflect
the amortization of net deferred financing costs ($318,247), and
unamortized original issue discount ($187,500) arising from the Private
Placement Financing which will be repaid out of the proceeds of this
offering. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the
securities offered hereby. Because any investment in the Units involves a
high degree of risk, only investors who can accommodate such risks, including
a complete loss of their investment, should purchase the Units.
Limited Revenues and Operating History; Going Concern Qualification. The
Company was incorporated on January 11, 1996 to acquire certain pet food
formulas. As of the date of this Prospectus, the Company has generated
limited revenues. Accordingly, the Company has no operating history upon
which an evaluation of its prospects can be made. The report of the Company's
independent auditors for the period from inception to August 31, 1996,
contains an explanatory paragraph raising the independent auditor's
substantial doubt about the Company's ability to continue as a going concern
because the Company has been in its development stage, has incurred a net
loss and reflects a deficit accumulated during this period of $3,520,220 and
reflects a stockholder deficiency of $909,662 as of August 31, 1996. The
Company expects to continue to incur losses at least through 1996 and
operating losses may increase, at least in the short term, as the Company
increases its expenditures to effect its business plan. The Company's ability
to achieve a profitable level of operations will depend in large part on the
market acceptance of its products. There can be no assurance that the Company
will achieve profitable operations. See the Company's Financial Statements
and related notes thereto appearing elsewhere in this Prospectus.
Substantial Financial Leverage; Future Capital Needs; Uncertainty of
Additional Funding. After giving effect to the sales of the Units offered
hereby (and based on August 31, 1996 financial statements), the Company's
total debt will be approximately $1,000,000, none of which will be repaid
from the proceeds of the Offering. Historically, the Company has been
dependent upon debt and equity financing from InnoPet Inc., the parent
company (the "Parent Company") of the Company, and from the Private Placement
Financing. The Company believes the net proceeds of this Offering, together
with cash on hand and cash expected to be generated from operations, will be
adequate to satisfy its capital requirements for a period of at least 12
months from the date of this Prospectus. However, if the Company expands
sales of its products beyond currently planned levels then it may be
necessary to seek additional financing. Such additional financing, if any,
may be either debt, equity or a combination of debt and equity. An equity
financing could result in dilution in the Company's net tangible book value
per share of Common Stock. There can be no assurance that the Company will be
able to secure additional debt or equity financing or that such financing
will be available on favorable terms. See "Business" and "Plan of
Operations."
The Company's Ability to Manage Growth Effectively. The Company will use a
substantial portion of the proceeds of this Offering to expand its current
level of operations. The Company's growth will result in increased
responsibility for both existing and new management personnel. Effective
growth management will depend upon the Company's ability to integrate new
personnel, to improve its operational, management and financial systems and
controls, to train, motivate and manage its employees, and to increase its
sources of raw materials, product manufacturing and packaging. If the Company
is unable to manage growth effectively, the Company's business, results of
operations and financial condition would be materially and adversely
affected. In addition, there can be no assurance that any growth will occur
or that growth will produce profits for the Company. See "Use of Proceeds,"
"Plan of Operations," and "Business -- Marketing and Sales."
Untested Distribution Strategy. The success of the Company depends upon
its ability to sell premium pet foods through supermarkets and grocery
stores. Although as of the date of this Prospectus, the Company has delivered
its product, on a limited basis, to certain supermarkets in the Greater
Metropolitan New York area, the Pennsylvania area, the Baltimore,
Maryland/Washington, D.C. area, and the Tampa Bay, Florida and South Florida
areas, there can be no assurance that the Company will be successful in
obtaining adequate shelf space for its products in these or any other areas.
No data is available to determine the viability of the Company's strategy.
There also can be no assurance that the Company's current customers will
continue buying products from the Company or that other supermarkets or
grocery stores will buy the Company's products. See "Plan of Operations," and
"Business -- Marketing and Sales."
Highly Competitive Nature of the Pet Food Business. The pet food business
is highly competitive. Virtually all of the manufacturers, distributors and
marketers of pet food have substantially greater financial, research
7
<PAGE>
and development, marketing and manufacturing resources than the Company.
Competitors in the premium pet food market include, among others:
Colgate-Palmolive Co. (Hills' Science Diet), Iams Co. and Ralston Purina Co.
Brand loyalty to existing products may prevent the Company from achieving its
sales objectives. Additionally, the long-standing relationships maintained by
existing premium pet food manufacturers with veterinarians and pet breeders
may prevent the Company from obtaining professional recommendations for its
products. In addition, the Company competes with current supermarket
high-priced dog foods, which are not considered premium when compared to
InnoPet Foods, and to the premium dog foods offered in the specialty pet
stores. Although the dominant existing premium pet food brands are not
currently available in supermarkets, there can be no assurance that this
situation will continue. In addition, no barriers to entry exist with respect
to such brands. The entrance into the supermarket distribution channel of an
existing or new premium pet food by any of the Company's competitors could
have a material adverse effect on the Company. See "Business -- Competition."
Ability of the Company to Control the Costs of Raw Materials,
Manufacturing and Packaging. The Company's financial results will depend to a
large extent on the cost of raw materials, manufacturing and packaging and
the ability of the Company to pass along increases in these costs to the
supermarkets and grocery stores. Except as described below, the Company has
no other agreements to purchase raw materials. Fluctuations in prices of food
stocks have historically resulted from a number of factors, including changes
in United States government farm support programs, changes in international
agricultural and trading policies and weather conditions during growing and
harvesting seasons. Fluctuations in paper prices have historically resulted
from changes in supply and demand, general economic conditions and other
factors. Although the Company is unaware of any currently pending price
increases, future price increases in raw materials or packaging could have a
material adverse effect on the Company. See "Business -- Manufacturing and
Distribution."
Dependence on Third-Party Suppliers; Manufacturers and Food Brokers. The
Company has been and will continue to be dependent on third parties for the
supply, manufacture, packaging and sale of its pet foods. Currently, the
Company relies on two manufacturers and two packagers. The Company obtains
beef for its products pursuant to an agreement with Monfort, Inc. ("Monfort")
a subsidiary of ConAgra Inc. ("ConAgra") that terminates in 1999, unless
terminated earlier by either party on 60 days notice. Any failure by Monfort
to fulfill its obligations under the agreement, or the failure by the Company
to secure an alternative source of beef at comparable prices upon the
termination of the Monfort agreement, whether at its expiration date or
earlier, would have a material adverse effect on the Company. In addition, to
the extent the Company requires other meats, (e.g., lamb or liver), to
produce its products, it may have difficulty acquiring sufficient amounts on
a timely basis, and at acceptable prices, to satisfy production schedules.
The Company does not maintain supply agreements with any other third party
suppliers, but instead purchases products pursuant to purchase orders in the
ordinary course of business. The Company will be substantially dependent on
the ability of its manufacturers and suppliers to, among other things, meet
the Company's performance and quality specifications. Failure by the
Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company's manufacturers and
suppliers will dedicate sufficient production capacity to meet the Company's
scheduled delivery requirements or that the Company's suppliers or
manufacturers will have sufficient production capacity to satisfy the
Company's requirements during any period of sustained demand. Their failure
to supply, or delay in supplying, the Company with products could have a
material adverse effect on the Company. See "Business -- Manufacturing and
Distribution."
In addition, the Company's ability to obtain authorizations to sell its
products in supermarkets and grocery stores depends upon the efforts and
skill of brokers retained by the Company. Although the Company believes it
will be able to locate and retain qualified brokers throughout the United
States on acceptable terms, there can be no assurance that the Company will
be able to do so. The failure to obtain authorizations or to locate and
retain qualified brokers could have a material adverse effect on the Company.
See "Business -- Marketing and Sales."
Broad Discretion in Application of Proceeds. Approximately $1,050,000 or
approximately 14% of the estimated net proceeds of this offering has been
allocated to working capital and general corporate purposes. Accordingly, the
Company's management will have broad discretion as to the application of such
proceeds. See "Use of Proceeds."
8
<PAGE>
Dependence on Key Personnel; Potential Conflicts of Interests. The success
of the Company will be largely dependent on the personal efforts of Marc
Duke, its Chairman and Chief Executive Officer. Although the Company has
entered into an employment agreement with Mr. Duke which expires in 2000, the
loss of his services or certain other key management or scientific personnel
could have a material adverse effect on the Company. The Company has applied
for "Key-man" life insurance on the life of Mr. Duke, of which the Company
will be sole beneficiary, in the amount of $1 million. The success of the
Company is also dependent upon its ability to hire and retain qualified
marketing and other personnel. There can be no assurance that the Company
will be able to hire or retain such necessary personnel. Mr. Duke is also a
director and executive officer of the Parent Company and its subsidiaries.
Although his employment agreement requires him to devote substantially his
full time and attention to the Company, there can be no assurance that Mr.
Duke's other responsibilities will not have a material adverse effect on the
Company. In addition, Mr. Duke may have a conflict of interest with respect
to business opportunities presented to him. There can be no assurance that
such opportunities will first be offered to the Company. See "Management" and
"Certain Transactions."
Government Regulation. The manufacturing, labelling and marketing of the
Company's products are subject to regulation by federal agencies, including
the United States Department of Agriculture, and by various state and local
authorities. It is the responsibility of the Company's manufacturers to
obtain and maintain the manufacturing approvals. The Company's labels must be
registered in each state that the products are sold to consumers. If the
Company fails to register its labels or satisfy relevant labelling
regulations, it may be subject to fines or prohibited from selling its
products until such regulations are satisfied. Any failure to comply with
applicable regulatory requirements could have a material adverse effect on
the Company. See "Business -- Government Regulation."
Dependence Upon Proprietary Formulations; Intellectual Property
Claims. The Company's success depends in part upon its ability to protect its
proprietary formulations and trademarks. The Company relies on a combination
of copyright, trademark, and trade secret laws, nondisclosure and other
contractual agreements with employees and third parties, and technical
measures to protect its proprietary formulations and trademarks. There can be
no assurance that the steps taken by the Company to protect its proprietary
rights will be adequate to protect misappropriation of such rights or that
third parties will not independently develop equivalent or superior
formulations. The Company has no patents, and existing trade secret and
copyrights laws provide only limited protection. The Company may be subject
to or may initiate interference proceedings in the United States Patent and
Trademark Office, which can demand significant financial and management
resources. Although the Company believes that its products and formulations
do not infringe upon the proprietary rights of others, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future. Litigation, which could result in substantial cost to
and diversion of effort by the Company, may be necessary to enforce
intellectual property rights of the Company or to defend the Company against
claimed infringement of the rights of others. The failure to obtain necessary
licenses or other rights or litigation arising out of infringement claims
could have a material adverse effect on the Company. See "Business --
Intellectual Property."
Control by Principal Stockholders. When this Offering is completed,
current stockholders will beneficially own 1,878,378 shares or 45% of the
Common Stock outstanding. Through his positions at InnoPet Inc., the Parent
Company, and by proxies granted to him, Mr. Duke will have voting power over
all of such shares. Accordingly, he will be able to elect all of the
Company's directors and otherwise control all matters requiring approval by
the stockholders of the Company, including approval of significant corporate
transactions. See "Principal Stockholders."
Absence of Dividends. The Company has not paid any cash dividends on its
Common Stock and does not expect to do so in the foreseeable future. See
"Dividend Policy."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Certificate of Incorporation provides that up to 5,000,000 shares
of Preferred Stock may be issued by the Company from time to time in one or
more series. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions granted to and imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of
any series of Preferred Stock and the designation of any such series, without
any vote or action by the Company's stockholders. The Board of Directors may
authorize and issue Preferred Stock with voting or conversion
9
<PAGE>
rights that could adversely affect the voting power or other rights of the
holders of Common Stock. In addition, the potential issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock. See "Description of the Company's Securities --
Preferred Stock."
Forward-Looking Information May Prove Inaccurate. This Prospectus contains
various forward-looking statements and information that are based on
management's beliefs, as well as assumptions based upon information currently
available to management. When used in the Prospectus, the words "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including those identified above. Should one or
more of these risks or circumstances materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
Immediate and Substantial Dilution. Purchasers of Units offered hereby
will incur an immediate and substantial dilution in the net tangible book
value of their Common Stock. Dilution represents the difference between the
price of the Common Stock sold hereby and the pro forma net tangible book
value per share of the Company after the Offering. Additional dilution to
future net tangible book value per share may occur upon exercise of the
Redeemable Warrants, the Underwriter's Warrants and certain options that may
be issued or exercised under the Plan. The immediate dilution per share of
Common Stock to purchasers of the Units offered hereby is $2.91 per share, or
73% per share. See "Dilution."
Arbitrary Offering Price of the Units and Exercise Price of the Redeemable
Warrants. The offering price of the Units and the exercise price of the
Redeemable Warrants are completely arbitrary and are not based upon the
Company's assets, book value, cash flow, potential earnings or any other
established criteria of value. The initial public offering price for the
Units and the exercise price of the Redeemable Warrants were determined by
negotiations between the Company and the Underwriter, and should not be
regarded as indicative of any future market price of the Units, Common Stock
or Redeemable Warrants. See "Underwriting."
Repayment of Debt. The Company will use $2,050,000 of the proceeds of the
Offering to repay the notes issued in the recent Private Placement Financing.
See "Use of Proceeds" and "Recent Private Placement Financing."
Redeemable Warrants; Underwriter's Warrants; Future Financings. The
holders of the Redeemable Warrants and the Underwriter's Warrants will have
the opportunity to profit from a rise in the price of the Common Stock. The
existence of these warrants may adversely affect the terms on which the
Company can obtain additional equity financing in the future and the holders
can be expected to exercise them when the Company would, in all likelihood,
be able to obtain additional capital by offering additional shares of its
unissued Common Stock on terms more favorable to the Company than the terms
provided by these warrants. See "Description of the Company's Securities --
Redeemable Warrants" and "Underwriting."
Potential Adverse Effect of Redemption of the Redeemable Warrants. The
Redeemable Warrants are redeemable by the Company, with the prior written
consent of the Underwriter, at a price of $.05 per Redeemable Warrant
commencing 12 months from the date of this Prospectus, provided that (i) 30
days' prior written notice is given to the holders of the Redeemable
Warrants, and (ii) the closing bid price per share of the Common Stock as
reported on the Nasdaq SmallCap (or the last sale price, if quoted on a
national securities exchange) for any 20 trading days within a period of 30
consecutive trading days, ending on the fifth day prior to the date of the
notice of redemption, has been at least 150% of the exercise price per share,
subject to adjustment in certain events. The holders of the Redeemable
Warrants will automatically forfeit their rights to purchase the shares of
Common Stock issuable upon exercise of such Redeemable Warrants unless the
Redeemable Warrants are exercised before they are redeemed. Notice of
redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants and pay the respective exercise prices at a time when it
may be disadvantageous for them to do so, to sell the Redeemable Warrants at
the market price when they might otherwise wish to hold the Redeemable
Warrants, or to accept the redemption price which is likely to be
substantially less than the market value of the Redeemable Warrants at the
time of redemption. See "Description of the Company's Securities --
Redeemable Warrants."
10
<PAGE>
Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. Holders will have the right to exercise the Redeemable
Warrants and purchase shares of Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are
qualified for sale under the securities laws of the applicable state or
states, or there is an exemption from the applicable qualification
requirements. The Company has undertaken and intends to file and keep
effective and current a prospectus which will permit the purchase and sale of
the Common Stock underlying the Redeemable Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company
intends to qualify for sale the shares of Common Stock underlying the
Redeemable Warrants in those states in which the securities are to be
offered, no assurance can be given that such qualification will occur.
Holders of the Redeemable Warrants may be deprived of any value if a
prospectus covering the shares issuable upon the exercise thereof is not kept
effective and current or if such underlying shares are not, or cannot be,
registered in the applicable states. Although the Company does not presently
intend to do so, the Company reserves the right to call the Redeemable
Warrants for redemption whether or not a current prospectus is in effect or
such underlying shares are not, or cannot be, registered in the applicable
states. See "Description of Securities -- Redeemable Warrants."
Shares Eligible for Future Sales. Sales of shares of Common Stock by
existing shareholders, or by holders of Redeemable Warrants, under Rule 144
of the Securities Act could have an adverse effect on the trading price of
the Units, the Common Stock or the Redeemable Warrants. The Company has
agreed with the Underwriter to cause all holders of the shares of Common
Stock and Private Placement Warrants outstanding prior to this offering to
execute lock-up agreements with the Underwriter that restrict the sale or
disposition of shares of Common Stock and/or Redeemable Warrants for 18
months from the date of this Prospectus without the prior written consent of
the Underwriter. In addition, for 24 months from the date of this Prospectus,
these shares and warrants will be sold only through the Underwriter. The
Underwriter may consent to a waiver of this lock-up period without prior
public notice. Subject to this lock-up restriction, of the 4,128,378 shares
of Common Stock that will be outstanding after this Offering, 1,182,432
shares will be eligible for sale beginning in March 1998. See "Description of
the Company's Securities" and "Shares Eligible for Future Sale."
No Prior Public Trading Market; Possible Delisting from Nasdaq SmallCap;
Disclosure Relating to Low Priced Stocks. Prior to the Offering there has
been no public trading market for the Units, the Common Stock or the
Redeemable Warrants. Although the Units, the Common Stock and the Redeemable
Warrants have been approved for quotation on the Nasdaq SmallCap, there can
be no assurance that a trading market will develop or, if developed, that it
will be maintained. In addition, there can be no assurance that the Company
will in the future meet the maintenance criteria for continued quotation of
the securities on the Nasdaq SmallCap. The maintenance criteria for the
Nasdaq SmallCap include, among other things, $2,000,000 in total assets,
$1,000,000 in capital and surplus, a public float of 100,000 shares with a
market value equal to $200,000, two market makers and a minimum bid price of
$1.00 per share of common stock. If an issuer does not meet the $1.00 minimum
bid price standard, it may, however, remain on the Nasdaq SmallCap if the
market value of its public float is at least $1,000,000 and the issuer has at
least $2,000,000 in equity. If the Company were removed from the Nasdaq
SmallCap, trading, if any, in the Units, the Common Stock or the Redeemable
Warrants would thereafter have to be conducted in the over-the-counter market
in the so-called "pink sheets" or, if then available, the NASD's OTC
Electronic Bulletin Board. As a result, an investor would find it more
difficult to dispose of, and to obtain accurate quotations as to the value of
such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subject to the requirements
of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Under such rule, broker/dealers who recommend
such low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also requires additional disclosure in connection with any
trades involving a stock defined as a penny stock (generally, according to
recent regulations adopted by the Securities and Exchange Commission (the
"Commission"), any equity security not traded on an exchange or quoted on
Nasdaq SmallCap that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and
the risks associated therewith.
11
<PAGE>
Such requirements could severely limit the market liquidity of the Units, the
Common Stock and the Redeemable Warrants and the ability of purchasers in
this Offering to sell their Securities in the secondary market. There can be
no assurance that the Units, the Common Stock and the Redeemable Warrants
will not be delisted or treated as a penny stock.
Lack of Experience of Underwriter. Although the Underwriter commenced
operations in May 1994, it does not have extensive experience as an
underwriter of public offerings of securities. The firm is relatively small
and no assurance can be given that it will be able to participate as a market
maker in the Securities, and no assurance can be given that any broker-dealer
will make a market in the Units, the Common Stock or the Redeemable Warrants.
See "Underwriting."
Underwriter's Potential Influence on the Market. It is anticipated that a
significant amount of the Units will be sold to customers of the Underwriter.
Although the Underwriter has advised the Company that it intends to make a
market in the Securities, it will have no legal obligation to do so. Such
market making activity may be discontinued at any time. Moreover, under
certain circumstances, including if the Underwriter sells the secur- ities
issuable upon exercise of the Underwriter's Warrants, it may be required
under the Exchange Act to suspend temporarily its market-making activities.
The prices and the liquidity of the Units, the Common Stock and the
Redeemable Warrants may be significantly affected by the degree, if any, of
the Underwriter's participation in the market. No assurance can be given that
any market activities of the Underwriter, if commenced, will be continued.
See "Underwriting."
12
<PAGE>
THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
January 11, 1996. The Company is a subsidiary of the Parent Company, a
Delaware corporation, and was formed to acquire and market InnoPet Foods. The
Parent Company is a creator and marketer of products for the pet industry.
Through its wholly-owned subsidiary, The Original Pet Drink Company, a
Florida corporation ("OPD"), the Parent Company introduced pet beverages
known as Thirsty Dog!(TM) and Thirsty Cat!(TM) in 1994. These products were
distributed nationally and in Canada through supermarkets, pet superstores
and independent pet stores. These products are also available through direct
mail. In addition, through a wholly-owned subsidiary, AniVet Inc. a Delaware
company, the Parent Company is developing pharmaceutical products for pets.
These products have not yet been brought to market. See "Certain
Transactions."
The Company maintains its principal business operations at One East
Broward Boulevard, Suite 1100, Fort Lauderdale, Florida 33301. The Company's
telephone number is (954) 356-0036.
RECENT PRIVATE PLACEMENT FINANCING
In August 1996 the Company consummated the Private Placement Financing,
pursuant to which it issued an aggregate of (i) $2,000,000 principal amount
of promissory notes (the "Notes") which bear interest at the rate of 10% per
annum and are due and payable upon the earlier of (a) the consummation of any
financing of the Company from which the Company receives gross proceeds of at
least $4,000,000 or (b) one year from the date of issuance, and (ii)
1,000,000 Private Placement Warrants, each Private Placement Warrant
entitling the holder to purchase one share of Common Stock at an initial
exercise price of $2.00 (subject to adjustment upon the occurrence of certain
events) during the three-year period commencing one year from the date of
issuance. The net proceeds of the Private Placement Financing were used by
the Company to purchase inventory, to expand distribution, to initiate
marketing programs and to meet working capital and general corporate
requirements. The Company intends to use a portion of the proceeds of this
Offering to repay the entire principal amount of, and accrued interest on,
the Notes. See "Use of Proceeds."
Upon consummation of the Offering, each Private Placement Warrant shall
automatically be converted into a Redeemable Warrant (referred to herein as
the Selling Securityholders' Warrants) having terms identical to those of the
Redeemable Warrants underlying the Units offered hereby. The Selling
Securityholders' Warrants and the underlying shares of Common Stock issuable
upon exercise of the Selling Securityholders' Warrants are included in the
Registration Statement of which this Prospectus is a part. See "Concurrent
Offering."
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also
includes 1,000,000 Redeemable Warrants and 1,000,000 shares of Common Stock
underlying such warrants, owned by the Selling Securityholders. The Selling
Securityholders' Securities are not being offered or sold pursuant to the
Offering. Such Selling Securityholders' Securities may be sold in the open
market, in privately negotiated transactions or otherwise, directly by the
Selling Securityholders. The Company will not receive any proceeds from the
sale of such Selling Securityholders' Warrants; however, the Company will
receive proceeds from the exercise, if any, of the Selling Securityholders'
Warrants. Expenses of the concurrent offering by the Selling Securityholders,
other than fees and expenses of counsel to the Selling Securityholders and
selling commissions, will be paid by the Company. Neither the Selling
Securityholders' Warrants nor the Selling Securityholders' Shares may be sold
for a period of 18 months from the effective date of the Registration
Statement without the prior written consent of the Underwriter. Sales of such
Selling Securityholders' Securities by the Selling Securityholders or the
potential of such sales may have an adverse effect on the market price of the
securities offered hereby. See "Risk Factors."
13
<PAGE>
USE OF PROCEEDS
By the Company. The net proceeds to the Company from the sale of the Units
offered hereby are estimated to be $7,394,000 ($8,568,500 if the
Over-allotment Option is exercised in full). The principal purposes for which
the net proceeds are currently intended, and the approximate amounts intended
for each such purpose, are set forth below:
<TABLE>
<CAPTION>
Amount Percentage
------------ ------------
<S> <C> <C>
Repayment of Notes (1) ... $2,050,000 27.7%
Inventory (2) ............ 1,700,000 23.0%
Marketing (3) ............ 1,294,000 17.5%
Distribution expansion (4) 1,100,000 14.9%
Product development (5) .. 200,000 2.7%
Working capital(6) ....... 1,050,000 14.2%
------------ ------------
Total .................... $7,394,000 100.0%
============ ============
</TABLE>
- ------
1 The Company's repayment of the Notes will include accrued interest thereon.
See "Recent Private Placement Financing."
2 Includes raw materials, manufacturing and packaging. It also includes the
payment of $335,418 owed to Lortscher Agri Service, Inc., and $73,719 owed
to C.J. Foods, Inc., plus interest. Both are vendors to the Company.
3 Includes advertising, in-store coupons, floor walker displays, direct
sampling programs and in-store demonstrations.
4 Includes marketing allowances provided directly to supermarkets and
slotting allowances.
5 Includes palatability and bioavailability tests of formulations to be
introduced during the next year as well as pilot manufacturing runs.
6 None of the proceeds of the Offering will be used to repay debts or
accounts payable owed to the Parent Company.
The above represents the Company's best estimate based upon its present
plans and certain assumptions regarding general economic conditions and the
Company's future revenues and expenditures. The Company, therefore, reserves
the right to reallocate the net proceeds of this Offering among the various
categories set forth above as it, in its sole discretion, deems necessary or
advisable.
Any additional net proceeds realized from the exercise of the
Over-allotment Option will be added to the Company's working capital.
Historically, the Company has been dependent upon debt and equity
financing from its Parent Company and from the Private Placement Financing.
The Company believes the net proceeds of this Offering, together with cash on
hand and cash expected to be generated from operations, will be adequate to
satisfy its capital requirements for a period of at least 12 months from the
date of this Prospectus. Thereafter, if the Company has insufficient funds
for its needs, there can be no assurance that additional funds can be
obtained on acceptable terms, if at all. If necessary funds are not
available, the Company's business would be materially and adversely affected.
Also, if the Company expands sales of its products beyond currently planned
levels it may be necessary to seek additional financing. Such additional
financing, if any, may be either debt, equity or a combination of debt and
equity. An equity financing could result in dilution in the Company's net
tangible book value per share of Common Stock. There can be no assurance that
the Company will be able to secure additional debt or equity financing or
that such financing will be available on favorable terms.
Prior to expenditure, the net proceeds will be invested in short-term
interest bearing securities or money market funds.
By the Selling Securityholders. The Private Placement Warrants and Selling
Securityholders' Shares are not being underwritten in this Offering and the
Company will not receive any proceeds from their sale. The
14
<PAGE>
Company has agreed to bear the cost of preparing the Registration Statement
of which the Prospectus is a part and all filing fees and legal and
accounting expenses in connection with the registration of the Private
Placement Warrants and Selling Securityholders' Shares offered hereby under
federal and state securities laws.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock.
It presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings,
financial condition, cash flows, capital requirements and other
considerations as the Board of Directors may consider relevant with respect
to the payment of dividends.
DILUTION
The Company had a net tangible book value of $(2,783,032) or $(1.48) per
share, as of August 31, 1996, based upon 1,878,378 shares of Common Stock
outstanding. Net tangible book value per share is equal to the Company's
total tangible assets less its total liabilities, divided by the total number
of shares of its Common Stock outstanding. After giving effect to the sale of
the 2,250,000 Units offered hereby at an initial public offering price of
$4.00 per Unit (assuming no value is attributed to the Redeemable Warrants
included in the Units) and the application of the net proceeds therefrom
(after deducting estimated underwriting discounts and other expenses of the
offering), the net tangible book value of the Common Stock as of August 31,
1996 would have been $4,509,468 or $1.09 per share. This would represent an
immediate increase in net tangible book value of $2.57 per share to existing
stockholders and an immediate dilution of $2.91 per share or 73% to new
investors. Dilution is determined by subtracting net tangible book value per
share after this Offering from the amount paid by new investors per share of
Common Stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock ....................................................... $4.00
Net tangible book value per share prior to this Offering $(1.48)
Increase attributable to new investors .................. $ 2.57
---------
Pro forma net tangible book value per share after this
Offering ................................................... $1.09
-------
Dilution per share to new investors .......................... $2.91
</TABLE>
If the Over-allotment Option is exercised in full, the increase in pro
forma net tangible book value per share as of August 31, 1996 attributable to
new investors would have been $2.75, the pro forma net tangible book value
per share of Common Stock after the Offering would be $1.27 and the dilution
per share to new investors would be $2.73 or 68%.
The following table summarizes the number of shares of Common Stock
purchased, the percentage of total consideration paid, and the average price
per share paid by the existing stockholders and new investors in this
Offering. The calculation below is based on an initial public offering price
of $4.00 per Unit (before deducting the underwriting discounts and
commissions and other estimated expenses of the offering payable by the
Company).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------- -------------------------
Average Price
Number % $ % Per Share
----------- ------- -------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,878,378 45.5% $ 4,448,377(1) 33.1% $2.37
New Investors ........ 2,250,000 54.5% $ 9,000,000 66.9% $4.00
----------- ------- -------------- -------
Total ................ 4,128,378 100% $13,448,377 100%
</TABLE>
- ------
1 Includes the notes, totaling $2,087,839, received from management and
employees in exchange for 652,449 shares of Common Stock. See "Certain
Transactions."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996; actual; and as adjusted to give effect to the issuance and
sale of the Units offered by the Company hereby (at an assumed initial public
offering price of $4.00 per Unit) and the initial application by the Company
of the estimated net proceeds therefrom. See "Use of Proceeds" and "Recent
Private Placement Financing." This table should be reviewed in conjunction
with the Company's financial statements and related notes appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
August 31, 1996
-------------------------------
Actual As Adjusted(1)
------------- --------------
<S> <C> <C>
Short-term debt:
Current portion of long-term debt ............... $ 200,000 $ 200,000
Notes payable - Private Placement, net of
unamortized discount of $187,500 .............. 1,812,500 0
------------- --------------
Total short-term debt ................................ $ 2,012,500 $ 200,000
============= ==============
Long-term debt:
Note payable to Parent Company, net of current
portion ....................................... $ 800,000 $ 800,000
------------- --------------
Stockholders' equity:
Preferred Stock, $.01 par value 5,000,000 shares
authorized, 0 shares issued and outstanding ... 0 0
Common Stock, $.01 par value, 25,000,000 shares
authorized, 1,878,378 shares issued and
outstanding at August 31, 1996, actual and pro
forma; 4,128,378 shares issued and outstanding
pro forma as adjusted ......................... 18,783 41,283
Additional paid-in capital ...................... 4,709,861 12,080,994
Deficit accumulated during development stage .... (3,520,220) (4,075,967)
Notes and interest receivable on sale of common
stock ......................................... (2,118,086) (2,118,086)
------------- --------------
Total stockholders' equity (deficiency) .............. (909,662) 5,928,224
------------- --------------
Total capitalization ................................. $ (109,662) $ 6,728,224
============= ==============
</TABLE>
- ------
1 As adjusted to reflect (i) the sale of the Units by the Company at the
assumed initial public offering price of $4.00 per Unit and the initial
application of the net proceeds therefrom, and (ii) the amortization of net
deferred financing costs ($318,247), and unamortized original issue
discount ($187,500) arising from the Private Placement Financing which will
be repaid out of the proceeds of the Offering. See "Use of Proceeds."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the period ended August 31, 1996 are
derived from the Company's financial statements audited by Rachlin Cohen &
Holtz, independent certified public accountants. The results for the period
which ended August 31, 1996 are not necessarily indicative of results that
may be expected for any other interim period or for the full year. The
selected financial data should be read in conjunction with, and are qualified
by reference to, the Company's Financial Statements and Notes thereto and
"Plan of Operations" included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
January 11, 1996
(Inception)
to August 31, 1996
--------------------------
<S> <C>
Statement of Operations Data:
Revenue ............................................ $ 812,216
--------------------------
Costs and expenses:
Cost of sales ................................. 800,267
Marketing and distribution .................... 1,222,232
Product development ........................... 459,735
General and administrative .................... 1,317,845
--------------------------
Total costs and expenses ........................... 3,800,079
--------------------------
Loss before interest and financing costs ........... (2,987,863)
Interest and financing costs ....................... 532,357
--------------------------
Net loss ........................................... $(3,520,220)
==========================
Net loss per common share .......................... $ (1.87)
==========================
Weighted average number of common shares outstanding 1,878,378
--------------------------
</TABLE>
<TABLE>
<CAPTION>
As of August 31, 1996
---------------------
Balance Sheet Data:
<S> <C>
Working capital deficiency .................................... $ (2,021,466)
Total assets .................................................. 4,850,833
Notes payable, Private Placement, net of unamortized discount
of $187,500 .................................................. 1,812,500
Long term debt, note payable to Parent Company, net of current
portion ...................................................... 800,000
Total liabilities ............................................. 5,760,495
Stockholders' deficiency ...................................... $ (909,662)
</TABLE>
17
<PAGE>
PLAN OF OPERATIONS
OVERVIEW
On January 11, 1996, the Company was created to acquire the KenVet
Nutritional Care line of dog and cat foods from a subsidiary of ConAgra. The
Company also began the creation of a management team for its pet food product
line and the development of a strategic plan for the introduction of the
InnoPet Foods into the supermarket and grocery stores distribution network.
During the period from January through May 1996, the Company identified
manufacturers, co-packers, and suppliers and began test runs of product.
Brokers were also identified which support the Greater Metropolitan New York
area, the initial market of the Company's products, and the Company's overall
marketing plan was developed. By May 31, 1996, the core of the Company's
management team was in place. The management team includes a Chief Executive
Officer, Vice Presidents of Manufacturing, Sales, Operations and Research and
Development and a Chief Financial Officer. The Company's marketing program
has been developed and implemented by the Company's Chief Executive Officer.
It is anticipated that a Vice President of Marketing will be hired during the
next twelve months.
During March 1996 the Company began marketing its line of pet foods into
the Greater Metropolitan New York area. From March 1996 through May 1996
retailer specific marketing plans and regional marketing plans were
developed. Sales presentations were made to leading supermarket chains and
wholesalers. In June 1996, the Company commenced sales of its dog food to
supermarkets located in the Greater Metropolitan New York area. As of
September 30, 1996, the Company has sold product into the following markets:
the Greater Metropolitan New York area, the Philadelphia, Pennsylvania area
and other areas in Pennsylvania, the Baltimore, Maryland/Washington, D.C.
area, and the Tampa Bay, Florida and South Florida areas. Supermarket chains
which have received product include: Great Atlantic & Pacific Tea Company
(representing A&P, Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme
Markets, Inc.; Albertsons', Inc. (Florida Division); C&S Wholesale Grocers
(representing Grand Union Company and other supermarket chains); Fleming
Companies, Inc. (representing Hyde Park Markets and other supermarket
chains); Kash N' Karry Food Stores, Inc.; Key Food Stores Co-operative, Inc.;
Pathmark Stores, Inc.; Super Rite Foods and Weiss Markets, Inc. As of
September 30, 1996, the Company has recorded approximately $1,373,000 in
sales (June $153,000, July $146,000, August $513,000 and September $561,000).
PLAN OF OPERATIONS
During the next twelve months, the Company anticipates that it will
continue to sell products in the areas it is currently supplying and that it
will begin sales throughout the majority of the eastern United States. An
extension of the Company's line of dog foods is also anticipated for early
1997 and the Company plans to introduce its line of cat foods during 1997.
The Company expects to continue to incur losses at least through 1996 and
operating losses may increase, at least in the short term, as the Company
increases its expenditures to effect its business plan. The Company's ability
to achieve a profitable level of operations will depend in large part on the
market acceptance of its products. There can be no assurance that the Company
will achieve profitable operations. The Company believes the net proceeds of
this Offering, together with cash on hand and cash expected to be generated
from operations, will be adequate to satisfy its capital requirements for a
period of at least 12 months from the date of this Prospectus. If the
Company, however, expands sales of its products beyond currently planned
levels then it may be necessary to seek additional financing. There can be no
assurance that the Company will be able to secure additional debt or equity
financing or that such financing will be available on favorable terms.
Distribution of the Company's products through the supermarket and grocery
store distribution network necessitates that the Company incurs slotting
fees. Slotting fees are fees charged manufacturers by retailers in order to
facilitate the introduction of new products. The fees represent charges for
warehouse space (slots) to be used to store a manufacturer's products,
charges for retail shelf space and related "shelf sets" to make room for the
products and reimbursement of retailer expenses (entering new items into
their computer systems and in some cases marketing support provided by the
retailer). The practice by retailers of charging slotting fees is a standard
industry practice. Depending on the type of product, slotting fees are either
a fixed one-time fee or a recurring charge per unit of product sold. Slotting
fees for pet foods are generally fixed one time fees. The benefits to be
determined from slotting fees extend for a period of time estimated to range
from six months to
18
<PAGE>
indefinitely. The period of benefit begins when the retailer receives its
first delivery of product. Accordingly, the Company capitalizes these costs
and amortizes them over a period of six months, beginning when the retailer
accepts delivery of the first shipment of product. As of August 31, 1996,
deferred slotting fees (net of amortization) were approximately $837,000. The
Company expects expenses for slotting fees to increase in the short- term.
RESULTS OF OPERATIONS
Net Loss. The Company reported a net loss of $(3,520,220) or $(1.87) per
common share for its initial period of operations from inception (January 11,
1996) to August 31, 1996. The loss is primarily the result of limited sales
generated for that period as compared to costs and expenses incurred
pertaining primarily to the organizational and developmental activities of
the Company to date.
Revenues. Revenues for the period were $812,216. Cost of sales totaled
$800,267 resulting in a gross margin of $11,949 or 1.5% of revenues. The
narrow margin resulted primarily from warehousing and transportation expenses
associated with the initial shipments of the Company's products. The Company
is presently implementing plans to improve these margins. These plans include
improved product shipping density, closer proximity of manufacturing
sub-contractors to market, and reduction in packaging costs. There can be no
assurance that such improvements will occur.
Costs and Expenses. Costs and expenses for the period totaled $2,999,812.
These costs and expenses are detailed below.
Marketing and Distribution Expenses. Marketing and distribution expenses
were $1,222,232 which were primarily composed of marketing costs of
approximately $641,000 (including market research, design of product
packaging, in-house preparation of advertising and marketing pieces); sales
department expenses of approximately $337,000 (including regional sales force
and related travel expenses); and the amortization of slotting fees of
approximately $244,000. The composition of marketing and distribution
expenses include expenses that are both fixed and variable in nature. The
Company plans to increase marketing expenditures to support the introduction
of its products. Additionally, the in-house sales force will be increased to
manage adequately the anticipated growth in sales.
Product Development Expenses. Product development expenses, including
personnel and related costs, were $459,735. This primarily reflects testing
of formulations (e.g. palatability and bioavailability), expenses associated
with locating manufacturers and suppliers and of certifying their facilities
and processes. Product development expenses will continue to be expended to
manage manufacturers and co-packers and to facilitate extension of the
Company's product lines and new product introductions, but at a lower level.
It is not anticipated that the level of expenditure in these areas will
increase substantially with the anticipated product introductions and line
extension included in the business plan. See "Use of Proceeds."
General and Administrative Expenses. General and administrative expenses
were $1,317,845 which were primarily composed of costs associated with the
development and implementation of the overall business strategy, marketing
and financial plans. Costs included personnel expenses of approximately
$649,000, amortization of formula acquisition costs and the ConAgra
non-compete agreement of approximately $78,000, legal fees of approximately
$66,000, accounting and other professional expenses of approximately $17,000,
rent of approximately $60,000 and other expenses. On a year-to-date basis,
salaries for managers have totaled approximately $443,000. For 1997, the
Company will have an annual management salary commitment of $670,000, without
discretionary bonuses, pursuant to employment agreements. It is anticipated
that a Vice President of Marketing will be hired during the next twelve
months and that minor increases in staffing will also be needed.
Interest and Financing Costs. Interest and financing costs totaled
$532,357 consisting of interest expense ($105,767); other financing costs
($265,301, consisting primarily of amortization of deferred financing costs);
and costs in connection with other financings ($161,289, representing certain
professional fees which were incurred in connection with other financings).
LIQUIDITY AND CAPITAL RESOURCES
Capital for the development of the Company has been provided by the Parent
Company. Through the period ended August 31, 1996, the Parent Company made
capital contributions of $2,360,538 to the Company in the
19
<PAGE>
form of costs and expenses ($1,462,315), funds used to purchase the KenVet
formulations ($699,794) and financing costs ($198,429). Additionally, on June
5, 1996 the Parent Company provided the Company $1,000,000 in financing in
exchange for a five-year note, from the Company. Through August 31, 1996, the
Parent Company also provided $819,585 in working capital for inventories,
costs and expenses, which were recorded as accounts payable to the Parent
Company. Neither of these will be repaid from the proceeds of the Offering.
See "Certain Transactions." These funds have been or will be used to fund
introductory marketing allowances, the acquisition of inventory and operating
expenses.
Stockholders' deficit totaled $(909,662) on August 31, 1996 and the
working capital (deficit) was $(2,021,466).
During June 1996, the Company entered into a five-year facilities
agreement with the Parent Company which provides for a pass-through of rent
costs and reimbursement to the Parent Company for funds expended for
equipment, furniture and fixtures. Under the terms of the agreement, the
Company is obligated for $278,143 in payments over the next twelve months and
$1,785,722 over the term of the agreement. The Company is obligated to pay
approximately $670,000 in annual salaries to management. The Company has no
material commitments for capital expenditures over the next twelve months.
In August 1996 the Company consummated the Private Placement Financing,
pursuant to which it issued an aggregate of (i) $2,000,000 principal amount
of Notes, and (ii) 1,000,000 Private Placement Warrants. The net proceeds of
the Private Placement Financing, $1,575,671, were used by the Company to
purchase inventory, to expand distribution, to initiate marketing programs
and to meet working capital and general corporate requirements. See "Recent
Private Placement Financing."
The Company anticipates using the net proceeds from this Offering as
follows: repayment of the Notes, purchase of inventory (includes raw
materials, manufacturing and packaging), expansion of distribution (includes
marketing allowances supporting supermarket distribution and slotting
allowances), increase in marketing (includes advertising, in-store coupons,
floor walker displays, direct sampling programs and in-store demonstrations),
product development (including palatability and bio-availability tests of
formulation to be introduced during the next year, as well as pilot
manufacturing runs) and working capital. Based on its current operating plan,
the Company believes the net proceed of this Offering, together with cash on
hand and cash expected to be generated from operations, will be adequate to
satisfy its capital requirements for a period of at least twelve months from
the date of this Prospectus. There can be no assurance, however, that such
resources will be adequate to satisfy such capital requirements. If the
Company expands sales of its products beyond currently planned levels then it
may be necessary to seek additional financing. The Company has discussed
working capital financing with banks. It is the intention of the Company to
enter into a relationship with a bank to assure availability of credit
facilities in the event that increased working capital is required. Although
there can be no assurance that any credit facility will be available to the
Company, or if available, it will be available on acceptable terms.
20
<PAGE>
BUSINESS
THE COMPANY
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian
Formula(TR) Dog Food. The Company began marketing InnoPet Foods in March
1996. In June 1996, it commenced sales of its dog food to supermarkets
located in the Greater Metropolitan New York area. As of September 30, 1996,
the Company had sold product into the following markets: Greater Metropolitan
New York area; the Philadelphia, Pennsylvania area and other areas in
Pennsylvania; the Baltimore, Maryland/Washington, D.C. area, and the Tampa
Bay, Florida and South Florida areas. Supermarket chains which have received
product include: Great Atlantic & Pacific Tea Company (representing A&P,
Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme Markets, Inc.;
Albertsons', Inc. (Florida Division); C&S Wholesale Grocers (representing
Grand Union Company and other supermarket chains); Fleming Companies, Inc.
(representing Hyde Park Markets and other supermarket chains); Kash N' Karry
Food Stores, Inc.; Key Food Stores Co-operative, Inc.; Pathmark Stores, Inc.;
Super Rite Foods and Weiss Markets, Inc. As of September 30, 1996, the
Company has recorded approximately $1,373,000 in sales.
The Company's objective is to become a national provider of premium pet
foods through supermarket and grocery store retail outlets. The Company
intends to achieve its objective by (i) providing exclusively to supermarkets
a brand of competitively-priced premium pet food to enable them to recapture
a share of the premium pet food market that they have lost to specialty pet
stores; (ii) expanding distribution to supermarket and grocery stores in the
majority of the eastern United States during approximately the next 12
months; (iii) increasing consumer awareness and market penetration throughout
the Company's market areas; (iv) expanding its product lines over the next 12
months to include dry dog food product line extensions, such as lamb and rice
formulations, dry cat food for the kitten and adult life stages; and (v)
packaging its products in unique single serving-sized inner-bags which are
designed to increase convenience of feeding, regulate portions, and to reduce
product deterioration and to prevent contamination.
INDUSTRY BACKGROUND
In 1995, approximately 53 million United States households, or over
one-half of all United States households, owned at least one pet and over
half of these pet-owning households owned more than one pet./1/ Retail sales of
pet food in the United States in 1995 were approximately $9.3 billion (an
increase of 6% over 1994), of which approximately 20% was premium pet food./1/
From 1991 through 1995, sales of premium pet food have increased at a
compound annual growth rate of approximately 18% in recent years, compared to
a compound annual growth rate of less than 3% for total pet food sales./1/ The
Company believes sales of premium pet food have increased in recent years
primarily due to heightened concern for animal welfare and nutrition. Premium
pet food is generally characterized by quality ingredients, such as pure
meat, higher nutritional value, increased digestibility, increased nutrient
absorption and higher pricing. The Company believes that its product
qualifies as premium because of, among other things, its use of pure beef as
the primary source of protein, corn gluten instead of corn meal, and rice
instead of other grains.
Historically, the pet food industry was dominated by relatively low
priced, grain-based or animal byproduct- based nationally branded products
sold through supermarkets. In the early 1980's, supermarkets sold in excess
of 90% of all pet foods./1/ From 1988 to 1995, however, the percentage of pet
food sales made through supermarkets and grocery stores decreased from
approximately 85% to 62%, mainly due to increased sales of premium pet foods
through specialty pet stores./1/ These premium pet foods are currently not
available to supermarkets and grocery stores. Between 1989 and 1995, sales of
pet foods through outlets other than the supermarket/grocery store segment
have risen approximately 71%./1/
The Company believes supermarkets and grocery stores have been unable to
reverse their loss of pet food market share because of their inability to
obtain a full line of premium pet foods. The Company believes that
manufacturers of premium pet foods have not supplied supermarkets and grocery
stores in order to preserve their
- ------
1. This information is derived from The Maxwell Consumer Report, Wheat First
Butcher Singer (May 24, 1996 and May 30, 1995); J. Palmer, Well, Aren't
You the Cat's Meow, Barron's, April 1, 1996 at p. 29; and Packaged Facts
for the Pet Food Market -- February 1995; The Information Catalogue,
Marketing Intelligence Studies, Find/SVP Worldwide Consulting Research and
Advisory Services (1995).
21
<PAGE>
primary distribution channel, the specialty pet stores. Market research
commissioned by the Company, and conducted by Bruskin Goldring Research,
indicates that approximately one-half of households in the United States with
one or more dogs would be likely to try a complete life-stage line of premium
dog food if it was available in supermarkets.
PRODUCTS
In January 1996, the Company acquired from a subsidiary of ConAgra the
formulas for 51 stock keeping units ("SKUs") of premium dog and cat foods
grouped in 14 basic formulations, including both dry and canned foods. The
formulas were developed by ConAgra under the name KenVet Nutritional Care to
be prescribed and sold only through veterinarians. Some of these formulations
have been used to create the Company's initial products. The Company's
current products are based on 100% beef protein. The Company believes its use
of pure beef protein, corn gluten instead of corn meal, and rice instead of
other grains makes its product premium as compared to other pet food
currently sold in supermarkets and grocery stores. Independent laboratory
tests commissioned by the Company indicated that its dog food products meet
or exceed other national premium food products in digestibility and are
comparable in palatability. These tests determine the percentage of protein,
fat and energy used by the dog as compared to the contents of the food prior
to ingestion. The high degree of nutrient absorption of the Company's
products, known as "bioavailability," promotes less body fat by decreasing
the dog's ingestion of nonuseable calories and increases the per dollar value
of the food by reducing the volume of food required to deliver the
appropriate nutrient level.
Existing Products. The Company currently offers nine SKUs of dry dog food
for puppies, adults and seniors to meet the nutritional requirements of pets
at each stage of their lives, in three outer and three inner bag sizes. The
3.75-, 8.125- and 15-pound outer bag sizes provide approximately one week's
food supply for small, medium and large dogs, respectively. The outer bag
sizes were designed to promote weekly purchases during the consumer's normal
food buying trip to the supermarket or grocery store.
Future Products. During the next 12 months, the Company anticipates
introducing additional products, including four life stage SKUs for cats and
special needs SKUs for dogs and cats. The Company's planned special needs
products will be formulated to meet specific dietary needs, such as obesity
and allergies, and in response to the dictates of the consumer, such as lamb
and rice formulations.
Packaging. Unlike conventional bulk packaging in large bags, the Company
uses inner-seal packs inside larger bags. This packaging system is comparable
in cost to traditional dry food bulk packaging since the Company's outer-bag
does not require an oxidation or fat transfer barrier. Products for different
sized animals are packaged in different sized inner-seal bags. The inner-seal
bags contain a single suggested serving for the animal's size. The inner-seal
bags help prevent oxidation of protein, fat, vitamins and minerals in the pet
food, a process that begins immediately upon exposure to air and lowers the
nutritional value of bulk-packed dry foods. Additionally, contamination of
product due to insects, vermin and other sources can be substantially reduced
because the packaging for a single portion need not be opened until the pet's
feeding time. The inner-seal packaging helps maintain the appeal of the
product to the pet, thus helping to reduce waste and cost to the owner. The
Company's inner-seal packaging also promotes portion control feeding
recommended by veterinarians to prevent obesity, a leading ailment among dogs
and cats. The inner-seal bags are easily transported which allow owners
traveling with pets or leaving pets in kennels to more easily feed their
pets. Each inner-seal bag is also labeled for resale, which the Company
believes increases the potential number of retail outlets for the Company's
products by allowing single serving sales in supermarkets and smaller stores.
MARKETING AND SALES
The Company's marketing strategy is designed to respond to both the
supermarket's need to stem the loss of pet food customers to specialty pet
stores and the consumers's desire for the convenience of purchasing a premium
pet food in the supermarket. The Company currently intends to sell its
initial products exclusively through supermarkets and grocery stores. The
Company believes its products are nutritionally superior to currently
available branded products sold through supermarkets and specialty pet
stores' premium products.
Market research commissioned by the Company indicates that approximately
one-half of United States homeowners with a dog would be willing to try a
product defined as the Company's dog food formulations if it was available in
supermarkets. Fewer than 3% of the respondents who would not try such a
product expressed doubts that supermarkets would offer a premium dog food. A
similar small percentage responded that price would be a barrier to trying
such a product.
22
<PAGE>
The Company intends to generate brand awareness of its products through
integrated marketing communications programs. The Company plans to use
in-store promotions, such as floor minders, in-store sampling, instantly
redeemable coupons and point of purchase displays. The Company also intends
to use free standing inserts in newspapers and to mail product samples,
literature and coupons to demographically targeted consumers. The Company
plans to participate in pet-related events, such as dog walks and pet welfare
fundraisers, as well as general events such as tennis tournaments and
veterinarian conferences.
The Company's suggested retail prices for its products are approximately
15% below comparable specialty pet store prices and are approximately equal
to or slightly higher than the highest priced branded product sold through
the supermarkets.
In March 1996, the Company began its marketing efforts in the Greater
Metropolitan New York area which resulted in authorization from a majority of
the supermarket and grocery store chains in this territory. In June 1996,
shipments of the Company's dog food began. As of September 30, 1996, the
Company had delivered its products to Great Atlantic & Pacific Tea Company
(representing A&P, Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme
Markets, Inc.; Albertsons', Inc. (Florida Division); C&S Wholesale Grocers
(representing Grand Union Company and other supermarket chains); Fleming
Companies, Inc. (representing Hyde Park Markets and other supermarket
chains); Kash N' Karry Food Stores, Inc.; Key Food Stores Co-operative, Inc.;
Pathmark Stores, Inc.; Super Rite Foods and Weiss Markets, Inc.
In order to make sales to supermarkets and wholesalers, who function as
distribution organizations for supermarkets and other grocery stores, the
Company, using brokers and field sales managers, must first obtain
authorization for its pet foods. Generally, authorizations are made by the
supermarket's corporate buying office or buying committee. An authorization
from a supermarket or similar organization is the acceptance of the Company's
pet foods for sale in the supermarket's stores. Obtaining an authorization
involves the presentation of the Company's products, and the negotiation of
product set-up or slotting fees, minimum order quantities, initial scope and
duration of product shelf space allocation, and marketing program
participation. The Company works closely with its independent food brokers in
obtaining authorizations.
Once an authorization has been obtained, the Company's brokers, overseen
by its field sales managers, coordinate initial orders with the supermarket's
pet products category buyer. The Company engages its food brokers on an
exclusive basis with respect to premium pet food. In addition to its broker
for the Greater Metropolitan New York area, the Company has appointed five
brokers covering most of the East Coast of the United States, in support of
the Company's expansion plan for 1996-1997. The brokers provide
representation of the Company's products to approximately 70 supermarket
chains and 10,191 retail supermarket outlets. The Company's brokers, all of
whom are paid on a commission basis only, employ an aggregate sales force in
excess of 2,500 people. The Company oversees its broker network with field
sales managers under the direction of the Company's Vice President of Sales.
The brokers, their service areas and the number of chain and retail
supermarkets they serve are as follows:
<TABLE>
<CAPTION>
No. of No. of Retail
Supermarket Supermarket
Broker Market Areas Chains Outlets
------------------------ ----------------------------------------------------------- ------------- ---------------
<S> <C> <C> <C>
M&H Sales & Marketing N.Y. Metropolitan area, New Jersey, Portions of Pennsylvania 9 1,656
Tarrytown, NY and Connecticut
RMC and Associates Central Pennsylvania, Scranton/Harrisburg areas 6 691
Harrisburg, PA
RMC and Associates Philadelphia, Pennsylvania area 4 500
Wayne, PA
RMI and Associates Maryland, Delaware and Washington, D.C. 5 437
Columbia, MD
Acosta Sales Co., Inc. Florida, Georgia, Alabama, North Carolina, 36 5,966
Charlotte, NC South Carolina and Tennessee
Johnson O'Hare Co., Inc. New England and Albany, New York areas 10 941
Billarica, MA
TOTAL 70 10,191
</TABLE>
23
<PAGE>
The Company's ability to obtain authorizations to sell its products in
supermarkets and grocery stores depends upon the efforts and skills of
brokers retained by the Company. Although the Company believes it will be
able to locate and retain qualified brokers throughout the United States on
acceptable terms, there can be no assurance that the Company will be able to
do so. The failure to obtain authorizations or to locate and retain qualified
brokers could have a material adverse effect on the Company.
MANUFACTURING AND DISTRIBUTION
The manufacture of the Company's dog food begins with the purchase of the
raw materials which are then processed into kibble. The kibble is then
transported in bulk to companies which package the kibble for retail sale.
The packaged food is then distributed to the supermarkets.
The Company outsources the manufacturing, packaging and transporting of
its products. The Company does not maintain supply agreements with any other
third party suppliers, but instead purchases products pursuant to purchase
orders in the ordinary course of business. The Company will be substantially
dependent on the ability of its manufacturers and suppliers to, among other
things, meet the Company's performance and quality specifications. Failure by
the Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company's manufacturers and
suppliers will dedicate sufficient production capacity to meet the Company's
scheduled delivery requirements or that the Company's suppliers or
manufacturers will have sufficient production capacity to satisfy the
Company's requirements during any period of sustained demand. Their failure
to supply, or delay in supplying, the Company with products could have a
material adverse effect on the Company. The Company believes that its
suppliers' manufacturing capacity will be adequate for the Company's needs
for the foreseeable future. The inability of the Company's current suppliers
to fulfill the Company's production requirements, or the Company's failure to
obtain alternative production supply relationships, would have a material
adverse effect on the Company. The Company is currently in negotiation with
other manufacturers to produce its dog and cat food products. As of the date
of this Prospectus, no agreements have been entered into with other
manufacturers.
The Company's sub-contracted manufacturers are responsible for the
emulsification of the meat and the purchase and preparation of the other raw
materials that make up the Company's pet food. The principal raw material
required for the Company's products is beef. The Company obtains beef for its
products pursuant to an agreement with Monfort, a subsidiary of ConAgra, that
terminates in 1999, unless terminated earlier by either party on 60 days
notice. This agreement provides for the delivery of up to 15 million pounds
of beef per year at a fixed price. The fixed price is comparable to current
beef prices. Accordingly, if beef prices fall, the Company will be able to
terminate the agreement. Conversely, if beef prices increase, Monfort will be
able to terminate the agreement. In addition, any failure by Monfort to
fulfill its obligations under the agreement, or the failure by the Company to
secure an alternative source of beef at comparable prices upon the
termination of the Monfort agreement, whether at its expiration date or
earlier, would have a material adverse effect on the Company.
The Company owns no warehouses, trucks or other distribution facilities or
equipment. The Company distributes its products directly to supermarket
distribution centers and distribution centers operated by grocery store
wholesalers. The Company may lease space in public warehouses from time to
time. All transport and distribution of the Company's products will be done
through common carriers or fleets operated by the Company's customers.
COMPETITION
The pet food business is highly competitive. Virtually all of the
manufacturers, distributors and marketers of pet food have substantially
greater financial, research and development, marketing and manufacturing
resources than the Company does. Competitors in the premium pet food market
include, among others, Colgate- Palmolive Co. (Hills' Science Diet), Iams Co.
and Ralston Purina Co. Brand loyalty to existing products may prevent the
Company from achieving its sales objectives. Additionally, the long-standing
relationships maintained by existing premium pet food manufacturers with
veterinarians and pet breeders may prevent the Company from obtaining
professional recommendations for its products. In addition, the Company
competes with current supermarket high-priced dog foods which are not
considered premium when compared to InnoPet Foods and to the premium dog
foods offered in the specialty pet stores.
24
<PAGE>
Although the dominant existing premium pet foods are not currently
available in supermarkets and grocery stores, there can be no assurance that
this will continue. In addition, no barriers to entry exist with respect to
such brands. The entrance into the supermarket and grocery store distribution
channel of an existing or new premium pet food by any of the Company's
competitors could have a material adverse effect on the Company.
As compared to its competition, the Company believes that its products
offer the following advantages: (i) a premium pet food available exclusively
in supermarkets, (ii) a superior packaging system, (iii) a supermarket and
grocery store distribution network, and (iv) competitive pricing. There can
be no assurance, however, that these perceived advantages will enable the
Company to compete successfully.
INTELLECTUAL PROPERTY
The Company has filed applications for trademarks covering InnoPet,
InnoPet Brands and InnoPet Veterinarian Formula.
GOVERNMENT REGULATION
The Company's products must be produced in USDA approved facilities. It is
the responsibility of the Company's manufacturers to obtain and maintain such
approvals. In addition, the Company's products are subject to federal and
state labelling regulations and must be registered in each state that the
products are sold to consumers. If the Company fails to register its labels
or satisfy relevant labelling regulations, it may be subject to fines or
prohibited from selling its products until such regulations are satisfied.
The Company believes it is in material compliance with such regulations.
INSURANCE
The Company has obtained product liability insurance and excess liability
insurance which provide aggregate coverage of $1,000,000 and $2,000,000,
respectively.
EMPLOYEES
As of October 31, 1996, the Company employed 25 people, one of whom is
employed on a part time basis. This includes 8 persons engaged in
sales/marketing/public relations, 1 in manufacturing, 1 in research and
development, and 15 in administration/accounting and support. Management
believes its labor relations are satisfactory.
LITIGATION
The Company is currently not a party to any legal proceedings.
PROPERTIES
The Company currently leases from the Parent Company under a facilities
agreement its corporate office located at 1 East Broward Boulevard, Suite
1100, Fort Lauderdale, Florida 33301, where the Company occupies
approximately 10,500 square feet of office space. The monthly rent is
$18,500. The facilities agreement with respect to the offices expires April
30, 2001. See "Certain Transactions." The Company believes it has adequate
space to conduct its operations.
25
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names of the Company's directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
Marc Duke 49 Chairman of the Board and Chief Executive Officer
Dr. Dana Vaughn 42 Vice President, Research and Development
Robin Hunter 40 Vice President, Chief Financial Officer and Secretary
Edwin H. Christensen 54 Vice President of Manufacturing and Director
Albert A. Masters 65 Vice President of Sales and Director
Linda Duke 49 Vice President of Operations
Richard P. Greene 40 Director
Curtis Granet 46 Director
</TABLE>
Marc Duke has been the Chairman of the Board of Directors and the Chief
Executive Officer of the Company since January 1996. Mr. Duke is currently
the Chairman of the Board of Directors and Chief Executive Officer of the
Parent Company and Chief Executive Officer and Director of AniVet, Inc. and
OPD, both subsidiaries of the Parent Company and has held such positions
since September 1995 to the present. From 1993-1995, he was President of OPD.
From 1990-1992, he was President of Madison South International, Inc.
("Madison"), a national and international marketing consulting company.
Dana Vaughn has been Vice President of Research and Development since June
1996. Dr. Vaughn has been a Director of the Parent Company since 1994. From
December 1995 until May 1996, he was the Vice President and Managing
Director, Animal Sciences Division of the Parent Company. From 1985-1995, Dr.
Vaughn was the Director of the Laboratory of Nutritional & Medicinal
Biochemistry at the College of Veterinary Medicine of Auburn University. His
work included development of medicine and food products for pets, under both
government and private grants from leading pet food and pharmaceutical
manufacturers. Dr. Vaughn is the author and co-author of numerous articles in
the fields of pet nutrition and pet pharmacology.
Robin Hunter has been the Vice President and Chief Financial Officer and
Secretary of the Company since January 1996. From October 1995 until May
1996, Mr. Hunter was the Vice President and Chief Financial Officer of the
Parent Company. From 1988-1995, Mr. Hunter was employed by Petri Baking
Products, Inc. where he was first the controller from 1988 to 1993, and was
then promoted to Director of Finance from 1993-1995.
Edwin H. Christensen has been the Vice President of Manufacturing of the
Company since June 1996 and a Director since June 1996. From January 1996
until May 1996, he was Vice President of Manufacturing of the Parent Company.
He was founder and principal of Christensen Consulting, a consulting firm
specializing in food and non-food uses of grain, since November 1993. From
1990 to November 1993, Mr. Christensen was vice president and general manager
of Nutrition Products -- A Brown Forman Company, a manufacturer and marketer
of fiber and yeast. Previously, he held management positions with the pet
food subsidiaries of Quaker Oats, during which time he invented the Kibbles
'N' Bits(TM )product.
Albert A. Masters has been the Vice President of Sales of the Company
since June 1996 and a Director since June 1996. From September 1995 until May
1996, Mr. Masters was the Vice President of Sales of the Parent Company. From
1991 until 1995, he was a vice president of sales for Professional Laboratory
Systems, where he was responsible for the sales and marketing of diagnostic
and testing equipment sold across the United States. From 1989-1991, he was
the executive vice president of sales and marketing for Old Tyme Soft Drinks,
Inc., and was responsible for the distribution and marketing of gourmet soft
drink products.
Linda Duke has been the Vice President of Operations since June 1996. From
September 1995 to May 1996 she was the Director of Operations for the Parent
Company. From 1993 to 1995 she was the Director of Operations of OPD. From
1990 to 1992 she was vice president of operations of Madison. Linda Duke is
married to Marc Duke.
Richard P. Greene has been a Director of the Company since June 1996. He
has been the Secretary of the Parent Company since August 1995. From 1988 to
the present date, Mr. Greene has maintained his law practice, which is
engaged in the practice of corporate and securities law in the State of
Florida.
26
<PAGE>
Curtis Granet has been a Director of the Company since June 1996 and has
been a partner in the certified public accounting firm of Levine & Granet,
C.P.A. since 1981 in the State of New York.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
DIRECTOR COMPENSATION
Non-employee directors receive a fee of $250 for each meeting of the Board
attended and a fee of $125 for each meeting of any committee of the Board
attended and reimbursement of their actual expenses. In addition, pursuant to
the Plan, each non-employee director will be granted options to purchase
2,500 shares of Common Stock per annum at an exercise price equal to the fair
market value of the underlying common stock on the date of grant which shall
be the last trading date in November of each year. These option grants will
not begin until November 1996.
EXECUTIVE COMPENSATION
Summary Compensation Table. Since the Company has not been in existence
for a full year the following summarizes the aggregate cash compensation to
be paid during 1996 to the Company's Chief Executive Officer and any officer
who is expected to earn more than $100,000 in salary and bonus pursuant to
their contracts. Currently, no options have been granted to management.
<TABLE>
<CAPTION>
Name and Principal Position 1996 Salary 1996 Bonus Options
------------------------------------------------------- ------------- ------------ ---------
<S> <C> <C> <C>
Marc Duke, Chief Executive Officer .................... $200,000 * 0
Dana Vaughn, Vice President of Research and Development $125,000 * 0
Albert Masters, Vice President of Sales ............... $104,000 * 0
</TABLE>
- ------
* See description below.
EMPLOYMENT AGREEMENTS
Mr. Duke and the Company entered into an employment agreement dated as of
June 1, 1996 and expires May 31, 2000. The agreement provides that he will
act as Chief Executive Officer of the Company, devote substantially his full
working time and attention to the Company and provides for an annual salary
of $200,000, plus a discretionary bonus up to 25% of the annual salary to be
determined by the Board of Directors. In addition, Mr. Duke is entitled to
receive a performance bonus as will be determined each year by the
compensation committee of the Board of Directors based upon the net earnings
of the Company. His annual salary increases to $250,000 beginning January
1998. If this agreement is terminated by the Company without cause he is
entitled to receive three times his average annual salary over the prior five
years, or for whatever lesser period he has been employed. Such payment shall
be paid half on the date of termination and the balance six months
thereafter. In the event there is a change in control of the Company, and Mr.
Duke is terminated, he is entitled to receive a payment equal to three times
his average annual salary and bonus over the course of the last five years,
or for whatever lesser period he has been employed. Such payment shall be
paid half on the date of the change-in-control and the other half six months
thereafter. The agreement also provides for a one year non-compete following
the termination of Mr. Duke's employment.
The Company has also entered into employment agreements with Messrs.
Christensen, Hunter, Masters and Vaughn and Ms. Duke which all expire May 31,
1999 and provide for merit bonuses at the discretion of the Board of
Directors. These agreements provide that if the executive is terminated
without cause he is entitled to receive a severance payment equal to six
months of his annual salary payable over the six months following his
termination. The contracts state that Messrs. Christensen, Hunter, Masters,
Vaughn and Ms. Duke shall receive base salaries of $90,000, $85,000,
$104,000, $125,000 and $65,000, respectively. These agreements also contain
six month non-compete clauses if any of these executives should leave the
employ of the Company.
27
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's certificate of incorporation and by-laws provide that the
Company shall indemnify all directors and officers of the Company to the
fullest extent permitted by the Delaware General Corporation Law. Under such
provisions, any director or officer, who in his capacity as such is made or
threatened to be made, party to any suit or proceeding, shall be indemnified
if it is determined that such director or officer acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and persons
controlling the Company pursuant to the foregoing provision, or otherwise,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
STOCK OPTION PLAN
A total of 400,000 shares of Common Stock are reserved for issuance under
the Stock Option Plan. The plan provides for the award of options, which may
either be incentive stock options ("ISOs") within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code") or
non-qualified options ("NQOs") which are not subject to special tax treatment
under the Code. The Stock Option Plan is administered by the Board or a
committee appointed by the Board (the "Administrator"). Officers, directors,
and employees of, and consultants to, the Company or any parent or subsidiary
corporation selected by the Administrator are eligible to receive options
under the plan. Subject to certain restrictions, the Administrator is
authorized to designate the number of shares to be covered by each award, the
terms of the award, the dates on which and the rates at which options or
other awards may be exercised, the method of payment and other terms.
The exercise price for ISOs cannot be less than the fair market value of
the stock subject to the option on the grant date (110% of such fair market
value in the case of ISOs granted to a stockholder who owns more than 10% of
the Company's Common Stock). The exercise price of a NQO shall be fixed by
the Administrator at whatever price the Administrator may determine in good
faith. Unless the Administrator determines otherwise, options generally have
a 10-year term (or five years in the case of ISOs granted to a participant
owning more than 10% of the total voting power of the Company's capital
stock). Unless the Administrator provides otherwise, options terminate upon
the termination of a participant's employment, except that the participant
may exercise an option to the extent it was exercisable on the date of
termination for a period of time after termination.
Generally, awards must be exercised by cash payment to the Company of the
exercise price. However, the Administrator may allow a participant to pay all
or a portion of the exercise price by means of a promissory note, stock or
other lawful consideration. The Stock Option Plan also allows the
Administrator to provide for withholding and employment taxes payable by a
participant to the Company upon exercise of the award. Additionally, the
Company may make cash grants or loans to participants relating to the
participant's withholding and employment tax obligations and the income tax
liability incurred by a participant upon exercise of an award.
In the event of any change in the outstanding shares of Common Stock by
reason of any reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend or similar change in the corporate structure, the
aggregate number of shares of Common Stock underlying any outstanding options
may be equitably adjusted by the Administrator in its sole discretion.
The Administrator may, at any time, modify, amend or terminate the plan as
is necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, that the Administrator may condition the
effectiveness of any such amendment on the receipt of stockholder approval as
may be required by applicable statute, rule or regulation. In addition, this
Stock Option Plan may be terminated by the Board of Directors as it shall
determine in its sole discretion, in the absence of stockholder approval;
provided, however, that any such termination will not adversely alter or
impair any option awarded under the Stock Option Plan prior to such
termination without the consent of the holder thereof.
The Company has agreed with the Underwriter that for a 24 month period
following the effective date of the registration statement in connection with
a public offering of the securities of the Company that it will not,
28
<PAGE>
without the consent of the Underwriter, adopt or propose to adopt any plan or
arrangement permitting the grant, issue or sale of any shares of its
securities or issue, sell or offer for sale any of its securities, or grant
any option for its securities of Common Stock which shall: (x) have an
exercise price per share no less than the greater of (a) the initial public
offering price of the offered securities and (b) the fair market value of the
Common Stock on the date of grant, and (y) not be granted to any existing
officers, directors, employees or consultants of the Company or to any direct
or indirect beneficial holder on the date hereof of more than 5% of the
issued and outstanding shares of Common Stock. No option or other right to
acquire Common Stock granted, issued or sold during this period shall permit
(a) the payment with any form of consideration other than cash, (b) payment
of less than the full purchase or exercise price for such shares of Common
Stock or other securities of the Company on or before the date of issuance,
or (c) the existence of stock appreciation rights, phantom options or similar
arrangements.
CERTAIN TRANSACTIONS
Capital for the development of the Company has been provided by the Parent
Company. From January 1996 through August 31, 1996, the Parent Company made
capital contributions of $2,221,348 in the form of costs and expenses
($1,323,125), funds used to purchase the KenVet formulations and inventories
($699,794), and financing costs ($198,429). In return, the Parent Company
received 1,182,432 shares of Common Stock. Additionally, on June 1, 1996, the
Company sold 43,497 shares of Common Stock to the Parent Company in exchange
for $139,190.
The Company also issued a note, dated June 5, 1996, to the Parent Company
in the amount of $1,000,000 which bears interest at one percent above the
prime rate (on August 30, 1996 the prime rate was 8.25%). The note has a term
of five years. Interest is payable quarterly and principal is payable
annually. Through August 31, 1996, the Parent Company also provided $819,585
in working capital for inventories, costs and expenses, which were recorded
as accounts payable by the Company. Neither of these will be repaid from the
proceeds of the Offering.
On June 1, 1996, the Company sold a total of 652,449 shares of Common
Stock to Messrs. Duke, Vaughn, Masters and Hunter, Ms. Duke and to 12 other
employees of the Company at that time, in exchange for three-year notes to
the Company bearing interest at 5.75% annually, in the aggregate principal
amount of $2,087,839. The notes are secured by the shares owned by the
employees.
The Company has entered into a facilities agreement pursuant to which it
has agreed to lease its offices, furnishings and equipment from the Parent
Company until April 30, 2001. The Company shall pay an annual amount of
$278,143 to the Parent Company for the lease of the offices, furnishings and
equipment which represents a direct pass through of the rent expenses and
reimbursement for the costs of equipment, furniture and fixtures.
Mr. Duke is the Chief Executive Officer, Chairman of the Board of
Directors and a significant shareholder in the Parent Company as well as an
officer of the two other subsidiaries of the Parent Company. While it is
expected that Mr. Duke will continue to hold these positions in the immediate
future, during the term of his employment agreement, Mr. Duke will devote
substantially all of his time and efforts to the management and development
of the Company. See "Risk Factors -- Dependence on Key Personnel; Conflict of
Interests." Dr. Vaughn is a Director of the Parent Company. During the term
of his employment agreement, Dr. Vaughn will devote all of his time and
efforts to the management and development of the Company.
All completed, on-going and future transactions between the Company and
its officers, directors, principal stockholders or other affiliates have been
and will be on terms no less favorable to the Company then could be obtained
from unaffiliated third parties on an arm's-length basis, and will be
approved by a majority of the Company's independent and disinterested
directors.
29
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 31, 1996, (i) by each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) by each of the Company's directors, (iii) by
each officer named under "Management -- Executive Compensation -- Summary
Compensation Table" and (iv) by all officers and directors as a group. Except
as indicated in the footnotes to this table, the persons named in the table
have sole voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. No Preferred
Stock of the Company is issued or outstanding. The table assumes that prior
to the Offering 1,878,378 shares of Common Stock are outstanding and after
the Offering 4,128,378 shares will be outstanding.
<TABLE>
<CAPTION>
Number of Shares Percent Owned Percent to be Owned
Name and Address of Beneficial Beneficially
Owner(1) Owned(2) Before Offering After Offering
------------------------------------ ------------------- --------------- -------------------
<S> <C> <C> <C>
Marc Duke (3) 1,878,378 100 % 45 %
Dana Vaughn 86,993 5 % 2 %
Albert A. Masters 43,497 2 % 1 %
Robin Hunter 43,497 2 % 1 %
Linda Duke 34,797 2 % *
Richard Greene 0 0 0
Curtis Granet 0 0 0
Daniel R. Lee(4) 250,000 11.7% 5.7%
InnoPet Inc. 1,225,929 65 % 30 %
One East Broward Boulevard
Fort Lauderdale, Florida 33301
All Officers and Directors 1,878,378 100 % 45 %
as a Group (8 persons)
</TABLE>
- ------
* Less than one percent (1%).
1 Unless otherwise indicated, all addresses are c/o InnoPet Brands Corp., One
East Broward Boulevard, Suite 1100, Fort Lauderdale, Florida 33301.
2 Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act and unless otherwise indicated, represents shares
for which the beneficial owner has sole voting and investment power. The
percentage of class is calculated in accordance with Rule 13d-3.
3 Includes 234,883 shares owned by management and current and former
employees of the Company, of which Mr. Duke has been granted a proxy to
vote the shares. Also includes 1,225,929 shares owned by the Parent Company
as to which Mr. Duke disclaims beneficial ownership. Mr. Duke is the record
owner of 417,566 shares of Common Stock.
4 Mr. Lee currently owns 250,000 Private Placement Warrants.
30
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 1,000,000 Redeemable Warrants which will be issued to the
Selling Securityholders in exchange for the Private Placement Warrants,
together with 1,000,000 shares of Common Stock issuable upon their exercise,
are being offered hereby, at the expense of the Company, for the account of
such Selling Securityholders. See "Recent Private Placement Financing,"
"Concurrent Offering" and "Shares Eligible for Future Sale." The Private
Placement Warrants were issued as part of a private placement by the Company
of Units consisting of $2,000,000 aggregate principal amount of 10%
promissory notes and the Private Placement Warrants which was completed in
August 1996. The aggregate $2,000,000 principal amount of the Notes,
including accrued interest thereon, are to be repaid out of the proceeds of
this Offering. See "Use of Proceeds."
Sales of the Selling Securityholders' Warrants and the underlying shares
of Common Stock may depress the price of the Units and the Common Stock or
Redeemable Warrants underlying the Units in any markets for such securities.
The following table sets forth information with respect to persons for
whom the Company is registering the Selling Securityholders' Warrants and the
Selling Securityholders' Shares for resale to the public in the Concurrent
Offering. Ownership of the Redeemable Warrants and Common Stock by the
Selling Securityholders after the Offering will depend on the number of such
securities sold by each Selling Securityholder in the Concurrent Offering and
if all Selling Securityholders' Securities are sold in such offering the
Selling Securityholders will own no Securities.
<TABLE>
<CAPTION>
Redeemable Warrants(1) Common Stock(1)
------------------------------------ ---------------------------------------
Number of
Securities Owned
Prior to and Number of Securities
Registered in the Percent of Owned Prior to and Percent of
Concurrent Class after the Registered in the Class after the
Selling Securityholder Offering Offerings(2) Concurrent Offering Offerings(3)
------------------------------------------ ----------------- --------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Carmine Agnello .......................... 25,000 * 25,000 *
Stanley Arkin ............................ 50,000 1.5% 50,000 *
William Cutolo and Marguerite Cutolo (4) . 25,000 * 25,000 *
Joseph V. DiMauro ........................ 25,000 * 25,000 *
Joseph V. DiMauro, as Custodian for Joseph
Robert DiMauro .......................... 25,000 * 25,000 *
Jerry Finkelstein ........................ 50,000 1.5% 50,000 *
Laurence Heller .......................... 50,000 1.5% 50,000 *
Jack Kaster .............................. 25,000 * 25,000 *
Ralph K. Kato IRA ........................ 50,000 1.5% 50,000 *
Steven H. Kessler ........................ 25,000 * 25,000 *
Daniel R. Lee ............................ 250,000 8 % 250,000 5.7%
Barry J. Lind, Neil G. Blum (5) .......... 50,000 1.5% 50,000 *
Barry J. Lind, Revocable Trust ........... 50,000 1.5% 50,000 *
Peter Maher and Patricia Maher (4) ....... 50,000 1.5% 50,000 *
Alfred S. Palagonia ...................... 50,000 1.5% 50,000 *
Frank C. Rathge Trust .................... 25,000 * 25,000 *
M. Jerome Rieger ......................... 25,000 * 25,000 *
Nancy A. Roehl ........................... 50,000 1.5% 50,000 *
Peter G. Roehl ........................... 50,000 1.5% 50,000 *
Francine Urdang .......................... 50,000 1.5% 50,000 *
TOTAL .................................... 1,000,000 31 % 1,000,000 19.5%
</TABLE>
- ------
*Less than one percent (1%).
(1) Assumes no purchase by any Selling Securityholder of any Units, Common
Stock or Redeemable Warrants in the Offering. The Offering and the
Concurrent Offering are collectively referred to as the "Offerings."
31
<PAGE>
(2) Assumes none of Selling Stockholders' Warrants were exercised and is
therefore based upon 3,250,000 Redeemable Warrants outstanding after the
Offering.
(3) Assumes the exercise of each Selling Securityholders' Warrants.
(4) Joint tenants with rights of survivorship.
(5) Tenants-in-Common.
There are no material relationships between any of the Selling
Securityholders and the Company or any of its predecessors or affiliates. The
Selling Securityholders' Securities are not being underwritten by the
Underwriter. The Selling Securityholders may sell the Selling
Securityholders' Securities at any time on or after the date hereof, provided
prior consent is given by the Underwriter during 18 months commencing on the
date of this Prospectus. In addition, the Selling Securityholders have agreed
with the Company that, during the period ending on the second anniversary of
the date of this Prospectus, the Selling Securityholders will not sell such
securities other than through the Underwriter, and that the Selling
Securityholders shall compensate the Underwriter in accordance with its
customary compensation practices. Subject to these restrictions, the Company
anticipates that sales of the Selling Securityholders' Securities may be
effected from time to time in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions, or
a combination of such methods of sale, at fixed prices that may be changed,
at market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Selling
Securityholders' Securities directly to purchasers or through broker-dealers
that may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the Selling Securityholders' Securities as principals may be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the
resale of such securities as principals might be deemed to be underwriting
discounts and commissions under the Securities Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of such securities against
certain liabilities, including liabilities arising under the Securities Act.
The Company will not receive any proceeds from the sales of the Selling
Securityholders' Securities by the Selling Securityholders. Sales of the
Selling Securityholders' Securities by the Selling Securityholders, or even
the potential of such sales, would likely have an adverse effect on the
market price of the Units, the Redeemable Warrants and Common Stock.
At the time a particular offer of Selling Securityholders' Securities is
made, except as herein contemplated, by or on behalf of a Selling
Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of Selling Securityholders' Securities being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to
dealers.
Under the Exchange Act, and the regulations thereunder, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to
such securities of the Company during the applicable "cooling-off" period
(two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Rules 10b-6 and
10b-7, in connection with transactions in such securities, which provisions
may limit the timing of purchases and sales of such securities by the Selling
Securityholders.
32
<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock.
UNITS
Upon consummation of this Offering, the Company will have outstanding
2,250,000 Units, each Unit consisting of one share of Common Stock, $.01 par
value, and one Redeemable Warrant. The Common Stock and Redeemable Warrants
may only be purchased as Units in the Offering, but are immediately
detachable and separately tradeable. The Company and the Underwriter may
jointly determine, based upon market conditions, to delist the Units upon the
expiration of the 30 day period commencing on the date of this Prospectus.
COMMON STOCK
The Company's authorized common stock consists of 25,000,000 shares of
Common Stock. As of August 30, 1996, there were issued and outstanding
1,878,378 shares of Common Stock of the Company. The holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of shareholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be
declared by the Company's Board of Directors out of funds legally available
therefor. Holders of Common Stock have no preemptive, subscription or
redemption rights, and there are no conversion or similar rights with respect
to such shares. The outstanding shares of Common Stock are fully paid and
nonassessable. The holders of Common Stock are entitled to one vote per share
on all matters to be voted upon by the shareholders.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of undesignated Preferred Stock, as well as to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by the shareholders. The Board of
Directors, without shareholder approval, may issue Preferred Stock with
voting and conversion rights which could materially adversely affect the
voting power of the holders of Common Stock. The issuance of Preferred Stock
could also decrease the amount of earnings and assets available for
distribution to holders of Common Stock. In addition, the issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. At present, the Company has no plans to
issue any shares of Preferred Stock. See "Risk Factors -- Possible Adverse
Effects of Authorized Preferred Stock."
REDEEMABLE WARRANTS
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of $______ [150% of the initial public
offering per Unit] per share, subject to adjustment, commencing immediately.
The Redeemable Warrants expire on _________ __, 2001 [60 months from the date
of this Prospectus]. The Redeemable Warrants will be subject to redemption,
subject to the prior written consent of the Underwriter, at a price of $.05
per Redeemable Warrant commencing ____________, 1997 [12 months from the date
of this Prospectus] on 30 days' written notice provided the average closing
bid price of the Common Stock as reported by Nasdaq (or the last sale price
if listed on a national securities exchange), equals or exceeds 150% of the
warrant exercise price per share for any 20 trading days within a period of
30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. The holder of a Redeemable Warrant will lose his
right to purchase if such right is not exercised prior to redemption by the
Company on the date for redemption specified in the Company's notice of
redemption or any later date specified in a subsequent notice. Notice of
redemption by the Company shall be given by first class mail to the holders
of the Redeemable Warrants at their addresses set forth in the Company's
records.
33
<PAGE>
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock.
Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company so as to enable Redeemable
Warrant holders to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder
of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such Redeemable Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Redeemable Warrants.
The Redeemable Warrants do not confer upon the holder any voting or any
other rights of a stockholder of the Company. Upon notice to the Redeemable
Warrant holders, the Company has the right to reduce the exercise price or
extend the expiration date of the Redeemable Warrants.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The Company's Transfer Agent, Warrant Agent and Registrar is Continental
Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Redeemable Warrants. No prediction can be made of the
effect, if any, that future market sales of the Common Stock, the Redeemable
Warrants or the availability of such shares or warrants for sale will have on
the prevailing market price of the Securities following this Offering.
Nevertheless, sales of substantial amounts of such shares or warrants in the
open market following this Offering could adversely affect the prevailing
market price of the Units, Common Stock or Redeemable Warrants.
Upon completion of this Offering, the Company will have 4,128,378 shares
of Common Stock outstanding. All of the 2,250,000 shares of Common Stock and
2,250,000 Redeemable Warrants included in the Units sold in this Offering
will be freely tradeable without restriction or further registration under
the Securities Act unless held by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. In addition, 1,000,000
Redeemable Warrants, held by the Selling Securityholders, and 1,000,000
shares of Common Stock underlying such warrants, are being registered on this
Offering, but cannot be sold without the consent of the Underwriter as
described below. The remaining 1,878,378 shares may be deemed "restricted
securities," and may not be sold except in compliance with Rule 144 under the
Securities Act. Rule 144, in essence, provides that a person holding
restricted securities for a period of two years may publicly sell in
brokerage transactions at an amount equal to one percent of the Company's
outstanding Common Stock every three months or, if greater, a percentage of
the shares publicly traded during a designated period. Of such 1,878,378
shares, 100 shares will be eligible for sale under Rule 144 beginning in
January, 1998, 1,182,332 shares will be eligible for sale under Rule 144
beginning in March, 1998; and 43,497 shares will be eligible for sale under
Rule 144 beginning in June, 1998. The remaining 652,449 shares were purchased
by employees by notes and at this time it is not possible to state when such
shares will be eligible for sale under Rule 144 other than the earliest they
might be eligible for sale under Rule 144 is September, 1998 if the notes
were to be satisfied in September, 1996.
Each of the Company's officers and directors and all stockholders and
Selling Securityholders have agreed that for a period of 18 months from the
date of this Prospectus they will not sell any of the Company's securities
without the prior written consent of the Underwriter. They have further
agreed that any sales of the Company's securities owned by them will be
executed through the Underwriter for a 24 month period from the date hereof.
34
<PAGE>
UNDERWRITING
Joseph Stevens & Company, L.P. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter on a firm commitment basis
all of the Units offered by the Company hereby.
The Underwriter has advised the Company that the Underwriter initially
proposes to offer the Units to the public at the public offering price set
forth on the cover page of this Prospectus and that the Underwriter may allow
to certain dealers concessions not in excess of $______ per Unit, of which
amount a sum not in excess of $______ per Unit may in turn be reallowed by
such dealers to other dealers. After the commencement of this Offering, the
public offering price, the concessions and the allowances may be changed. The
Underwriter has informed the Company that the Underwriter does not expect
sales to discretionary accounts by the Underwriter to exceed five percent of
the securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act or to contribute
to payments that the Underwriter may be required to make. The Company has
agreed to pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
The Company has granted to the Underwriter an option, exercisable within
45 days of the date of this Prospectus to purchase from the Company at the
offering price less underwriting discounts and the non-accountable expense
allowance, up to an aggregate of 337,500 additional Units for the sole
purpose of covering over- allotments, if any. To the extent such option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of additional Units
proportionate to its initial commitment.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission which shall not exceed five percent (5%) of the
aggregate exercise price of such Redeemable Warrants in connection with bona
fide services provided by the Underwriter relating to any warrant
solicitation. In addition, the individual must designate the firm entitled to
payment of such warrant solicitation fee. No compensation, however, will be
paid to the Underwriter in connection with the exercise of the Redeemable
Warrants if (a) the market price of the Common Stock is lower than the
exercise price, (b) the Redeemable Warrants were held in a discretionary
account, or (c) the Redeemable Warrants are exercised in an unsolicited
transaction. Unless granted an exemption by the Commission from its Rule
10b-6 under the Exchange Act, the Underwriter will be prohibited from
engaging in any market-making activities with regard to the Company's
securities for the period from nine business days (or other such applicable
periods as Rule 10b-6 may provide) prior to any solicitation of the exercise
of the Redeemable Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriter may have to receive a fee. As a result, the Underwriter
may be unable to continue to provide a market for the Company's Securities
during certain periods while the Redeemable Warrants are exercisable. If the
Underwriter has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Underwriter undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
Each director and officer of the Company, as well as all holders of the
Common Stock and the Selling Securityholders, have agreed not to, directly or
indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise
encumber any shares of Common Stock or Redeemable Warrants, or otherwise
dispose of any interest therein, for a period of 18 months from the date of
this Prospectus without the prior written consent of the Underwriter. An
appropriate legend shall be marked on the face of certificates representing
all such securities. They have further agreed that any sales of the Company's
securities owned by them will be executed through the Underwriter for 24
months from the date of this Prospectus.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, warrants to purchase from the Company
225,000 Units (the "Underwriter's Warrants"). The Underwriter's Warrants are
initially exercisable at $____ [165% of the initial public offering price per
Unit]. The shares of
35
<PAGE>
Common Stock and Redeemable Warrants issuable upon exercise of the
Underwriter's Warrants are identical to those offered to the public, provided
that the Redeemable Warrants underlying the Underwriter's Warrants, while
held by the Underwriter or its designees, are initially exercisable at a
price equal to 130% of the initial exercise price of the Redeemable Warrants
underlying the Units offered to the public. The Underwriter's Warrants
contain provisions providing for adjustment of the number of warrants and
exercise price under certain circumstances. The Underwriter's Warrants grant
to the holders thereof certain rights of registration of the securities
issuable upon exercise of the Underwriter's Warrants. The Underwriter's
Warrants will be restricted from sale, transfer, assignment and hypothecation
for a period of one year from the date of this Prospectus, except to officers
or partners of the Underwriter and members of the selling group.
The Company has also agreed to retain the Underwriter as the Company's
financial consultant for a period of 24 months from the date hereof and to
pay the Underwriter $2,000 per month, all payable in advance on the closing
date as set forth in the Underwriting Agreement.
The Company has agreed that, for a period of five years from the date of
the Prospectus, the Underwriter shall have the right to nominate one member
of the Company's Board of Directors and the Company shall use its best
efforts to have such nominee appointed or elected to the Company's Board of
Directors.
Prior to this Offering there has been no public market for the Units, the
Common Stock or the Redeemable Warrants. Accordingly, the initial public
offering price of the Units and the terms of the Redeemable Warrants were
determined in negotiation between the Company and the Underwriter. Other
factors considered in determining such price and terms, in addition to
prevailing market conditions, included the history of and the prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and such
other factors that were deemed relevant.
The Underwriter acted as Placement Agent for the Private Placement
Financing and received in connection therewith a commission of $200,000, a
non-accountable expense allowance of $60,000 and 200,000 placement agent
warrants (the "Placement Agent's Warrants") to purchase 200,000 shares of
Common Stock at an exercise price of $2.00 per share. The Placement Agent's
Warrants will be canceled upon the consummation of this Offering.
The Underwriter commenced operations in March 1994. Therefore, it does not
have extensive experience as an underwriter of public offerings of
securities. The firm is relatively small and no assurance can be given that
the firm will be able to participate as a market maker in the Units, the
Common Stock or the Redeemable Warrants and no assurance can be given that
another broker-dealer will make a market in the Units, the Common Stock or
the Redeemable Warrants. The Underwriter has acted as managing underwriter of
eight public offerings.
The Company and the Underwriter may jointly determine, based upon market
conditions, to delist the Units upon the expiration of the 30 day period
commencing on the date of this Prospectus.
The foregoing is a summary of all material terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Camhy Karlinsky & Stein LLP, New York, New York. Orrick,
Herrington & Sutcliffe LLP, New York, New York, has acted as counsel for the
Underwriter in connection with this Offering.
EXPERTS
The financial statements as of August 31, 1996, included in this
Prospectus and in the Registration Statement, have been included herein in
reliance upon the report of Rachlin Cohen & Holtz, independent certified
public accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
36
<PAGE>
ADDITIONAL INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Exchange Act and in accordance therewith will
file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information can be inspected and
copied at the Commission's principal offices at 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its New York Regional Office, 7 World Trade
Center, New York, New York 10048; and at its Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material can be obtained from the Commission's
Public Reference Section at prescribed rates.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act with respect to the Units
offered by this Prospectus. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in,
or annexed as exhibits to, the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement including the
exhibits filed therewith. The Registration Statement may be inspected and
copies may be obtained from the Public Reference Section at the Commission's
principal office, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and the New York Regional Office, 7 World Trade Center, New York, New
York 10048, upon payment of the fees prescribed by the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and where the contact or other document
has been filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by such reference to the applicable
document filed with the Commission.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants ... F-2
Balance Sheet ........................................ F-3
Statement of Operations .............................. F-4
Statement of Stockholders' Deficiency ................ F-5
Statement of Cash Flows .............................. F-6
Notes to Financial Statements ........................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
InnoPet Brands Corp.
We have audited the accompanying balance sheet of InnoPet Brands Corp. as of
August 31, 1996, and the related statements of operations, stockholders'
deficiency, and cash flows from inception (January 11, 1996) to August 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnoPet Brands Corp. as of
August 31, 1996, and the results of its operations and its cash flows from
inception (January 11, 1996) to August 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Note 2
to the financial statements, the Company is in the development stage and has
incurred a net loss and reflects a stockholders' deficiency as of and for the
period ended August 31, 1996. This condition raises substantial doubt as to
the ability of the Company to continue as a going concern. Management's plans
with regard to this matter are also described in Note 2 to the financial
statements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
RACHLIN COHEN & HOLTZ
Fort Lauderdale, Florida
October 25, 1996
F-2
<PAGE>
INNOPET BRANDS CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash ............................................................................. $ 717,276
Accounts receivable .............................................................. 432,148
Inventories ...................................................................... 1,622,003
Prepaid expenses and other current assets ........................................ 167,602
-----------
Total current assets ........................................................... 2,939,029
-----------
Property and Equipment ............................................................. 38,434
-----------
Intangible Assets:
Deferred slotting fees, net of accumulated amortization of $243,869 .............. 837,343
Deferred financing costs, net of accumulated amortization of $228,877 ............ 393,882
Product formulae acquisition costs, net of accumulated amortization of $18,536 ... 259,450
Non-compete agreement, net of accumulated amortization of $59,458 ................ 246,328
Deferred offering costs .......................................................... 136,367
-----------
1,873,370
-----------
Total Assets ....................................................................... $ 4,850,833
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts Payable: ................................................................
Parent ......................................................................... $ 819,585
Slotting fees .................................................................. 704,255
Trade .......................................................................... 1,424,155
Current portion of long-term debt due to Parent .................................. 200,000
Notes payable - private placement financing, net of unamortized discount of
$187,500 ...................................................................... 1,812,500
-----------
Total current liabilities ..................................................... 4,960,495
-----------
Long-Term Debt:
Note payable to Parent, net of current portion ................................... 800,000
-----------
Commitments and Other Matters ...................................................... --
Stockholders' Deficiency: ..........................................................
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued ........ --
Common stock, $.01 par value; authorized 25,000,000 shares; issued and outstanding
1,878,378 shares .............................................................. 18,783
Additional paid-in capital ....................................................... 4,709,861
Deficit accumulated during the development stage ................................. (3,520,220)
Notes and interest receivable on sale of common stock ............................ (2,118,086)
-----------
(909,662)
-----------
Total Liabilities and Stockholders' Deficiency ..................................... $ 4,850,833
===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INNOPET BRANDS CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
INCEPTION (JANUARY 11, 1996) TO AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Net sales ........................................... $ 812,216
--------------
Costs and Expenses:
Cost of sales ....................................... 800,267
Marketing and distribution .......................... 1,222,232
Product development ................................. 459,735
General and administrative .......................... 1,317,845
--------------
3,800,079
--------------
Loss Before Interest and Financing Costs (2,987,863)
Interest and Financing Costs .......................... 532,357
--------------
Net Loss .............................................. $(3,520,220)
==============
Net Loss per Common Share ............................. $ (1.87)
==============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INNOPET BRANDS CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
INCEPTION (JANUARY 11, 1996) TO AUGUST 31, 1996
<TABLE>
<CAPTION>
Notes and
Deficit Interest
Common Stock Additional During the Receivable
------------------------ Paid-In Development Common
Shares Amount Capital Stage Stock Total
----------- --------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Capital contribution represented
by costs and expenses paid on
behalf of Company by Parent
($1.88 per share) ............. 1,182,432 $11,824 $2,209,524 $ -- $ -- $ 2,221,348
Sale of common stock ($3.20 per
share):
Parent .................... 43,497 435 138,755 -- -- 139,190
Officers and employees, in
exchange for notes
receivable .............. 652,449 6,524 2,081,315 -- (2,087,839) --
Interest accrued on notes
receivable on sale of common
stock ........................ -- -- 30,247 -- (30,247) --
Estimated fair value of warrants
issued in connection with
private placement financing .. -- -- 250,020 -- -- 250,020
Net loss ....................... -- -- -- (3,520,220) -- (3,520,220)
----------- --------- ------------ -------------- -------------- -------------
Balance, August 31, 1996 ....... 1,878,378 $18,783 $4,709,861 $(3,520,220) $(2,118,086) $ (909,662)
=========== ========= ============ ============== ============== =============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INNOPET BRANDS CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCEPTION (JANUARY 11, 1996) TO AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss ............................................................... $(3,520,220)
Adjustments to reconcile net loss to net cash used in operating
activities:
Costs and expenses paid on behalf of Company by Parent .............. 1,462,315
Depreciation ........................................................ 6,739
Amortization ........................................................ 613,240
Changes in Operating Assets and Liabilities:
Increase in:
Accounts receivable ............................................... (432,148)
Inventory ......................................................... (1,117,972)
Prepaid expenses .................................................. (167,602)
Accounts payable, trade ........................................... 1,424,155
Accounts payable, Parent .......................................... 819,585
--------------
Net cash used in operating activities ............................ (911,908)
--------------
Cash Flows from Investing Activities:
Acquisition of property and equipment .................................. (12,134)
--------------
Cash Flows from Financing Activities:
Proceeds of long-term financing from Parent ............................ 202,014
Proceeds from private placement financing .............................. 1,672,236
Deferred offering costs ................................................ (136,367)
Deferred financing costs ............................................... (96,565)
--------------
Net cash provided by financing activities ............................ 1,641,318
--------------
Net Increase in Cash ..................................................... 717,276
Cash, Beginning .......................................................... --
--------------
Cash, Ending ............................................................. $ 717,276
==============
Supplemental Disclosure of Cash Flow Information:
Non-Cash Investing and Financing Activities:
Expenditures for various assets paid on behalf of Company by Parent:
Product formulae, non-compete agreement and inventory ............... $ 1,072,772
==============
Deferred financing costs ............................................ $ 227,071
==============
Deferred slotting fees .............................................. $ 291,957
==============
Property and equipment .............................................. $ 33,039
==============
Deferred financing costs paid from proceeds of private placement
financing ........................................................... $ 327,764
==============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INNOPET BRANDS CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
InnoPet Brands Corp. (the "Company") was incorporated as InnoPet
Products Corp. under the laws of the state of Delaware on January 11,
1996.
On May 15, 1996, the Company amended its Certificate of Incorporation
to change its name to InnoPet Brands Corp., and to increase the
Company's authorized common stock to consist of 25,000,000 shares of
common stock, with a par value of $.01 per share, and 5,000,000
shares of undesignated preferred stock. The Board of Directors has
the authority to issue the undesignated preferred stock in one or
more series and to fix the rights, preferences, privileges and
restrictions of designated preferred stock.
After having amended the Certificate of Incorporation, the Company
issued shares of common stock to InnoPet, Inc. (the "Parent") in
consideration for the capital contributions made by InnoPet, Inc.
(see Note 6), resulting in a total of 1,182,432 shares of common
stock being issued and outstanding.
On June 1, 1996, the Company sold 652,449 shares of common stock to
officers and employees and 43,497 shares of common stock to the
Parent (see Note 6).
Business
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian
Formula(TM) Dog Food.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheets and operations
for the periods. Material estimates as to which it is reasonably
possible that a change in the estimate could occur in the near term
relate to the determination of the estimated net realizable value of
certain elements of inventories and the estimated amortization period
of certain intangible assets. Although these estimates are based on
management's knowledge of current events and actions it may undertake
in the future, they may ultimately differ from actual results.
Period of Operations
As described above, the Company was incorporated on January 11, 1996.
However, for financial reporting purposes, the accompanying financial
statements include all of the costs and expenses paid or incurred by
the Parent on behalf of the Company, which have been recorded as
capital contributions by the Parent (see Note 6).
Revenue Recognition
The Company recognizes revenue from product sales when products are
shipped to customers. The Company does not grant return privileges to
customers, but does recognize credits for damaged goods when such
claims are appropriately filed by customers.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and accounts
receivable.
F-7
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
From time to time, the Company maintains cash balances in excess of
federally insured limits. These balances, however, are maintained
with high credit quality institutions, thereby limiting such risks.
The Company sells products to grocery chain stores and supermarkets
and extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses
on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit
losses and maintains allowances for anticipated losses considered
necessary under the circumstances. As of August 31, 1996, no
allowance for losses was considered necessary.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method, and market by estimated
net realizable value.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts, while
replacements, maintenance and repairs which do not extend the lives
of the respective assets are charged to expense currently.
Depreciation is computed using the straight-line method at rates
based generally on the estimated useful lives of the assets. The
estimated useful lives of the furniture, fixtures and equipment are
from 5 to 10 years.
Product Formulae Acquisition Costs
Product formulae acquisition costs represent the cost of acquiring
the formulae to the pet food products that the Company produces and
sells (see Note 3), together with the incremental costs incurred
(primarily professional fees) that were directly related to the
acquisition of the formulae. These costs are being amortized over an
estimated useful life of 10 years. Amortization during the period
totalled $18,536.
The Company evaluates the recoverability of the product formulae
acquisition costs on a regular periodic basis, based upon the
projected future amount of profits reasonably expected to be
generated from sales of such products. Any diminution in value of
such costs will be charged to expense when determined.
Deferred Slotting Fees
Slotting fees are fees charged manufacturers by retailers in order to
facilitate the introduction of new products. The fees represent
charges for warehouse space (slots) to be used to store a
manufacturer's products, charges for retail shelf space and related
shelf sets to make room for the products and reimbursement of
retailer expenses (entering new items into their computer systems and
in some cases marketing support provided by the retailer). The
practice by retailers of charging slotting fees is a standard
industry practice.
It is the expectation of the Company that all slots acquired will be
available for the Company's products indefinitely. At a minimum,
however, retailers allow new products six to twelve months to
demonstrate that they can contribute to profitability. Retailers will
continue to carry products which are profitable; products which do
not provide an adequate return may be discontinued. The Company has
created a formal policy with regard to slotting, whereby the Company
requires that retailers confirm that the product will be carried for
a minimum of six months. Slots will be made available to the Company
for a period of time ranging from six months to indefinitely.
Slotting fees are recorded by the Company upon acceptance by the
retailer of the first shipment of the Company's product.
F-8
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The benefits to be determined from slotting fees extend for a period
of time estimated to range from six months to indefinitely. The
period of benefit begins when the retailer receives its first
delivery of product. Accordingly, the Company capitalizes these
costs, and amortizes them over a period of six months, beginning when
the retailer accepts delivery of the first shipment of product.
Deferred Offering Costs
Costs incurred in connection with the proposed offering of
securities, consisting of professional fees directly associated with
the proposed offering, have been deferred. Such costs will be charged
against stockholders' equity upon the successful completion of the
offering, or charged to expense in the event the offering is not
successfully completed.
Certain other professional fees which were incurred in connection
with other financings, but only indirectly associated with the
proposed offering, aggregated $161,289, and have been charged to
expense during the period from inception (January 11, 1996) to August
31, 1996.
Deferred Financing Costs
Deferred financing costs include the costs incurred by the Parent to
raise certain debt financing, the proceeds of which were used for the
developmental activities of the Company. Those costs incurred
relating to debt obligations of the Parent have been assigned to the
Company and recorded as a capital contribution by the Parent. These
costs are being amortized over the term of the related debt (six to
twelve months).
In addition, the Company has incurred costs in connection with the
private placement financing which was consummated in August 1996.
These costs have been deferred, and are being amortized over the
estimated outstanding term of the private placement financing debt,
which management estimates to be approximately four months, as
measured by the expected date of repayment of this debt from the
proceeds of the proposed public offering (see Note 10).
Non-Compete Agreement
The allocated costs attributable to the non-compete agreement,
included as part of the Asset Purchase Agreement (Note 3), have been
deferred and are being amortized over the three-year term of the
agreement.
Advertising Costs
Advertising costs, included in marketing and distribution costs, are
charged to expense as incurred. Advertising costs incurred for the
period ended August 31, 1996 were not material.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," which is effective for the
accompanying financial statements of the Company. SFAS 123 requires
extended disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to
be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to apply Accounting Principles
Board Opinion No. 25 (APB 25), which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The
Company accounts for its stock-based compensation awards to employees
under the provisions of APB 25, and will disclose the required pro
forma effect on net income and earnings per share at such time as
options are granted.
F-9
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Net Loss Per Common Share
Net loss per common share has been computed based on the weighted
average number of shares of common stock outstanding during the
period. In addition, all the common shares sold during the period
have been treated as outstanding during the entire period in
contemplation of the proposed public offering (see Note 10), pursuant
to the Securities and Exchange Commission Staff Accounting Bulletins.
The number of shares used in the computation was 1,878,378 shares.
NOTE 2. BASIS OF PRESENTATION
As described above, the Company was incorporated on January 11, 1996,
and, since that time, together with its Parent, has been primarily
involved in organizational activities, developing a strategic plan
for the marketing and distribution of its pet food products, and
raising capital. Planned operations, as described above, have
commenced, but little revenue has been generated to date.
Accordingly, the Company is considered to be in the development
stage, and the accompanying financial statements represent those of a
development stage enterprise.
The accompanying financial statements have been presented in
accordance with generally accepted accounting principles, which
assume the continuity of the Company as a going concern. However, as
discussed above, the Company is in the development stage and,
therefore has generated little revenue to date. As reflected in the
accompanying financial statements, the Company has incurred a net
loss and reflects a deficit accumulated during the development stage
of $3,520,220 as of and for the period ended August 31, 1996, and
reflects a stockholders' deficiency of $909,662 as of August 31,
1996. This condition raises substantial doubt as to the ability of
the Company to continue as a going concern.
Management's plans with regard to this matter encompass the following
actions:
1. Business Plan
The Company has adopted, and is in the process of implementing, a
business plan intended to define the Company's strategy for
growth. In June 1996, the Company commenced sales of its dog food
to supermarkets located in the Greater New York Metropolitan area.
By the end of August 1996, the Company had begun selling product
into various other markets in the Greater Metropolitan New York
region, the Pennsylvania and Baltimore/Washington marketing areas
and Florida. During the next twelve months, the Company
anticipates that it will continue to sell products in the areas it
is currently supplying and that it will begin sales throughout the
majority of the eastern United States. An extension of the
Company's line of dog foods is anticipated for 1997, and the
Company plans to introduce its line of cat foods during 1997.
2. Equity Infusion by Means of Proposed Public Offering
The Company raised certain working capital in August 1996 by means
of private placement financing (see Note 8) and plans to raise
additional working capital by means of a proposed public offering
of securities (see Note 10).
The eventual outcome of the success of management's plans cannot be
ascertained with any degree of certainty. The accompanying financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 3. ACQUISITION OF PRODUCT FORMULAE AND INVENTORY AND NON-COMPETE
AGREEMENT
In accordance with the terms of an Asset Purchase Agreement dated
January 16, 1996 among the Company, the Parent and a subsidiary of
ConAgra, Inc., on the Initial Closing Date, as defined
F-10
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 3. ACQUISITION OF PRODUCT FORMULAE AND INVENTORY AND NON-COMPETE
AGREEMENT - (Continued)
(January 16, 1996), the Company acquired all of the rights, title and
interest in and to the formulae which were used in connection with
the pet food business that had been known as KenVet Nutritional Care.
On the Final Closing Date, as defined (on or before February 15,
1996), the Company acquired all of the rights, title and interest in
and to certain other assets, as defined, comprised primarily of the
current inventory existing as of the Final Closing Date. The Company
did not assume any liabilities, obligations or commitments relating
to the business. In addition, in order to induce the Company to
purchase the assets pursuant to the agreement, ConAgra agreed that
for a three year period following the Initial Closing Date, it will
not manufacture or sell certain nutritional finished pet food
products. Additionally, the Company entered into a supply agreement
with an affiliate of ConAgra, in which the Company agreed to purchase
and ConAgra agreed to supply certain products at stipulated prices
for the next three years, subject to cancellation by either party
without penalty upon sixty days notice.
The purchase price for the assets, as finally negotiated, was a total
of $641,021. Of this total amount, $250,000 was paid on the Initial
Closing Date in exchange for the formulae, and the balance of
$391,021 was to be paid on the Final Closing Date in exchange for the
remaining assets. The $250,000 was paid by the Parent on the Initial
Closing Date, and has been recorded as a capital contribution by the
Parent. The $391,021 was paid by the Parent in April and May 1996 and
has been reflected as a capital contribution by the Parent in the
accompanying financial statements.
The Company has allocated the various rights and resources inherent
in the agreement as follows: $250,000 as product formulae acquisition
costs, based on the negotiated amount contained in the agreement;
$116,021 as inventory, based upon management's estimate of the
liquidation value of the inventory; and $275,000 as a non-compete
agreement, based upon management's evaluation of the estimated
economic benefit expected to be derived from this right. The Company
believes that the allocation made to the tangible and intangible
assets set forth above is a reasonable measurement of the rights and
resources inherent in the agreement.
In connection with the acquisition of the formulae, non-compete
agreement and inventory pursuant to the Asset Purchase Agreement, it
was intended by the Company that the substance of the transaction was
to acquire the formulae to the pet food products in order to gain
entrance into this line of business and augment the Parent's pet food
business. However, in order to effect the acquisition of the
formulae, it was necessary to purchase the inventory and enter into
the non-compete agreement as part of the acquisition transaction. The
Company considers the purchase of the inventory as incidental to the
acquisition of the formulae, and intends to recoup its investment in
the inventory as expeditiously as possible. Additionally, the
Company's business plan for the pet food business contemplates
operation of this business in a manner significantly different from
that employed by ConAgra, including such attributes as trade name,
market distribution system, employee base, physical facilities,
production techniques and sales force.
NOTE 4. INVENTORIES
Raw materials ............................................ $ 327,993
Work in process ........................................... 937,549
Finished product ........................................... 356,461
------------
$1,622,003
============
At August 31, 1996, the inventory purchased from ConAgra, Inc. (see
Note 3) comprised approximately 6% of total inventories. The Company
has developed a program to liquidate this inventory over the next
year, and believes that no loss will be incurred in the disposition
of such inventory. No estimate can be made of the range of loss that
is reasonably possible should the program be unsuccessful.
F-11
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment ............................. $45,173
Less accumulated depreciation ................................. 6,739
---------
$38,434
=========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Transactions with the Parent
As discussed above, the Company was incorporated on January 11, 1996
as a wholly-owned subsidiary of InnoPet, Inc. From inception until
approximately June 30, 1996, substantially all of the Company's costs
and expenses, and the acquisition of the Company's assets, have been
paid or incurred on behalf of the Company by its Parent, InnoPet,
Inc. Such amounts have been accounted for as capital contributions by
the Parent to the Company, and are analyzed as follows:
<TABLE>
<CAPTION>
<S> <C>
Costs and expenses charged to operations .......................... $1,323,125
Initial purchase price for the acquisition of product formulae,
non- compete agreement and inventory, including $58,773 of
directly associated costs ........................................ 699,794
Deferred financing costs .......................................... 198,429
------------
$2,221,348
============
</TABLE>
The costs and expenses expended on behalf of the Company by the
Parent were determined based upon an analysis of those costs directly
associated with or reasonably allocated to the Company's operational
activities related to the premium pet food business. Personnel costs
were allocated based upon estimates of the actual time devoted by
individual employees to the Company's activities on a monthly basis.
General and administrative expenses were allocated based on the
overall average percentage derived from the personnel allocation
described above on a monthly basis. Marketing and distribution and
product development costs were allocated on a direct basis to the
extent practicable, and the balance on the average percentage derived
from the personnel allocation described above. In the opinion of
management, the method used to allocate costs to the Company was
considered to be fair and reasonable under the circumstances.
See Note 8 regarding a facilities agreement with the Parent.
Debt Financing by the Parent
On June 5, 1996, the Parent provided debt financing to the Company in
the amount of $1,000,000. The note is a five-year unsecured note,
providing for annual principal payments of $200,000 and interest at
1% over prime payable quarterly, and contains no prepayment penalty.
Accounts Payable, Parent
In addition to the debt financing described above, the Parent has
also provided working capital financing to the Company on open
account. Such funds were used primarily for inventories, operating
costs and expenses, and deferred offering costs and financing costs.
These working capital advances, which have a balance of $819,585 at
August 31, 1996, are due on demand, are non-interest bearing, and are
presented in the accompanying financial statements as accounts
payable, Parent.
F-12
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 6. RELATED PARTY TRANSACTIONS - (Continued)
Sale of Common Stock to Officers and Employees and Parent
On June 1, 1996, the Company sold an aggregate of 652,449 shares of
common stock to certain officers and employees of the Company,
including the chairman of the board and chief executive officer, for
a total amount of $2,087,839, and 43,497 shares to the Parent for
$139,190 ($3.20 per share). The officers and employees purchased
their shares by means of three-year notes which bear interest at
5.75% annually. The notes are of full recourse to the officers and
employees during the first two years of the term of the notes, and
are secured by the shares owned by the officers and employees. The
purchase price of the shares purchased by the Parent was applied
against the then outstanding balance due to the Parent arising from
costs and expenses expended on behalf of the Company by the Parent.
NOTE 7. INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No.109, Accounting
for Income Taxes. SFAS No.109 is an asset and liability approach for
computing deferred income taxes.
The provision for income taxes has been computed on a separate return
basis. The Company plans to file a consolidated income tax return
with its Parent while it is a qualified member of the consolidated
group. However, upon successful completion of the proposed public
offering (see Note 10) and the sale of common stock to certain
officers and employees of the Company (see Note 6), the Company would
no longer qualify as a member of the consolidated group with the
Parent.
As of August 31, 1996, on a separate return basis, the Company had a
net operating loss carryforward for Federal income tax reporting
purposes amounting to approximately $3,520,000, which expires in
2011.
The Company presently has no significant temporary differences
between financial reporting and income tax reporting. The components
of the deferred tax asset as of August 31, 1996 were as follows:
Benefit of net operating loss carryforwards ....... $1,197,000
Less valuation allowance ......................... 1,197,000
------------
Net deferred tax asset ........................... $ --
============
As at August 31, 1996, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards and, accordingly,
a valuation allowance of $1,197,000, which related to the net
operating losses, has been established.
In accordance with certain provisions of the Tax Reform Act of 1986,
a change in ownership of greater than 50% of a corporation within a
three year period will place an annual limitation on the
corporation's ability to utilize its existing tax benefit
carryforwards. Such a change in ownership is expected to occur in
1996, based upon the sale of common stock to certain officers and
employees of the Company in June 1996 (see Note 6), and assuming
successful completion of the Company's proposed public offering (see
Note 10) prior to December 31, 1996 (the end of the Company's current
taxable year). As a result, based upon the amount of the taxable loss
incurred to August 31, 1996, the Company estimates that an annual
limitation of approximately $990,000 would apply to the net operating
loss carryforward existing as of that date. However, to the extent
that the Company may generate taxable income prior to the end of its
current taxable year ending December 31, 1996, the amount of the net
operating loss would be reduced. The Company's utilization of its tax
benefit carryforwards may be further restricted in the event of
subsequent changes in the ownership of the Company.
F-13
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 8. PRIVATE PLACEMENT FINANCING
In August 1996, the Company completed certain private placement
financing involving a total of $2,000,000 of promissory notes and
1,000,000 common stock purchase warrants (private placement warrants).
Related costs amounted to approximately $424,000 resulting in net
proceeds to the Company of approximately $1,576,000. The promissory
notes bear interest at 10% per annum. Principal and accrued interest are
payable upon the earlier of the closing of the sale of securities or
other financing yielding gross proceeds of $4,000,000 to the Company, or
twelve months from date of issue. The terms of the note contain, among
other things, certain restrictions on the payment of dividends by the
Company or incurring any liability for borrowed money, except in the
ordinary course of business. Each private placement redeemable warrant
entitles the holder to purchase one share of common stock at a price
equal to 150% of the initial public offering price per unit, subject to
adjustment, during the 36-month period commencing one year from the date
the warrants are issued. Upon consummation of the proposed public
offering, each private placement warrant shall automatically be
converted into a redeemable warrant having terms identical to that of
the redeemable warrants underlying the units of the proposed public
offering (see Note 10).
The fair value of these warrants was estimated to be $250,000 ($.25 per
warrant) based, among other things, upon a financial analysis of the
terms of the warrants. This amount has been reflected in the
accompanying financial statements as a discount on the notes payable,
with a corresponding credit to additional paid-in capital, and is being
amortized over the expected term of the notes (four months).
In connection with the private placement financing, the Company issued
to the placement agent 200,000 placement agent warrants to purchase
200,000 shares of common stock at an exercise price of $2 per share. The
placement agent warrants will be cancelled upon the consummation of the
proposed public offering.
NOTE 9. COMMITMENTS
Employment Agreements
The Company entered into an employment agreement with the chief
executive officer dated as of June 1, 1996, which expires on May 31,
2000. The agreement provides, among other things, for an annual
salary of $200,000 to December 31, 1997 and $250,000 thereafter; a
discretionary bonus up to 25% of the annual salary to be determined
by the board of directors; and a performance bonus to be determined
by the compensation committee of the board of directors, based upon
the net earnings of the Company in any given year. The agreement also
provides for life insurance, auto and office expense reimbursements
and a stock option plan. If this agreement is terminated by the
Company without cause, the officer will be entitled to a severance
payment equal to three times his average annual salary, as defined.
The Company has also entered into employment agreements with several
other members of management, which terminate May 31, 1999, contain a
one-year renewal option, and provide for aggregate annual salaries of
approximately $470,000.
Incentive Stock Plan
The Company has reserved a total of 400,000 shares of common stock
for issuance under the 1996 Stock Option Plan. The Plan provides for
the award of options, which may be either incentive stock options
(ISO's) within the meaning of the Internal Revenue Code or
non-qualified options (NQO's) which are not subject to special tax
treatment. The Plan is administered by the board of directors or a
committee appointed by the board (the Administrator). Subject to
certain restrictions, the Administrator is authorized to designate
the number of shares to be covered by each award, the terms of the
F-14
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS - (Continued)
award, the dates on which and the rates at which options or other
awards may be exercised, the method of payment and other terms.
The exercise price for ISO's cannot be less than the fair market
value of the stock subject to the option on the grant date. The
exercise price of a NQO shall be fixed by the administrator at
whatever price the administrator may determine in good faith. Unless
the administrator determines otherwise, options generally have a
10-year term. Unless the administrator provides otherwise, options
terminate upon the termination of a participant's employment, except
that a participant may exercise an option to the extent that it was
exercisable on the date of termination for a period of time after
termination.
As of August 31, 1996, no options had been granted under the Plan.
Facilities Agreement
The Company has entered into a facilities agreement with the Parent
whereby it has agreed to lease its premises, furnishings and
equipment from the Parent until April 30, 2001, for an annual amount
of approximately $278,000.
NOTE 10. PROPOSED PUBLIC OFFERING
The Company is in the process of raising additional capital through
an initial public offering of its securities. The proposed public
offering is currently anticipated to consist of 2,250,000 units, each
unit consisting of one share of common stock and one redeemable
warrant. Each redeemable warrant entities the holder to purchase one
share of common stock at 150% of the initial public offering price
per unit, subject to adjustment. The proposed public offering is
anticipated to result in gross proceeds of approximately $9,000,000.
NOTE 11. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in
accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No.107. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information
available to management as of August 31, 1996. Since the reported
fair values of financial instruments are based upon a variety of
factors, they may not represent actual values that could have been
realized as of August 31, 1996 or that will be realized in the
future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, accounts receivable, accounts payable and
debt maturing within one year. Fair values were assumed to
approximate carrying values for these financial instruments since
they are short term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand.
The fair value of non-current debt instruments and notes receivable
have been estimated using discounted cash flow models incorporating
discount rates based on current market interest rates for similar
types of instruments or quoted market prices, when applicable. At
August 31, 1996, the differences between the estimated fair value and
the carrying value of non-current debt instruments and notes
receivable were considered immaterial in relation to the Company's
financial position.
NOTE 12. INTEREST AND FINANCING COSTS
<TABLE>
<CAPTION>
<S> <C>
Interest expense, including amortization of
discount of $62,500 ............................. $105,767
Financing costs, including amortization of $228,877 265,301
Costs in connection with other financings ......... 161,289
----------
$532,357
==========
</TABLE>
F-15
<PAGE>
[The Registrant will include a picture,
the background of which will be the
Company's kibble product with pictures of the
Company's bagged products, logo and dogs.]
<PAGE>
=============================================================================
No underwriter, dealer, salesperson or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such an information
or representations must not be relied upon as having been authorized by the
Company or the Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any offer
or sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained in this Prospectus is correct as of
any date subsequent to the date hereof.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ............................................ 3
Risk Factors .................................................. 7
The Company ................................................... 13
Recent Private Placement Financing ............................ 13
Concurrent Offering ........................................... 13
Use of Proceeds ............................................... 14
Dividend Policy ............................................... 15
Dilution ...................................................... 15
Capitalization ................................................ 16
Selected Financial Data ....................................... 17
Plan of Operations ............................................ 18
Business ...................................................... 21
Management .................................................... 26
Certain Transactions .......................................... 29
Principal Stockholders ........................................ 30
Selling Securityholders ....................................... 31
Description of the Company's Securities ....................... 33
Shares Eligible for Future Sale ............................... 34
Underwriting .................................................. 35
Legal Matters ................................................. 36
Experts ....................................................... 36
Additional Information ........................................ 37
Index to Financial Statements ................................. F-1
</TABLE>
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
LOGO
INNOPET BRANDS CORP.
2,250,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE WARRANT
------
PROSPECTUS
------
JOSEPH STEVENS & COMPANY, L.P.
------, 1996
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Registrant eliminates the personal
liability of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by them in connection with any nonderivative suit or proceeding, if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interest of the corporation, and, with respect to a
criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit, provided such person
meets the standard of conduct described in the preceding paragraph, except
that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery
or the court in which such action or suit was brought approves such
indemnification and determines that such person is fairly and reasonably
entitled to be indemnified.
Reference is made to Article Eighth of the Certificate of Incorporation of
the Registrant for the provisions which the Registrant has adopted relating
to indemnification of officers, directors, employees and agents.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Reference is also made to Section 7 of the Underwriting Agreement filed as
Exhibit 1 to this Registration Statement.
The Registrant has purchased directors' and officers' liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the offering are
as follows:
SEC registration fee. .......................................... $ 12,165
NASD filing fee ................................................ $ 3,956
NASDAQ listing fee ............................................. $ 9,128
Boston Stock Exchange listing fee .............................. $ 250
Blue Sky expenses and legal fees ............................... $ 45,000
Printing and engraving expenses ................................ $ 85,000
Registrar and transfer agent fees and expenses $ 6,000
Accounting fees and expenses ................................... $ 45,000
Legal fees and expenses ........................................ $204,500
Miscellaneous fees and expenses ................................ $ 25,001
----------
TOTAL. ......................................................... $436,000
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From January through March 1996, InnoPet Inc. (the "Parent Company")
contributed capital of $2,221,348 in exchange for 1,182,432 shares of Common
Stock. In June 1996, the Parent Company also purchased 43,497 shares of
Common Stock in exchange for $139,190 in financing.
II-1
<PAGE>
In June 1996, the employees of the Company also purchased the
corresponding number of shares listed next to their names in exchange for a
3-year interest-bearing note in the amount set forth below:
<TABLE>
<CAPTION>
Shares Consideration
--------- ---------------
<S> <C> <C>
Linda Duke 34,797 $ 111,350
Marc Duke 417,566 $1,336,213
Robin Hunter 43,497 $ 139,190
Albert A. Masters 43,497 $ 139,190
Dana Vaughn 86,993 $ 278,378
Eric Zurbuchen 17,399 $ 55,677
Susan Leonhardt 1,740 $ 5,568
John Jablonski 1,305 $ 4,176
Francis Daily 435 $ 1,392
Tara Slack 783 $ 2,506
Deardra Thompson 783 $ 2,506
Henry Ford 783 $ 2,506
Debra Iannaci 522 $ 1,670
Michael Zealy 522 $ 1,670
Mary Lou Bole 348 $ 1,114
Pamela Medlin 261 $ 835
David Santos 435 $ 1,392
James Kane 261 $ 835
Mary Huff 174 $ 557
Eve Uydess 174 $ 557
Michelle Raglind 174 $ 557
--------- ---------------
TOTAL 652,449 $2,087,839
</TABLE>
Pursuant to a private placement (the "Private Placement Financing") of
units, each unit consisting of a $50,000 10% promissory note and warrants to
purchase 25,000 shares of Common Stock, the following persons purchased from
the Company the number of Private Placement Warrants set forth next to each
of their names during August 1996:
<TABLE>
<CAPTION>
NAME WARRANTS
----- ----------
<S> <C>
Carmine Agnello 25,000
Stanley Arkin 50,000
William Cutolo and Marguerite Cutolo (1) 25,000
Joseph V. DiMauro 25,000
Joseph V. DiMauro, as Custodian for Joseph Robert DiMauro 25,000
Jerry Finkelstein 50,000
Laurence Heller 50,000
Jack Kaster 25,000
Ralph K. Kato IRA 50,000
Steven H. Kessler 25,000
Daniel R. Lee 250,000
Barry J. Lind, Neil G. Blum (2) 50,000
Barry J. Lind, Revocable Trust 50,000
Peter Maher and Patricia Maher (1) 50,000
Alfred S. Palagonia 50,000
Frank C. Rathge Trust 25,000
M. Jerome Rieger 25,000
Nancy A. Roehl 50,000
Peter G. Roehl 50,000
Francine Urdang 50,000
----------
TOTAL 1,000,000
</TABLE>
- ------
(1) Joint tenants with rights of survivorship.
(2) Tenants-in-Common.
II-2
<PAGE>
The sales of the aforementioned securities were made in reliance upon the
exemption from the registration provisions of the Act afforded by section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering. To the best of the Registrant's
knowledge, the purchasers of the securities described above acquired them for
their own account and not with the view to any distribution thereof to the
public. The placement agent on the Private Placement Financing was Joseph
Stevens & Company, L.P.
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document*
<S> <C>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws of the Registrant.
4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental Stock
Transfer & Trust Co., including form of Redeemable Warrant Certificate.
4.2 Form of Underwriter's Warrant Agreement including Form of Underwriter's Warrant Certificate.
4.3 Specimen of Registrant's Common Stock.
4.4 Form of Private Placement Promissory Note.
4.5 Form of Private Placement Warrant Certificate.
5 Opinion and Consent of Camhy Karlinsky & Stein LLP.
10.1 1996 Stock Option Plan.
10.2 Employment Agreement between Registrant and Marc Duke with exhibits.
10.3 Employment Agreement between Registrant and Edwin Christensen with exhibits.
10.4 Employment Agreement between Registrant and Linda Duke with exhibits.
10.5 Employment Agreement between Registrant and Robin Hunter with exhibits.
10.6 Employment Agreement between Registrant and Albert Masters with exhibits.
10.7 Employment Agreement between Registrant and Dr. Dana Vaughn with exhibits.
10.8 Facilities Agreement between Registrant and InnoPet Inc.
10.9 Supply Agreement between the Registrant and Monfort, Inc.
10.10 Form of Financial Advisory and Consulting Agreement with Underwriter.
11 Statement re: Computation of Earnings per Share.
23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5.
23.2 Consent of Rachlin Cohen & Holtz.**
23.3 Consent of Bruskin/Goldring Research, Inc.**
24 Power of Attorney (contained on page II-5 of this Registration Statement).
</TABLE>
- ------
* Unless otherwise indicated, the exhibits were previously filed.
** Filed herewith.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The Registrant has agreed to indemnify the Underwriter and its officers,
directors, partners, employees, agents and controlling persons as to any
losses, claims, damages, expenses or liabilities arising out of any untrue
statement or omission of a material fact contained in the registration
statement. The Underwriter has agreed to indemnify the Registrant and its
directors, officers and controlling persons as to any losses, claims,
damages, expenses or liabilities arising out of any untrue statement or
omission in the registration statement based on information relating to the
Underwriter furnished by it for use in connection with the registration
statement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby also undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has authorized this
Registration Statement to be signed on its behalf by the undersigned in the
City of Ft. Lauderdale, State of Florida on November 18, 1996.
INNOPET BRANDS CORP.
By: /s/ Marc Duke
---------------------------------
Marc Duke
Chief Executive Officer and
Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- -----
<S> <C> <C>
/s/ Marc Duke Chairman of the Board and November 18, 1996
- ------------------------- Chief Executive Officer
Marc Duke (Principal Executive Officer)
* Vice President, Chief Financial November 18, 1996
- ------------------------- Officer and Secretary
Robin Hunter (Principal Financial and
Accounting Officer)
*
- ------------------------- Vice President of Manufacturing November 18, 1996
Edwin H. Christensen and Director
*
- ------------------------- Vice President of Sales November 18, 1996
Albert A Masters and Director
*
- ------------------------- Director November 18, 1996
Richard P. Greene
*
- ------------------------- Director November 18, 1996
Curtis Granet
By: /s/ Marc Duke November 18, 1996
-----------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document* Page
----------- ----------------------- --------
<S> <C> <C>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws of the Registrant.
4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental
Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate.
4.2 Form of Underwriter's Warrant Agreement including Form of Underwriter's Warrant
Certificate.
4.3 Specimen of Registrant's Common Stock.
4.4 Form of Private Placement Promissory Note.
4.5 Form of Private Placement Warrant Certificate.
5 Opinion and Consent of Camhy Karlinsky & Stein LLP.
10.1 1996 Stock Option Plan.
10.2 Employment Agreement between Registrant and Marc Duke with exhibits.
10.3 Employment Agreement between Registrant and Edwin Christensen with exhibits.
10.4 Employment Agreement between Registrant and Linda Duke with exhibits.
10.5 Employment Agreement between Registrant and Robin Hunter with exhibits.
10.6 Employment Agreement between Registrant and Albert Masters with exhibits.
10.7 Employment Agreement between Registrant and Dr. Dana Vaughn with exhibits.
10.8 Facilities Agreement between Registrant and InnoPet Inc.
10.9 Supply Agreement between the Registrant and Monfort, Inc.
10.10 Form of Financial Advisory and Consulting Agreement with Underwriter.
11 Statement re: Computation of Earnings per Share.
23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5.
23.2 Consent of Rachlin Cohen & Holtz.**
23.3 Consent of Bruskin/Goldring Research, Inc.**
24 Power of Attorney (contained on page II-6 of this Registration Statement).
</TABLE>
- ------
* Unless otherwise indicated, the exhibits were previously filed.
** Filed herewith.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated October 25, 1996
(which report contains an explanatory paragraph that describes a condition
that raises substantial doubt as to the ability of the Company to continue as
a going concern) relating to the financial statements of InnoPet Brands Corp.
appearing in such Prospectus. We also consent to the references to us under
the headings "Experts" and "Selected Financial Data" in such Prospectus.
RACHLIN COHEN & HOLTZ
Fort Lauderdale, Florida
November 18, 1996
<PAGE>
Bruskin/Goldring Research, Inc.
100 Metroplex Drive
Edison, New Jersey 08817
November 7, 1996
Ms. Linda Duke
Vice President of Operations
InnoPet Brands Corp.
One East Broward Blvd., Suite 1100
Ft. Lauderdale, Florida 33301
Dear Ms. Duke:
Bruskin/Goldring Research, Inc. hereby consentS to it being referred to
in the Registration Statement on Form SB-2 filed by InnoPet Brands Corp.
Very truly yours,
/s/ Matthew Kirby
-------------------------------
Name: Matthew Kirby
Title: Chief Financial Officer
