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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   ----------


                                   FORM 10-KSB


/x/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (Fee Required)

                   For the fiscal year ended December 31, 1996

/ /      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (No Fee Required)

                         Commission File Number: 0-28912


                              INNOPET BRANDS CORP.
            ---------------------------------------------------------
           (Name of small business issuer as specified in its charter)




            Delaware                                          65-0639984
---------------------------------                         ------------------
  (State of Other Jurisdiction                             (I.R.S. Employer
of Incorporation or Organization)                         Identification No.)


                        1 East Broward Blvd., Suite 1100
                         Fort Lauderdale, Florida 33301
                    ----------------------------------------
                    (Address of Principal Executive Offices)





                                 (954) 453-2400
                     --------------------------------------
                (Issuer's Telephone Number, Including Area Code)

     Securities registered under Section 12(b) of the Exchange Act: None


     Securities registered under Section 12(g) of the Exchange Act:

Title of each class                  Name of each exchange on which registered
-------------------                  ------------------------------------------
Common Stock .01 Par Value                    NASDAQ Small Cap Market
Warrants                                      NASDAQ Small Cap Market
Units                                         NASDAQ Small Cap Market

                         -----------------------------

     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 X No
                                                                      ---  ---
<PAGE>

     Check if there is no disclosure of delinquent files in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB.  /X/

     State issuer's revenues for its most recent fiscal year.     $1,859,936
                                                              -----------------

     The aggregate market value of the voting stock held by non-affiliates per
the closing stock price of March 7, 1997 is $15,363,281.

     As of March 7, 1997, 4,465,878 shares of common stock of the issuer were
outstanding.



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                                     PART I

From time to time, including in this Form 10-KSB, InnoPet Brands Corp. (the
"Company") may publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects, future operations, new
products, research and development activities, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's business include the following: 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 specifications; and the ability of the
Company to control the cost of raw materials, manufacturing, packaging,
warehousing and distribution.

                         ITEM 1. DESCRIPTION OF BUSINESS

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 December
31, 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, North Carolina,
Georgia 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); Associated Grocers of
Florida, Inc.; Byrd Food Stores, Inc.; C&S Wholesale Grocers (representing Grand
Union Company and other supermarket chains); Fleming Companies, Inc.
(representing Hyde Park Markets and other supermarket chains); Gooding's
Supermarkets; Food Lion, Inc.; Harris-Teeter, Incorporated; Kash N' Karry Food
Stores, Inc.; Key Food Stores Co-operative, Inc.; Pathmark Stores, Inc.; Super
Rite Foods; Weiss Markets, Inc. and Winn-Dixie Stores, Inc. (Orlando Division).

The Company's objective is to become a national provider of premium pet foods
through supermarkets 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 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.

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

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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 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 food 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 indicate 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.
--------
(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).

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         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 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 consumer'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 during March 1996 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.

The Company generates brand awareness of its products through integrated
marketing communications programs. The Company uses in-store promotions, such as
floor minders, in-store sampling, instantly redeemable coupons and point of
purchase displays. The Company also uses free standing inserts in newspapers,
samples in "news pouches" and mails product samples, literature and coupons to
demographically targeted consumers. The Company has participated and plans to
continue to participate in pet-related events, such as dog walks and pet welfare
fund-raisers, 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 December 31, 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); Associated Grocers of Florida, Inc.; Byrd
Food Stores, Inc.; C&S Wholesale Grocers (representing Grand Union Company and
other supermarket chains); Fleming Companies, Inc. (representing Hyde Park
Markets and other supermarket chains); Gooding's Supermarkets; Food Lion, Inc.;
Harris-Teeter, Incorporated; Kash N' Karry Stores, Inc.; Key Food Stores
Co-operative, Inc.; Pathmark Stores, Inc.; Super Rite Foods ; Weiss Markets,
Inc. and Winn-Dixie, Inc. (Orlando Division).

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

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office or buying committee. An authorization from a supermarket or similar
organization is the acceptance of the Company's pet foods for sales in
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. As of December 31, 1996, 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 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 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 has entered into contractual agreements with one
manufacturer and one transportation company. Each company has been designated as
the Company's primary supplier in their respective area. The Company also
purchases these services and packaging from other suppliers 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'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.

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The Company owns no warehouses, trucks or other distribution facilities or
equipment. All transport and distribution of the Company's products is done
through common carriers or fleets operated by the Company's customers. The
Company distributes its products to supermarket distribution centers and
distribution centers operated by grocery store wholesalers. The Company may
lease space in public warehouses from time to time.

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.

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 food offered in the specialty pet stores.

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.

Employees

As of March 7, 1997, the Company employed 32 persons, one of whom is employed on
a part time basis.

                        ITEM 2. DESCRIPTION OF PROPERTIES

The Company currently leases from InnoPet Inc. 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 $24,500. The facilities
agreement with respect to these offices expires April 30, 2001. The Company
believes it has adequate space to conduct its operations.

                            ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal matters.

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

None.

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                                     PART II

      ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
                                     MATTERS

The Company's Units, Common Stock and Warrants are quoted on the NASDAQ Small
Cap Market under the trading symbols "INBCU", "INBC" and "INBCW", respectively,
and have been so quoted since the Company commenced public trading on December
5, 1996. Prior to that date, there was no public market for the Company's
Securities.

The following table sets forth the high and low selling price for the Company's
securities for the fiscal quarter ended December 31, 1996 based on transaction
data as reported by the NASDAQ Small Cap Market.


              Year Ended December 31, 1996       High         Low
              ----------------------------       ----         ---
          Fourth Quarter (From December 5,
          1996)
          Units                                  $7.50      $5.125
          Common Stock                           $6.00       $4.00
          Warrants                              $2.375      $1.375


On March 7, 1997 the closing price for the Company's Units, Common Stock and
Warrants as reported by the NASDAQ Small Cap Market were $8.00, $5.9375 and
$2.25 respectively.

As of March 7, 1997 there were approximately 423 holders of record of the
Company's Common Stock.

The Company has not declared or paid any dividends since its inception, and does
not intend to pay any cash dividends in the foreseeable future.


                           ITEM 6. PLAN OF OPERATIONS


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 December 31, 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; North Carolina; Georgia 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 increase its
penetration into supermarkets throughout the eastern United States and that it
will begin introduction of its products throughout the rest of the United
States. During 1997 the Company expects to expand its line of dog foods with the
introduction of lamb and rice products and the Company expects to introduce its
line of dry cat foods.

The Company plans to expand its marketing programs in 1997 to include such
programs as: radio and newspaper advertising, in-store coupons, floor walker
displays, direct sampling programs (including newspaper pouch samples) and
in-store demonstrations. Additionally, the Company plans to participate in
several cause-related programs to increase customer awareness of the Company
and its products.

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The Company incurred a loss in 1996 and the Company expects to continue to incur
losses at least into 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 has purchased specialized meat handling machines for use by one of
its kibble manufacturers at a cost of $42,500. The Company does not expect to
sell or purchase significant additional 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.

Results of Operations

         Net Loss. The Company reported a net loss of $(6,518,304) or $(3.11)
per common share for its initial period of operations from inception (January
11, 1996) to December 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 developmental activities of the Company to date.

         Revenues. Revenues for the period were $1,859,936. Cost of sales
totaled $1,634,474 resulting in a gross margin of $225,462 or 12.1% 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
$5,371,898. These costs and expenses are detailed below.

         Marketing and Distribution Expenses. Marketing and distribution
expenses were $3,004,127 which were primarily composed of marketing costs of
approximately $1,396,000; sales department expenses of approximately $513,000;
and the amortization of slotting fees of approximately $1,095,000. 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 $584,976. 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 current
business plan.

         General and Administrative Expenses. General and administrative
expenses were $1,782,795 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
$889,000, amortization of formulae acquisition costs and the ConAgra non-compete
agreement of approximately $120,000 and other expenses.

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         Interest and Financing Costs. Interest and financing costs totaled
$1,371,868 consisting of amortization of deferred financing costs and original
issue discount relating to the August 1996 private placement (discussed below,
approximately $674,000); interest expense (approximately $159,000); other
financing costs (approximately $349,000, 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 financing).

Income Taxes

Net operating losses generated in fiscal 1996 will be carried forward and
utilized to offset future income tax expense. The Company has a net operating
loss carryforward of approximately $6,500,000 for federal income tax purposes at
December 31, 1996. This net operating loss carryforward will expire in the year
2011. The Company's ability to utilize its net operating loss carryforwards will
be subject to annual limitations in future periods pursuant to the "change in
ownership rules" under Section 382 of the Internal Revenue Code of 1986, as
amended. The Company estimates that an annual limitation of approximately
$990,000 will apply to the net operating loss carryforward. The Company's
utilization of its tax benefit carryforward may be further restricted in the
event of subsequent changes in ownership.

Liquidity and Capital Resources

Capital for the development of the Company was provided by InnoPet Inc., the
former parent company of the Company. During the Company's initial period of
operations, from inception (January 11, 1996 to December 31, 1996) InnoPet Inc.
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 InnoPet
Inc. provided the Company $1,000,000 in financing in exchange for a five-year
note, from the Company. Through December 31, 1996, InnoPet Inc. also provided
$724,394 in working capital for inventories, costs and expenses, which were
recorded as accounts payable to InnoPet Inc. These funds have been or will be
used to fund introductory marketing allowances, the acquisition of inventory and
operating expenses.

During June 1996, the Company entered into a five-year facilities agreement with
InnoPet Inc. which provides for a pass-through of rent costs and reimbursement
to InnoPet Inc. for funds expended for equipment, furniture and fixtures. Under
the terms of the agreement, the Company is obligated for approximately $294,000
in payments over the next twelve months and $1,384,000 over the term of the
agreement. The Company is obligated to pay approximately $770,000 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 a 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 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 $8,441,000 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
products to be introduced during the next year, as well as pilot manufacturing
runs) and working capital. Based on its current operating plan, the

                                       10


<PAGE>



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. 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.

On December 31, 1996 stockholders' equity approximated $4,533,000 and working
capital approximated $4,113,000.


                          ITEM 7. FINANCIAL STATEMENTS

Information in response to this item is set forth in the Financial Statements
beginning on page F-1 of this filing.


     ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURES

None.




                                       11


<PAGE>






                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)



                                TABLE OF CONTENTS





                                                     PAGE


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS   F-2


FINANCIAL STATEMENTS

   Balance Sheet                                     F-3

   Statement of Operations                           F-4

   Statement of Stockholders' Equity                 F-5

   Statement of Cash Flows                           F-6

   Notes to Financial Statements             F-7 to F-23



                                       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
December 31, 1996, and the related statements of operations, stockholders'
equity, and cash flows from inception (January 11, 1996) to December 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
December 31, 1996, and the results of its operations and its cash flows from
inception (January 11, 1996) to December 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 an accumulated deficit as of and for the period
ended December 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
February 28, 1997






                                       F-2


<PAGE>

                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                                 BALANCE SHEET

                               DECEMBER 31, 1996

                                     ASSETS

Current Assets:
  Cash and cash equivalents                                       $4,614,312
  Accounts receivable                                                219,011
  Inventories                                                      1,058,108
  Prepaid expenses and other current assets                          445,445
                                                                  ----------
   Total current assets                                            6,336,876
                                                                  ----------
Property and Equipment                                               105,978
                                                                  ----------
Intangible Assets:
  Deferred slotting fees, net of accumulated
   amortization of $1,094,845                                        496,367
  Product formulae acquisition costs, net of
   accumulated amortization of $26,574                               251,413
  Non-compete agreement, net of accumulated
   amortization of $93,435                                           212,351
                                                                  ----------
                                                                     960,131
                                                                  ----------
Other Assets                                                         153,728
                                                                  ----------
Total Assets                                                      $7,556,713
                                                                  ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable:
   InnoPet Inc.                                                   $  724,394
   Slotting fees                                                     539,095
   Trade                                                             760,200
Current portion of long-term debt due to InnoPet Inc.                200,000
                                                                  ----------
    Total current liabilities                                      2,223,689
                                                                  ----------
Long-Term Debt:
 Note payable to InnoPet Inc. net of current portion                 800,000
                                                                  ----------
Commitments and Other Matters                                             --

Stockholders' Equity:
 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 4,465,878 shares                     44,658
 Additional paid-in capital                                       13,164,859
 Deficit accumulated during the development stage                 (6,518,304)
 Notes and interest receivable on sale of common stock            (2,158,189)
                                                                  ----------
                                                                   4,533,024
                                                                  ----------
Total Liabilities and Stockholders' Equity                        $7,556,713
                                                                  ==========

                       See notes to financial statements
                                       F-3


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                             STATEMENT OF OPERATIONS

                INCEPTION (JANUARY 11, 1996) TO DECEMBER 31, 1996


Revenues:
 Net Sales                                                         $1,859,936
                                                                  ------------
Costs and Expenses:
 Cost of sales                                                      1,634,474
 Marketing and distribution                                         3,004,127
 Product development                                                  584,976
 General and administrative                                         1,782,795
                                                                  ------------
                                                                    7,006,372
                                                                  ------------
Loss Before Other Expenses                                         (5,146,436)
                                                                  ------------
Other Income (Expenses):
 Interest income                                                       21,570
 Interest expense, including amortization
  of discount of $250,000                                            (408,901)
 Financing costs, including amortization of $424,329                 (773,772)
 Costs in connection with unsuccessful financing                     (161,289)
 Other expenses                                                       (49,476)
                                                                  ------------
                                                                   (1,371,868)
                                                                  ------------
Net Loss                                                          $(6,518,304)
                                                                  ------------
Net Loss per Common Share                                         $     (3.11)
                                                                  ------------

                       See notes to financial statements.

                                       F-4


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                        STATEMENT OF STOCKHOLDERS' EQUITY

                INCEPTION (JANUARY 11, 1996) TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                                       Notes and
                                                                                         Deficit        Interest
                                                                                      Accumulated      Receivable
                                               Common Stock             Additional     During the      on Sale of
                                           -------------------------      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 InnoPet Inc.
 ($1.88 per share)                          1,182,432         $11,824    $2,209,524   $     --           $    --     $2,221,348

Sale of common stock ($3.20 per
 share):
  InnoPet Inc.                                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             --              --           70,350         --              (70,350)     --


Estimated fair value of warrants
 issued in connection with private
 placement financing                                                        250,020                                     250,020

Sale of units (common stock and
 warrants) in Initial Public Offering
 ($4.00 per unit), net of related costs      2,587,500          25,875    8,414,872         --                 --     8,440,747

Sale of warrants to underwriter                 --              --               23         --                 --            23

Net loss                                                                                (6,518,304)                  (6,518,304)
                                             ---------        --------    ---------     ----------        ----------  -----------

Balance December 31, 1996                    4,465,878         $44,658   $13,164,859   $(6,518,304)      $(2,158,189)$4,533,024
                                            ==========        ========   ===========    ==========        ========== ==========
</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 DECEMBER 31, 1996



Cash Flows from Operating Activities:
   Net loss                                                         $(6,518,304)
   Adjustments to reconcile net loss
    to net cash used in operating
    activities:
   Costs and expenses paid on behalf
    of Company by InnoPet Inc.                                        1,580,327
   Depreciation                                                          27,354
  Amortization:
   Slotting fees                                                      1,094,845
   Financing costs                                                      872,759
   Other                                                                120,009
 Interest paid from proceeds of public offering                          61,944
 Offsets against accounts receivable for slotting fees                 (881,117)
Changes in Operating Assets and Liabilities:
 Increase in:
  Accounts receivable                                                  (219,011)
  Inventories                                                          (554,077)
  Prepaid expenses and other current assets                            (951,010)
  Deposits and other assets                                            (143,728)
  Accounts payable, trade                                               760,200
  Accounts payable, slotting fees                                       539,095
  Accounts payable, InnoPet, Inc.                                       724,394
                                                                      ---------
   Net cash used in operating activities                             (3,486,320)
                                                                      ---------
Cash Flows from Investing Activities:
  Acquisition of property and equipment                                 (84,540)
                                                                     ----------
Cash Flows from Financing Activities:
 Proceeds from Initial Public Offering                                6,851,487
 Proceeds of long-term financing from
  InnoPet Inc., net                                                     202,014
 Proceeds from private placement financing                            1,672,236
 Offering costs                                                        (472,641)
 Deferred financing costs                                               (67,924)
                                                                     ----------
   Net cash provided by financing activities                          8,185,172
                                                                     ----------
Net Increase in Cash and Cash Equivalents                             4,614,312
                                                                            --
Cash and Cash Equivalents, Beginning                                 ----------

Cash and Cash Equivalents, Ending                                    $4,614,312
                                                                     ----------

Supplemental Disclosure of Cash Flow Information:
 Non-Cash Investing and Financing Activities:
  Expenditures for various assets paid on behalf of
   Company by InnoPet Inc.
    Product formulae, non-compete agreement
     and inventory                                                   $1,072,772
                                                                     ----------
    Deferred financing costs                                         $  227,071
                                                                     ----------
    Deferred slotting fees                                           $  291,957
                                                                     ----------
    Property and equipment and other assets                          $  195,732
                                                                     ----------
 Deferred financing costs paid from proceeds
  of private placement financing                                     $  327,764
                                                                     ----------
 Offering costs paid from proceeds of
  Initial Public Offering                                            $1,436,611
                                                                     ----------
 Notes payable paid from the proceeds of
  Initial Public Offering                                            $2,000,000
                                                                     ----------

                       See notes to financial statements.

                                       F-6


<PAGE>
                              InnoPet Brands Corp.
                        (A Development Stage Enterprise)

                         NOTES TO FINANCIAL STATEMENTS
                                December 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. 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 InnoPet
         Inc. (see Note 6).

         On December 10, 1996, the Company completed the Initial Public Offering
         of its securities. The offering resulted in the issuance of 2,250,000
         units, each unit consisting of one share of common stock and one
         redeemable warrant. Shortly thereafter, an additional 337,500 units
         were sold upon the exercise of an over-allotment option by the
         underwriter resulting in an aggregate of 2,587,500 units sold at a
         price of $4.00 per unit. Subsequent to the initial public offering, the
         Company ceased being a subsidiary of InnoPet Inc.

         Business

         The Company produces, markets and sells premium dog food through
         supermarkets and grocery stores under the name InnoPet Veterinarian
         Formula(TM) Dog Food.






                                      F-7


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)









NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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 sheet 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, the estimated amortization period of certain intangible
         assets and the estimated liability for coupon redemptions. 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
         InnoPet Inc. on behalf of the Company, which have been recorded as
         capital contributions by InnoPet Inc. (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 principally of cash, money market
         funds at broker/dealers and accounts receivable.

         The Company maintains its cash which consists primarily of demand
         deposits with one financial institution. From time to time, such
         balances exceed the federally insured limits. These balances are
         maintained with a high quality institution, thereby limiting the risk.

         The Company maintains cash equivalents with one financial institution.
         From time to time, these balances exceed applicable insurance limits.
         Management believes that this risk is limited by maintaining the funds
         with a high quality financial institution.


                                       F-8


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Concentrations of Credit Risk

         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 December 31, 1996, no
         allowance for losses was considered necessary.

         Cash Equivalents

         The Company classifies all highly liquid investments with original
         maturities of three months or less as cash equivalents. Such
         investments are comprised of money market funds maintained with a
         financial institution.

         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 range generally
         from 1 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 totaled $26,574.

         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.

                                      F-9


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





         NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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.

         Many retailers, rather than remitting payment for amounts due for the
         purchase of product to the Company and receiving payment of slotting
         fees from the Company, choose to offset slotting fees against amounts
         due for product and pay only the balance. During the period ended
         December 31, 1996, $881,000 of accounts receivable were settled by
         offsetting slotting fees due to the retailer.

         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.

         The benefits to be derived 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.

         Estimated Liability for Coupon Redemptions

         The Company utilizes promotional coupons as a component of its
         marketing strategy. The financial statements include an accrual for the
         estimated liability for coupons which are circulated, but not redeemed
         as of the balance sheet date. This estimated liability is net of an
         estimate of the percentage of coupons which the Company believes will
         not be redeemed based upon industry practice and the Company's limited
         experience to date. As of December 31, 1996, the estimated liability
         for promotional coupon redemptions was $10,000.


                                      F-10


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Offering Costs

         Costs incurred in connection with the initial public offering of
         securities, consisting of professional fees directly associated with
         the offering, have been charged to additional paid in capital at the
         closing of the offering in December 1996.

         Certain other professional fees which were incurred in connection with
         other financings, but only indirectly associated with the offering,
         aggregated $161,289, and have been charged to expense during the period
         from inception (January 11, 1996) to December 31, 1996.

         Financing Costs

         Financing costs represent the costs incurred by InnoPet Inc. 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 InnoPet Inc. have been assigned to the Company
         and recorded as a capital contribution by InnoPet Inc. These costs
         were amortized over the term of the related debt (six to twelve months)
         and at December 31, 1996 were fully amortized.

         In addition, the Company has incurred costs in connection with the
         private placement financing which was consummated in August 1996. These
         costs were amortized over the outstanding four-month term of the
         private placement financing debt, as measured by the date of repayment
         of this debt from the proceeds of the initial public offering in
         December, 1996 (see Note 9).

         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 covenant.

         Advertising Costs

         Advertising costs, included in marketing and distribution costs, are
         charged to expense as incurred. Advertising costs incurred for the
         period ended December 31, 1996 were not material.

                                      F-11


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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 a material number
         of options are granted.

         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 prior to the
         initial public offering have been treated as outstanding during the
         entire period in contemplation of the initial public offering (see Note
         9), pursuant to the Securities and Exchange Commission Staff Accounting
         Bulletins. Fully diluted earnings per share, assuming exercising of the
         options and warrants granted is not presented as the effect of
         conversion is anti-dilutive. The number of shares used in the
         computation was 2,094,000 shares.


NOTE 2. BASIS OF PRESENTATION

         As described above, the Company was incorporated on January 11, 1996,
         and, since that time, together with InnoPet Inc., 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
         revenue therefrom generated to date is not considered significant in
         relation to the Company's strategic plan. 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 $6,518,304 as of
         and for the period ended December 31, 1996. This condition raises
         substantial doubt as to the ability of the Company to continue as a
         going concern.

                                      F-12


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 2. BASIS OF PRESENTATION (Continued)

         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 Metropolitan New York area. As of December 31,
         1996, the Company is selling product into the following markets: the
         Greater Metropolitan New York area, the Philadelphia, Pennsylvania area
         and other areas in Pennsylvania; the Baltimore, Maryland/Washington, DC
         area; North Carolina; Georgia; and the Tampa Bay, Florida and South
         Florida areas. During the next twelve months, the Company anticipates
         that it will begin implementation of its national distribution.

         During 1997, the Company expects to expand its line of dog foods with
         the introduction of lamb and rice products. The Company also plans to
         introduce a line of dry cat foods by the end of the fourth quarter of
         1997.

         The Company plans to expand its marketing programs in 1997 to include
         such programs as: radio and newspaper advertising, in-store coupons,
         floor walker displays, direct sampling programs (including newspaper
         pouch samples) and in-store demonstrations. Additionally, the Company
         plans to participate in several cause-related programs to increase
         consumer awareness of the Company and its products.

         2. Equity Infusion by Means of Public Offering

         The Company raised certain working capital, in August 1996 by means of
         private placement financing (see Note 8) and December 1996 by means of
         an initial public offering of its securities (see Note 9).

         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.


                                      F-13


<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

         In accordance with the terms of an Asset Purchase Agreement dated
         January 16, 1996 among the Company, InnoPet Inc. and a subsidiary of
         ConAgra, Inc., on the Initial Closing Date, as defined (January 16,
         1996), the Company acquired all of the right, 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 right, 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 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 InnoPet Inc. on the Initial Closing
         Date, and has been recorded as a capital contribution by InnoPet Inc.
         The $391,021 was paid by InnoPet Inc. in April and May 1996 and has
         been reflected as a capital contribution by InnoPet Inc. 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 InnoPet Inc.'s pet food
         business.


                                      F-14


<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)

         However, in order to effect the acquisition of the formulae, it was
         necessary to purchase the inventory as part of the acquisition
         transaction. The Company considered the purchase of the inventory as
         incidental to the acquisition of the formulae, and utilized the raw
         material portion of the inventory in the production of the Company's
         pet food products when possible, recouped its investment in the
         remainder of the inventory wherever possible and disposed of the
         portion which was neither useable or salable prior to December 31,
         1996. 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                     $   193,162


                      Work in process                       122,762


                      Finished product                      742,184
                                                        -----------
                                                         $1,058,108
                                                        ===========


NOTE 5.         PROPERTY AND EQUIPMENT

                      Die plates                            $53,879
                      Computer equipment and software        45,805
                      Furniture and fixtures                 27,049
                      Leasehold improvements                  6,599
                                                        -----------
                                                            133,332

                      Less accumulated depreciation          27,354
                                                        -----------
                                                           $105,978
                                                        ===========

                                      F-15


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 6. RELATED PARTY TRANSACTIONS

         Transactions with InnoPet Inc.

         As discussed above, the Company was incorporated on January 11, 1996 as
         a wholly-owned subsidiary of InnoPet Inc. During the period inception
         through approximately June 30, 1996, substantially all of the Company's
         costs and expenses, and the acquisition of the Company's assets, were
         paid or incurred on behalf of the Company by InnoPet Inc. Such amounts
         have been accounted for as capital contributions by the InnoPet Inc. to
         the Company, and are analyzed as follows:

         Costs and expenses charged to operations        $1,323,125


         Initial purchase price for the acquisition
           of product formulae, covenant not to
           compete and inventory, including $58,773
           of directly associated costs                     699,794


         Deferred financing costs                           198,429
                                                         ----------
                                                         $2,221,348
                                                         ==========


         The costs and expenses expended on behalf of the Company by InnoPet
         Inc. 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 primarily allocated on a direct basis. 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 10 regarding a facilities agreement with InnoPet Inc.

         Debt Financing by InnoPet Inc.

         On June 5, 1996, InnoPet Inc. 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 (9.25% at 12/31/96) payable quarterly commencing September
         1, 1996, and contains no prepayment penalty. Interest for the period
         ended December 31, 1996 of $52,966 was accrued, and charged to expense.

                                      F-16


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 6. RELATED PARTY TRANSACTIONS (Continued)

         Accounts Payable, InnoPet Inc.

         In addition to the debt financing described above, InnoPet Inc. 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 $724,394 at December
         31, 1996, are due on demand, are non-interest bearing, and are
         presented in the accompanying financial statements as accounts payable,
         InnoPet Inc.

         Sale of Common Stock to Officers and Employees and InnoPet Inc.

         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 InnoPet Inc. 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 InnoPet Inc. was applied against the then
         outstanding balance due to InnoPet Inc. arising from costs and expenses
         expended on behalf of the Company by InnoPet Inc.


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 does not plan to file a consolidated income tax
         return with InnoPet Inc. The successful completion of the initial
         public offering (see Note 9) and the sale of common stock to certain
         officers and employees of the Company (see Note 6), had the effect of
         disqualifying the Company as a member of the consolidated group with
         InnoPet Inc.

         As of December 31, 1996, on a separate return basis, the Company had a
         net operating loss carryforward for Federal income tax reporting
         purposes amounting to approximately $6,500,000, 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 December 31, 1996 were as follows:

                                      F-17


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 7. INCOME TAXES (Continued)

         Benefit of net operating loss carryforwards     $2,400,000
         Less valuation allowance                         2,400,000
                                                         ----------
         Net deferred tax asset                          $        -
                                                         ==========



         As of December 31, 1996, sufficient uncertainty exists regarding the
         realizability of these operating loss carryforwards and, accordingly, a
         valuation allowance of $2,400,000, 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 occurred in 1996, based upon the sale of common
         stock to certain officers and employees of the Company in June 1996
         (see Note 6), and the successful completion of the Company's initial
         public offering 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 December 31, 1996, the Company estimates that
         an annual limitation of approximately $990,000 will apply to the net
         operating loss carryforward existing as of that date. 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.


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 entitled 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
         initial public offering, each private placement warrant was
         automatically converted into a redeemable warrant having terms
         identical to that of the redeemable warrants underlying the units of
         the initial public offering (see Note 9).

                                      F-18


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 8. PRIVATE PLACEMENT FINANCING (Continued)

         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
         term 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 was
         amortized over the 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.
         These placement agent warrants were canceled upon the consummation of
         the initial public offering.

         Simultaneously with the closing of the initial public offering, these
         notes, together with accrued interest, were paid in full from the
         proceeds. The total amount paid, aggregated $2,061,944, which included
         $61,944 of accrued interest.


NOTE 9. INITIAL PUBLIC OFFERING

         In December 1996, the Company raised additional capital through an
         initial public offering of its securities. The public offering
         consisted of 2,250,000 units, each unit consisting of one share of
         common stock and one redeemable warrant. Each redeemable warrant
         entitles the holder to purchase one share of common stock at 150% of
         the initial public offering price per unit, subject to adjustment. In
         addition, there was an over-allotment option which was exercised by the
         underwriter resulting in a total of 2,587,500 units being sold. Gross
         proceeds totaled $10,350,000 and offering expenses aggregated
         $1,909,253, resulting in net proceeds of $8,440,747.

         In addition, the underwriter purchased warrants to purchase from the
         Company 225,000 units for nominal consideration, which may be exercised
         anytime in the four year period commencing at the beginning of the
         second year following issuance, at an exercise price of 165% of the
         initial public offering price.

         At the time the initial public offering was completed, the Company
         ceased being a subsidiary of InnoPet Inc. inasmuch as InnoPet Inc.'s
         ownership of the Company's common stock amounted to only approximately
         27.5% following the completion of the public offering.

         Subsequent to the initial public offering the following warrants are
         outstanding:

                                      F-19


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 9. INITIAL PUBLIC OFFERING (Continued)

       Description                         Exercise Price    Number of Shares
       -----------                         --------------    ----------------


Private placement warrants converted -
  redeemable for one common share               $6.00            1,000,000
Initial public offering warrants -
  redeemable for one common share               $6.00            2,587,500
Underwriter warrants - redeemable for
  one unit, comprised of one common
   share and one warrant                        $6.60              225,000
Warrants resulting  from exercise of
  underwriter warrants - redeemable
  for one common share                          $8.70              225,000
                                                                 ---------
Total                                                            4,037,500
                                                                 =========



NOTE 10. COMMITMENTS AND OTHER MATTERS

         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 $570,000.

         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.

                                      F-20


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 10. COMMITMENTS AND OTHER MATTERS (Continued)

         Incentive Stock Plan

         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 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.

         On December 5, 1996, 40,000 non-qualified options were granted under
         the Plan. These options, which have an exercise price of $3.75, were
         considered by management to have been issued at an exercise price equal
         to market value.

         Facilities Agreement

         The Company has entered into a facilities agreement with InnoPet Inc.
         whereby it has agreed to lease its premises, furnishings and equipment
         from InnoPet Inc. until April 30, 2001. The future minimum lease
         payments due under this agreement are as follows:

                           Year                     Minimum Lease Payments

                           1997                        $   294,000
                           1998                            310,000
                           1999                            325,000
                           2000                            341,000
                           2001                            114,000
                                                       -----------
                                                        $1,384,000
                                                       ===========



                                      F-21


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 10. COMMITMENTS AND OTHER MATTERS (Continued)

         Financing Consulting Agreement

         On December 5, 1996, the Company entered into a financial advisory and
         consulting agreement with Joseph Stevens & Company, L.P. the
         underwriter involved in the initial public offering ( the
         "Consultant"). The agreement outlines the Consultant's duties to
         include, but not be limited to, rendering advice with regards to
         financial reports, press releases, meetings with securities analysts,
         and internal operations of the Company. The term of the agreement is
         twenty-four months commencing on December 5, 1996, with compensation of
         $48,000 due at commencement.


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 December 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 December 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 December
         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.


                                      F-22


<PAGE>


                              INNOPET BRANDS CORP.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





NOTE 12. SUBSEQUENT EVENT

         On March 3, 1997, the Company entered into a letter of intent to
         purchase certain of the assets and liabilities of Natural Life Pet
         Products for $3,500,000 plus the value of certain inventory in cash,
         notes and common stock of the Company. Natural Life Pet Products, which
         has approximately $9,000,000 in annual revenues, manufactures, markets
         and sells premium pet food through veterinarian offices and specialty
         pet stores. The Company is negotiating a definitive purchase agreement
         which will be subject to a number of conditions including further due
         diligence with respect to the assets to be acquired. There can be no
         assurance that a closing will ever occur.



                                      F-23


<PAGE>




                                    PART III


ITEM 9. (Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act); ITEM 10 (Executive
Compensation); ITEM 11 (Security Ownership of Certain Beneficial Owners and
Management); and ITEM 12 (Certain Relationships and Related Transitions) will be
incorporated in the Company's Proxy Statement to be filed within 120 days of
December 31, 1996, and are incorporated herein by reference.


                    ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


<TABLE>
<CAPTION>

Exhibit
Number                     Description of Document
------                     -----------------------
<S>                                                                <C>
3.1                        Certificate of Incorporation, as amended(1).
3.2                        By-Laws of the Company(1).
4.1                        Form  of Redeemable Warrant Agreement between
                           Company and Continental Stock Transfer & Trust
                           Co., including form of Redeemable Warrant
                           Certificate(1).
4.2                        Form of Underwriter's Warrant Agreement including Form of Underwriter's
                           Warrant Certificate(1).
4.3                        Specimens of Company's Common Stock(2).
4.4                        Form of Private Placement Promissory Note(1).
4.5                        Form of Private Placement Warrant Certificate(1).
10.1                       1996 Stock Option Plan(1).
10.2                       Employment Agreement between Company and Marc Duke with exhibits(1).
10.3                       Employment Agreement between Company and Edwin Christensen with
                           exhibits(1).
10.4                       Employment Agreement between Company and Linda Duke with exhibits(1).
10.5                       Employment Agreement between Company and Robin Hunter with exhibits(1).
10.6                       Employment Agreement between Company and Albert Masters with exhibits(1).
10.7                       Employment Agreement between Company and Dr. Dana Vaughn with exhibits(1).
10.8                       Facilities Agreement between Company and InnoPet Inc(1).
10.9                       Supply Agreement between the Company and Monfort, Inc.(1)
10.10                      Form of Financial Advisory and Consulting Agreement with Underwriter(1).
11.1                       Computation of Net Loss per Common Share
27                         Financial Data Schedule
</TABLE>

     ----------------------

(1)   Incorporated herein in its entirety by reference to the Company's
      Registration Statement on Form SB-2, Registration No. 333-12275, as filed
      with the Securities and Exchange Commission on September 19, 1996.

(2)   Incorporated herein in its entirety by reference to Amendment No. 1 to the
      Company's Registration Statement on Form SB-2, Registration No. 333-12275,
      as filed with the Securities and Exchange Commission on November 1, 1996.



Reports on Form 8-K: None.

                                      III-1

<PAGE>






                                   SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

<TABLE>
<CAPTION>
<S>                                            <C>

                                               InnoPet Brands Corp.

Date: March 26, 1997                           By: /s/ Marc Duke
      ----------------------                      ------------------------------------------
                                                    Marc Duke, Chairman of the Board and CEO

</TABLE>

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
<S>                                            <C>



Date: March 26, 1997                           By: /s/ Robin Hunter
      ----------------------                      ------------------------------------------
                                                  Robin Hunter, Vice President, Chief
                                                  Financial Officer and Secretary


Date: March 26, 1997                           By: /s/ Albert A. Masters
      ----------------------                      ------------------------------------------
                                                  Albert A. Masters, Vice President of Sales
                                                  and Director

Date: March 26, 1997                           By: /s/ Edwin H. Christensen
      ----------------------                      ------------------------------------------
                                                  Edwin H. Christensen, Vice President of
                                                  Manufacturing and Director

Date: March 26, 1997                           By: /s/ Curtis Granet
      ----------------------                      ------------------------------------------
                                                  Curtis Granet, Director


Date: March 26, 1997                           By: /s/ Richard P. Greene
      ----------------------                      ------------------------------------------
                                                  Richard P. Greene, Director

</TABLE>




                                      III-2