UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 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 June 30, 2002

[ ]     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)


                 California                       95-4691878
    -----------------------------------       -----------------------------
         (State or other jurisdiction      (IRS Employer Identification No.)
    of incorporation or organization)


                           204 NW Platte Valley Drive

                           --------------------------
                               Riverside, MO 64150

                              -------------------
                    (Address of principal executive offices)

                                 (816) 583-8030

                                 --------------
                           (Issuer's telephone number)

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 such shorter  period that the  Registrant was
required  to file  such  report(s)),  and (2) has been  subject  to such  filing
requirements for the past 90 days.

                            Yes X No

There were 51,804,361 shares of common stock,  $0.001 par value,  outstanding as
of August 14, 2002.

<PAGE>

<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                   FORM 10-QSB

                           QUARTER ENDED JUNE 30, 2002

                                TABLE OF CONTENTS

                                                                                                    Page

                                                                                                    ----

                          PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

<S>                                                                                                   <C>
     Condensed Consolidated Balance Sheets - June 30, 2002 (Unaudited)
       and December 31, 2001..................................................................        3

     Condensed Consolidated Statements of Operations (Unaudited) for the

       Three and Six Months Ended June 30, 2002 and 2001......................................        4

     Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the
       Three and Six Months Ended June 30, 2002 and 2001......................................        5

     Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the
       Six Months Ended June 30, 2002.........................................................        6

     Condensed Consolidated Statements of Cash Flows (Unaudited) for the

       Six Months Ended June 30, 2002 and 2001................................................        7

     Notes to the Condensed Consolidated Financial Statements (Unaudited).....................        8

Item 2. Management's Discussion and Analysis of Financial Condition and
     Results of Operations....................................................................       16

                           PART II - OTHER INFORMATION

Item 2. Changes in Securities.................................................................       19

Item 6. Exhibits and Reports on Form 8-K......................................................       20

Signatures    ................................................................................       21
</TABLE>

<PAGE>

PART I - FINANCIAL INFORMATION
         ---------------------

Item 1.  Financial Statements

         --------------------
<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                  (Unaudited)
                                                                                    June 30,       December 31,
                                                                                      2002            2001
                                                                                  -------------   --------------
                                     ASSETS

<S>                                                                               <C>             <C>
Current Assets

     Cash                                                                         $    776,482    $    282,307
     Accounts receivable, net of allowance for doubtful accounts
     of $128,500 and $4,000, respectively                                              489,020          49,392
     Other receivables                                                                  20,112           2,543
     Investments  - Available for sale                                                  39,982         549,896
     Prepaid expenses                                                                   20,235           6,571
     Other assets                                                                      311,911            --
     Deferred income tax asset                                                             812             812
                                                                                  ------------    ------------
         Total Current Assets                                                        1,658,554         891,521
                                                                                  ------------    ------------
Property and Equipment, Net                                                            415,751          61,512
                                                                                  ------------    ------------
Other Assets

     Goodwill                                                                       13,549,932      13,549,932
     Other assets                                                                         --            23,810
     Deposit                                                                            36,198           4,491
     Deferred income tax asset - non-current                                             2,908           2,908
                                                                                  ------------    ------------
Total Assets                                                                      $ 15,663,343    $ 14,534,174
                                                                                  ============    ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

     Note payable - Line of credit                                                $     44,971    $       --
     Current maturities of long-term debt                                               20,190            --
     Trade accounts payable and accrued expenses                                       579,864         156,014
     Other liabilities                                                                  93,525            --
     Deferred revenue                                                                  179,690            --
     Accrued federal and state income tax                                              221,844            --
     Reserve for sales returns and allowances                                          134,964         100,000
                                                                                  ------------    ------------
         Total Current Liabilities                                                   1,275,048         256,014
                                                                                  ------------    ------------
Long-term debt, net of current maturities                                               53,820            --
Other liabilities                                                                       76,053            --
                                                                                  ------------    ------------
Stockholders' Equity

     Preferred stock - no par; $1.00 stated value; 25,000,000 shares authorized
       Series A preferred stock; 1,850,000 shares issued and outstanding             1,850,000       1,850,000
       Series B preferred stock; 248,491 shares issued and outstanding                 248,491         248,491
     Common stock - $0.001 par value; 60,000,000 shares authorized
       48,389,983 and 48,285,283 shares issued and outstanding, respectively            48,390          48,285
     Additional paid-in-capital                                                     12,768,416      12,626,679
     Accumulated comprehensive loss                                                   (714,268)       (204,354)
     Retained earnings/(Accumulated deficit)                                            57,393        (290,941)
                                                                                  ------------    ------------
Total Stockholders' Equity                                                          14,258,422      14,278,160
                                                                                  ------------    ------------
Total Liabilities and Stockholders' Equity                                        $ 15,663,343    $ 14,534,174
                                                                                  ============    ============
</TABLE>

              The accompanying  notes are an  integral  part of these  condensed
                  consolidated financial statements.

                                        3

<PAGE>

<TABLE>
<CAPTION>

                     Innovative Software Technologies, Inc.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                 For the Three Months          For the Six Months
                                                    Ended June 30,                Ended June 30,
                                            ----------------------------    ----------------------------
                                                2002            2001             2002            2001
                                            ------------    ------------    ------------    ------------
<S>                                         <C>             <C>             <C>             <C>
Sales                                       $  2,994,339    $      4,000    $  5,789,035    $      4,000
Cost of Sales                                    999,229            --         2,121,684            --
                                            ------------    ------------    ------------    ------------
Gross Profit                                   1,995,110           4,000       3,667,351           4,000
                                            ------------    ------------    ------------    ------------
Operating Expenses

     General and administrative                  916,707         254,959       1,658,777         272,790
     Selling                                     681,308          34,585       1,282,199          35,585
                                            ------------    ------------    ------------    ------------
     Non-recurring expenses                      169,578            --           169,578            --
                                            ------------    ------------    ------------    ------------
     Total Operating Expenses                  1,767,593         289,544       3,110,554         308,375
                                            ------------    ------------    ------------    ------------
Income (Loss) From Operations                    227,517        (285,544)        556,797        (304,375)
                                            ------------    ------------    ------------    ------------
Other Income (Expense)
     Other income                                 16,390            --            18,092            --
     Interest expense                             (6,555)           --            (6,555)           --
                                            ------------    ------------    ------------    ------------
     Total Other Income (Expense)                  9,835            --            11,537            --
                                            ------------    ------------    ------------    ------------
Income (Loss) Before Income Taxes                237,352        (285,544)        568,334        (304,375)
Income Tax Expense                                85,326            --           220,000            --
                                            ------------    ------------    ------------    ------------
Net Income (Loss)                           $    152,026    $   (285,544)   $    348,334    $   (304,375)
                                            ============    ============    ============    ============
Basic and Diluted Income (Loss) per Share   $       0.00           (0.01)   $       0.01    $      (0.01)
                                            ============    ============    ============    ============
Weighted Average Number of Common

 Shares Used in Per Share Calculation         48,319,952      45,247,546      48,303,618      43,747,562
                                            ============    ============    ============    ============
</TABLE>

              The accompanying  notes are an  integral  part of these  condensed
                  consolidated financial statements.

                                        4

<PAGE>

<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                          For the Three Months    For the Six Months
                                                            Ended June 30,           Ended June 30,
                                                      ----------------------    ----------------------
                                                         2002         2001       2002          2001
                                                      ---------    ---------    ---------    ---------

<S>                                                   <C>          <C>          <C>          <C>
Net income/(loss)                                     $ 152,026    $(285,544)   $ 348,334    $(304,375)
Other comprehensive income/(loss), net of tax:
Unrealized loss on investments                          (86,518)        (375)    (509,914)     (25,575)
                                                      ---------    ---------    ---------    ---------

Other comprehensive income/(loss)                     $ (86,518)   $    (375)   $(509,914)   $ (25,575)
                                                      ---------    ---------    ---------    ---------

Comprehensive income/(loss)                              65,508     (285,919)    (161,580)    (329,950)
                                                      =========    =========    =========    =========
</TABLE>

              The accompanying  notes are an  integral  part of these  condensed
                  consolidated financial statements.

                                        5

<PAGE>

<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002

                                   (UNAUDITED)

                                  (SPLIT TABLE)

                                       Preferred Stock                 Common Stock
                                 --------------------------    --------------------------

                                     Shares         Amount         Shares        Amount
                                 ------------   ------------   ------------   ------------
<S>                                 <C>         <C>              <C>          <C>
Balance - December 31, 2001         2,098,491   $  2,098,491     48,285,283   $     48,285

Issuance of common stock for
   Services provided                     --             --            4,000              4

Issuance of common stock                 --             --           40,730             41

Issuance of common stock for
   Services provided                     --             --            6,125              6

Issuance of common stock for
   Software                              --             --           53,845             54

Unrealized loss on investments           --             --             --             --

Net income for the six months
  ended June 30, 2002                    --             --             --             --
                                 ------------   ------------   ------------   ------------
Balance - June 30, 2002             2,098,491   $  2,098,491     48,389,983   $     48,390
                                 ------------   ------------   ------------   ------------
</TABLE>

<TABLE>
<CAPTION>

                                                                        Retained

                                  Additional      Accumulat-     Earnings            Total
                                   Paid in      ed Compreh-    (Accumulated      Stockholders'
                                   Capital      ensive loss      Deficit)           Equity
                                 ------------   ------------    ------------    ------------
<S>                              <C>            <C>             <C>             <C>
Balance - December 31, 2001      $ 12,626,679   $   (204,354)   $   (290,941)   $ 14,278,160

Issuance of common stock for
   Services provided                   14,196           --              --            14,200

Issuance of common stock               36,951           --              --            36,992

Issuance of common stock for
   Services provided                   20,644           --              --            20,650

Issuance of common stock for
   Software                            69,946           --              --            70,000

Unrealized loss on investments           --         (509,914)           --          (509,914)

Net income for the six months
  ended June 30, 2002                    --             --           348,334         348,334
                                 ------------   ------------    ------------    ------------
Balance - June 30, 2002          $ 12,768,416   $   (714,268)   $     57,393    $ 14,258,422
                                 ------------   ------------    ------------    ------------

</TABLE>

              The accompanying  notes are an  integral  part of these  condensed
                  consolidated financial statements.

                                        6

<PAGE>

<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

                                                                    For the Six Months
                                                                       Ended June 30,

                                                                    2002         2001
                                                                 ---------    ---------

<S>                                                              <C>          <C>
Cash Flows From Operating Activities

 Net income/(loss)                                               $ 348,334    $(304,375)
 Adjustments to reconcile net income/(loss) to net cash
 provided by  (used in) operating activities:
   Depreciation and amortization                                    40,798        2,610
   Allowance for doubtful accounts                                 124,500         --
   Non-cash expenses                                                34,850       27,166
   Changes in operating assets and liabilities:
     Accounts receivable                                          (564,128)        --
     Prepaid expenses                                              (13,664)      (2,550)
     Other receivables                                             (17,569)        --
     Other current assets                                         (311,911)        (597)
     Other assets                                                   23,810       (2,615)
     Deposits                                                      (31,707)        --
     Accounts payable and accrued expenses                         423,850       21,936
     Other liabilities                                             169,578         --
     Deferred revenue                                              179,690         --
     Reserve for returns and allowances                             34,964         --
     Accrued federal and state income tax                          221,844         --
                                                                 ---------    ---------

   Net Cash Provided By/(Used In) Operating Activities             663,239     (258,425)
                                                                 ---------    ---------

Cash Flows Used In Investing Activities

   Capital expenditures                                           (325,037)     (27,102)
                                                                 ---------    ---------

   Net Cash Used In Investing Activities                          (325,037)     (27,102)
                                                                 ---------    ---------

Cash Flows From Financing Activities

   Issuance of common stock                                         36,992      400,000
   Proceeds from borrowings under line of credit                    50,000         --
   Repayments on line of credit                                     (5,029)        --
   Proceeds from borrowing under note payable                       81,186         --
   Repayments on notes payable                                      (7,176)        --
   Proceeds from borrowing under note payable to related party        --         35,503
   Payment on note payable to related party                           --        (51,425)
                                                                 ---------    ---------

   Net Cash Provided by Financing Activities                       155,973      384,078
                                                                 ---------    ---------

Net Increase in Cash and Cash Equivalents                          494,175       98,551

Cash and Cash Equivalents at Beginning of Period                   282,307          888
                                                                 ---------    ---------

Cash and Cash Equivalents at End of Period                       $ 776,482    $  99,439
                                                                 =========    =========

Supplemental Cash Flow Information:

   Unrealized loss on securities available for sale              $(509,914)   $ (25,575)
                                                                 =========    =========
   Issuance of common stock for services provided                $  34,850    $  27,166
                                                                 =========    =========
   Issuance of common stock for software                         $  70,000    $    --
                                                                 =========    =========
</TABLE>

              The accompanying  notes are an  integral  part of these  condensed
                  consolidated financial statements.

                                        7

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE A  -  COMPANY DESCRIPTION

       Innovative  Software  Technologies,   Inc.  (Innovative)  is  a  software
       company,   operating  in  one  business  segment,   specializing  in  the
       aggregation    and    distribution    of     business-to-business     and
       business-to-consumer  eService  platforms.  Through  its  acquisition  of
       Hackett Media, Inc. on April 16, 2001, the Company has four main products
       that  consist of The  Financial  Toolkit  1.0,  an  integrated  financial
       services educational  program;  Bizkit 1.0, a turnkey e-commerce solution
       targeted at small businesses  which provides all the resources  necessary
       to successfully  plan,  launch,  and grow an online  presence;  Skills in
       Demand, an eLearning certification course catering to Information Systems
       and Internet  Professionals;  and  etaxnet,  a provider of online tax and
       consulting services.

       On April 16, 2001, Innovative,  with immaterial net assets, acquired 100%
       of the outstanding  common stock of Hackett Media,  Inc.  (Hackett).  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
       above noted  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  intangible 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).  The Securities and Exchange  Commission requires that capital
       transactions  consummated after year end but prior to the issuance of the
       consolidated  financial  statements should be given retroactive effect as
       if the transaction had occurred on December 31, 2000.

       On December 31, 2001, the Company purchased all of the outstanding shares
       of Energy  Professional  Marketing  Group,  Inc.'s  (EPMG),  a technology
       marketing company specializing in product fulfillment for outside vendors
       and technology and database  marketing,  based in Orem, UT. In connection
       with the  acquisition,  the Company  issued  1,500,000  and  3,529,412 of
       Series A preferred and common shares, respectively.

                                        8

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

       NOTE A  -  COMPANY DESCRIPTION - Continued

       The purchase  price for the  acquisition  above has been allocated on the
       basis of the fair value on the acquisition dates as follows:

         Assets acquired:

         Goodwill............................    13,549,932
         Net assets acquired.................        25,068
                                             ---------------

         Total Assets Acquired...............    13,575,000
                                             ==============

         Total Purchase Price................    13,575,000
                                             ==============


The acquisition  described above was accounted for as a purchase  transaction in
accordance with Statements of Financial Accounting Standards No. 141 (SFAS 141),
"Business Combinations," and, accordingly,  the results of operations and assets
and  liabilities  of the  acquired  company  are  included  in the  consolidated
financial  statements from their respective  acquisition dates. The Company will
supplementally provide proforma information related to the acquisition of EPMG.

             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.       Interim Condensed Financial Statements

         The  accompanying   condensed  consolidated  financial  statements  are
         unaudited.  In the opinion of  management,  all  necessary  adjustments
         (which  include only normal  recurring  adjustments)  have been made to
         present fairly the financial  position,  results of operations and cash
         flows for the periods  presented.  Certain  information and disclosures
         normally included in financial  statements  prepared in accordance with
         accounting principles generally accepted in the United States have been
         condensed  or  omitted.   Accordingly,   these  condensed  consolidated
         financial  statements  should be read in conjunction with the Company's
         financial  statements  and notes  thereto  included  in the Form 10-KSB
         dated  December 31, 2001.  The results of operations for the six months
         ended June 30, 2002 are not  necessarily  indicative  of the  operating
         results to be expected for the full year.

       2.   Recent Accounting Pronouncements

         In June 2001, the Financial  Accounting Standards Board ("FASB") issued
         Statement of Financial  Accounting  Standards  ("SFAS")  141,  Business
         Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
         effective for all business combinations  completed after June 30, 2001.
         SFAS 142 is effective  for fiscal years  beginning  after  December 15,
         2001;  however,  certain provisions of this Statement apply to goodwill
         and  other  intangible  assets  acquired  between  July 1, 2001 and the
         effective  date of SFAS 142. Major  provisions of these  Statements and
         their effective dates for the Company are as follows:

                                        9

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

o                     All business  combinations  initiated  after June 30, 2001
                      must use the purchase method of accounting. The pooling of
                      interests  method of accounting  is prohibited  except for
                      transactions initiated before July 1, 2001.

o                     Intangible assets acquired in a business  combination must
                      be recorded  separately  from  goodwill if they arise from
                      contractual  or other legal rights or are  separable  from
                      the  acquired   entity  and  can  be  sold,   transferred,
                      licensed,  rented or exchanged,  either individually or as
                      part of a related contract, asset or liability.

o                     Goodwill,  as well as  intangible  assets with  indefinite
                      lives,   acquired  after  June  30,  2001,   will  not  be
                      amortized.

o                     Effective  January  1,  2002,  all  previously  recognized
                      goodwill and intangible  assets with indefinite lives will
                      no longer be subject to amortization.

o                     Effective January 1, 2002,  goodwill and intangible assets
                      with  indefinite  lives  will  be  tested  for  impairment
                      annually and whenever there is an impairment indicator.

o                     All acquired  goodwill must be assigned to reporting units
                      for purposes of impairment testing and segment reporting.

         As of December 31,  2001,  which is the  beginning of fiscal 2002,  the
         Company  will  not  amortize  the  goodwill   which  it  recognized  in
         connection  with the  acquisition  of EPMG.  The Company's  goodwill is
         subject to a transitional  impairment  test as of December 31, 2001 and
         an annual impairment test, using a two-step process  prescribed by SFAS
         No. 142. The Company has completed the transitional impairment test for
         EPMG, the applicable  reporting unit, and no impairment of goodwill was
         found to exist as of the  beginning of fiscal 2002.  During 2002 and in
         future  periods,  the  Company  will  evaluate  goodwill  for  possible
         impairment at least on an annual basis.

         In  August  2001,  the FASB  issued  SFAS  143,  Accounting  for  Asset
         Retirement  Obligations.  SFAS 143 applies to all  entities,  including
         rate-regulated  entities,  that have legal obligations  associated with
         the  retirement  of  a  tangible  long-lived  asset  that  result  from
         acquisition,  construction or development and (or) normal operations of
         the long-lived  asset. The application of this Statement is not limited
         to certain  specialized  industries,  such as the extractive or nuclear
         industries. This Statement also applies, for example, to a company that
         operates  a  manufacturing  facility  and  has a  legal  obligation  to
         dismantle the manufacturing  plant and restore the underlying land when
         it ceases  operation of that plant. A liability for an asset retirement
         obligation  should be recognized if the obligation meets the definition
         of a liability and can be reasonable  estimated.  The initial recording
         should be at fair value. SFAS 143 is effective for financial statements
         issued for fiscal years  beginning  after June 15,  2002,  with earlier
         application  encouraged.  The  provisions  of  the  Statement  are  not
         expected  to have a  material  impact  on the  financial  condition  or
         results of operations of the Company.

         In August 2001, the FASB issued SFAS 144, Accounting for the Impairment
         or  Disposal  of  Long-Lived  Assets.  SFAS 144  retains  the  existing
         requirements  to recognize  and measure the  impairment  of  long-lived
         assets to be held and used or to be disposed of by sale. However,  SFAS
         144 makes changes to the scope and certain measurement  requirements of
         existing  accounting  guidance.  SFAS 144 also changes the requirements
         relating to reporting the effects of a disposal

                                       10

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

         or  discontinuation  of a segment of a business.  SFAS 144 is effective
         for  financial  statements  issued for  fiscal  years  beginning  after
         December 15, 2001 and interim  periods  within those fiscal years.  The
         adoption of this  Statement  did not have a  significant  impact on the
         financial condition or results of operations of the Company.

3.       Principles of Consolidation

         ---------------------------
         The  accompanying  consolidated  balance sheet includes the accounts of
         Innovative  Software  Technologies,   Inc.  and  the  accounts  of  its
         wholly-owned  subsidiary  Energy  Professional  Marketing  Group,  Inc.
         (EPMG)  as of  and  for  the  six  months  ended  June  30,  2002.  All
         significant intercompany transactions and balances have been eliminated
         in consolidation.

4.       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. In most cases this occurs the
         same day  payment is received  from our  customers.  The  Company  also
         reserves  for  sales  returns  and  allowances  based  upon  historical
         experience.

         The Company  provides  support  services for some of its products.  The
         associated  revenue is recognized  over the term of the sessions  which
         are typically six weeks in duration.

5.       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  $714,266  and  $204,356  as of June 30,  2002 and
         December 31, 2001,  respectively.  Investments consist of 75,000 shares
         of common stock of Ensurge,  Inc. and 1,900,000  shares of common stock
         of Knowledge Transfer Systems, Inc.

6.       Property and Equipment

         ----------------------
         Property  and  equipment  are  stated  at  cost,   net  of  accumulated
         depreciation. Depreciation is recognized using the straight-line method
         over the estimated  useful lives of the assets,  which range from three
         to  seven  years.   Leasehold  improvements  are  amortized  using  the
         straight-line  method over the lesser of the estimated  useful lives or
         remaining lease term.

7.       Use of Estimates

         ----------------
         To comply with accounting  principles  generally accepted in the United
         States,  the Company makes  estimates and  assumptions  that effect the
         amounts  reported in the financial  statements and disclosures  made in
         the  accompanying  notes.  Estimates  are used for,  but not limited to
         reserves for product returns, the collectibility of accounts receivable
         and deferred  taxes.  The Company also uses  estimates to determine the
         remaining  economic  lives and  carrying  value of  goodwill  and fixed
         assets.  Despite our  intention to  establish  accurate  estimates  and
         assumptions, actual results may differ from our estimates.

                                       11

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

8.       Software Development Costs

         --------------------------
         In accordance with Statement of Financial Accounting Standards, or SFAS
         No. 86,  "Accounting for Costs of Computer Software to be Sold, Leased,
         or  otherwise  Marketed,"  software  development  costs are expensed as
         incurred  until  the  product  is  available  for  general  release  to
         customers.  To date,  the  Company's  software has been  available  for
         general release  concurrent  with the  establishment  of  technological
         feasibility   and,   accordingly,   no  development   costs  have  been
         capitalized.

         The Company  capitalizes  costs related to the  development of computer
         software  developed or obtained for internal use in accordance with the
         American  Institute  of  Certified  Public  Accountants   Statement  of
         Position 98-1, "Accounting for the Costs of Computer Software Developed
         or  Obtained  for  Internal  Use." Costs  incurred  in the  application
         development phase are capitalized and amortized over their useful life,
         not to exceed five years.

9.       Advertising Costs

         -----------------
         Advertising and promotion  costs are expensed as incurred.  Advertising
         costs charged against income for the six months ended June 30, 2002 and
         2001, were $519,782 and $34,586, respectively.

10.      Impairment and Long-term Assets

         -------------------------------
         The Company will regularly perform reviews to determine if the carrying
         values of our long-lived assets are impaired.  The reviews look for the
         existence of facts or circumstances, either internal or external, which
         indicate  that the  carrying  value of the asset  cannot be  recovered.
         There  have been no events or  circumstances  indicating  the  possible
         impairment of our long-lived asset as of June 30, 2002.

NOTE C - MARKETABLE SECURITIES

The  Company  currently  holds two  marketable  securities,  which  the  Company
acquired in connection with strategic  business  transactions and relationships.
Our  available-for-sale   equity  securities  are  carried  at  fair  value  and
unrealized  gains or losses are included in  stockholders'  equity.  The Company
held the following marketable securities at June 30, 2002 and December 31, 2001.
The cost basis of our marketable  securities reflects adjustments for other than
temporary impairments in value as well as sales of securities.

                                       12

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

   Available-for-sale Equity    Cost      Gross Unrealized       Estimated
   Securities                   Basis    Gains        Losses     Fair Value
                             ---------   --------   ---------    ---------
   December 31, 2001

EnSurge, Inc. common stock   $  26,250   $   --     $ (25,950)   $     300
KT Solutions common stock      728,000     10,500    (188,904)     549,596
                             ---------   --------   ---------    ---------

                             $ 754,250   $ 10,500   $(214,854)   $ 549,896
                             =========   ========   =========    =========

June 30, 2002

EnSurge, Inc. common stock   $  26,250   $   --     $ (26,168)   $      82
KT Solutions common stock      728,000       --      (688,100)      39,900
                             ---------   --------   ---------    ---------

                             $ 754,250   $   --     $(714,268)$     39,982
                             =========   ========   =========    =========



The KT Solutions common stock was received in consideration for the sale of four
software coaching platforms to Ensurge, Inc. These securities were recorded at a
30% discount due to restrictions  and  limitations  contained in Rule 144 of the
Securities and Exchange  Commission.  The primary restriction relates to the one
year holding period of the securities after the effective date of sale.

These  securities  we hold are  traded  on the OTC  Bulletin  Board.  All of our
marketable  securities  are stocks of high  technology  companies  whose  market
prices  have been  extremely  volatile.  The market  prices of these  companies'
stocks have  declined  substantially  the past two years.  The market  prices of
these  stocks  could  continue  to decline.  These  declines  could  result in a
material  reduction  in the  carrying  value of these assets and have a negative
impact   on   our   operating   results   and   financial   condition.   If  our
available-for-sale securities experience further declines in fair value that are
considered other than temporary, the Company will reflect the additional loss in
our net  income in the  period  when  subsequent  permanent  impairment  becomes
apparent.

NOTE D - PROPERTY AND EQUIPMENT

Property and  equipment  are stated at cost,  net of  accumulated  depreciation.
Depreciation  is recognized  using the  straight-line  method over the estimated
useful  lives  of  the  assets,  which  range  from  3  to  7  years.  Leasehold
improvements are amortized using the straight-line method over the lesser of the
estimated useful lives or remaining lease term.  Property and equipment  consist
of the following:

                                                  June 30,       December 31,
                                                    2002            2001
                                            ---------------------------------
         Machinery and Equipment............$      173,939     $       55,615
         Furniture and Fixtures.............        97,696             18,740
         Computer Software..................       180,224              5,667
         Leasehold improvements.............        26,077              2,877
                                            --------------     --------------
         ...................................       477,936             82,899
         Less: Accumulated depreciation.....       (62,185)           (21,387)
                                            --------------     --------------

         Net Property and Equipment.........$      415,751     $       61,512
                                            ==============     ==============


Depreciation and amortization expense for the six months ended June 30, 2002 and
2001 was $40,798 and $2,610, respectively.

                                       12

<PAGE>

                     Innovative Software Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE E - NOTES PAYABLE
<TABLE>
<CAPTION>

                                                                             June 30,       December 31,
                                                                              2002             2001
                                                                             -------          ------
<S>                                                                          <C>             <c>
Notes payable, financial institution, principal and
interest payable in monthly installments of $1,250
due in August 2004                                                           $25,797            --

Notes payable,  financial  institution,  principal and accrued interest at 7.78%
payable in monthly  installments of principal and interest maturing from $217 to
$655 from

November 2006 to February 2007                                                48,213            --
                                                                             -------          ------
                                                                              74,010            --
Less Current Portion                                                          20,190            --
                                                                             -------          ------

Notes Payable - Long-Term                                                    $53,820          $ --
                                                                             =======          ======
</TABLE>

The  Company  has  an  unsecured  line  of  credit  facility  with  a  financial
institution  for  borrowings  up to  $50,000.  Borrowings  under  the line  bear
interest  at Prime plus 2% (the Prime rate of  interest  as of June 30, 2002 was
4.75%). As of June 30, 2002, there was $5,029 available on the credit facility.

 NOTE F - Capital Transactions

Stock-split - Innovative's Board of Directors  authorized a three-for-one  stock
split on July 11, 2001.  This was affected by distributing a 200% stock dividend
on August 10, 2001 to stockholders of record on July 31, 2001. All share and per
share  amounts  referred  to in the  financial  statements  and notes  have been
restated to reflect this stock split.

Issuance of common stock - The Company  issued 40,730 shares of its common stock
in the current  quarter  through  private  placements  to  individual  investors
overseas.

Issuance of common stock for software - The Company  issued 53,845 shares of its
common  stock in the  current  quarter as part of  payment  under the terms of a
software  purchase  agreement  entered  into  by  the  Company.   The  agreement
stipulates that the Company receives business  management  software for both the
Internet and real estate markets as well as hosting and maintenance services.

Stock issued for services - The Company  issued 4,000 shares of its common stock
at a fair market value of $3.55 per share on February 12, 2002. In addition, the
Company issued 6,125 shares of its common stock during the current quarter at an
average fair market value of $3.37 per share. Shares were issued as compensation
expense for the six months ended June 30, 2002.

Finance  Agreement - The Company has  financed its  operation to date  primarily
through a Finance  Agreement of  convertible  debt and  securities.  The Finance
agreement calls for financing of up to $2.5 million of which $1 million would be
received in increments in 2001,  if  necessary,  and the remaining  $1.5 million
would be received  based upon the  Company's  performance.  As of June 30, 2002,
$700,000 of the initial $1 million investment was received by the Company. These
proceeds were converted to equity securities during 2001.

                                       14

<PAGE>

During the fourth  quarter  2001,  all of the common shares issued in connection
with the conversion of debt in connection with the Finance  Agreement above were
reissued  as Series A  preferred  shares and common  shares as  follows:  Of the
initial $700,000 invested in 2001,  $350,000 was converted to Series A preferred
shares at a stated value of $1 per share. The remaining $350,000 was reissued as
700,000 shares of common stock at $0.50 per share.

NOTE G - Related Party Transactions

On December 31,  2001,  a company  executive  and  shareholder  converted a note
payable  amounting to $248,491 to Series B preferred  stock at a conversion rate
of a $1 per share stated value.  There was no formal maturity date and there was
no interest associated with the note.

During 2001,  the Company sold four software  platforms to  NowSeven.com,  Inc.,
Ziabon,  Inc., SF Acquisition Corp., Inc., and Ishopper Internet Services,  Inc.
in exchange for investment securities amounting to $308,000, $133,000, $147,000,
and $140,000,  respectively.  The President and Chief  Executive  Officer of the
Company is the former  President and Chief Executive  Officer of Ensurge,  Inc.,
which is the parent company of the above wholly-owned subsidiaries listed above.

NOTE H - COMMITMENTS AND CONTINGENCIES

In March and May 2002,  the Company  entered into  operating  leases for certain
office space.  Future minimum lease payments under these operating  leases as of
June 30, 2002 are as follows:

                  Year Ending December 31:

                  2002....................................$   70,300
                  2003....................................   140,600
                  2004....................................   140,600
                  2005....................................     49,433
                  2006....................................       --
                                                          -----------

                  Total...................................$   400,933
                                                          ========--=

Rent  expense  for the six months  ended June 30,  2002 and 2001 was $44,879 and
$5,625, respectively.

NOTE I - PENDING ACQUISITION

On March 12, 2002, the Company signed a definitive  agreement to acquire iCrypt,
Inc., a Torrance,  California,  technology company that has developed a suite of
email encryption software products for both corporate and consumer markets,  for
$10,000,000 in restricted  preferred stock and the Company's  common stock.  The
closing of this  acquisition is contingent  upon due diligence  findings and the
ability of the  companies  to meet  certain  terms and  conditions  precedent to
close.  On  April  29,  2002,  the  due  diligence  process  was  completed  and
negotiations on certain terms and conditions are ongoing.  There is no assurance
that this transaction will be consummated.

                                       15

<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations
        ------------------------------------------------------------------------
     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,  which could cause  actual  results to differ
materially  from those  projected.  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.

Critical Accounting Policies

The 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  amount 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.
For a  detailed  discussion  on the  application  of these and other  accounting
policies,  see Note B in the  Notes  to the  Consolidated  Financial  Statements
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001.

Goodwill and Intangible Assets

As  discussed  Note A in the  accompanying  interim  financial  statements,  the
Company, on December 31, 2001, purchased all of the outstanding shares of Energy
Professional Marketing Group Inc. (EPMG) for $13.575 million in stock.

Purchase accounting requires extensive use of accounting estimates and judgments
to allocate the purchase price to the fair market value of the assets  purchased
and liabilities  assumed.  The Company has accounted for its acquisitions  using
the purchase method of accounting.  Values were assigned principally to goodwill
based upon management's  allocation of the purchase price to EPMG's workforce in
place at the date of the transaction.

Effective  January 1, 2002, the Company  adopted the provisions of SFAS No. 142,
Goodwill and Other  Intangible  Assets.  This  statement  affects the  Company's
treatment of goodwill and other intangible  assets.  The statements require that
goodwill  existing at the date of adoption be reviewed for  possible  impairment
and that impairment tests be periodically repeated, with impaired assets written
down to fair value.  Additionally,  existing goodwill and intangible assets must
be assessed and classified  within the statement's  criteria.  Intangible assets
with finite  useful  lives will  continue to be  amortized  over those  periods.
Amortization of goodwill and intangible  assets with  indeterminable  lives will
cease.

The Company  completed the first step of the  transitional  goodwill  impairment
test  during the six months  ended June 30, 2002 based on the amount of goodwill
as of the  beginning  of fiscal year 2002,  as  required  by SFAS No.  142.  The
Company performed a discounted cash flow analysis to determine the fair value of
the EPMG  reporting  unit based on  various  valuation  multiples.  Based on the
results of the first step of the  transitional  goodwill  impairment  test,  the
Company has  determined  that the fair value of the EPMG reporting unit exceeded
its carrying amount and, therefore, no goodwill impairment existed as of January
1, 2002. As a result,  the second step of the transitional  goodwill  impairment
test is not required to be  completed.  The Company will be required to continue
to perform a goodwill impairment test on an annual basis.

                                       16

<PAGE>

Marketable securities

Marketable securities are considered to be impaired when a decline in fair value
below cost basis is determined to be other than temporary. The Company employs a
methodology  in  evaluating  whether a decline in fair value below cost basis is
other than temporary that considers  available evidence regarding its marketable
securities.  In the event  that the cost basis of a  security  exceeds  its fair
value, the Company  evaluates,  among other factors:  the duration of the period
that, and extent to which, the fair value is less than cost basis; the financial
health of and business outlook for the investee,  including  industry and sector
performance,  changes in technology  and  operational  and  financing  cash flow
factors;  overall market  conditions and trends,  and; the Company's  intent and
ability to hold the investment. Once a decline in fair value is determined to be
other than  temporary,  a  write-down  is  recorded  and a new cost basis in the
security  is  established.   Assessing  the  above  factors  involves   inherent
uncertainty.   Accordingly,   write-downs,  if  recorded,  could  be  materially
different  from the actual market  performance  of marketable  securities in the
Company's portfolio, if, among other things, relevant information related to the
Company's marketable  securities was not publicly available or other factors not
considered  by the  Company  would have been  relevant to the  determination  of
impairment. As discussed in Note C to the accompanying financial statements, the
Company owns, as of June 30, 2002,  marketable  securities that have depreciated
in value by  $714,268  from  their  original  cost  basis.  Based upon the above
methodology, management believes that this decline is temporary in nature.

With any accounting policy that applies judgments and estimates,  actual results
could significantly differ from those estimates

Results of Operations for the Three Months Ended June 30, 2002 compared to Three
Months Ended June 30, 2001

Revenues

Sales for the three  months  ended June 30,  2002 and 2001 were  $2,994,339  and
$4,000,  respectively,  which  represents a significant  increase from the prior
period.  The  company's  principal  source of revenue for the three months ended
June 30, 2002  consisted of product  sales.  The main reason for the increase in
product sales can be attributed  to the  acquisition  of EPMG as of December 31,
2001. This  wholly-owned  subsidiary of the Company  accounted for $2,410,305 in
sales of existing  products  and  services  for the three  months ended June 30,
2002.

Cost of Sales

Cost of sales for the three months ended June 30, 2002 and 2001 was $999,229 and
$0,  respectively.  Cost of sales  for the  three  months  ended  June 30,  2002
represented  costs  associated  with  the  generation  of  sales  leads  and the
providing of coaching services to customers that purchase our products. The main
reason for the increase in cost of sales can be attributed to the acquisition of
EPMG as of  December  31,  2001.  This  wholly-owned  subsidiary  accounted  for
$731,214 in cost of sales of existing products and services for the three months
ended June 30, 2002.

Selling

     Selling  expenses  for the three  months  ended June 30, 2002 and 2001 were
$681,308 and $34,585, respectively. These costs consisted primarily of marketing
and  advertising  expenses  associated  with key products and  commissions.  The
advertising and marketing expenses within the current period consisted primarily
of expenses related to Internet marketing and sales commissions. The main reason
for the increase in selling costs can be attributed to the  acquisition  of EPMG
as of December 31, 2001. This wholly-owned  subsidiary accounted for $418,695 in
sales commissions and advertising for the three months ended June 30, 2002.

General and Administrative

         General and administrative expenses for the three months ended June 30,
2002 and 2001 were $916,707 and $254,959,  respectively.  The Company's  general
and administration expenses during 2002 and 2001 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 EPMG in the current period.

                                       17

<PAGE>

Non-recurring Expenses

     Non-recurring expense for the three months ended June 30, 2002 and 2001 was
$169,578 and $0, respectively.  Non-recurring expense for the three months ended
June 30,  2002  represented  back wages due to the EPMG's  employees.  This cost
resulted from a recently completed  examination of the Company's labor practices
by the United States Department of Labor. The period of examination  covered the
Company's operations from May 2000 to May 2002.

Depreciation and Amortization

     Depreciation and  amortization  expense for the three months ended June 30,
2002  and  2001  was  $23,632  and  $1,980,   respectively.   Depreciation   and
amortization  expense  increased  primarily  as a  result  of the  additions  of
computer equipment,  furniture and fixtures, and computer software in the second
half of 2001 and 2002.

Income Tax Expense

      The Company  recorded a tax expense from  continued  operations of $85,326
and $0 for the three months ended June 30, 2002 and 2001, respectively.  The tax
expense in the current period  reflects the recording of federal and state taxes
at an effective annual rate of approximately 35%.

Results of  Operations  for the Six Months  Ended June 30, 2002  compared to Six
Months Ended June 30, 2001

Revenues

Sales  for the six  months  ended  June 30,  2002 and 2001 were  $5,789,035  and
$4,000,  respectively,  which  represents a significant  increase from the prior
period. The company's  principal source of revenue for the six months ended June
30, 2002 consisted of product sales. The main reason for the increase in product
sales can be attributed to the  acquisition  of EPMG,  based in Orem,  UT, as of
December 31, 2001.  This  wholly-owned  subsidiary of the Company  accounted for
$4,417,535  in sales of existing  products and services for the six months ended
June 30,  2002.  The  remaining  revenue for the six months  ended June 30, 2002
resulted  from sales of  products  and  services  generated  from the  Company's
operations in Riverside, MO.

Cost of Sales

Cost of sales for the six months ended June 30, 2002 and 2001 was $2,121,684 and
$0,  respectively.  Cost of  sales  for the  six  months  ended  June  30,  2002
represented  costs  associated  with  the  generation  of  sales  leads  and the
providing of coaching services to customers that purchase our products. The main
reason for the increase in cost of sales can be attributed to the acquisition of
EPMG as of  December  31,  2001.  This  wholly-owned  subsidiary  accounted  for
$1,728,457 in cost of sales of existing products and services for the six months
ended June 30, 2002.  The remaining  cost of sales for the six months ended June
30, 2002  resulted  from costs  associated  with sales of products  and services
generated from the Company's operations in Riverside, MO.

Selling

     Selling  expenses  for the six  months  ended  June 30,  2002 and 2001 were
$1,282,199  and  $35,585,  respectively.  These  costs  consisted  primarily  of
marketing and advertising expenses associated with key products and commissions.
The  advertising  and marketing  expenses  within the current  period  consisted
primarily of expenses related to Internet marketing and sales  commissions.  The


                                       18

<PAGE>

main  reason  for  the  increase  in  selling  costs  can be  attributed  to the
acquisition  of EPMG as of  December  31,  2001.  This  wholly-owned  subsidiary
accounted for $783,047 in sales  commissions  and advertising for the six months
ended June 30, 2002.  The remaining  selling costs for the six months ended June
30, 2002 resulted from Internet  marketing and sales  commission costs generated
from the Company's operations in Kansas City, MO.

General and Administrative

         General and  administrative  expenses for the six months ended June 30,
2002 and 2001 were $1,658,777 and $272,790,  respectively. The Company's general
and administration expenses during 2002 and 2001 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 EPMG for the six months ended June 30, 2002.

Non-recurring Expenses

     Non-recurring  expense for the six months  ended June 30, 2002 and 2001 was
$169,578 and $0,  respectively.  Non-recurring  expense for the six months ended
June 30,  2002  represented  back wages due to the EPMG's  employees.  This cost
resulted from a recently completed  examination of the Company's labor practices
by the United States Department of Labor. The period of examination  covered the
Company's operations from May 2000 to May 2002.

Depreciation and Amortization

     Depreciation  and  amortization  expense for the six months  ended June 30,
2002  and  2001  was  $40,798  and  $2,610,   respectively.   Depreciation   and
amortization  expense  increased  primarily  as a  result  of the  additions  of
computer equipment,  furniture and fixtures, and computer software in the second
half of 2001 and 2002.

Income Tax Expense

      The Company  recorded a tax expense from continued  operations of $220,000
and $0 for the six months  ended June 30, 2002 and 2001,  respectively.  The tax
expense in the current period  reflects the recording of federal and state taxes
at an effective annual rate of approximately 38%.

Liquidity and Capital Resources

      At June 30, 2002, cash was $776,482, an increase of $494,175 from December
31, 2001. Cash flow provided by operations was $663,239 for the six months ended
June 30, 2002. The primary  reason for the positive  operating cash flow for the
six months ended June 30, 2002, can be attributed to the Company's  higher sales
volume  during  the first  six  months of 2002.  The  acquisition  of EPMG as of
December  31,  2001,  has had a  significant  impact on sales during this period
which consequently positively increased cash flows from operating activities. In
addition,  the Company  experienced an increase in its deferred revenue balances
for the six months  ended June 30,  2002.  The  Company's  higher  sales  volume
regarding  coaching sessions was the primary reason for the increase in deferred
revenue. Other assets increased $311,911 for the six months ended June 30, 2002.
This was  primarily  due to credit card  processors,  utilized  by the  Company,
holding  additional  funds as a reserve for the  significant  volume increase in
credit card  transactions.  The Company received  proceeds from a line of credit
facility  during the six months  ended June 30, 2002  amounting  to $50,000.  In
addition,  the Company  entered into four term loans during the six months ended
June  30,  2002  amounting  to  $81,186  to  purchase  vehicles  and  equipment.
Stockholders' equity amounts to $14,258,422 as of June 30, 2002.

                                       19

<PAGE>

      The  Company  was  financed,  during  2001,  primarily  through  a Finance
Agreement of convertible debt and securities.  The Finance  agreement called for
financing  of up to $2.5  million  of which $1  million  would  be  received  in
increments  in 2001,  if  necessary,  and the  remaining  $1.5 million  would be
received based upon the Company's performance,  as defined in the agreement.  As
of December 31, 2002, $700,000 of the initial $1 million investment was received
by the Company.  These proceeds were converted to equity securities during 2001.
No amounts were advanced to the Company in the six months ended June 30, 2002.

       In addition,  during 2001,  all of the common shares issued in connection
with the Finance  Agreement above were reissued as Series A preferred shares and
common shares as follows: Of the initial $700,000 invested in 2001, $350,000 was
converted to Series A preferred  shares at a stated  value of $1 per share.  The
remaining  $350,000 was reissued as 700,000  shares of common stock at $0.50 per
share.

       The Company issued 4,000 shares of its common stock for various  services
provided February 12, 2002.

       The Company issued 6,125 shares of its common stock for various  services
provided during the current quarter.

       The  Company  issued  40,730  shares of its common  stock for cash in the
current quarter through private placements to individual investors overseas.

       The  Company  issued  53,845  shares of its common  stock in the  current
quarter as part of  payment  under the terms of a  software  purchase  agreement
entered into by the Company.

      The company expects that its existing cash resources,  cash flow generated
from  operations,  and  available  financing  will be  sufficient  to  meet  its
operating  requirements  and  ordinary  capital  spending  needs going  forward.
However,  the Company will  continue to seek  additional  sources of capital for
expansion  and  possible   acquisitions  either  through  its  existing  Finance
Agreement or through private placements of equity securities.

PART II -     OTHER INFORMATION
              -----------------
Item 1.  Legal Proceedings

         -----------------

                None

Item 2.  Changes in Securities

         ---------------------

       The company in the current quarter issued 6,125 shares of common stock as
compensation expense.  These securities were issued under the exemption provided
by Section 4(2) of the Securities Act of 1933.

       The company in the current  quarter  issued 40,730 shares of common stock
for  cash in the  current  quarter  through  private  placements  to  individual
investors overseas. These securities were issued under the exemption provided by
Section 4(2) of the Securities Act of 1933.

       The company in the current  quarter  issued 53,845 shares of common stock
in the current quarter as part of payment under the terms of a software purchase
agreement  entered into by the Company.  These  securities were issued under the
exemption provided by Section 4(2) of the Securities Act of 1933.

                                       20

<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

              None

Item 6. Exhibits and Reports on Form 8-K.
        ---------------------------------

              None

OTHER ITEMS

     There were no other items to be reported under Part II of this report.

                                       21

<PAGE>

                                   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:    August 14, 2002    /s/ Douglas S. Hackett

                            ---------------------------------------------------
                               Douglas S. Hackett

                                President, Chief Executive Officer and Director
                                       22