UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q








(Mark
One)





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended  January 31, 2010 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      the transition period from ______________ to
  _____________Commission
      file number     000-27397





INOVA
TECHNOLOGY INC.


(Exact
name of small business issuer in its charter)





Nevada
            98-0204280(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





2300 W. Sahara Ave. Suite
800 Las Vegas, NV 89102


(Address
of principal executive offices)





89146
            (800) 757-9808(Postal
      Code)
            (Issuer's
      telephone number)





Check
whether the issuer (1) filed all reports required to be filed by Section 13or 15(d)of the Exchange
Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x Yes  ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filler”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
accelerated filer  ̈
Accelerated Filer  ̈
Non-accelerated Filer  ̈ Smaller reporting
Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No





State the
number of shares of outstanding of each of the issuer’s classes of common
equity, as of March 19, 2010: 2,509,698





In
September 2009, Inova started trading on OTCBB stock exchange under the symbol
INVA.OB and no longer trades as a pink sheets company.





Table of Contents





Inova
Technology Inc.





Form
10-Q





Table of
Contents








PART
      I
            PageItem
      1.
            Financial
      Statements
            3Item
      2.
            Management Discussion and Analysis of
      Financial Condition and Result of Operations
            16Item
      4.
            Submission of Matters to a Vote of
      Security Holders
            17PART
      IIItem
      1.
            Legal
      Proceedings
            18Item
      2
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            18Item
      3.
            Defaults Upon Senior
      Securities
            18Item
      4.
            Other
      Information
            18Item
      5.
            Exhibits
            18Signatures
            19








Table of Contents




Item 1. Financial Statements Inova
Technology, Inc. and Subsidiaries
 Consolidated
Balance Sheets
 (unaudited)
 January
      31, 2010
                
                
                April
      30, 2009ASSETSCurrent
      assetsCash
                
                
                209,059
                
                
                $
                1,087,894Accounts
      receivables, net
                
                
                271,047
                
                
                
                262,734Contracts
      receivable, net
                
                
                2,154,364
                
                
                
                1,818,482Inventory
                
                
                109,875
                
                
                
                71,725Cost
      in excess of billings
                
                
                187,612
                
                
                
                38,324Prepaid
      and other current assets
                
                
                29,496
                
                
                
                64,781Total
      current assets
                
                
                2,961,453
                
                
                
                3,343,940Fixed
      assets, net
                
                
                1,340,810
                
                
                
                1,886,955Intangible
      assets, net
                
                
                689,669
                
                
                
                1,218,140Goodwill
                
                
                8,164,342
                
                
                
                8,164,342Other
      Assets
                
                
                39,650
                
                
                
                42,212Total
      assets
                
                $
                13,195,924
                
                
                $
                14,655,589LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable
                
                
                2,380,509
                
                
                $
                2,022,593Accrued
      liabilities
                
                
                535,561
                
                
                
                705,169Deferred
      income
                
                
                368,171
                
                
                
                404,190Current
      maturities of long-term debt
                
                
                2,879,361
                
                
                
                3,589,814Current
      maturities of long-term debt (related party)
                
                
                -
                
                
                
                1,590,985Total
      current liabilities
                
                
                6,163,602
                
                
                
                8,312,751Long
      term debt (related party)
                
                
                1,642,532
                
                
                
                142,532Long
      term debt - net of current maturities
                
                
                1,334,477
                
                
                
                2,267,782Total
      liabilities
                
                
                9,140,611
                
                
                
                10,723,065Stockholders'
      equityConvertible
      preferred stock, $0.001 par value; 25,000,000
                
                
                1,500
                
                
                
                1,500shares
      authorized; 1,500,000 and 4,951,000issued
      and outstanding, respectivelyCommon
      stock, $0.001 par value; 7,500,000 and 600,000
                
                
                2,510
                
                
                
                2,427shares
      authorized; 2,509,698 and 2,427,060 sharesoutstanding,
      respectivelyAdditional
      paid-in capital
                
                
                10,835,658
                
                
                
                7,966,774Non-controlling
      interest
                
                
                2,953,760Accumulated
      deficit
                
                
                (9,738,115
                )
                
                
                (4,038,177
                )Total
      stockholders' equity
                
                
                4,055,313
                
                
                
                3,932,524Total
      liabilities and stockholders' equity
                
                $
                13,195,924
                
                
                $
                14,655,589
  See
summary of accounting policies and notes to consolidated financial
statements.
  3
 Table of Contents
 Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the three months ended January 31, 2010 and 2009 (unaudited)
 2010
                    
                    
                    2009Revenues
                    
                    $
                    3,810,135
                    
                    
                    $
                    5,338,688Cost
      of revenues
                    
                    
                    (2,110,577
                    )
                    
                    
                    (3,249,600
                    )Selling,
      general and administrative
                    
                    
                    (1,359,541
                    )
                    
                    
                    (1,576,965
                    )Depreciation
      and amortization expense
                    
                    
                    (295,503
                    )
                    
                    
                    (363,401
                    )Loss
      on asset sale
                    
                    
                    -
                    
                    
                    
                    -Operating
      income
                    
                    
                    44,514
                    
                    
                    
                    148,722Other
      income (expense):Loss
      on derivative
                    
                    
                    (9,747
                    )
                    
                    
                    -Other
      income
                    
                    
                    5,529
                    
                    
                    
                    -Interest
      expense
                    
                    
                    (697,616
                    )
                    
                    
                    (576,198
                    )Net
      loss
                    
                    
                    (657,320
                    )
                    
                    $
                    (427,476
                    )Basic
      and diluted loss per share:Loss
      per share
                    
                    $
                    (0.26
                    )
                    
                    $
                    (0.18
                    )Weighted
      average common shares
                    
                    
                    2,497,467
                    
                    
                    
                    2,419,384
 See
summary of accounting policies and notes to consolidated financial
statements.


4
 Table of Contents


Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the nine months ended January 31, 2010 and 2009 (unaudited)
 2010
                      
                      
                      2009Revenues
                      
                      
                      $
                      12,874,705
                      
                      
                      $
                      18,012,044Cost
      of revenues
                      
                      
                      
                      (7,247,877
                      )
                      
                      
                      (12,246,387
                      )Selling,
      general and administrative
                      
                      
                      
                      (4,578,387
                      )
                      
                      
                      (4,068,304
                      )Depreciation
      and amortization expense
                      
                      
                      
                      (1,032,179
                      )
                      
                      
                      (774,742
                      )Loss
      on asset sale
                      
                      
                      
                      (7,459
                      )
                      
                      
                      -Operating
      income
                      
                      
                      8,803
                      
                      
                      
                      922,611Other
      income (expense):Loss
      on derivative
                      
                      
                      (2,344,340
                      )
                      
                      
                      -Other
      income
                      
                      
                      45,992
                      
                      
                      
                      -Interest
      expense
                      
                      
                      (2,307,195
                      )
                      
                      
                      (1,355,480
                      )Net
      loss
                      
                      
                      
                      (4,596,740
                      )
                      
                      $
                      (432,869
                      )Basic
      and diluted loss per share:Loss
      per share
                      
                      
                      $
                      (1.86
                      )
                      
                      $
                      (0.18
                      )Weighted
      average common shares
                      
                      
                      
                      2,471,068
                      
                      
                      
                      2,407,116
  See
summary of accounting policies and notes to consolidated financial
statements


5
 Table of Contents




Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 For
the 9 months ended January 31, 2010 and 2009 (unaudited)


2010
              
              
              2009CASH
      FLOWS OPERATING ACTIVITIESNet
      loss
              
              $
              (4,596,740
              )
              
              $
              (432,869
              )Adjustments
      to reconcile net income to net cash used provided byoperating
      activities:Depreciation
      expense
              
              
              557,178
              
              
              
              203,902Loss
      on sale of assets
              
              
              7,459
              
              
              
              -Management
      fees
              
              
              -
              
              
              
              30,000Amortization
      expense - loan discounts, deferred financing costs and
      intangibles)
              
              
              1,474,536
              
              
              
              551,422Amortization
      expense - intangible
              
              
              528,471
              
              
              
              446,189Stock
      issued for services
              
              
              214,725
              
              
              
              -Derivative
      loss
              
              
              2,344,340
              
              
              
              -Additional
      shares issued for interest expense
              
              
              -
              
              
              
              126,339Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (344,195
              )
              
              
              (193,840
              )Inventory
              
              
              (38,150
              )
              
              
              -Costs
      in excess of billing
              
              
              (149,288
              )
              
              
              (368,087
              )Prepaid
      expenses and other current assets
              
              
              37,848
              
              
              
              15,522Accounts
      payable and accrued expenses
              
              
              246,963
              
              
              
              485,220Deferred
      income
              
              
              (36,019
              )
              
              
              99,784Net
      cash provided by operating activities of operations
              
              
              247,128
              
              
              
              963,582CASH
      FLOW INVESTING ACTIVITIESPurchase
      of Trakkers/Tesselon
              
              
              -
              
              
              
              (2,651,286
              )Purchase
      of fixed assets
              
              
              -
              
              
              
              -Net
      cash used in investing activities
              
              
              -
              
              
              
              (2,651,286
              )CASH
      FLOW FINANCING ACTIVITIESProceeds
      from notes payable, net of original issue discounts
              
              
              1,666,536
              
              
              
              4,573,297Repayments
      made on notes payable
              
              
              (2,701,514
              )
              
              
              (2,163,665
              )Proceeds
      from notes payable - related parties
              
              
              10,736
              
              
              
              125,670Repayments
      made on notes payable - related parties
              
              
              (101,721
              )
              
              
              (542,960
              )Net
      cash provided by (used in) financing activities
              
              
              (1,125,963
              )
              
              
              1,992,342NET
      CHANGE IN CASH
              
              
              (878,835
              )
              
              
              304,638CASH
      AT BEGINNING OF YEAR
              
              
              1,087,894
              
              
              
              12,167CASH
      AT END OF YEAR
              
              $
              209,059
              
              
              $
              316,805SUPPLEMENTAL
      INFORMATION:Interest
      paid
              
              $
              644,901
              
              
              $
              174,546Income
      taxes paid
              
              
              -
              
              
              
              -NON-CASH
      INVESTINGAND FINANCING ACTIVITIES:Common
      stock issued for partial payment of notes payable
              
              $
              -
              
              
              $
              1,087,247Common
      stock issued for conversion of preferred stock
              
              
              -
              
              
              
              -Seller
      financed Honda Accord purchase
              
              
              18,492
              
              
              
              -Seller
      financed purchase of Desert Communication
              
              
              -
              
              
              
              -Seller
      financed purchase of Trakkers
              
              
              -
              
              
              
              2,028,089Preferred
      stock issued to acquire Trakkers/Tesselon
              
              
              -
              
              
              
              120,573Beneficial
      conversion feature discount on notes payable
              
              
              -
              
              
              
              280,942Beneficial
      conversion feature discount from Agile debt extinguishment
              
              
              83,333
              
              
              
              -Discount
      to notes payable on relative fair value of warrants
              
              
              1,571,749
              
              
              
              166,183Cumulative
      effect of change in accounting principle-reclassification
    of
              
              
              3,952,290
              
              
              
              -derivative
      liability


See
summary of accounting policies and notes to consolidated financial
statements


6
 Table of Contents




INOVA
TECHNOLOGY, INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
1 –BASIS OF PRESENTATION





The
accompanying unaudited interim consolidated financial statements of Inova have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
and should be read in conjunction with the audited financial statements and
notes thereto contained in Inova’s latest Annual Report filed with the SEC on
Form 10-K. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year.  Notes to the consolidated financial statements that would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year as reported in Form 10-K have been
omitted.





DERIVATIVE
FINANCIAL INSTRUMENTS





Inova
does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. Inova evaluates all of it financial instruments to
determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair
value and is then re-valued at each reporting date, with changes in the fair
value reported as charges or credits to income. For option-based derivative
financial instruments, Inova uses the Black-Scholes option-pricing model to
value the derivative instruments at inception and subsequent valuation dates.
The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of
each reporting period. Derivative instrument liabilities are classified in the
balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date.





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





In
November 2008, the FASB issued ASC 815-40 (formerly EITF Issue 08-8), Accounting for an Instrument (or an
Embedded Feature) with a Settlement Amount That Is Based on the Stock of an
Entity’s Consolidated Subsidiary(“EITF No. 08-8”). This Issue was
effective for fiscal years beginning on or after December 15, 2008, and
interim periods within those fiscal years, with early adoption prohibited. EITF
No. 08-8 supersedes EITF No. 00-6 and amends ASC 815-15 (EITF 00-19)
such that provided that the subsidiary is a substantive entity, instruments
indexed to the stock of a subsidiary could be considered indexed to the entity’s
own stock within the consolidated financial statements. As a result of adopting
EITF 08-8 during the quarter ended January 31, 2010, we have reclassified
$2,878,480 from additional paid-in capital to non-controlling interest in our
consolidated balance sheet as of January 31, 2010.  This amount
reflects the fair value of warrants granted to third parties that can be
exercised into stock of our consolidated subsidiaries, Desert Communications,
Inc and Trakkers, LLC.





In May
2009, the FASB issued ASC 855 (SFAS No. 165), “Subsequent Events”, which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 (SFAS
165) also requires entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was selected. This
disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements
being presented. SFAS 165 is effective for interim and annual periods ending
after June 15, 2009. Since ASC 855 (FAS 165) at most requires additional
disclosures, the adoption did not have a material impact on Inova’s consolidated
financial position, results of operations or cash flows.





7
 Table of Contents




NOTE 2 –
RELATED PARTY TRANSACTIONS





Loans
payable from related parties consists of advances from existing shareholders.
These notes are unsecured, bear interest at 7%, and are due in May 21, 2017. The
amount due to Southbase, a Company owned by Inova’s controlling shareholder, is
$142,532.





During
the nine months ended January 31, 2010, Inova was loaned $10,736 and repaid
$101,721 of a related party loan from Web’s Biggest, a Company owned by a
director.





Seller
notes with a balance of $1,500,000 were established in connection with the
Desert Communications, Inc. purchase. They have interest rates of 7%, are
secured and are due in December of 2010.





NOTE 3 –NOTES
PAYABLE





Line
of Credit with IBM Credit LLC:





Desert
Communications, Inc. has a $2.5 million line of credit with IBM Credit LLC. This
revolving line of credit has an interest rate of prime plus 2% and is secured by
the assets of Desert. Payments are made based on a borrowing base calculation
which determines availability.  During the nine months ending January
31, Desert borrowed $726,217 and repaid $1,739,402 against this line
resulted in a notes payable of $402,767. The company is currently paying off
this facility and switching to a different facility, as described
below.





Facility
with GTF:





On
December 30, 2009, the Company entered into a series of related agreements with
New England Technology Finance, LLC (“NETF”) providing for NETF to purchase
eligible accounts receivable balances and to finance qualified purchases (as
defined).  This facility is comprised of three
components:  (1) an Asset Purchase and Liability Assumption
Agreement (the “APLA”), under which NETF finances certain of the Company's
qualified product purchases in connection with consummating sales to customers
and (2) an Asset Purchase Agreement (the “APA”), and (3) a Master Servicing
Agreement (“MSA”).




Qualified
product purchases financed by NETF under the APLA are repaid from collections of
accounts receivable balances that the Company generates from its sales of such
products to customers.  The Company transfers title to the invoices to
NETF at the time these sales are financed and delivery is made to the
customer.  The Company pays contractual financing and servicing fees
to NETF for its financing of these purchases in an amount that is equal to a
percentage of the gross profit margin on such sales.  The percentages
fees vary based on the (a) amount of gross profit on such sales, and
(b) number of days in which the receivables from such sales remain
uncollected.




NETF
remits periodically to the Company an amount equal to the monthly gross profit
margin on the sales less the contractual fees.  The APLA also provides
for the Company to repurchase, after 150 days, any amounts that remain
unpaid by the customer for reasons other than the customer's inability to pay as
a result of its financial condition or possible insolvency. NETF pro-approves
all product purchases and the credit worthiness of the Company's customers under
this arrangement as a precondition to financing the sale.




8
 Table of Contents




Under the
APA, the Company transfers eligible accounts receivable to NETF in exchange for
advances of up to 80% of their gross amount.  NETF charges the Company
fees (the “Discount Factor”) in an amount equal to the LIBOR rate plus 4% per
annum on advances made at the time of the transfer.  The Company also
retains servicing rights under the MSA.  Under the terms of the MSA,
the Company manages collections and other ongoing interactions with its
customers in exchange for fees amounting to approximately 20% of the gross
invoice amount NETF settles fees payable to the Company under this arrangement
net of the Discount Factor.




The APA
also provides for the Company to repurchase, after 150 days, any amounts
that remain unpaid by the customer for reasons other than the customer’s
inability to pay as a result of its financial condition or possible insolvency;
however such repurchases are limited to 15% of all receivables transferred to
NETF under this arrangement.  In addition, NETF pre-approves the
credit worthiness of the Company's customers under this arrangement as a
precondition to purchasing any invoice.




The
Company accounts for its transfers of accounts receivable to NETF under each of
these agreements in accordance with the provision of ASC 860-10 (formerly SFAS
140) “Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities” as sales of such accounts receivable balances.
The gain or loss on sales of receivables NETF is determined at the date of
transfer based upon the amount at which they are transferred to NETF less any
fees, discounts and other charges provided under the agreements.




This
facility contains customary affirmative and negative covenants as well as
specific provisions related to the quality of the accounts receivables
sold.  The Company has also indemnified NETF for the risk of loss
under any transferred balances except for loss incurred as a result of customer
credit risk.  The aggregate amount of fees incurred under this
arrangement (under the APA and APLA) will be included as a component of interest
expense in the consolidated statement of operations in the future.




There
were no transactions under this facility for the nine months ended January 31,
2010.





Debentures -
Boone:





In the
first quarter of fiscal year 2010 we issued additional notes payable of $120,750
and $168,000 due in 2009 and December 2011.  These notes had original
issue discounts of $23,750. In the second quarter of fiscal year 2010 we
issued notes payable of $137,788 and $181,570 due in June 2010 and on
demand.  These notes had original issue discounts of
$51,358.





In the
third quarter of fiscal year 2010 Inova restructured its previously issued notes
payable to Boone to extend the maturity dates, modify the interest rate and
payment terms.  Inova combined 6 previous notes that had due dates
ranging from December 16, 2009 through December 30, 2010 into one $836,446 note
payable for which principal payments will begin in December
2010.  Until that date, payments are interest only.  The
original notes had interest rates of Prime + 3%.  The new note have an
interest rate of 17.5%.  Starting in December 2010, principal payments
will be made out of Desert Communication Inc.’s (“DCI”) free cash flow which is
defined by the agreement as DCI’s earnings before interest, taxes, depreciation
and amortization (“EBITDA”) subject to various adjustments.  The note
is secured by all assets including the shares Inova holds of each of Inova’s
subsidiaries.  Inova is required to make a one-time principal payment
of $75,000 on March 31, 2010 or pay a fee of $750.





Also in
the third quarter of fiscal year 2010, Inova issued a note payable of $520,748
with an original issue discount of $103,248. As of January 31, 2010, Boone had
only disbursed $483,248 of this note, with the remainder to be disbursed
subsequently.  The note was issued in combination with an amendment to
a previously issued $181,570 note for a total of $702,318.  Principal
payments on the combined note will begin in approximately July
2010.  Until that date, payments are interest only.  The
original note had interest rates of Prime + 3%.  The new note has an
interest rate of 17.5%.  In 2010, principal payments will be made out
of Desert Communication Inc.’s (“DCI”) free cash flow which is defined by the
agreement as DCI’s earnings before interest, taxes, depreciation and
amortization (“EBITDA”) subject to various adjustments.  The note is
secured by all assets including the shares Inova holds of each of Inova’s
subsidiaries.




9
 Table of Contents




These
loans have the following financial requirements:





1)
Maintain cash plus availability under NETF line of credit of $150,000 or
greater;





2) EBITDA
of $1.5 million for 12 month period ending December 31, 2010 with monthly
requirements





3) No
concentration above $2.5 million to any supplier through the IBM
facility;





4) No
concentration above 20% to any single customer;





5) No
single accounts payable more than the greater of $350,000 or 20% of the accounts
receivable balance under 60 days. The portion beyond 90 days past due must be
less than 10% of the total accounts receivable.





As of
January 31, 2010, Inova was not in compliance with the customer, cash and
accounts payable concentration covenants, however Inova received a waiver
from Boone through January 31, 2010.





The
following is a summary of all notes payable with unamortized discounts as of
January 31, 2010:





Principal
            
            
            Unamortized
            
            
            CarryingAmount
            
            
            Discount
            
            
            AmountBoone
            
            $
            3,257,624
            
            
            
            2,114,937
            
            
            $
            1,142,687Ascendiant
            
            
            560,915
            
            
            
            371,560
            
            
            
            189,355IBM
      – Trakkers, LLC Lease Facility
            
            
            376,716
            
            
            
            21,417
            
            
            
            355,299IBM
      – Desert Communications, Inc. Line of Credit
            
            
            402,767
            
            
            
            -
            
            
            
            402,767Agile
            
            
            250,000
            
            
            
            77,461
            
            
            
            172,539Desert
      Communications, Inc. Seller’s Notes
            
            
            1,500,000
            
            
            
            -
            
            
            
            1,500,000Trakkers,
      LLC Seller’s Notes
            
            
            1,769,686
            
            
            
            -
            
            
            
            1,769,686Southbase
      – Related Party
            
            
            142,532
            
            
            
            -
            
            
            
            142,532Other
      debt
            
            
            181,505
            
            
            
            -
            
            
            
            181,505Total
            
            $
            8,441,745
            
            
            $
            2,585,375
            
            
            $
            5,856,370





In
conjunction with the notes payable issued during the first quarter of fiscal
2010, 129,171 Inova warrants, 6 Desert warrants and warrants equal to 13.5% of
Trakkers were issued to Boone. The warrants expire in 2014. They have an
aggregated exercise price of $200. The fair value of these warrants was
calculated using the Black-Scholes Model using these assumptions (1) 2.5%
to 4.5% discount rate, (2) warrant life of 5 years, (3) expected volatility of
165% to 347%, and (4) zero expected dividends. The warrants were determined to
be derivative liabilities under ASC 815-15 (EITF 07-05) and ASC 815-20 (FAS
133).  The fair value of these warrants at the inception of the notes
was $1,065,786.  Accordingly, this resulted in a full discount to the
notes of $288,750 and a loss on derivative liabilities of
$800,786.  The loss is included in loss on derivatives in the
consolidated statement of operations.  For more information on the
derivative liabilities see Note 4.




10
 Table of Contents




In
conjunction with the $137,788 note payable issued during the second quarter of
fiscal 2010, 45,238 Inova warrants and 5 Desert warrants were issued to Boone.
They have an aggregated exercise price of $200. The fair value of these warrants
was calculated using the Black-Scholes Model using these assumptions (1)
2.5% discount rate, (2) warrant life of 5 years, (3) expected volatility of
347%, and (4) zero expected dividends. These warrants were not determined to be
derivative liabilities under ASC 815-15. The relative fair value of the warrants
at the inception of the notes was determined to be $60,358 and was recorded as a
discount to the note to be amortized through maturity of the note using the
effective interest method.





In
conjunction with the $520,748 note payable issued during the third quarter of
fiscal 2010, 435,232 Inova warrants and 47.7 Desert warrants were issued to
Boone and 45,858 Inova warrants and 5.1 Desert warrants were issued to
Ascendiant Securities.  They have an aggregated exercise price of
$400. The fair value of these warrants was calculated using the Black-Scholes
Model using these assumptions (1) 4.5% discount rate, (2) warrant life of 7
years, (3) expected volatility of 341%, and (4) zero expected dividends. These
warrants were not determined to be derivative liabilities under ASC 815-15. The
relative fair value of the warrants at the inception of the notes was determined
to be $304,527 and was recorded as a discount to the note to be amortized
through maturity of the note using the effective interest method.





In
conjunction with the $836,446 restructured note payable issued during the third
quarter of fiscal 2010, 76,232 Inova warrants and 7.01 Desert warrants were
issued to BooneThey have an aggregated exercise price of $200. The fair value of
these warrants was calculated using the Black-Scholes Model using these
assumptions (1) 4.5% discount rate, (2) warrant life of 7 years, (3) expected
volatility of 341%, and (4) zero expected dividends. These warrants were not
determined to be derivative liabilities under ASC 815-15. The fair value of the
warrants at the inception of the notes was determined to be $190,168 and was
recorded as a discount to the note to be amortized through maturity of the note
using the effective interest method.





Inova
signed a put option agreement with Boone whereby anytime between 2010 and
2013,Boone can
require Inova torepurchase from Boone up
to 129,171 shares of Common Stock for $187,500. In addition, in conjunction with
the debt restructuring discussed above, during the quarter ended January 31,
2010, all put options that previously could not be exercised until future
periods were accelerated to April 1 , 2010.  The put options cannot be
exercised until Boone exercises their warrants. As of January 31, 2010, none of
the warrants had been exercised.





Boone
Note-Modification:





As
discussed above, in January 2010, Inova modified the terms of $836,446 of its
notes with Boone to extend the due date to December 2010.  Also the
interest rate on the note is now the higher of (i) Prime Rate plus 3% or (ii)
17.5%. Inova evaluated the extension event under ASC 470-60 and ASC 470-50.
Because the investors did not grant concessions on this outstanding loan, the
transaction was not accounted for as troubled debt restructuring. Consequently,
Inova evaluated these transactions under ASC 470-50 “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments”to determine if the
modification was substantial. The modification was determined not to be
substantial and as a result, no gain or loss was recorded on the date of the
extension.  In addition, all previously unamortized discounts
associated with previous notes will be amortized over the maturity of the new
note.





Registration
rights:





In
connection with the debentures, warrants, and put option agreement, Inova
entered into a registration agreement that Inova file a registration statement
with the Securities and Exchange Commission (“SEC”) covering the resale of the
underlying shares. The amount of shares to be registered is equal to the lesser
of all shares issued under the agreements or one-third of the number of issued
and outstanding shares of common stock held by non-affiliates. If Inova fails to
file this registration statement within 90 calendar days of issuance, then Inova
must pay two percent (2%) of the purchase price paid for the unregistered
securities.





11
 Table of Contents




Inova
analyzed the registration right arrangement under the guidance of ASC 815-15 and
determined that the contingent obligation to make future payments under the
registration payment arrangement is not probable and can not be reasonably
estimated at inception because currently Boone has not yet exercised the
outstanding warrants. Consequently, no liability was recorded as of January
31, 2010 and Inova has received a waiver from Boone that granted an extension
until April 30 to be filed with the SEC.





Other
significant debt transactions during the Nine months ended January 31,
2010:





During
the nine months ended January 31, 2010, Inova made the following cash repayments
on its outstanding notes payable:





Notes
      payable to:
              Boone
            
            $
            611,686Ascendiant
            
            
            29,108IBM
            
            
            1,845,453Other
            
            
            92,554Related
      parties
            
            
            101,721Trakkers,
      LLC previous owners
            
            
            122,713Total
      cash paid
            
            $
            2,803,235





During
the nine months ended January 31, 2010, Inova received the following debt
proceeds:





Notes
      payable to Boone
            
            $
            940,319Notes
      payable to IBM
            
            
            726,217Total
      cash received
            
            $
            1,666,536





During
the nine months ended January 31, 2010, Inova recognized $1,474,536 of interest
expense on the loan discounts originated from its financing arrangements with
Boone, Ascendiant and Agile.





Ascendiant Note-Modification:





In July
2009, Inova modified the terms of its $500,000 note with Ascendiant to extend
the due date from December 2009 to December 2010.  Also the interest rate
on the note is now the higher of (i) Prime Rate plus 3% or (ii)
18%.





Inova
evaluated the extension event under ASC 470-60 and ASC 470-50. Because the
investors did not grant concessions on this outstanding loan, the transaction
was not accounted for as troubled debt restructuring. Consequently, Inova
evaluated these transactions under ASC 470-50 “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments”to determine if the
modification was substantial. As a result, no gain or loss was recorded on the
date of the extension since the modification in terms is not considered
significant.





12
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The
Ascendiant note has the same covenants in place as the Boone notes described
above.  As of January 31, 2010, Inova was not in compliance with some
covenants.  Because of this, the note is in default as of January 31,
2010.  The default interest rate is 18% and therefore no different
than the modified rate above.  In addition, while in default the note
is due on demand and therefore classified as short term debt in our consolidated
balance sheet.





Trakkers
Note-Modification:





In
October 2009, Inova modified the terms of its $1,528,089 note with Trakkers
sellers to extend the first principal payment date from September
2009  to December 2010.





Inova
evaluated the extension event under ASC 470-60. Because the investors did not
grant a concession on this outstanding loan, the transaction was not accounted
for as troubled debt restructuring. Consequently, Inova evaluated these
transactions under ASC 470-50 “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments”to determine if the
modification was substantial. As a result, the debt modification was not
substantial and therefore the new debt terms will be accounted for
prospectively.




Agile
Note-Modification:





In
December 2009, Inova modified the terms of its $250,000 note with Agile to
extend the first principal payment date from December 2009 to December 2010. It
also increased the OID to $50,000 and reduced the conversion price to $.81 per
share.





Inova
evaluated the extension event under ASC 470-60. Because the investors did not
grant a concession on this outstanding loan, the transaction was not accounted
for as troubled debt restructuring. Consequently, Inova evaluated these
transactions under ASC 470-50 “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments”to determine if the
modification was substantial. Because the change in fair value of the conversion
option was greater than 10% of the carrying value of the debt,  the
debt modification determined to be substantial and accordingly the debt was
extinguished.  Inova evaluated the new debt instrument under ASC
470-20 and determined that it contained a beneficial conversion feature with an
intrinsic value of $83,333.  This amount was recorded as a discount to
the note to be amortized until maturity using the effective interest
method.





NOTE 4
- DERIVATIVE LIABILITIES





In June
2008, the FASB finalized ASC 815-15, "Determining Whether an Instrument (or
Embedded Feature) is indexed to an Entity's Own Stock". The EITF lays out a
procedure to determine if an equity-linked financial instrument (or embedded
feature) is indexed to its own common stock. The EITF is effective for fiscal
years beginning after December 15, 2008. 1,904,634 warrants to purchase Inova’s
common stock, 92 warrants to purchase Desert Communications, Inc. common
stock,  warrants to purchase 19.44% of Trakkers, LLC, and two
conversion options embedded in notes payable agreements that were previously
classified in equity were reclassified to derivative liabilities on May 1, 2009
as a result of this EITF. Inova estimated the fair value of these liabilities as
of May 1, 2009 to be $4,886,427 by recording a reduction of $2,526,150 to
Additional Paid In Capital, $1,103,198 to Accumulated Deficit and an increase of
$1,257,078 to discounts on notes payable to which these instruments were
related. The effect of this adjustment was recorded as a cumulative effect of
change in accounting principle in our consolidated statement of stockholders’
equity. In addition, warrants granted in association with notes payable issued
during the first quarter described in Note 3 above also were recorded as
derivative liabilities at inception.  The fair value of the derivative
liabilities at inception was $1,065,786.





The fair
value of these liabilities was estimated to be $7,495,766 at July 31, 2009. The
$1,543,545 change in fair value is reported in our consolidated statement of
operations as a loss on derivatives.




13
 Table of Contents





Variables
used in the Black-Scholes option-pricing model to value these derivative
liabilities include (1) 1.89% to 3.41% risk-free interest rate, (2) warrant life
is the contractual life of these warrants, (3) expected volatility 212% to 550%,
and (4) zero expected dividends.





Inova
amended the above warrant and convertible note agreements as of June 30, 2009
and July 31, 2009 to remove the provisions that triggered derivative accounting
under ASC 815-15. Specifically, the sections in the agreements related to
issuing anti-dilutive warrants based on a measure other than one linked to the
company’s stock price were removed. As a result of these amendments, the
$7,495,766 derivative liability created during the quarter while the provisions
were still effective was moved to additional paid in capital when the documents
were modified.





NOTE 5 –SEGMENT
INFORMATION





Inova has
three reportable segments, one providing IT solutions and services (Edgetech
Services, Inc.), one providing network solutions (Desert Communications, Inc.)
and one which manufactures standards compliant and durable RFID (Radio Frequency
Identification) equipment (Trakkers, LLC & RightTag, Inc).  Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly in deciding how
to allocate resources and in assessing performance.





The
following table presents nine month segment information:





Corporate
            
            
            Edgetech
      Services, Inc.
            
            
            Trakkers,
      LLC & RightTag, Inc.
            
            
            Desert
      Communications, Inc.
            
            
            TotalRevenues
            
            $
            -
            
            
            $
            272,740
            
            
            $
            1,573,932
            
            
            $
            11,028,033
            
            
            $
            12,874,705Net
      loss/(income)
            
            
            4,583,262
            
            
            
            (66,046
            )
            
            
            901,757
            
            
            
            (822,233
            )
            
            
            4,596,740Assets
            
            
            8,893,521
            
            
            
            61,801
            
            
            
            1,397,833
            
            
            
            2,842,769
            
            
            
            13,195,924





NOTE 6
– WARRANTS & PUT OPTIONS





Summary
information regarding warrants is as follows:





During
the nine months ended January 31, 2010, Inova granted 731,731 warrants, 70.96
Desert warrants and warrants equal to 13.5% of Trakkers in several issuances
related to monies borrowed under term loans. These warrants vest immediately. In
addition to warrants granted with notes payable described in Note 3, Inova
issued 106,160 warrants under anti-dilution provisions within the warrant
agreements.  They have an aggregated exercise price of $700 and expire
through January 14, 2017.  The anti-dilution provisions in these
warrant agreements were removed during the first quarter of fiscal
2010.  See note 4.





The
warrants above are subject to a put option agreements whereby anytime between
April 1, 2010 and January 14, 2017, the lender can require Inova to repurchase
the above warrant shares for the principal amount of the original note payable
that the warrants were issued with . If Inova fails to make the required payment
within 30 days, the repurchase price will become a convertible note that is
convertible into the same number of warrant shares.   The put options
cannot be exercised until Boone exercises their warrants. As of January 31,
2010, none of the warrants had been exercised.  Inova evaluated the
put options under ASC 815-10 and ASC 480-10 and determined that liability
classification was not appropriate.  As of January 31, 2010, the
aggregate value of put options outstanding that could be exercised once the
associated warrants are exercised is $3,985,250.




14
 Table of Contents




Warrants
      to purchase Inova common stock:Outstanding
      at April 30, 2009
            
            
            2,033,541Granted
            
            
            837,891Exercised
            
            
            -Expired
            
            
            -Outstanding
      at January 31, 2010
            
            
            2,780,134Warrants
      to purchase Desert Communications, Inc. common stock: 645 total shares
      outstandingOutstanding
      at April 30, 2009
            
            
            91.53Granted
            
            
            70.96Exercised
            
            
            -Expired
            
            
            -Outstanding
      at January 31, 2010
            
            
            162.49Warrants
      to purchase Trakkers, LLC common stock:Outstanding
      at April 30, 2009
            
            
            19.44%Granted
            
            
            13.50%Exercised
            
            
            -Expired
            
            
            -Outstanding
      at January 31, 2010
            
            
            32.94%





NOTE 7
– COMMON STOCK





32,500
shares of common stock valued at $65,000 were issued to a third party as payment
of commission on a note payable.





2,500
shares of common stock valued at $5,000 were issued to a third party as payment
for investor relations services.





21,150
shares of common stock valued at $45,649 were issued to former owners of Inova
subsidiaries as payment for earn-outs.





23,988
shares of common stock valued at $95,952 were issued to a third party as payment
of commission on a note payable.





2,500
shares of common stock valued at $3,124 were issued to a third party as payment
for investor relations services.





NOTE 8 –
SUBSEQUENT EVENTS





Boone has
advanced an additional $20,000 under the January 2010 $520,748 note payable
(discussed in Note 3) in February, 2010.





Inova has
discontinued payments to the Trakkers sellers in February, 2010 due to an
inability to renegotiate the notes again and is therefore in default on the
notes.





Inova
evaluated subsequent events through March 19, 2010.




The
Desert sellers have agreed to extend their notes to February 1,
2011.





15
 Table of Contents




Item 2. Management Discussion and Analysis of Financial Condition and
Result of Operations.





The
information contained in this Management’s Discussion and Analysis of Financial
Condition and Results of Operation contains “forward looking statements.”Actual results may materially differ from those projected in the forward
looking statements as a result of certain risks and uncertainties set forth in
this report. Although our management believes that the assumptions made and
expectations reflected in the forward looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be materially different from the
expectations expressed in this Annual Report. The following discussion should be
read in conjunction with the unaudited Consolidated Financial Statements and
related Notes included in Item 1.





RESULTS
OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JANUARY 31, 2010





Net
revenues decreased from $5,338,688 in the three-month period ending January 31,
2009 to $3,810,135 for the three-month period ending January 31, 2010. The
decrease in revenue is due to changes in the timing of various projects, in
addition to the worldwide economic slowdown.





Cost of
sales decreased from $3,249,600 in the three-month period ending January 31,
2009 to $2,110,577 for the three-month period ending January 31, 2010. The
decrease came from the revenue decrease described above.





Operating
expenses decreased from $1,940,366 for the three months ending January 31, 2009
to $1,655,044 for the same period in 2010. This was mainly due to the decrease
in bonus and management fee expense in Desert.





Net loss
increased from ($427,476) for the three months ending January 31, 2009 to
($657,320) for the same period in 2010. This is due to an increase in interest
and depreciation expense.





RESULTS
OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 2010





Net
revenues decreased from $18,012,044 in the nine month period ending January 31,
2009 to $12,874,705 for the nine month period ending January 31, 2010. The
decrease in revenue is due to changes in the timing of various projects, the
worldwide economic slowdown and higher than typical revenues last
year.





Cost of
sales decreased from $12,246,387 in the nine month period ending January 31,
2009 to $7,247,877 for the nine month period ending January 31, 2010. The
decrease came from the revenue decrease described above.





Operating
expenses increased from $4,843,046 for the nine months ending January 31, 2009
to $5,608,278 for the same period in 2010. This was mainly due to the expansion
of the Company with the acquisition of Trakkers in September, 2008, which has
now had a full year of operations.





Net loss
increased from ($432,869) for the nine months ending January 31, 2009 to
($4,596,740) for the same period in 2010. This is due to a one-time loss on
derivatives of $2,354,087, an increase in interest expense and the depreciation
and other costs from newly acquired Trakkers. The loss on derivatives was added
back to additional paid in capital so had no net impact on total
equity.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
provided by operations for the nine month period ended January 31, 2010 was
$247,128 as compared to cash provided by operations of $963,582 for the nine
months ended January 31, 2009. This change is primarily due to lower revenues
combined with fixed expenses associated with the Trakkers acquisition in
September, 2008. Cash used in investing activities for the nine month period
ended January 31, 2010 was $0, as compared to $2,651,286 for the nine months
ended January 31, 2009. Cash used by financing activities for the period ended
January 31, 2010 was $1,125,963, as compared to $1,992,342 provided by financing
activities for the nine months ended January 31, 2009.




16
 Table of Contents




Our
operating activities for the nine months ended January 31, 2010, have generated
adequate cash to meet our operating needs. As of January 31, 2010, we had cash
and cash equivalents totaling $209,059, and accounts receivable of
$2,425,411.





Boone has
restructured its debt for Desert to defer principal payments until approximately
June, 2010. From June 2010 thru September 2011 the newer notes
of approximately $700,000 will be paid. Then from September 2011 thru
February 2014 the balance of the original note will be paid.





Boone has
agreed to restructure its debt for Trakkers in the 4th
quarter. It is estimated that approximately $16,000 of principal will be paid
monthly during the rest of 2010, and the remainder of the notes will be
amortized out of free cash flow until 2013. Once restructured, the interest rate
of the note will be 17.5%.





EBITDA





EBITDA
for the 3 month period is $350,799. EBITDA is Earnings before interest, tax,
depreciation and amortization:





EBITDA
              
              31-Jan-10Net
      income
              
              
              (657,320
              )Interest
              
              
              697,616Tax
              
              
              15,000Depreciation/Amortization
              
              
              295,503EBITDA
              
              
              350,799





Item 4. Controls and Procedures





(a) 
Evaluation of disclosure controls and procedures.





Management
has evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the end of the
period covered by this report and concluded that our disclosure controls and
procedures were not effective to ensure that all material information required
to be disclosed in this Quarterly Report on Form 10-Q has been made known to
them in a timely fashion.  We are in the process of improving our internal
control over financial reporting in an effort to remediate these deficiencies
through improved supervision and training of our accounting staff. These
deficiencies have been disclosed to our Board of Directors. We believe that this
effort is sufficient to fully remedy these deficiencies and we are continuing
our efforts to improve and strengthen our control processes and procedures. Our
Chief Executive Office, Chief Financial Officer and directors will continue to
work with our auditors and other outside advisors to ensure that our controls
and procedures are adequate and effective.




(b) 
Changes in internal controls





There
have been no significant changes in our internal controls over financial
reporting that occurred during the fiscal quarter covered by this report that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.





17
 Table of Contents





PART
II





Item 1. Legal Proceedings.





None





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





None





Item 3. Defaults Upon Senior Securities





Not
Applicable.





Item 4. 
Other Information





None





Item 5. 
Exhibits





(A)
Exhibits





Exhibit Number
            Description31.1
            Certification  of
       the  Chief  Executive Officer required by Rule  13a
       -  14(a)  or  Rule  15d  -
       14(a)31.2
            Certification  of
       the  Chief  Financial Officer required by Rule  13a
       -  14(a)  or  Rule  15d  -
       14(a)32.1
            Certification of Chief
      Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes- Oxley Act of
    200232.2
            Certification of Chief
      Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes- Oxley Act of
    2002








18
 Table of Contents





SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Dated:
      March 19, 2010
            By:
            /s/ Adam
      RadlyAdam
      RadlyChief
      Executive OfficerDated:
      March 19, 2010
            By:
            /s/ Bob
      BatesBob
      BatesChief
      Financial Officer








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