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 September 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 48,414,358 shares of common stock,  $0.001 par value,  outstanding as
of October 30, 2002.


<PAGE>



                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                   FORM 10-QSB

<TABLE>
<CAPTION>


                        QUARTER ENDED SEPTEMBER 30, 2002

                                TABLE OF CONTENTS


                                                                                         Page
                                                                                         ----

                          PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

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

     Condensed Consolidated Statements of Operations (Unaudited)
       for the Three and Nine Months Ended September 30, 2002 and 2001...................  4

     Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)
       for the Three and Nine Months Ended September 30, 2002 and 2001...................  5

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

     Condensed Consolidated Statements of Cash Flows (Unaudited)
       for the Nine Months Ended September 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........................................................... 18

Item 3. Controls and Procedures.......................................................... 23

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings................................................................ 23

Item 2. Changes in Securities............................................................ 23

Item 6. Exhibits and Reports on Form 8-K................................................. 23

Signatures    ........................................................................... 24
</TABLE>
                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS



                                                                                    (Unaudited)
                                                                                  September 30,   December 31,
                                                                                      2002            2001
                                     ASSETS
<S>                                                                                     <C>            <C>
Current Assets
     Cash ...........................................................................   $    936,162   $    282,307
     Accounts receivable, net of allowance for doubtful accounts
     of $132,000 and $4,000, respectively ...........................................        511,525         49,392
     Other receivables ..............................................................         13,542          2,543
     Investment securities  - available for sale ....................................        941,500        549,896
     Prepaid expenses ...............................................................         20,235          6,571
     Other current assets ...........................................................        428,336           --
     Deferred income tax asset ......................................................            563            812
                                                                                        ------------   ------------
         Total Current Assets .......................................................      2,851,863        891,521
                                                                                        ------------   ------------
Property and Equipment, Net .........................................................        411,015         61,512
                                                                                        ------------   ------------
Other Assets
     Goodwill .......................................................................     13,549,932     13,549,932
     Other assets ...................................................................           --           23,810
     Deposit ........................................................................         48,698          4,491
     Deferred income tax asset - non-current ........................................          3,158          2,908
                                                                                        ------------   ------------
         Total Other Assets .........................................................     13,601,788     13,581,141
                                                                                        ------------   ------------
Total Assets ........................................................................   $ 16,864,666   $ 14,534,174
                                                                                        ============   ============
                                                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Note payable - Line of credit ..................................................   $     43,242   $       --
     Current maturities of long-term debt ...........................................         45,707           --
     Accounts payable and accrued expenses ..........................................        552,714        156,014
     Deferred revenue ...............................................................        252,956           --
     Accrued federal and state income taxes .........................................        374,362           --
     Reserve for sales returns and allowances .......................................        279,472        100,000
                                                                                        ------------   ------------
         Total Current Liabilities ..................................................      1,548,453        256,014
                                                                                        ------------   ------------
Long-term debt, net of current maturities ...........................................         95,098           --

Stockholders' Equity
     Preferred stock - no par; 25,000,000 shares authorized
       Series A preferred stock; 1,850,000 shares issued and
       outstanding; $1.00 stated value ..............................................      1,850,000      1,850,000
       Series B preferred stock; 248,491 shares issued and
       outstanding; $1.00 stated value ..............................................        248,491        248,491
     Common stock - $0.001 par value; 100,000,000 shares authorized
       48,414,358 and 48,285,283 shares issued and outstanding, respectively ........         48,414         48,285
     Additional paid-in-capital .....................................................     12,791,635     12,626,679
     Accumulated comprehensive loss .................................................           --         (204,354)
     Retained earnings/(Accumulated deficit) ........................................        282,575       (290,941)
                                                                                        ------------   ------------
Total Stockholders' Equity ..........................................................     15,221,115     14,278,160
                                                                                        ------------   ------------
Total Liabilities and Stockholders' Equity ..........................................   $ 16,864,666   $ 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 Nine Months
                                                           Ended September 30,          Ended September 30,
                                                    ----------------------------   ----------------------------
                                                        2002             2001          2002             2001
                                                    ------------    ------------   ------------    ------------
<S>                                                 <C>             <C>            <C>             <C>
Sales ...........................................   $  4,225,488    $    310,638   $ 10,014,523    $    314,638

Cost of Sales ...................................      1,528,534            --        3,650,218            --
                                                    ------------    ------------   ------------    ------------
Gross Profit ....................................      2,696,954         310,638      6,364,305         314,638
                                                    ------------    ------------   ------------    ------------
Operating Expenses
     General and administrative .................      1,069,191         221,428      2,727,968         493,903
     Selling ....................................        729,388          44,188      2,011,587          79,773
     Loss on investment securities ..............        687,750            --          687,750            --
     Non-recurring expenses .....................           --              --          169,578            --
                                                    ------------    ------------   ------------    ------------
     Total Operating Expenses ...................      2,486,329         265,616      5,596,883         573,676
                                                    ------------    ------------   ------------    ------------
Income (Loss) From Operations ...................        210,625          45,022        767,422        (259,038)
                                                    ------------    ------------   ------------    ------------
Other Income (Expense)
     Other income ...............................        154,105            --          172,197            --
     Interest expense ...........................         (2,500)           --           (9,055)           --
                                                    ------------    ------------   ------------    ------------
     Total Other Income (Expense) ...............        151,605            --          163,142            --
                                                    ------------    ------------   ------------    ------------
Income (Loss) Before Income Taxes ...............        362,230          45,022        930,564        (259,038)

Income Taxes ....................................        137,048            --          357,048            --
                                                    ------------    ------------   ------------    ------------
Net Income (Loss) ...............................   $    225,182    $     45,022   $    573,516    $   (259,038)
                                                    ============    ============   ============    ============
Basic and Diluted Income (Loss) per Share .......   $       0.00            0.00   $       0.01    $      (0.01)
                                                    ============    ============   ============    ============
Weighted Average Number of Common Shares
Used in Per Share Calculation (basic and diluted)     48,402,172      46,947,990     48,336,469      44,814,371
                                                    ============    ============   ============    ============
</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/(LOSS)
                                   (UNAUDITED)



                                                          For the Three Months          For the Nine Months
                                                           Ended September 30,          Ended September 30,
                                                    ----------------------------   ----------------------------
                                                        2002             2001          2002             2001
                                                    ------------    ------------   ------------    ------------
<S>                                                 <C>             <C>            <C>             <C>
Net income/(loss) ............................      $    225,182    $     45,022   $    573,516    $   (259,038)
Other comprehensive income/(loss), net of tax:
Unrealized income/(loss) on investments ......              --                75           --           (25,500)
                                                    ------------    ------------   ------------    ------------
Comprehensive income/(loss) ..................      $    225,182    $     45,097   $    573,516    $   (284,538)
                                                    ============    ============   ============    ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 2002
                                   (UNAUDITED)


                                                                                                          Retained
                                    Preferred Stock          Common Stock        Additional  Accumulated  Earnings        Total
                                ----------------------   --------------------     Paid-in-    Comprehen-  (Accumulated Stockholders'
                                  Shares      Amount       Shares     Amount      Capital     sive Loss    Deficit)       Equity
                                ---------  -----------   ----------  --------   -----------  ----------- ------------- -------------

<S>               <C>           <C>        <C>           <C>         <C>        <C>          <C>         <C>           <C>
Balance - January 1, 2002 ..... 2,098,491  $  2,098,491  48,285,283  $ 48,285   $12,626,679  $(204,354)  $ (290,941)   $ 14,278,160

Issuance of common stock for
   services provided ..........      --            --         4,000         4        14,196       --            --           14,200

Issuance of common stock ......      --            --        40,730        41        36,951       --            --           36,992

Issuance of common stock for
   services provided ..........      --            --         6,125         6        20,644       --            --           20,650

Issuance of common stock for
   software ...................      --            --        53,845        54        69,946       --            --           70,000
Issuance of common stock ......      --            --        24,375        24        23,219       --            --           23,243

Unrealized loss on investments       --            --          --        --            --     (483,396)         --         (483,396)

Unrealized loss on investments
recognized in income due to
other than temporary impairment      --            --          --        --            --      687,750          --          687,750

Net income for the nine months
  ended September 30, 2002 ....      --            --          --        --            --         --        573,516         573,516
                                ---------  ------------  ----------  --------   -----------  ---------    ----------   ------------
Balance - September 30, 2002 .. 2,098,491  $  2,098,491  48,414,358  $ 48,414   $12,791,635  $    --      $ 282,575    $ 15,221,115
                                =========  ============  ==========  ========   ===========  =========    ==========   ============
</TABLE>








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



                                       6
<PAGE>


<TABLE>
<CAPTION>

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

                                                                                         For the Nine Months
                                                                                         Ended September 30,
                                                                                  ------------------------------
                                                                                      2002               2001
                                                                                  -----------        -----------
<S>                                                                               <C>                <C>
Cash Flows From Operating Activities
 Net income/(loss).........................................................       $   573,516        $  (259,038)
 Adjustments to reconcile net income/(loss) to net cash
 provided by  (used in) operating activities:
   Depreciation and amortization ..........................................            83,016              6,196
   Sale of software platform for investment securities ....................          (875,000)          (300,000)
   Write down of investment securities ....................................           687,750               --
   Allowance for doubtful accounts ........................................           132,000               --
    Non-cash expenses .....................................................            34,850             66,366
   Changes in operating assets and liabilities:
     Accounts receivable ..................................................          (594,133)            (4,000)
     Prepaid expenses .....................................................           (13,664)            (1,875)
     Other receivables ....................................................           (10,999)              --
     Other current assets .................................................          (428,336)              (358)
     Other assets .........................................................            23,810             (2,615)
     Deposits .............................................................           (44,207)              --
     Accounts payable and accrued expenses ................................           396,700             19,224
     Deferred revenue .....................................................           252,956               --
     Reserve for returns and allowances ...................................           179,472               --
     Accrued federal and state income taxes ...............................           374,362               --
                                                                                  -----------        -----------
   Net Cash Provided By/(Used In) Operating Activities ....................           772,093           (476,100)
                                                                                  -----------        -----------

Net Cash Flows Used In Investing Activities
   Capital expenditures ...................................................          (362,520)           (36,523)
                                                                                  -----------        -----------

Cash Flows From Financing Activities
   Issuance of common stock ...............................................            60,235            596,924
   Proceeds from borrowings under line of credit ..........................            50,000               --
   Repayments on line of credit ...........................................            (6,758)              --
   Proceeds from borrowing under note payable .............................           155,360               --
   Repayments on notes payable ............................................           (14,555)              --
   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 ..............................           244,282            581,002
                                                                                  -----------        -----------
Net Increase in Cash ......................................................           653,855             68,380

Cash at Beginning of Period ...............................................           282,307                888
                                                                                  -----------        -----------
Cash at End of Period......................................................       $   936,162        $    69,268
                                                                                  ===========        ===========
Supplemental Cash Flow Information:
   Unrealized loss on investment securities available for sale.............       $      --          $   (25,500)
                                                                                  ===========        ===========
   Issuance of common stock for services provided..........................       $    34,850        $    66,366
                                                                                  ===========        ===========
   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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A  -  COMPANY DESCRIPTION

Innovative  Software  Technologies,  Inc. (the "Company" or  "Innovative")  is a
software company,  specializing in small business and financial  eLearning tools
and consulting  services.  The Company's main products are The Financial Toolkit
1.0, an integrated  financial services and educational  program;  EMS, a turnkey
web builder,  e-commerce  solution and data management  system targeted to small
businesses, Skills in Demand, consisting of eLearning certification courses that
cater to Information Systems,  Internet Professionals and small business owners,
and eTaxNet,  a provider of online tax and consulting  services.  In addition to
the software and learning  products,  The Company offers  technical  support and
coaching for most of its products and 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 (US GAAP),
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).

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  Provo,  Utah.  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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE A  -  COMPANY DESCRIPTION - Continued

The purchase price for the acquisition EPMG has been allocated on the fair value
basis on the acquisition date 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 Statement 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 the acquisition date.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary  of the  Company's  significant  accounting  policies  applied  in the
preparation of the accompanying financial statements follows.

1.       Interim Condensed Consolidated 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
         US GAAP 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
         three and nine months  ended  September  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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



         -   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.
         -   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.
         -   Goodwill,  as well as  intangible  assets  with  indefinite  lives,
             acquired after June 30, 2001, will not be amortized.
         -   Effective January 1, 2002, all previously  recognized  goodwill and
             intangible  assets with indefinite  lives will no longer be subject
             to amortization.
         -   Effective  January 1, 2002,  goodwill  and  intangible  assets with
             indefinite  lives  will  be  tested  for  impairment  annually  and
             whenever there is an impairment indicator.
         -   All  acquired  goodwill  must be  assigned to  reporting  units for
             purposes of impairment testing and segment reporting.

         As of January 1,  2002,  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 at June 30, 2002, 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.

         Subsequent  to September  30, 2002,  the trading price of the Company's
         stock declined from recent levels,  raising questions about whether the
         fair value of goodwill  exceeds its carrying  amount.  An evaluation of
         the carrying  amount of goodwill,  which will include an  evaluation of
         whether  the  decline in the trading  price of the  Company's  stock is
         other than  temporary,  will occur as part of the previously  mentioned
         annual impairment test.

         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. A liability for an asset  retirement  obligation
         should  be  recognized  if the  obligation  meets the  definition  of a
         liability and can be reasonably 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



                                       10
<PAGE>



                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         requirements  relating  to  reporting  the  effects  of a  disposal  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.

         In April 2002,  the FASB  issued  SFAS No. 145 (SFAS 145).  Any gain or
         loss on  extinguishment of debt that was classified as an extraordinary
         item in prior periods  presented that does not meet the criteria in APB
         30 for  classification as an extraordinary  item shall be reclassified.
         SFAS 145 also  amends SFAS 13,  Accounting  for Leases as well as other
         existing   authoritative   pronouncements  to  make  various  technical
         corrections,  clarify meanings,  or describe their  applicability under
         changed  conditions.  Certain  provisions of SFAS 145 are effective for
         transactions occurring after May 15, 2002 while other are effective for
         fiscal years  beginning after May 15, 2002. The Company does not expect
         SFAS  145 to have a  material  effect  on its  financial  condition  or
         results of operations.

         In June 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
         Associated with Exit or Disposal  Activities" (SFAS 146). This standard
         addresses financial  accounting and reporting for costs associated with
         exit or disposal  activities.  SFAS 146 requires  that a liability  for
         costs  associated with an exit or disposal  activity be recognized when
         the liability is incurred. The provisions of SFAS 146 are effective for
         exit or disposal  activities  that are  initiated by the Company  after
         December  31,  2002.  The  Company  does not expect  SFAS 146 to have a
         material effect on its financial condition or results of operations.

         In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
         Financial  Institutions"  (SFAS  147).  This  standard  relates  to the
         application of the purchase method of accounting to all acquisitions of
         financial institutions,  except transactions between two or more mutual
         enterprises.  This standard also relates to the application of SFAS 144
         to certain long-term customer-relationship intangible assets recognized
         in an acquisition of a financial institution,  including those acquired
         in transactions  between mutual  enterprises.  SFAS 147 is effective on
         October  1,  2002.  The  Company  does  not  expect  SFAS 147 to have a
         material effect on its financial condition or results of operations.

3.       Principles of Consolidation
         ---------------------------

         The accompanying  condensed  consolidated financial statements 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 nine months ended September 30, 2002. All
         significant intercompany transactions and balances have been eliminated
         in consolidation.


                                       11
<PAGE>




4.       Revenue Recognition
         -------------------

         The Company  recognizes  revenue after delivery of the product.  To the
         extent the Company sells software,  revenue is recognized in accordance
         with Statement of Position 97-2, Software Revenue Recognition.  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.
         Payments  received  by the  Company for these  services  are  generally
         recorded  as  deferred  revenue  and  recognized  over  the term of the
         services.

5.       Investments Securities
         ----------------------

         All investment securities are classified as  available-for-sale.  These
         investment  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.

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 US GAAP,  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.

8.       Software Development Costs
         --------------------------

         In accordance with Statement of Financial  Accounting Standards 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.


                                       12
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

10.      Impairment and Long-lived Assets
         --------------------------------

         The Company will regularly perform reviews to determine if the carrying
         values of our  long-lived  assets are  impaired.  The reviews take into
         account  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 assets as of September 30, 2002.

NOTE C - INVESTMENT SECURITIES

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

   Investment                             Cost                 Gross Unrealized              Estimated
   Securities                             Basis            Gains             Losses         Fair Value
--------------------------              ---------        ----------        ----------        ---------
<S>                                     <C>              <C>               <C>               <C>
September 30, 2002
EnSurge, Inc. common stock              $    --          $    --           $    --           $    --
Knowledge Transfer Systems, Inc.
common stock                               66,500             --                --              66,500
Knowledge Transfer Systems, Inc.
preferred stock                           875,000             --                --             875,000
                                        ---------        ----------        ----------        ---------
                                        $ 941,500        $    --           $    --           $ 941,500
                                        =========        ==========        ==========        =========

December 31, 2001
EnSurge, Inc. common stock              $  26,250        $    --           $ (25,950)        $     300
Knowledge Transfer Systems, Inc.
common stock                              728,000           10,500          (188,904)          549,596
                                        ---------        ----------        ----------        ---------
                                        $ 754,250        $  10,500         $(214,854)        $ 549,896
                                        =========        ==========        ==========        =========
</TABLE>

The Knowledge Transfer Systems,  Inc. common stock was received in consideration
for the  sale  of four  software  coaching  platforms  to  Ensurge,  Inc.  These
investment  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 investment
securities  after the  effective  date of sale.  As of September  30, 2002,  the
one-year  holding  period  on  these  investment   securities  expired  and  the
investment  securities were recorded at 100% of their fair market value.  Due to
the decline in market value of Knowledge  Transfer  Systems,  Inc. common stock,
the Company wrote down the carrying value of these  investment  securities as of
September  30,  2002 to  $66,500.  The  reduction  in  carrying  value  on these
investment  securities  resulted in a loss on investment of $661,500  during the
three months ended September 30, 2002.

The Company received Ensurge, Inc. common stock in consideration for the sale of
certain  vintage  furniture  in 2000.  Due to the  decline  in  market  value of
Ensurge, Inc. common stock, the Company considered the carrying value of $26,250
permanently  impaired  which  resulted  in a loss on  investment  securities  of
$26,250 during the three months ended September 30, 2002.


                                       13
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


On  September  23,  2002,  the Company  sold the  Business  Development  Series,
e-learning content and software to Knowledge Transfer Systems,  Inc. in exchange
for 875,000  Knowledge  Transfer  Systems,  Inc.  preferred shares with a stated
value  of  $1.00  per  share.  The  preferred  shares  are  convertible,  at the
discretion of the Company,  to Knowledge Transfer Systems,  Inc. common stock at
95% of the fair market value of Knowledge  Transfer  System's common stock based
on a five day average proceeding the date of conversion.

These  investment  securities are traded on the OTC Bulletin  Board.  All of our
investment  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 further 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  investment
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 impairment becomes apparent.


NOTE D - PROPERTY AND EQUIPMENT

Property and equipment are stated at cost,  net of accumulated  depreciation  as
follows:
<TABLE>
<CAPTION>

                                                                  September 30,   December 31,
                                                                       2002           2001
                                                                  ----------------------------
<S>                                                               <C>             <C>
         Machinery and Equipment................................  $   232,808     $   55,615
         Furniture and Fixtures.................................       57,894         18,740
         Computer Software......................................      190,624          5,667
         Leasehold improvements.................................       34,092          2,877
                                                                  -----------     ----------
        ........................................................      515,418         82,899
         Less: Accumulated depreciation and amortization........     (104,403)       (21,387)
                                                                  -----------     ----------
         Property and Equipment, Net............................  $   411,015     $   61,512
                                                                  ===========     ==========
</TABLE>






                                       14
<PAGE>



                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE E - LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                  September 30,     December 31,
                                                                                      2002             2001
                                                                                  -------------     ------------
<S>                                                                                <C>               <C>

      Notes payable, financial institution, collaterized
      by telephone equipment, principal and
      interest payable in monthly installments of $1,250
      due in August 2004                                                           $  24,075         $    --

      Notes payable, financial institution, secured by a
      lien on certain furniture and equipment, principal and
      interest payable in monthly installments of $2,464
      due in July 2005                                                                70,676              --

      Notes payable, financial institution, collaterized by
      vehicles 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                                                  46,054              --
                                                                                   ---------         ---------
                                                                                     140,805              --
      Less Current Maturities                                                         45,707              --
                                                                                   ---------         ---------
      Long-term - net of current maturities                                        $  95,098         $    --
                                                                                   =========         =========
</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  September  30, 2002
was 4.75%).  As of September 30, 2002,  there was $6,758 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 effective 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 second  quarter 2002 through  private  placements to  individual  foreign
investors.

Issuance of common stock - The Company  issued 24,375 shares of its common stock
in  the  current  quarter  through  private  placements  to  individual  foreign
investors.

Issuance of common stock for software - The Company  issued 53,845 shares of its
common stock in the second  quarter 2002 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.


                                       15
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Stock issued for services - The Company  issued 4,000 shares of its common stock
at a fair  market  value of  $3.55  per  share in the  first  quarter  2002.  In
addition,  the Company issued 6,125 shares of its common stock during the second
quarter 2002 at an average fair market value of $3.37 per share.

Finance  Agreement - The Company  financed  its  operation  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  (Note J). As of September  30,
2002, $700,000 of the initial $1 million investment was received by the Company.
These proceeds were converted to equity securities during 2001.

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
non-interest  bearing 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.

Also,  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 wholly-owned subsidiaries listed above.

During the 3rd quarter 2002,  the Company  initiated the purchase of sales leads
from Educational Success, Inc. (ESI). ESI is owned and operated by two directors
of the Company (Ethan Andrew Willis and James Randolph Garn).  Expenses incurred
by the Company totaled $74,245 for the three months ended September 30, 2002.

NOTE H - COMMITMENTS AND CONTINGENCIES

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

                  Year Ending December 31:
<S>               <C>                                                            <C>
                  2002...........................................................$   53,899
                  2003...........................................................   215,598
                  2004...........................................................   215,598
                  2005...........................................................    99,432
                  2006...........................................................      --
                                                                                 ----------
                  Total..........................................................$  584,527
                                                                                 ==========
</TABLE>

                                       16
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

The Company has issued  6,890,000  shares of its common  stock which are held in
escrow with legal  counsel as a security  deposit in favor of certain  officers,
directors  and  employees  related  to  their  respective   personal  guarantees
concerning certain of the Company's obligations.  These shares would be released
only upon the Company's failure to meet these obligations.  These shares are not
included as issued or  outstanding  in these  condensed  consolidated  financial
statements.

NOTE I - PENDING ACQUISITION

On March 12, 2002,  the Company  entered into a definitive  agreement to acquire
iCrypt,  Inc.,  a  Torrance,  California,  technology  company.  The Company has
completed the due diligence  process in both the financial and technical  areas.
Based on the Company's due diligence  findings,  the terms and conditions of the
agreement have been in renegotiation. The Company does not know if the terms and
conditions  can be reached in the future to effect a closing of the  original or
modified agreement.

NOTE J - SUBSEQUENT EVENT

Subsequent  to September  30,  2002,  the Company  passed a Board of  Directors'
Resolution  to formally  terminate the Finance  Agreement  (Note F) with Iwasaka
Investments, Ltd. due to the non-compliance by the lender under the terms of the
agreement. The Company believes that the termination of this agreement will have
no adverse effect on the operations of the Company.







                                       17
<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, 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.

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  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
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  in  Note A in the  accompanying  interim  condensed  consolidated
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.  42,
Goodwill and Other  Intangible  Assets (SFAS 142).  This  statement  affects the
Company's  treatment  of goodwill and other  intangible  assets.  The  statement
requires 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


                                       18
<PAGE>


its carrying amount and,  therefore,  no goodwill  impairment existed as of June
30, 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.

Subsequent  to September  30, 2002,  the trading  price of the  Company's  stock
declined from recent levels,  raising  questions about whether the fair value of
goodwill  exceeds its carrying  amount.  An evaluation of the carrying amount of
goodwill, which will include an evaluation of whether the decline in the trading
price of the Company's stock is other than temporary,  will occur as part of the
previously mentioned annual impairment test.

Investment securities

Investment 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 investment
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 investment  securities in the
Company's portfolio, if, among other things, relevant information related to the
Company's investment  securities was not publicly available or other factors not
considered  by the  Company  would have been  relevant to the  determination  of
impairment  during  the  third  quarter  2002.  As  discussed  in  Note C to the
accompanying  financial  statements,   the  Company  wrote  down  the  value  of
investment  securities  by  $687,750.  The  new  cost  basis  in the  investment
securities written down, as of September 30, 2002, is $66,500. If our investment
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 impairment becomes apparent.

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  September 30, 2002 compared to
Three Months Ended September 30, 2001

Sales

Sales for the three months ended September 30, 2002 and 2001 were $4,225,488 and
$310,638,  respectively,  which represents a significant increase from the prior
period.  The  Company's  principal  source of revenue for the three months ended
September 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 $2,728,438 in
sales of existing products and services for the three months ended September 30,
2002.  In  addition,  the Company  sold a software  platform  during the current
quarter to a  third-party  in exchange for  investment  securities  amounting to
$875,000.


                                       19
<PAGE>




Cost of Sales

Cost of  sales  for the  three  months  ended  September  30,  2002 and 2001 was
$1,528,534  and $0,  respectively.  Cost of sales  for the  three  months  ended
September 30, 2002  represented  costs  associated  with the generation of sales
leads and the  providing  of coaching  services to customers  that  purchase the
Company's  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  $1,353,533 in cost of sales of existing  products and
services for the three months ended September 30, 2002.

Selling

Selling  expenses for the three months  ended  September  30, 2002 and 2001 were
$729,388 and $44,188, respectively. These costs consisted primarily of marketing
and advertising  expenses  associated with key products and commissions  paid to
sales representatives. 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 $576,826 in sales commissions and advertising for the three months
ended September 30, 2002.

General and Administrative

General and  administrative  expenses for the three months ended  September  30,
2002 and 2001 were $1,069,191 and $221,428,  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 the Company in the current period.

Loss on investment securities

As discussed in Note C to the  accompanying  financial  statements,  the Company
wrote  down the value of  investment  securities  by  $687,750  during the three
months ended September 30, 2002.

Income Taxes

The Company  recorded income taxes of $137,048 and $0 for the three months ended
September 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%.


Results of Operations  for the Nine Months Ended  September 30, 2002 compared to
Nine Months Ended September 30, 2001

Sales

Sales for the nine months ended September 30, 2002 and 2001 were $10,014,523 and
$314,638,  respectively,  which represents a significant increase from the prior
period.  The  Company's  principal  source of revenue for the nine months  ended
September 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 $7,145,973 in
sales of existing  products and services for the nine months ended September 30,
2002.  The  remaining  revenue  for the nine  months  ended  September  30, 2002
resulted  from sales of  products  and  services  generated  from the  Company's

                                       20
<PAGE>

operations in Riverside,  MO. In addition,  the Company sold a software platform
during  the  current  quarter  to  a  third-party  in  exchange  for  investment
securities amounting to $875,000.

Cost of Sales

Cost of  sales  for the  nine  months  ended  September  30,  2002  and 2001 was
$3,650,218  and $0,  respectively.  Cost of  sales  for the  nine  months  ended
September 30, 2002  represented  costs  associated  with the generation of sales
leads and the  providing  of coaching  services to customers  that  purchase the
Company's  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  $3,081,990 in cost of sales of existing  products and
services for the nine months ended  September 30, 2002.  The  remaining  cost of
sales  for the  nine  months  ended  September  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 nine months  ended  September  30, 2002 and 2001 were
$2,011,587  and  $79,773,  respectively.  These  costs  consisted  primarily  of
marketing and advertising  expenses associated with key products and commissions
paid to sales representatives. 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 $1,359,873 in sales commissions and advertising for the
nine months ended  September 30, 2002. The remaining  selling costs for the nine
months ended  September  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 nine months ended September 30, 2002
and 2001 were $2,727,968 and $493,903,  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 the Company for the nine months ended September 30, 2002.

Loss on investment securities

As discussed in Note C to the  accompanying  financial  statements,  the Company
wrote  down the value of  investment  securities  by  $687,750  during the three
months ended September 30, 2002.

Non-recurring Expenses

Non-recurring  expense for the nine months ended September 30, 2002 and 2001 was
$169,578 and $0, respectively.  Non-recurring  expense for the nine months ended
September 30, 2002  represented  back wages due to 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.

Income Taxes

The Company  recorded  income taxes of $357,048 and $0 for the nine months ended
September 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


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<PAGE>

approximately 38%.

Liquidity and Capital Resources

At September 30, 2002, cash was $936,162,  an increase of $653,855 from December
31,  2001.  Cash flow  provided by  operations  was $772,093 for the nine months
ended  September 30, 2002.  The primary  reason for the positive  operating cash
flow for the nine months ended  September  30, 2002,  can be  attributed  to the
Company's  higher  sales  volume  during  the first  nine  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 for the nine months ended  September  30, 2002.  The Company's
higher sales volume regarding  coaching  sessions was the primary reason for the
increase  in deferred  revenue.  The Company  received  proceeds  from a line of
credit  facility  during the nine months ended  September 30, 2002  amounting to
$50,000.  In addition,  the Company entered into four term loans during the nine
months ended  September 30, 2002  amounting to $81,217 to purchase  vehicles and
equipment.  Also,  during the current quarter,  the Company received proceeds of
$74,143  from a  loan  facility  with  a  financial  institution  for  equipment
purchases   associated   with  the  Company's  move  of  its  offices  in  Utah.
Stockholders' equity amounts to $15,221,115 as of September 30, 2002.

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, 2001,
$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 for the nine months ended September 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.

Subsequent  to September  30,  2002,  the Company  passed a Board of  Directors'
Resolution  to formally  terminate the Finance  Agreement  (Note F) with Iwasaka
Investments, Ltd. due to the non-compliance by the lender under the terms of the
agreement. The Company believes that the termination of this agreement will have
no adverse effect on the operations of the Company.

The  Company  issued  4,000  shares of its  common  stock for  various  services
provided during the first quarter 2002.

The  Company  issued  6,125  shares of its  common  stock for  various  services
provided during the second quarter 2002.

The Company  issued 40,730 shares of its common stock for cash during the second
quarter 2002 through private placements to individual foreign investors.

The Company  issued 53,845 shares of its common stock in the second quarter 2002
as part of payment under the terms of a software purchase agreement entered into
by the Company.

The Company  issued  24,375  shares of its common  stock for cash in the current
quarter through private placements to individual foreign investors.

The Company  expects that its existing cash  resources  and cash flow  generated
from  operations  will be  sufficient  to meet its  operating  requirements  and
ordinary capital expenditure needs during the next twelve months.  However,  the
Company will  continue to seek  additional  sources of capital for expansion and
possible  acquisitions  through private  placements of equity  securities.  Such
sources of capital  may,  however,  not be available to the Company at agreeable
interest rates or at all.

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<PAGE>


Item 3.  Controls and Procedures
         -----------------------

         Based on their  evaluation,  as of a date  within 90 days of the filing
date of this Form 10-Q, our Chief Executive  Officer and Chief Financial Officer
have concluded  that our disclosure  controls and procedures (as defined in Rule
13a-14(c) and 15d-14(c)  under the Securities  Exchange Act of 1934, as amended)
are effective. There have been no significant changes in internal controls or in
other factors that could  significantly  affect these controls subsequent to the
date of their  evaluation,  including  any  corrective  actions  with  regard to
significant deficiencies and material weaknesses.


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

Item 1.  Legal Proceedings
         -----------------

                None

Item 2.  Changes in Securities
         ---------------------

         The Company in the current quarter issued 24,375 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.

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

a.       Exhibits

              99-1 - CEO Certification
              99-2 - CFO Certification

b.       Reports on Form 8-K

              The Company filed no reports on Form 8-K during  the quarter ended
              September 30, 2002.

OTHER ITEMS

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



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<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:   October 30, 2002     /s/ Douglas S. Hackett
                             ---------------------------------------------------
                                 Douglas S. Hackett
                                 President, Chief Executive Officer and Director

                             /s/ Linda W. Haslem
                             ---------------------------------------------------
                                 Linda W. Haslem
                                 Chief Financial Officer










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