**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 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 September 30, 2006





**o** **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**
              (State
                or Other Jurisdiction of Incorporation or
              Organization)
            **95-4691878**
              (I.R.S.
                Employer Identification No.)**3998
                FAU Blvd., Bldg 1-21, Boca Raton FL**
              (Address
                of Principal Executive Offices)
            **33431**
              (Zip
                Code)**(561)
                417-7250**
              (Registrant's
                Telephone Number, Including Area Code)Securities
                Registered Pursuant to Section 12(b) of the Act:
            NoneSecurities
                Registered Pursuant to Section 12(g) of the Act:
            Common
                Stock, $.001 par value




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 for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x  No o




There
      were 72,420,524 shares of common stock, $0.001 par value, outstanding as of
      November 20, 2006.











**INNOVATIVE
      SOFTWARE TECHNOLOGIES, INC.**


**FORM
      10-QSB**





**QUARTER
      ENDED SEPTEMBER 30, 2006**





**TABLE
      OF CONTENTS**





Page
              Number**PART I.**
            
            **FINANCIAL
              INFORMATION**Item 1.
            
            Financial Statements
            
            1Consolidated Balance Sheet as of September
              30, 2006 (unaudited)
            
            1Consolidated
                Statements of Operationsfor the three and six monthsEnded
                September 30, 2006 and 2005 and for the period from
                inception(January
                12, 2005) through September 30, 2006 (unaudited)
            
            2Consolidated
                Statements of Cash Flows for thesix monthsEnded
                September 30, 2006 and 2005 and for the period from
                inception(January
                12, 2005) through September 30, 2006 (unaudited)
            
            3Notes to Consolidated Financial Statements
              (unaudited)
            
            4Item 2.
            
            Management's Discussion and Analysis
              or Plan
              of Operation
            
            11Item 3.
            
            Controls and Procedures
            
            13**PART II.**
            
            **OTHER INFORMATION**Item 1.
            
            Legal Proceedings
            
            14Item 2.
            
            Unregistered Sales of Equity Securities
              and
              Use of Proceeds
            
            14Item 3.
            
            Defaults Upon Senior Securities
            
            14Item 4.
            
            Submission of Matters to a Vote of Security
              Holders
            
            15Item 5.
            
            Other Information
            
            15Item 6.
            
            Exhibits
            
            15**SIGNATURES**
            
            15





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





**Item
      1.** **Financial
      Statements**





**INNOVATIVE
      SOFTWARE TECHNOLOGIES, INC.**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      BALANCE SHEET**


**September
      30, 2006**


**(UNAUDITED)**


**ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                36,902Accounts
                    receivable:
                
                
                17,265Prepaid
                    expenses and other current assets
                
                
                72,439Deferred
                    financing costs
                
                
                21,000**Total
                    current assets**
                
                
                147,606**PROPERTY
                    AND EQUIPMENT, NET**
                
                
                132,315**DEPOSITS**
                
                
                16,900**Total
                    assets**
                
                $
                296,821**LIABILITIES
                    AND STOCKHOLDERS’ (DEFICIT)****CURRENT
                    LIABILITIES**Accounts
                    payable and accrued expenses
                
                $
                744,103Accrued
                    officer salary and expenses
                
                
                60,500Notes
                    payable
                
                
                30,000Convertible
                    debentures
                
                
                474,470Derivative
                    financial instruments
                
                
                416,137**Total
                    current liabilities**
                
                
                1,725,210**COMMITMENTS
                    AND CONTINGENCIES****STOCKHOLDERS’
                    (DEFICIT)**Preferred
                    stock, 25,000,000 shares authorized, $1.00 stated valueSeries
                    A, 1,500,000 shares authorized, 450,000 shares outstanding
                
                
                450,000Common
                    stock - authorized, 100,000,000 shares of $.001 parvalue;
                    issued and outstanding, 72,420,524 shares
                
                
                72,421Additional
                    paid-in capital
                
                
                962,546Deficit
                    accumulated during the development stage
                
                
                (2,913,355
                )**Total
                    stockholders' (deficit)**
                
                
                (1,428,388
                )**Total
                    liabilities and stockholders' (deficit)**
                
                $
                296,821





See
      accompanying notes.




1


**INNOVATIVE
      SOFTWARE TECHNOLOGIES, INC.**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(UNAUDITED)**


**Since
                    Inception****For
                    the Three Months**
                
                **For
                    the Six Months**
                
                **(January
                    12, 2005)****Ended
                    September 30,**
                
                **Ended
                    September 30,**
                
                **Through****September
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**
                
                **2006****REVENUE**Development
                    and consulting revenue
                
                $
                -
                
                $
                -
                
                $
                1,572
                
                $
                -
                
                $
                1,572Business
                    continuity revenue
                
                
                37,095
                
                
                -
                
                
                37,095
                
                
                -
                
                
                37,095**Total
                    revenue**
                
                
                37,095
                
                
                -
                
                
                38,667
                
                
                -
                
                
                38,667**COST
                    OF REVENUE**Cost
                    of services revenue
                
                
                -
                
                
                -
                
                
                250
                
                
                -
                
                
                250Cost
                    of product sales and other revenue
                
                
                23,605
                
                
                -
                
                
                36,316
                
                
                -
                
                
                36,316**Total
                    cost of revenue**
                
                
                23,605
                
                
                -
                
                
                36,566
                
                
                -
                
                
                36,566**GROSS
                    PROFIT**
                
                
                13,490
                
                
                -
                
                
                2,102
                
                
                -
                
                
                2,102**OPERATING
                    EXPENSES**General
                    and administrative
                
                
                1,108,671
                
                
                7,172
                
                
                1,254,734
                
                
                36,720
                
                
                1,728,276**Total
                    operating expenses**
                
                
                1,108,671
                
                
                7,172
                
                
                1,254,734
                
                
                36,720
                
                
                1,728,276**(LOSS)
                    FROM OPERATIONS**
                
                
                (1,095,181
                )
                
                (7,172
                )
                
                (1,252,632
                )
                
                (36,720
                )
                
                (1,726,174
                )**OTHER
                    INCOME (EXPENSE) NET**Other
                    income
                
                
                43,685
                
                
                -
                
                
                8,980
                
                
                -
                
                
                8,980Derivative
                    income (expense)
                
                
                (10,623
                )
                
                -
                
                
                (10,579
                )
                
                -
                
                
                (10,579
                )Interest
                    (expense)
                
                
                (209,715
                )
                
                -
                
                
                (209,715
                )
                
                -
                
                
                (223,524
                )Interest
                    income, deposits
                
                
                2,724
                
                
                -
                
                
                44
                
                
                -
                
                
                44**OTHER
                    INCOME (EXPENSE) NET**
                
                
                (173,929
                )
                
                -
                
                
                (211,270
                )
                
                -
                
                
                (225,079
                )**(LOSS)
                    BEFORE INCOME TAXES**
                
                
                (1,269,110
                )
                
                (7,172
                )
                
                (1,463,902
                )
                
                (36,720
                )
                
                (1,951,253
                )**INCOME
                    TAXES**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**NET
                    (LOSS)**
                
                
                (1,269,110
                )
                
                (7,172
                )
                
                (1,463,902
                )
                
                (36,720
                )
                
                (1,951,253
                )**UNDECLARED
                    PREFERRED****STOCK
                    DIVIDENDS**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**(LOSS)
                    APPLICABLE****TO
                    COMMON STOCKHOLDERS**
                
                $
                (1,269,110
                )
                $
                (7,172
                )
                $
                (1,463,902
                )
                $
                (36,720
                )
                $
                (1,951,253
                )**BASIC
                    AND DILUTED****(LOSS)
                    PER COMMON SHARE**
                
                $
                (0.02
                )
                
                
                
                $
                (0.02
                )**WEIGHTED
                    AVERAGE NUMBER OF****COMMON
                    SHARES USED IN BASIC AND****DILUTED
                    PER SHARE CALCULATION**
                
                
                71,950,397
                
                
                
                
                
                64,646,805


See
      accompanying notes.




2


**INNOVATIVE
      SOFTWARE TECHNOLOGIES, INC.**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**Since Inception****(January 12, 2005)****For
                      the Six Months**
                    **Ended
                      September 30**
                
                **Through**
                    **September 30,****2006**
                
                **2005**
                
                **2006****CASH FLOWS FROM OPERATING
                    ACTIVITIES**Net
                    (loss)
                
                $
                (1,463,902
                )
                $
                (36,720
                )
                $
                (1,951,253
                )Adjustments
                    to reconcile net (loss) tonet
                    cash flows from operating activitiesDepreciation
                    and amortization
                
                
                19,230
                
                
                -
                
                
                19,308Stock
                    and options based compensation
                
                
                748,484
                
                
                -
                
                
                973,484Services
                    paid in stock
                
                
                -
                
                
                -
                
                
                175,115Amortization
                    of convertible debt discount
                
                
                169,635
                
                
                -
                
                
                169,635Derivative
                    loss
                
                
                10,579
                
                
                -
                
                
                10,579Amortization
                    of deferred financing costs
                
                
                37,400
                
                
                -
                
                
                37,400Net
                    change in operating assets and liabilitiesAccount
                    receivables
                
                
                (17,265
                )
                
                -
                
                
                (17,265
                )Prepaid
                    expenses and other current assets
                
                
                (6,326
                )
                
                (500
                )
                
                (17,727
                )Deposits
                
                
                16,850
                
                
                -
                
                
                (15,900
                )Accounts
                    payable and accrued expenses
                
                
                (42,584
                )
                
                10,661
                
                
                (38,328
                )**Net
                    cash flows from operating
                    activities**
                
                
                (527,898
                )
                
                (26,559
                )
                
                (654,951
                )**CASH FLOWS FROM INVESTING
                    ACTIVITIES**Purchase
                    of fixed assets
                
                
                (139,731
                )
                
                -
                
                
                (144,417
                )**Net
                    cash flows from investing
                    activities**
                
                
                (139,731
                )
                
                -
                
                
                (144,417
                )**CASH FLOWS FROM FINANCING
                    ACTIVITIES**Proceeds
                    from notes payable
                
                
                372,114
                
                
                5,855
                
                
                489,122Proceeds
                    from convertible debentures
                
                
                275,000
                
                
                
                
                
                275,000Stock
                    issued for cash
                
                
                -
                
                
                21,000
                
                
                21,000Cash
                    acquired in the reverse acquisition of Innovative
                
                
                51,148
                
                
                -
                
                
                51,148**Net
                    cash flows from financing
                    activities**
                
                
                698,262
                
                
                26,855
                
                
                836,270**NET INCREASE (DECREASE) IN CASH**
                
                
                30,633
                
                
                296
                
                
                36,902**CASH AT BEGINNING OF PERIOD**
                
                
                6,269
                
                
                -
                
                
                -**CASH AT END OF PERIOD**
                
                $
                36,902
                
                $
                296
                
                $
                36,902**SUPPLEMENTAL
                  CASH FLOW
                  INFORMATION**Issuance
                    of
                    common stock for services
                
                $
                65,869
                
                $
                -
                
                $
                65,869Issuance
                    of
                    common stock for acquisition
                
                $
                440,000
                
                $
                -
                
                $
                440,000Issuance
                    of
                    common stock for debt repayment
                
                $
                183,115
                
                $
                -
                
                $
                183,115


See
      accompanying notes.





3




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


(1)  Basis
      Of
      Presentation





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles (GAAP) for interim
      financial information and with the instructions to Form 10-QSB and Regulation
      S-B. Accordingly, they do not contain all of the information and footnotes
      required by generally accepted accounting principles for complete consolidated
      financial statements. In the opinion of management, the accompanying unaudited
      condensed consolidated financial statements reflect all adjustments (consisting
      only of normal recurring adjustments) considered necessary for a fair
      presentation of the Company’s financial condition as of September 30, 2006, and
      the results of its operations for the three and six months ended September
      30,
      2006, and September 30, 2005, and the cash flows for the six months ended
      September 30, 2006, and September 30, 2005. These unaudited condensed
      consolidated financial statements should be read in conjunction with the
      Company's audited 2005 consolidated financial statements, including the notes
      thereto, and the other information set forth therein, included in the Company's
      Annual Report on Form 10-KSB for the year ended December 31, 2005, as well
      as
      the Company’s report on Form 8-K filed June 30, 2006, reporting the acquisition
      of AcXess, Inc., described below. Operating results for the three and six month
      periods ended September 30, 2006, are not necessarily indicative of the
      operating results that may be expected for the year ending March 31,
      2007.





On
      June
      26, 2006, Innovative Software Technologies, Inc., a California corporation
      (“Innovative”), completed the acquisition of AcXess, Inc., a Florida corporation
      (“AcXess”), in a stock exchange transaction (the “Transaction”) pursuant to a
      Stock Exchange Agreement by and between Innovative, AcXess, the Shareholders
      of
      AcXess, and Anthony F. Zalenski, acting as the Shareholder’s Agent (the
“Exchange Agreement”). As a result of the Transaction, AcXess became a wholly
      owned subsidiary of Innovative. Following FAS 141, as governing and operating
      control of the combined entity is under Mr. Zalenski, AcXess is deemed to be
      the
      purchaser in the Transaction for financial reporting purposes. Therefore,
      reverse acquisition accounting applies whereby AcXess is deemed to have issued
      its common stock for the net assets or liabilities of Innovative accompanied
      by
      a recapitalization of AcXess. For accounting purposes, AcXess is treated as
      the
      continuing reporting entity. The fiscal year end of AcXess is March
      31.





The
      accompanying unaudited consolidated financial statements present the accounts
      of
      Innovative and its wholly owned subsidiaries, AcXess, Inc., Softsale, Inc.
      and
      EPMG, Inc. (collectively, the “Company”). All intercompany balances and
      significant transactions have been eliminated.





(2)  Earnings
      Per Share





The
      Company calculates net income (loss) per share as required by Statement of
      Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
      (loss) per share is calculated by dividing net income (loss) by the weighted
      average number of common shares outstanding for the period. Diluted earnings
      (loss) per share is calculated by dividing net income (loss) by the weighted
      average number of common shares and dilutive common stock equivalents
      outstanding during periods when anti-dilutive common stock equivalents are
      not
      considered in the computation.





(3)  Deferred
      Financing Costs





The
      Company capitalizes financing costs as incurred and amortizes these costs to
      interest expense over the life of the underlying instruments.





(4)  Stockholders’
      (Deficit)





On
      April
      18, 2006, Innovative issued 200,000 shares of common stock with a fair market
      value of $8,000 for the settlement of an account payable.





4




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Pursuant
      to the Exchange Agreement, on June 26, 2006, the shareholders of AcXess
      exchanged 100% of the outstanding shares of common stock of AcXess for an
      aggregate of 11,000,000 shares of common stock of Innovative.





On
      June
      27, 2006, Innovative issued 4,377,872 shares of its common stock to holders
      of
      $175,115 in AcXess promissory notes to extinguish this debt.





On
      September 12, 2006, Innovative issued 523,811 shares of its common stock with
      a
      fair market value of $57,619 for consulting services for September, October
      and
      November of 2006.





On
      September 18, 2006, Innovative issued 63,462 shares of its common stock with
      a
      fair market value of $8,250 for legal services for September and October of
      2006.





(5)  Commitments,
      Concentrations and Contingencies





(a)  Leases:





The
      Company had no capital leases as of September 30, 2006.





In
      February 2006 Innovative entered into a lease agreement for approximately 3,200
      square feet of office space in Boca Raton, Florida. Monthly payments under
      the
      lease agreement are $5,850 and the lease has a term extending through June
      30,
      2007.





In
      February 2006 Innovative entered into a lease agreement for approximately 1,800
      square feet for a corporate apartment in Boca Raton, Florida. Monthly payments
      under the lease agreement are $2,500 and the lease has a term extending through
      February 28, 2007.





Rent
      expense under all operating leases for the three month periods ended September
      30, 2006, and 2005, was $25,310 and $-0- respectively. Rent expense under all
      operating leases for the six month periods ended September 30, 2006, and 2005,
      was $44,305 and $-0- respectively. In December 2004 our former subsidiary Triad
      Media, Inc. entered into a lease for approximately 3,606 square feet in Kansas
      City, Missouri with a term beginning February 1, 2005 and ending January 31,
      2010 and a base rent of $3,756 per month which the Company guaranteed on behalf
      of Triad Media, Inc. Following the sale of Triad Media in April 2005, the
      Company accrued for this potential liability which accrual amounted to $59,892
      at December 31, 2005. On February 28, 2006, the Company was informed that Triad
      Media, Inc. had abandoned the premises. In July 2006 we reached an agreement
      with the landlord to end the lease for a total of approximately $33,000 payable
      with a payment of $10,000 at signing, and the remaining balance payable over
      5
      months. As of September 30, 2006, the Company was current under the agreement
      and $14,633 remained payable.





(b)  SEC
      Investigation:





(See
“SEC
      Investigation” under Litigation below.)





(c)  Litigation:





SEC
      Investigation





On
      June
      24, 2003, the Securities and Exchange Commission ("SEC") issued a formal order
      of investigation, authorizing the investigation of certain securities matters.
      The SEC staff has taken the testimony of certain officers and previously
      management had voluntarily provided documents and information to the SEC staff
      in response to informal, non-public inquiries by the staff. On April 8, 2005,
      the Independent Committee of the Board of Directors turned over the results
      of
      its investigation to the SEC. We intend to continue to fully cooperate with
      the
      SEC in its investigation.





5




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Prosper,
      Inc. Complaint





Subsequent
      to the disposition by the Company of certain of its assets, liabilities, and
      operations related to its wholly owned EPMG, Inc. subsidiary (“EPMG”) in July
      2004, the former principals, under the new name of Prosper, Inc. filed a
      complaint that seeks a refund to the benefit of Prosper of certain accrued
      reserves remaining in EPMG amounting to approximately $570,000. These reserves
      were accrued under contracts with former vendors of EPMG and are recorded as
      accounts payable and accrued expenses in the accompanying consolidated balance
      sheet as of September 30, 2006. Under the EPMG Settlement Agreement, we agreed
      to pay certain reserves potentially owing to third-party vendors upon specified
      conditions. The lawsuit alleges that we have breached the obligation to pay
      these reserves, but we contest that the conditions for these payments have
      been
      satisfied and/or contest the amounts and payees of the payments that are alleged
      to be owed by us.





Although
      we believe that these allegations do not have any merit, if Prosper, Inc. were
      to prevail in its complaint there would be serious negative financial
      consequences resulting from utilization of our cash reserves. Moreover, such
      an
      action could divert management’s time and efforts away from the business of the
      Company.





Kansas
      City Explorers Complaint





The
      Company is a defendant in a lawsuit in the Circuit Court of Platte County,
      Missouri, “Kansas City Explorers vs. Innovative Software” Case no. 04CV82050 in
      which the claimant is seeking money for advertising which it alleges is still
      due, and have alleged damages of $50,028. The claimant has been court ordered
      to
      produce answers to certain discovery requests of the Company which they have
      failed to produce. Management intends to aggressively defend the claim based
      upon the lack of contract between the parties, lack of proof of damages, as
      well
      as minimal proof of advertising services actually performed for Company products
      and services.





(6)  Convertible
      Notes and Derivative Instrument Liabilities





Derivative
      financial instruments





The
      Company does not use derivative instruments to hedge exposures to cash flow,
      market, or foreign currency risks.





The
      Company reviews the terms of convertible debt and equity instruments issued
      to
      determine whether there are embedded derivative instruments, including the
      embedded conversion option, that are required to be bifurcated and accounted
      for
      separately as a derivative financial instrument. In circumstances where the
      convertible instrument contains more than one embedded derivative instrument,
      including the conversion option, that is required to be bifurcated, the
      bifurcated derivative instruments are accounted for as a single, compound
      derivative instrument. Also, in connection with the sale of convertible debt
      and
      equity instruments, the Company may issue freestanding options or warrants
      that
      may, depending on their terms, be accounted for as derivative instrument
      liabilities, rather than as equity. The Company may also issue options or
      warrants to non-employees in connection with consulting or other services they
      provide.





Certain
      instruments, including convertible debt and equity instruments and the
      freestanding options and warrants issued in connection with those convertible
      instruments, may be subject to registration rights agreements, which impose
      penalties for failure to register the underlying common stock by a defined
      date.
      If the convertible debt or equity instruments are not considered to be
      "conventional", then the existence of the potential cash penalties under the
      related registration rights agreement requires that the embedded conversion
      option be accounted for as a derivative instrument liability. Similarly, the
      potential cash penalties under the related registration rights agreement may
      require us to account for the freestanding options and warrants as derivative
      financial instrument liabilities, rather than as equity. In addition, when
      the
      ability to physical or net-share settle the conversion option or the exercise
      of
      the freestanding options or warrants is deemed to be not within the control
      of
      the company, the embedded conversion option or freestanding options or warrants
      may be required to be accounted for as a derivative financial instrument
      liability.





6




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Derivative
      financial instruments are initially measured at their fair value. For derivative
      financial instruments that are accounted for as liabilities, the derivative
      instrument is initially recorded at its fair value and is then re-valued at
      each
      reporting date, with changes in the fair value reported as charges or credits
      to
      income. For option-based derivative financial instruments, the Company uses
      the
      Black-Scholes option pricing model to value the derivative
      instruments.





If
      freestanding options or warrants were issued in connection with the issuance
      of
      convertible debt or equity instruments and will be accounted for as derivative
      instrument liabilities (rather than as equity), the total proceeds received
      are
      first allocated to the fair value of those freestanding instruments. If the
      freestanding options or warrants are to be accounted for as equity instruments,
      the proceeds are allocated between the convertible instrument and those
      derivative equity instruments, based on their relative fair values. When the
      convertible debt or equity instruments contain embedded derivative instruments
      that are to be bifurcated and accounted for as liabilities, the total proceeds
      allocated to the convertible host instruments are first allocated to the fair
      value of all the bifurcated derivative instruments. The remaining proceeds,
      if
      any, are then allocated to the convertible instruments themselves, usually
      resulting in those instruments being recorded at a discount from their face
      amount.





To
      the
      extent that the fair values of the freestanding and/or bifurcated derivative
      instrument liabilities exceed the total proceeds received, an immediate charge
      to income is recognized, in order to initially record the derivative instrument
      liabilities at their fair value.





The
      discount from the face value of the convertible debt, together with the stated
      interest on the instrument, is amortized over the life of the instrument through
      periodic charges to income, usually using the effective interest method. When
      the instrument is convertible preferred stock, the dividends payable are
      recognized as they accrue and, together with the periodic amortization of the
      discount, are charged directly to retained earnings.





The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed periodically,
      including at the end of each reporting period. If re-classification is required,
      the fair value of the derivative instrument, as of the determination date,
      is
      re-classified. Any previous charges or credits to income for changes in the
      fair
      value of the derivative instrument are not reversed. Derivative instrument
      liabilities are classified in the balance sheet as current or non-current based
      on whether or not net-cash settlement of the derivative instrument could be
      required within twelve months of the balance sheet date.





In
      January 2006 the Board of Directors of the Company approved the raising of
      up to
      $1,000,000 via the issuance of promissory notes to accredited investors. These
      notes have a term of six months, are convertible into shares of common stock
      of
      the Company at a 30% discount to a future Qualified Financing (as therein
      described). In addition, each note is issued with warrants to purchase
      Innovative common stock at a strike price of $0.05 per share. The number of
      warrants granted is determined by multiplying the face value of each note issued
      by four. As of September 30, 2006, the Company had raised $675,000 under such
      notes. In October the Board of Directors of the Company approved an increase
      in
      the amount to be raised under this financing to $1,500,000. A total of
      $1,107,500 had been raised as of November 10, 2006, when the Company closed
      the
      round.





The
      warrants have been accounted for as derivative instrument liabilities (see
      below) in accordance with EITF 00-19, "Accounting for Derivative Financial
      Instruments Indexed To, and Potentially Settled In, a Company's Own Common
      Stock" (EITF 00-19). Accordingly, the initial fair value of the warrants,
      amounting to an aggregate of $23,430 was recorded as a derivative instrument
      liability. The fair value of the warrants was determined using the Black-Scholes
      valuation model, based on the market price of the common stock on the dates
      the
      Warrants were issued, an expected dividend yield of 0%, a risk-free interest
      rate based on constant maturity rates published by the U.S. Federal Reserve,
      applicable to the life of the Warrants, expected volatility of 114%, and the
      five year life of the Warrants. The Company is required to re-measure the fair
      value of the warrants at each reporting period.





Because
      the conversion price of the Convertible Notes is not fixed, the Convertible
      Notes are not “conventional convertible debt” as that term is used in EITF
      00-19. Accordingly, the Company is required to bifurcate and account separately
      for the embedded conversion options, together with any other derivative
      instruments embedded in the Convertible Notes.





7




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


The
      conversion option related to each Convertible Note was bifurcated from the
      Convertible Note and accounted for separately as a derivative instrument
      liability (see below). The bifurcated embedded derivative instruments, including
      the embedded conversion options which were valued using the Flexible Monte
      Carlo
      Simulation methodology, were recorded at their initial fair value of an
      aggregate of $350,937.





The
      discount from the face amount of the Convertible Notes represented by the value
      assigned to the Warrants and bifurcated derivative instruments is being
      amortized over the period to the due date of each Convertible Note, using the
      effective interest method. Amortization for the three and six month periods
      ending September 30, 2006, was $24,173 and $169,635, respectively.





A
      summary
      of the Convertible Notes and derivative instrument liabilities at September
      30,
      2006, is as follows:





Convertible
                Notes; 12% per annum; due December 15, 2006, though April 24,
                2007
            
            $
            675,000Less:
                unamortized discount related to warrants and bifurcated embedded
                derivative instruments
            
            
            (200,530
            )Total
                carrying value at September 30, 2006
            
            $
            474,470





Derivative
      financial instrument liabilities





We
      use
      the Black-Scholes valuation model to value the warrants and the embedded
      conversion option components of any bifurcated embedded derivative instruments
      that are recorded as derivative liabilities.





In
      valuing the warrants and the embedded conversion option components of the
      bifurcated embedded derivative instruments, at the time they were issued and
      at
      September 30, 2006, we used the market price of our common stock on the date
      of
      valuation, an expected dividend yield of 0% and the remaining period to the
      expiration date of the warrants or repayment date of the Convertible Notes.
      All
      warrants and conversion options can be exercised by the holder at any
      time.





Because
      of the limited historical trading period of our common stock, the expected
      volatility of our common stock over the remaining life of the conversion options
      and warrants has been estimated at 114%. The risk-free rates of return used
      were
      based on constant maturity rates published by the U.S. Federal Reserve,
      applicable to the remaining life of the conversion options or
      warrants.





8




**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**





At
      September 30, 2006, the following derivative liabilities related to common
      stock
      warrants and embedded derivative instruments were outstanding:





**Exercise**
            
            **Value**
            
            **Value****Price
                Per**
            
            **Issue**
            
            **September
                30,****Issue
                Dates**
            **Expiry
              Dates**
            
            
            **Share**
            
            **Date**
            
            **2006**May
                22, through September
                29, 2006
            May
              22, throughSeptember 29, 2011
            1,600,000warrants$
            0.05
            
            $
            23,430
            
            $
            77,950Fair
                value of freestanding derivative instrument liabilities for
                warrants
            
            
            
            $
            77,950May
                22, through September
                29, 2006
            May
              22, throughSeptember 29, 2011$
            350,937
            
            $
            338,187Fair
                  value of bifurcated embedded derivative instrumentliabilities
                  associated with the above convertible notes
            
            
            
            
            
            
            $
            338,187Total
                derivative financial instruments
            
            
            
            
            
            
            
            
            $
            416,137





The
      following table reflects the number of common shares into which the
      aforementioned derivatives are indexed at September 30, 2006:





**Common
                shares indexed:**Embedded
                derivative instruments
            
            
            7,417,582Freestanding
                derivatives (warrants)
            
            
            2,700,00010,117,582





(7)  Basis
      of
      Reporting





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. However, the Company has incurred a loss
      of
      $1,947,473 from inception (January 12, 2005) through September 30, 2006, and
      has
      working capital and stockholder deficits of $1,577,604 and $1,428,388 at
      September 30, 2006. In addition, the Company currently has minimal revenue
      generating operations. These factors raise substantial doubt about the Company’s
      ability to continue as a going concern. The accompanying consolidated financial
      statements do not include any adjustments that might become necessary should
      the
      Company be unable to continue as a going concern.





Management
      has raised funds for operations totaling $675,000 as of September 30, 2006
      (see
      Note 6 above) and intends to continue to seek debt and/or equity financing
      to
      fund operations and the execution of its business plan (see Note 8). However,
      there can be no assurance that the Company will be successful in raising the
      funds necessary to remain a going concern.




9


**INNOVATIVE
        SOFTWARE TECHNOLOGIES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**





(8)  Subsequent
      Events





On
      October 17, 2006, our Board of Directors appointed Traver Gruen-Kennedy and
      Roderick Dowling to the Board of Directors of the Company.





From
      October 1, 2006, to November 8, 2006, the Company issued an additional $432,500
      in convertible notes with the terms as discussed in Note 6 above.





10





**Item
      2.** **Management's
      Discussion and Analysis or Plan of Operation**





**Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





The
      following discussion includes statements that are forward looking in nature.
      The
      accuracy of such statements depends on a variety of factors that may affect
      the
      business and operations of the Company. Certain of these factors are discussed
      under “Business - Factors Influencing Future Results and Accuracy of
      Forward-Looking Statements” included in Part 1 of this report. 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,
      and
      actual results could 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.





**Overview**





The
      following discussion summarizes information about our accounting policies and
      practices and information about our operations in a comparative manner for
      the
      three and six months ended September 30, 2006, and 2005. Our management’s
      discussion and analysis of financial condition and results of operations should
      be read in conjunction with our consolidated financial statements and related
      notes thereto included elsewhere herein.





**Acquisition
      of AcXess, Inc.**





On
      June
      26, 2006, the Company completed the acquisition of AcXess, Inc., a Florida
      corporation (“AcXess”), in a stock exchange transaction (the “Transaction”)
      pursuant to a Stock Exchange Agreement by and between Innovative, AcXess, the
      Shareholders of AcXess, and Anthony F. Zalenski, acting as the Shareholder’s
      Agent (the “Exchange Agreement”). As a result of the Transaction, AcXess became
      a wholly owned subsidiary of the Company. Following FAS 141, as governing and
      operating control of the combined entity is under Mr. Zalenski, AcXess is deemed
      to be the purchaser in the Transaction for financial reporting purposes.
      Therefore, reverse acquisition accounting applies whereby AcXess is deemed
      to
      have issued its common stock for the net assets or liabilities of Innovative
      accompanied by a recapitalization of AcXess. For accounting purposes, AcXess
      is
      treated as the continuing reporting entity.





AcXess
      was formed to provide Business Continuity (“BC”) products and services to the
      Small and Medium Enterprise (“SME”) market. “Business Continuity” products and
      services are an advanced form of disaster recovery solutions for electronic
      data
      backup wherein the data and/or applications are available immediately upon
      failure through means of connectivity to remote server locations. Management
      believes that the North American SME market for BC services (defined as
      companies with 50 to 5,000 employees) is underserved and that various
      technologies have matured to a point where the SME market can now be supplied
      robust BC services which were previously only available to large corporations
      and at substantial cost.




**Critical
      Accounting Policies and Estimates**





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
      us to make estimates and judgments that affect the reported amounts 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’s critical
      accounting policies are discussed in its annual report on Form 10-KSB for the
      year ended December 31, 2005.





11





**Results
      of Operations**





*Three
      and six months ended September 30, 2006, compared to the three and six months
      ended September 30, 2005.*





Revenues





Revenues
      for the three months ended September 30, 2006, and 2005 were $37,095 and $-0-,
      respectively. Revenues for the six months ended September 30, 2006, and 2005
      were $38,667 and $-0-, respectively. The minimal amount of revenue reflects
      the
      startup nature of the Company.





Cost
      of Sales and Margins





Cost
      of
      sales for the three months ended September 30, 2006, and 2005 were $23,605
      and
      $-0-, respectively. Cost of sales for the six months ended September 30, 2006,
      and 2005 were $36,566 and $-0-, respectively. Cost of sales comprise primarily
      network charges for the periods.





General
      and Administrative Expenses





General
      and administrative expenses for the three months ended September 30, 2006,
      and
      2005 were $1,108,671 and $7,172, respectively. General and administrative
      expenses for the three months ended September 30, 2006, and 2005 were $1,254,734
      and $36,720, respectively. General and administrative expenses consisted
      primarily of salaries and wages, professional fees, rent, travel expenses,
      payroll taxes, telephone expenses and other general and administrative
      expenses.





Commissions
      and Other Selling Expenses





The
      Company has not yet incurred any commissions and other selling expenses
      reflecting the startup nature of the business.





Other
      Income (Expense)





Other
      income (expense), for the three months ended September 30, 2006, and 2005 were
      ($173,929) and $-0-, respectively. Other income (expense), for the six months
      ended September 30, 2006, and 2005 were ($211,270) and $-0-, respectively.
      Other
      expense for the periods comprise primarily of interest expense and derivatives
      loss due to derivative liabilities (see Note 6 in the Notes to the Financial
      Statements) as well as other income due primarily from income recognized upon
      the favorable settlement of certain outstanding accounts payable.





Net
      Loss





Our
      net
      loss for the three months ended September 30, 2006, amounted to ($1,269,110)
      compared to a net loss of ($7,172) for the three month period ended September
      30, 2005. Our net loss for the six months ended September 30, 2006, amounted
      to
      ($1,463,902), compared to a net loss of ($36,720) for the six month period
      ended
      September 30, 2005.





**Liquidity
      and Capital Resources**





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. However, the Company has incurred a loss
      of
      $1,951,253 from inception (January 12, 2005) through September 30, 2006, and
      has
      working capital and stockholder deficits of $1,577,604 and $1,428,388 at
      September 30, 2006. In addition, the Company currently has minimal revenue
      generating operations. As of September 30, 2006, we had cash and other reserves
      amounting to $36,902. Our financial statements do not include any adjustments
      that might become necessary should the Company be unable to continue as a going
      concern.





12




In
      January 2006 the Board of Directors of the Company approved the raising of
      up to
      $1,000,000 via the issuance of promissory notes to accredited investors. These
      notes have a term of six months, are convertible into shares of common stock
      of
      the Company at a 30% discount to a future Qualified Financing (as therein
      described), and have 20% warrant coverage at a strike price of $0.05. In October
      the board of directors of the Company approved an increase in the limit of
      funding under these terms to $1,500,000. As of September 30, 2006, the Company
      had raised $675,000 under such notes.





At
      September 30, 2006, we had current liabilities of $1,725,210.





We
      have
      no material commitments for capital expenditures. Capital expenditures for
      the
      three and six months ended September 30, 2006, amounted to $56,338 and $139,731,
      respectively.





**Off
      Balance-Sheet Arrangements**





The
      Company has no material off-balance sheet arrangements as of September 30,
      2006.





**Item
      3.** **Controls
      and Procedures**





The
      Chief
      Executive Officer and Chief Financial Officer of the Company, with the
      participation of the Company's management, carried out an evaluation of the
      effectiveness of the Company's disclosure controls and procedures pursuant
      to
      Exchange Act Rule 13a-15 as of September 30, 2006. Based on that evaluation,
      the
      Chief Executive Officer and the Chief Financial Officer believe that, as of
      the
      date of the evaluation, the Company's disclosure controls and procedures are
      effective in making known to them material information relating to the Company
      (including its consolidated subsidiaries) required to be included in this
      report.





There
      were no changes in the Company's internal controls or in other factors that
      could significantly affect internal controls, known to the Chief Executive
      Officer or the Chief Financial Officer, subsequent to the date of the
      evaluation.





13





**PART
      II -**  **OTHER
      INFORMATION**





**Item
      1.** **Legal
      Proceedings**





From
      time
      to time, we are involved in litigation concerning our business operations.
      Management believes that the litigation in which we are currently involved
      is
      not reasonably likely to be material to its financial condition, results of
      its
      operations or its cash flows, other than the litigation noted
      below.





SEC
      Investigation





On
      June
      24, 2003, the Securities and Exchange Commission ("SEC") issued a formal order
      of investigation, authorizing the investigation of certain securities matters.
      The SEC staff has taken the testimony of certain officers and previously
      management had voluntarily provided documents and information to the SEC staff
      in response to informal, non-public inquiries by the staff. On April 8, 2005,
      the Independent Committee of the Board of Directors turned over the results
      of
      its investigation to the SEC. We intend to continue to fully cooperate with
      the
      SEC in its investigation.





Prosper,
      Inc. Complaint





Subsequent
      to the disposition by the Company of certain of its assets, liabilities, and
      operations related to its wholly owned EPMG, Inc. subsidiary (“EPMG”) in July
      2004, the former principals, under the new name of Prosper, Inc. filed a
      complaint that seeks a refund to the benefit of Prosper of certain accrued
      reserves remaining in EPMG amounting to approximately $570,000. These reserves
      were accrued under contracts with former vendors of EPMG and are recorded as
      accounts payable and accrued expenses in the accompanying consolidated balance
      sheet as of September 30, 2006. Under the EPMG Settlement Agreement, we agreed
      to pay certain reserves potentially owing to third-party vendors upon specified
      conditions. The lawsuit alleges that we have breached the obligation to pay
      these reserves, but we contest that the conditions for these payments have
      been
      satisfied and/or contest the amounts and payees of the payments that are alleged
      to be owed by us.





Although
      we believe that these allegations do not have any merit, if Prosper, Inc. were
      to prevail in its complaint there would be serious negative financial
      consequences resulting from utilization of our cash reserves. Moreover, such
      an
      action could divert management’s time and efforts away from the business of the
      Company.





Kansas
      City Explorers Complaint





The
      Company is a defendant in a lawsuit in the Circuit Court of Platte County,
      Missouri, “Kansas City Explorers vs. Innovative Software” Case no. 04CV82050 in
      which the claimant is seeking money for advertising which it alleges is still
      due, and have alleged damages of $50,028. The claimant has been court ordered
      to
      produce answers to certain discovery requests of the Company which they have
      failed to produce. Management intends to aggressively defend the claim based
      upon the lack of contract between the parties, lack of proof of damages, as
      well
      as minimal proof of advertising services actually performed for Company products
      and services.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





As
      of
      November 8, 2006, the Company issued $1,107,500 in convertible promissory notes.
      These notes have a term of six months, are convertible into shares of common
      stock of the Company at a 30% discount to a future Qualified Financing (as
      therein described), and have 20% warrant coverage at a strike price of $0.05.
      Proceeds from the issuance of such notes were used for general working capital
      and capital expenditures.





On
      September 12, 2006, the Company issued 523,811 shares of its common stock with
      a
      fair market value of $57,619 for consulting services for September, October
      and
      November of 2006.





On
      September 18, 2006, the Company issued 63,462 shares of its common stock with
      a
      fair market value of $8,250 for legal services for September and October of
      2006.





**Item
      3. Defaults Upon Senior Securities**





None.





14





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





Not
      applicable





**Item
      5. Other Information**





Not
      applicable




**Item
      6. Exhibits.**




Exhibits
      included or incorporated by reference herein are set forth in the attached
      Exhibit Index.








**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:**November 20, 2006
            By:
            /s/ Anthony
              F. ZalenskiAnthony
              F. ZalenskiChairman
                of the Board,
              Chief
                Executive Officer




**Date:**November 20, 2006
            By:
            /s/ Christopher
              J. FloydChristopher
              J. FloydChief
                Financial Officer,
              Vice
                President of Finance, and Secretary




15





**INDEX
      TO EXHIBITS**





**Exhibit**
              **Number**
            
            **Description**31.1
            
            Certification
                of Chief Executive Officer of Innovative Software Technologies, Inc.
                pursuant to Rule 13a-15(e) or 15d-15(e) of the Securities Exchange
                Act of
                1934, as amended.31.2
            
            Certification
                of Chief Financial Officer of Innovative Software Technologies, Inc.
                pursuant to Rule 13a-15(e) or 15d-15(e) of the Securities Exchange
                Act of
                1934, as amended.32.1
            
            Certification
                of Chief Executive Officer of Innovative Software Technologies, Inc.
                pursuant to 18 U.S.C. 1350.32.2
            
            Certification
                of Chief Financial Officer of Innovative Software Technologies, Inc.
                pursuant to 18 U.S.C. 1350.




16