-----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, AitBDmm/L12FiXOggIc5yUFDYFbrgVboHnBh6/LedV1nWGXP/G4Oba4247azKRyU KgQRGXpUWpkXhKV4ur656w== 0001144204-04-020450.txt : 20041126 0001144204-04-020450.hdr.sgml : 20041125 20041124175359 ACCESSION NUMBER: 0001144204-04-020450 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041126 DATE AS OF CHANGE: 20041124 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27465 FILM NUMBER: 041168291 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 10QSB 1 v09192_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT COMMISSION FILE NUMBER: 000-1084047 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. -------------------------------------- (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) 100 NORTH TAMPA STREET, SUITE 2410, TAMPA, FLORIDA 33602 (Address of principal executive offices)(zip code) Telephone number of registrant, including area code: (813) 387-3310 204 NW PLATTE VALLEY DRIVE, RIVERSIDE, MISSOURI 64150 (Former name or former address, if changed since last report.) --------------------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ___ There were 55,586,198 shares of common stock, $0.001 par value, outstanding as of November 1, 2004. 1 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. FORM 10-QSB QUARTER ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003.................................................................. 3 Condensed Consolidated Statements of Operation (Unaudited) for the Three and Nine Months Ended September 30, 2004 and 2003............................................... 4 Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Nine Months Ended September 30, 3004 and 2003............................................... 5 Condensed Consolidated Statements of Cash Flow (Unaudited) for the Nine Months Ended September 30, 2004 and 2003............................................... 6 Notes to the Condensed Consolidated Financial Statements (Unaudited)..................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 13 Item 3. Controls and Procedures.............................................................. 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................................................... 19 Item 3. Defaults upon Senior Securities...................................................... 19 Item 6. Exhibits and Reports on Form 8-K..................................................... 19 Signatures ................................................................................ 20 Index to Exhibits............................................................................. 21
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INNOVATIVE SOFTWARE TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 2,439,339 $ 3,890,929 Accounts receivable: Merchant accounts receivable 84,670 1,104,051 Other receivables 120,071 101,590 Notes receivable, net of allowance for doubtful accounts of $359,018 and $454,529 respectively 1,001,520 949,891 Inventory 1,033 48,291 Prepaid expenses and other current assets 83,147 15,986 Deferred income taxes 457,890 457,890 ------------ ------------ TOTAL CURRENT ASSETS 4,187,670 6,568,628 ------------ ------------ PROPERTY AND EQUIPMENT, NET 176,503 574,291 GOODWILL 1,088,686 1,088,686 DEFERRED INCOME TAXES 17,688 17,688 DEPOSITS 63,281 43,965 ------------ ------------ TOTAL ASSETS $ 5,533,828 $ 8,293,258 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 2,129,590 $ 3,342,084 Deferred revenue 105,216 1,857,247 Accrued income taxes 679,954 822,533 Current maturities of capital lease obligations 8,744 67,049 ------------ ------------ TOTAL CURRENT LIABILITIES 2,923,504 6,088,913 CAPITAL LEASE OBLIGATIONS 9,234 126,336 ------------ ------------ TOTAL LIABILITIES 2,932,738 6,215,249 ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTE 5) -- -- STOCKHOLDERS' EQUITY Series A preferred stock; issued and outstanding, 450,000 shares 450,000 1,650,500 Series B preferred stock; issued and outstanding, 368,491 shares 368,491 448,491 Common stock - authorized, 100,000,000 shares of $.001 par value; issued and outstanding, 46,112,560 53,112 52,897 Additional paid-in capital 17,043,878 13,163,749 Accumulated deficit (15,314,391) (13,237,628) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,601,090 2,078,009 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,533,828 $ 8,293,258 ============ ============
See accompanying notes. 3 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS FOR THE NINE MONTHSS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ REVENUE Services revenue $ 89,700 $ -- $ 7,655,530 $ -- Product sales 164,963 -- 9,118,286 -- Other revenue -- -- 748,329 -- ------------ ------------ ------------ ------------ TOTAL REVENUE 254,663 9,076,162 17,522,145 21,648,365 COST OF REVENUE Cost of services revenue 51,501 3,543,551 -- Cost of product sales and other revenue 47,399 4,657,024 -- ------------ ------------ ------------ ------------ TOTAL COST OF REVENUE 98,900 4,612,375 8,200,575 10,674,800 ------------ ------------ ------------ ------------ GROSS PROFIT 155,763 4,463,787 9,321,570 10,973,565 ------------ ------------ ------------ ------------ OPERATING EXPENSES General and administrative 3,408,669 1,863,694 7,933,848 5,368,018 Commissions and other selling expenses 11,856 2,072,032 4,090,845 5,138,849 ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 3,420,525 3,935,726 12,024,693 10,506,867 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS (3,264,762) 528,061 (2,703,123) 466,698 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES) Interest and penalties on late tax payments 611,920 (73,000) 566,831 (146,000) Other income (86,002) 11,588 1,565 86,460 Interest income, deposits 33,091 26,131 44,061 61,962 Interest income, financing arrangements -- -- 64,070 -- Interest expense (45,088) (9,993) (50,163) (23,661) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) 513,921 (45,274) 626,364 (21,239) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES (2,750,841) 482,787 (2,076,759) 445,459 INCOME TAXES 266,262 (1,067,373) -- (1,134,890) ------------ ------------ ------------ ------------ NET LOSS (2,484,579) (584,586) (2,076,759) (689,431) UNDECLARED PREFERRED STOCK DIVIDENDS (20,790) -- (41,580) -- ------------ ------------ ------------ ------------ LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (2,505,369) $ (584,586) $ (2,118,339) $ (689,431) ============ ============ ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.05) $ (0.01) $ (0.04) $ (0.01) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN BASIC AND DILUTED PER SHARE CALCULATION 52,897,186 52,870,136 52,897,186 52,846,602 ============ ============ ============ ============
See accompanying notes. 4 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
PREFERRED STOCK PREFERRED STOCK COMMON SERIES A SERIES B STOCK ---------------------------- ---------------------------- -------- SHARES AMOUNT SHARES AMOUNT AMOUNT ------------- ------------- ------------- ------------- -------- Balance as of December 31, 2002 1,650,500 1,650,500 328,491 $ 328,491 $ 52,481 ------------- ------------- ------------- ------------- -------- Issuance of Common stock for services and charitable donation 416 Issuance of Series B Preferred Stock for Compensation 100,000 126,315 Net loss Preferred Stock Accretions (6,315) ------------- ------------- ------------- ------------- -------- Balance as of December 31, 2003 1,650,500 1,650,500 428,491 $ 448,491 $ 52,897 ============= ============= ============= ============= ======== Issuance of Series B Preferred Stock for Compensation Cancellation of Stock and net increase in Additional Paid-in-Capital due to the the Settlement Agreement (1,200,500) (1,200,500) (80,000) (80,000) (6,785) Issuance of common stock for executive signing bonuses 7,000 Net Loss ------------- ------------- ------------- ------------- -------- Balance as of September 30, 2004 450,000 $ 450,000 348,491 $ 368,491 $ 53,112 ============= ============= ============= ============= ======== RETAINED ADDITIONAL EARNINGS TOTAL PAID-IN- (ACCUM. STOCKHOLDERS' CAPITAL DEFICIT) EQUITY ----------- ------------- ----------- Balance as of December 31, 2002 $13,119,719 $ (13,041,191) $ 2,110,000 ----------- ------------- ----------- Issuance of Common stock for services and charitable donation 44,030 44,446 Issuance of Series B Preferred Stock for Compensation 126,315 Net loss (202,755) (202,755) Preferred Stock Accretions 6,315 -- ----------- ------------- ----------- Balance as of December 31, 2003 $13,163,749 $ (13,237,631) $ 2,078,006 =========== ============= =========== Issuance of Series B Preferred Stock for Compensation -- Cancellation of Stock and net increase in Additional Paid-in-Capital due to the the Settlement Agreement 2,137,129 849,843 Issuance of common stock for executive signing bonuses 1,743,000 1,750,000 Net Loss (2,076,759) (2,076,759) ----------- ------------- ----------- Balance as of September 30, 2004 $17,043,878 $ (15,314,390) $ 2,601,090 =========== ============= ===========
The accompanying notes are an integral part of these condensed consolidated financial statement. 5 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS Ended September 30, ---------------------------- 2004 2003 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $(2,076,760) $ (689,431) Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 176,219 150,498 Prepaid non-cash compensation and expenses -- 20,000 Stock base compensation 1,750,000 121,515 Non-cash expenses -- 77,667 Net change in operating assets and liabilities Merchant account receivables (55,832) (139,801) Other receivables (143,483) (49,362) Inventory (1,344) -- Prepaid expenses and other current assets (86,477) (390,794) Accounts payable and accrued expenses 970,841 347,169 Deferred revenue (446,594) 331,307 Other current liabilities (1,053,644) 1,132,518 Reserve for returns and allowances 230,532 1,031,420 Accrued federal and state income tax (142,579) 893,890 ----------- ----------- NET CASH FLOWS FROM OPERATING ACTIVITIES (879,121) 2,836,595 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in notes receivable from financed sales (51,629) -- Purchase of Fixed Assets (178,108) (226,316) ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES (229,737) (226,316) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligations (42,732) (53,716) Payment under Settlement Agreement (300,000) -- Repayments under line of credit agreement -- (36,920) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES (342,732) (90,637) ----------- ----------- NET INCREASE (DECREASE) IN CASH (1,451,590) 2,519,643 CASH AT BEGINNING OF PERIOD 3,890,929 1,338,345 ----------- ----------- CASH AT END OF PERIOD $ 2,439,339 $ 3,857,988 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Issuance of common stock for services / charitable contributions $ -- $ 17,667 =========== =========== Issuance of Series B Preferred Stock as Compensation 80,000 ----------- Property and equipment acquired under capital leases $ 15,192 $ -- =========== =========== EPMG Settlement Transaction: Decrease in Operating Assets $ 1,548,814 Decrease in Fixed Assets 414,870 Decrease in Operating Liabilities (2,665,661) Decrease in Long-term Liabilities (147,867) Increase in Equity 849,844 ----------- $ -- ===========
The accompanying notes are an integral part of these condensed consolidated financial statement. 6 INNOVATIVE SOFTWARE TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION, BASIS OF PRESENTATION, AND CERTAIN INTERIM ACCOUNTING POLICIES (a) Organization and Description of Business: Innovative Software Technologies, Inc. (the "Company") was incorporated in the State of California in May 1998. The Company, together with its wholly-owned subsidiaries, is engaged in the development, marketing and delivery of business-type educational programs, generally to individuals, throughout the United States of America. The Company's educational programs combine both self-training and consulting by Company employees, as well as providing seminar training. Recently the Company has expanded its activities to include business to business sales of software and services through its SoftSale, Inc. wholly owned subsidiary. (b) Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not contain all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial condition as of September 30, 2004, and the results of their operations for the three and nine months ended September 30, 2004 and September 30, 2003, and the cash flows for the nine months ended September 30, 2004 and 2003. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited 2003 consolidated financial statements, including the notes thereto, and the other information set forth therein, included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003. Operating results for the three and nine month periods ended September 30, 2004 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2004. (c) Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, EPMG, Inc., Triad Media, Inc. (f/k/a Hackett Media, Inc.) and SoftSale, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. (d) Income Taxes in Interim Periods: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. For purposes of interim financial reporting, the Company projects its effective income tax rate for the entire fiscal year, taking into account all taxing jurisdictions, and applies such rate to interim pre-tax income. Changes in the projected effective tax rate in future quarters, if any, are accounted for prospectively in the period of change. 7 (e) Earnings Per Common Share: Basic net income per common share is computed by dividing (i) the net income (loss), as adjusted for the effects of cumulative dividends on the Series A and B Preferred Stock by (ii) the weighted average common shares outstanding during the period. Diluted net income (loss) per share is computed similarly but includes the effects of dilutive securities in the denominator. Due to the Net Losses in each period, the calculation for diluted income per common share in each period is anti-dilutive. Therefore, Basic and Diluted Net Loss per common share are the same.
Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ---- ---- ---- ---- Basic: Loss applicable to common stockholders ($2,505,369) ($584,586) ($2,118,340) ($689,431) ============== =============== ================= ============== Weighted average common shares outstanding 51,432,769 52,870,136 52,405,484 52,846,602 ============== =============== ================= ============== Basic and diluted loss per common share ($0.05) ($0.01) ($0.04) ($0.01) ============== =============== ================= ==============
(2) ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: SEPTEMBER 30, DECEMBER 31, 2004 2004 ---------- ---------- Accrued sales splits to lead providers $ -- $1,255,770 Accrued wages and other 1,461,066 773,707 Reserves for returns and refunds 30,098 742,568 Accounts payable 432,859 351,089 Interest and penalties on late tax payments 205,565 218,950 Credit facility (a) -- 3,440 ---------- ---------- $2,129,589 $3,345,524 ========== ========== (a) The Company has a credit facility that provides for borrowings up to $50,000, with interest at Prime Rate, plus 2%. 8 (3) STOCKHOLDERS' EQUITY (a) Convertible Preferred Stock: The Company has 25,000,000 shares of preferred stock authorized and has 450,000 shares of Series A Preferred issued and outstanding and 80,000 shares of Series B Preferred issued and outstanding as of September 30, 2004. The Series A and Series B Preferred Stock (collectively "Preferred Stock") have the same terms and conditions. The Preferred Stock is (i) entitled to cumulative dividends at a rate of 4.0% of the liquidation value ($1.00 per share), (ii) convertible at any time into common stock at a rate of 95% of the average closing market price of the common stock for five days preceding conversion (4,404,885 and 8,105,228 common shares as of September 30, 2004 and December 31, 2003, respectively), (iii) redeemable at any time by the Company for $1.00 per share, (iv) entitled to one vote per share. As of September 30, 2004 and December 31, 2003, the Company has cumulative, undeclared dividends in arrears on the Preferred Stock of $0 and $82,510, respectively. (b) Settlement Agreement: On July 2, 2004, the Company entered into a Settlement Agreement with James R. Garn, Ethan W. Willis, and Ethan and Randy, LC (the "Settlement Agreement") pursuant to which the parties agreed to settle all disputes between them, including all disputes relating to the Company's 2001 acquisition from Garn and Willis of the outstanding stock of Energy Professional Marketing Group, Inc. ("EPMG"). Under the terms of the Settlement Agreement, Garn and Willis (the "Principals") have surrendered to the Company all of their shares of capital stock of the Company, comprising 6,784,762 shares of common stock, 1,200,500 shares of Series A Preferred Stock, and 80,000 shares of Series B Preferred Stock, in exchange for certain assets of EPMG. These assets include EPMG's rights under certain credit card processing contracts (including receivables relating to reserves under those contracts in the amount of approximately $1,000,000), substantially all of the tangible fixed assets of EPMG's Utah facility, and certain intangible assets of EPMG, such as specified website domain names, software, and customer lead data. The Settlement Agreement also sets forth certain agreements and covenants relating to the relationship between the parties on a going-forward basis and the parties' respective businesses activities, including the following: o The Company and an entity controlled by the Principals have entered into agreements providing for the reciprocal supply of products and customer leads to each other on a going-forward basis. o A company controlled by the Principals has agreed to assume all of EPMG's outstanding service obligations to EPMG's coaching customers in consideration of the payment of service fees by the Company totaling $425,000. o A newly created company controlled and owned by the Principals has assumed the lease of EPMG's facility in Provo, Utah, and substantially all employees at such facility have transferred their employment to such newly created company. Pursuant to the Settlement Agreement, the Company has released all such employees from their non-compete obligations to the Company. 9 o The Company has agreed to refrain from soliciting the services of certain lead providers for a six-month period of time and from marketing to current active coaching customers for 120 days following the Settlement Agreement. Pursuant to the Settlement Agreement, the Company, the Principals, and their respective affiliates have entered into mutual waivers and releases relating to any and all claims that they may have had against one another other at any time through the date of the Settlement Agreement. Subsequent to the settlement, EPMG will remain a wholly owned subsidiary of the Company and, together with the Company, will focus on growing its business through its traditional coaching and mentoring products, new software products relating to improving the efficiency of small businesses, and future planned software products targeting the IT departments of medium and large businesses. The Company recorded the settlement on the effective date. No gain or loss arose from the settlement pursuant to generally accepted accounting principles, which requires a company's receipt of its own securities in such transactions to be treated as transactions affecting only stockholders' equity. In addition, the Company has concluded that the transaction does not meet the conditions for treatment of EPMG as a discontinued operation due to the fact that continuing agreements between the Company and EPMG for cross selling of each other's products and services rise to the level of the Company's significant continuing involvement in the operations of the disposed component. (c) Signing Bonus: On August 4, 2004, the Board of Directors unanimously approved a resolution authorizing the hiring of a new Chief Executive Officer, Peter M. Peterson, and a new Chief Financial Officer, Christopher J. Floyd, under specific terms of employment. Among those terms were the issuance to each executive 3,500,000 shares of common stock of the Company, having the usual restrictive legend and no vesting period (see Exhibits 10.1 and 10.2 of the Company's June 30, 2004 Report on Form 10QSB). (4) RELATED PARTY TRANSACTIONS (a) Sales Leads: The Company purchased sales leads from Education Success Institute, Inc. (ESI), which was owned by two former employees of the Company. The cost of sales leads purchased during the nine months ended September 30, 2004, which is based upon a percentage of revenue, amounted to $3,927,171. (b) Settlement Agreement: The Company and two former officers of the Company were involved in a dispute that was settled on July 2, 2004 (see 3(b) "Settlement Agreement" above). 10 (c) Collection Agreement: In October 2004 the Company entered into a Collection Agreement with Magna Charter, Inc. a firm owned by a former officer of the Company who is also related to the President of the Company. We believe the contract was negotiated at arms length and contains terms comparable to the terms that would be obtained in such an agreement with an unrelated third party. (5) COMMITMENTS AND CONTINGENCIES (a) Leases: Future minimum lease payments under noncancelable operating leases (with initial terms in excess of one year) and future minimum capital lease payments as of September 30, 2004 are as follows:
Capital Operating Year ending December 31: Leases Leases ------------------- ------------------- Three months ending December 31, 2004 4,294 27,593 2005 7,169 72,454 2006 5,770 34,888 2007 - - -------- -------- Total noncancelable lease payments 17,233 134,935 ======== ======== Less amount representing interest 1,651 -------- 15,582 ======== Principal amount due in one year 8,744 Principal amount due after one year 6,838 -------- $15,582 ========
Rent expense under all operating leases for the quarter ended September 30, 2004 was $20,117. (b) Content Providers: The Company is a party to several agreements that provide for the educational content and multimedia materials used in the educational offerings. Generally, these agreements provide for a commission, generally 8% to 10%, of actual sales. The maintenance of content agreements is a critical element to the Company's continuing viability. (c) Servicing Arrangements: The Company is a party to a servicing agreement with a third party financial institution for the servicing of the Company's financed sales. The agreement provides for the collection, servicing and remittance of notes receivable as an agent to the Company. The counterparty receives certain fees for this servicing arrangement, which is included as a reduction of the interest income on the notes receivable. 11 (d) SEC Investigation: On June 24, 2003, the Securities and Exchange Commission issued a formal order of investigation authorizing subpoenas for documents and testimony in connection with the investigation of certain securities matters. The Company has and intends to continue to fully cooperate with the SEC in its investigation. (e) Litigation: None. (f) Income Tax Returns: Accrued income taxes related to prior tax periods and accrued interest/tax penalties related to prior tax periods amounted to $601,400 and $183,110, respectively as of September 30, 2004. In November 2004 the Company filed its 2003 and 2002 Federal and State of Utah income tax returns. The Company intends to pay approximately $685,000 in accrued taxes and interest before the end of November 2004. In November, the Company also filed an amended return for 2001 that seeks the reduction of the total tax, interest and penalty from approximately $1,000,000, which was recorded in 2001, to $784,410. (6) SUBSEQUENT EVENTS. Effective November 12, 2004, Peter Justen resigned from the Board of Directors. On November 18, 2004, the Company closed a transaction to acquire all of the assets and the business of Get in the Game. The Company will operate this new business as a wholly owned subsidiary, Get in the Game, Inc. This new business is focused on providing information and consulting, primarily through seminars and online marketing, to student athletes and their parents. The acquisition was accounted for as an asset purchase valued at $341,000 comprising $200,000 in equity and the assumption of $141,000 in debt. Equity was in the form of restricted shares of the Company's common stock, valued at $0.2075, the 20 trading day average closing price prior to closing. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes statements that are forward looking in nature. The accuracy of such statements depends on a variety of factors that may affect the business and operations of the Company. When used in this discussion, the words "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, and actual results could differ materially from those projected. These risks and uncertainties include, but are not limited to, the matters discussed under the caption "Factors Affecting Future Results" in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003 and other risks and uncertainties discussed in filings made with the Securities and Exchange Commission (including risks described in subsequent reports on Form 10-QSB, Form 10-KSB, Form 8-K and other filings). Readers are cautioned not to place undue reliance on these forward-looking statements, and are urged to carefully review and consider the various disclosures elsewhere in this Form 10-QSB. OVERVIEW The following discussion summarizes information about our accounting policies and practices and information about our operations in a comparative manner for the three and nine months ended September 30, 2004 and 2003. Our management's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere herein. CRITICAL ACCOUNTING POLICIES AND ESTIMATES This discussion and analysis of our financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company's financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company believes that its critical accounting policies include those described below. Allowances for Doubtful Accounts Our net notes receivable amounted to $1,001,520 as of September 30, 2004 and relate to product financing arrangements entered into with our clients. These notes are unsecured, bear interest at 15% and have terms ranging between one and two years. The allowance for doubtful accounts is based upon our best estimate of the amount of probable credit losses in the existing notes based upon our historical loss rates experienced on such financing arrangements. A note is considered impaired pursuant to Financial Accounting Standards Board Statement 114, Accounting by Creditors for Impairment of a Loan. Pursuant to Statement 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate. The Company does not accrue interest when a note is considered impaired. When ultimate collectibility of the principal balance of the impaired note is in doubt, all cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and are recognized as interest income thereafter. Impairment losses are charged against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote. 13 Revenue Recognition and Returns and Allowances We have evaluated our product offerings in the context SAB 101 Revenue Recognition and EITF 00-21 Revenue Arrangements with Multiple Deliverables and have determined that revenues associated with the multimedia educational materials (product sales) require accounting separate from the educational and coaching services (services revenue). The fair value of these offerings is established through separate third party sales of each of these products and services. Product Sales: We recognize product sales upon delivery to our students, as evidenced by third party shipping providers, which is the point where the student assumes ownership and risk of loss. Shipping costs are billed to students and are included as a component of revenue and cost of product sales. Returns are provided for based upon the Company's historical return experience. Services Revenues: The Company's educational offering includes multiple sessions with a Company employed coach. We recognize services revenue pro rata as coaching/training sessions are rendered. Deferred revenue represents the price of future coaching sessions that students have paid for ($114,300), less the applicable commissions to sales employees ($9,084). Our obligation to provide coaching and training ceases one year following the sale. Refunds for unused courses are not provided for in the sales arrangement with the student. However, the Company offers refunds in certain circumstances for which a history has been developed to estimate and reserve such amounts. RESULTS OF OPERATIONS Three and nine month periods ended September 30, 2004 and September 30, 2003. Revenues Revenues for the three months ended September 30, 2004 and 2003 were $254,663 and $9,076,162, respectively, which represents a 97.2 % decrease. Revenues for the nine months ended September 30, 2004 and 2003 were $17,522,145, and $21,648,365, respectively, which represents a 19.1% decrease. The Company's principal source of revenue for the quarters ended September 30, 2004 and 2003 consisted of business education and coaching services. Revenues decreased substantially in the third quarter over the third quarter of 2003 as a result of the Settlement Agreement with Garn and Willis whereby the majority of our EPMG subsidiary's operations, along with certain assets and liabilities, were transferred to Garn and Willis (see note 3(b) in the Notes to the Condensed Consolidated Financial Statements herein). We record revenues for multimedia education materials (product sales) upon delivery of the material to our students. We record revenues for coaching sessions rendered and we defer revenue for coaching sessions that are paid for but have not yet been rendered. Our total services revenue deferral as of September 30, 2004 was $114,300 compared to $4,461,883 as of December 31, 2003. These deferred revenues are partially offset by lead splits and sales commissions paid when funds are received. Our deferral as of September 30, 2004 was less than the amount deferred as of December 31, 2003 as the number of open coaching sessions for which the Company is responsible for decreased markedly under the terms of the Settlement Agreement. 14 Substantially all of our revenues to date were derived from our EPMG subsidiary. On September 26, 2003, legal counsel representing the former principals of EPMG, notified us with an allegation that they were entitled to rescind the 2001 acquisition of EPMG. The notification alleged that the former principals were defrauded in connection with our acquisition of EPMG, Inc. and that they would seek litigation to effect a rescission of the 2001 purchase. On January 2, 2004, the Company and these former principals entered into a Memorandum of Understanding that provided for the settlement of the principals' claims through exchange of certain operating assets of EPMG for the common and preferred stock previously issued in connection with the merger. On July 2, 2004, the Company entered into a Settlement Agreement with the former principals pursuant to which the parties agreed to settle all disputes between them. Under the terms of the Settlement Agreement, the former principals have surrendered to the Company all of their shares of capital stock of the Company, comprising 6,784,762 shares of common stock, 1,200,500 shares of Series A Preferred Stock, and 80,000 shares of Series B Preferred Stock, in exchange for certain assets of EPMG. These assets include EPMG's rights under certain credit card processing contracts (including receivables relating to reserves under those contracts in the amount of approximately $1,000,000), substantially all of the tangible fixed assets of EPMG's Utah facility, and certain intangible assets of EPMG, such as specified website domain names, software, and customer lead data. (See Form 8-K report filed on July 19, 2004.) Cost of Sales and Margins Cost of sales for the quarters ended September 30, 2004 and 2003 were $98,900 and $4,612,375, respectively, representing gross margins of 61.2% and 49.2%, respectively. For the nine months ended September 30, 2004 and 2003, cost of sales were $8,200,575 and $10,674,800 respectively, representing gross margins of 53.2% and 50.7%, respectively. Cost of sales include (i) the cost of the multimedia educational materials that we ship to our students, (ii) the wages paid to our coaches and (iii) the commissions that we pay to lead sources. Our increased gross profit margin in the third quarter of 2004 reflects the Company's focus on internal generation of leads. Selling Expenses Selling expenses for the three months ended September 30, 2004 and 2003 were $11,856 (4.7% of revenue) and $2,072,032 (22.8% of revenue), respectively. Selling expenses for the nine months ended September 30, 2004 and 2003 were $4,090,845 (23.3% of revenue) and $5,138,849 (23.7% of revenue), respectively. Selling expenses consisted primarily of commissions paid to sales associates as well as marketing and advertising expenses associated with key products and services. The overall decrease in selling expenses in the third quarter is attributed to the overall decrease in sales of products and services. General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2004 and 2003 were $3,408,669 (1,338% of revenue) and $1,863,694 (20.5% of revenue), respectively. General and administrative expenses for the nine months ended September 30, 2004 and 2003 were $7,933,848 (45.3% of revenue) and $5,368,018 (24.8% of revenue), respectively. General and administration expenses consisted primarily of salaries and wages, professional fees, rent, travel expenses, payroll taxes, telephone expenses and other general and administrative expenses necessary to support the operations of the Company. The increase in general and administrative expenses was primarily attributable to a 7 million share signing bonus for the Chief Executive Officer and Chief Financial Officer, which was valued at $0.25 per share and expensed in the period. 15 Other Income (Expense) Other Income (Expense) for the three months ended September 30, 2004 and 2003 were $513,921 and ($45,274), respectively. For the nine months ended September 30, 2004 and 2003, other income, net of other expenses was $626,363 and ($21,239), respectively. The increase in the current period Other Income is due primarily to the revaluation of the Company's estimated income tax liability. Income Taxes Our income tax provision amounted to $0.00 for the period ended September 30, 2004 versus a provision of $1,134,890 for the period ended September 30, 2003. For purposes of interim financial reporting, the Company projects its effective income tax rate for the entire fiscal year (39.5% for the nine month period ended September 30, 2004), taking into account all taxing jurisdictions, and applies such rate to interim pre-tax income. Changes in the projected effective tax rate in future quarters, if any, are accounted for prospectively in the period of change. Our income tax for the quarterly period ended September 30, 2003 was different than the statutory rates applicable to our taxing jurisdictions because of valuation allowances and non-deductible permanent differences (primarily income tax penalties). Net Loss Our net loss for the three and nine months ended September 30, 2004 amounted to $2,484,579 and $2,076,760, respectively, compared to net losses of $584,586 and $689,431 for the three and nine months ended September 30, 2003. Current year losses are attributable to the matters discussed above. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2004 we had current assets of $4,187,669, which represents a decrease of $2,380,960 over current assets as of December 31, 2003. Most of the decrease is attributable to a decrease in cash and a decrease in Merchant Account balances. At September 30, 2004 we had cash on hand of $2,439,339, which represents an decrease of $1,451,591 over the balances as of December 31, 2003. The Company transferred approximately $1,000,000 in Merchant Account reserves under the terms of the Settlement Agreement. Notes receivable of $1,001,520, as of September 30, 2004 is net of our estimated reserve of $359,018 for bad debts. Gross notes receivable were $1,360,537 as of September 30, 2004 compared to $1,404,420 as of December 31, 2003. At September 30, 2004 we had current liabilities of $2,923,504, which represents a decrease of $3,165,408 over current liabilities as of December 31, 2003. Our current liabilities include significant amounts associated with deferred revenue, commissions and reserves for returns. These accounts require complex subjective estimates. Our net deferred revenue of $114,300, which will not require cash outlays, decreased $1,742,947 from the balance as of December 31, 2003, again due primarily to the terms of the Settlement Agreement whereby the liability for fulfilling coaching sessions was assumed by a third pary. We are also liable for commissions to our sales force and to lead providers. These commissions payable, included as a component of accounts payable and accrued liabilities, total $9,084 as of September 30, 2004. The minimal figure is due to our focus on generating leads internally. 16 As September 30, 2004, our working capital increased to $1,264,164 from $479,716 as of December 31, 2003. We believe that our operating activities in 2004 will be sufficient to fulfill our obligations as they become due in the normal course of business. We have no material commitments for capital expenditures. Capital expenditures in the quarter and nine months ended September 30, 2004 were $0.00 and $189,766, respectively. Accrued income taxes related to prior tax periods and accrued interest/tax penalties related to prior tax periods amounted to $601,400 and $183,110, respectively as of September 30, 2004. In November 2004 the Company filed its 2003 and 2002 Federal and State of Utah income tax returns. The Company intends to pay approximately $685,000 in accrued taxes and interest before the end of November 2004. In November, the Company also filed an amended return for 2001 that seeks the reduction of the total tax, interest and penalty from approximately $1,000,000, which was recorded in 2001, to $784,410. We currently do not have a stock option or stock purchase plan. We also currently do not have any employee benefit plans that would require the use of our securities. EPMG TRANSACTION On September 26, 2003, counsel representing the former principals of EPMG, Inc., who were then employees of EPMG, Inc., notified the Company that they were allegedly entitled to rescind the Company's 2001 acquisition of EPMG, Inc., which was accomplished in a stock-for-stock exchange, accounted for as a purchase business combination. The notification alleged that the former principals were defrauded in connection with the Company's acquisition of EPMG, Inc. and that they would seek litigation to effect a rescission of the 2001 purchase. On January 2, 2004, the Company and these former principals entered into a Memorandum of Understanding that provided for the settlement of the principals' claims through exchange of certain operating assets of EPMG for the Company's common stock previously issued in connection with the merger. On July 2, 2004, the Company entered into a Settlement Agreement with the former principals pursuant to which the parties agreed to settle all disputes between them. Under the terms of the Settlement Agreement, the former principals have surrendered to the Company all of their shares of capital stock of the Company, comprising 6,784,762 shares of common stock, 1,200,500 shares of Series A Preferred Stock, and 80,000 shares of Series B Preferred Stock, in exchange for certain assets of EPMG. These assets include EPMG's rights under certain credit card processing contracts (including receivables relating to reserves under those contracts in the amount of approximately $1,000,000), substantially all of the tangible fixed assets of EPMG's Utah facility, and certain intangible assets of EPMG, such as specified website domain names, software, and customer lead data. (See Form 8-K report filed on July 19, 2004.) OFF BALANCE-SHEET ARRANGEMENTS The Company has no material off-balance sheet arrangements as of September 30, 2004. 17 ITEM 3. CONTROLS AND PROCEDURES (a) As of September 30, 2004, the Chief Executive Officer and Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the date of the evaluation, the Company's disclosure controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report. (b) There were no changes in the Company's internal controls during the quarterly period ended September 30, 2004 or in other factors that could significantly affect internal controls, known to the Chief Executive Officer or the Chief Financial Officer, subsequent to the date of the evaluation. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SEC Investigation On June 24, 2003 the Securities and Exchange Commission ("SEC") issued a formal order of investigation with respect to the Company, authorizing the investigation of certain securities matters relating to the Company. The SEC staff has taken the testimony of certain officers of the Company and has informed the Company that it intends to take additional testimony. The SEC staff has also issued additional requests for the voluntary production of documents. Prior to the issuance of the order, the Company had voluntarily provided documents and information to the SEC staff in response to informal, non-public inquiries by the staff. The Company intends to fully cooperate with the SEC in its investigation. ITEM 3. DEFAULTS UPON SENIOR SECURITIES (b)There has not been any material arrearage in the payment of dividends on any preferred stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits The exhibits required by this item are listed in the Index to Exhibits set forth at the end of this Form 10-QSB. b. Reports on Form 8-K During the third quarter of the period convered by this report, the Company filed the following report on Form 8-K: On July 19, 2004 the Company filed a Form 8-K (Items 2, 5 and 7) disclosing the results of the closing of a Settlement Agreement with two former officers and directors of the Company. 19 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INNOVATIVE SOFTWARE TECHNOLOGIES, INC. DATE: November 22, 2004 ---------------------------------------- Peter M. Peterson Chief Executive Officer and Director ---------------------------------------- Christopher J. Floyd Chief Financial Officer 20 INDEX TO EXHIBITS
Exhibit Number Description 2.1 Asset Purchase Agreement by and between Douglas W. Single, Innovative Software Technologies, Inc., and Get in the Game, Inc. dated as of November 18, 2004. 10.1 Employment Contract for Douglas W. Single, Vice President of Business Development of Innovative Software Technologies, Inc. 31.1 Certification of Chief Executive Officer of Innovative Software Technologies, Inc. pursuant to Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of Chief Financial Officer of Innovative Software Technologies, Inc. pursuant to Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of Chief Executive Officer of Innovative Software Technologies, Inc. pursuant to 18 U.S.C. 1350. 32.2 Certification of Chief Financial Officer of Innovative Software Technologies, Inc. pursuant to 18 U.S.C. 1350.
21 EX-2.1 2 v09192_ex2-1.txt ASSET PURCHASE AGREEMENT BY AND BETWEEN DOUGLAS W. SINGLE, INNOVATIVE SOFTWARE TECHNOLOGIES, INC., AND GET IN THE GAME, INC. DATED AS OF NOVEMBER 18, 2004 TABLE OF CONTENTS PAGE NO. Article I SALE OF ASSETS; ASSUMPTION OF LIABILITIES; CLOSING................. 1 Section 1.1 Sale of Assets.................................... 1 Section 1.2 Excluded Assets................................... 2 Section 1.3 Assumption of Liabilities......................... 2 Section 1.4 Purchase Price.................................... 3 Section 1.5 Performance Consideration......................... 4 Section 1.6 Closing........................................... 4 Section 1.7 Deliveries at Closing............................. 4 Section 1.8 Nonassignability of Assets........................ 4 Article II REPRESENTATIONS AND WARRANTIES OF SELLER.......................... 5 Section 2.1 Representations and Warranties of Seller.......... 5 Section 2.2 No Conflict; Approvals............................ 5 Section 2.3 Books and Records................................. 5 Section 2.4 Title to the Assets............................... 5 Section 2.5 Contracts......................................... 5 Section 2.6 Litigation........................................ 6 Section 2.7 Taxes............................................. 6 Section 2.8 Inventory......................................... 7 Section 2.9 Broker's or Finder's Fees......................... 7 Section 2.10 Compliance with Laws.............................. 7 Section 2.11 Disclosure........................................ 7 Section 2.12 Intellectual Property............................. 7 Section 2.13 Investment........................................ 8 Article III REPRESENTATIONS AND WARRANTIES OF PURCHASER...................... 8 Section 3.1 Representations and Warranties of Purchaser....... 8 Section 3.2 Organization and Good Standing.................... 8 Section 3.3 Corporate Authority............................... 8 Section 3.4 No Conflict; Authorization........................ 8 Section 3.5 Litigation........................................ 9 Section 3.6 Broker's or Finder's Fees......................... 9 Article IV CONDITIONS TO PURCHASER'S OBLIGATIONS............................. 9 Section 4.1 Conditions to Purchaser's Obligations............. 9 Section 4.2 Transfer Documents................................ 9 Section 4.3 No Litigation Threatened.......................... 9 Section 4.4 Approvals and Consents............................ 9 Section 4.5 Absence of Liens.................................. 9 Section 4.6 Material Adverse Changes.......................... 10 Section 4.7 Due Diligence; Schedules.......................... 10 Section 4.8 Employment Agreement.............................. 10 Section 4.9 Independent Contractor Agreements............. ERROR! BOOKMARK NOT DEFINED. i Section 4.10 Non-Foreign Affidavit............................. 10 Section 4.11 Bank Accounts..................................... 10 Section 4.12 Bill of Sale...................................... 10 Section 4.13 Other Documents................................... 10 Article V CONDITIONS TO SELLER'S and Stockholder's OBLIGATIONS............... 10 Section 5.1 Conditions to Seller's Obligations................ 10 Section 5.2 No Litigation Threatened.......................... 11 Article VI COVENANTS......................................................... 11 Section 6.1 Further Assurances................................ 11 Section 6.2 Disclosure........................................ 11 Section 6.3 Tax Matters....................................... 11 Section 6.4 Non-competition; Non-Solicitation................. 12 Section 6.5 Confidentiality................................... 12 Section 6.6 Sales and Use Taxes............................... 13 Section 6.7 Consent of Seller................................. 13 Section 6.8 IST Common Stock.................................. 13 Article VII Intentionally Omitted............................................ 14 Article VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..... 14 Section 8.1 Survival of Representations and Warranties........ 14 Section 8.2 Seller's Obligation to Indemnify.................. 14 Section 8.3 Limitations on Seller's Indemnification........... 15 Section 8.4 Survival of Purchaser Obligations................. 15 Section 8.5 Purchaser Obligation to Indemnify................. 15 Section 8.6 Limitations on Purchaser Indemnification.......... 16 Section 8.7 Procedures Relating to Indemnification............ 16 Section 8.8 Characterization of Indemnification Payments...... 17 Article IX MISCELLANEOUS..................................................... 17 Section 9.1 Certain Definitions............................... 17 Section 9.2 Professional Expenses............................. 18 Section 9.3 Governing Law..................................... 18 Section 9.4 Jurisdiction...................................... 18 Section 9.5 Captions.......................................... 18 Section 9.6 Notices........................................... 18 Section 9.7 Parties in Interest............................... 19 Section 9.8 Counterparts...................................... 19 Section 9.9 Entire Agreement.................................. 19 Section 9.10 Amendments; Waivers............................... 19 Section 9.11 Severability...................................... 20 Section 9.12 Rules of Construction............................. 20 Section 9.13 Risk of Loss...................................... 20 ii SCHEDULES Schedule 1.1(a) Inventory Schedule 1.1(b) Contracts Schedule 2.12 Intellectual Property EXHIBITS Exhibit A Assumed Liabilities Exhibit B Employment Agreement between Doug Single and Purchaser Exhibit C Bill of Sale iii ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated this ___ day of November, 2004 by and between Douglas W. Single d/b/a Get in the Game (the "SELLER"), Innovative Software Technologies, Inc., a California Corporation ("PURCHASER"), and Get in the Game, Inc., a Delaware corporation and a wholly owned subsidiary of Purchaser (the "NEW SUB"). BACKGROUND Seller desires to sell, transfer and assign to Purchaser, and Purchaser desires to purchase and assume from Seller, pursuant to and in accordance with the terms and conditions of this Agreement, substantially all of the assets and certain of the liabilities of Seller, which is engaged in the business of conducting seminars and workshops and distributing literature relating to college preparation for prospective student athletes and their parents (the "BUSINESS"). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I SALE OF ASSETS; ASSUMPTION OF LIABILITIES; CLOSING SECTION 1.1 SALE OF ASSETS. Subject to the terms and conditions of this Agreement, at the Closing (as defined herein), Seller shall sell, assign, transfer and deliver to New Sub, and Purchaser shall purchase from Seller, all of Seller's right, title and interest in and to all Seller's assets other than the Excluded Assets (as defined below), including the following assets (collectively, the "PURCHASED ASSETS"). The Purchased Assets shall include, but not be limited to, the following: (a) all inventory of Seller located at 3 San Juan Ranch Road, Santa Fe, New Mexico, (the "PREMISES") on hand as of the Closing Date, all inventory of Seller in the possession of a contractor or subcontractor of Seller as of the Closing Date, all inventory of Seller consigned to customers of Seller as of the Closing Date and all inventory of Seller in transit as of the Closing Date pursuant to purchase orders issued by Seller in the ordinary course of business, including but not limited to all inventory which is itemized, accounted for, located and set forth on Schedule 1.1(a) to this Agreement (collectively, the "INVENTORY"); (b) all Seller's rights in, to and under all agreements, contracts, leases, license agreements and other executory instruments to which Seller is a party relating to the Business, and all pending purchase and sales orders incurred in the ordinary course of the Business, including, but not limited to, those listed on Schedule 1.1(b) (which Schedule 1.1(b) shall list all such agreements, contracts, leases, license agreements, other executory instruments and purchase and sales orders) (the "CONTRACTS"); (c) all transferable guaranties, warranties, indemnities and similar rights in favor of Seller to the extent related to any Purchased Asset; (d) all goodwill associated with or attributable to the Business; (e) all Seller's interest in any Intellectual Property. As used herein, the term "INTELLECTUAL PROPERTY" shall mean and include: (i) all trademark rights, business identifiers, trade dress, service marks, trade names, and brand names; (ii) all copyrights and all other rights associated therewith and the underlying works of authorship; (iii) all patents and all proprietary rights associated therewith; (iv) all contracts or agreements granting any right, title, license or privilege under the intellectual property rights of any third party; (v) all inventions, mask works and mask work registrations, know how, discoveries, improvements, designs, trade secrets, shop and royalty rights, employee covenants and agreements respecting intellectual property and non competition and all other types of intellectual property; and (vi) all registrations of any of the foregoing, all applications therefor, all goodwill associated with any of the foregoing, and all claims for infringement or breach thereof; (f) all permits, approvals, qualifications and the like used by Seller in the conduct of the Business issued by any governmental body or other instrumentality to the extent assignable by Seller; (g) all customer lists and records, files and correspondence, technical information, and all sales, advertising, and promotional literature, catalogs, artwork, and other items associated with or attributable to the Business; (h) all records and files of Seller of every kind including, without limitation, invoices, customer and vendor lists, blueprints, specifications, designs, drawings, and operating and marketing plans, and all other documents, tapes, discs, programs or other embodiments of information of Seller; (i) the name "Get in the Game," and all rights to use or allow others to use such name; and (j) all causes of action relating to the Business arising out of occurrences before the Closing, and other intangible rights and assets. SECTION 1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding, Seller shall not sell, transfer, assign, convey or deliver to New Sub, and Purchaser will not purchase or accept the following assets of Seller (collectively, the "EXCLUDED ASSETS"): (a) the consideration delivered by Purchaser pursuant to this Agreement; (b) Any other item that is not a Purchased Asset. SECTION 1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of this Agreement, at the Closing, Purchaser shall assume and pay, discharge or perform when due only those liabilities set forth on Exhibit "A" attached hereto (collectively, the "ASSUMED LIABILITIES"). In particular, the debts of Delehanty and Single as listed on Exhibit "A" will be paid with Stock Consideration as described in Section 1.4 below. The debts of Ruth Nelson, Charles Single, Jack Reed, and Robert Moore will be paid in cash at Closing 2 Without limiting the foregoing, except as set forth on Exhibit "A", Purchaser shall not be liable for any liability, obligation or claim: (a) based upon any written or implied warranty or any theory of product liability, including but not limited to claims for bodily injury and property damage, with respect to goods sold, leased, processed, manufactured, consigned, distributed or transferred by Seller prior to the Closing; (b) for any and all severance or other termination benefits owing to any employee of Seller arising out of or resulting from severance or termination by Seller prior to or in connection with the Closing; (c) for Taxes; (d) relating to employee benefits or compensation arrangements existing on or prior to the Closing Date, including, without limitation, any liability or obligation under any of Seller's employee benefit agreements, plans or other arrangements; (e) arising under or in connection with any event occurring or circumstance existing prior to the Closing with respect to any pension plan, profit sharing plans or other employee benefit plan of Seller; (f) to a third party for infringement of such third party's Intellectual Property arising under or in connection with any event occurring prior to Closing; (g) with respect to any action, suit, proceeding, arbitration, investigation or inquiry, whether civil, criminal or administrative arising under or in connection with any event occurring prior to Closing; (h) incurred by Seller in connection with this Agreement and the transactions contemplated hereby; (i) relating to indebtedness of Seller for borrowed money; (j) in connection with any violation by Seller of or failure by Seller to comply with any statute, law, ordinance, rule or regulation or any order writ, injunction, judgment, plan or decree of any court arbitrator, department, commission, board, bureau, agency, authority, instrumentality or other body, whether federal, state, municipal, foreign or other prior to Closing; or (k) arising under or in connection with any of the Excluded Assets. SECTION 1.4 PURCHASE PRICE. The purchase price for the Purchased Assets shall be (i) the assumption of the Assumed Liabilities, and (ii) the issuance of a number of shares of common stock of Purchaser ("IST COMMON Stock") having an 3 aggregate fair market value equal to $100,000.00 (the "STOCK CONSIDERATION"). The assumption of the Assumed Liabilities together with the Stock Consideration and the Performance Consideration, if any, shall collectively be referred to as the "PURCHASE PRICE." For the purposes of this Agreement, the fair market value per share of IST Common Stock shall be the average closing price of such shares on the OTC Bulletin Board during the twenty (20) trading days immediately prior to the Closing Date (the "PER SHARE FAIR MARKET VALUE"). SECTION 1.5 PERFORMANCE CONSIDERATION. No later than January 20, 2006, Purchaser agrees to issue to Seller that number of shares of IST Common Stock (rounded to the nearest whole number) having an aggregate fair market value equal to the PERFORMANCE CONSIDERATION. The PERFORMANCE CONSIDERATION shall be calculated by multiplying $100,000 by the gross revenues for NewSub for its fiscal year ending on December 31, 2005 (to be determined in accordance with GAAP by Purchaser in its sole and absolute discretion), divided by $1.2 million. The maximum PERFORMANCE CONSIDERATION shall be $100,000. The number of shares to be issued shall be calculated using the PER SHARE FAIR MARKET VALUE as calculated in 1.4 above. SECTION 1.6 CLOSING.The closing of the purchase and sale of the Purchased Assets and the assignment and assumption of the Assumed Liabilities (the "CLOSING") shall take place at the offices of Purchaser's counsel, Foley & Lardner LLP, 100 North Tampa Street, Suite 2700, Tampa, Florida on the date hereof or such other date agreed to by the parties (the "CLOSING DATE"). SECTION 1.7 DELIVERIES AT CLOSING. (a) Deliveries by Purchaser. At or prior to the Closing, Purchaser shall deliver or cause to be delivered to Seller the following: (i) Stock certificates representing that number of shares of IST Common Stock having a fair market value equal to $100,000.00; (ii) any other documents, certificates, instruments or writings required to be delivered by Purchaser at or before the Closing pursuant to this Agreement or otherwise. (b) Deliveries by Seller. At or prior to the Closing, Seller shall deliver to Purchaser the following: (i) A Bill of Sale; and (ii) any other documents, certificates, instruments or writings required to be delivered by the Purchaser at or before the Closing pursuant to this Agreement or otherwise required in connection herewith. SECTION 1.8 NONASSIGNABILITY OF ASSETS. To the extent that the sale, assignment or transfer to Purchaser of any asset that is intended to be a Purchased Asset would require any third party approval and such approval shall 4 not have been obtained prior to the Closing, at Purchaser's option, the Closing shall proceed without the sale, assignment or transfer of any such asset and (i) the asset (and its related liabilities) will not be considered a Purchased Asset or an Assumed Liability for the purposes hereof unless and until such approval has been obtained; (ii) the parties shall use their reasonable best efforts to obtain such approval; and (iii) pending such approval the parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangement designed to provide Purchaser with the economic and operational equivalent of the use of such asset and its related liabilities. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Purchaser that the following are true and correct as of the date first above written and shall be true and correct on the Closing Date and shall be unaffected by any investigation heretofore or hereafter made by Purchaser or any knowledge of Purchaser other than as specifically disclosed in the Disclosure Schedule delivered to Purchaser at the time of execution of this Agreement (the "SELLER DISCLOSURE SCHEDULE"): SECTION 2.2 NO CONFLICT; APPROVALS. Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated hereby will (i) violate or conflict with any provision of any Articles of Incorporation or Bylaws of Seller or any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Seller or any of its respective assets is subject, (ii) except as set forth on Section 2.2 of the Seller Disclosure Schedule, result in the breach or termination of any provision of, or create in any party the right to accelerate, terminate, modify or cancel or exercise any remedy under, any agreement or other instrument or obligation to which any of the Purchased Assets may be subject, bound or affected, or (iii) require notice, authorization, consent, exemption, approval or other action of any public body or authority (including under any "plant closing" or similar law). SECTION 2.3 BOOKS AND RECORDS. The material books of account and other records of the Business, all of which have been made available to Purchaser prior to the Closing, are complete and accurate in all material respects. Set forth in Section 2.3 of the Seller Disclosure Schedule is a list of each bank is which Seller has an account or safe deposit box, the name and number of each such account or box and the names of all persons authorized to draw thereon or who have access thereto, with the amounts they are authorized to draw. SECTION 2.4 TITLE TO THE ASSETS. Except as set forth in Section 2.4 of the Seller Disclosure Schedule, Seller has and at the Closing will transfer to Purchaser good and marketable title to the Purchased Assets, free and clear of all Liens. The Purchased Assets include all rights, properties and other assets necessary for Seller to conduct the Business in the same manner as its business has been conducted. SECTION 2.5 CONTRACTS. Schedule 1.1(b) contains an accurate and complete list of all Contracts. All Contracts of Seller are freely assignable except as indicated on Schedule 1.1(b) hereto. Complete and correct copies of all such 5 Contracts have been delivered to Purchaser. All such Contracts are valid and binding, in full force and effect and enforceable in accordance with their respective terms (subject to bankruptcy, insolvency, fraudulent conveyance, moratorium and similar laws affecting creditors' rights and general equity principles). Seller is not in breach or default under any of the Contracts, nor has there occurred an event or condition which, with the passage of time or giving of notice (or both) would constitute a breach or default by Seller under any such Contract, nor, to the best knowledge, information and belief of Seller, are any of the other parties to such Contracts in breach of default thereunder. All Contracts (the "GOVERNMENT CONTRACTS") with federal, state, local or foreign governmental entities or any subdivision thereof (the "GOVERNMENTAL Authorities") have been performed by the Seller in compliance with all applicable statutes, rules, regulations, orders, ordinances, laws, decrees and codes of Governmental Authorities, applicable to contracting with such Governmental Authorities. SECTION 2.6 LITIGATION. Except as set forth in Section 2.6 of the Seller Disclosure Schedule, there is no action, suit, proceeding at law or in equity by any person or entity, or any arbitration or any administrative or other proceeding by or before or, to the best of Seller's knowledge, threatened against or affecting Seller nor has Seller received notice of or otherwise have knowledge of any investigation by any governmental or other instrumentality or agency concerning Seller or any of its properties or rights which is or could reasonably be expected to (i) adversely affect the right or ability of Seller to carry on the Business as now conducted; (ii) adversely affect the condition, whether financial or otherwise, of the Business; or (iii) question the validity of this Agreement or any of Seller's agreements and covenants regarding transactions contemplated hereby. SECTION 2.7 TAXES. Seller has filed, or prior to the Closing will timely file, within the times and within the manner prescribed by law, all federal, state and local tax returns, information returns, forms, reports, declarations and all other tax reports and returns ("RETURNS") which are required to be filed by it as of the Closing with respect to the Business or the Assets. Each Return is true, correct and complete in all material respects and accurately reflects or will fully and accurately reflect all required and appropriate liability for taxes of Seller for the periods covered thereby, and no Return has been amended. All Taxes payable by or due from Seller prior to the Closing Date with respect to the Business have been fully and timely paid and those Taxes with respect to the Business that are not due prior to the Closing Date are fully provided for in the books and records of Seller. Seller is not currently under audit by any Taxing Authority and has no outstanding agreements or waivers extending the statutory period of limitations applicable to any Return. There are no unresolved audit issues with respect to prior Returns, there are no requests for rulings or determinations in respect of any Tax pending between the Seller and any Taxing Authority, and there are no circumstances or pending questions relating to potential Tax liabilities or claims asserted for Taxes that, if adversely determined, could result in a Tax liability that would have an adverse effect on Seller or the Assets for any period. The provision made for Taxes on the Seller's most recent unaudited balance sheet is sufficient for the payment of all Taxes, whether or not disputed at the date of the most recent balance sheet, and for all years and periods prior thereto. Since the date of the Seller's most recent unaudited balance sheet, Seller has not incurred any Taxes other than taxes incurred in the ordinary course of business consistent in type and amount with past practices of Seller. 6 SECTION 2.8 INVENTORY. Except for the Inventory of Seller or as stated in Section 2.8 of the Seller Disclosure Schedule, the Inventory of Seller has been acquired and maintained by Seller in the ordinary course of the Business and consists of a quality and quantity useable or saleable in the ordinary course of the Business, has a commercial value at least equal to the value shown on the Seller's most recent unaudited balance sheet and is valued in accordance with GAAP at the lower of cost (on a FIFO basis) or market. Except as set forth in Section 2.8 of the Seller Disclosure Schedule, all Inventory is located at 3 San Juan Ranch Road, Santa Fe, New Mexico. SECTION 2.9 BROKER'S OR FINDER'S FEES. Seller has not used the services of a broker in connection with the consummation of the transactions contemplated hereby. To the extent that any broker is or will be entitled to any commission or fee, Seller shall be responsible for payment of such commission or fee and such commission or fee shall not be deemed to be an account payable of Seller assumed by Purchaser at the Closing. SECTION 2.10 COMPLIANCE WITH LAWS. Seller has not received any notice from any governmental entity asserting a violation by Seller of, or ordering Seller to comply with, any laws, regulations, or governmental pronouncements of any type, and there are not pending any claims or, to Seller's knowledge, investigations involving asserted violations thereof. Seller is in compliance in all material respects with all applicable statutes, rules, regulations, ordinances, orders, judgments, decrees and governmental pronouncements of each and every jurisdiction applicable to Seller and has acquired all licenses and permits required for the operation of the Business. A complete and accurate list of all such licenses and permits is set forth on Section 2.10 of the Seller Disclosure Schedule. SECTION 2.11 DISCLOSURE. There is no matter known to Seller not disclosed to Purchaser which may have, or is having, an adverse effect Material to the Business of Seller. The information contained in the Exhibits and Schedules attached and to be attached to this Agreement and in all other documents delivered and to be delivered hereunder by Seller to Purchaser is and will be complete and accurate and, subject to the qualifications and limitations identified in this Agreement and its related exhibits, schedules, disclosures and disclaimers, no representation or warranty made or to be made herein or therein contains or will contain an untrue statement of a material fact or omits or will omit to state a material fact necessary to make the representations contained herein or therein not misleading. SECTION 2.12 INTELLECTUAL PROPERTY. Section 2.12 of the Seller Disclosure Schedule contains a true and complete list of all Intellectual Property of Seller. The Intellectual Property is owned by Seller free and clear of all liens, claims, restrictions and encumbrances of any nature whatsoever, and Seller has the exclusive right to use the Intellectual Property in the operation of its business without payment to a third party. Except as set forth in Section 2.12(a) of the Seller Disclosure Schedule, no Intellectual Property infringes or is infringed upon by any rights of third parties or is involved in any opposition, invalidation or cancellation action. The Intellectual Property is sufficient for the operation of Seller's business as currently conducted. Complete and correct copies of any and all license agreements for the Intellectual Property have been delivered to Purchaser. All of such license agreements are valid and binding, in full force and effect and enforceable in accordance with their respective terms. Neither Seller nor to Seller's knowledge, any other party thereto is in violation of any of the terms of or in default under any such license agreements, nor has there occurred any event or condition which, with the passage of time or giving of notice (or both), would constitute a violation or default by Seller, nor to Seller's knowledge, any other party thereunder. 7 SECTION 2.13 INVESTMENT . Seller (i) understands that the shares of IST Common Stock comprising the Purchase Price have not been, and shall not be, registered under the Securities Act or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring the shares of IST Common Stock comprising the Purchase Price solely for its own account for investment purposes, and not with a view to the distribution thereof, (iii) is a sophisticated investor with knowledge and experience in business and financial matters, (iv) has received certain information concerning Purchaser and NewSub and has had the opportunity to obtain additional information and ask such questions as desired in order to evaluate the merits and the risks inherent in holding shares of common stock of Purchaser, (v) is able to bear the economic risk and lack of liquidity inherent in holding shares of common stock of Purchaser, and (vi) is an Accredited Investor. "Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act of 1933, as amended (the "ACT"). ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and warrants to Seller that the following are true and correct as of the date first written above and shall be true and correct on the Closing Date and shall be unaffected by any investigation heretofore or hereafter made by Seller other than as specifically disclosed in the Disclosure Schedule delivered to Seller at the time of execution of this Agreement. SECTION 3.2 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly organized, validly existing and in good standing in the State of California. New Sub is a corporation duly organized, validly existing and in good standing in the State of Delaware. SECTION 3.3 CORPORATE AUTHORITY. Purchaser has full corporate power and authority to execute, deliver and perform all of its obligations under this Agreement and the other agreements to be executed, delivered and performed by Purchaser hereunder; the execution, delivery and performance of this Agreement has been duly authorized and approved by all required corporate action of Purchaser; and this Agreement has been duly and validly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, moratorium and similar laws affecting creditors' rights and general equity principles. SECTION 3.4 NO CONFLICT; AUTHORIZATION. Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated hereby will violate or conflict with any provision of the Articles of Incorporation or Bylaws of Purchaser or any statute, regulation, rule, 8 injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Purchaser or any of its assets or properties is subject or any material contract or agreement to which it is a party. No authorization, consent or approval of any public body or authority or any third party is necessary to permit the consummation on the part of Purchaser of the transactions contemplated by this Agreement. SECTION 3.5 LITIGATION. There is no action, claim, suit or proceeding pending, or to Purchaser's knowledge threatened, by or against or affecting Purchaser in connection with or relating to the transactions contemplated by this Agreement or of any action taken or to be taken in connection herewith or the consummation of the transactions contemplated hereby. SECTION 3.6 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf of Purchaser is or will be entitled to any commission or broker's or finder's fees from any of the parties hereto or from any person controlling, controlled by or under common control with any of the parties hereto, in connection with any of the transactions contemplated herein. ARTICLE IV CONDITIONS TO PURCHASER'S OBLIGATIONS SECTION 4.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser's obligation to purchase and acquire the Purchased Assets and take the other actions required to be taken by Purchaser at the Closing is subject to the conditions set forth in this Article IV, unless any such condition shall have been waived by Purchaser in its sole discretion in writing. SECTION 4.2 TRANSFER DOCUMENTS. Seller shall have delivered to Purchaser bills of sale, assignments, certificates of title and other appropriate documents of transfer, and any other documents required hereby in form and substance reasonably satisfactory to Purchaser transferring the Purchased Assets to Purchaser. Purchaser's counsel shall have received true copies of all such documents at or prior to the Closing. SECTION 4.3 NO LITIGATION THREATENED. No action or proceeding shall have been instituted or, to the best knowledge, information and belief of Seller, shall have been threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby or which would have a material adverse effect on the Business. SECTION 4.4 APPROVALS AND CONSENTS. Consents of the third parties to the assignment to Purchaser of all Contracts set forth on Schedule 1.1(b), and all other governmental consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received by Purchaser in a form and substance acceptable to Purchaser. SECTION 4.5 ABSENCE OF LIENS. There shall be no Liens on the Purchased Assets except for Liens for current taxes not yet due and payable and except for Liens securing the payment of any of the Assumed Liabilities or which will be released upon payments to Seller's creditors pursuant to payoff letters delivered to Purchaser and its counsel not less than one business day prior to Closing. 9 SECTION 4.6 MATERIAL ADVERSE CHANGES. There shall not have occurred after the date hereof, from and to the Closing, any events, facts or circumstances which individually or together with all such other events, facts or circumstances have had or which could have an adverse effect Material to the Business. SECTION 4.7 DUE DILIGENCE; SCHEDULES. Purchaser shall have completed to its sole satisfaction its business, financial and legal due diligence investigation of Seller and shall have found, in the Purchaser's sole discretion, the Seller's prospects, business, operations, assets, commitments, rights and liabilities to be satisfactory. SECTION 4.8 EMPLOYMENT AGREEMENT. Doug Single and Purchaser shall have entered into an employment agreement with Purchaser, substantially in the form of Exhibit "B" hereto, under which Doug Single will serve as Vice President of Business Development of IST and President of Purchaser. SECTION 4.9 NON-FOREIGN AFFIDAVIT. Seller shall have furnished to Purchaser an affidavit, in form reasonably satisfactory to Purchaser, of Seller stating under penalty of perjury Seller's United States taxpayer identification number and that Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code, and containing all such other information as is required to comply with the requirements of such Section. SECTION 4.10 BANK ACCOUNTS. Except for the bank account designated by Seller to receive the purchase price hereunder, which shall have been opened since the date hereof and shall not have been used in connection with the Business, Seller shall have transferred and assigned to Purchaser, effective as of the Closing Date, (A) all accounts listed on Section 2.3 of the Seller Disclosure Schedule, whether or not such accounts are held in the name of Seller, and (B) any power of attorney from Seller with respect to such accounts to Purchaser. SECTION 4.11 BILL OF SALE. Seller shall have executed and delivered to Purchaser a Bill of Sale substantially in the form of Exhibit "D" hereto. SECTION 4.12 OTHER DOCUMENTS. Seller and Stockholder shall have delivered all other documents, instruments or writings required to be delivered to the Purchaser at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as the Purchaser may reasonably request in form and substance reasonably satisfactory to Purchaser and Purchaser's counsel. ARTICLE V CONDITIONS TO SELLER'S OBLIGATIONS SECTION 5.1 CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligation to sell and assign the Purchased Assets and take the other actions required to be taken by Seller at the Closing are subject to receipt by Seller of all of the documents required to be delivered by Purchaser pursuant to this Article V and compliance by Purchaser with the following conditions, unless any such condition shall have been waived in writing by Sellers in its sole discretion. 10 SECTION 5.2 NO LITIGATION THREATENED. No action or proceeding shall have been instituted or, to the best knowledge, information and belief of Purchaser, shall have been threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby. ARTICLE VI COVENANTS SECTION 6.1 FURTHER ASSURANCES. From time to time after the Closing, each of the parties shall execute and deliver such documents, further instruments of sale, transfer, assignment and delivery and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated by this Agreement, including the transfer, assignment and delivery of the Purchased Assets to the Purchaser. Without limiting the generality of the foregoing, the Seller shall take any and all action necessary to ensure that the New Sub has good and marketable title to all property and assets, tangible and intangible, and all leases, licenses and other agreements, which are necessary to permit the New Sub to carry on, or are currently used or held for use in, the business of the Seller as presently conducted. SECTION 6.2 DISCLOSURE. Neither Seller, Purchaser, nor any of their respective employees, agents or representatives shall make any public disclosure or announcement concerning the transactions provided for herein other than (i) a joint press release in agreed form issued by Purchaser and Seller if, in the opinion of counsel for Purchaser, such public disclosure is required by the Securities and Exchange Commission or OTC Bulletin Board, or (ii) any other disclosures or announcements required, in the good faith judgment of Purchaser, to be made by law. As to any such disclosures required by law a copy shall be provided to all parties at least five (5) business days prior to the dissemination thereof by a party. SECTION 6.3 TAX MATTERS. (a) Seller and Purchaser agree to furnish or cause to be furnished to each other, upon request, as promptly as reasonably practicable, such information and assistance (including access to books and records) relating to the Business or the Purchased Assets as is reasonably necessary for the preparation of any Tax return or claim for refund, the making of any election relating to Taxes, the preparation for any audit and the prosecution or defense of any claim, suit or proceeding relating to any Tax. Seller and Purchaser agree to (i) retain all books and records with respect to Tax matters concerning the Business and any taxable period beginning before the Closing Date for a period of at least six years following the Closing Date and, at the end of such, give each other at least ten days' prior written notice before transferring, destroying or discarding any such books and records and, if the other party so requests, allow the other party to take possession of such books and records. Seller and Purchaser shall cooperate with each other in the conduct of any audit or other proceeding relating to taxes involving the Assets or the Business. 11 (b) Any Taxes of whatsoever kind or nature which may be payable in connection with the sale of the Purchased Assets to be transferred to Purchaser hereunder ("TRANSFER TAX"), shall be borne solely by Seller who shall certify to Purchaser that all such Taxes have been paid and hold Purchaser harmless therefrom. Seller and Purchaser shall cooperate in providing each other with any appropriate resale exemption certifications and other similar documentation. The party that is required by applicable law to make the filings, reports or returns with respect to any applicable Transfer Taxes shall do so, and the other party shall cooperate with respect thereto as necessary. SECTION 6.4 NON-COMPETITION; NON-SOLICITATION. Without the express prior written consent of Purchaser and New Sub, Seller shall not at any time during the three-year period immediately following the Closing Date, on their own behalf or on behalf of or for the benefit of any Competing Business (as hereinafter defined), do any of the following: (a) establish, acquire or engage in any Competing Business within the United States or its territories; or (b) directly or indirectly, solicit, contact, call upon, communicate with or attempt to communicate with any customer or prospect of Seller, Purchaser or New Sub or any representative of any customer or prospect of Seller, Purchaser or New Sub, with a view to selling or providing any product, equipment or service similar to that sold, provided or under development by Purchaser, Seller or New Sub (except as an employee of Purchaser or New Sub); or (c) directly or indirectly, solicit, entice, or attempt to do the same to, any employee of Purchaser or New Sub or provide information about any employee of Purchaser or New Sub to others for the purpose of soliciting any such employee to leave his/her employment with Purchaser or New Sub to work for any Competing Business. For purposes of this Agreement, "COMPETING BUSINESS" shall mean any business or enterprise, however conducted or organized, whether by Seller, or by others, which is the same or essentially the same as, or which performs any substantial part of the business of Purchaser, New Sub or Seller. The parties acknowledge and agree that Purchaser, New Sub and Seller are involved in the business of researching and developing, creating, designing, manufacturing, marketing, distributing and selling Student Athlete, Summer Camp, and Collegiate Preparatory manuals, information, guidelines, seminar production services, software, and related products. Seller shall not use the name "Get in the Game" or any derivative thereof in any Competing Business. SECTION 6.5 CONFIDENTIALITY. Each of Seller, Purchaser and New Sub agree to treat as confidential and as a trade secret pursuant to and in accordance with the Uniform Trade Secrets Act (Florida Statutes 688, as amended) any and all business information of the other party in its possession, in each case by using the same degree of care as is used for its own trade secrets, but no less than a reasonable standard of care, to prevent the unauthorized use, dissemination, misappropriation or disclosure of such trade secrets. Neither party may misappropriate the business information of the other party in its possession. For purposes hereof, "trade secrets" shall include all supplier and customer lists and files, techniques, processes, know how, advertising, distribution and sales methods, sales and profit figures, budgets, capital spending plans, acquisition and divestiture plans, marketing data, financial information, employee lists, real property information (leasing or otherwise) and the like. 12 SECTION 6.6 SALES AND USE TAXES. Seller will provide Purchaser with proof of filing of all sales and/or use taxes for the last three years and proof of payment of the tax shown to be due thereon. For the reporting period ending on the Closing Date, Seller will file the sales and use tax returns for the sales and purchases at the Premises for such period on or before the due date and will provide Purchaser with copies of such returns and proof of payment of the taxes due thereon. SECTION 6.7 CONSENT OF SELLER. Seller will provide, at Purchaser's expense, all consents necessary in order for Purchaser to comply with any filing requirements of Purchaser pursuant to the rules and regulations of the Securities and Exchange Commission and OTC Bulletin Board. SECTION 6.8 IST COMMON STOCK. Seller and Stockholder acknowledge that the certificates representing shares of IST Common Stock comprising the Purchase Price shall be imprinted with a legend substantially in the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ISSUED IN RELIANCE ON EXEMPTIONS, FROM REGISTRATION THEREUNDER. THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. If Seller desires to transfer any of the shares of common stock of IST comprising the Purchase Price, Seller must furnish Purchaser with a written opinion satisfactory to Purchaser in form and substance from counsel satisfactory to Purchaser by reason of experience to the effect that the holder may transfer such shares as desired without registration under the Securities Act. 13 ARTICLE VII INTENTIONALLY OMITTED ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. (a) The representations and warranties of the Seller in this Agreement or any document delivered pursuant hereto shall survive the Closing for a period beginning on the Closing Date and ending on the third anniversary of the Closing Date and shall terminate and be of no further force or effect as of the day after such date (the "EXPIRATION DATE"), except that the representations and warranties in Sections 2.4 shall survive the Closing forever and shall not terminate. (b) The covenants and agreements of the Seller and Purchaser in this Agreement or any document delivered pursuant thereto shall survive the Closing and shall be fully effective and enforceable for the periods therein indicated or where not indicated forever. SECTION 8.2 SELLER'S OBLIGATION TO INDEMNIFY. (a) Subsequent to the Closing, Seller shall indemnify and hold harmless the Purchaser and New Sub and their respective directors, officers, employees, agents, affiliates and assigns, other than any Seller, (collectively, the "PURCHASER INDEMNIFIED PERSONS") from and against all losses, liabilities, damages, deficiencies, costs or expenses, including interest and penalties imposed or assessed by any judicial or administrative body and reasonable attorneys' fees, whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing (collectively, "LOSSES") suffered or incurred by any Purchaser Indemnified Person based upon, arising out of or otherwise in respect of (i) any inaccuracy in or breach of (without regard to any knowledge, dollar threshold, materiality or Material Adverse Effect qualifications contained therein) any representation or warranty of the Seller in this Agreement or in any document delivered pursuant hereto, (ii) any breach of (without regard to any knowledge, dollar threshold, materiality or Material Adverse Effect qualifications contained therein) any covenant or agreement of the Seller in this Agreement or in any document delivered pursuant hereto; provided that in determining the amount of any Loss suffered or incurred by any Purchaser Indemnified Person hereunder, such Loss shall be reduced by the economic benefit to any Purchaser Indemnified Person, if any, occurring or reasonably anticipated to occur from any applicable insurance coverage and the benefits actually received under federal, state and local Tax laws then applicable and the allowance of an appropriate discount for timing factors. (b) No indemnification shall be payable pursuant to Section 8.2(a) with respect to any inaccuracy or breach of any representation or warranty or breach of any covenant or agreement after termination thereof in accordance with Section 8.1, except with respect to claims made prior to such termination pursuant to Section 8.7 but not then resolved (such representation, warranty, covenant or agreement surviving with respect to such claim until resolution of such claim). 14 SECTION 8.3 LIMITATIONS ON SELLER'S INDEMNIFICATION. Notwithstanding any provision of this Agreement to the contrary: (a) The limitations of Sections 8.2(b) and 8.3(b) shall not apply in the case of a fraudulent or intentional misrepresentation or breach by the Seller. (b) The Seller shall have no obligation to indemnify any Purchaser Indemnified Person pursuant to Section 8.2(a) until the aggregate amount of the Losses subject thereto exceed $5,000.00 (the "DEDUCTIBLE AMOUNT"), after which, subject to the next sentence of this section, the obligation of the Seller shall be to indemnify the Purchaser Indemnified Persons to the full extent of such Losses in excess of the Deductible Amount. Subject to the provisions of Section 8.3(a), the indemnification obligations under this Section 8.3(b) and shall be the sole and exclusive remedy of the Purchaser Indemnified Persons with respect to any Losses incurred by any Purchaser Indemnified Persons relating to or in connection with the transactions contemplated by this Agreement and the aggregate liability of the Seller for indemnification hereunder shall be limited to the sum of the Purchase Price (the "APPLICABLE CAP"). (c) Each party hereto shall use all reasonable efforts to mitigate the amount of any Loss. SECTION 8.4 SURVIVAL OF PURCHASER OBLIGATIONS. (a) The representations and warranties of the Purchaser in this Agreement or any document delivered pursuant hereto shall survive the Closing for a period beginning on the Closing Date and ending on the Expiration Date and shall terminate and be of no further force or effect as of such date, except that the representations and warranties in Section 3.2 shall survive the Closing forever and shall not terminate. (b) The covenants and agreements of the Purchaser in this Agreement or any document delivered pursuant hereto shall survive the Closing and shall be fully effective and enforceable for the periods therein indicated or where not indicated, for the periods ending upon the expiration of the last statute of limitations applicable to any claim arising under any such covenant or agreement. SECTION 8.5 PURCHASER OBLIGATION TO INDEMNIFY. (a) Subsequent to the Closing, the Purchaser shall indemnify and hold harmless the Seller from and against all Losses suffered or incurred by any Seller or Stockholder based upon, arising out of or otherwise in respect of (i) any inaccuracy in or breach of any representation or warranty of the Purchaser in this Agreement or any document delivered pursuant hereto or (ii) any breach of any covenant or agreement of the Purchaser in this Agreement or any document delivered pursuant hereto; provided that in determining the amount of any Loss suffered or incurred by Seller hereunder, such Loss shall be reduced by the economic benefit to Seller, if any, occurring or reasonably anticipated to occur from any applicable insurance coverage and the benefits actually received under federal, state and local Tax laws then applicable and the allowance of an appropriate discount for timing factors. 15 (b) No indemnification shall be payable pursuant to Section 8.5(a) with respect to any inaccuracy or breach of any representation or warranty or breach of any covenant or agreement after termination thereof in accordance with Section 8.4, except with respect to claims made prior to such termination pursuant to Section 8.7 but not then resolved (such representation, warranty, covenant or agreement surviving with respect to such claim until resolution of such claim). SECTION 8.6 LIMITATIONS ON PURCHASER INDEMNIFICATION. (a) The limitations of Sections 8.5(b) and 8.6(b) shall not apply in the case of a fraudulent or intentional misrepresentation or breach by the Purchaser. (b) The Purchaser shall have no obligation to indemnify the Seller pursuant to Section 8.5(a) until the aggregate amount of the Losses subject thereto exceed the Deductible Amount, after which, subject to the following sentence, the obligation of the Purchaser shall be to indemnify the Seller to the full extent of such Losses in excess of the Deductible Amount. Subject to the provisions of Section 8.6(a), the indemnification obligations of the Purchaser under this Section 8.6(b) shall be the sole and exclusive remedy of the Seller with respect to any Losses incurred by any Seller relating to or in connection with the transactions contemplated by this Agreement and the aggregate liability of the Purchaser for indemnification hereunder shall be limited to the Applicable Cap; provided, however, that nothing contained in this Section 8.6(b) shall limit the Purchaser's obligation to pay the Purchase Price pursuant to Section 1.1. SECTION 8.7 PROCEDURES RELATING TO INDEMNIFICATION. (a) An indemnified Person under Sections 8.2(a) or 8.5(a) (the "Indemnified Party") shall give prompt written notice to the indemnifying party (the "Indemnifying Party") of any Loss in respect of which such Indemnified Party is seeking indemnification under Sections 8.2(a) or 8.5(a), specifying in reasonable detail the nature of such Loss, the section or sections of this Agreement to which the Loss relates, and the amount of such Loss (or if not then determinable, its best estimate of the amount of such Loss). Any such notice given by any Indemnified Party under Section 8.7(a) shall be given to the Seller. (b) With respect to any Loss, the Indemnifying Party shall have 30 business days from receipt of notice from the Indemnified Party of such Loss within which to respond thereto. If the Indemnifying Party does not respond within such 30 business day period, the Indemnifying Party shall be deemed to have accepted responsibility to make payment and shall have no further right to contest the validity of such Loss. (c) The Indemnifying Party shall promptly pay the Indemnified Party any amount due under this Article VIII, which payment may be accomplished in whole or in part, at the option of the Indemnified Party, by the Indemnified Party setting off any amount owed to the Indemnifying Party by the Indemnified Party. 16 SECTION 8.8 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. Any payments made pursuant to Article VIII of this Agreement shall be treated for all Tax purposes as adjustments to the consideration to be paid hereunder and no party or any of its Affiliates shall take any position on a Tax Return or in any proceeding with any taxing authority contrary to such treatment, unless otherwise required by law. ARTICLE IX MISCELLANEOUS SECTION 9.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings unless the context otherwise requires. (a) "Affiliate" means any Person who controls, is controlled by or is under common control with Seller, Stockholder or Purchaser, as the case may be. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "GAAP" means generally accepted accounting principles utilized in the United States of America, consistently applied. (d) "Knowledge," "Information" or "Belief" means, with respect to Seller or Purchaser, the actual knowledge of their respective executive officers after they have made due and diligent inquiry as to the matters that are the subject of such representations and warranties. (e) "Material to the Business" means material to the business, assets, properties, operations, results of operations, or financial condition of Seller, taken as a whole. (f) "Ordinary Course of Business" means the conduct of Seller's business and operations in the ordinary course in a manner consistent with past custom and practices. (g) "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. (h) "Tax" means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, registration, recording, documentary, conveyancing, gains, withholding on amounts paid to or by the Seller, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority or (ii) liability for the payment of any amounts of the type described in (i) as a result of being party to any agreement or any express or implied obligation to indemnify any other Person. (i) "Taxing Authority" means any governmental authority responsible for the imposition of any Tax (domestic or foreign). 17 SECTION 9.2 PROFESSIONAL EXPENSES. Seller, on the one hand, and Purchaser, on the other hand, shall each pay all of its own professional expenses relating to negotiating, drafting and closing the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of its respective counsel, financial advisers, investment bankers and accountants, whether or not the transactions contemplated hereby are consummated. SECTION 9.3 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without giving effect to conflicts of laws principles. SECTION 9.4 JURISDICTION. Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related hereto shall be brought in the appropriate courts of the State of Florida or the United States District Court for the Middle District of Florida. By execution and delivery of the Agreement, each of the parties to this Agreement consents to the exclusive jurisdiction of the aforesaid courts, waives any objection to venue therein and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Process in any such proceeding may be served on any party hereto anywhere. The prevailing party in any such proceeding shall be entitled to an award of its attorney's fees, paralegal fees, costs and expenses incurred at the trial and appellate levels and in any proceedings in Bankruptcy Court. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IS WAIVED. SECTION 9.5 CAPTIONS. The Article and Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 9.6 NOTICES. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by express mail or by registered or certified mail, postage prepaid, addressed as follows: (i) If to Seller: Douglas W. Single 3 San Juan Ranch Road Sante Fe, NM 87506 with a copy to: ________________________________ ________________________________ ________________________________ Attention: 18 (ii) If to Purchaser or New Sub: Innovative Software Technologies, Inc. 100 North Tampa Street Suite 2410 Tampa, Florida 33602 Attention: Christopher J. Floyd, Chief Financial Officer with a copy to: Foley & Lardner LLP 100 North Tampa Street Suite 2700 Tampa, Florida 33602 Attention: Curt Creely, Esquire or such other address as shall be furnished in writing by any such party in accordance with this Section 9.6, and such notice or communication shall be deemed to have been given as of the date so personally delivered or received by mail. SECTION 9.7 PARTIES IN INTEREST. This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement. Nothing expressed or referred to herein is intended or shall be construed to give any other person any legal or equitable right, remedy or claim hereunder. SECTION 9.8 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which taken together shall constitute one instrument. SECTION 9.9 ENTIRE AGREEMENT. This Agreement, including the Schedules, certificates and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings (oral or written) between the parties with respect to such subject matter. The parties hereto acknowledge and agree that the only representations and warranties made by the parties in connection with the transactions contemplated hereby are those expressly made in writing herein (including the exhibits and schedules hereto and the certificates and other agreements delivered in accordance herewith). No oral representations or warranties have been made or implied by any party hereto. SECTION 9.10 AMENDMENTS; WAIVERS. This Agreement may only be amended by an agreement in writing signed by Purchaser and Seller. Neither the failure nor any delay by any party in exercising any right hereunder will operate as a waiver of such right, and no single or partial exercise of any such right will preclude any other or further exercise of such right or the exercise of any other right. Waiver of the benefit of any provision of this Agreement must be in writing to be effective. No due diligence investigation conducted by the representatives of Purchaser shall be deemed to constitute a waiver by Purchaser of any representations, warranties, covenants or other obligations contained in this Agreement. 19 SECTION 9.11 SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby. Any provision held invalid, illegal or unenforceable in part will remain in full force and effect to the extent not held invalid, illegal or unenforceable. SECTION 9.12 RULES OF CONSTRUCTION. The normal rules of construction which require the terms of an agreement to be construed most strictly against the drafter of such agreement are hereby waived since each party has been represented by counsel in the drafting and negotiation of this Agreement. SECTION 9.13 RISK OF LOSS. Risk of loss of, or damage or destruction to, the Purchased Assets shall be borne by Seller until the Closing. In the event of damage or destruction to the Assets, Seller shall promptly notify Purchaser. If the loss of, or damage or destruction to, the Purchased Assets is inconsequential and immaterial, and the Purchaser is able to obtain the full benefit of its bargain, the Purchaser shall not have the right to terminate this Agreement. 20 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date and year first above written. "PURCHASER" "SELLER" INNOVATIVE SOFTWARE TECHNOLOGIES, INC. DOUGLAS W. SINGLE By: /s/ Peter M. Peterson By: /s/ Douglas W. Single --------------------- --------------------- Peter M. Peterson Douglas W. Single Chief Executive Officer Proprietor "NEW SUB" GET IN THE GAME, INC. By: /s/Christopher J. Floyd ----------------------- Christopher J. Floyd Chief Financial Officer, Treasurer 21 SCHEDULE 1.1(A) INVENTORY All brochures, literature, packages, seminar materials, and other materials, regardless of form or media (including electronic media), relating to, used in, or usable in the Business. SCHEDULE 1.1(B) CONTRACTS 1. Contract with A Game (Mark Isenberg and Rick Rhodes) to furnish "Student-Athlete Survival Guide" and curriculum updates, a College Prep Notebook and a Play You A Game Poster. DISCLOSURE SCHEDULE 2.12 INTELLECTUAL PROPERTY 1. A one-hour introductory seminar given free to high school students and their parents. 2. A three-hour basic workshop for parents and freshman through senior (first semester) students. 3. An advanced three-hour marketing and financial aid workshop. 4. "Personal Coaching" a one-on-one program designed for students and their parents. 5. A DVD presentation to sports camps, clinics and conventions during June, July and August. 6. "Mental Edge Training" Coaches Manual. 7. Program Leader Training Guide. EXHIBIT A DEBT TO BE ASSUMED IN TRANSACTION CREDITOR PRINCIPAL -------- --------- Frank Delehanty $ 30,000 Ruth Nelson 5,000 Charles Single 21,500 Jack Reed 12,500 Robert Moore 12,000 Doug Single 60,000 --------------- $ 141,000 EXHIBIT B EMPLOYMENT AGREEMENT FOR DOUG SINGLE 2 EXHIBIT C BILL OF SALE 3 EX-10.1 3 v09192_ex10-1.txt EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of December 1, 2004 (the "Effective Date"), by and between Innovative Software Technologies, Inc., a California corporation (the "Employer"), and Douglas W. Single, an individual resident in New Mexico (the "Executive"). BACKGROUND: The Company desires to employ the Executive as Vice President of Business Development of Employer, and President of Get in the Game, Inc., a wholly owned subsidiary of Employer, and the Executive desires to accept such employment, on the terms and subject to the conditions set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. EMPLOYMENT TERMS AND DUTIES 1.1 EMPLOYMENT. The Employer hereby employs the Executive, and the Executive hereby accepts employment by the Employer, upon the terms and conditions set forth in this Agreement. 1.2 TERM. Subject to the provisions of Section 5, the term of the Executive's employment under this Agreement will be two years, beginning on the Effective Date and ending on the second anniversary of the Effective Date. Beginning on the Termination Date, the term of employment shall automatically renew on a year-to-year basis (each such year being referred to as a "Renewal Period") unless and until terminated earlier pursuant to Section 6 hereof or until terminated by the Employer or the Executive by written notice at least 60 days before the commencement of such Renewal Period. 1.3 DUTIES. The Executive will have such duties as are assigned or delegated to the Executive by the Board of Directors or Chief Executive Officer, and will initially serve as Vice President of Business Development of Employer and President of Get in the Game, Inc., a wholly-owned subsidiary of Employer. The Executive will devote his time, attention, skill, and energy to the business of the Employer on a full-time basis, will use his reasonable best efforts to promote the success of the Employer's business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Employer. Nothing in this Section 1.3, however, will prevent the Executive from engaging in additional business activities, personal investments and community affairs that are not inconsistent with the Executive's duties under this Agreement. If the Executive is elected as a director of the Employer or as a director or officer of any of its affiliates, the Executive will fulfill his duties as such director or officer without additional compensation. 2. COMPENSATION 2.1 BASIC COMPENSATION. (a) Salary. The Executive will be paid an annual salary of $120,000, subject to adjustment as provided below (the "Salary"), which will be payable in equal periodic installments according to the Employer's customary payroll practices, but no less frequently than monthly. The Salary will be reviewed by the Board of Directors not less frequently than annually, and may be adjusted upward or downward in the sole discretion of the Board of Directors, but in no event will the Salary be less than $100,000 per year. 1 Initials _________ ________ Executive Employer (b) Equity Grant. In consideration of Executive entering into this Agreement, the Company shall issue to Employee 350,000 shares of its common stock, such shares to vest as follows: 175,000 shares immediately and 175,000 shares on the one year anniversary of the execution of this Agreement. Such shares will be issued in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended, and such shares shall be, upon issuance, validly issued, fully paid, and non-assessable. The certificates representing said shares shall bear the Company's standard restrictive legend. (c) Benefits. The Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, bonus, life insurance, hospitalization, major medical or health plan, and other employee benefit plans of the Employer that may be in effect from time to time, to the extent the Executive is eligible under the terms of those plans (collectively, the "Benefits"). 2.2 INCENTIVE COMPENSATION. As additional compensation (the "Incentive Compensation") for the services to be rendered by the Executive pursuant to this Agreement, the Employer will pay the Executive with respect to each Fiscal Year during the Employment Period according to the Company's Executive Performance Plan to be approved by the Board of Directors as amended from time to time. 2.3 WITHHOLDING. All compensation and amounts payable to Executive pursuant to this Agreement shall be subject to all applicable taxes and payroll deductions. 3. FACILITIES AND EXPENSES The Employer will furnish the Executive office space, equipment, supplies, and such other facilities and personnel as the Employer deems necessary or appropriate for the performance of the Executive's duties under this Agreement. The Employer will pay the Executive's dues in such professional societies and organizations as the Chief Executive Officer deems appropriate, and will pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Employer in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Employer's employment policies, including reasonable expenses incurred by the Executive in attending conventions, seminars, and other business meetings, in appropriate business entertainment activities, and for promotional expenses. The Executive must file expense reports with respect to such expenses in accordance with the Employer's policies. 4. VACATIONS AND HOLIDAYS The Executive will be entitled to three weeks of paid vacation each Fiscal Year in accordance with the vacation policies of the Employer in effect for its executive officers as modified from time to time. Vacation must be taken by the Executive at such time or times as approved by the Chairman of the Board or Chief Executive Officer. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Employer's policies. Vacation days and holidays during any Fiscal Year that are not used by the Executive during such Fiscal Year may not be used in any subsequent Fiscal Year. 5. TERMINATION 5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's Basic Compensation and Incentive Compensation, and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Employer will terminate (except as otherwise provided in this Section 5): 2 Initials _________ ________ Executive Employer (a) upon the death of the Executive; (b) upon the disability of the Executive (as defined in Section 5.2) immediately upon notice from either party to the other; (c) for cause (as defined in Section 5.3), immediately upon notice from the Employer to the Executive, or at such later time as such notice may specify; or (d) for good reason (as defined in Section 5.4) upon not less than thirty days' prior notice from the Executive to the Employer. In addition to the other termination provisions of this Agreement Employer may terminate the Employee's employment without Cause at any time. 5.2 DEFINITION OF DISABILITY. For purposes of Section 5.1, the Executive will be deemed to have a "disability" if, for physical or mental reasons, the Executive is unable to perform the Executive's duties under this Agreement for 90 consecutive days, or 150 days during any twelve-month period, as determined in accordance with this Section 5.2. The disability of the Executive will be determined by a medical doctor selected by written agreement of the Employer and the Executive upon the request of either party by notice to the other. If the Employer and the Executive cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will select a third medical doctor who will determine whether the Executive has a disability. The determination of the medical doctor selected under this Section 5.2 will be binding on both parties. The Executive must submit to a reasonable number of examinations by the medical doctor making the determination of disability under this Section 5.2, and the Executive hereby authorizes the disclosure and release to the Employer of such determination and all supporting medical records. If the Executive is not legally competent, the Executive's legal guardian or duly authorized attorney-in-fact will act in the Executive's stead, under this Section 5.2, for the purposes of submitting the Executive to the examinations, and providing the authorization of disclosure, required under this Section 5.2. 5.3 DEFINITION OF "FOR CAUSE." For purposes of Section 5.1, the phrase "for cause" means: (a) the Executive's material breach of this Agreement if Executive has been given a reasonable opportunity to comply with such policy or cure his failure to comply (which reasonable opportunity must be granted during the thirty-day period preceding termination of this Agreement; (b) the Executive's failure to adhere to any written Employer policy if the Executive has been given a reasonable opportunity to comply with such policy or cure his failure to comply (which reasonable opportunity must be granted during the fifteen-day period preceding termination of this Agreement); (c) the appropriation (or attempted appropriation) of a material business opportunity of the Employer, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Employer; (d) the misappropriation (or attempted misappropriation) of any of the Employer's funds or property; or (e) the conviction of, (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony, the equivalent thereof, or any other crime with respect to which imprisonment is a possible punishment. Termination for cause shall be effected only through a vote of the majority of the board of directors. 5.4 DEFINITION OF "FOR GOOD REASON." For purposes of Section 5.1, the phrase "for good reason" means any of the following: (a) The Employer's material breach of this Agreement; (b) the assignment of the Executive without his consent to a position, responsibilities, or duties of a materially lesser status or degree of responsibility than his position, responsibilities, or duties at the Effective Date; or (c) the relocation of the Employer's principal executive offices outside the metropolitan Tampa Bay, Florida area; (d) the requirement by the Employer that the Executive be based anywhere other than the Employer's principal executive offices, in either case without the Executive's consent, or (e) a Change in Control of the Employer. 5.5 TERMINATION PAY. Effective upon the termination of this Agreement, the Employer will be obligated to pay the Executive (or, in the event of his death, his designated beneficiary as defined below) only such compensation as is 3 Initials _________ ________ Executive Employer provided in this Section 5.5. For purposes of this Section 5.5, the Executive's designated beneficiary will be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Employer from time to time or, if the Executive fails to give notice to the Employer of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Employer will have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any person or entity purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity, or to locate or attempt to locate any beneficiary, personal representative, or trustee. (a) Termination by the Executive for Good Reason or by the Employer without Cause. If the Executive terminates this Agreement for good reason, or if the Employer terminates the Employee without Cause, the Employer will pay the Executive (i) the Executive's Salary for the remainder, if any, of the calendar month in which such termination is effective and for six consecutive calendar months thereafter, and (ii) that portion of the Executive's Incentive Compensation, if any, for the Fiscal Year during which the termination is effective, prorated through the date of termination. (b) Termination by the Employer for Cause. If the Employer terminates this Agreement for cause, the Executive will be entitled to receive his Salary only through the date such termination is effective, but will not be entitled to any Incentive Compensation for the Fiscal Year during which such termination occurs or any subsequent Fiscal Year. (c) Termination upon Disability. If this Agreement is terminated by either party as a result of the Executive's disability, as determined under Section 5.2, the Employer will pay the Executive his Salary through the remainder of the calendar month during which such termination is effective and for the lesser of (i) six consecutive months thereafter, or (ii) the period until disability insurance benefits commence under the disability insurance coverage furnished by the Employer to the Executive. (d) Termination upon Death. If this Agreement is terminated because of the Executive's death, the Executive will be entitled to receive his Salary through the end of the calendar month in which his death occurs, and that part of the Executive's Incentive Compensation, if any, for the Fiscal Year during which his death occurs, prorated through the end of the calendar month during which his death occurs. (e) Benefits. The Executive's accrual of, or participation in plans providing for, the Benefits will cease at the effective date of the termination of this Agreement, and the Executive will be entitled to accrued Benefits pursuant to such plans only as provided in such plans. The Executive will not receive, as part of his termination pay pursuant to this Section 5, any payment or other compensation for any vacation, holiday, sick leave, or other leave unused on the date the notice of termination is given under this Agreement. 6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that (a) during the Employment Period and as a part of his employment, the Executive will be afforded access to Confidential Information; (b) public disclosure of such Confidential Information could have an adverse effect on the Employer and its business; (c) because the Executive possesses substantial technical expertise and skill with respect to the Employer's business, the Employer desires to obtain exclusive ownership of each Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Invention; (d) the Employer has required that the Executive make the covenants in this Section 6 as a condition to employment; and (e) the provisions of this Section 6 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Employer with exclusive ownership of all Employee Inventions. 4 Initials _________ ________ Executive Employer 6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation and benefits to be paid or provided to the Executive by the Employer under this Agreement, the Executive covenants as follows: (a) Confidentiality. (i) During and at all times following the Employment Period, the Executive will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of the Employer or except as otherwise expressly permitted by the terms of this Agreement. (ii) Any trade secrets of the Employer will be entitled to all of the protections and benefits under applicable state or federal law including trade secret law. If any information that the Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Employer submit proof of the economic value of any trade secret or post a bond or other security. (iii) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates was or became generally available to the public other than as a result of a disclosure by the Executive. (iv) The Executive will not remove from the Employer's premises (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Employer) any document, record, notebook, plan, model, component, device, data, or computer software or code, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). The Executive recognizes that, as between the Employer and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Employer. Upon termination of this Agreement by either party, or upon the request of the Employer during the Employment Period, the Executive will return to the Employer all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches, or other physical or electronic embodiment of any of the Proprietary Items. (b) Employee Inventions. Each Employee Invention will belong exclusively to the Employer. The Executive acknowledges that all of the Executive's writing, works of authorship, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, semiconductor mask protection, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Executive hereby assigns to the Employer all of the Executive's right, title, and interest, including all rights of copyright, patent, semiconductor mask protection, and other intellectual property rights, to or in such Employee Inventions. The Executive covenants that he will promptly: (i) disclose to the Employer in writing any Employee Invention; (ii) assign to the Employer or to a party designated by the Employer, at the Employer's request and without additional compensation, all of the Executive's right to the Employee Invention for the United States and all foreign jurisdictions; 5 Initials _________ ________ Executive Employer (iii) execute and deliver to the Employer such applications, assignments, and other documents as the Employer may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (iv) sign all other papers necessary to carry out the above obligations; and (v) give testimony and render any other assistance but without expense to the Executive in support of the Employer's rights to any Employee Invention. 6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by the Employer, the Executive, and their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. 7. NON-COMPETITION AND NON-INTERFERENCE 7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that: (a) the services to be performed by him under this Agreement are of a special, unique, unusual, extraordinary, and intellectual character; (b) the Employer's business is national in scope and its products are marketed throughout the United States and Canada; (c) the Employer competes with other businesses that are or could be located in any part of the United States or Canada; (d) the Employer has required that the Executive make the covenants set forth in this Section 7 as a condition to employment by Employer; and (e) the provisions of this Section 7 are reasonable and necessary to protect the Employer's business. 7.2 COVENANTS OF THE EXECUTIVE. In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Employer, the Executive covenants that he will not, directly or indirectly: (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period, engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend the Executive's name or any similar name to, lend Executive's credit to or render services or advice to, any business whose products or activities compete in whole or in part with the products or activities of the Employer (b) whether for the Executive's own account or for the account of any other person, at any time during the Employment Period and the Post-Employment Period, solicit business of the same or similar type being carried on by the Employer, from any person known by the Executive to be a customer of the Employer, whether or not the Executive had personal contact with such person during and by reason of the Executive's employment with the Employer; (c) whether for the Executive's own account or the account of any other person (i) at any time during the Employment Period and the Post-Employment Period, solicit, employ, or otherwise engage as an employee, independent contractor, or otherwise, any person who is or was an employee of the Employer at any time during the Employment Period or in any manner induce or attempt to induce any employee of the Employer to terminate his employment with the Employer; or (ii) at any time during the Employment Period and for three years thereafter, interfere with the Employer's relationship with any person, including any person who at any time during the Employment Period was an employee, contractor, supplier, or customer of the Employer; or 6 Initials _________ ________ Executive Employer (d) at any time during or after the Employment Period, disparage the Employer or any of its shareholders, directors, officers, employees, or agents. For purposes of this Section 7.2, the term "Post-Employment Period" means the one year period beginning on the date of termination of the Executive's employment with the Employer. If any covenant in this Section 7.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Executive. The period of time applicable to any covenant in this Section 7.2 will be extended by the duration of any violation by the Executive of such covenant. The Executive will, while the covenant under this Section 7.2 is in effect, give notice to the Employer, within ten days after accepting any other employment, of the identity of the Executive's employer. The Employer may notify such employer that the Executive is bound by this Agreement and, at the Employer's election, furnish such employer with a copy of this Agreement or relevant portions thereof. 8. GENERAL PROVISIONS 8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive acknowledges that the injury that would be suffered by the Employer as a result of a breach of the provisions of this Agreement (including any provision of Sections 6 and 7) would be irreparable and that an award of monetary damages to the Employer for such a breach would be an inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief. Without limiting the Employer's rights under this Section 8 or any other remedies of the Employer, if the Executive breaches any of the provisions of Section 6 or 7, the Employer will have the right to cease making any payments otherwise due to the Executive under this Agreement. 8.2 COVENANTS OF SECTIONS 6 AND 7 ARE ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Executive in Sections 6 and 7 are essential elements of this Agreement, and without the Executive's agreement to comply with such covenants, Employer would not have entered into this Agreement or employed or continued the employment of the Executive. The Employer and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Employer. The Executive's covenants in Sections 6 and 7 are independent covenants and the existence of any claim by the Executive against the Employer under this Agreement or otherwise, or against the Buyer, will not excuse the Executive's breach of any covenant in Section 6 or 7. If the Executive's employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 6 and 7. 8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive represents and warrants to the Employer that the execution and delivery by the Executive of this Agreement does not, and the performance by the Executive of the Executive's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Executive; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. 7 Initials _________ ________ Executive Employer 8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the Employer hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 8.5 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 8.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which the Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Executive under this Agreement, being personal, may not be delegated. 8.7 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nation-ally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to Employer: Innovative Software Technologies, Inc. 204 NW Platte Valley Drive Riverside, MO 64152 Attention: D. Shane Hackett, President and CEO Facsimile No.: (816) 587-0683 With a copy to: Foley & Lardner LLP 100 North Tampa Street, Suite 2700 Tampa, FL 33602 Attention: Curt P. Creely, Esq. Facsimile No.: 813.221.4210 If to the Executive: Christopher J. Floyd 6516 Windjammer Place Bradenton, FL 34202 Facsimile No.: (207) 470-5736 8.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto. 8.9 GOVERNING LAW. This Agreement will be governed by the laws of the State of Florida without regard to conflicts of laws principles. 8 Initials _________ ________ Executive Employer 8.10 JURISDICTION. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Florida County of Hillsborough, or, if it has or can acquire jurisdiction, in the United States District Court for the Middle District of Florida, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. 8.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 8.12 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 8.13 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 8.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date above first written above. EMPLOYER: EXECUTIVE: By:/s/ Peter M. Peterson /s/ Douglas W. Single ----------------------------- -------------------------------- Peter M. Peterson, Douglas W. Single Chief Executive Officer 9 Initials _________ ________ Executive Employer EXHIBIT A DEFINITIONS "AGREEMENT"--this Employment Agreement, including this Exhibit A hereto, as amended from time to time. "BASIC COMPENSATION"--Salary and Benefits. "BENEFITS"--as defined in Section 2.1(d). "BOARD OF DIRECTORS"--the board of directors of the Employer. "CHANGE IN CONTROL" --shall be deemed to have occurred upon the happening of any one of the following events: a. any person, entity, or group thereof acting in concert (a "Person") (other than (A) the Employee, or any "affiliate" (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) of any of the foregoing, (B) the Company or any of its subsidiaries, (C) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (D) an underwriter temporarily holding securities pursuant to an offering of such securities or (E) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company) being or becoming the "beneficial owner" (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company which, together with securities previously owned, confer upon such Person the combined voting power, on any matters brought to a vote of shareholders, of 50% or more of the then outstanding shares of voting securities of the Company; or b. the sale, assignment or transfer of assets of the Company or any subsidiary or subsidiaries, in a transaction or series of transactions, if the aggregate consideration received or to be received by the Company or any such subsidiary in connection with such sale, assignment or transfer is greater than fifty percent (50%) of the book value, determined by the Company in accordance with generally accepted accounting principles, of the Company's assets determined on a consolidated basis immediately before such transaction or the first of such transactions; or c. the merger, consolidation, share exchange or reorganization of the Company (or one or more direct or indirect subsidiaries of the Company) as a result of which the holders of all of the shares of capital stock of the Company as a group would receive fifty percent (50%) or less of the combined voting power of the voting securities of the Company or such surviving or resulting entity or any parent thereof immediately after such merger, consolidation, share exchange or reorganization; or d. the adoption of a plan of complete liquidation or the approval of the dissolution of the Company; or e. the commencement (within the meaning of Rule 13e-4 under the Securities Exchange Act of 1934) of a tender or exchange offer which, if successful, would result in a Change of Control of the Company; or f. a determination by the Board of Directors of the Company, in view of the then current circumstances or impending events, that a Change of Control of the Company has occurred or is imminent, which determination shall be made for the specific purpose of triggering the operative provisions of this Agreement. "CONFIDENTIAL INFORMATION"--any and all: a. trade secrets concerning the business and affairs of the Employer, product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, databases, systems, structures, and architectures (and related formulae, compositions, processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a trade secret within the meaning of the Florida Uniform Trade Secrets Act; and Employment Agreement A-1 Initials _________ ________ Executive Employer b. information concerning the business and affairs of the Employer (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented except as disclosed by Employer to the public; and c. notes, analysis, compilations, studies, summaries, and other material prepared by or for the Employer containing or based, in whole or in part, on any information included in the foregoing. "DISABILITY"--as defined in Section 5.2. "EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement. "EMPLOYEE INVENTION"--any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), any mask work, however fixed or encoded, that is suitable to be fixed, embedded or programmed in a semiconductor product (whether recordable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Executive, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates directly to the business then being conducted or proposed to be conducted by the Employer, and any such item created by the Executive, either solely or in conjunction with others, following termination of the Executive's employment with the Employer, that is based upon or uses Confidential Information. "EMPLOYMENT PERIOD"--the term of the Executive's employment under this Agreement. "FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date or as changed from time to time. "FOR CAUSE"--as defined in Section 5.3. "FOR GOOD REASON"--as defined in Section 5.4. "INCENTIVE COMPENSATION"--as defined in Section 2.2. "NONCOMPETITION AGREEMENT"--as defined in Section 7. "PERSON"--any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body. "POST-EMPLOYMENT PERIOD"--as defined in Section 7.2. "PROPRIETARY ITEMS"--as defined in Section 6.2(a)(iv). "SALARY"--as defined in Section 2.1(a). Employment Agreement A-2 Initials _________ ________ Executive Employer EX-31.1 4 v09192_ex31-1.txt EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Peter M. Peterson, Chief Executive Officer and Director of Innovative Software Technologies, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Innovative Software Technologies, Inc. (the "Registrant"); 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 22, 2004 /s/ Peter M. Peterson ------------------------------------ Peter M. Peterson Chief Executive Officer and Director (Principal Executive Officer) EX-31.2 5 v09192_ex31-2.txt EXHIBIT 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION I, Christopher J. Floyd, Chief Financial Officer of Innovative Software Technologies, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Innovative Software Technologies, Inc. (the "Registrant"); 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 22, 2004 /s/ Christopher J Floyd ------------------------------ Christopher J. Floyd Chief Financial Officer (Principal Financial and Accounting Officer) EX-32.1 6 v09192_ex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Innovative Software Technologies, Inc (the "Company") on Form 10-QSB for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter M. Peterson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. - ----------------------- Peter M. Peterson Chief Executive Officer November 22, 2004 EX-32.2 7 v09192_ex32-2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Innovative Software Technologies, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Floyd, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. - ----------------------- Christopher J. Floyd Chief Financial Officer November 22, 2004 -----END PRIVACY-ENHANCED MESSAGE-----