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  October 31,
      2009 ̈
            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 December 21, 2009: 2,483,210





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-K





Table of
Contents








PART
      I
            PageItem
      1.
            Financial
      Statements
            3Item
      2.
            Management Discussion and Analysis of
      Financial Condition and Result of Operations
            12Item
      4.
            Submission of Matters to a Vote of
      Security Holders
            13PART
      IIItem
      1.
            Legal
      Proceedings
            14Item
      2
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            14Item
      3.
            Defaults Upon Senior
      Securities
            14Item
      4.
            Other
      Information
            14Item
      5.
            Exhibits
            14Signatures
            15








Table of Contents





Item 1. Financial Statements


Inova
Technology, Inc. and Subsidiaries
 Consolidated
Balance Sheets (unaudited)


10/31/09
              
              
              4/30/2009ASSETSCurrent
      assetsCash
              
              $
              359,137
              
              
              $
              1,087,894Accounts
      receivables, net
              
              
              -
              
              
              
              262,734Contracts
      receivable, net
              
              
              1,860,217
              
              
              
              1,818,482Inventory
              
              
              104,398
              
              
              
              71,725Cost
      in excess of billings
              
              
              149,323
              
              
              
              38,324Prepaid
      and other current assets
              
              
              60,657
              
              
              
              64,781Total
      current assets
              
              
              2,533,732
              
              
              
              3,343,940Fixed
      assets, net
              
              
              1,507,011
              
              
              
              1,886,955Intangible
      assets, net
              
              
              858,327
              
              
              
              1,218,140Goodwill
              
              
              8,164,342
              
              
              
              8,164,342Other
      Assets
              
              
              40,504
              
              
              
              42,212Total
      assets
              
              $
              13,103,916
              
              
              $
              14,655,589LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
              
              $
              1,986,111
              
              
              $
              2,022,593Accrued
      liabilities
              
              
              708,609
              
              
              
              705,169Deferred
      income
              
              
              379,764
              
              
              
              404,190Current
      maturities of long-term debt (net of unamortizeddiscount
      of $1,982,447 and $1,047,015)
              
              
              2,390,635
              
              
              
              3,589,814Current
      maturities of long-term debt (related party)
              
              
              1,500,000
              
              
              
              1,590,985Total
      current liabilities
              
              
              6,965,119
              
              
              
              8,312,751Long
      term debt (related party)
              
              
              142,532
              
              
              
              142,532Long
      term debt - net of current maturities (net of unamortizeddiscount
      of $400,218 and $183,514)
              
              
              1,960,736
              
              
              
              2,267,782Total
      liabilities
              
              
              9,068,387
              
              
              
              10,723,065Stockholders'
      equityConvertible
      preferred stock, $0.001 par value; 25,000,000
              
              
              1,500
              
              
              
              1,500shares
      authorized; 1,500,000 and 1,500,000issued
      and outstanding, respectivelyCommon
      stock, $0.001 par value; 7,500,000 and 600,000
              
              
              2,483
              
              
              
              2,427shares
      authorized; 2,483,210 and 2,427,060 sharesoutstanding,
      respectivelyAdditional
      paid-in capital
              
              
              10,363,597
              
              
              
              7,966,774Non-controlling
      interest
              
              
              2,748,744
              
              
              
              -Accumulated
      deficit
              
              
              (9,080,795
              )
              
              
              (4,038,177
              )Total
      stockholders' equity
              
              
              4,035,529
              
              
              
              3,932,524Total
      liabilities and stockholders' equity
              
              $
              13,103,916
              
              
              $
              14,655,589




See notes
to consolidated financial statements


3
 Table of Contents
  Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the three months ended October 31, 2009 and 2008 (unaudited)


2009
            
            
            2008Revenues
            
            $
            4,129,896
            
            
            $
            6,781,040Cost
      of revenues
            
            
            (2,014,542
            )
            
            
            (4,956,556
            )Selling,
      general and administrative
            
            
            (1,695,060
            )
            
            
            (1,313,350
            )Depreciation
      & amortization expense
            
            
            (354,754
            )
            
            
            (301,988
            )Operating
      income
            
            
            65,540
            
            
            
            209,146Other
      income (expense):Interest
      expense
            
            
            (870,355
            )
            
            
            (516,360
            )Net
      loss
            
            $
            (804,815
            )
            
            $
            (307,214
            )Basic
      and diluted loss per share:Loss
      per share
            
            $
            (0.32
            )
            
            $
            (0.13
            )Weighted
      average common shares
            
            
            2,479,026
            
            
            
            2,426,643




See notes
to consolidated financial statements




4
 Table of Contents





Inova
Technology, Inc. and Subsidiaries


Consolidated
Statements of Operations


For
the six months ended October 31, 2009 and 2008 (unaudited)





2009
            
            
            2008Revenues
            
            
            $
            9,064,570
            
            
            $
            12,673,355Cost
      of revenues
            
            
            (5,137,300
            )
            
            
            (8,996,785
            )Selling,
      general and administrative
            
            
            (3,175,800
            )
            
            
            (2,454,605
            )Depreciation
      & amortization expense
            
            
            (736,676
            )
            
            
            (448,080
            )Operating
      income
            
            
            14,794
            
            
            
            773,885Other
      income (expense):Loss
      on derivative
            
            
            (2,344,340
            )
            
            
            -Interest
      expense
            
            
            (1,609,874
            )
            
            
            (779,283
            )Net
      loss
            
            
            $
            (3,939,420
            )
            
            $
            (5,398
            )Basic
      and diluted loss per share:Loss
      per share
            
            $
            (1.60
            )
            
            $
            (0.00
            )Weighted
      average common shares
            
            
            2,457,874
            
            
            
            2,426,643




See notes
to consolidated financial statements





5
 Table of Contents





Inova
Technology, Inc. and Subsidiaries


Consolidated
statements of cash flows (unaudited)


For
the 6 months ended October 31, 2009 and 2008




2009
            
            
            2008CASH
      FLOWS OPERATING ACTIVITIESNet loss
            
            $
            (3,939,420
            )
            
            $
            (5,398
            )Adjustments
      to reconcile net loss to net cash used provided byoperating
      activities:Depreciation
      expense
            
            
            376,863
            
            
            
            185,123Loss
      on sale of assets
            
            
            7,459
            
            
            
            -Amortization
      expense - loan discounts, deferred financing costs
            
            
            989,285
            
            
            
            453,363Amortization
      expense - intangible
            
            
            359,813
            
            
            
            262,957Stock
      issued for services
            
            
            115,649
            
            
            
            -Derivative
      loss
            
            
            2,344,340
            
            
            
            -Management
      fees
            
            
            -
            
            
            
            30,000Additional
      Interest expense
            
            
            -
            
            
            
            126,340Changes
      in operating assets and liabilities:Increase
      (decrease) in accounts receivable
            
            
            220,999
            
            
            
            (1,377,427
            )Increase
      (decrease) in inventory
            
            
            (32,673
            )
            
            
            (115,062
            )Increase
      (decrease) in cost in excess of billing
            
            
            (110,999
            )
            
            
            128,311Increase
      (decrease) in prepaid assets
            
            
            1,455
            
            
            
            (643
            )Increase
      (decrease) in A/P and accrued expenses
            
            
            32,299
            
            
            
            2,099,809Increase
      (decrease) in deferred income
            
            
            (24,426
            )
            
            
            115,380Net
      cash provided by operating activities of operations
            
            
            340,644
            
            
            
            1,902,753CASH
      FLOW INVESTING ACTIVITIESCash
      acquired from acquisition - Trakkers
            
            
            -
            
            
            
            66,614Purchase
      of Trakkers/Tesselon
            
            
            -
            
            
            
            (2,717,900
            )Net
      cash used in investing activities
            
            
            -
            
            
            
            (2,651,286
            )CASH
      FLOW FINANCING ACTIVITIESProceeds
      from notes payable, net of original issue discounts
            
            
            1,259,216
            
            
            
            3,412,023Repayments
      made on notes payable
            
            
            (2,237,632
            )
            
            
            (2,014,832
            )Proceeds
      from notes payable - related parties
            
            
            10,736
            
            
            
            56,031Repayments
      made on notes payable - related parties
            
            
            (101,721
            )
            
            
            (92,532
            )Net
      cash provided by financing activities
            
            
            (1,069,401
            )
            
            
            1,360,690NET
      CHANGE IN CASH
            
            
            (728,757
            )
            
            
            612,157CASH
      AT BEGINNING OF YEAR
            
            
            1,087,894
            
            
            
            12,167CASH
      AT END OF PERIOD
            
            $
            359,137
            
            
            $
            624,324SUPPLEMENTAL
      INFORMATION:Interest
      paid
            
            $
            528,475
            
            
            $
            174,546Income
      taxes paid
            
            
            -
            
            
            
            -NON-CASH
      INVESTINGAND FINANCING ACTIVITIES:Common
      stock issued for partial payment of notes payable
            
            $
            -
            
            
            $
            1,087,247Seller
      financed purchase of Trakkers
            
            
            -
            
            
            
            2,028,089Preferred
      stock issued to acquire Trakkers/Tesselon
            
            
            -
            
            
            
            120,573Beneficial
      conversion feature discount on notes payable
            
            
            -
            
            
            
            280,942Discount
      to notes payable on relative fair value of warrants
            
            
            1,077,054
            
            
            
            166,183Cumulative
      effect of change in accounting principle - reclassification of derivaitive
      liability3,952,290
            
            
            
            -Reclass
      to non-controlling interest
            
            
            2,748,744
            
            
            
            -


See 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 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 July 31, 2009, we have reclassified
$2,748,744 from additional paid-in capital to non-controlling interest in our
consolidated balance sheet as of October 31, 2009.  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.





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 is $142,532.





During
the three months ended October 31, 2009 Inova had paid off the loan payable from
Advisors, LLC with an amount of $142,532.





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 2009.


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 6 months ending October 31,
Desert borrowed $726,217and incurred
$1,414,670 in cash payment against this line resulted a notes payable of
$727,499.


7
 Table of Contents





Debentures -
Boone:





In the
first quarter of fiscal year 2010 we issued additional notes payable of $120,750
and $168,000 due in December 2009.  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. They are
secured by all assets including the shares Inova holds of each of Inova’s
subsidiaries.





These
loans have the following financial requirements:





1)
Maintain cash plus availability under IBM $2.5 million line of credit of
$250,000 or greater;





2) EBITDA
of $1.8 million for 12 month period ending December 31, 2009





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 $300,000 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
October 31, 2009, Inova was not in compliance with the customer, accounts
receivable and accounts payable concentration covenants,  however
Inova received a waiver from Boone as of October 31, 2009.





The
following is a summary of all notes payable with unamortized discounts as of
October 31, 2009:





Principal
            
            
            Unamortized
            
            
            CarryingAmount
            
            
            Discount
            
            
            AmountBoone
            
            $
            2,747,057
            
            
            
            1,961,008
            
            
            $
            786,049Ascendiant
            
            
            500,000
            
            
            
            396,800
            
            
            
            103,200IBM
      – Trakkers Lease Facility
            
            
            420,647
            
            
            
            24,857
            
            
            
            395,790Other
      debt
            
            
            4,708,864
            
            
            
            -
            
            
            
            4,708,864Total
            
            $
            8,376,568
            
            
            $
            2,382,665
            
            
            $
            5,993,903




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.





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.





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, during the quarter
ended October 31, 2009, put options that previously could not be exercised until
2010 for $1,000,000  of possible warrant exercises were accelerated to
October 30, 2009.  The put options are not in effect until Boone
exercises their warrants. As of October 31, 2009, the warrants had not been
exercised.





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, then Inova must pay
two percent (2%) of the purchase price paid for the unregistered
securities.





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 October
31, 2009 and Inova has received a waiver from Boone that granted an extension
from today until year-end to be filed with the SEC.





All
discounts will be amortized over the life of the notes using the effective
interest method.





8
 Table of Contents







Other
significant debt transactions during the 6 months ended October 31,
2009:





During
the six months ended October 31, 2009, Inova made the following cash repayments
on its outstanding notes payable:





Notes
      payable to Boone/Ascendiant/Agile
            
            $
            640,522Notes
      payable to IBM
            
            
            1,476,790Notes
      payable to Other
            
            
            161,406Notes
      payable to Desert/Trakkers/Right Tag previous owners
            
            
            60,635Total
      cash paid
            
            $
            2,339,353




During
the six months ended October 31, 2009, Inova received the following debt
proceeds:





Notes
      payable to Boone
            
            $
            532,999Notes
      payable to IBM
            
            
            726,217Total
      cash received
            
            $
            1,259,216




During
the six months ended October 31, 2009, Inova recognized $961,616 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.





The
Ascendiant note has the same covenants in place as the Boone notes described
above.  As of October 31, 2009, Inova was not in compliance with some
covenants.  Because of this, the note is in default as of October 31,
2009.  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.





In
October 2009, Inova modified the terms of its $1,528,089 note with Trakkers 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
granted a 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, the debt modification was not
substantial and therefore the new debt terms will be accounted for
prospectively..





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.





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.







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NOTE
5 –SEGMENT INFORMATION





Inova has
three reportable segments, one providing IT solutions and services, one
providing network solutions and one which manufactures standards compliant and
durable RFID (Radio Frequency Identification) equipment.  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.





6 month
Segment info:




Corp
            
            
            Edgetech
            
            
            Scanners/RFID
            
            
            Desert
            
            
            TotalNet
      sales
            
            
            -
            
            
            
            180,983
            
            
            
            1,023,890
            
            
            
            7,859,697
            
            
            
            9,064,570Net
      loss/(income)
            
            
            4,262,994
            
            
            
            (58,638
            )
            
            
            681,881
            
            
            
            (946,817
            )
            
            
            3,939,420Assets
      (gross)
            
            
            5,063,626
            
            
            
            102,435
            
            
            
            5,543,079
            
            
            
            2,394,776
            
            
            
            13,103,916





NOTE
6 - WARRANTS





Summary
information regarding warrants is as follows:





During
the six months ended October 31, 2009, Inova granted 129,171 warrants, 6 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 $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.  The fair value of these warrants at the inception of the
notes was $1,065,786.





On August
28, 2009, Inova granted 45,238 warrants and 5 Desert with notes payable
described in Note 3. 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. The relative fair
value of the warrants at the inception of the notes was $60,358.





The
warrants above are subject to a put option agreement whereby anytime between
June 10, 2010 and June 10, 2012, the lender can require Inova to repurchase the
above warrant shares for $187,500. 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.  In addition,
during the quarter ended October 31, 2009, put options that previously could not
be exercised until 2010 for $1,000,000  of possible warrant exercises
were accelerated to October 30, 2009.  The put options are not in
effect until Boone exercises their warrants. As of October 31, 2009, the
warrants had not been exercised.





Warrants
      to purchase Inova common stock:Outstanding
      at April 30, 2009
            
            
            2,033,541Granted
            
            
            280,569Exercised
            
            
            -Expired
            
            
            -Outstanding
      at October 31, 2009
            
            
            2,314,110Warrants
      to purchase Desert Communications, Inc. common stock: 743 total shares
      outstandingOutstanding
      at April 30, 2009
            
            
            92Granted
            
            
            11Exercised
            
            
            -Expired
            
            
            -Outstanding
      at October 31, 2009
            
            
            103Warrants
      to purchase Trakkers, LLC common stock:Outstanding
      at April 30, 2009
            
            
            19.44%Granted
            
            
            13.50%Exercised
            
            
            -Expired
            
            
            -Outstanding
      at October 31, 2009
            
            
            32.94%





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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.





NOTE
8 – SUBSEQUENT EVENTS





The
Desert sellers have agreed to defer their $1.5 million note due in December.
This is part of a debt restructure done with Boone so the sellers will be paid
7% interest until June, 2010. The interest paid from June, 2010 until the newer
Boone notes are paid off will be 10%. The principal will be paid from free cash
flow and is expected to be paid off in September, 2014.




Inova
evaluated subsequent events through December 21, 2009.





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





The
information contained in this Manageent’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 OCTOBER 31, 2009





Net
revenues decreased from $6,781,040 in the three-month period ending October 31,
2008 to $4,129,895 for the three-month period ending October 31, 2009. 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 $4,956,556 in the three-month period ending October 31,
2008 to $2,014,542 for the three-month period ending October 31, 2009. The
decrease came from the revenue decrease described above. Costs as a percent of
revenue declined from 73% to 48% due to more profitable jobs in some
subsidiaries.





Operating
expenses increased from $1,615,338 for the three months ending October 31, 2008
to $2,049,813 for the same period in 2009. This was mainly due to the expansion
of the Company with the acquisition of Trakkers in September 2008.





Net loss
increased from ($307,214) for the three months ending October 31, 2008 to
($804,815) for the same period in 2009. This is due to an increase in interest
and depreciation expense.





RESULTS OF OPERATIONS FOR THE SIX
MONTH PERIOD ENDED OCTOBER 31, 2009





Net
revenues decreased from $12,673,355 in the six-month period ending October 31,
2008 to $9,064,569 for the six-month period ending October 31, 2009. The
decrease in revenue is due to changes in the timing of various projects and the
worldwide economic slowdown.





Cost of
sales decreased from $8,996,785 in the six-month period ending October 31, 2008
to $5,137,300 for the six-month period ending October 31, 2009. The decrease
came from the revenue decrease described above.





Operating
expenses increased from $2,902,685 for the six months ending October 31, 2008 to
$3,912,475 for the same period in 2009. This was mainly due to the expansion of
the Company with the acquisition of Trakkers in September, 2008.





Net loss
increased from ($5,398) for the six months ending October 31, 2008 to
($3,939,420) for the same period in 2009. This is due to a one-time loss on
derivatives of $2,344,340, 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 six month period ended October 31, 2009 was
$340,643 as compared to cash provided by operations of $1,902,753 for the six
months ended October 31, 2008. 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 six month period
ended October 31, 2009 was $0, as compared to $2,651,286 for the six months
ended October 31, 2008. Cash used by financing activities for the period ended
October 31, 2009 was $1,069,400, as compared to $1,360,690 for the six months
ended October 31, 2008.





Our
operating activities for the six months ended October 31, 2009, have generated
adequate cash to meet our operating needs. As of October 31, 2009, we had cash
and cash equivalents totaling $359,137, and accounts receivable of
$1,860,217.
















12
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EBITDA





EBITDA
for the 3 month period is $427,921. EBITDA is Earnings before interest, tax,
depreciation and amortization:




EBITDA
              
              31-Oct-09Net
      income
              
              
              (804,815
              )Interest
              
              
              870,355Tax
              
              
              7,626Depreciation/Amortization
              
              
              354,755EBITDA
              
              
              427,921


Management
believes that existing cash, cash equivalents, together with any cash generated
from operations will be sufficient to meet normal operating requirements
including capital expenditures for the next twelve months.





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.





13
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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. OtherInformation





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








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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:
      December 21, 2009
            By:
            /s/ Adam
      RadlyAdam
      RadlyChief
      Executive OfficerDated:
      December 21, 2009
            By:
            /s/ Bob BatesBob
      BatesChief
      Financial Officer











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