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Grant Thornton
Accountants and Business Advisors
May 7, 2003
U.S. Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Re: Innovative Software Technologies, Inc. (the "Company")
File No. 000-1084047
Dear Sir or Madam:
We have reviewed the disclosure in the Forms 8-K filed on April 14, 2003,
including the attachments thereto. The following sets forth our disagreements
with the statements or inferences made in those materials, as well as
information we view as necessary to supplement or modify the disclosures made by
the Company.
The Company asserts that it had discussions with Grant Thornton about "issues
concerning the consultant" to the Company. With management's knowledge and
approval, the consultant provided us with essential financial information
integral to the audits and reviews of the Company's financial statements. While
the Company's filing is unclear about what "issues" were allegedly discussed
with Grant Thornton, any inference that Grant was told by the Company of the
consultant's criminal history is false. The information available now to Grant
Thornton establishes that this consultant: (1) was indicted in 1987 in Federal
Court for conspiring to defraud the government of tax revenues in connection
with a scheme to promote fraudulent tax-sheltered investments, which scheme
allegedly included backdating documents; the consultant pled guilty in 1988 and
was sentenced to eighteen months in prison; and (2) the consultant was convicted
in 1984 of fourth degree larceny in Connecticut State Court for diverting funds
from an investment partnership to bank accounts he controlled. At no time did
the Company inform Grant Thornton of these facts, nor was Grant otherwise aware
of them. Similarly, contrary to the suggestion contained in the Company's April
11, 2003 letter to Grant (appended to its Form 8-K), the consultant's son never
informed Grant personnel of his father's criminal convictions.
We do not agree with the Company's assertion that it disclosed to us the nature
of the consultant's involvement with KT Solutions, in particular, his role as
CFO of KT Solution's parent corporation, Knowledge Transfer Systems, Inc.
(KTSI), a public company whose stock was transferred to the Company as
consideration for purported software platform sales. We were not apprised of
that relationship, which may have impacted the accounting or disclosure for the
purported platform sales, especially as revenue was recognized on a purported
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sale to KTSI. It also may have impacted the Accounting and reporting of the
value of the KTSI stock held by the Company, which was ultimately written off.
We do not agree with the disclosure that impairment write-downs were made
"solely at the Company's initiative." The Form 8-K, Item 5 asserts that, "the
Company, on its own initiative, initiated the write-down of the securities of
the software sales once management ascertained the difficult financial
circumstances that the other party to the transaction had experienced." To the
contrary, Grant personnel initiated many discussions with the Company, beginning
during the audit of the 2001 financial statements and throughout 2002, regarding
impairment of these securities held by the Company. In response, the Company
asserted repeatedly that there was no permanent impairment of the securities'
value. We question whether the information provided to us, by the Company and
its consultant, in support of the securities' value was accurate and complete.
Contrary to the Company's statement that it disclosed the transactions "in
detail" with Grant, we were not apprised of all the relationships between the
companies directly or indirectly involved in the transactions.
We note that in the first paragraph of the 8-K filed under Item 5 that the
purported third quarter 2002 software sale referred to was not made for
Innovative Software securities but for securities of KTSI.
The Company's Form 8-K discloses its engagement of a new accounting firm with
whom it has addressed matters described in these Forms 8-K. This accounting firm
has not contacted us, as required under professional standards, nor has the
company asked us to respond to any inquiries by any successor accountant.
The Form 8-K, Item 5 appends a letter addressed to us dated April 15, 2003,
which attempts to clarify the role of Chipman and Chipman, LLC. We have never
received a copy of this letter other than what was filed with EDGAR. Further, we
provided the Company with a letter dated April 15, 2003, our response to the
April 11, 2003 letter from the CEO of the Company. The Company chose not to
include this letter in its filing, but its absence leaves a misleading
impression of Grant's response to the Company's assertions. We have included a
copy of that letter as an attachment to this response letter.
Very truly yours,
/s/ Grant Thornton LLP
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