8-K/A 1 innovative8ka.txt U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDED FORM 8-K/(A) CURRENT REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: January 15, 2002 (Date of earliest event reported) Innovative Software Technologies, INC. (Exact name of small business issuer as Specified in its Charter) California (State or Other Jurisdiction of Incorporation) 000-1084047 (Commission File Number) 95-4691878 (IRS Employer Identification No.) 112 Northwest Parkway, Riverside, MO 64150 (Address of Principal Executive Offices) (816) 584-8030 (Registrant's Telephone Number) ITEM 1. CHANGES IN CONTROL OF REGISTRANT Not applicable. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On January 4, 2002, Innovative Software Technologies, Inc., a California corporation (the "Company" or "Registrant"), consummated the acquisition effective as of December 31, 2001 of all the outstanding common stock of Energy Professional Marketing Group, Inc. for a combination of 1,500,000 million of the Company's Series A preferred stock having a stated value of $1 per share, and 3,529,412 shares of the Company's common stock having an aggregate market price of $12,000,000 on the closing date. All of the outstanding common stock of Energy Professional Marketing Group, Inc.(EPMG) was held by two individuals, Ethan Andrew Willis and James Randolph Garn. In connection with the acquisition, fifty percent of the Innovative common stock issued in this transaction has been placed in escrow and will be released upon the Company's achievement of three performance milestones related to future sales levels of the combined entities as referenced above as part of this acquisition. The holders of the shares of Series A Preferred shall be entitled to receive dividends at the rate of 4% per annum of the liquidation preference per share payable yearly in fully paid and non-assessable shares of the Corporation's common stock. The Series A Preferred shall, at the option of the holder thereof, at any time and from time to time, be convertible into that number of fully paid and non-assessable shares of the common stock of the Corporation, equal to the par value of the shares of Series A Preferred Stock being converted plus accrued but unpaid dividends, divided by 95% of the Market Price of the Corporation's common stock at the time of conversion. Subject to the provisions of (d) and (e), below, in no event shall the holders of the Class A Preferred Stock be entitled to receive more than 3,000,000 shares of common stock upon conversion of the Series A Preferred Stock. The conversion right of the holders of Series A Preferred Stock shall be exercised by the surrender of the certificates representing shares to be converted to the Corporation or its transfer agent for the Series A Preferred, accompanied by written notice electing conversion. Immediately prior to the close of business on the date the Corporation receives written notice of conversion, each converting holder of Series A Preferred shall be deemed to be the holder of record of common stock issuable upon conversion of such holder's Series A Preferred notwithstanding that the share register of the Corporation shall then be closed or that certificates representing such common stock shall not then be actually delivered to such person. When shares of Series A Preferred are converted, all accumulated and unpaid dividends (whether or not declared or currently payable) on the Series A Preferred so converted, to and not including the conversion date, shall be due and payable. The description of the Series A Preferred set forth herein is qualified in its entirety by reference to the Certificate of Designation, which is incorporated herewith as Exhibit 2.2. Based in Orem, Utah, EPMG markets technology and training applications in the areas of personal finance and small business Internet development. They also develop web-based applications for small to mid-size companies across a broad range of industries. The technology they provide enables organizations to effectively transform their business to the web by bringing together multiple applications within a particular supply chain to one standard platform. Seller is not affiliated with Innovative Software Technologies, Inc. nor with any of Innovative Software Technologies, Inc. subsidiaries. The description of the acquisition transaction set forth herein is qualified in its entirety by reference to the Stock Purchase Agreement, which is incorporated herewith as Exhibit 2.1. ITEM 3. BANKRUPTCY OR RECEIVERSHIP Not applicable. ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT Not applicable ITEM 5. OTHER EVENTS Not applicable ITEM 6. RESIGNATION OF DIRECTORS Not applicable ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of business acquired as of and for the years ended December 31, 2001 and 2000. Independent Auditors' Report (b) Pro Forma Financial information Pro forma Consolidated Statement of Operations for the Year Ended December 31, 2001 Pro Forma Consolidated Condensed Balance Sheet as of December 31, 2001, including EMPG, Inc. transaction (c) Exhibits *2.1 Stock Purchase Agreement by and among EPMG, Inc. and Innovative Software Solutions, Inc. 2.2 Certificate of Designation Series A preferred stock * Incorporated by reference SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 11, 2002 Innovative Software Technologies, INC. By: /s/ Douglas Hackett ----------------------- Douglas Hackett ENERGY PROFESSIONAL MARKETING GROUP, INC. FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DECEMBER 31, 2001 AND 2000 C O N T E N T S Page ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS BALANCE SHEETS 3 STATEMENTS OF EARNINGS 4 STATEMENT OF STOCKHOLDERS' EQUITY 5 STATEMENTS OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Energy Professional Marketing Group, Inc. We have audited the accompanying balance sheets of Energy Professional Marketing Group, Inc. as of December 31, 2001 and 2000, and the related statements of earnings, stockholders' equity, and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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 Energy Professional Marketing Group, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. By: /s/ Grant Thornton, LLP --------------------------- Grant Thornton, LLP Provo, Utah February 15, 2002 1 FINANCIAL STATEMENTS 2 Energy Professional Marketing Group, Inc. BALANCE SHEETS December 31, ASSETS 2001 2000 -------- -------- CURRENT ASSETS Cash $147,227 $ 45,605 Accounts receivable, trade 1,458 18,056 Prepaid expenses and other current assets 6,571 8,591 -------- -------- Total current assets 155,256 72,252 PROPERTY AND EQUIPMENT, NET 22,450 27,911 -------- -------- $177,706 $100,163 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 32,589 $ -- Accrued expenses and other current liabilities 120,049 10,916 -------- -------- Total current liabilities 152,638 10,916 COMMITMENTS -- -- STOCKHOLDERS EQUITY Common stock, $20 par value, 1,000 shares issued and outstanding at December 31, 2001 and 2000 20,000 20,000 Additional paid-in capital 5,068 64,240 Retained earnings -- 5,007 -------- -------- 25,068 89,247 -------- -------- $177,706 $100,163 ======== ======== The accompanying notes are an integral part of these statements. 3 Energy Professional Marketing Group, Inc. STATEMENTS OF EARNINGS Year ended December 31, 2001 2000 ---------- ---------- Revenues, net $4,431,402 $ 605,914 Cost of revenues 2,365,173 -- ---------- ---------- Gross profit 2,066,229 605,914 Selling expenses 582,792 76,496 General and administrative expenses 1,203,644 493,183 ---------- ---------- Total operating expenses 1,786,436 569,679 ---------- ---------- Income from operations 279,793 36,235 Other income, net 4,368 29,865 ---------- ---------- Net earnings $ 284,161 $ 66,100 ========== ========== The accompanying notes are an integral part of these statements. 4 Energy Professional Marketing Group, Inc. STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 2001 and 2000
Common Additional Total stock paid-in Retained stockholders' ($20 par) capital earnings equity --------- --------- --------- --------- Balance, January 1, 2000 $ 20,000 $ 2,264 $ 87,827 $ 110,091 Capital contributions from stockholders -- 61,976 -- 61,976 Net earnings -- -- 66,100 66,100 Distributions to stockholders -- -- (148,920) (148,920) --------- --------- --------- --------- Balance, December 31, 2000 20,000 64,240 5,007 89,247 Net earnings -- -- 284,161 284,161 Distributions to stockholders -- (59,172) (289,168) (348,340) --------- --------- --------- --------- Balance, December 31, 2001 $ 20,000 $ 5,068 $ -- $ 25,068 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 5 Energy Professional Marketing Group, Inc., STATEMENTS OF CASH FLOWS Year ended December 31,
2001 2000 --------- --------- Increase (decrease) in cash Cash flows from operating activities Net earnings $ 284,161 $ 66,100 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 14,338 7,765 Provision for sales returns 100,000 -- Change in assets and liabilities Accounts receivable, trade 16,598 3,262 Prepaid expenses and other current assets 2,020 (8,191) Accounts payable 32,589 -- Accrued expenses and other current liabilities 9,133 10,916 --------- --------- Net cash provided by operating activities 458,839 79,852 --------- --------- Net cash used in investing activities - Purchase of property, plant and equipment (8,877) (34,666) --------- --------- Cash flows from financing activities Stockholders' contributions -- 61,976 Distributions to stockholders (348,340) (148,920) --------- --------- Net cash used in financing activities (348,340) (86,944) --------- --------- Net increase (decrease) in cash 101,622 (41,758) Cash at beginning of year 45,605 87,363 --------- --------- Cash at the end of the year $ 147,227 $ 45,605 ========= =========
The accompanying notes are an integral part of these statements 6 NOTE A - COMPANY DESCRIPTION Energy Professional Marketing Group, Inc. (the "Company"), incorporated on September 9, 1999, is a technology marketing company specializing in product fulfillment and technology database marketing. The Company markets technology and training applications in the areas of personal finance and small business Internet development. They also develop web-based applications for small to mid-size companies across a broad range of industries. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At December 31, 2001, $59,155 of cash was held by certain financial institutions to secure certain of the Company's merchant accounts. 2. Revenue Recognition The Company recognizes revenue upon the shipment of the product or fulfillment of a service. In most cases this occurs the same day payment is received from customers. The Company reserves for sales returns and allowances based on historical experience. During 2000, the Company did not directly collect payment and did not provide fulfillment on sales; consequently, only the actual payments received were recorded as revenue. 3. Depreciation Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, generally three to five years, using the straight-line method. 4. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 5. Advertising Costs Advertising and promotion costs are expensed as incurred. Advertising costs charged against income for the year ended December 31, 2001 and 2000 were $8,251 and $1,000, respectively. 7 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Income taxes The shareholders of the Company have elected "S" corporation status under applicable sections of the Internal Revenue Code and the Utah Tax Revenue Code. Accordingly, for both federal and state income tax purposes, the taxable income or loss is passed through to the shareholders, and no provision or credit for federal or state taxes is included in the financial statements. Had such taxes been payable by the Company, they would have approximated $105,000 and $25,000 in 2001 and 2000, respectively. 7. Recent Accounting Pronouncements On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. Major provisions of these Statements and their effective dates for the Company are as follows: o All business combinations initiated after June 30, 2001 must use the purchase method of accounting. The pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001. o Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability. o Goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization. o Effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator. o All acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting. Although it is still reviewing the provisions of these Statements, management's preliminary assessment is that these Statements will not have a material impact on the Company's financial statements. 8 NOTE C - PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and consists of the following at December 31, 2001 and 2000: 2001 2000 ---------------- -------------- Machinery and Equipment $ 28,177 $ 20,025 Furniture and Fixtures 16,376 15,651 ---------------- -------------- 44,553 35,676 Accumulated depreciation (22,103) (7,765) ---------------- -------------- $ 22,450 $ 27,911 ================ ============== Depreciation for the years ended December 31, 2001 and 2000 was $14,338 and $7,765 respectively. NOTE D - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consists of the following at December 31, 2001 and 2000: 2001 2000 ---------------- -------------- Salaries and wages payable $ 7,686 $ 10,916 Commissions payable 12,174 - Reserve for sales returns 100,000 - Other 189 - ---------------- -------------- $ 120,049 $ 10,916 ================ ============== NOTE E - COMMITMENTS In 2001, the Company has entered into operating leases for office space. Future minimum lease payments under these operating leases as of December 31, 2001 are as follows: Year ending December 31, 2002 $ 8,400 2003 4,500 Thereafter - ------------ $ 12,900 ============ Rent expense for the year ended December 31, 2001 and 2000 was $48,160 and $16,747, respectively. 9 NOTE F - SUBSEQUENT EVENTS Acquisition by Innovative Software Technologies, Inc. Effective as of the end of business December 31, 2001, the Company was acquired by Innovative Software Technologies, Inc. (Innovative); a Kansas City based global software company specializing in the aggregation and distribution of business-to-business and business-to-consumer eService platforms and products. In connection with the acquisition, the Company's shareholders exchanged 100% of their stock in the Company for 1,500,000 shares of Innovative preferred stock, having a stated value of $1 per share, and 3,529,412 shares of Innovative common stock, having an aggregate market price of $12,000,000 on the closing date. Fifty percent of the Innovative common stock issued in this transaction has been placed in escrow and will be released upon the Company's achievement of three performance milestones related to future sales levels. The acquisition described above was accounted for as a purchase transaction and accordingly, the results of operations and financial condition of the Company are included in Innovative's consolidated financial statements only after the date of acquisition. Employment Agreements On December 31, 2001, the Company entered into employment agreements with two officer/shareholders of the Company. The employment agreements expire on January 1, 2007 and provide for allowances, benefits, bonuses and, in addition, an annual salary for each of the two officer/shareholders of $100,000. The agreements are unilaterally terminable for cause as defined in the agreements. 10 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 The following unaudited pro forma consolidated statements of operations for the year ended December 31, 2001 gives effect to (i) the acquisition on December 31, 2001 of all the outstanding common stock of Energy Professional Marketing Group, Inc. in exchange for a combination of 1,500,000 million shares of Innovative Software Technologies, Inc's Series A preferred stock having a stated value of $1 per share and 3,529,412 shares of Innovative's common stock have an aggregate market value of $12,000,000 on the closing date. The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2001 gives effect to the aforementioned transaction as if the transaction had occurred on January 1, 2001. The following unaudited pro forma financial data may not be indicative of what the results of operations or financial position of Innovative Software Technologies, Inc. would have been, had the transactions to which such data gives effect been completed on the date assumed, nor are such data necessarily indicative of the results of operations or financial position of Innovative Software Technologies, Inc. that may exist in the future. The following unaudited pro forma information should be read in conjunction with the notes thereto, the other pro forma financial statements and notes thereto, and the consolidated financial statements and notes of Innovative Software Solutions, Inc. as of December 31, 2000 and for each of the two years in the period then ended appearing in the Company's Form 10-KSB and the historical financial statements of Energy Professional Marketing Group, Inc. appearing elsewhere in this filing. 11 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS For the Year Ended December 31, 2001
Innovative Software EPMG, Tech. Pro Forma Pro Forma Inc. Inc. Adjustments Consolidated ------------ ------------ ------------ ------------ Net sales $ 4,431,402 $ 1,018,278 $ -- $ 5,449,680 Cost of sales 2,365,173 -- -- 2,365,173 ------------ ------------ ------------ ------------ Gross profit 2,066,229 1,018,278 3,084,507 Selling, general and administrative 1,786,436 1,012,043 170,000 2,968,479 ------------ ------------ ------------ ------------ Operating income 279,793 6,235 (170,000)(3) 116,028 ------------ ------------ ------------ ------------ Other income 4,368 -- -- 4,368 ------------ ------------ ------------ ------------ Income from operations before income tax expense 284,161 6,235 -- 120,396 Income tax expense (benefit) -- 2,534 37,787 (2) (40,321) ------------ ------------ ------------ ------------ Net income 284,161 3,701 (207,787) 80,075 Preferred stock dividend -- -- (63,158)(4) (63,158) ------------ ------------ ------------ ------------ Income Available to Common Shareholders $ 284,161 3,701 (270,945) 16,917 ============ ============ ============ ============ Net income per common share: -- -- -- $ .00 (1) ============ ============ ============ ============ Weighted average number of common shares outstanding -- -- -- 49,301,452 ============ ============ ============ ============
12 Notes to Unaudited Pro Forma Consolidated Statement of Operations Adjustments The Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2001 has been adjusted to reflect the following: (1) For purpose of determining pro forma earnings per share, the issuance of 3,529,412 shares of unregistered shares of common stock to affect the acquisition of Energy Professional Marketing Group, Inc. was assumed to be outstanding from January 1, 2001 by Innovative Software Technologies, Inc. (2) The Company's pro forma tax provision reflects an effective tax rate of 40% considering federal and state income taxes net of the effect of certain non-deductible costs principally related to acquisitions consummated. (3) For the purpose in determining Selling, general and administrative expense, the employment agreements entered into with two officer/shareholders as of December 31, 2001, were assumed to be effective as of January 1, 2001, with each being paid $100,000 annually, net of actual wages paid. (4) For the purpose in determining net income per common shareholder, it was assumed the holders of the shares of Series A Preferred received dividends at the rate of 4% per annum of the liquidation preference per share payable yearly in fully paid and non-assessable shares of the Corporation's common stock divided by 95% of the Market Price of the Corporation's common stock at the time of conversion. 13 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of December 31, 2001
Energy Innovative Professional Software Marketing Technologies Pro Forma Pro Forma Group, Inc. Inc. Adjustments Consolidated ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 147,227 $ 135,080 $ -- $ 282,307 Accounts receivable 1,458 47,934 49,392 Investment in subsidiary -- 25,068 (25,068) -- Marketable Securities -- 549,896 -- 549,896 Prepaid expenses 6,571 -- -- 6,571 Other receivables -- 2,543 -- 2,543 Deferred income taxes -- 850 -- ------------ ------------ ------------ ------------ 850 Total current assets 155,256 761,371 (25,068) 891,559 ------------ ------------ ------------ ------------ Property and equipment, net 22,450 39,602 -- 61,512 ------------ ------------ ------------ ------------ Goodwill -- 13,549,932 -- 13,549,932 Other assets -- 23,810 -- 23,810 Deferred income taxes - Non-current -- 3,042 -- 3,042 Deposit -- 4,491 -- 4,491 ------------ ------------ ------------ ------------ Total Assets $ 177,706 $ 14,381,708 $ (25,068) $ 14,534,346 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and Accrued expenses $ 152,638 $ 99,551 $ -- $ 252,189 Deferred tax liability -- 38 -- 38 ------------ ------------ ------------ ------------ Total current liabilities 152,638 99,589 -- 252,227 ------------ ------------ ------------ ------------ Deferred tax liability - Non-current $ -- $ 134 $ -- $ 134 ------------ ------------ ------------ ------------ Total liabilities 152,638 99,723 -- 252,361 ------------ ------------ ------------ ------------ Commitments and contingencies -- -- -- -- Stockholders' equity: Preferred stock - Series A -- 1,850,000 -- 1,850,000 Preferred stock - Series B -- 248,491 -- 248,491 Common stock 20,000 48,285 (20,000) 48,285 Additional paid-in capital 5,068 12,626,679 (5,068) 12,626,679 Unrealized loss on available for sale Securities -- (204,354) -- (204,354) (Accumulated deficit) retained earnings -- (287,116) -- (287,116) ------------ ------------ ------------ ------------ Total stockholders' equity 25,068 14,281,985 (25,068) 14,281,985 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 177,706 $ 14,381,708 $ (25,068) $ 14,534,346 ============ ============ ============ ============
14 Notes to Condensed Consolidated Balance Sheet The Condensed Consolidated Balance Sheet as of December 31, 2001 including the transaction between Innovative Software Technologies, Inc. and EPMG, Inc. described as follows: (1) Effective on December 31, 2001, the Company purchased all of the outstanding shares of Energy Professional Marketing Group, Inc., a technology marketing company specializing in product fulfillment for outside vendors and technology and database marketing, based in Orem, UT. In connection with the acquisition, the Company issued 1,500,000 shares of Series A preferred stock, having a stated value of $1 per share, and 3,529,412 shares of common stock, having an aggregate market price of $12,000,000 on the closing date. Fifty percent of the Innovative common stock issued in this transaction has bas been placed in escrow and will be released upon the Company's achievement of three performance milestones related to future sales levels. The acquisition described above was accounted for as a purchase transaction, and, accordingly, the results of operations and financial condition of the acquired company are included in Innovative's consolidated statements only after the date of acquisition. 15 EXHIBIT INDEX Exhibit No. Description 2.1 Stock Purchase Agreement by and among EPMG, Inc. and Innovative Software Technologies, Inc. (Incorporated by reference in Form 8-K/A filed on January 15, 2002). 2.2 Certificate of Designation Series A preferred stock. 16