UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 2004
INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
(Exact name of Registrant as Specified in its Charter)
CALIFORNIA 000-1084047 95-4691878
- ------------------------------- ------------------------ -------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
204 NW PLATTE VALLEY DRIVE
RIVERSIDE, MISSOURI 64150
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (816) 584-8030
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INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 5 below.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE.
On July 2, 2004, Innovative Software Technologies, Inc. (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.
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.
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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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial information
gives effect to the closing of the Settlement Agreement as if such transaction
had occurred on June 30. These pro forma financial statements are presented for
illustrative purposes only, and are not necessarily indicative of the operating
results and financial position that might have been achieved had the transaction
described above occurred on the dates indicated, nor are they necessarily
indicative of operating results and financial position which may occur in the
future.
The condensed consolidated historical statements of operations data for the
periods presented are derived from the historical financial statements of the
Company. These pro forma statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2003. The historical financial statements as of and for the three months ended
March 31, 2004 have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and, in the
opinion of the Company's management, include all adjustments necessary for a
fair presentation of information for such periods.
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INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF MARCH 31, 2004
HISTORICAL PRO FORMA
(UNAUDITED) ADUSTMENTS (1) PRO FORMA
------------ --------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 4,974,623 $ (1,844,517)(2) $ 3,130,107
Accounts receivable:
Merchant accounts receivable 1,160,022 (1,075,213) 84,810
Other receivables 181,595 (41,685) 139,910
Notes receivable, net of allowance for doubtful accounts of $424,876 1,161,624 -- 1,161,624
Inventory 48,602 (48,602) --
Prepaid expenses and other current assets 207,295 (7,447) 199,848
Deferred income taxes 457,890 -- 457,890
------------ --------------- ------------
TOTAL CURRENT ASSETS 8,191,652 (3,017,463) 5,174,188
------------ --------------- ------------
PROPERTY AND EQUIPMENT, NET 580,620 (500,252) 80,368
GOODWILL 1,088,686 -- (3) 1,088,686
DEFERRED INCOME TAXES 17,688 17,688
DEPOSITS 53,965 (35,371) 18,593
------------ --------------- ------------
TOTAL ASSETS $ 9,932,610 $ (3,553,087) $ 6,379,523
============ =============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,342,563 $ (1,666,800) $ 2,675,763
Deferred revenue 2,103,538 (2,103,538)(4) --
Accrued income taxes 978,346 978,346
Current maturities of capital lease obligations 72,714 (53,873) 18,841
------------ --------------- ------------
TOTAL CURRENT LIABILITIES 7,497,161 (3,824,210) 3,672,950
CAPITAL LEASE OBLIGATIONS 118,793 (102,755) 16,038
------------ --------------- ------------
TOTAL LIABILITIES 7,615,953 (3,926,965) 3,688,988
------------ --------------- ------------
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY
Series A preferred stock; issued and outstanding, 1,650,500 shares 1,650,500 (1,200,500)(5) 450,000
Series B preferred stock; issued and outstanding, 448,491 shares 448,491 (80,000)(5) 368,491
Common stock - authorized, 100,000,000 shares of
$.001 par value; issued and outstanding, 52,897,186 52,897 (6,785)(5) 46,113
Additional paid-in capital 13,163,749 1,661,163 (5) 14,824,912
Accumulated deficit (12,998,980) -- (12,998,980)
------------ --------------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,316,657 373,878 2,690,535
------------ --------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,932,610 $ (3,553,087) $ 6,379,523
============ =============== ============
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INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------ --------------- ------------
REVENUE
Services revenue $ 3,501,942 $ (3,410,256) $ 91,685
Product sales 5,753,120 (5,622,096) 131,024
Other revenue 394,327 (390,821) 3,506
------------ --------------- ------------
TOTAL REVENUE 9,649,389 (9,423,173) 226,215
COST OF REVENUE
Cost of services revenue 1,496,463 (1,448,049) 48,414
Cost of product sales and other revenue 3,015,195 (2,951,383) 63,811
------------ --------------- ------------
TOTAL COST OF REVENUE 4,511,658 (4,399,433) 112,225
------------ --------------- ------------
GROSS PROFIT 5,137,731 (5,023,741) 113,990
------------ --------------- ------------
OPERATING EXPENSES
General and administrative 2,923,724 (2,366,288) 557,436
Commissions and other selling expenses 1,885,458 (1,750,082) 135,375
------------ --------------- ------------
TOTAL OPERATING EXPENSES 4,809,182 (4,116,370) 692,812
------------ --------------- ------------
INCOME (LOSS) FROM OPERATIONS 328,549 (907,370) (578,822)
------------ --------------- ------------
OTHER INCOME (EXPENSES)
Interest and penalties on late tax payments (21,748) -- (21,748)
Other income 53,514 (53,514) --
Interest income, deposits 5,485 (5,485) --
Interest income, financing arrangements 32,191 (32,191) --
Interest expense (3,528) 2,283 (1,245)
------------ --------------- ------------
TOTAL OTHER INCOME (EXPENSE) 65,915 (88,908) (22,993)
------------ --------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 394,463 (996,278) (601,815)
INCOME TAXES (155,813) 155,813 --
------------ --------------- ------------
NET INCOME (LOSS) $ 238,650 $ (840,465) $ (601,815)
============ =============== ============
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INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------ --------------- ------------
REVENUE
Services revenue $ 10,879,121 $ (9,367,999) $ 1,511,123
Product sales 15,547,838 (13,388,345) 2,159,492
Other revenue 417,287 (359,497) 57,790
------------ --------------- ------------
TOTAL REVENUE 26,844,246 (23,115,841) 3,728,405
COST OF REVENUE
Cost of services revenue 5,745,871 (4,850,454) 895,417
Cost of product sales and other revenue 7,572,452 (6,392,261) 1,180,191
------------ --------------- ------------
TOTAL COST OF REVENUE 13,318,323 (11,242,715) 2,075,608
------------ --------------- ------------
GROSS PROFIT 13,525,923 (11,873,126) 1,652,797
------------ --------------- ------------
OPERATING EXPENSES
General and administrative 7,533,571 (5,693,422) 1,840,148
Commissions and other selling expenses 6,094,250 (5,422,924) 671,326
------------ --------------- ------------
TOTAL OPERATING EXPENSES 13,627,820 (11,116,346) 2,511,474
------------ --------------- ------------
LOSS FROM OPERATIONS (101,897) (756,780) (858,677)
------------ --------------- ------------
OTHER INCOME (EXPENSES)
Interest and penalties on late tax payments (218,950) -- (218,950)
Other income 58,274 (17,112) 41,162
Interest income, deposits 92,671 (74,459) 18,212
Interest income, financing arrangements 358,635 (301,307) 57,328
Interest expense (44,530) 36,697 (7,834)
------------ --------------- ------------
TOTAL OTHER INCOME (EXPENSE) 246,100 (356,182) (110,082)
------------ --------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 144,203 (1,112,962) (968,759)
INCOME TAXES (346,955) 346,955 --
------------ --------------- ------------
NET LOSS $ (202,752) $ (766,007) $ (968,759)
============ =============== ============
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(1) These amounts represent the elimination or adjustment of certain
balances per the Settlement Agreement.
(2) Adjusting entries to cash include the payment of certain of the
Company's accounts payable and accrued expenses at Closing per the
Settlement Agreement.
(3) There is no adjustment to Goodwill as liabilities assumed exceed
assets transferred under the Settlement Agreement.
(4) Deferred revenue is eliminated for the Company as the responsibility
for future coaching sessions, which is the basis for this liability,
is assumed under the Settlement Agreement.
(5) Adjustments to equity result from (a) the return to the Company of
Company stock previously owned by the Principals and (b) adjustment
for the difference between assets transferred and liabilities
assumed under the agreement.
(c) Exhibits. See the Exhibit Index set forth below for a list of exhibits
included with this Current Report on Form 8-K.
SIGNATURE
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 thereunder duly authorized.
INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
By: /s/ Douglas S. Hackett
--------------------------------------
Douglas S. Hackett
President, and Chief Executive Officer
Date: July 19, 2004
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EXHIBIT INDEX
Exhibit Number Description
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2 -- Settlement Agreement, dated July 2, 2004, among Innovative
Software Technologies, Inc., James R. Garn, Ethan A.
Willis, and Ethan and Randy, LC.
99.1 -- Press Release, dated July 19, 2004.
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