-----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, E3xzh6lf5nTnLiYIMaKihCJKgcbJoanfPQQYDqlt+ndJaidMYi7k0Mo/9IJm0OOB svKWgLgCiZ16b7LVhxzdIg== 0001014108-04-000006.txt : 20040109 0001014108-04-000006.hdr.sgml : 20040109 20040109170831 ACCESSION NUMBER: 0001014108-04-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040102 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE SOFTWARE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001084047 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] 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: 04518907 BUSINESS ADDRESS: STREET 1: 5072 NORTH 300 WEST CITY: PROVO STATE: UT ZIP: 84604 BUSINESS PHONE: 801-371-0755 MAIL ADDRESS: STREET 1: 5072 NORTH 300 WEST CITY: PROVO STATE: UT ZIP: 84604 8-K 1 ist-form8k_624676.txt FORM 8-K 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): January 2, 2004 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) California 000-1084047 95-4691878 (State or other (Commission (I.R.S. Employer jurisdiction File Number) Identification of incorporation or Number) organization) 5072 North 300 West, Provo, Utah 84604 (Address of principal executive offices)(zip code) Telephone number of registrant, including area code: (801) 371-0755 ---------------------- Item 5. Other Events and Regulation FD Disclosure. Effective January 2, 2004, Innovative Software Technologies, Inc. (the "Company"), Energy Professional Marketing Group, Inc. ("EPMG"), James Randolph Garn ("Garn") and Ethan Andrew Willis ("Willis") entered into a Memorandum of Understanding ("MOU") relating to certain claims previously made by Garn and Willis against the Company and others. As previously disclosed, the Company received written materials on September 26, 2003 from Garn and Willis asserting that they were entitled to rescind the Company's December 31, 2001 acquisition of EPMG from them because they were defrauded in connection with the acquisition. In the MOU, the parties agree to an adjustment of the business of EPMG and the establishment of an ongoing business relationship as described therein as a complete settlement of the disputed claims among them. The MOU provides, among other things, that the Company will cause EPMG to transfer certain assets to the Company and the Company will assume certain liabilities from EPMG and that at closing, the Company will transfer 100% of the EPMG stock to Garn and Willis in exchange for all of the capital stock of the Company owned by Garn and Willis. The MOU provides that a final Settlement and Reorganization Agreement will be prepared to implement the MOU. Under the MOU, the Company is to engage a qualified investment bank satisfactory to Garn and Willis to render a Fairness Opinion on the agreement. The MOU requires that the parties will work in good faith to complete closing within 30 days of the issuance of a Fairness Opinion. In the absence of a closing on or before March 15, 2004, Garn and Willis may terminate their obligations under the MOU. The summary of certain provisions of the MOU set forth above is qualified in its entirety by reference to the terms and provisions of the MOU, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference. Item 7. Financial Statements and Exhibits. (c) EXHIBITS. The following exhibits are filed with this report: Exhibit No. Description of Exhibit 99.1 Memorandum of Understanding dated January 2, 2004, among Innovative Software Technologies, Inc., Energy Professional Marketing Group, Inc., James Randolph Garn and Ethan Andrew Willis. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. INNOVATIVE SOFTWARE TECHNOLOGIES, INC. /s/ Douglas S. Hackett ---------------------------------- Douglas S. Hackett, President and Chief Executive Officer Date: January 6, 2004 3 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT 99.1 Memorandum of Understanding dated January 2, 2004, among Innovative Software Technologies, Inc., Energy Professional Marketing Group, Inc., James Randolph Garn and Ethan Andrew Willis. 4 EX-99.1 3 ist-ex991_625794.txt MEMORANDUM OF UNDERSTANDING MEMORANDUM OF UNDERSTANDING A Memorandum of Understanding by and between Innovative Software Technologies, Inc., a California corporation ("IST"), Energy Professional Marketing Group, a Utah corporation ("EPMG") and James R. Garn and Ethan A. Willis, individuals residing in Utah County, Utah ("Garn and Willis"), (collectively the "Parties"), made as of the 2nd day of January 2003. RECITALS WHEREAS IST, EPMG and Garn and Willis have certain disputes arising from the acquisition of EPMG by IST pursuant to a Stock Purchase Agreement dated as of December 31, 2001 and thereafter; and WHEREAS EPMG, Garn and Willis have asserted claims against IST, Shane Hackett, and others arising from the Stock Purchase Agreement dated December 31, 2001 between Garn and Willis on the one hand and IST and EPMG on the other; and WHEREAS IST and Hackett deny that Garn and Willis have meritorious claims; and WHEREAS Garn and Willis have withdrawn from participation on the board of directors of IST and demanded rescission of the Stock Purchase Agreement; and WHEREAS the parties believe that a timely resolution of the disputes among the parties, rather than a costly and time consuming litigation of the claims, will be in the best interests of all Parties; and WHEREAS the parties desire to resolve and settle their disputes and provide for a mutually profitable ongoing business relationship among IST, EPMG and Garn and Willis following the settlement; and WHEREAS the parties hereto desire to set forth their understanding of the general terms and conditions of the contemplated transactions and their future relationship; THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Settlement. The parties agree to an adjustment of the business of EPMG and the establishment of an ongoing business relationship as described herein as a complete settlement of the disputed claims among them. IST will cause EPMG to transfer certain assets to IST and IST will assume certain liabilities from EPMG. At Closing, IST will transfer 100% of the EPMG stock to Garn and Willis in exchange for all of the capital stock of IST owned by Garn and Willis. Garn and Willis' and IST's tax counsel will cooperate with one another to minimize the adverse tax consequences to EPMG, Garn and Willis. 2. Assets and Liabilities of EPMG. At Closing, EPMG will transfer to IST those assets set forth in Exhibit A. Simultaneously, IST will assume from EPMG those liabilities set forth on Exhibit A. Assets shall be divided in accordance with Exhibit E hereto, which is based upon figures set forth on the September 30, 2003 report on Form 10QSB of IST and the 1 supporting consolidation work-papers. Assets transferred and liabilities assumed shall be adjusted as of December 31, 2003 in the approximate ratios established in Exhibit E. In addition, EPMG will transfer certain contracts and other intangible assets and business relationships to IST as set forth on Exhibit B. 3. Commitments of the Parties. In conjunction with Closing the Parties will agree to those items listed in Exhibit C. 4. Facilities. EPMG (or Garn and Willis) anticipate that it or they will continue to occupy the current facilities in Utah and will lease its facilities in Utah County directly from the owner of those facilities. EPMG will retain all machinery, equipment, office furniture and fixtures currently located in Utah. 5. Employees of EPMG. IST will assign to EPMG all of IST's employment contracts with Utah based employees, including the employee contracts of Garn and Willis. IST shall have no further rights with respect to non-compete agreements with Utah based employees. 6. Other Conditions. Other conditions for settlement are set forth in Exhibit D. 7. Final Agreement. A final Settlement and Reorganization Agreement will be prepared to implement this Memorandum of Understanding. 8. Closing. The parties will work in good faith to complete Closing within 30 days of the issuance of a Fairness Opinion (see Exhibit D). In the absence of a Closing on or before March 15, 2004, Garn and Willis may terminate their obligations under this Agreement. EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN: /s/ Ethan A. Willis - ------------------------------------------- ETHAN A. WILLIS, individually /s/ James R. Garn - ------------------------------------------- JAMES R. GARN, individually INNOVATIVE SOFTWARE TECHNOLOGIES, INC. /s/ Douglas S. Hackett - ------------------------------------------- Douglas S. Hackett, its President ENERGY PROFESSIONAL MARKETING GROUP, INC. /s/ Ethan Willis - ------------------------------------------- Ethan Willis, its President 2 Exhibit A Assets to be transferred from EPMG to IST Liabilities of EPMG to be assumed by IST Note: Assets and Liabilities presented as of 09/30/2003. All adjustments as of the close of business December 31, 2003, per audited financial statements as if the closing occurred on such date. However, not withstanding any provision of this agreement, in no case will the amount of cash transferred from EPMG to IST exceed $2,100,000 excluding payments made in satisfaction of the Note Receivable below. Assets Transferred from EPMG to IST - ----------------------------------- Cash $1,636,911 EPMG will cancel the account receivable in the amount of $442,039 currently owed by IST to EPMG. Note Receivable EPMG shall create a promissory note on behalf of IST in the maximum amount of $675,000. Details of the promissory note shall be as set forth in Exhibit A.1 Fixed Assets* All machinery, equipment, office furniture and fixtures currently located in Kansas City Deposits Right to the return of all deposits arising from leases for fixed assets and real property located in Kansas City ASSETS TRANSFER RANGE ESTIMATE $2,378,950 to $3,142,039 ------------------------ Liabilities Assumed by IST from EPMG - ------------------------------------ Accounts payable and Accrued expenses $300,000 LIABILITIES ASSUMED ESTIMATE $300,000 -------- *Fixed Assets: The ownership of all EPMG software will be transferred to IST and EPMG jointly. Each party will maintain the right to make any changes and to sublicense software. EPMG will retain a separate and complete copy of all current software codes and after the division of the companies, all changes going forward to the codes will be proprietary and owned by the company that makes the changes. 3 Exhibit A.1 IST Promissory Note Receivable from EPMG EPMG shall pay IST up to the principal sum of $675,000 in equal monthly payments of at least $50,000. 1. Principal $675,000 2. Term monthly principal payments of at least $50,000 until paid, beginning one month following Closing 3. Interest Rate 7.5% per annum, interest payable monthly on the unpaid principal balance 4. Early repayment discount If the principal balance is repaid in total on or before the end of month 6 following Closing, then a credit of $50,000 will be applied against the then remaining principal. Alternatively, the Note may be paid in full with a one-time payment of $400,000 within 20 calendar days of Closing. 4 Exhibit B Intangible Assets to be Transferred from EPMG to IST EPMG's contracts for in-process discussions for contracts for leads, products, services or content relating to Preforeclosure.com, Foreclosure World, Real Estate Toolkit and Fast Cash. EPMG is not required to assign any contract or any right to work with Shawn Casey, as Shawn Casey has expressed his intention to continue to work with EPMG and an unwillingness to work with IST. NOTE: All hosting contracts to remain the property of EPMG. All of the reserved Financed Accounts Receivable to remain the property of EPMG, and EPMG will continue to serve these customers. 5 Exhibit C Commitments of the Parties 1. The Parties will execute and deliver mutual general releases. 2. Garn and Willis will cause ESI, Inc. to continue to process refund requests and pay chargebacks coming through IST and IST affiliate merchant accounts and reimburse IST for hours spent on accounts. Provided that before any chargebacks or reimbursements are paid by ESI, Inc. pursuant to this paragraph, IST shall draw down on the reserves created for that purpose which as of September 30, 2003 approximated $70,000, said reserves to be placed into an escrow account within seven days following the execution of this agreement. 180 days from the date of closing, any such reserves left in the reserve account shall be refunded to ESI, Inc. ESI, Inc. shall have the right to examine the books and records of IST to determine the basis for such refunds and chargebacks. 3. Garn and Willis on one hand, and IST on the other, will cause the other party to process all refunds for sales and promptly reimburse the other party for all chargebacks for sales made prior to closing that are processed on the other parties' merchant accounts. 4. Each party will pay its expenses related to the preparation of the Settlement and Reorganization Agreement and all related documents. 6 Exhibit D Other Conditions for Settlement 1. Liability for Accrued Officer Bonus for Hackett for Q2, Q3 and Q4 will be allocated to IST. Liability for Accrued Officer Bonus for Garn, Willis and David Bird for Q2, Q3 and Q4 will remain with EPMG. 2. The parties agree that, effective January 1, 2004, they will implement appropriate procedures so that EPMG and IST will function as separate entities to the greatest extent possible until Closing, including, without limitation, separating accounting and operational functions, and the retention by EPMG of their revenues and profits on the one hand and the retention by IST of its revenues and profits on the other. 3. IST shall engage a qualified investment bank satisfactory to Garn and Willis to render a Fairness Opinion on this agreement. IST shall be solely responsible for all fees associated with the Fairness Opinion. 4. All Parties recognize the importance of the current SEC investigation of Innovative Software Technologies Inc. and pledge to cooperate with the SEC. Furthermore EPMG and IST shall each transfer $75,000 to the independent directors' bank account within 10 calendar days of the execution of this agreement. Funds not used shall be returned to EPMG and IST pro rata. In addition, funds contributed by EPMG shall reduce in equal amount the principal amount of the IST Note Receivable (see Exhibit A.1). And the $75,000 that is contributed by IST will be deducted from the Cash to be transferred by EPMG to IST pursuant to exhibit A. 7 Exhibit E (Subject to check and adjustments)
Innovative Software Technologies, Inc Consolidated Balance Sheet as of September 30 2003 Hackett IST EPMG Elim& INIV Media, Inc. Inc. Inc Adjust. Consol ----------- ---- --- ------- ------ ASSETS CURRENT ASSETS Cash $ 16,467 $ 75,616 $ 3,765,904 $ - $ 3,857,987 Accounts Receivable - 616 153,886 - 154,501 Due From Affiliate - 1,071,175 442,039 (1,513,215) - Investment in Subsidiary - 25,068 - (25,068) - Marketable Securities - - - - - Prepaid Expenses - 20,000 3,586 - 23,586 Other Receivables - - 114,868 - 114,868 Other Current Assets 6,878 25,544 1,108,452 - 1,140,874 Deferred Income taxes - - - - - ------------ ------------ ------------ ------------ ------------ Total current assets 23,344 1,218,019 5,588,734 (1,538,283) 5,291,815 ------------ ------------ ------------ ------------ ------------ PROPERTY, PLANT & EQUIP. Machinery and equipment 14,923 83,202 243,118 - 341,243 Office furniture and fixtures 3,475 21,669 40,119 - 65,263 Computer Software - 41,151 265,634 - 306,785 Leasehold improvements - 2,877 33,141 - 36,018 ------------ ------------ ------------ ------------ ------------ 18,398 148,899 582,012 - 749,309 Less accum. Dep. and Amort. (17,594) (56,093) (220,455) - (294,142) ------------ ------------ ------------ ------------ ------------ 804 92,806 361,557 - 455,167 ------------ ------------ ------------ ------------ ------------ Goodwill, net of amortization - 1,088,686 - - 1,088,686 Other Assets - - - - - Deposits - 19,173 23,791 - 42,965 ------------ ------------ ------------ ------------ ------------ Total Assets $ 24,148 $ 2,418,684 $ 5,974,083 $(1,538,283) $ 6,878,632 ============ ============ ============ =========== ============= 100.0% LIABILITIES AND EQUITY CURRENT LIABILITIES Note payable $ - $ 23,649 $ 54,131 $ - $ 77,780 Line of credit - - 3,740 3,740 Accounts pay. & Accr. Expenses - (15,104) 1,223,638 - 1,208,534 Other Liability - 79,686 990,110 1,069,796 Deferred revenue - 512,455 512,455 Income taxes payable - 471,890 - 471,890 Reserve-returns and allowances - - 588,686 588,686 Due To Affiliate 396,175 442,039 675,000 (1,513,215) - ------------ ------------ ------------ ------------ ------------ Total current liabilities 396,175 1,002,161 4,047,760 (1,513,215) 3,932,881 Note Payable - Long-term - - - - - ------------ ------------ ------------ ------------ ------------ Total liabilities 396,175 1,002,161 4,047,760 (1,513,215) 3,932,881 ------------ ------------ ------------ ------------ ------------ 100.0% STOCKHOLDERS' EQUITY Preferred stock - Series A 1,650,500 - 1,650,500 Preferred stock- Series B 408,491 408,491 Common stock 1 52,896 20,000 (20,000) 52,897 Additional paid in capital 30,999 13,105,971 5,068 (5,068) 13,136,970 RE (Accum. Deficit) (403,027) (13,801,335) 1,901,255 - (12,303,107) ------------ ------------ ------------ ------------ ------------ Total Equity (372,027) 1,416,523 1,926,323 (25,068) 2,945,751 ------------ ------------ ------------ ------------ ------------ 100.0% Total Liabilities & Equity $ 24,148 $ 2,418,684 $ 5,974,083 $(1,538,283) $ 6,878,632 ============ ============ ============ =========== ============ Checksum - - - - - (table continued) Adjusted EPMG Post Sale INIV Xfer to EPMG1 INIV Consol IST Inc. Consol ------ --- ---- ------ ASSETS CURRENT ASSETS Cash $ 3,857,987 $ 1,636,911 $ 2,128,993 $ 1,728,993 Accounts Receivable 154,501 - 153,886 616 Due From Affiliate - 442,039 - 675,000 Investment in Subsidiary - - - - Marketable Securities - - - - Prepaid Expenses 23,586 - 3,586 20,000 Other Receivables 114,868 - 114,868 - Other Current Assets 1,140,874 - 1,108,452 32,422 Deferred Income taxes - - - - ------------ ------------ ------------ ------------ Total current assets 5,291,815 2,078,950 3,509,784 2,457,031 ------------ ------------ ------------ ------------ PROPERTY, PLANT & EQUIP. Machinery and equipment 341,243 2,669 240,449 100,795 Office furniture and fixtures 65,263 1,926 38,193 27,070 Computer Software 306,785 265,634 - 306,785 Leasehold improvements 36,018 2,347 30,794 5,224 ------------ ------------ ------------ ------------ 749,309 272,576 309,436 439,874 Less accum. Dep. and Amort. (294,142) (93,816) (126,639) (167,503) ------------ ------------ ------------ ------------ 455,167 178,760 182,797 272,370 ------------ ------------ ------------ ------------ Goodwill, net of amortization - - - - Other Assets - - - - Deposits 42,965 - 23,791 19,173 ------------ ------------ ------------ ------------ Total Assets $ 5,789,946 $ 2,257,711 $ 3,716,372 $ 2,748,574 ============ ============ ============ ============ 100.0% 57.5% 42.5% LIABILITIES AND EQUITY CURRENT LIABILITIES Note payable $ 77,780 $ - $ 54,131 $ 23,649 Line of credit 3,740 - 3,740 - Accounts pay. & Accr. Expenses 1,208,534 300,000 923,638 284,896 Other Liability 1,069,796 - 990,110 79,686 Deferred revenue 512,455 - 512,455 - Income taxes payable 471,890 - - 471,890 Reserve-returns and allowances 588,686 - 588,686 - Due To Affiliate - - 675,000 - ------------ ------------ ------------ ------------ Total current liabilities 3,932,881 300,000 3,747,760 860,121 Note Payable - Long-term - - - - ------------ ------------ ------------ ------------ Total liabilities 3,932,881 300,000 3,747,760 860,121 ------------ ------------ ------------ ------------ 100.0% 81.3% 18.7% STOCKHOLDERS' EQUITY Preferred stock - Series A 1,650,500 - - 1,650,500 Preferred stock- Series B 408,491 - 408,491 Common stock 52,897 - 20,000 32,897 Additional paid in capital 13,136,970 - 5,068 13,131,902 RE (Accum. Deficit) (13,391,793) 1,957,711 (56,456) (13,335,337) ------------ ------------ ------------ ------------ Total Equity 1,857,065 1,957,711 (31,388) 1,888,453 ------------ ------------ ------------ ------------ 100.0% -1.7% 101.7% Total Liabilities & Equity $ 5,789,946 $ 2,257,711 $ 3,716,372 $ 2,748,574 ============ ============ ============ ============ Checksum - - - -
8 Exhibit F Supplemental Information (Subject to change based on market price of common) Series A Common --------- ------- Date Preferred Stock ---- --------- ------- 1 Shares issued for acquisition of EPMG 1,500,000 3,529,412 2 E&R sale of preferred A shares (200,000) 3 Conversion of preferred A shares to common (199,500) 3,000,000 4 Common stock dividend on preferred A 558,356 ----------- ----------- Total 1,100,500 7,087,768 =========== =========== Fully diluted calculation Market privce $ 0.21 95% of market price $ 0.20 Equivalent common shares 5,516,291 7,087,768 ----------- ----------- Total common shares 12,604,059 =========== Market value calculation Market price $ 0.21 Market value $ 2,646,852 Illiquidity discount - TO BE DETERMINED 0% Discounted market value $ 2,646,852 9 -----END PRIVACY-ENHANCED MESSAGE-----