Accountants and
Management Consultants GRANT THORNTON
Grant Thornton LLP
The U.S. Member Firm of
Grant Thornton International
April 4, 2003
Board of Directors
Innovative Software Technologies, Inc.
5072 North 300 West
Provo, UT 84604
Gentlemen:
We have audited the consolidated balance sheets of Innovative Software
Technologies, Inc. (the Company) as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency), cash flows, and comprehensive income (loss) for the years then
ended. We issued our report dated January 30, 2002, on those financial
statements.
In a separate letter, we have informed you of several concerns we have with
respect to the Company's financial statements. First, as you know, the company
has repeatedly directed us to communicate with its consultant, William E.
Chipman, Sr., with respect to a variety of substantive financial matters. We
have therefore worked with and received representation from Mr. Chipman in
auditing the Company's 2001 and 2000 year-end financial statements and in
reviewing the Company's certain quarterly financial statements for 2001 and 2002
filed with the SEC. We have recently learned that Mr. Chipman has a history of
criminal convictions involving, among other things, the fraudulent sale of
securities and the falsification of records. Because of these facts, Grant
Thornton must question the reliability of the information Mr. Chipman provided
in connection with the preparation of the Company's financial statements and our
related audit and review procedures. We also question the Company's good faith
in failing to disclose to us Mr. Chipman's criminal convictions for tax fraud
and larceny when we agreed to serve as the Company's independent accountants.
Second, in 2001 and 2002, the Company reported revenues from the sale of its
software to several entities in exchange for securities. In its representation
letters, the Company has assured us that no relationship exists between the
Company and its officers on the one hand, and these buyers on the other. It
appears, however, that Mr. Chipman, who clearly plays a significant role in the
Company's management and operations, may have some relationship to these
entities. More particularly, the Company's software sale in the third quarter of
2002 in exchange for securities is potentially problematic in that the Company
reported revenues from the sale based upon the fair value of the preferred stock
it received. Earlier, however, the Company had determined that the common stock
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of the same issuer had virtually no value. After reporting significant revenues
from the sale, the Company subsequently determined that the preferred stock also
had little value.
Taken together, these circumstances cause us to doubt whether the transactions
reported by the Company in its public filings, including, without limitation the
software sales described in the above paragraphs, have any economic substance.
Recording transactions that do not have economic substance may be deemed illegal
acts within the meaning of Section 10A of the Securities Exchange Act of 1934.
We urge you to consult securities counsel to advise you of your responsibilities
in these circumstances. That consultation should also include consideration of
the steps that may be required to remedy any illegal conduct that may have
occurred.
In view of the foregoing, we cannot continue to be associated with the Company's
December 2001 and 2000 financial statements, and accordingly, Grant Thornton
hereby advises you that we are withdrawing our report on those statements, and
that our report can no longer be relied upon.
We request that you advise those persons who have received a copy of our report
and who you believe are relying on, or who are likely to rely on, the 2001 and
2000 financial statements or the quarterly reports during 2001 and 2002, of our
notification to you. Further, we request that you determine, together with your
legal counsel, the necessary disclosure to be made to the Securities and
Exchange Commission and any other regulatory body having jurisdiction over the
Company. Finally, please provide us with copies of any notifications that you
make pursuant to the requests set forth in this paragraph.
Yours truly,
/s/ Grant Thornton LLP
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