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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-28912
INNOPET BRANDS CORP.
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(Name of small business issuer as specified in its charter)
Delaware 65-0639984
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(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1 East Broward Blvd., Suite 1100
Fort Lauderdale, Florida 33301
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(Address of Principal Executive Offices)
(954) 356-0036
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(Issuer's Telephone Number, Including Area Code)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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As of January 15, 1996, 4,465,878 shares of common stock of the issuer were
outstanding.
Transitional small business disclosure format (check one):
Yes No X
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INNOPET BRANDS CORP.
Index To Financial Statements And Financial Schedules
September 30, 1996
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of September 30, 1996............... 2.
Condensed Statements of Operations for the three months
ended September 30, 1996 and for Inception (January 11,
1996) to September 30, 1996.................................. 3.
Condensed Statements of Cash Flows for Inception (January 11,
1996) to September 30, 1996.................................. 4.
Notes to Financial Statements.................................. 5.
Item 2. Plan of Operations............................................. 6.
Part II. OTHER INFORMATION
Other Information............................................ 10.
Signature.................................................... 10.
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
Balance Sheet - Unaudited
<TABLE>
<CAPTION>
September 30,
1996(1)
-------------
Assets
<S> <C>
Current Assets:
Cash....................................................................................... $ 357,751
Accounts receivable........................................................................ 625,393
Inventories................................................................................ 1,468,124
Prepaid expenses and other current assets.................................................. 103,463
-------------
Total current assets..................................................................... 2,554,731
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Property and Equipment, net................................................................... 46,538
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Intangible Assets:
Deferred slotting fees, net of accumulated amortization of $353,869........................ 779,225
Deferred financing costs, net of accumulated amortization of $448,487...................... 268,890
Product formulae acquisition costs, net of accumulated amortization of $19,624............. 258,363
Non-compete agreement, net of accumulated amortization of $67,952.......................... 237,833
Deferred offering costs.................................................................... 233,116
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Total intangible assets.................................................................. 1,777,427
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Total Assets.................................................................................. $ 4,378,696
=============
Liabilities And Stockholders' Deficiency
Current Liabilities:
Account Payable:
Parent................................................................................... $ 884,048
Slotting fees............................................................................ 523,755
Trade.................................................................................... 1,756,241
Current portion of long-term debt due to Parent............................................ 200,000
Notes and interest payable-private placement financing, net of unamortized discount of
$125,000................................................................................. 1,897,740
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Total current liabilities............................................................ 5,261,784
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Long-Term Debt:
Note payable to parent, net of current portion............................................. 800,000
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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................................................................. 4,719,696
Deficit accumulated during the development stage........................................... (4,293,626)
Notes and interest receivable on sale of common stock...................................... (2,127,941)
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(1,683,088)
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Total Liabilities and Stockholders' Deficiency................................................ $ 4,378,696
=============
</TABLE>
(1) The Company was incorporated on January 11, 1996; accordingly, a prior year
balance sheet is not applicable.
2.
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
Statements of Operations for the Three Months
Ended September 30, 1996 and for Inception
(January 11, 1996) to September 30, 1996(1)
(Unaudited)
<TABLE>
<CAPTION>
Inception (January 11,
Three Months Ended 1996) to
September 30, 1996 September 30, 1996
------------------ ----------------------
<S> <C> <C>
Revenues:
Net sales........................................................... $ 1,229,315 $ 1,382,376
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Costs and Expenses:
Costs of sales...................................................... 1,090,991 1,223,766
Marketing and distribution.......................................... 1,152,730 1,759,661
Product development................................................. 106,134 505,692
General and administrative.......................................... 445,128 1,331,180
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2,794,983 4,820,299
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Loss before interest and financing costs............................... (1,565,668) (3,437,923)
Interest and financing costs........................................... 607,000 855,703
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Net loss............................................................... $ (2,172,668) $ (4,293,626)
============== ==============
Net loss per Common Share.............................................. $ (1.16) $ (2.29)
============== ==============
Weighted Average Number of Common Shares Outstanding.................. 1,878,378 1,878,378
============== ==============
</TABLE>
(1) The Company was incorporated on January 11, 1996; accordingly, prior year
statements of operations are not applicable.
3.
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
Statement of Cash Flows
Inception (January 11, 1996) to September 30, 1996
<TABLE>
<CAPTION>
Inception (January 11, 1996) to
September 30, 1996(1)
-------------------------------
<S> <C>
Cash Flows from Operating Activities:
Net loss........................................................................... $ (4,293,626)
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..................................................................... 11,937
Amortization..................................................................... 1,017,932
Changes in Operating Assets and Liabilities:
Increase in:
Accounts receivable........................................................... (625,393)
Inventory..................................................................... (964,093)
Prepaid expenses.............................................................. (103,463)
Increase (Decrease) in:
Accounts payable, trade....................................................... 1,756,241
Accounts payable slotting fees, net........................................... (327,000)
Account payable, Parent....................................................... 884,048
Accrued interest, private placement financing................................. 22,740
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Net cash used in operating activities...................................... (1,158,362)
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Cash Flows from Investing Activities:
Acquisition of property and equipment.............................................. (28,456)
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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............................................................ (233,116)
Deferred financing costs........................................................... (96,565)
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Net cash provided by financing activities........................................ 1,544,569
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Net Increase in Cash.................................................................. 357,751
Cash, Beginning....................................................................... --
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Cash, Ending.......................................................................... $ 357,751
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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>
(1) The Company was incorporated on January 11, 1996; accordingly, a prior
year statement of cash flows is not applicable.
4.
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited)
1. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-QSB. The financial statements should be read
in conjunction with the audited financial statements of the Company from
inception (January 11, 1996) to August 31, 1996 for a description of the
significant accounting policies, which have continued without change, and
other footnote information.
2. All adjustments which are, in the opinion of management, necessary for a
fair presentation of financial position, results of operation and cash
flow have been included. The results of the interim period are not
necessarily indicative of the results for the full year.
3. The Company completed its initial public offering on December 4, 1996 and
the over-allotment on December 10, 1996, which in aggregate consisted of
2,587,500 units, realizing approximately $8,474,000 in net proceeds. Each
unit included one share of common stock and one redeemable warrant
exercisable at $6.00 per share.
5.
<PAGE>
PLAN OF OPERATIONS
The following Plan of Operations contains forward-looking statements which
involve certain risks and uncertainties. The Company's actual results and
experience could differ materially from those anticipated in these
forward-looking statements as a result of many factors including changes in
regions currently served by the Company and in those regions that the Company
may expand into; changes in the pet food industry; the Company's ability to
manage growth effectively; the Company's ability to sell premium pet foods
through supermarkets and grocery stores; the entrance into the supermarket
distribution channel of an existing or new premium pet food; the ability of the
Company's manufacturers and other suppliers to meet the Company's performance
and quality specification; and the ability of the Company to control the cost of
raw materials, manufacturing and packaging.
General
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 products 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. The Company's objective is to become a national provider of
premium pet foods through supermarket and grocery store retail outlets.
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 initiate
sales throughout the majority of the eastern United States. The Company expects
to continue to incur losses at least through 1996 and possibly through the first
two quarters of 1997. In addition, 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 the December 1996 initial public offering and
over-allotment, together with cash on hand and cash expected to be generated
from operations, will be adequate to satisfy its capital requirements through
1997. 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.
The Company owns formulae for all products due to be introduced during 1997.
Additional research and development expenditures will be necessary to conduct
palatability and bioavailability tests on these formulae and on any potential
modification to the formulae as the products are made ready for market.
The Company does not expect to purchase or sell significant equipment during the
next twelve months.
The Company hired a Vice President and Chief Marketing Officer in January 1997
completing its management team. It is expected that staffing of the sales
department will be increased to manage anticipated growth in sales.
Other minor increases in staffing will also be needed.
6.
<PAGE>
Results of Operations
Fiscal Quarter Ended September 30, 1996
Net Loss. The Company reported a net loss of $(2,172,668) or $(1.16)
per common share for the fiscal quarter ended September 30, 1996. The loss is
primarily the result of limited sales generated for that period as compared to
costs and expenses incurred pertaining primarily to developmental activities of
the Company.
Revenues. Revenues for the period were $1,229,315. Cost of sales
totaled $1,090,991 resulting in a gross margin of $138,324 or 11.3% of revenues.
The narrow margin resulted primarily from warehousing and transportation
expenses associated with the initial shipments of the Company's products.
Costs and Expenses. Costs and expenses for the period totaled
$1,703,992. These costs and expenses are detailed below.
Marketing and Distribution Expenses. Marketing and distribution
expenses were $1,152,730 which were primarily composed of marketing costs of
approximately $554,000; sales department expenses of approximately $164,000; and
the amortization of slotting fees of approximately $435,000. 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 $106,134. This primarily reflects expenses
associated with the ongoing management of manufacturers and co-packers and
ongoing research and development.
General and Administrative Expenses. General and administrative
expenses were $445,128 which were primarily composed of costs associated with
the implementation of the overall business strategy, marketing and financial
plans. Costs included personnel expenses of approximately $186,000, amortization
of formulae acquisition costs, the ConAgra non-compete agreement of
approximately $75,000 and other expenses.
Interest and Financing Costs. Interest and financing costs totaled
$607,000 consisting of amortization of deferred financing costs and original
issue discount relating to the August 1996 private placement (approximately
$337,000); interest expense (approximately $52,000); other financing costs
(approximately $57,000, consisting primarily of amortization of deferred
financing costs); and costs in connection with other financings (approximately
$161,000, representing certain professional fees which were incurred in
connection with other financings).
Inception (January 11, 1996) to September 30, 1996
Net Loss. The Company reported a net loss of $(4,293,626) or $(2.29)
per common share for its initial period of operations from inception (January
11, 1996) to September 30, 1996. The loss is primarily the result of limited
sales generated for that period as compared to costs and expenses incurred
pertaining primarily to developmental activities of the Company to date.
Revenues. Revenues for the period were $1,382,376. Cost of sales
totaled $1,223,766 resulting in a gross margin of $158,610 or 11.5% of revenues.
The narrow margin resulted primarily from warehousing and transportation
expenses associated with the initial shipments of the Company's products.
Costs and Expenses. Costs and expenses for the period totaled
$3,596,533. These costs and expenses are detailed below.
7.
<PAGE>
Marketing and Distribution Expenses. Marketing and distribution
expenses were $1,759,661 which were primarily composed of marketing costs of
approximately $877,000; sales department expenses of approximately $399,000; and
the amortization of slotting fees of approximately $484,000. 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 $505,692. This primarily reflects testing of
formulations (e.g. palatability and biovailability), 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. It is not anticipated that the
level of expenditure in these areas will increase substantially with the
anticipated product introduction and line extension included in the business
plan.
General and Administrative Expenses. General and administrative
expenses were $1,331,180 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
$706,000, amortization of formulae acquisition costs, the ConAgra non-compete
agreement of approximately $88,000 and other expenses.
Interest and Financing Costs. Interest and financing costs totaled
$855,703 consisting of amortization of deferred financing costs and original
issue discount relating to the August 1996 private placement (approximately
$337,000); interest expense (approximately $82,000); other financing costs
(approximately $276,000, consisting primarily of amortization of deferred
financing costs); and costs in connection with other financings (approximately
$161,000, 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 InnoPet Inc.
(the "Parent Company"). Through the period ended September 30, 1996, the Parent
Company made capital contributions of $2,360,538 to the Company in the form of
costs and expenses ($1,462,315), funds used to purchase the InnoPet Foods
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 September 30, 1996, the Parent
Company also provided $884,048 in working capital for inventories, costs and
expenses, which were recorded as accounts payable to the Parent Company. These
funds have been or will be used to fund introductory marketing allowances, the
acquisition of inventory and operating expenses.
Stockholders' deficit totaled $(1,683,088) on September 30, 1996 and the working
capital (deficit) was $(2,707,053).
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. The above Notes were repaid from the
proceeds of the Company's December, 1996 initial public offering.
8.
<PAGE>
The Company completed its initial public offering on December 4, 1996 and the
over-allotment on December 10, 1996, which in aggregate consisted of 2,587,500
units realizing approximately $8,474,000 in net proceeds. Each unit included one
share of common stock and one redeemable warrant exercisable at $6.00 per share.
The Company repaid its $2,000,000 of private placement financing from the
proceeds of the initial public offering. The remaining proceeds of the offering
are anticipated to be used for the purchase of inventory (includes raw
materials, manufacturing and packaging), expansion of distribution (includes
marketing allowances supporting supermarket distribution and slotting
allowances), increases 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 that the net proceed from its initial public offering and
over-allotment, together with cash on hand and cash expected to be generated
from operations, will be adequate to satisfy its capital requirements through
1997. 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.
9.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit 27.
(b) Reports on form 8-K. None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
InnoPet Brands Corp.
Date: January 17, 1996 By:
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Marc Duke, Chairman of the Board and CEO
Date: January 17, 1996 By:
----------------------------------------
Robin Hunter, Vice President and CFO
(Chief Accounting Officer)
10.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE
PERIOD ENDING SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-11-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 358
<SECURITIES> 0
<RECEIVABLES> 625
<ALLOWANCES> 0
<INVENTORY> 1,468
<CURRENT-ASSETS> 2,555
<PP&E> 59
<DEPRECIATION> 12
<TOTAL-ASSETS> 4,379
<CURRENT-LIABILITIES> 5,262
<BONDS> 1,898
0
0
<COMMON> 19
<OTHER-SE> (1,702)
<TOTAL-LIABILITY-AND-EQUITY> 4,378
<SALES> 1,382
<TOTAL-REVENUES> 1,382
<CGS> 1,224
<TOTAL-COSTS> 1,224
<OTHER-EXPENSES> 3,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 856
<INCOME-PRETAX> (4,293,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,293,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,293,626)
<EPS-PRIMARY> (2.29)
<EPS-DILUTED> (2.29)
</TABLE>
