U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 8-K/(A)
--------------------
CURRENT REPORT
UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event reported: April 16, 2001
Date of Report: June 13, 2001
Innovative Software Technologies, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as Specified in its Charter)
California
(State or Other Jurisdiction of Incorporation)
000-1084047
(Commission File Number)
95-46918978
(IRS Employer Identification No.)
112 Northwest Parkway, Riverside, MO 64150
(Address of Principal Executive Offices)
(816) 583-8030
(Registrant's Telephone Number)
827 State Street, Santa Barbara, CA 93101
(Former Name or Former Address, Changed Since Last Report)
Item 1. Changes in control of registrant
Not applicable.
Item 2. Acquisition of Hackett Media, Inc.
On April 16, 2001, Innovative Software Technologies, Inc., a California
corporation (the "Company" or "Registrant"), consummated the acquisition of all
the outstanding common stock of Hackett Media, Inc. ("Seller") having the
address of 1900 Alaqua Dr., Longwood, FL 32779 in exchange for 13,077,954 shares
of the Company's common stock.
Pursuant to the terms and conditions of the Share Exchange Agreement
(the "Agreement"), the Company purchased all the assets of Seller. Seller is not
affiliated with the Registrant nor with any of the Registrant's subsidiaries.
The description of the acquisition transaction set forth herein is qualified in
its entirety by reference to the Share Exchange Agreement, which is incorporated
herewith as Exhibit 2.1. The acquisition was accounted for using the "purchase"
method of accounting.
Item 3. Bankruptcy or receivership
Not applicable.
Item 4. Change in Registrant's Certifying Accountant
(a) Change in registrant's certifying accountant
Item 5. Other Events
Not applicable
Item 6. Resignation of Directors
Not applicable
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired as of and for the years ended
December 31, 2000 and 1999.
Independent Auditors' Report
Balance Sheet as of March 31, 2001 and 2000 (Unaudited)
Statements of Income for the Three Months Ended March 31, 2001 and 2000
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 2001 and
2000 (Unaudited)
Selected Notes to Financial Statements (Unaudited)
(b) Pro Forma Financial information
Pro forma Consolidated Statement of Operations for the Year Ended
December 31, 2000 (Unaudited)
Pro forma Consolidated Statement of Operations for the Three Months Ended
March 31, 2001 (Unaudited)
Pro forma Consolidated Balance Sheet as of March 31, 2001 (Unaudited)
(c) Exhibits
*2.1 Share Exchange Agreement dated as of April 16, 2001, by and among Hackett
Media, Inc. and Innovative Software Solutions, Inc.
* Incorporated by reference
2
ITEM 4. Change in Registrant's Certifying Accountant.
(a) The firm of Roger G. Castro has served as the independent accountant of
Innovative software Technologies, Inc. since inception and has issued an
opinion with respect to the audit of the balance sheets of the Company as
of December 31, 2000 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 2000. On April 16, 2001, the Company advised
Roger G. Castro that Grant Thornton LLP will be the Company's independent
accountants as a result of the Company's plans to grow in the coming
years.
The reports of Roger G. Castro on the Company's financial statements for
the two years ended December 31, 2000 did not contain any adverse opinion
or disclaimer of opinion, or modification or qualification as to
uncertainty, audit scope or accounting principles. In connection with its
audits for the two most recent years and for the interim period through
March 31, 2001, there have been no disagreements between the Company and
Roger G. Castro on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Roger G. Castro,
would have caused him to make reference thereto in his report on the
Company's financial statements for such years. During the two most recent
years and through March 31, 2001, there have been no reportable
disagreements or events (as defined in Item 304(a)(1)(iv) of Regulation
S-B of the Securities and Exchange Commission (the "Commission")). Roger
G. Castro confirmed to the Company that their relationship was being
ceased as a result of the Company's plans to grow in the coming months
and years.
The Company has provided Roger G. Castro with a copy of the above
statements and has requested that Roger G. Castro furnish it with a
letter addressed to the Commission stating whether or not it agrees with
the above statements. A copy of such letter dated June 14, 2001 is
included in this Report as Exhibit 16.
The Company has selected the international accounting firm of Grant
Thornton LLP to serve as the Company's new independent accountants. Grant
Thornton LLP has not consulted or performed any work for the Company in
the last two years.
3
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 11, 2001 Innovative Software Technologies, INC.
By: /s/ Douglas Hackett
-------------------
Douglas Hackett
4
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
HACKETT MEDIA, INC.
(a Development Stage Company)
December 31, 2000 and 1999
5
CONTENTS
--------
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 7
FINANCIAL STATEMENTS
BALANCE SHEETS 8
STATEMENTS OF OPERATIONS 9
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIENCY 10
STATEMENTS OF CASH FLOWS 11
NOTES TO FINANCIAL STATEMENTS 12
6
Report of Independent Certified Public Accountants
Stockholder
Hackett Media, Inc.
We have audited the accompanying balance sheets of Hackett Media, Inc.
(a development stage company) as of December 31, 2000 and 1999, and the related
statements of operations, changes in stockholder's deficiency, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hackett Media, Inc.
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
By: /s/ Grant Thornton
- ----------------------
Grant Thornton, LLP
Philadelphia, Pennsylvania
April 27, 2001
7
HACKETT MEDIA, INC.
(a Development Stage Company)
BALANCE SHEETS
December 31,
ASSETS
------
2000 1999
--------- ---------
CURRENT ASSETS
Cash $ 888 $ 4,043
Investments - available for sale 26,250 --
Inventories -- 10,032
--------- ---------
Total current assets 27,138 14,075
--------- ---------
PROPERTY AND EQUIPMENT - AT COST
Machinery and Equipment 14,258 14,258
Office Furniture and fixtures 3,475 3,475
--------- ---------
17,773 17,773
Less accumulated depreciation 10,989 6,799
--------- ---------
6,744 10,934
--------- ---------
$ 33,882 $ 25,009
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------
CURRENT LIABIITIES
Note payable - shareholder $ 264,412 $ 297,347
Accounts Payable -- 9,644
--------- ---------
264,412 306,991
--------- ---------
STOCKHOLDER'S DEFICIENCY
Common stock - par value $.01
1,000 shares authorized,
issued and outstanding, 100 shares 1 1
Additional paid-in capital 45,801 30,999
Accumulated Deficit (276,332) (312,982)
--------- ---------
(230,530) (281,982)
--------- ---------
$ 33,882 $ 25,009
========= =========
The accompanying notes are an integral part of these statements
7
HACKETT MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF OPERATIONS
December 31,
2000 1999
-------- --------
INCOME
Consulting fees $ 50,000 $ --
Sales 2,356 1,782
-------- --------
52,356 1,782
-------- --------
COST OF SALES 1,596 1,055
-------- --------
GROSS PROFIT 50,760 727
-------- --------
Selling expenses 1,040 1,784
General and administrative expenses 13,070 80,144
-------- --------
14,110 81,928
-------- --------
NET EARNINGS (LOSS) $ 36,650 $(81,201)
======== ========
The accompanying notes are an integral part of these statements.
8
Hackett Media, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Years ended December 31, 2000 and 1999
Additional
Common paid-in Accumulated
Stock Capital Deficit Total
--------- --------- --------- ---------
Balance at January 1, 1999 $ 1 $ 30,999 $ (231,781) $(200,781)
Net loss for the year
ended December 31, 1999 -- -- (81,201) (81,201)
--------- --------- --------- ---------
Balance at December 31, 1999 1 30,999 (312,982) (281,982)
Net income for the year
ended December 31, 2000 -- -- 36,650 36,650
Contributed
Capital -- 14,802 -- 14,802
--------- --------- --------- ---------
Balance at December 31, 2000 $ 1 $ 45,801 $ (276,332) $(230,530)
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
9
HACKETT MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
Year ended December 31,
2000 1999
-------- --------
Cash Flows From Operating Activities:
Net income/(loss) $ 36,650 $(81,201)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities
Depreciation and amortization 4,190 3,087
Changes in assets and liabilities
Inventories (1,416) (10,032)
Accounts payable (9,644) 9,644
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 29,780 (78,502)
-------- --------
Cash Flows From Investing Activities:
Additions to Property and Equipment -- (12,072)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES -- (12,072)
-------- --------
Cash Flows From Financing Activities:
(Payments) borrowings on note payable - shareholder (32,935) 94,097
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (32,935) 94,097
-------- --------
NET (DECREASE) INCREASE IN CASH (3,155) 3,523
CASH, beginning of year 4,043 520
-------- --------
CASH, end of year $ 888 $ 4,043
======== ========
Supplemental disclosures of cash flow information
Marketable securities obtained in exchange for sale of inventory $ 26,250 $ --
======== ========
Contributed capital upon sale of inventory $(14,802) $ --
======== ========
Carrying value of inventory exchanged for marketable securities $(11,448) $ --
======== ========
The accompanying notes are an integral part of these statements.
10
HACKETT MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE A - COMPANY DESCRIPTION
Hackett Media, Inc. (a Florida Sub-Chapter S corporation), formed in July
1993, is a financial services aggregator and e-commerce solutions
provider. Its two main products consist of The Financial Toolkit 1.0, an
integrated financial services package that allows consumers to perform a
comprehensive personal finance evaluation, and then creates a competitive
bidding environment from a network of financial service providers; and
Bizkit 1.0, a turnkey e-commerce solution targeted for at small
businesses which provides all the resources necessary to successfully
plan, launch, and grow an online presence. Prior to December 31, 2000 the
Company was also in the business of selling vintage furniture and
fixtures. Subsequent to December 30,2 000, the enterprise became a
development stage company engaged in the business described above. Future
financial statements of the Company (see Note E) will be presented in
accordance with Statement of Financial Accounting Standards No. 7
Accounting and Reporting by Development Stage Company.
A summary of the company's significant accounting policies applied in the
preparation of the accompanying financial statements follows.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
1. Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
97-2, Software Revenue Recognition, which states that revenue is
recognized after delivery of the product.
2. Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods are used for both book and tax purposes.
Machinery and Equipment 3 - 5 years
Office Furniture and Fixtures 5 - 7 years
3. Inventories
Inventories consist of antique furniture and are valued at the lower of
cost or market. Cost is determined by the specific identification method.
4. Investments in Debt and Equity Securities
All equity securities are classified as available-for-sale. These
securities have been adjusted to fair market value based upon quoted
market prices. Unrealized holding gains and losses are reported as a
separate component of stockholders' equity. There were no unrealized
holding gains and losses as of December 31, 2000 and 1999. Investments
consist of 15,000 shares of Ensurge, Inc., a company affiliated through
common ownership (see also Note D).
11
HACKETT MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000 and 1999
5. Income Taxes
The Company, with the consent of its stockholder, has elected under the
federal and state codes to be an "S" corporation. In lieu of corporation
income taxes, the stockholder will be taxed on his proportionate share of
the Company's taxable income. Therefore, no provision or liability for
income taxes has been included in these financial statements.
6. Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
7. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Accordingly, actual results
could differ from those estimates.
NOTE C - INVENTORIES
The inventories consist of the following:
2000 1999
---- ----
Antique furniture and fixture $ 0 $ 10,032
NOTE D - RELATED PARTY TRANSACTIONS
Note payable to shareholder represents the balance due for advances made
to the company. The balance within the note payable account as of
December 31, 2000 and 1999 was $262,491 and $297,347, respectively. There
is no formal maturity date and no interest associated with the note.
The company's shareholder is also the shareholder of an affiliated
company, JCL Holdings, Inc (JCL). On December 30, 2000, Hackett Media
sold its antiques inventory to JCL for 15,000 shares of Ensurge, Inc.
common stock (ENSG) at a fair market value of $1.75 per share.
The company provided consulting services for an affiliated company during
2000, Ensurge, Inc (ENSG). The consulting fees earned for the year ended
December 31, 2000 totaled $50,000.
12
HACKETT MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE E - SUBSEQUENT EVENT
Hackett Media, Inc. agreed to be acquired by Innovative Software
Technologies, Inc. (Innovative) on April 16, 2001, for 13,077,954 shares
of Innovative's common stock. Innovative, a global software company, is a
leader in server based content delivery and on-line product distribution
and plans to integrate Hackett Media's expertise as a financial services
aggregator and e-commerce solutions provider. This transaction will be
accounted for as a purchase under Accounting Principal Board Opinion No.
1. Business Contributions.
13
HACKETT MEDIA, INC.
(a Development Stage Company)
BALANCE SHEET
(Unaudited)
ASSETS
------
March 31,
2001 2000
-------- ---------
CURRENT ASSETS
Cash $ 18,190 $ 26,154
Marketable Securities 1,050 --
Inventories -- 10,909
-------- ---------
Total current assets 19,240 37,063
-------- ---------
PROPERTY AND EQUIPMENT - AT COST
Machinery and Equipment 14,258 14,258
Office Furniture and fixtures 3,475 3,475
-------- ---------
17,733 17,733
Less accumulated depreciation 11,619 7,847
-------- ---------
6,114 9,886
-------- ---------
$ 25,354 $ 46,949
======== =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------
CURRENT LIABIITIES
Note payable - stockholder 299,915 276,866
Accounts Payable -- 3,991
-------- ---------
299,915 280,857
-------- ---------
STOCKHOLDER'S DEFICIENCY
Common stock - par value $.01
1,000 shares authorized,
issued and outstanding, 100 shares 1 1
Additional paid-in capital 45,801 30,999
Unrealized loss on securities available for sale (25,200) --
Accumulated Deficit (295,163) (264,908)
-------- ---------
(274,561) (233,908)
-------- ---------
$ 25,354 $ 46,949
======== =========
14
HACKETT MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
2001 2000
-------- --------
INCOME
Consulting fees $ -- $ 50,000
Sales -- --
-------- --------
-- 50,000
-------- --------
COST OF SALES -- --
-------- --------
GROSS PROFIT -- 50,000
-------- --------
Selling expenses 1,000 --
General and administrative expenses 17,201 878
-------- --------
18,201 878
-------- --------
INCOME (LOSS) BEFORE DEPRECIATION (18,201) 49,122
Depreciation 630 1,048
-------- --------
NET (LOSS) INCOME (18,831) 48,074
-------- --------
OTHER COMPREHENSIVE INCOME
Unrelated loss on securities
Available for sale (25,200) --
-------- --------
COMPREHENSIVE (LOSS) INCOME $(44,031) $(48,074)
======== ========
15
HACKETT MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOW
(Unaudited)
Three months ended
March 31,
2001 2000
-------- --------
OPERATING ACTIVITIES
Net (loss) income $(18,831) $ 48,074
Adjustments to reconcile net (loss) income to
cash (used to) provided by operating activities
Depreciation 630 1,048
Changes in assets and liabilities
Inventories -- (877)
Accounts payable -- (5,653)
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (18,201) 42,592
-------- --------
FINANCING ACTIVITIES
Payments on loans payable (27,075) (20,481)
Borrowings from stockholder 62,578 --
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 35,503 (20,481)
-------- --------
INCREASE IN CASH 17,302 22,111
CASH, beginning 888 4,043
-------- --------
CASH, end $ 18,190 $ 26,154
======== ========
16
HACKETT MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 2001 and 2000
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a financial services aggregator and e-commerce
solutions provider. Prior to December 31, 2000, the Company was also in the
business of selling vintage furniture and fixtures. Subsequent to December 30,
2000, the enterprise became a development stage company engaged in the business
described above. Future financial statements of the Company (see Note E) will be
presented in accordance with Statement of Financial Accounting Standards No. 7
Accounting and Reporting by Development Stage Company.
Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position 97-2 and
SAB 101, Software Revenue Recognition, which states that revenue is recognized
after delivery and installation of the product. Annual maintenance or service
income is recognized ratably over the term of the contract, generally one year.
Property and equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Accelerated
methods are used for both book and tax purposes.
Machinery and Equipment 3 - 5 years
Office furniture and fixtures 5 - 7 years
Inventory
Inventories consist of antique furniture and are valued at the lower of cost or
market. Cost is determined by the specific identification method.
Investments in Equity Securities
All equity securities are classified as available-for-sale. These securities
have been adjusted to their fair market value based upon quoted market prices.
Unrealized holding gains and losses are reported as a separate component of
Stockholder's equity. Unrealized holding losses amounted to $25,200 and $0 as of
March 31, 2001 and 2000, respectively. Investments consist of 15,000 shares of
common stock of Ensurge, Inc., a company affiliated through common ownership
(See also Note 3 below).
Income taxes - S corporation status
The Company, with the consent of its stockholder, elected to be an S corporation
for federal income tax purposes. In lieu of corporation income taxes, the
stockholder of an S corporation is taxed on his proportionate share of the
Company's taxable income. Therefore, no provision or liability for federal or
state income taxes has been included in the financial statements.
17
HACKETT MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Three Months Ended March 31, 2001 and 2000
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Advertising Costs
Advertising and promotion costs are expensed as incurred. Advertising costs
charged against income for the three months ended March 31, 2001 and 2000 were
$1,000 and $0, respectively.
NOTE 2 -- INVENTORY
The inventories consist of the following:
2001 2000
---- ----
Antique furniture and fixtures -- 10,909
NOTE 3 - RELATED PARTY TRANSACTIONS
Note payable to shareholder represents the balance due for advances made to the
company. The balance within the note payable account as of March 31, 2001 and
2000 was $299,915 and $276,866, respectively. There is no formal maturity date
and no interest associated with the note.
The company's shareholder is also the shareholder of an affiliated company, JCL
Holdings, Inc (JCL). On December 30, 2000, Hackett Media sold its inventory to
JCL for 15,000 shares of Ensurge, Inc. common stock at a fair market value of
$1.75 per share. The Company recorded the shares at a fair market value $26,250.
The inventory of $11,448 was transferred to the related party at cost. The
difference of $14,802 was recorded as contributed capital.
The Company provided consulting services for an affiliated company during 2000,
Ensurge, Inc. The consulting fees earned for the three months ended March 31,
2000 totaled $50,000.
NOTE 4 -- SUBSEQUENT EVENTS
Hackett Media, Inc. agreed to be acquired by Innovative Software Technologies
(Innovative) on April 16, 2001 for 13,077,954 shares of Innovative's common
stock. Innovative Software Technologies, a global software company, is a leader
in server based content delivery and on-line product distribution and plans to
integrate Hackett Media's expertise as a financial services aggregator and
e-commerce solutions provider. This transaction will be accounted for as a
purchase under Accounting Principles Board Opinion No. 16, Business
Combinations.
18
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 2001
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 2000 and the three months ended March 31, 2001 give
effect to (i) the acquisition on April 16, 2001 of all the outstanding common
stock of Hackett Media, Inc. in exchange for 13,077,954 shares of Innovative
Software Technologies, Inc. common stock.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 2000 and the three months ended March 31, 2001 gives
effect to the aforementioned transactions as if the transactions had occurred on
January 1, 2000. The following unaudited pro forma financial data may not be
indicative of what the results of operations or financial position of Innovative
Software Technologies, Inc. would have been, had the transactions to which such
data gives effect been completed on the date assumed, nor are such data
necessarily indicative of the results of operations or financial position of
Innovative Software Technologies, Inc. that may exist in the future. The
following unaudited pro forma information should be read in conjunction with the
notes thereto, the other pro forma financial statements and notes thereto, and
the consolidated financial statements and notes of Innovative Software
Solutions, Inc. as of December 31, 2000 and for each of the two years in the
period then ended appearing in the Company's Form 10-KSB and the historical
financial statements of Hackett Media, Inc. appearing elsewhere in this filing.
19
HACKETT MEDIA, INC.
(a Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OPERATIONS For the Year Ended
December 31, 2000
Innovative
Hackett Software
Media, Tech. Pro Forma Pro Forma
Inc. Inc. Adjustments Consolidated
----------- ----------- ----------- -----------
Net sales $ 52,356 $ -- $ -- $ 52,356
Cost of sales 1,596 -- -- 1,596
----------- ----------- ----------- -----------
Selling, general and administrative 14,110 -- -- 14,110
----------- ----------- ----------- -----------
Operating income 36,650 -- -- 36,650
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net -- -- -- --
Other income -- -- -- --
----------- ----------- ----------- -----------
Income from operations before
income tax expense 36,650 -- -- 36,650
Income tax expense -- -- -- (2) --
----------- ----------- ----------- -----------
Net income $ 36,650 $ -- $ -- $ 36,650
=========== =========== =========== ===========
Net income per common share: -- -- -- $ -- (1)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding -- -- -- 14,531,071
=========== =========== =========== ===========
20
HACKETT MEDIA, INC.
(a Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2001
Innovative
Hackett Software
Media, Tech. Pro Forma Pro Forma
Inc. Inc. Adjustments Consolidated
----------- ----------- ----------- -----------
Net sales $ -- $ -- $ -- $ --
Cost of sales -- -- -- --
Selling, general and administrative 18,831 417 -- (19,248)
Operating (loss) income (18,831) (417) -- (19,248)
Other income (expense):
Interest expense, net -- -- -- --
Other income -- -- -- --
(Loss) from operations before
income tax expense (18,831) (417) -- (19,248)
Income tax expense -- -- -- (2) --
Loss income $ (18,831) $ (417) $ -- $ (19,248)
Net income per common share: -- -- -- $ -- (1)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding -- -- -- 14,531,071
=========== =========== =========== ===========
21
Notes to Unaudited Pro Forma Consolidated Statement of Operations Adjustments
The Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 2000 has been adjusted to reflect the following:
(1) For purpose of determining pro forma earnings per share, the issuance of
13,077,954 shares of unregistered shares of common stock to affect the
acquisition of Hackett Media, Inc. was assumed to be outstanding from
January 1, 2000 by Innovative Software Technologies, Inc.
(2) The Company's pro forma tax provision reflects an effective tax rate of
40% considering federal and state income taxes and the effect of certain
non-deductible costs principally related to acquisitions consummated;
offset by the pro-forma utilization of available net operating loss
carryforwards.
22
The Unaudited Pro Forma Consolidated Statement of Operations for the Three
Months Ended March 31, 2001 has been adjusted to reflect the following:
(1) For purpose of determining pro forma earnings per share, the issuance of
13,077,954 shares of unregistered shares of common stock to affect the
acquisition of Hackett Media, Inc. was assumed to be outstanding from
January 1, 2000 by Innovative Software Technologies, Inc.
(2) The Company's pro forma tax provision reflects an effective tax rate of
40% considering federal and state income taxes and the effect of certain
non-deductible costs principally related to acquisitions consummated;
offset by the pro-forma utilization of available net operating loss
carryforwards.
23
HACKETT MEDIA, INC.
(a Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 2001
Innovative
Hackett Software
Media, Tech. Pro Forma Pro Forma
Inc. Inc. Adjustments Consolidated
--------- --------- --------- ---------
ASSETS
------
Current assets:
Cash $18,190 -- -- $18,190
Marketable Securities 1,050 -- -- 1.050
--------- --------- --------- ---------
Total current assets 19,240 -- -- 19,240
--------- --------- --------- ---------
Property and equipment, net 6,114 -- -- 6,114
--------- --------- --------- ---------
Total Assets $25,354 $ -- $ -- $25,354
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable $ 299,915 $ -- $ -- $ 299,915
--------- --------- --------- ---------
Total current liabilities 299,915 -- -- 299,915
--------- --------- --------- ---------
Total liabilities 299,915 -- -- 299,915
--------- --------- --------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock 1 484 (1) 4,359
-- -- 3,875 (1) (1) --
Additional paid-in capital 45,801 17,826 (3,874) (1) 59,753
Unrealized loss on
available for sale Securities (25,200) -- -- (25,200)
Accumulated deficit (295,163) -- -- (295,163)
Deficit accumulated during
Development Stage -- (18,310) -- (18,310)
--------- --------- --------- ---------
Total stockholders' equity (274,561) -- -- (274,561)
--------- --------- --------- ---------
Total liabilities and
stockholders' equity $ 25,354 $ -- $ -- $ 25,354
========= ========= ========= =========
24
Notes to Unaudited Pro Forma Consolidated Balance Sheet Adjustments
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2001 has been
adjusted to reflect the following:
(1) On April 16, 2001, Innovative Software Technologies, Inc. ("Innovative")
a non-operating public company with common shares outstanding and
immaterial net assets, acquired 100% of the outstanding common stock of
Hackett Media, Inc. ("Hackett") (the "Acquisition"). The Acquisition
resulted in the owners and management of Hackett having effective
operating control of the combined entity after the Acquisition, with the
existing Innovative investors continuing as only passive investors.
Under accounting principles generally accepted in the United States, the
Acquisition is considered to be a capital transaction in substance,
rather than a business combination. That is, the Acquisition is
equivalent to the issuance of stock by Hackett for the net monetary
assets of Innovative, accompanied by a recapitalization, and is accounted
for as a change in capital structure. Accordingly, the accounting for the
Acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill or intangible asset is recorded. Under reverse
takeover accounting, the post reverse-acquisition comparative historical
financial statements of the "legal acquirer" (Innovative Software
Technologies), are those of the "legal acquiree" (Hackett) (i.e. the
accounting acquirer).
Under the terms of the Agreement, all of the outstanding common shares,
$0.01 par value, of Hackett was converted into 13,077,954 common shares
of Innovative Software Technology, Inc.'s common stock, $0.0003 par
value. The common stock exchanged, in addition to the existing Innovative
Software Technology, Inc. shares outstanding, collectively resulted in
the recapitalization of the Company.
The accompanying unaudited pro-forma consolidated financial statements
gives effect to this consummated acquisition as if it had occurred on
January 1, 2000.
25
EXHIBIT INDEX
Exhibit No. 2.1 Share Exchange Agreement
Exhibit No. 16 Previous auditor's agreement with Innovative's included
financial statements
26