-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlOXNd1CkbEwfkxEsNRYl3KbIVCLf1Xne0t5FWbgvRcFlIN9WXlW2Eu7ic4nkRPS csAYHx6AHvAm8dJkuMVhGw== 0000931731-03-000134.txt : 20030424 0000931731-03-000134.hdr.sgml : 20030424 20030424172340 ACCESSION NUMBER: 0000931731-03-000134 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030423 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE SOFTWARE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001084047 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 954691878 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27465 FILM NUMBER: 03662988 BUSINESS ADDRESS: STREET 1: 112 N.W. PARKWAY CITY: RIVERSIDE STATE: MO ZIP: 64150 BUSINESS PHONE: 8165848030 MAIL ADDRESS: STREET 1: ROOM 1502 SUNNING COURT HOI PING RD CITY: CAUSEWAY BAY HONG KONG 8-K 1 innovative8k-1.txt INNOVATIVE 8-K GT DISMISSAL SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 23, 2003 -------------- INNOVATIVE SOFTWARE TECHNOLOGIES, INC ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 000-1084047 95-4691878 - ------------------------------ ------------------- ---------------------- (State or other jurisdiction (Commission File (IRS Employer or incorporation) Number) Identification No.) 5072 North 300 West, Provo, Utah 84604 ------------------------------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code (801) 371-0755 -------------- 204 NW Platte Valley Drive, Riverside Mo 64150 ------------------------------------------------------------- (Former name or former address, if changed since last report) 1 ITEM 5. OTHER EVENTS ------------- We have recently received written communication from our independent auditors, Grant Thornton LLP, pursuant to Section 10-A of the Securities Exchange Act of 1934 which questions the accuracy of our filings with the Securities and Exchange Commission primarily based on the participation of a consultant who in 1988 entered a guilty plea, representing a criminal conviction, relating to a tax shelter investment for which the consultant was the general partner. Grant Thornton LLP also questioned a software sale during the third quarter of fiscal year 2002 in exchange for Innovative Software securities pursuant to which the Company reported revenues from the sale based upon the fair value of the preferred stock received. In a separate letter, Grant Thornton LLP indicated that as a result of these circumstances they could not continue to be associated with the Company's December 2001 and 2000 financial statements, thereby withdrawing their report on these statements. We were disturbed and upset by the position expressed by Grant Thornton LLP without any prior discussion with our management, especially since issues concerning the consultant in question, who was a consultant with the Company and was never an officer, director or employee of the Company, were previously discussed in detail at a partnership and management level at Grant Thornton at the office previously responsible for the audits of Innovative Software. In addition, the Company, on its own initiative, initiated the write-down of the securities of the software sales once management ascertained the difficult financial circumstances that the other party to the transaction had experienced. The initial security sale and subsequent write-down was discussed in detail with Grant Thornton LLP by our management, and the accounting firm was involved in the process at all stages. Prior to the most recent letter, Grant Thornton LLP had not communicated any concerns or adverse discussions regarding the software sales. The correspondence received from Grant Thornton LLP is filed as Exhibits to this Report as is correspondence from our Company to Grant Thornton LLP which addresses these issues. Management of our Company is concerned regarding the conduct and attitude of Grant Thornton LLP with respect to these matters, which it believes that senior personnel at the accounting firm were fully cognizant of during the course of several audits conducted by Grant Thornton LLP. As a result, our four independent directors have been constituted as a committee of the Board to conduct an investigation as to all matters pertaining to the issues raised by Grant Thornton LLP, as well as to make recommendations with regard to management and the accounting firm once they have had the opportunity to complete their investigation. We have requested that Grant Thornton LLP cooperate fully with the committee of independent directors and give access to Grant Thornton personnel, files and work papers so that they may fulfill their responsibilities to the shareholders of our Company. The independent directors committee will receive sufficient funding from the Company to conduct their evaluation and is expected to retain independent counsel to assist it in its efforts. In addition, at a Board of Directors meeting held on Aril 14, 2003 the Board decided to dismiss Grant Thornton and have engaged the accounting firm of Robison Hill & Co. as the Company's new independent accountants for the 2001 fiscal year previously audited by Grant Thornton LLP, and to audit the 2002 fiscal year. On April 23, 2003, the Company issued a letter to Grant Thornton formally dismissing them as the Company's auditors. We will file a separate report on Form 8-K describing our change of independent accountants. The independent directors committee will also have the right to approve any other conditions pertaining to the audit. 2 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS ------------------------------------------------------------------ (c) Exhibits 1. Correspondence from Grant Thornton LLP to Innovative Software Technologies, Inc./Board of Directors - April 4, 2003 (Exhibit 99.1) 2. Correspondence from Grant Thornton LLP to Innovative Software Technologies, Inc. - April 4, 2003 (Exhibit 99.2) 3. Correspondence from Innovative Software Technologies, Inc. to Grant Thornton LLP - April 4, 2003 (Exhibit 16) 4. Correspondence from Innovative Software Technologies, Inc. to Grant Thornton LLP - April 11, 2003 (Exhibit 99.3) 5. Correspondence from Innovative Software Technologies, Inc. to Grant Thornton LLP - April 15, 2003 (Exhibit 99.4) 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. INNOVATIVE SOFTWARE TECHNOLOGIES, INC. By: /s/ Douglas S. Hackett ----------------------------------------- Douglas S. Hackett, President, Chief Executive Officer and Director By: /s/ Linda W. Haslem ----------------------------------------- Linda W. Haslem, Chief Financial Officer DATED: April 24, 2003 3 EX-16 3 termination-ltr.txt TERMINATION-GT April 23, 2003 Grant Thornton LLP 5252 N. Edgewood Drive Provo, UT 84604 Re: Termination Notice Dear Gentlemen: On April 14, 2003, the Board of Directors of Innovative Software Technologies, Inc. held a meeting to discuss the separate correspondence sent to the management and Board of Directors of Innovative by Grant Thornton, LLP. At this meeting it was decided by unanimous vote by the Board of Directors, which included four independent Directors, to dismiss Grant Thornton LLP as its auditors. As you are aware, an Independent Directors Committee has been formed to review and evaluate all matters pertaining to the issues raised in your correspondence. Once they have completed their investigation, they will submit a report to the Board of Directors of Innovative Software Technologies, Inc. and Grant Thornton LLP. Additionally, as requested before, we ask that Grant Thornton cooperate fully with the committee of independent Directors and give access to Grant Thornton personnel, files and work papers, so that they may fulfill their responsibilities to the shareholders of our Company. The independent directors committee will receive sufficient funding from the Company to conduct their evaluation and is in the process of retaining independent counsel and auditors to assist in their efforts. We were disturbed and upset by the position expressed by Grant Thornton LLP without any prior discussion with our management, especially since issues concerning the consultant in question, who was a consultant with the Company and was never an officer, director or employee of the Company, was previously discussed in detail at a partnership and management level at Grant Thornton at the office previously responsible for the audits of Innovative Software. Grant Thornton's apparent denial of information, meetings and conversations regarding the background of the consultant, leads us to believe that Grant Thornton cannot perform a fair and independent audit. We will be providing you a copy of the appropriate 8K forms that we are providing the SEC. Sincerely, /s/ Douglas Shane Hackett - --------------------------------------- Douglas Shane Hackett, President Innovative Software Technologies, Inc. EX-99.1 4 gt-1.txt GRANT THORNTON LTR #1 Accountants and Management Consultants GRANT THORNTON Grant Thornton LLP The U.S. Member Firm of Grant Thornton International April 4, 2003 Mr. Douglas Shane Hackett Chief Executive Officer Innovative Software Technologies, Inc. 204 NW Platte Valley Drive Riverside, MO 64150 Board of Directors Innovative Software Technologies, Inc. 5072 North 300 West Provo, UT 84604 Dear Sirs: We are writing to you as the senior management and directors of Innovative Software Technologies, Inc. (the Company) to inform you that matters have come to our attention that call into question the accuracy of the Company's filings with the Securities and Exchange Commission (SEC). First, as you know, the company has repeatedly directed us to communicate with its consultant, William E. Chipman, Sr., with respect to a variety of substantive financial matters. We have therefore worked with and received representation from Mr. Chipman in auditing the Company's 2001 and 2000 year-end financial statements and in reviewing the Company's certain quarterly financial statements for 2001 and 2002 filed with the SEC. We have recently learned that Mr. Chipman has a history of criminal convictions involving, among other things, the fraudulent sale of securities and the falsification of records. Because of these facts, Grant Thornton must question the reliability of the information Mr. Chipman provided in connection with the preparation of the Company's financial statements and our related audit and review procedures. We also question the Company's good faith in failing to disclose to us Mr. Chipman's criminal convictions for tax fraud and larceny when we agreed to serve as the Company's independent accountants. Second, in 2001 and 2002, the Company reported revenues from the sale of its software to several entities in exchange for securities. In its representation letters, the Company has assured us that no relationship exists between the Company and its officers on the one hand, and these buyers on the other. It appears, however, that Mr. Chipman, who clearly plays a significant role in the Company's management and operations, may have some relationship to these entities. More particularly, the Company's software sale in the third quarter of 2002 in exchange for securities is potentially problematic in that the Company Suite 350 5252 N Edgewood Drive Provo, UT 84604 Tel 801 802-9200 Fax 801 802-7721 1 reported revenues from the sale based upon the fair value of the preferred stock it received. Earlier, however, the Company had determined that the common stock of the same issuer had virtually no value. After reporting significant revenues from the sale, the Company subsequently determined that the preferred stock also had little value. Taken together, these circumstances cause us to doubt whether the transactions reported by the Company in its public filings, including, without limitation the software sales described in the above paragraphs, have any economic substance. Recording transactions that do not have economic substance may be deemed illegal acts within the meaning of Section 10A of the Securities Exchange Act of 1934. We urge you to consult securities counsel to advise you of your responsibilities in these circumstances. That consultation should also include consideration of the steps that may be required to remedy any illegal conduct that may have occurred. Section 10A improses responsibilities on both registrant and their auditors. After being notified that an illegal act may have occurred, the Board of Directors is required to proceed expeditiously to address whether it is likely that an illegal act has occurred and, if so, to implement promptly any remedial action deemed appropriate. We emphasize that time is of the essence. Failure of the Board to fulfill promptly its responsibilities requires an auditor to make the formal report to the Board mandated by Section 10A. The Board would be required to notify the SEC that such a report was received; failure to notify the SEC would require us to provide the report to them directly. In these circumstances, we ask that you advise us no later than April 11, 2003, of the steps taken to address this matter. Yours truly, /s/ Grant Thornton LLP 2 EX-99.2 5 gt-2.txt GRANT THORNTON LTR #2 Accountants and Management Consultants GRANT THORNTON Grant Thornton LLP The U.S. Member Firm of Grant Thornton International April 4, 2003 Board of Directors Innovative Software Technologies, Inc. 5072 North 300 West Provo, UT 84604 Gentlemen: We have audited the consolidated balance sheets of Innovative Software Technologies, Inc. (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders' equity (deficiency), cash flows, and comprehensive income (loss) for the years then ended. We issued our report dated January 30, 2002, on those financial statements. In a separate letter, we have informed you of several concerns we have with respect to the Company's financial statements. First, as you know, the company has repeatedly directed us to communicate with its consultant, William E. Chipman, Sr., with respect to a variety of substantive financial matters. We have therefore worked with and received representation from Mr. Chipman in auditing the Company's 2001 and 2000 year-end financial statements and in reviewing the Company's certain quarterly financial statements for 2001 and 2002 filed with the SEC. We have recently learned that Mr. Chipman has a history of criminal convictions involving, among other things, the fraudulent sale of securities and the falsification of records. Because of these facts, Grant Thornton must question the reliability of the information Mr. Chipman provided in connection with the preparation of the Company's financial statements and our related audit and review procedures. We also question the Company's good faith in failing to disclose to us Mr. Chipman's criminal convictions for tax fraud and larceny when we agreed to serve as the Company's independent accountants. Second, in 2001 and 2002, the Company reported revenues from the sale of its software to several entities in exchange for securities. In its representation letters, the Company has assured us that no relationship exists between the Company and its officers on the one hand, and these buyers on the other. It appears, however, that Mr. Chipman, who clearly plays a significant role in the Company's management and operations, may have some relationship to these entities. More particularly, the Company's software sale in the third quarter of 2002 in exchange for securities is potentially problematic in that the Company reported revenues from the sale based upon the fair value of the preferred stock it received. Earlier, however, the Company had determined that the common stock Suite 350 5252 N Edgewood Drive Provo, UT 84604 Tel 801 802-9200 Fax 801 802-7721 1 of the same issuer had virtually no value. After reporting significant revenues from the sale, the Company subsequently determined that the preferred stock also had little value. Taken together, these circumstances cause us to doubt whether the transactions reported by the Company in its public filings, including, without limitation the software sales described in the above paragraphs, have any economic substance. Recording transactions that do not have economic substance may be deemed illegal acts within the meaning of Section 10A of the Securities Exchange Act of 1934. We urge you to consult securities counsel to advise you of your responsibilities in these circumstances. That consultation should also include consideration of the steps that may be required to remedy any illegal conduct that may have occurred. In view of the foregoing, we cannot continue to be associated with the Company's December 2001 and 2000 financial statements, and accordingly, Grant Thornton hereby advises you that we are withdrawing our report on those statements, and that our report can no longer be relied upon. We request that you advise those persons who have received a copy of our report and who you believe are relying on, or who are likely to rely on, the 2001 and 2000 financial statements or the quarterly reports during 2001 and 2002, of our notification to you. Further, we request that you determine, together with your legal counsel, the necessary disclosure to be made to the Securities and Exchange Commission and any other regulatory body having jurisdiction over the Company. Finally, please provide us with copies of any notifications that you make pursuant to the requests set forth in this paragraph. Yours truly, /s/ Grant Thornton LLP - ---------------------- EX-99.3 6 ltr2gt-apr11.txt LETTER TO GT - APR 11, 2003 INNOVATIVE SOFTWARE TECHNOLOGIES April 11, 2003 Grant Thornton LLP 5252 N. Edgewood Drive Suite 350 Provo, UT 84604 Dear Sirs: I am in receipt of your letter dated April 4, 2003. Foremost, let it be understood that we take these matters very seriously. We have forwarded the letters to our board and asked that the independent board members form a special committee to review the information contained in your letters in respect to Mr. Chipman and sales of software in 2001 and 2002. The committee will expect your cooperation as well as access to involved personnel in your firm. Additionally, we have forwarded the letters to our SEC Counsel to be reviewed and advise us of our reporting requirements. I would like to point out some major errors in your letter. One, you state that your firm had no prior knowledge of Mr. Chipman's past. That, in fact, is incorrect. Before engaging your firm, Mr. Wayne Kaplan, a partner of your Philadelphia office, contacted me directly to discuss Mr. Chipman's role with company due to his past convictions. Among other items, it was discussed that he was not an officer or director of the company and that we intended to continue to retain him in his consultancy role. Additionally, we discussed the background on how I met Mr. Chipman and my employment at enSurge, Inc., as well as his. Additionally, we discussed his involvement with the former enSurge subsidiary KT Solutions. In any submission to the SEC, we will have an obligation to report our communications with Mr. Kaplan. As you are aware, Mr. Chipman's son Chris Chipman, a former Grant Thornton employee, maintained our corporate accounting records and he also disclosed his father's past with your firm. Please let me remind you that Bill Chipman is not now and has never been an officer or director of Innovative Software Technologies, Inc. Secondly, in your letter you state that in the representation letters, the Company has assured you that no relationship exists between the Company and its officers on the one hand, and these buyers on the other. Mr. Chipman's former employment at enSurge, Inc. and on going involvement with KT Solutions was fully disclosed to Grant Thornton, even though he was not an officer and/or director of IST. During the preparation of our filings, we were specifically advised by Grant Thornton that Mr. Chipman's past or current involvement with enSurge was not subject to disclosure, although mine as the current President and CEO of Innovative Software and former President and CEO of enSurge would be. Thus, it was reported in the filings as directed and advised. Third, on the sale of the software for securities, Grant Thornton was advised in advance of the transactions, during the transaction and gave advice on the transactions. Specifically, Wayne Kaplan had multiple conversations with me about possible revenue recognition and balance sheet issues. On the sales to enSurge subsidiaries, your firm during the audit, required many technical details on the platforms and conducted due diligence as to the technical validity of the software and the delivery of the sale. Additionally, your letter raises the question about the devaluation of KT common stock on our books then we enter into an agreement to sell the Business Development Series for preferred securities with the same company. We believed that the preferred securities would be a more stable tangible asset and wouldn't be prone to market collapse, as did the common stock we held. One of our stated goals has been to build our tangible asset base, which is necessary for qualifications to both the NASDAQ and American Stock Exchanges. Months after the transaction with KT, we entered into a confidentiality agreement with prospects of potentially acquiring one of their subsidiaries. Discussions that were initiated by KT management. During our due diligence, we found that KT Solutions was practically insolvent and could not be considered for acquisition. In subsequent conversations with Steve Burke, CEO, he informed us that they were engaging bankruptcy counsel and would be filing for Chapter 7 - liquidation. While we would have liked to have kept the preferred stock on our balance sheet, it was agreed that the conservative and proper accounting method would be to write it off, thus incurring an unwanted but valid loss. I was not aware of any concerns by Grant Thornton regarding the transaction or write down until your letter. Most recently, we have discussed these write-downs and transactions with an outside CPA firm and they confirmed that this was the proper approach based on our knowledge of the bankruptcy. It is of great concern to our company the way that Grant Thornton and its representatives have conducted themselves. Until the conference call last Friday and the follow up letter, none of the transactional issues had ever been raised by your firm. There was no communication, no questions and based on your letters - - very little regard to research or fact. Sincerely, /s/ Douglas S Hackett - -------------------------------------- Douglas S Hackett President & CEO Innovative Software Technologies, Inc. 2 EX-99.4 7 ltr2gt-apr15.txt LETTER TO GT - APR 15, 2003 INNOVATIVE SOFTWARE TECHNOLOGIES April 15, 2003 Grant Thornton LLP 5252 N. Edgewood Drive Suite 350 Provo, UT 84604 Dear Sirs: In my letter dated April 11, 2003, I wish to clarify the role of Chris Chipman's firm - Chipman & Chipman, LLC. Our general accounting functions were conducted in-house by our accounting staff which would include writing checks, posting the books, AR, AP and payroll. The corporate books and records are maintained within the company, not by Chipman & Chipman. The firm managed by Mr. Chris Chipman was responsible for the trial balance consolidation, the preparation of the detail schedules for the audit of Grant Thornton and the preparation of the Company's SEC Filings. I.e. 10Q's, 8K's and the 10K's. These, of course, were based on the accounting records of the Company and done in cooperation with management. In addition, Mr. Chris Chipman's firm also prepared the tax returns for all the Innovative Software Technology companies with the exception of Energy Professional Marketing Group, which he is scheduled to do this year. Sincerely, /s/ Douglas S Hackett - --------------------------------------- Douglas S Hackett President & CEO Innovative Software Technologies, Inc. Cc: Jim Schiender, Esquire Adorno & Yoss Innovative Software Board of Directors -----END PRIVACY-ENHANCED MESSAGE-----