UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
  FORM
10-Q/A
  
 (Mark
One)
 
 x
                  QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the quarterly period ended October
      31, 2008 ̈
                  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 incorporationor
      organization)
                  
                  (I.R.S.
      Employer Identification
No.)
 
 233
Wilshire Blvd, Suite 400,
 Santa
Monica, CA, 90401
 (Address
of principal executive offices)
 
 89146
                
                (310)
      857-6666(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 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 filet  ̈
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 15, 2008: 2,426,643
   
  Inova
Technology, Inc. and Subsidiaries
 Consolidated
Balance Sheets
 (Unaudited)
  October
      31, 2008
                        
                        
                        April
      30, 2008Restated
                        
                        
                        RestatedASSETSCurrent
      assetsCash
                        
                        $
                        624,324
                        
                        
                        $
                        12,167Accounts
      receivable
                        
                        
                        4,380,597
                        
                        
                        
                        3,003,170Inventory
                        
                        
                        345,084
                        
                        
                        
                        101,679Prepaid
      and other current assets
                        
                        
                        164,790
                        
                        
                        
                        433,300Total
      current assets
                        
                        
                        5,514,795
                        
                        
                        
                        3,550,316Fixed
      assets
                        
                        
                        1,779,952
                        
                        
                        
                        183,926Intangible
      assets
                        
                        
                        1,754,908
                        
                        
                        
                        845,332Goodwill
                        
                        
                        9,066,249
                        
                        
                        
                        5,904,782Total
      assets
                        
                        $
                        18,115,904
                        
                        
                        $
                        10,484,356LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable
                        
                        $
                        3,707,991
                        
                        
                        $
                        1,746,889Accrued
      liabilities
                        
                        
                        271,460
                        
                        
                        
                        270,061Current
      maturities of long-term debt
                        
                        
                        1,472,000
                        
                        
                        
                        403,792Current
      maturities of long-term debt (related party)
                        
                        
                        1,258,214
                        
                        
                        
                        1,200,855Deferred
      income
                        
                        
                        519,172
                        
                        
                        
                        2,648,678Total
      current liabilities
                        
                        
                        7,228,837
                        
                        
                        
                        6,270,275Long
      term debt (related party)
                        
                        
                        3,251,609
                        
                        
                        
                        -Long
      term debt - net of current maturities
                        
                        
                        2,411,982
                        
                        
                        
                        2,812,133Total
      liabilities
                        
                        
                        12,892,428
                        
                        
                        
                        9,082,408Stockholders'
      equityConvertible
      preferred stock, $0.001 par value; 25,000,000
                        
                        
                        1,500
                        
                        
                        
                        4,951shares
      authorized; 1,500,000 and 4,951,000 sharesissued
      and outstanding, respectivelyCommon
      stock, $0.001 par value; 7,500,000 and 600,000
                        
                        
                        2,427
                        
                        
                        
                        1,500shares
      authorized; 2,426,643 and 600,000 sharesoutstanding,
      respectivelyAdditional
      paid-in capital
                        
                        
                        7,292,608
                        
                        
                        
                        3,463,158Accumulated
      equity
                        
                        
                        (2,073,059
                        )
                        
                        
                        (2,067,661
                        )Total
      stockholders' equity (deficit)
                        
                        
                        5,223,476
                        
                        
                        
                        1,401,948Total
      liabilities and stockholders' equity (deficit)
                        
                        $
                        18,115,904
                        
                        
                        $
                        10,484,356
   2
 Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the three months ended October 31, 2008 and 2007 (Unaudited)
   20072008
                      
                      
                      RestatedRevenues
                      
                      $
                      6,781,040
                      
                      
                      $
                      90,954Cost
      of revenues
                      
                      
                      (4,956,556
                      )
                      
                      
                      (65,255
                      )Operating
      expenses
                      
                      
                      (1,615,338
                      )
                      
                      
                      (142,620
                      )Operating
      income
                      
                      
                      209,146
                      
                      
                      
                      (116,921
                      )Other
      income (expense):Interest
      expense
                      
                      
                      (516,360
                      )
                      
                      
                      (127,163
                      )Net
      income (loss)
                      
                      $
                      (307,214
                      )
                      
                      $
                      (244,084
                      )Basic
      and diluted income (loss) per share:Weighted
      average common shares outstanding
                      
                      
                      2,426,643
                      
                      
                      
                      1,814,660Earnings
      (Loss) per share
                      
                      
                      (0.13
                      )
                      
                      
                      (0.13
                      )
   3
  Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the six months ended October 31, 2008 and 2007 (Unaudited)
  Restated2008
                      
                      
                      2007Revenues
                      
                      
                      $
                      12,673,355
                      
                      
                      $
                      476,066Cost
      of revenues
                      
                      
                      
                      (8,996,785
                      )
                      
                      
                      (210,518
                      )Operating
      expenses
                      
                      
                      (2,902,685
                      )
                      
                      
                      (295,731
                      )Operating
      income
                      
                      
                      773,885
                      
                      
                      
                      (30,183
                      )Other
      income (expense):Interest
      expense
                      
                      
                      (779,283
                      )
                      
                      
                      (175,998
                      )Net
      income (loss)
                      
                      $
                      (5,398
                      )
                      
                      $
                      (206,181
                      )Basic
      and diluted income (loss) per share:Weighted
      average common shares outstanding
                      
                      
                      2,426,643
                      
                      
                      
                      1,814,660Earnings
      (Loss) per share
                      
                      
                      (0.00
                      )
                      
                      
                      (0.11
                      )
 
 4
  Inova
Technology, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 For
the six months ended October 31, 2008 and 2007 (Unaudited)
  20072008
                      
                      
                      RestatedCASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                      
                      $
                      (5,398
                      )
                      
                      $
                      (206,181
                      )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Depreciation
      and amortization expense
                      
                      
                      185,123
                      
                      
                      
                      9,129Amortization
      expense - loan discount
                      
                      
                      376,294
                      
                      
                      
                      -Additional
      shares issued for conversion of debt
                      
                      
                      -
                      
                      
                      
                      80,150Amortization
      of deferred financing costs
                      
                      
                      77,069
                      
                      
                      
                      -Amortization
      expense - intangible
                      
                      
                      262,957
                      
                      
                      
                      60,108Management
      fee
                      
                      
                      30,000
                      
                      
                      
                      -Additional
      interest expense
                      
                      
                      126,340
                      
                      
                      
                      -Changes
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable
                      
                      
                      (1,377,427
                      )
                      
                      
                      127,739Increase
      (decrease) in inventory
                      
                      
                      (115,062
                      )
                      
                      
                      272Cost
      in excess of billing
                      
                      
                      128,311
                      
                      
                      
                      -Prepaid
      expenses and other current assets
                      
                      
                      (643
                      )
                      
                      
                      335,899Increase
      (decrease) in deferred income
                      
                      
                      115,380
                      
                      
                      
                      -Increase
      (decrease) in accounts payable
                      
                      
                      1,960,754
                      
                      
                      
                      40,736Increase
      (decrease) in accrued expense
                      
                      
                      139,055
                      
                      
                      
                      58,305CASH
      PROVIDED BY OPERATING ACTIVITIES
                      
                      
                      1,902,753
                      
                      
                      
                      506,157CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      paid for fixed assets
                      
                      
                      -
                      
                      
                      
                      (2,215
                      )Investment
      in Desert
                      
                      
                      -
                      
                      
                      
                      (100,000
                      )Purchase
      of Right Tag
                      
                      
                      -
                      
                      
                      
                      (325,000
                      )Cash
      acquired in acquisiton of Trakkers/Tesselon
                      
                      
                      66,614
                      
                      
                      
                      -Cash
      paid for acquisition of Trakkers/Tesselon
                      
                      
                      (2,717,900
                      )
                      
                      
                      -CASH
      USED IN INVESTING ACTIVITIES
                      
                      
                      (2,651,286
                      )
                      
                      
                      (427,215
                      )CASH
      FLOWS FROM FINANCING ACTIVITIESBorrowings
      on debt - related parties
                      
                      
                      56,031
                      
                      
                      
                      273,396Borrowings
      on debt
                      
                      
                      3,412,023
                      
                      
                      
                      -Principal
      payments on debt
                      
                      
                      (2,014,832
                      )
                      
                      
                      -Principal
      payments on debt - related parties
                      
                      
                      (92,532
                      )
                      
                      
                      (350,295
                      )CASH
      PROVIDED BY FINANCING ACTIVITIES
                      
                      
                      1,360,690
                      
                      
                      
                      (76,899
                      )NET
      INCREASE IN CASH
                      
                      
                      612,157
                      
                      
                      
                      2,043CASH
      AT BEGINNING OF YEAR
                      
                      
                      12,167
                      
                      
                      
                      22,847CASH
      AT YEAR END
                      
                      $
                      624,324
                      
                      
                      $
                      24,890
   5
   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-KSB. 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-KSB have been
omitted.
 
 Restatements:
 
 Inova’s
acquisition of Web’s Biggest:
 
 During
2008, Inova determined that the original accounting for the merger with Web’s
Biggest in 2005 was incorrect. Both companies were operating companies and the
intent of the combined entity was to continue on with both operations. Inova
should have accounted for the transaction as a reverse acquisition whereby Web’s
Biggest purchased Inova and fair value and purchase accounting would apply. The
purchase price was $2,464,908 (70,425,950 shares issued at their market value of
$0.035 per share on June 1, 2005) and the fair value of the net liabilities
assumed was $508,037, resulting in goodwill and intangible assets totaling
$2,972,945. Inova recorded goodwill of $2,612,304 and intangible asset of
$360,641 through additional paid in capital. Inova also recorded $230,410
amortization of intangible asset through reduction of retained earnings. An
impairment analysis at April 30, 2008 has been undertaken and a reduction to
goodwill of $324,310 has been booked.
   6
  Unrecorded
management fees:
 
 During
2008, Inova identified that there were management fees of $15,000 per month for
prior periods which were not recognized but which are now being realized as an
increase in expense and in paid in capital. This totaled $270,000, which
increases net loss for fiscal 2007.
  Inova
Technology, Inc. and Subsidiaries
 Consolidated
Balance Sheets Impacts
 (Unaudited)
 
 The
following table sets forth the effects of the restatement adjustments on the
consolidated balance sheet as of October 31, 2008.
  October
      31, 2008As
      Previously
                    
                    
                    
                    
                    
                    October
      31, 2008
                    
                    
                    April
      30, 2008Reported
                    
                    
                    Adjustments
                    
                    
                    Restated
                    
                    
                    RestatedASSETSCurrent
      assetsCash
                    
                    $
                    624,324
                    
                    
                    $
                    -
                    
                    
                    $
                    624,324
                    
                    
                    $
                    12,167Accounts
      receivable
                    
                    
                    4,380,597
                    
                    
                    
                    -
                    
                    
                    
                    4,380,597
                    
                    
                    
                    3,003,170Inventory
                    
                    
                    345,084
                    
                    
                    
                    -
                    
                    
                    
                    345,084
                    
                    
                    
                    101,679Prepaid
      and other current assets
                    
                    
                    164,790
                    
                    
                    
                    -
                    
                    
                    
                    164,790
                    
                    
                    
                    433,300Total
      current assets
                    
                    
                    5,514,795
                    
                    
                    
                    -
                    
                    
                    
                    5,514,795
                    
                    
                    
                    3,550,316Fixed
      assets
                    
                    
                    1,779,952
                    
                    
                    
                    -
                    
                    
                    
                    1,779,952
                    
                    
                    
                    183,926Intangible
      assets
                    
                    
                    1,754,908
                    
                    
                    
                    -
                    
                    
                    
                    1,754,908
                    
                    
                    
                    845,332Goodwill
                    
                    
                    9,066,249
                    
                    
                    
                    -
                    
                    
                    
                    9,066,249
                    
                    
                    
                    5,904,782Total
      assets
                    
                    $
                    18,115,904
                    
                    
                    $
                    -
                    
                    
                    $
                    18,115,904
                    
                    
                    $
                    10,484,356LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    3,707,991
                    
                    
                    $
                    -
                    
                    
                    $
                    3,707,991
                    
                    
                    $
                    1,746,889Accrued
      liabilities
                    
                    
                    271,460
                    
                    
                    
                    -
                    
                    
                    
                    271,460
                    
                    
                    
                    270,061Current
      maturities of long-term debt
                    
                    
                    1,472,000
                    
                    
                    
                    -
                    
                    
                    
                    1,472,000
                    
                    
                    
                    403,792Current
      maturities of long-term debt (related party)
                    
                    
                    1,258,214
                    
                    
                    
                    -
                    
                    
                    
                    1,258,214
                    
                    
                    
                    1,200,855Deferred
      income
                    
                    
                    519,172
                    
                    
                    
                    -
                    
                    
                    
                    519,172
                    
                    
                    
                    2,648,678Total
      current liabilities
                    
                    
                    7,228,837
                    
                    
                    
                    -
                    
                    
                    
                    7,228,837
                    
                    
                    
                    6,270,275Long
      term debt (related party)
                    
                    
                    3,251,609
                    
                    
                    
                    -
                    
                    
                    
                    3,251,609
                    
                    
                    
                    -Long
      term debt - net of current maturities
                    
                    
                    2,411,982
                    
                    
                    
                    -
                    
                    
                    
                    2,411,982
                    
                    
                    
                    2,812,133Total
      liabilities
                    
                    
                    12,892,428
                    
                    
                    
                    -
                    
                    
                    
                    12,892,428
                    
                    
                    
                    9,082,408Stockholders'
      equityConvertible
      preferred stock, $0.001 par value; 25,000,000
                    
                    
                    1,500
                    
                    
                    
                    -
                    
                    
                    
                    1,500
                    
                    
                    
                    4,951shares
      authorized; 1,500,000 and 4,951,000 sharesissued
      and outstanding, respectivelyCommon
      stock, $0.001 par value; 7,500,000 and 600,000
                    
                    
                    2,427
                    
                    
                    
                    -
                    
                    
                    
                    2,427
                    
                    
                    
                    1,500shares
      authorized; 2,426,643 and 600,000 sharesoutstanding,
      respectivelyAdditional
      paid-in capital
                    
                    
                    7,202,608
                    
                    
                    
                    90,000
                    
                    
                    
                    7,292,608
                    
                    
                    
                    3,463,158Accumulated
      equity
                    
                    
                    (1,983,059
                    )
                    
                    
                    (90,000
                    )
                    
                    
                    (2,073,059
                    )
                    
                    
                    (2,067,661
                    )Total
      stockholders' equity (deficit)
                    
                    
                    5,223,476
                    
                    
                    
                    -
                    
                    
                    
                    5,223,476
                    
                    
                    
                    1,401,948Total
      liabilities and stockholders' equity (deficit)
                    
                    $
                    18,115,904
                    
                    
                    $
                    -
                    
                    
                    $
                    18,115,904
                    
                    
                    $
                    10,484,356
 7
  NOTE
2 – PURCHASE OF TRAKKERS, TESSELON AND INNOPHONE
 
 Inova
Technology acquired Trakkers LLC and a related entity Tesselon LLC on September
1, 2008. Inova acquired Trakkers for $6.2 million including $2 million paid in
the form of a seller note and $1.5 million of preferred stock (convertible and
nonvoting). In order to fund the acquisition of Trakkers, Inova raised money
through debt financing from its existing shareholders (including two private
equity groups) and one major existing lender.
 
 Trakkers
manufactures unique multi featured RFID scanners. In September 2007, Trakkers
launched the “mi” scanner. This scanner reads RFID, 1 and 2d bar code as well as
mag stripes. The Mi is also GPRS enabled which allows the scanner to transmit
data to any location by using wireless mobile phone networks. This combination
of features and functionality makes the Mi the only device of its kind in the
world. Trakkers has filed a patent application and the Mi is currently patent
pending.
 
 Trakkers
will apply its RFID technology to several verticals. Trakkers currently utilizes
its technology to provide the most secure and advanced lead retrieval systems in
the trade show industry worldwide. Trakkers systems are compatible with 3
different badge formats - RFID, 2d barcode and RFID. There are many synergies
between Trakkers and Inova. The RFID component in the Mi scanner is provided by
Inova subsidiary RightTag. More about Trakkers can be found at
www.trakkers.com.
 
 The
acquisition of Trakkers will enable Inova to accelerate its business plan and
provides Inova with additional proprietary RFID products, critical RFID
expertise and many new customers that have already adopted the use of RFID
technology. The purchase price allocation for Trakkers/Tesselon is based on a
valuation of the assets and liabilities acquired.  Intangibles in the
amount of $1,021,713 for Trakkers and $143,391 for Tesselon were assigned to
customer list, employment agreements and IP. These are amortized over a 3 year
period.  The estimated fair values of the assets acquired and the
liabilities assumed at September 1, 2008 are as follows:
  Cash
                      
                      $
                      66,614Accounts
      receivable
                      
                      
                      —Inventory
                      
                      
                      58,000Prepaid
      expense
                      
                      
                      14,000Fixed
      assets
                      
                      
                      1,781,149Goodwill/Intangibles
                      
                      
                      4,326,571Accounts
      Payable and accrued liabilities
                      
                      
                      (345
                      )Total
                      
                      $
                      6,245,989
   8
  The
results of these acquisitions are included in the consolidated financial
statements from the date of acquisition. The following shows the unaudited pro
forma results of operations as though the purchases of Trakkers and Tesselon had
been completed on May 1, 2007:
  (Proforma)
                        Six Months
                        Ended
                        October 31,
                        2008
                      
                      
                      (Proforma)
                        Six Months
                        Ended
                        October 31,
                        2007Revenues
                      
                      $
                      13,489,700
                      
                      
                      $
                      11,473,262Income
      (Loss) from continuing operations
                      
                      
                      (81,118
                      )
                      
                      
                      1,113,719Basic
      and diluted net income per share
                      
                      
                      (0.03
                      )
                      
                      
                      0.74Weighted
      average common shares
                      
                      
                      2,426,643
                      
                      
                      
                      1,500,000
 
 NOTE
3 – RELATED PARTY TRANSACTIONS
 
 Loans
payable from related parties consists of advances from existing shareholders.
These notes are unsecured, bear interest at 7% to 8%, and are repayable in two
to three years. Amount due to Southbase is $117,716 and due to Advisors, LLC is
$93,141. During the three months ended October 31, 2008 14,414 shares of common
stock were issued to Advisors, LLC as full payment of the balance of $44,137 and
interest of $806 from a note payable.
 
 Seller
notes for $2,028,089 were established in connection with the Trakkers/Tesselon
purchase. They have interest rates of 7-10%, are secured and terms up to 36
months.
 
 During
the second quarter of 2009, 1,500,000 shares of preferred stock were issued in
conjunction with the purchase of Trakkers and Tesselon. This is Series B,
non-voting preferred, which has a dissolution value of $1 per
share.  Inova may redeem the preferred stock any time over the three
years from issuance and if redeemed Inova can choose from the following 3
redemption options: 1) $1,500,000 payment of cash 2) Issuance of 375,000 common
shares 3) Transfer of 10% of the Trakkers/Tesselon companies.
  NOTE
4 –NOTES PAYABLE
 
 Note
Payable - Ascendiant:
 
 In July
2008, a note payable of $500,000 was issued for 1.5 years by Ascendiant. It is
secured by all assets of Desert.
 
 This loan
has the following financial requirements:
 
 1)
Maintain availability under IBM $2.5 million line of credit of $250,000 or
greater;
 
 2) EBITDA
of $1.7 million for 12 month period ending December 31, 2008 and $300,000 for
each 3-month period beginning December 31, 2007;
 
 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, 2008, we were in compliance with these covenants.
 
 132,241 warrants
were issued to Ascendiant with this note. The warrants expire in July 2013. 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) 3%
discount rate, (2) warrant life of 5 years, (3) expected volatility of 365%, and
(4) zero expected dividends. The warrants relative fair value created a discount
of $166,183.
 
   9
  
 Inova
signed a put option agreement with Ascendiant whereby anytime between January 1,
2010 and July 1, 2013,Ascendiant can require
Inova torepurchase
from Ascendiant up to 122,446 shares of Common Stock for $250,000. The Put
is not in effect until Ascendiant exercises their warrants. As of October 31,
2008, the warrants had not been exercised.
 
 Inova
analyzed the notes and warrants for derivative accounting consideration under
SFAS 133 and EITF 00-19. Inova determined that derivative accounting is not
applicable. Inova then analyzed the conversion option under EITF 98-5 and EITF
0-27 and determined there was a beneficial conversion feature resulting in a
discount to the note of $280,942.
 
 Inova
entered into a registration agreement with Ascendiant requiring that a filing be
done for the number of Registrable Securities equal to the lesser of (i) the
total number of Registrable Securities and (ii) one-third of the number of
issued and outstanding shares of Common Stock that are held by non-affiliates.
Regristrable securities are (i) all Warrant Shares (ii) any additional shares of
Common Stock issuable in connection with any anti-dilution provisions in the
Warrants (iii) all Put Shares (iv) any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event.
Inova shall pay to Bonne an amount in cash, as partial liquidated damages and
not as a penalty, equal to 2.00% of the aggregate purchase price paid by
Ascendiant pursuant to the Purchase Agreement for any unregistered Registrable
Securities then held by Ascendiant. The parties agree that Inova shall not be
liable for liquidated damages under this Agreement with respect to any Warrants
or Warrant Shares. Inova analyzed the registration right arrangement under the
guidance of FSP EITF 00-19-b 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 Ascendiant
has not yet exercised the outstanding warrants and the registration right
arrangement would not be effective until the warrants are exercised and become
Common Shares.
 
 Notes
Payable - Boone:
 
 In
September/October 2008, notes payable of $2,183,000 were issued for 1 to 2.5
years by Boone. 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 availability under IBM $2.5 million line of credit of $250,000 or
greater;
 
 2) EBITDA
of $1.7 million for 12 month period ending December 31, 2008 and $300,000 for
each 3-month period beginning December 31, 2007;
 
 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.
 The
company is on track to meet these covenants.
 
 For
$1,680,000 of the loans 460,873 warrants were issued to Boone with this note.
The warrants expire in 2013. 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) 4.49% discount rate, (2) warrant life of
5 years, (3) expected volatility of 364%, and (4) zero expected dividends. The
warrants relative fair value created a discount of $632,307.
 
 Inova
signed a put option agreement with Boone whereby anytime between 2010 and
2013,Boone can
require Inova torepurchase from Boone up
to 460,873 shares of Common Stock for $800,000. The Put is not in effect until
Boone exercises their warrants. As of October 31, 2008, the warrants had not
been exercised.
  10
   Inova
analyzed the notes and warrants for derivative accounting consideration under
SFAS 133 and EITF 00-19. Inova determined that derivative accounting is not
applicable. Inova then analyzed the conversion option under EITF 98-5 and EITF
0-27 and determined there was a beneficial conversion feature resulting in a
discount to the note of $595,173.
 
 Inova
entered into a registration agreement with Boone requiring that a filing be done
for the number of Registrable Securities equal to the lesser of (i) the total
number of Registrable Securities and (ii) one-third of the number of issued and
outstanding shares of Common Stock that are held by non-affiliates. Regristrable
securities are (i) all Warrant Shares (ii) any additional shares of Common Stock
issuable in connection with any anti-dilution provisions in the Warrants (iii)
all Put Shares (iv) any securities issued or issuable upon any stock split,
dividend or other distribution, recapitalization or similar event. Inova shall
pay to Bonne an amount in cash, as partial liquidated damages and not as a
penalty, equal to 2.00% of the aggregate purchase price paid by Boone pursuant
to the Purchase Agreement for any unregistered Registrable Securities then held
by Boone. The parties agree that Inova shall not be liable for liquidated
damages under this Agreement with respect to any Warrants or Warrant Shares.
Inova analyzed the registration right arrangement under the guidance of FSP EITF
00-19-b 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.
 
 All
discounts will be amortized over the life of the notes using the effective
interest method.
 
 Other new
debt:
 
 1)
              A
      lease facility (secured by the assets of DCI) with IBM was established for
      $542,056. It has an interest rate of 9.88% and is payable over 48
      months.2)
              Seller
      notes for $2,028,089 were established in connection with the
      Trakkers/Tesselon purchase. They have interest rates of 7-10%, are secured
      by Trakkers’s assets and have terms up to 36
  months.
  Other
significant debt transactions during the six months ended October 31,
2008:
 
 During
the quarter ended October 31, 2008, Inova made the following cash repayments on
its outstanding notes payable:
  Notes
      payable to IBM
                      
                      $
                      482,531Notes
      payable to Boone/Ascendiant
                      
                      $
                      945,751Notes
      payable to Desert/Trakkers/Right Tag previous owners
                      
                      $
                      586,552Total
      cash paid
                      
                      $
                      2,014,834
   During
the three months ended October 31, 2008, Inova recognized $206,525 of
amortization expense on the loan discounts originated from its financing
arrangements with Boone and Agile.
  11
  NOTE
5 –COMMON STOCK
 
 During
the first two quarters of 2009 34,312 common shares were issued to a related
party as partial payment of a note payable and account payable with carrying
values totaling $90,557.
 
 During
fiscal 2007 and 2008, Inova issued more common shares to its related parties
than the number of shares previously authorized. These shares were authorized by
the board to be issued to the related parties of the Company for the conversion
of preferred stock and certain outstanding debts. In July 2008, number of
authorized shares was increased to 3,000,000,000 shares. 892,279 shares
previously agreed to be issued to the related parties were issued. These shares
were valued at $1,156,937. At the same time the outstanding preferred stock was
converted to common stock.
 
 NOTE
6 – PREFERRED STOCK
 
 During
the second quarter of 2009, 1,500,000 shares of preferred stock were issued in
conjunction with the purchase of Trakkers and Tesselon. This is Series B,
non-voting preferred, which has a dissolution value of $1 per
share.  The agreement was amended on December 18, 2008, effective for
the period ending October 31, 2008.  Inova may redeem the preferred
stock any time over the three years from issuance and if redeemed Inova can
choose from the following 3 redemption options: 1) $1,500,000 payment of cash 2)
Issuance of 375,000 common shares 3) Transfer of 10% of the Trakkers/Tesselon
companies The original preferred stock agreement required the company to redeem
and gave Inova the option of issuing 3,750 shares under option
2.  Inova determined the requirement to redeem and the share amount
under option 2 were errors.  The amendment did not modify options 1 or
3.
 
 NOTE
7 –SEGMENT INFORMATION
 
 Inova has
three reportable segments, one providing IT solutions and services, one
providing hardware and cabling 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.
 
 Edgetech
                    
                    
                    Scanners/RFID
                    
                    
                    DCI
                    
                    
                    TotalSales
                    
                    $
                    102,253
                    
                    
                    $
                    610,474
                    
                    
                    $
                    6,174,477
                    
                    
                    $
                    6,887,204Operating
      income (expense)
                    
                    
                    (346,419
                    )
                    
                    
                    61,457
                    
                    
                    
                    (22,252
                    )
                    
                    
                    (307,214
                    )Per
      share
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (.13
                    )
  NOTE
8 – SUBSEQUENT EVENTS
 
 The
company has received confirmation from Nasdaq OMX confirming that the reverse
split at a ratio of 400:1 was effective November 12, 2008 and that the trading
symbol of the company was changed to INVA.
 
 All share
and related information presented in these financial statements and accompanying
footnotes has been retroactively adjusted to reflect the reduced number of
shares resulting from this action.
 
 The
Roy litigation
 In
February 2006, Mr. Charles Roy sued the Company in the Superior Court of the
State of California for the County of Los Angeles. The lawsuit alleged that the
Company breached a consulting agreement by not paying him the amounts contained
in the agreement and sought monetary damages.
 
 At
approximately the same time as Mr. Xavier Roy resigned as CEO, the Company
discovered that Xavier Roy had executed the agreement. The agreement required
the Company to pay Mr. Charles Roy $4,500 per month for 24 months. The agreement
also states that the Company must pay a minimum of $108,000 in the event that
Mr. Charles Roy is terminated.
 
 The
Company claimed that the agreement was procured by fraud and in breach of Xavier
Roy’s fiduciary duty to the Company, and that as a result, Mr. Roy did not have
authority to enter into the agreement.
 
 The case
was tried in April 2007, and the jury found that Inova breached the agreement
with Charles Roy.
 
 The
Company agreed to settle with the Roys by paying a total of $237,000. The
agreement requires the Company to make monthly payments of $10,000 toward this
amount. If the Company pays the Roys $170,000 during the first twelve months
after the date of the first payment, then the amount owed to the Roys will be
reduced by an additional $20,000, for a total of $217,000. At that time, the
Roys will file a partial satisfaction of judgment with the court in the amount
of $190,000. As long as Inova makes the monthly payments, the Roys agreed not to
take any action to execute their judgment on Inova’s assets.
 
   12
   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 OCTOBER 31, 2008
 
 Net
revenues increased from $90,954 in the three-month period ending October 31,
2007 to $6,781,040 for the three-month period ending October 31, 2008. This is
due to the revenues from the newly-acquired Desert Communications and
Trakkers.
 
 Operating
expenses increased from $142,620 for the three months ending October 31, 2007 to
$1,615,338 for the same period in 2008. This was mainly due to the expenses from
the newly-acquired Desert Communications and Trakkers.
 
 Net loss
from continuing operations increased from $244,084 for the three months ending
October 31, 2007 to $307,214 for the same period in 2008. This is due to the
interest expense from the newly-acquired Desert Communications and
Trakkers.
 
 There
is also a disproportionate amount of interest expense in the current period due
to the use of the effective interest method for amortizing loan discounts. We
expect interest in the next 2 quarters to be significantly less than this
quarter for the existing debt.
 
 RESULTS
OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 2008
 
 Net
revenues increased from $476,066 in the three-month period ending October 31,
2007 to $12,673,355 for the three-month period ending October 31, 2008. This is
due to the revenues from the newly-acquired Desert Communications and
Trakkers.
 
 Operating
expenses increased from $295,731 for the three months ending October 31, 2007 to
$2,902,685 for the same period in 2008. This was mainly due to the expenses from
the newly-acquired Desert Communications and Trakkers.
 
 Net
income from continuing operations decreased from ($206,181) for the three months
ending October 31, 2007 to $(5,398) for the same period in 2008. This is due to
the profit from the newly-acquired Desert Communications and
Trakkers.
  13
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Cash
provided by operations for the six month period ended October 31, 2008 was
$1,902,753, as compared to cash provided by operations of $506,157 for the six
months ended October 31, 2007. The change is primarily due to the acquisition of
Desert and Trakkers. Cash used in investing activities for the six month period
ended October 31, 2008 was $2,651,286, as compared to $427,215 for the six
months ended October 31, 2007. The change was due to acquisitions. Cash provided
by financing activities for the six month period ended October 31, 2008 was
$1,360,690, as compared to $76,899 used for the six months ended October 31,
2007. The change was due to significant loans obtained during this
year.
 
 Our
operating activities for the six months ended October 31, 2008, have generated
adequate cash to meet our operating needs. As of October 31, 2008, we had cash
and cash equivalents totaling $624,324, and accounts receivable of
$4,380,597.
 
 EBITDA
for the 3 month period is $341,468 and $1,090,873 for 6 months. EBITDA is
Earnings before interest, tax, depreciation and amortization:
 
 3 months ending 10/31/08
                      
                      
                      6 months ending 10/31/08Net
      income
                      
                      $
                      (307,214
                      )
                      
                      $
                      (5,398
                      )Interest
                      
                      $
                      516,360
                      
                      
                      $
                      779,283Tax
                      
                      $
                      15,000
                      
                      
                      $
                      15,000Amortization/Depreciation
                      
                      $
                      117,322
                      
                      
                      $
                      301,988EBITDA
                      
                      $
                      341,468
                      
                      
                      $
                      1,090,873
 
 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.
  14
 
 PART
II
 
 Item
1. Legal Proceedings.
 
 In
January 2006, Top Layer Networks, Inc., a provider of hardware to our Canadian
hardware sales business (“Top Layer”), sued Inova (then named Edgetech Services
Inc.) in United States District Court in Massachusetts. Top Layer alleges that
Inova purchased hardware over the course of several years and has failed to pay
for it. Top Layer’s complaint requests damages in the amount of approximately
$154,000.
 
 On
September 24, 2008, the Company paid Top Layer $10,000 to settle all claims
relating to the lawsuit and any other claims that Top Layer might have had
against Inova or any of its subsidiaries. This case is therefore now
concluded.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 During
the second quarter of 2009, 1,500,000 shares of preferred stock were issued in
conjunction with the purchase of Trakkers and Tesselon. This is Series B,
non-voting preferred, which has a dissolution value of $1 per
share.  The agreement was amended on December 18,
2008.  Inova may redeem the preferred stock any time over the three
years from issuance and if redeemed Inova can choose from the following 3
redemption options: 1) $1,500,000 payment of cash 2) Issuance of 375,000 common
shares 3) Transfer of 10% of the Trakkers/Tesselon companies The original
preferred stock agreement required the company to redeem and gave Inova the
option of issuing 3,750 shares under option 2.  Inova determined the
requirement to redeem and the share amount under option 2 were
errors.  The amendment did not modify options 1 or 3.
 
 These
shares were issued pursuant to the exemption from registration set forth in
Section 4(2) of the Securities Act.
 
 Also in
connection with the Trakkers and Tesselon acquisition, the Company issued a
warrant to BOL Opportunity Fund I, LLC entitling it to purchase 460,873 shares
of Inova common stock for an aggregate price of $100. This warrant carries
cashless exercise rights. This warrant was issued pursuant to the exemption from
registration set forth in Section 4(6) of the Securities
Act.
 Item
3. Defaults Upon Senior Securities
 
 Not
Applicable.
  Item
5. Other Information
 
 On
December 8, 2008, subsequent to the date of this quarterly report, the Company
entered into an agreement to settle the judgment rendered against the Company in
the Roy litigation discussed in our annual report. As explained in our annual
report, Charles Roy and LeChuck World Company sued Inova for allegedly breaching
a consulting agreement entered into with LeChuck World Company. The Company
found that shortly before the resignation of the Company’s former CEO, Xavier
Roy, Mr. Roy signed the agreement on behalf of the Company and obligated Inova
to pay LeChuck World Company, a company controlled by Charles Roy, Xavier Roy’s
son, the sum of $10,000 per month. The Company claimed that the agreement was
void due to Xavier Roy’s lack of authority to sign it.
 
 In April
2007, the case was tried in Los Angeles Superior Court and a judgment of
$127,000 was rendered against the Company. The court later awarded LeChuck World
Company attorney’s fees of $90,000 plus interest at the rate of 10% accruing
from the date of judgment.
 
 The
Company later sued Xavier Roy and Charles Roy in Los Angeles Superior Court for
conspiring to breach their fiduciary duties and commit fraud against Inova. On
June 15, 2008, the court dismissed Inova’s case
 
 The
Company agreed to settle with the Roys by paying a total of $237,000. The
agreement requires the Company to make monthly payments of $10,000 toward this
amount. If the Company pays the Roys $170,000 during the first twelve months
after the date of the first payment, then the amount owed to the Roys will be
reduced by an additional $20,000, for a total of $217,000. At that time, the
Roys will file a partial satisfaction of judgment with the court in the amount
of $190,000. As long as Inova makes the monthly payments, the Roys agreed not to
take attempt further collections.
 15
  Item
6. 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  the  Chief  Executive Officer required by Rule
       13a  -  14(b)  or Rule 15d - 14(b) and 18 U.S.C.
      1350.32.2
              Certification
       of  the  Chief  Financial Officer required by Rule
       13a  -  14(b)  or Rule 15d - 14(b) and 18 U.S.C.
      1350.
 
  
 
 SIGNATURES
 
 In
accordance with the  requirements of the Exchange Act, the
registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 EDGETECH
SERVICES INC.
 
 
 By:
  /s/ Adam
Radly
 Chairman
and CEO
 
 Date:
June 15, 2009
 
 
 By:
  /s/ Bob
Bates
 Bob Bates, CFO
 
 Date:
June 15, 2009
 
 
 
 16