UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB
                                   -----------
(Mark One)
[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2002

[ ]      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the  Transition  Period
                  from  ____________  to  ____________

                       Commission File Number 000-1084047

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

                     Innovative Software Technologies, Inc.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

          California                                           95-4691878
-------------------------------                             -------------------
(State or Other Jurisdiction of                             (I.R.S. Employer
Incorporation or Organization)                             Identification No.)

         5072 North 300 West
              Provo, UT                                          84604
----------------------------------------                       ----------
(Address of Principal Executive Offices)                       (Zip Code)

   204 NW Platte Valley Drive
          Riverside, MO                                          64150
------------------------------                                 ----------
(Previous Address of Principal                                 (Zip Code)
     Executive  Offices)

                                 (801) 371-0755
                                 --------------
              (Registrant's Telephone Number, Including Area Code)


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 53,297,958 shares of common stock,  $0.001 par value,  outstanding as
of May 15, 2002.


                                       1
<PAGE>
<TABLE>
<CAPTION>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                   FORM 10-QSB


                          QUARTER ENDED MARCH 31, 2003

                                TABLE OF CONTENTS


                                                                                                   Page
                                                                                                   ----

                                             PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

<S>                                                                                               <C>
     Condensed Consolidated Balance Sheets - March 31, 2003 (Unaudited)
       and December 31, 2002..................................................................     3

     Condensed Consolidated Statements of Operations (Unaudited) for the
       Three Months Ended March 31, 2003 and 2002.............................................     4

     Condensed Consolidated Statements of Comprehensive Income for the
       Three Months Ended March 31, 2003 and 2002.............................................     5

     Condensed Consolidated Statement of Stockholders' Equity/(Deficiency) (Unaudited) for the
       Three Months Ended March 31, 2003......................................................     6

     Condensed Consolidated Statements of Cash Flows (Unaudited) for the
       Three Months Ended March 31, 2003 and 2002.............................................     7

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

Item 2. Management's Discussion and Analysis of Financial Condition and
     Results of Operations....................................................................    20

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


                                             PART II - OTHER INFORMATION

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)
                                                                                    March 31,      December 31,
                                                                                      2003            2002
                                                                                  -------------   --------------
                                                        ASSETS
<S>                                                                               <C>              <C>
Current Assets
     Cash...... ................................................................  $   1,462,821    $   1,338,345
     Accounts receivable........................................................          6,678           14,700
     Other receivables..........................................................         96,102           59,772
     Prepaid expenses...........................................................         85,818           67,179
     Other current assets.......................................................        918,992          706,486
                                                                                  -------------    --------------
         Total Current Assets...................................................      2,570,411        2,186,482
                                                                                  -------------    -------------
Property and Equipment, Net.....................................................        438,436          379,349
                                                                                  -------------    -------------
Other Assets
     Goodwill ..................................................................      1,088,686        1,088,686
     Other assets...............................................................          --                --
     Deposit  ..................................................................         42,656           48,698
                                                                                  -------------    -------------

Total Assets  ..................................................................  $   4,140,189    $   3,703,215
                                                                                  =============    =============

Current Liabilities
     Note payable - Line of credit..............................................  $       4,518    $      40,660
     Current maturities of long-term debt.......................................         92,723           44,274
     Accounts payable and accrued expenses......................................        755,156          861,366
     Deferred revenue...........................................................        353,540          256,148
     Other current liabilities..................................................        391,193           83,278
     Reserve for sales returns and allowances...................................        240,245          220,266
                                                                                  -------------    -------------
         Total Current Liabilities..............................................      1,837,375        1,505,992
                                                                                  -------------    -------------

Long-term debt, net of current maturities.......................................           --             87,223

Stockholders' Equity
     Preferred stock - no par;  25,000,000  shares authorized Series A preferred
       stock; 1,650,500 shares issued and
       outstanding; $1.00 stated value..........................................      1,650,500        1,650,500
       Series B preferred stock; 408,491 shares issued and
       outstanding; $1.00 stated value..........................................        408,491          328,491
     Common stock - $0.001 par value; 100,000,000 shares authorized
        and 52,847,955 shares issued and outstanding, respectively..............         52,848           52,481
     Additional paid-in-capital.................................................     13,132,269       13,119,719
     Accumulated deficit........................................................    (12,941,294)     (13,041,191)
                                                                                  -------------    -------------
Total Stockholders' Equity......................................................      2,302,814        2,110,000
                                                                                  -------------    -------------
Total Liabilities and Stockholders' Equity......................................  $   4,140,189    $   3,703,215
                                                                                  =============    =============
</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
                                                        Ended March 31,
                                                -----------------------------
                                                   2003               2002
                                                ------------------------------

<S>                                             <C>               <C>
Sales                                           $ 5,493,208       $ 2,794,696

Cost of Sales                                     2,546,892         1,122,455
                                                -----------       -----------

Gross Profit                                      2,946,316         1,672,241
                                                -----------       -----------

Operating Expenses
     Selling                                      1,225,118           600,891
     General and administrative                   1,682,800           742,070
                                                -----------       -----------

     Total Operating Expenses                     2,907,918         1,342,961
                                                -----------       -----------

Income/(Loss) From Operations                        38,398           329,280
                                                -----------       -----------

Other Income (Expense)
     Other income                                    44,112              --
                                                                        1,702
     Interest expense                                17,387              --
                                                -----------       -----------

     Total Other Income (Expense)                    61,499              --
                                                -----------       -----------
                                                                        1,702

Net Income Before Income Taxes                       99,897           330,982
                                                -----------       -----------

Income Tax Expense                                     --             134,674
                                                -----------       -----------

Net Income                                      $    99,897       $   196,308
                                                ===========       ===========

Basic and Diluted Income per Share              $      0.00              0.00
                                                ===========       ===========

Weighted Average Number of Common
 Shares Outstanding Used in Per Share
 Calculation - Basic and Diluted                 52,675,733        48,287,416
                                                ===========       ===========
</TABLE>

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

                                       4
<PAGE>


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

                                  For the Three Months
                                     Ended March 31,
                                    2003        2002
                                 ---------   ----------

Net income/(loss)                $  99,897   $ 196,308
Other comprehensive loss:
Unrealized loss on investments        --      (423,396)
                                 ---------   ---------

Comprehensive loss                  99,897    (227,088)
                                 =========   =========














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




                                       5
<PAGE>
<TABLE>
<CAPTION>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2003

(split table)



                                               Preferred Stock Series A     Preferred Stock Series B            Common Stock
                                                Shares          Amount        Shares        Amount         Shares         Amount
                                             -----------     -----------   -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>             <C>              <C>          <C>



Balance - December 31, 2001                    1,850,000    $  1,850,002       248,491   $    248,491     48,285,283   $     48,285

Issuance of Common stock
   for services provided                            --              --            --             --            4,000              4

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

Issuance of Common stock
   for services provided                            --              --            --             --            6,125              6

Issuance of Common Stock
   for software                                     --              --            --             --           53,845             54

Issuance of Common stock                            --              --            --             --           24,375             24

Issuance of Common Stock
   for services provided                            --              --            --             --          291,250            291

Conversion of Series A Preferred
    Stock to Common Stoc                        (199,500)       (199,500)         --             --        3,000,000          3,000

Issuance of Common stock
   for services provided                            --              --            --             --            5,000              5

Issuance of Common stock                            --              --            --             --           76,960             77

Issuance of Common stock                            --              --            --             --           23,169             23

Issuance of Common stock
   for services provided                            --              --            --             --           39,702             40

Series A Preferred Stock Dividend                   --              --            --             --          107,568            108

Series A Preferred Stock Dividend                   --              --            --             --           30,734             31

Series A Preferred Stock Dividend                   --              --            --             --          420,054            420

Series B Preferred Stock Dividend                   --              --            --             --           72,494             72

Issuance of Series B Preferred
   Stock for Executive Compensation                 --              --          80,000         80,000           --             --

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

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

Net income for the year ended
ended December 31, 2002                             --              --            --             --             --             --
                                             -----------     -----------   -----------    -----------    -----------    -----------
Balance - December 31, 2002                    1,650,500       1,650,500       328,491        328,491     52,481,289         52,481
                                             ===========     ===========   ===========    ===========    ===========    ===========
</TABLE>
                                       6(A)

<PAGE>



<TABLE>
<CAPTION>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2003

(split table continued)
                                                                                      Retained
                                                  Additional       Accum.          Earnings          Total
                                                    paid-in-      Comprehen-     (Accumulated    Stockholders'
                                                    capital       sive Loss        Deficit)         Equity
                                                  -----------     -----------     -----------     -----------
<S>                                              <C>             <C>             <C>             <C>
Balance - December 31, 2001                      $ 12,626,679    $   (204,354)   $   (290,941)   $ 14,278,160

Issuance of Common stock
   for services provided                               14,196            --              --            14,200

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

Issuance of Common stock
   for services provided                               20,644            --              --            20,650

Issuance of Common Stock
   for software                                        69,946            --              --            70,000

Issuance of Common stock                               23,219            --              --            23,243

Issuance of Common Stock
   for services provided                               21,553            --              --            21,844

Conversion of Series A Preferred
    Stock to Common Stoc                              196,500            --              --              --

Issuance of Common stock
   for services provided                                  370            --              --               375

Issuance of Common stock                               18,939            --              --            19,016

Issuance of Common stock                                3,992            --              --             4,015

Issuance of Common stock
   for services provided                                4,760            --             --              4,800

Series A Preferred Stock Dividend                      13,892            --           (14,000)           --

Series A Preferred Stock Dividend                       3,969            --            (4,000)           --

Series A Preferred Stock Dividend                      54,250            --           (54,670)           --

Series B Preferred Stock Dividend                       9,859            --            (9,931)           --

Issuance of Series B Preferred
   Stock for Executive Compensation                      --              --              --            80,000

Unrealized loss on investments                           --        (1,424,896)           --        (1,424,896)

Unrealized loss on investments
recognized in income due to
other than temporary impairment                          --         1,629,250            --         1,629,250

Net income for the year ended
ended December 31, 2002                                  --              --       (12,667,649)    (12,667,649)
                                                  -----------     -----------     -----------     -----------

Balance - December 31, 2002                        13,119,719            --       (13,041,191)      2,110,000
                                                  ===========     ===========     ===========     ===========
</TABLE>

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

                                      6(B)

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                    For the Three Months
                                                                                          Ended March 31,
                                                                                     2003                 2002
                                                                           ---------------     -----------------
<S>                                                                       <C>               <C>
Cash Flows From Operating Activities
 Net income/(loss)........................................................$       99,897    $  196,308
 Adjustments to reconcile net income/(loss) to net cash
 provided by operating activities:
   Depreciation and amortization                                                  45,093        17,166
   Allowance for doubtful accounts                                                  --          12,000
   Prepaid non-cash executive compensation                                        60,000          --
   Prepaid non-cash public relations expense                                       2,250          --
   Non-cash expenses                                                              30,667        14,200
   Changes in operating assets and liabilities:
     Accounts receivable                                                           8,022      (491,944)
     Prepaid expenses                                                            (18,639)        6,571
     Other receivables                                                           (36,330)        1,046
     Other assets                                                               (212,506)     (280,940)
     Deposits                                                                      6,042          --
     Accounts payable and accrued expenses                                      (106,210)      284,569
     Other liabilities                                                           307,915          --
     Reserve for returns and allowances                                           19,979          --
     Deferred revenue                                                             97,392          --
     Accrued federal and state income tax                                           --         134,674
                                                                              ----------    ----------

   Net Cash Provided by/(Used In) Operating Activities                           303,572      (106,350)
                                                                              ----------    ----------

Cash Flows Used In Investing Activities
   Capital expenditures                                                         (104,181)     (126,677)
                                                                              ----------    ----------

   Net Cash Used In Investing Activities                                        (104,181)     (126,677)
                                                                              ----------    ----------

Cash Flows From Financing Activities
   Proceeds from borrowings under line of credit                                    --          50,000
   Proceeds from borrowing under note payable                                      8,085        50,877
   Repayments under line of credit agreement                                     (36,142        50,877
   Repayments on notes payable                                                   (46,859)       (1,917)
                                                                              ----------    ----------

   Net Cash (Used in)/Provided by Financing Activities                           (74,916)       98,960
                                                                              ----------    ----------

Net Increase /(Decrease) in Cash and Cash Equivalents                            124,476      (134,067)

Cash and Cash Equivalents at Beginning of Year                                 1,338,345       282,307
                                                                              ----------    ----------

Cash and Cash Equivalents at End of Period................................$    1,462,821    $  148,240
                                                                              ==========    ==========

Supplemental Cash Flow Information:
   Unrealized loss on securities available for sale.......................$         --      $ (423,396)
                                                                              ==========    ==========
   Issuance of Series B preferred stock for executive compensation........$       20,000    $     --
                                                                              ==========    ==========
</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  the
       "Innovative"),  operating in one business segment,  is a software company
       specializing  in  small  business  and  financial   eLearning  tools  and
       consulting  services.  The Company's main products are EMS, a turnkey web
       builder, e-commerce solution and data management system targeted to small
       businesses;  The Financial Toolkit 1.0, an integrated  financial services
       and education program; Skills in Demand,  consisting of eLearning courses
       that cater to small business  owners and  entreprenuers,  and eTaxNet,  a
       provider of online tax and consulting services. In addition,  the Company
       offers, for most of its software and learning products, technical support
       and coaching services.

       The  Company's  management  combines its expertise in the field of direct
       marketing,  software,  coaching and sales  management to small businesses
       and consumers.  The  combination of marketing and  technological  support
       offers clients complete  end-to-end  business services solutions designed
       to fit their ebusiness transactional technology training needs.

       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 of 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.   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)

         o    All business  combinations  initiated after June 30, 2001 must use
              the purchase method of accounting. The pooling of interests method
              of  accounting  is prohibited  except for  transactions  initiated
              before July 1, 2001.
         o    Intangible  assets  acquired  in a  business  combination  must be
              recorded  separately from goodwill if they arise from  contractual
              or other legal rights or are  separable  from the acquired  entity
              and can be  sold,  transferred,  licensed,  rented  or  exchanged,
              either  individually  or as part of a related  contract,  asset or
              liability.
         o    Goodwill,  as well as  intangible  assets with  indefinite  lives,
              acquired after June 30, 2001, will not be amortized.
         o    Effective January 1, 2002, all previously  recognized goodwill and
              intangible  assets with indefinite lives will no longer be subject
              to amortization.
         o    Effective  January 1, 2002,  goodwill and  intangible  assets with
              indefinite  lives  will be  tested  for  impairment  annually  and
              whenever there is an impairment indicator.
         o    All  acquired  goodwill  must be assigned to  reporting  units for
              purposes of impairment testing and segment reporting.

         As of 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 was
         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  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,  the  trading  price  of the  Company's  stock  declined
         significantly,  raising  questions  about  whether  the  fair  value of
         goodwill  exceeds its carrying  amount.  An  evaluation of the carrying
         amount of goodwill was  conducted  during the 4th quarter  2002,  which
         included an  evaluation  of whether the decline in the trading price of
         the Company's  stock is other than  temporary.  The Company  determined
         that the  decline in its  trading  price was other than  temporary  and
         subsequent to December 31, 2002, engaged an independent  valuation firm
         to perform a valuation of the Company. This resulted in a write-down in
         goodwill by the Company of $12,461,246 as of December 31, 2002.

         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
         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.


                                       10
<PAGE>


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

         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.

         In  December  2002,  the  FASB  issued  SFAS  No.  148  Accounting  for
         Stock-Based  Compensation--Transition  and Disclosure  (SFAS 148). This
         standard  amends the  disclosure and certain  transition  provisions of
         SFAS 123,  Accounting  for  Stock-Based  Compensation.  Its  disclosure
         provisions  are  effective  for 2002 annual  financial  statements  for
         calendar year-end companies.  The Company does not expect that adoption
         of SFAS 148 will have a material  impact on its financial  condition or
         results of operations.

2.       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, 2002. The results of operations for the
         three months ended March 31, 2003 are not necessarily indicative of the
         operating results to be expected for the full year.


                                       11
<PAGE>

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

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

         The  accompanying   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  three  months  ended  March  31,  2003.  All
         significant intercompany transactions and balances have been eliminated
         in consolidation.

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.

         The Company also  provides  extended  payment  terms on the sale of its
         software and related coaching for up to two years. Since payments terms
         on these sales  exceed 12 months,  the fee for the software and license
         is presumed not to be  determinable.  In addition,  the  probability of
         collection  decreases as the payment terms are  extended.  As a result,
         the  Company  recognizes  revenue on these  sales as the  payments  are
         collected from the customer.

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.  The
         Company  will  regularly  perform  reviews  of the  fair  value  of its
         investment  securities  and assess  whether there exists any other than
         temporary impairment.

6.       Property and Equipment
         ----------------------

         Property  and  equipment  are  stated  at  cost,   net  of  accumulated
         depreciation.  Depreciation is recognized using the  straight-line  and
         double-declining  balance 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.


                                       12
<PAGE>

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

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.

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.


                                       13
<PAGE>


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


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 March 31, 2003 and December 31, 2002. The cost basis of
our  investment   securities  reflects  adjustments  for  other  than  temporary
impairments in value.
<TABLE>
<CAPTION>

   Investment                          Cost            Gross Unrealized        Estimated
   Securities                          Basis          Gains        Losses      Fair Value
---------------------------------  --------------   ---------   ----------   -----------
March 31, 2003
<S>                                <C>              <C>         <C>          <C>
EnSurge, Inc. common stock         $         --     $    --     $     --     $      --
Knowledge Transfer Systems, Inc.
common stock                                 --          --           --            --
Knowledge Transfer Systems, Inc.
preferred stock                              --          --           --            --
                                   --------------   ---------   ----------   -----------


                                   $         --     $    --     $     --     $      --
                                   ==============   =========   ==========   ===========



   Investment                          Cost            Gross Unrealized        Estimated
   Securities                          Basis          Gains        Losses      Fair Value
---------------------------------  --------------   ---------   ----------   -----------
   December 31, 2002
EnSurge, Inc. common stock         $         --     $    --     $     --     $      --
Knowledge Transfer Systems, Inc.
common stock                                 --          --           --            --
                                   --------------   ---------   ----------   ------------


                                   $         --    $     --     $     --     $     --
                                   ==============   ==========  ==========   ============
</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 December  31,  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  considered the value of these securities  permanently  impaired and
wrote  down the  entire  carrying  value of these  investment  securities  as of
December  31,  2002.  The  reduction  in  carrying  value  on  these  investment
securities  resulted in a loss on investment  of $728,000  during the year ended
December 31, 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 year-ended December 31, 2002.


                                       14
<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.  Due to the disclosure
by the management of Knowledge Transfer Systems,  Inc. of a possible bankcruptcy
by its wholly-owned subsidiary,  KT Solutions,  Inc., the Company considered the
value of  these  securities  permanently  impaired  and  wrote  down the  entire
carrying  value of these  investment  securities  as of December 31,  2002.  The
reduction in carrying value on these investment securities resulted in a loss on
investment of $875,000  during the year ended  December 31, 2002.  The President
and Chief  Executive  Officer of the Company is the former  President  and Chief
Executive  Officer  of  Ensurge,  Inc.,  which  was  the  parent  company  of KT
Solutions,  Inc. At the time of the sale of the Business  Development  Series to
Knowledge Transfer Systems,  Inc. for 875,000 Knowledge  Transfer Systems,  Inc.
preferred shares,  there was no related party relationship between the companies
and/or  the  officers  and  directors  of  the  companies  at  the  time  of the
transaction.

The above  common  stock  investment  securities  are traded on the OTC Bulletin
Board. All of the Company's 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 in the past two years.

NOTE D - PROPERTY & EQUIPMENT

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

                                                                     March 31,     December 31,
                                                                          2003            2002
                                                                ---------------------------------
<S>                                                             <C>                <C>
         Machinery and Equipment................................$      282,603     $      246,594
         Furniture and Fixtures.................................        56,594             51,683
         Computer Software......................................       251,958            190,624
         Leasehold improvements.................................        36,018             34,092
                                                                --------------     --------------
         .......................................................       627,173            522,993
         Less: Accumulated depreciation and amortization........      (188,737)          (143,644)
                                                                --------------     --------------

         Property and Equipment, Net............................$      438,436     $      379,349
                                                                ==============     ==============
</TABLE>


NOTE E - OTHER ASSETS

The  Company has  established  several  merchant  service  accounts  whereby the
Company processes a high volume of customer sales  transactions  through certain
credit  card  vendors.   These  merchant  service  companies  typically  hold  a
percentage of each sales transaction as a reserve against future  cancellations.
The amount held by these  merchant  service  companies  amounts to $918,992  and
$706,486 as of March 31, 2003 and December 31, 2002, respectively.




                                       15
<PAGE>


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

NOTE F - LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                      March 31,     December 31,
                                                                                           2003             2002
------------------------------------------------------------------------------------------------   -------------
<S>                                                                                    <C>            <C>
Notes payable, financial institution, collaterized by telephone equipment,
principal and imputed interest payable in monthly installments of $1,250
and $385 due in August 2004                                                            $ 24,899       $ 20,469

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                                                                         57,319         67,175

Notes payable, financial institution,  collaterized by Vehicles, principal
and accrued interest at 7.78% payable in monthly installments of principal
and imputed interest maturing from $217 to $655 from
November 2006 to February 2007                                                           10,505         43,853
                                                                                       --------       --------
                                                                                         92,723        131,497
Less Current Maturities                                                                  92,723         44,274
                                                                                       --------       --------

Long-term - net of current maturities                                                  $   --         $ 87,223
                                                                                       ========       ========
</TABLE>

The  Company  has  an  unsecured  line  of  credit  facility  with  a  financial
institution for borrowings up to $50,000  expiring  August 31, 2005.  Borrowings
under the line bear  interest at Prime plus 2% (the Prime rate of interest as of
March 31, 2003 was 4.75%).  As of March 31, 2003, there was $45,482 available on
the credit facility.

NOTE G - 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, 24,375, 76,960, and 23,169
shares of its common  stock in 2002 through  private  placements  to  individual
foreign investors.

Issuance of Series B preferred  stock - The Company  issued 80,000 shares of its
Series B preferred stock to certain  directors of the Company as compensation at
a stated value of $1.00 per share in 2002.

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


                                       16
<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 fair market value of $3.37 per share.

Stock issued for services - The Company  issued  291,250 and 5,000 shares of its
common  stock at a fair market  value of $0.075 per share in the fourth  quarter
2002. In addition,  the Company  issued 39,702 shares of its common stock during
the fourth quarter 2002 at an average fair market value of $0.121 per share.

Conversion of Series A Preferred Stock - Two directors of the Company  converted
199,500 shares of Series A preferred  stock to 3,000,000  shares of common stock
during the fourth quarter 2002.  The Series A preferred  stock is convertible to
the  Company's  common stock at 95% of the fair market value of the common stock
at the date of conversion. The Market Price of the Company's common stock on the
date of conversion was $0.07.

Series A Preferred  Stock  Dividend - The Company  issued  558,356 shares of its
common stock as a Series A preferred  stock  dividend  during the fourth quarter
2002. The holders of the shares of Series A Preferred  received dividends at the
rate of 4% per annum payable in shares of the Company's common stock. The number
of shares of common stock  distributed  as a dividend was calculated by dividing
such payment by 95% of the Market Price on the average of the first five trading
days after  January 1 of each year.  The term "Market  Price"  means,  as of any
date,  the average of the daily closing price for the five  consecutive  trading
days ending on such date.

Series B Preferred  Stock  Dividend - The Company  issued  72,494  shares of its
common stock as a Series B preferred  stock  dividend  during the fourth quarter
2002. The holders of the shares of Series B Preferred  received dividends at the
rate of 4% per annum payable in shares of the Company's common stock. The number
of shares of common stock  distributed  as a dividend was calculated by dividing
such  payment  by 100% of the  Market  Price on the  average  of the first  five
trading days after January 1 of each year. The term "Market Price" means,  as of
any date,  the  average  of the  daily  closing  price for the five  consecutive
trading days ending on such date.

Finance  Agreement - During 2001,  Hackett  Media,  Inc.  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.  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.  During the fourth  quarter
2002, the Company passed a Board of Directors'  Resolution to formally terminate
the Finance Agreement with Iwasaka  Investments,  Ltd. due to the non-compliance
by the lender  under the terms of the  agreement.  The Company is  currently  in
negotiation  with Iwasaka  Investments,  Ltd. to recoup any and all  outstanding
shares issued as part of this Finance  Agreement.  The Company believes that the
termination  of this  agreement will have no adverse effect on the operations of
the Company.


                                       17
<PAGE>

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

Issuance of Series B preferred  stock - The Company  issued 80,000 shares of its
Series  B  preferred  stock to  certain  directors  of the  Company  as  prepaid
executive compensation and executive compensation at a stated value of $1.00 per
share in the  first  quarter  2003.  The  company  recorded  non-cash  executive
compensation of $20,000 for the three months ended March 31, 2003. The remaining
$60,000 will be incurred during the following three quarters of 2003.

Stock issued for prepaid  services - The Company  issued  233,333  shares of its
common stock in exchange for $2,250 of prepaid public  relation  services in the
first quarter 2003.

Stock issued for charitable  contribution - The Company issued 133,333 shares of
its common  stock as a charitable  contribution  at a fair market value of $0.08
per share in the first quarter 2003.

NOTE H - 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  coaching  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.  Due to the decline in market value of
Knowledge Transfer Systems,  Inc. common stock, the Company considered the value
of these  securities  permanently  impaired  and wrote down the entire  carrying
value of these investment securities as of December 31, 2002.

During 2002,  the Company  initiated the purchase of sales leads from  Education
Success Institute, 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  $663,159 for the three months ended March 31, 2003. The Company
paid ESI a total of  $458,816  for sales lead  generation  for the three  months
ended March 31, 2003. In addition,  the Company will purchase certain  operating
supplies  for ESI. As of March 31,  2003,  the amount owed the Company for these
supplies amounted to $5,417.

The President and Chief Executive Officer of the Company is the former President
and Chief Executive Officer of Ensurge, Inc., which was the parent company of KT
Solutions,  Inc. At the time of the sale of the Business  Development  Series to
Knowledge Transfer Systems,  Inc. for 875,000 Knowledge  Transfer Systems,  Inc.
preferred  shares in 2002, there was no related party  relationship  between the
companies  and/or the officers and directors of the companies at the time of the
transaction.



                                       18
<PAGE>



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


NOTE I - 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 December 31, 2002 are as follows:

                  Year Ending December 31:
                  2003.................................   197,998
                  2004.................................   223,998
                  2005.................................   168,499
                  2006.................................     37,467
                                                       -----------

                  Total................................$   627,962
                                                       ===========


NOTE N - SUBSEQUENT EVENTS

On April 23,  2003,  Innovative  Software  Technologies,  Inc.  dismissed  Grant
Thornton LLP as the  Company's  independent  accountant.  The Company  dismissed
Grant  Thornton  based on certain  correspondence  received from Grant  Thornton
pursuant to Section 10A of the  Securities  Exchange  Act of 1934 in which Grant
Thornton expressed concern as to the propriety of certain transactions, notified
the Company that the firm could not continue to be associated with the Company's
December 2001 and 2000 financial  statements and that the reports  thereon could
no  longer  be  relied  upon.   The  Company  took  strong   exception  to  such
correspondence  and filed a Current  Report  on Form 8-K  dated  April 24,  2003
presenting its position on the matter.

On April 11, 2003, the Company  engaged the accounting  firm of Robison,  Hill &
Co.,  as the  Company's  new  independent  accountant  to  audit  its  financial
statements for the fiscal years ended December 31, 2002 and 2001.

On April  23,  2003,  the  Company  filed  Form 8-K on the  engagement  of a new
independent  accounting firm, Robison,  Hill & Co., effective April 11, 2003, to
audit the Company's financial statements for the fiscal years ended December 31,
20002 and 2001.

The Company entered into arbitration  with a vendor  concerning the cancellation
of a contract  which  resulted in a  settlement  in April 2003 of $20,000.  This
settlement  amount  between the two parties was fully accrued for as of December
31, 2002.



                                       19
<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 condensed 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, 2002.

Goodwill and Intangible Assets

As discussed in Note A in the accompanying  consolidated  financial  statements,
the Company,  on December 31, 2001,  purchased all of the outstanding  shares of
Energy   Professional   Marketing   Group  Inc.  (EPMG)  for  $13.5  million  in
Innovative's common and Series A preferred stock.

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

Effective  January 1, 2002, the Company  adopted the provisions of SFAS No. 142,
Goodwill and Other  Intangible  Assets (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.

During 2002, the trading price of the Company's  stock  declined  significantly,
raising  questions about whether the fair value of goodwill exceeds its carrying
amount.  An evaluation of the carrying  amount of goodwill was conducted  during
the 4th quarter 2002, which included an evaluation of whether the decline in the
trading  price of the  Company's  stock is other  than  temporary.  The  Company
determined  that the decline in its trading  price was other than  temporary and
subsequent  to December  31,  2002,  engaged an  independent  valuation  firm to
perform a valuation of the Company. This resulted in a write-down in goodwill by
the  Company  of  $12,461,246  as of  December  31,  2002.  Goodwill  amounts to
$1,088,868 as of March 31, 2003.


                                       20
<PAGE>

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 2002. As discussed in Note C to the accompanying financial
statements,  the  Company  wrote-down  the  value of  investment  securities  by
$1,629,250  in  2002.   The  new  cost  basis  in  the   investment   securities
written-down, as of December 31, 2002, is $0.

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.

The Company also provides extended payment terms on the sale of its software and
related coaching for up to two years. Since payments terms on these sales exceed
12  months,  the  fee  for  the  software  and  license  is  presumed  not to be
determinable.  In  addition,  the  probability  of  collection  decreases as the
payment terms are extended. As a result, the Company recognizes revenue on these
sales as the payments are collected from the customer.


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 March 31, 2003
compared to Three Months Ended March 31, 2002
--------------------------------------------------------------------------------

Sales

Sales for the three  months  ended March 31, 2003 and 2002 were  $5,493,208  and
$2,794,696, respectively, which represents a 97% increase from the prior period.
The Company's  principal  source of revenue for the three months ended March 31,
2003 consisted of product and service sales. The primary reason for the increase
in sales can be attributed to the  consolidation all of its  administrative  and
accounting  functions  to the  Provo,  UT office in an  effort  to  improve  its
fulfillment and shipping operations and improve corporate  responsiveness.  This
has  enabled  the Utah  office to greatly  improve  its  ability to service  its
customers.  In  conjunction  with  this  consolidation,  the  Company  has hired
additional  sales and marketing  associates  which has also positively  impacted



                                       21
<PAGE>

sales in the first  quarter  2003.  Also,  in first  quarter  2003,  the Company
initiated  the  utilization  of its  training  center in Orem,  UT to assist its
customers in maintaining and expanding their Internet presence.  We believe that
through  consumer  education  and  enhanced  customer  service,  we can increase
customer participation and generate significant internal growth

Cost of Sales

Cost of sales for the three months ended March 31, 2003 and 2002 was  $2,546,892
and  $1,122,455,  respectively,  representing an increase of 127%. Cost of sales
for the three months ended March 31, 2003 and 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 for the three  months  ended March 31,  2003,  as compared to a
year ago for the same period,  can be attributed to cost of sales  increasing in
conjunction with the increase in sales for the period.

Selling

Selling  expenses  for the  three  months  ended  March  31,  2003 and 2002 were
$1,225,118 and $600,891,  respectively,  representing an increase of 104%. These
costs  consisted  primarily of commissions  paid to sales  associates as well as
marketing and  advertising  expenses  associated with key products and services.
The main  reason for the  increase  in selling  costs can be  attributed  to the
increase  in  sales  of  products  and  services  from  new and  existing  sales
associates.

General and Administrative

General and  administrative  expenses  for the three months ended March 31, 2003
and 2002 were $1,682,801 and $742,070, respectively, representing an increase of
127%. The Company's general and administration  expenses 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.  The primary reason
for the increase in general and administrative  costs was attributable to higher
wages paid in the first quarter 2003.

Liquidity and Capital Resources

      At March 31,  2003,  cash was  $1,462,821,  an increase  of $124,476  from
December 31, 2002. Cash provided by operations was $303,572 for the three months
ended March 31, 2003. The primary reason for the positive operating cash for the
three months ended March 31, 2003,  can be attributed  to the  Company's  higher
sales  volume  during the first three months of 2003.  In addition,  the Company
experienced an increase in its deferred revenue for the three months ended March
31, 2003. The Company's higher sales volume regarding  coaching sessions was the
primary  reason  for  the  increase  in  deferred  revenue.   The  Company  also
experienced  non-cash  prepaid  expenses  and non-cash  expenditures  of $92,916
during the current  quarter,  which also  positively  effected cash. The Company
paid down its note  payable and line of credit  balances  by $83,001  during the
current quarter.  The Company  anticipates  paying down additional notes payable
amounts during 2003.  Stockholders' equity amounts to $2,302,814 as of March 31,
2003.

The Company  issued  80,000  shares of its Series B  preferred  stock to certain
directors  of the  Company  as  prepaid  executive  compensation  and  executive
compensation at a stated value of $1.00 per share in the first quarter 2003. The
company recorded non-cash executive compensation of $20,000 for the three months
ended March 31, 2003,  related to these Series B preferred shares. The remaining
$60,000 will be incurred during the following three quarters of 2003.


                                       22
<PAGE>


       The Company  issued  233,333  shares of its common stock during the first
quarter  2003 for  prepaid  public  relation  services  to be provided in future
periods.

       The Company  issued  133,333  shares of its common  stock as a charitable
contribution during the first quarter 2003.

      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.


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  233,333  shares of common
stock for prepaid public relation services to be provided in future periods.  In
addition,  the Company  issued  133,333  shares of common  stock as a charitable
contribution  during the current period.  These securities were issued under the
exemption provided by Section 4(2) of the Securities Act of 1933.

         The Company  issued  80,000  shares of its Series B preferred  stock to
certain directors of the Company as prepaid executive compensation and executive
compensation at a stated value of $1.00 per share in the first quarter 2003. The
company recorded non-cash executive compensation of $20,000 for the three months
ended March 31, 2003,  related to these Series B preferred shares. The remaining
$60,000 will be incurred during the following three quarters of 2003.

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

a.       Exhibits

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

b. Reports of Form 8-K

              During the period  covered by this report,  the Company  filed the
              following reports on Form 8-K.


                                       23
<PAGE>


              On April 23, 2003, the Company filed Form 8-K on the engagement of
              a new independent  accounting firm, Robison, Hill & Co., effective
              April 11, 2003, to audit the Company's  financial  statements  for
              the fiscal years ended December 31, 2002 and 2001.

              On April 23, 2003,  the Company filed Form 8-K on the dismissal of
              Grant Thornton, LLP as the Company's independent accounting firm.

OTHER ITEMS

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


                                   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:        May 14, 2003                /s/ Douglas S. Hackett
                                         -------------------------------------
                                         Douglas S. Hackett
                                         President, Chief Executive Officer
                                         and Director

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


                                       24
<PAGE>



                      CHIEF EXECUTIVE OFFICER CERTIFICATION

I,  Douglas S.  Hackett,  President,  Chief  Executive  Officer and  Director of
Innovative Software Technologies, Inc., certify that:

 1.        I have  reviewed this  Quarterly  Report on Form 10-QSB of Innovative
           Software Technologies, Inc. (the "Registrant");

 2.        Based on my  knowledge,  this  Quarterly  Report does not contain any
           untrue  statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the  circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this Quarterly Report;

 3.        Based on my knowledge, the financial statements,  and other financial
           information included in this Quarterly Report,  fairly present in all
           material respects the financial condition,  results of operations and
           cash flows of the Registrant as of, and for, the periods presented in
           this Quarterly Report;

 4.        The Registrant's other certifying  officers and I are responsible for
           establishing and maintaining  disclosure  controls and procedures (as
           defined in Exchange Act Rules  13a-14 and 15d-14) for the  Registrant
           and have:

           a)   designed such disclosure  controls and procedures to ensure that
                material information  relating to the Registrant,  including its
                consolidated subsidiaries,  is made known to us by others within
                those  entities,  particularly  during  the period in which this
                Quarterly Report is being prepared;

           b)   evaluated  the  effectiveness  of  the  Registrant's  disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this Quarterly  Report (the  "Evaluation  Date");
                and

           c)   presented in this  Quarterly  Report our  conclusions  about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

 5.        The  Registrant's  other  certifying  officers and I have  disclosed,
           based on our most recent evaluation, to the Registrant's auditors and
           the audit  committee of  Registrant's  board of directors (or persons
           performing the equivalent functions):

           a)   all  significant  deficiencies  in the  design or  operation  of
                internal  controls which could adversely affect the Registrant's
                ability to record, process,  summarize and report financial data
                and have identified for the  Registrant's  auditors any material
                weaknesses in internal controls; and

           b)   any fraud, whether or not material,  that involves management or
                other employees who have a significant  role in the Registrant's
                internal controls; and

    6.   The registrant's other certifying officers and I have indicated in this
         Quarterly  Report  whether  or not there  were  significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


 Date: May 14, 2003         /s/ Douglas S. Hackett
                            ----------------------------------------------------
                            Douglas S. Hackett
                            President, Chief Executive Officer and Director
                            (Principal Executive Officer)




                                       25
<PAGE>

                      CHIEF FINANCIAL OFFICER CERTIFICATION

I, Linda W. Haslem, Chief Financial Officer of Innovative Software Technologies,
Inc., certify that:

1.         I have  reviewed  this  Annual  Report on Form  10-QSB of  Innovative
           Software Technologies, Inc. (the "Registrant");

2.         Based on my  knowledge,  this  Quarterly  Report does not contain any
           untrue  statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the  circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this Quarterly Report;

3.         Based on my knowledge, the financial statements,  and other financial
           information included in this Quarterly Report,  fairly present in all
           material respects the financial condition,  results of operations and
           cash flows of the Registrant as of, and for, the periods presented in
           this Quarterly Report;

4.         The Registrant's other certifying  officers and I are responsible for
           establishing and maintaining  disclosure  controls and procedures (as
           defined in Exchange Act Rules  13a-14 and 15d-14) for the  Registrant
           and have:

           a)   designed such disclosure  controls and procedures to ensure that
                material information  relating to the Registrant,  including its
                consolidated subsidiaries,  is made known to us by others within
                those  entities,  particularly  during  the period in which this
                Quarterly Report is being prepared;

           b)   evaluated  the  effectiveness  of  the  Registrant's  disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this Quarterly  Report (the  "Evaluation  Date");
                and

           c)   presented in this  Quarterly  Report our  conclusions  about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

5.         The  Registrant's  other  certifying  officers and I have  disclosed,
           based on our most recent evaluation, to the Registrant's auditors and
           the audit  committee of  Registrant's  board of directors (or persons
           performing the equivalent functions):


           a)   all  significant  deficiencies  in the  design or  operation  of
                internal  controls which could adversely affect the Registrant's
                ability to record, process,  summarize and report financial data
                and have identified for the  Registrant's  auditors any material
                weaknesses in internal controls; and

           b)   any fraud, whether or not material,  that involves management or
                other employees who have a significant  role in the Registrant's
                internal controls; and

6.         The registrant's  other  certifying  officers and I have indicated in
           this Quarterly Report whether or not there were  significant  changes
           in internal  controls or in other  factors  that could  significantly
           affect  internal  controls  subsequent to the date of our most recent
           evaluation,   including  any   corrective   actions  with  regard  to
           significant deficiencies and material weaknesses.


Date: May 31, 2003          /s/ Linda W. Haslem
                            ---------------------------------------------
                            Linda W. Haslem
                            Chief Financial Officer
                            (Principal Financial and Accounting Officer)




                                       26