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U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date: July 15, 1998
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 or 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) 453-2400
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(Issuer's Telephone Number, Including Area Code)
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Item 5. Other Events
Significant Uncertainty of the Company's Ability to Continue Operating.
The Company's ability to continue to operate requires the infusion of immediate
and significant additional financing. Moreover, the Company has accrued
significant acounts payable and is currently in default on several significant
short debt obligations, including the Note (as defined below) as well as certain
of its obligations under agreements with certain suppliers and manufacturers.
The Company is actively seeking additional financing. In the event that the
Company is unable to obtain such financing, the Company may be forced to cease
its operations.
Restatement of Accounting Treatment for Certain Financing-Related Events.
On July 9, 1997, InnoPet Brands Corp. (the "Company") secured short-term
financing in the form of a senior convertible note in the principal amount of
$1,500,000 (the "Note") from Entrepreneurial Investors, Ltd. ("EIL"), a Bahamas
corporation and principal stockholder of the Company. The Note had a stated
interest rate of 14%, matured on January 15, 1998, and was collateralized with
600,000 shares of the Company's common stock.
The Company failed to make any payments of principal or interest under the Note
and consequently EIL took possession of the collateral and commenced an action
for specific performance demanding, among other items, that such collateral be
registered. When EIL sought release of and seized the collateral shares, the
Company took the position that the principal of and accrued interest on the Note
had been converted to equity, and reflected the transaction as such in its Form
10-QSB for the quarterly period ending March 31, 1998. In addition, the Company
presented a proforma column to its balance sheet as presented in its Form 10-KSB
for the year ended December 31, 1997, reflecting the effect the transaction
would have made on the Company's year end financial condition if the conversion
had occurred on December 31, 1997, and not on January 15, 1998. In the Company's
Registration Statement (the "Registration Statement") filed with the Securities
and Exchange Commission and declared effective on April 16, 1998, the proforma
capitalization table in the Prospectus of such Registration Statement, as well
as the financial statements contained therein, also reflect the Company's
position at the time that the principal and accrued interest on the Note had
been converted into equity of the Company.
As a consequence of the Registration Statement filed by the Company with the SEC
having gone effective on April 16, 1998, the EIL action was rendered moot and
voluntarily withdrawn. Subsequent to the filing of the Registration Statement,
the Company received notice from EIL, whereby EIL claimed that (i) the entire
principal amount of the Note plus interest is due and owing to EIL, (ii) EIL has
not agreed to convert the Note into equity of the Company and (iii) if EIL were
to convert the Note into equity of the Company, the shares of common stock
issued to EIL as collateral, and in EIL's possession, would be insufficient to
satisfy the amounts due under such note.
Although EIL has foreclosed on the collateral, in light of the present facts and
circumstances in which the conversion is being contested by EIL, the Company has
reconsidered its position regarding the accounting treatment of the seizure of
the collateral shares as a conversion of the Note into stockholders' equity. The
600,000 shares of common stock are being accounted for as collateral shares held
in treasury and the Note is being included in current liability at March 31,
1998.
The condensed balance sheet at March 31, 1998, is presented below, with columns
depicting the financial condition as reported in the Company's Form 10-QSB for
the quarterly period ending March 31, 1998, giving rise to the effect of
conversion ("Prior to Adjustment") and as now restated, no longer giving rise to
such effect ("As Adjusted").
Recent Litigation.
On July 2, 1998, EIL commenced an action against the Company in the United
States District Court for the District of Delaware (the "District Court")
seeking full payment of the Note plus accrued interest. On July 2, 1998 EIL also
commenced an action in the District Court against the Company; Marc Duke ("Marc
Duke"), a director and the former Chief Executive Officer of the Company; and
Daniel I. DeWolf, a former director of the Company ("Daniel I. DeWolf" and
collectively with Marc Duke, the "Individual Defendants") seeking, among other
things, unspecified damages EIL claims it incurred in connection with EIL's
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purchase of securities of the Company and loan of funds to the Company, as a
result of alleged (i) violations of the federal securities laws by the Company
and the Individual Defendants, specifically Section 10 of the Securities
Exchange Act of 1934 and Rule 10(b) thereunder and (ii) negligent
misrepresentations and fraud of the Company and the Individual Defendants. In
addition, EIL seeks to recover unspecified damages for breach of a registration
rights agreement, dated April 28, 1997, between EIL and the Company, and a
bridge loan agreement, dated July 9, 1998, between EIL and the Company. The
Company is currently in negotiations with EIL with respect to both actions and
believes it will reach an agreement with EIL. The Company believes it has
meritorious defense against such action. In the event that an agreement is not
reached with EIL, and EIL successfully pursues its claims with respect to either
or both actions, such event could have a material adverse effect on the Company,
its financial condition, business and operations.
Recent Conversion of Preferred Stock.
On December 18, 1997, InnoPet Brands Corp. ("InnoPet") entered into a
Subscription Agreement and Investment Representation with Explorer Partners,
L.L.C. ("EP"), to purchase 10,000 shares of 8% Series B cumulative convertible
preferred stock (the "Series B Preferred Stock") at a purchase price of $100 per
share, with an option to purchase an additional 30,000 shares of Series B
Preferred Stock. EP purchased 10,000, 2,000 and 8,000 shares of the Series B
Preferred Stock on December 18, 1997, February 20, 1998 and March 18, 1998,
respectively. The aggregate purchase price for each of these acquisitions was
$1,000,000, $200,000 and $800,000, respectively. EP paid the purchase price for
the Series B Preferred Stock from EP's working capital.
The Series B Preferred Stock was convertible by EP at any time into a number of
shares of InnoPet common stock (the "Common Stock") equal to (i) the number of
shares of Preferred Stock converted, multiplied by (ii) the quotient of (a)$100,
and (b) 80% of the average closing price for a share of InnoPet Common Stock as
quoted on the OTC Electronic Bulletin Board for the five trading days preceding
the conversion date, provided that such conversion price shall not exceed $6.00
per share. The Series B Preferred Stock pays a quarterly dividend of 8% per year
and is payable at InnoPet's sole option in cash or by the issuance of shares of
Common Stock.
On April 30, 1998, EP exercised its right to convert 75 shares of Series B
Preferred Stock and received 4,747 shares of InnoPet Common Stock in exchange
therefor. On June 23, 1998, EP exercised its right to convert all of the
remaining 19,925 shares of Series B Preferred Stock it owned, and received
8,991,426 shares of InnoPet Common Stock, including 210,545 shares of Common
Stock received as a dividend on the Series B Preferred Stock. Pursuant to a
Registration Rights Agreement by and between EP and InnoPet, InnoPet has agreed
to register the shares of Common Stock underlying the Series B Preferred Stock
owned by EP, subject to certain limitations and conditions. InnoPet has also
agreed to register any shares of Common Stock received by EP in lieu of a cash
dividend with respect to the Series B Preferred Stock.
Appointment of Chief Executive Officer and New Directors.
On June 30, 1998, Burnett W. Donoho, a director of the Company, was appointed
Chief Executive Officer. On such date, Robert Holz and Timothy Keating were
elected to serve as directors of the Company.
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INNOPET BRANDS CORP.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEET
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
BALANCE SHEET
Assets Prior to Adjustment As Adjusted
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<S> <C> <C>
Current Assets:
Cash $367,778 $367,778
Accounts receivable 1,125,854 1,125,854
Inventories 1,905,240 1,905,240
Prepaid expenses and other current assets 661,261 661,261
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Total current assets 4,060,133 4,060,133
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Property and Equipment, net 405,122 405,122
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Intangible Assets:
Deferred slotting fees, net of accumulated
amortization 58,625 58,625
Product formulae acquisition costs, net
of accumulated amortization 216,921 216,921
Non-compete agreement, net of accumulated
amortization 84,941 84,941
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Total intangible assets 360,487 360,487
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Other assets 10,000 10,000
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Total Assets $4,835,742 $4,835,742
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Liabilities and Stockholders' Deficiency
Current Liabilities:
Notes payable 825,393 2,325,393
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Accounts Payable:
Trade $2,839,895 $2,839,895
Slotting fees 380,127 380,127
Accrued expenses and other payables 877,186 986,501
Total current liabilities 4,922,601 6,531,916
Long-term Liabilities 171,303 171,303
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Stockholders' Deficiency:
Series A 4% convertible preferred stock, $.01 par
value; issued and outstanding 625,000 shares
at liquidation value 2,500,000 2,500,000
Series B 8% convertible preferred stock, $100 par
value; issued and outstanding 20,000 shares
at liquidation value 2,000,000 2,000,000
Common stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
4,953,169 shares 55,531 49,531
Additional paid-in capital 16,613,170 15,009,835
Deficit accumulated during the development stage (19,119,134) (19,119,134)
Notes and interest receivable on sale of common
stock (2,304,493) (2,304,493)
Treasury stock at cost, including 600,000 collateral
shares as adjusted (3,236) (3,236)
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Total stockholders' deficiency (258,162) (1,867,477)
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Total Liabilities and Stockholders' Deficiency $4,835,742 $4,835,742
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</TABLE>
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SIGNATURE
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: July 15, 1998 By: /s/ Michael L. Winer
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Michael L. Winer, Vice President and CFO
(Chief Accounting Officer)
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