UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D. C. 20549







FORM 10-K








x ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE


SECURITIES EXCHANGE ACT OF 1934





For Fiscal Year Ended


April 30, 2009




Commission File # 000-27397





INOVA TECHNOLOGY, INC.


(Exact name of registrant as specified in its charter)




NEVADA


(State or other jurisdiction of incorporation or organization)





98-0204280


(IRS Employer Identification Number)





2300 W. Sahara Ave. Suite 800


Las Vegas, Nevada 89102


(Address of principal executive offices) (Zip Code)





310-857-6666


(Registrant's telephone no., including area code)





SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE





SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.001 PAR VALUE





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o    No o




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o  No o





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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. Yes o   No  o





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).     Yes o   No o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o




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




Large accelerated filer o    Accelerated filer o     Non-accelerated filer  þ




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





Number of shares of the registrant's common stock outstanding as of August 10, 2009 was:
2,427,060.





DOCUMENTS INCORPORATED BY REFERENCE





None


Table of Contents





Inova Technology Inc.





Form 10-K




Table of Contents




PART I
PageItem 1.
Description of Business
3Item 1A
Risk Factors
4Item 2.
Description of Property
4Item 3.
Legal Proceedings
4Item 4.
Submission of Matters to a Vote of Security Holders
4PART IIItem 5.
Market for Common Equity and Related Stockholder Matters
5Item 6
Selected Financial Data
5Item 7.
Management’s Discussion and Analysis of Financial Condition and result of Operations
5Item 8.
Financial Statements
8Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
34Item 9A.
Controls and Procedures
34PART IIIItem 10.
Directors, Executive Officers, and Corporate Governance
36Item 11.
Executive Compensation
37Item 12.
Security Ownership of Certain Beneficial Owners and Management
37Item 13.
Certain Relationships and Related Transactions
38Item 14.
Principal Accountant Fees and Services
38PART IVItem 15.
Exhibits
39




Table of Contents


PART I





Item 1.Description of Business





Organization and History of the Company





Inova Technology Inc. (the “Company”) was incorporated in Nevada in 1997, as Newsgurus.com, Inc. The company changed its name to Secure Enterprise Solutions Inc. in 2002, then to Edgetech Services Inc. In 2007, the Company assumed its present name of Inova Technology, Inc.





In 2005, Edgetech entered into an agreement with the shareholders of Web’s Biggest, Inc., Mr. Xavier Roy of Los Angeles, California, and Advisors LLC, (collectively, “Web’s Biggest”) which resulted in Edgetech issuing 25,000,000 convertible preferred shares to the shareholders of Web’s Biggest in consideration
for 100% of the outstanding capital of Web’s Biggest and $250,000 be used for general working capital of Edgetech.





In 2006, Edgetech bought certain assets of Data Management, Inc., a Nevada corporation in exchange for 25 million convertible preferred shares. The convertible shares used to acquire it represented approximately 90% of the voting stock of Edgetech on a fully diluted basis. Concurrently, Edgetech sold its wholly-owned subsidiary, Web’s
Biggest Limited, to Advisors LLC in exchange for 25 million convertible preferred shares of Edgetech Services, Inc. held by Advisors LLC.  The 25 million convertible preferred shares given to buy Data Management were the same 25 million convertible preferred shares received from the sale of Web’s Biggest.





Prior to these transactions described above, the Company was controlled by Advisors LLC, an entity related to Mr. Paul Aunger, an officer and director of the registrant. When the transactions described above were completed, this resulted in a change of control of the Company and the controlling shareholder became Southbase International
Ltd., an entity related to Mr. Adam Radly, an officer and director of the Company. Prior to these transactions, the unaffiliated shareholders of the Company owned approximately 10% of the Registrant and they continued to own approximately 10% of the Company on a fully diluted basis.





On May 1, 2007, Inova also acquired RightTag Inc., a manufacturer of radio frequency identification (“RFID”) products.





On December 21, 2007, Inova acquired Texas-based Desert Communications (“Desert”) for $5.9 million ($3.3 million paid in cash and $2.6 million to be paid under notes payable).





On September 1, 2008, . Inova acquired Trakkers and Tesselon for $6.1 million including $500,000 cash, $2.3 million to be paid under notes payable, $2 million paid in the form of a seller note and $1.3 million of redeemable preferred stock (non-convertible and nonvoting).





Description of the Company’s Business





Inova is a technology holding company. Inova has four subsidiaries. These subsidiaries and their respective businesses are listed below:





Subsidiary/Division
BusinessEdgetech Services Inc.
IT services and consultingTrakkers LLC
RFID rentalsRightTag, Inc.
Manufacturer of radiofrequency identification (RFID)ProductsDesert Communications, Inc.
IT consulting and sales andcomputer network solutions





3
 Table of Contents





Item 1A. Risk Factors





Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for historical information, the forward-looking matters discussed in this news release are subject to certain risks and uncertainties which could cause the Company's actual results and financial condition to differ materially
from those anticipated by the forward-looking statements including, but not limited to, the Company's liquidity and the ability to obtain financing, the timing of regulatory approvals, uncertainties related to corporate partners or third-parties, product liability, the dependence on third parties for manufacturing and marketing, patent risk, copyright risk,
competition, and the early stage of products being marketed or under development, as well as other risks indicated from time to time in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of


subsequent events.




Item 2. Description of Property.





Inova does not own any real estate property.


Leases:
 
 There is an office lease for Desert, effective May 2008 until August 2011. Rent is payable at $6,300 per month including tax.
 
 There is an office lease for Trakkers, effective until April 2010. Rent is payable at $8,392 per month including tax.
 
 Rent expense was $148,529 and $22,177 for fiscal 2009 and 2008, respectively. No real estate is owned by the Inova companies.


Item 3. Legal Proceedings





The Top Layer Networks litigation





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.





The Roy litigation





In February 2006, 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.





The Company agreed on December 8, 2008 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. The company is current with the required payments.




The Kim’s litigation




Two former officers and directors of Inova, Tae Ho Kim and Sang Ho Kim, filed suit against Inova and its Canadian subsidiary in March 2006 in the Ontario Superior Court of Justice. The Kims claimed in their lawsuit that Inova breached an alleged employment agreement with them, as well as the separation agreement that Inova and the
Kims entered into upon the termination of the Kims employment with Inova. In May 2007, the Kims were awarded $215,691, which has been accrued by Inova in accounts payable as of April 30, 2009 and 2008. The company is planning to appeal.




Item 4. Submission of Matters to a Vote of Security Holders and Small Business Issuer Purchases of Securities.





No matters were submitted to a vote of security holders through solicitation or otherwise during the fourth quarter of the fiscal year covered by this report.


4
 Table of Contents




PART II.





Item 5. Market for Common Equity and Related Stockholder Matters.





The Company’s common stock is traded on the pink sheets under the symbol “INVA.PK” Our CUSIP No. is 45776L209.





The following table lists the high and low closing sales prices for each quarter on the OTCBB for our common shares for the past two fiscal years and are adjusted for our 400 to 1 reverse stock split which was effective on November 12, 2008.  There
are approximately 43 shareholders of record, 1 of which is a holder for several hundred individualsThe below quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.





High

Low4/30/2009

2.65

1.071/31/2009

7.00

1.0110/31/2008

3.60

1.207/31/2008

3.60

1.044/30/2008

3.60

3.201/31/2008

5.60

3.8010/31/2007

8.40

2.407/31/2007

10.00

4.40


There are no restrictions that limit our ability to pay dividends on our common stock.  We have not declared any dividends since incorporation and we do not anticipate doing so in the foreseeable future.  Our present policy is to retain future earnings for use in our operations and expansion of our business.





Item 6. Selected Financial Data





N/A





Item 7. Management’s Discussion and Analysis of Financial Condition and Results 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 Company’s Consolidated Financial Statements.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





Intangible assets, goodwill and impairment of long-lived assets





Intangibles are recorded at cost and amortized on the straight-line method over their estimated useful lives. Goodwill is reviewed annually. An impairment analysis at April 30, 2009 was undertaken and impairment to goodwill of $970,662 was recorded.





5
 Table of Contents





Intangible valuation and Goodwill impairment are determined using similar processes. For intangibles, the first step is to compare the fair value of the intangible to its carrying amount.  For Goodwill, the first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. Inova determines
the fair value of both intangibles and reporting units by using a discounted cash flow (“DCF”) analysis approach. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the DCF analyses are based on Inova’s budget and long-term business plan, and various growth rates have
been assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.





Embedded conversion features





Inova evaluates embedded conversion features within convertible debt and convertible preferred stock under paragraph 12 of SFAS 133 and EITF 00-19 to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded
in earnings. If the conversion feature does not require derivative treatment under SFAS 133 and EITF 00-19, the instrument is evaluated under EITF 98-5 and EITF 00-27 for consideration of any beneficial conversion feature.





Revenue and cost recognition





Inova has four sources of revenues: IT network design and implementation from Desert, computer equipment sales from Desert, IT consulting services from Edgetech, sales of RFID items from RightTag rental income from Trakkers/Tesselon. Revenue that is received before it is earned is classified as deferred revenue.





IT network design and implementation:





Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties
in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.





Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period.





The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.





Computer equipment sales, IT consulting services & sales of RFID items:





Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.





Rental income for RFID items:





The Company follows Staff Accounting Bulletin No. 104 recognizing RFID rental income. Revenue generally is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer
is fixed or determinable; and (4) collectability is reasonably assured. A rental contract term can be daily or weekly. Consistent with SAB 104, the Company’s policy recognizes revenue from equipment rentals in the period earned on a straight-line basis, over the contract term, regardless of the timing of the billing to customers. Revenue from the sale of new and used equipment and parts is recognized at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract
have been fulfilled, risk of ownership has been transferred and collectability is reasonably assured. Services revenue is recognized at the time the services are rendered.





Stock based compensation





Effective January 1, 2006, Inova began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment, as interpreted by
SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Inova had accounted for stock options according to the provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. Inova adopted the modified prospective transition method provided for under SFAS No. 123R,
and, consequently, have not retroactively adjusted results from prior periods. Inova did not issue any employee options during the years ended April 30, 2009 and 2008.




6
 Table of Contents





RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2009 COMPARED TO YEAR ENDED APRIL 30, 2008





Total revenues (net sales) increased from $5,442,402 for the twelve month period ending April 2009 to $22,591,048 for the twelve-month period ending April 30, 2009.  This is primarily the result of revenues produced by Desert Communications and Trakkers/Tesselon. Desert Communications was acquired on December 21, 2007 therefore
the revenue for Inova for the 12 months ending April 30, 2008 only includes revenue from Desert for the period from December 21, 2007 to April 30, 2008. Trakkers was acquired on August 31, 2008 so the Company had no revenue in the year ending April 30, 2008 and only eight months of revenue in the year ending April 30, 2009.




The Company’s selling, general and administrative expenses increased from $919,013 for the twelve months ending April 30, 2008 to $3,584,250 for the same period in 2009. This is primarily the result of the expenses from Desert Communications and Trakkers/Tesselon. Personnel and office expenses are some of the major categories
with significant increases in the year ending April 30, 2009.




Last fiscal year, the Company reported a net loss from continuing operations that increased from $976,062 to $1,970,516 for the fiscal year ended April 30, 2009. This has been caused by larger interest expense this year based on the significant borrowings associated with acquisitions. Also, the amortization of intangibles and the impairment
of goodwill and intangibles were made during fiscal 2009.




EBITDA for the year ending April 30, 2008 is $89,561 and $2,552,009 for the year ending April 30, 2009. EBITDA is Earnings before interest, tax, depreciation andamortization:




Year-end


Year-endEBITDA

30-Apr-08


30-Apr-09Net income


(976,062
)


(1,970,516
)Interest


113,389



2,084,676Tax


-



60,000Depreciation/Amortization


952,234



2,377,849EBITDA


89,561



2,552,009




LIQUIDITY AND CAPITAL RESOURCES





As of April 30, 2009, we had cash and cash equivalents totaling $1,087,894 and total current assets were $3,343,940, total current liabilities were $8,312,751 and total stockholders’ equity was $3,932,524. Working capital deficit increased from $(2,667,068) at April 30, 2008 to $(4,968,811) at April 30, 2009. However, this is
due to the larger company size and corresponding lending required to purchase new subsidiaries. Both main subsidiaries (Trakkers and Desert) have working capital turn ratios 3 to 4 times higher than industry averages for their respective comparable companies.







OFF-BALANCE SHEET ARRANGEMENTS





None.




7
 Table of Contents





Item 8. Financial Statements




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors


Inova Technology, Inc.


Santa Monica, California




We have audited the accompanying consolidated balance sheets of Inova Technology, Inc., as of April 30, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years ended April 30, 2009 and 2008. These consolidated financial statements are the responsibility
of Inova’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.





We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Inova as of April 30, 2009 and 2008 and the results of its consolidated operations and its consolidated cash flows for the years ended April 30, 2009 and 2008 in conformity with accounting
principles generally accepted in the United States of America.




MALONE & BAILEY, PC


www.malone-bailey.com


Houston, Texas


August 10, 2009




8
 Table of Contents




Inova Technology, Inc. and Subsidiaries
 Consolidated Balance Sheets


4/30/2009


4/30/2008ASSETSCurrent assetsCash

$
1,087,894


$
12,167Accounts receivables, net


262,734



769,918Contracts receivable, net


1,818,482



2,233,252Inventory


71,725



101,679Cost in excess of billings


38,324



198,655Prepaid and other current assets


64,781



234,645Total current assets


3,343,940



3,550,316Fixed assets, net


1,886,955



183,926Intangible assets, net


1,218,140



845,332Goodwill


8,164,342



5,904,782Other Assets


42,212Total assets

$
14,655,589


$
10,484,356LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
2,022,593


$
1,746,889Accrued liabilities


705,169



667,945Deferred income


404,190



403,792Current maturities of long-term debt


3,589,814



2,598,758Current maturities of long-term debt (related parties)


1,590,985



800,000Total current liabilities


8,312,751



6,217,384Long term debt (related parties)


142,532



2,700,855Long term debt - net of current maturities


2,267,782



164,169Total liabilities


10,723,065



9,082,408Stockholders' equityConvertible preferred stock, $0.001 par value; 25,000,000


1,500



4,951shares authorized; 1,500,000 and 4,951,000issued and outstanding, respectivelyCommon stock, $0.001 par value; 3,000,000,000 and 600,000,000


2,427



1,500shares authorized; 2,427,060 and 1,500,000 sharesoutstanding, respectivelyAdditional paid-in capital


7,966,774



3,463,158Accumulated equity


(4,038,177
)


(2,067,661
)Total stockholders' equity


3,932,524



1,401,948Total liabilities and stockholders' equity

$
14,655,589


$
10,484,356







9
 Table of Contents


Inova Technology, Inc. and Subsidiaries
 Consolidated Statements of Operations
 For the years ended April 30, 2009 and 2008


2009


2008Revenues

$
22,591,048


$
5,442,402Cost of revenues


(15,548,306
)


(4,109,518
)Selling, general and administrative


(3,584,250
)


(919,013
)Depreciation expense


(537,512
)


(11,792
)Amortization expense


(1,840,337
)


(940,442
)Impairment loss


(970,662
)


(324,310
)Operating loss


109,981



(862,673
)Other income (expense):Interest income


1,691



-Interest expense


(2,084,676
)


(113,389
)Other income


2,488



-Net loss

$
(1,970,516
)

$
(976,062
)Basic and diluted loss per share:Loss per share

$
(0.82
)

$
(0.65
)Weighted average common shares


2,411,865



1,500,000


See summary of accounting policies and notes to consolidated financial statements





10
 Table of Contents




Inova Technology, Inc. and Subsidiaries


Consolidated Statement of Change in Stockholders' Equity
 For the years ended April 30, 2008 and 2009
 
 Common Stock





Preferred Stock








AccumulatedShares


Par (.001)


Shares


Par (.001)


APIC


Deficit


TotalBalances at April 30, 2007


1,500,000


$
1,500



4,951,000


$
4,951


$
2,758,726


$
(1,091,599
)

$
1,673,578Capital contributions from related party


















15,520







15,520Beneficial conversion feature


















75,856







75,856Warrant discount


















613,056







613,056Net loss






















(976,062
)


(976,062
)Balances at April 30, 2008


1,500,000



1,500



4,951,000



4,951



3,463,158



(2,067,661
)


1,401,948Conversion of preferred stock


313,811



314



(4,951,000
)


(4,951
)


4,637







-Shares issued to pay notes payable


613,249



613











1,246,882







1,247,495Preferred stock issued to acquire Trakkers










1,500,000



1,500



1,306,006







1,307,506Beneficial conversion feature


















447,125







447,125Warrant discount


















1,498,966







1,498,966Net loss






















(1,970,516
)


(1,970,516
)Balances at April 30, 2009


2,427,060


$
2,427



1,500,000


$
1,500


$
7,966,774


$
(4,038,177
)

$
3,932,524


See summary of accounting policies and notes to consolidated financial statements




11
 Table of Contents




Inova Technology, Inc. and Subsidiaries


Consolidated statements of cash flows
 For the years ended April 30, 2009 and 2008


2009


2008CASH FLOWS OPERATING ACTIVITIESNet loss

$
(1,970,516
)

$
(976,062
)Adjustments to reconcile net income to net cash used provided byoperating activities:Bad debt expense


-



17,753Depreciation expense


537,512



11,792Amortization expense - loan discounts, deferred financing costs and intangibles)


1,840,337



940,442Impairment loss


970,662



-Stock issued for interest expense


115,854



-Changes in operating assets and liabilities:Increase (decrease) in accounts receivable


921,954



(375,712
)Increase (decrease) in inventory


87,954



(7,830
)Increase (decrease) in cost in excess of billing


160,331



112,156Increase (decrease) in prepaid assets


40,325



(130,524
)Increase (decrease) in A/P and accrued expenses


449,622



822,366Increase (decrease) in deferred income


398



403,792Net cash provided by operating activities of operations


3,154,433



818,173CASH FLOW INVESTING ACTIVITIESPurchase of Trakkers/Tesselon


(2,651,286
)


-Purchase of Desert Communication


-



(3,725,000
)Purchase of fixed assets


(557,769
)


(27,540
)Net cash used in investing activities


(3,209,055
)


(3,752,540
)CASH FLOW FINANCING ACTIVITIESProceeds from notes payable


4,957,569



3,269,820Repayments made on notes payable


(3,054,122
)


(358,401
)Proceeds from notes payable - related parties


72,123



469,513Repayments made on notes payable - related parties


(845,221
)


(472,765
)Capital contributions made by related party


-



15,520Net cash provided by financing activities


1,130,349



2,923,687NET CHANGE IN CASH


1,075,727



(10,680
)CASH AT BEGINNING OF YEAR


12,167



22,847CASH AT END OF YEAR

$
1,087,894


$
12,167SUPPLEMENTAL INFORMATION:Interest paid

$
758,538


$
106,496Income taxes paid


-



-NON-CASH INVESTINGAND FINANCING ACTIVITIES:Common stock issued for partial payment of notes payable

$
1,131,640


$
-Common stock issued for conversion of preferred stock


4,637



-Seller financed purchase of Desert Communication


-



2,630,801Seller financed purchase of Trakkers


2,028,089



-Preferred stock issued to acquire Trakkers/Tesselon


1,307,506



-Beneficial conversion feature discount on notes payable


447,125



75,856Discount to notes payable on relative fair value of warrants


1,498,968



613,056


See summary of accounting policies and notes to consolidated financial statements


12
 Table of Contents




INOVA TECHNOLOGY, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 – HISTORY AND ORGANIZATION OF THE COMPANY





Inova Technology, Inc. was incorporated in Nevada on May 16, 1997, as Newsgurus.com, Inc. and changed its name to Secure Enterprise Solutions Inc. on January 10, 2002, then to Edgetech Services Inc. and on August 17, 2006 to Inova Technology, Inc.





On June 1, 2005, Inova acquired Web’s Biggest, Inc., a California Corporation, for 25,000,000 convertible preferred shares to the shareholders of Web’s Biggest in consideration for 100% of the outstanding capital of Web’s Biggest and $250,000 be used for general working capital of Inova. This transaction was originally
recorded as a recapitalization of Inova. Consequently the transaction was considered to be a reverse merger and the accounting treatment was as if Web’s Biggest, Inc acquired Inova. When completed, this transaction resulted in a change of control of Inova. After consummation of the merger, Inova shareholders owned approximately 10% of the newly combined entity.





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.





On October 18, 2006, Inova purchased 100% of the outstanding capital stock of Data Management, Inc., a Nevada corporation, from the Data Management shareholders in exchange for 25 million of Inova’s convertible preferred shares. The convertible shares used represented approximately 90% of the voting stock of Inova on a fully
diluted basis. Data Management was an entity owned by two business entities (Southbase LLC and Advisors LLC) which are owned by Mr. Adam Radly and Mr. Paul Aunger, both officers, directors and majority shareholders of Inova.  It was determined that Data Management was not a business and that the transaction was in substance the purchase of fixed assets.  Inova acquired no other tangible assets or liabilities.  Due to the related party nature of the transaction, the assets purchased were brought
over to Inova on their historical cost basis.





Concurrently, Inova sold its wholly-owned subsidiary, Web’s Biggest Limited, to Advisors LLC in exchange for 25 million convertible preferred shares of Inova held by Advisors LLC.  Advisors LLC is a company owned by Mr. Paul Aunger, a director and officer of Inova and accordingly, the transaction was not considered an arm’s
length transaction.





The 25 million convertible preferred shares used in the Data Management Transaction were the same 25 million convertible preferred shares received with regards to the Web’s Biggest Transaction. Accordingly, these transactions are viewed as one homogeneous transaction and treated as an exchange of Web’s Biggest’s net
assets for Data Management’s net assets, akin to a like-kind exchange of assets.  However, the historical cost basis (less accumulated depreciation and amortization) of the net assets acquired from Data Management was significantly less than the net assets of Web’s Biggest by approximately $1,236,000.  Accordingly, the difference of $1,236,000 in historical cost basis of the net assets was accounted for as a loss on exchange of assets in the accompanying consolidated statements of operations.
This also resulted in the activity of Web’s Biggest being accounted for as discontinued operations.





Prior to the transactions described above Inova was controlled by Advisors, LLC. When the transactions described above were completed, this resulted in a change of control of Inova and the controlling shareholder became Southbase, LLC.  Prior to these transactions, the unaffiliated shareholders of Inova owned approximately 10%
of Inova and they continued to own approximately 10% on a fully diluted basis after these transactions. The Board of Directors did not change as a result of the transactions described above.





On May 1, 2007, Inova acquired RightTag, Inc. RightTag manufactures standard compliant and durable RFID (Radio Frequency Identification) equipment and provides customer friendly RFID solutions.





On December 21, 2007, Inova acquired Texas-based Desert Communications, Inc. Desert provides IT services to a customer base that primarily consists of Texas based school districts, local government entities and corporations. Services provided by Desert include IT network and communications solutions, network design, implementation
and maintenance.





On September 1, 2008 Inova acquired Montana-based Trakkers, LLC and Tesselon, LLC. Trakkers rents RFID units at conventions and is developing further RFID technologies and Tesselon has been a intellectual property holding company.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of consolidation





These consolidated financial statements include the accounts of Inova Technology, Inc. and its wholly owned subsidiaries Edgetech Services, Data Management, RightTag, Desert Communications, Trakkers and Tesselon. Significant inter-company accounts and transactions have been eliminated.





Use of estimates





The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the year. Actual results could differ from these estimates.





Reclassifications





Certain prior year amounts have been reclassified to conform with the current year presentation.





Cash and cash equivalents





For purposes of the statement of cash flows, Inova considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.





Accounts receivable





Trade and other accounts receivable are carried at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable primarily include contract receivables from customers in Texas.  Bad debt expense is recognized based on management’s estimate of likely losses per year, based on past experience
and an estimate of current year uncollectible amounts.  The allowance for doubtful accounts was $21,832 and $51,659 as of April 30, 2009 and 2008, respectively.





Inventory





Inventories are stated at the lower of cost or market. Cost is determined by the average cost method for all inventories. Inventories consist primarily of components and finished products held for sale. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize
this risk, Inova evaluates inventory levels and expected usage on a periodic basis and records adjustments as required.





Property and equipment





Property and equipment, including revenue –producing rental equipment are carried at cost, less accumulated depreciation and amortization. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Depreciation and amortization is provided principally on the straight-line basis method over the estimated
useful lives of the assets.  When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are credited or charged to operations.





Intangible assets, goodwill and impairment of long-lived assets





Intangibles are recorded at cost and amortized on the straight-line method over their estimated useful lives. Goodwill is reviewed annually. An impairment analysis at April 30, 2009 was undertaken and impairment to intangible assets and goodwill of $970,662 was recorded.





Intangible valuation and Goodwill impairment are determined using similar processes. For intangibles, the first step is to compare the fair value of the intangible to its carrying amount.  For Goodwill, the first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. Inova determines
the fair value of both intangibles and reporting units by using a discounted cash flow (“DCF”) analysis approach. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the DCF analyses are based on Inova’s budget and long-term business plan, and various growth rates have
been assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.





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Embedded conversion features





Inova evaluates embedded conversion features within convertible debt and convertible preferred stock under paragraph 12 of SFAS 133 and EITF 00-19 to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded
in earnings. If the conversion feature does not require derivative treatment under SFAS 133 and EITF 00-19, the instrument is evaluated under EITF 98-5 and EITF 00-27 for consideration of any beneficial conversion feature.





Income taxes





Inova uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end. Inova provides a valuation allowance to reduce deferred
tax assets to their net realizable value.





Revenue and cost recognition





Inova has four sources of revenues: IT network design and implementation from Desert, computer equipment sales from Desert, IT consulting services from Edgetech, sales of RFID items from RightTag rental income from Trakkers/Tesselon. Revenue that is received before it is earned is classified as deferred revenue.





IT network design and implementation:





Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties
in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.





Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period.





The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.





Computer equipment sales, IT consulting services & sales of RFID items:





Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.





Rental income for RFID items:





The Company follows Staff Accounting Bulletin No. 104 recognizing RFID rental income. Revenue generally is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer
is fixed or determinable; and (4) collectability is reasonably assured. A rental contract term can be daily or weekly. Consistent with SAB 104, the Company’s policy recognizes revenue from equipment rentals in the period earned on a straight-line basis, over the contract term, regardless of the timing of the billing to customers. Revenue from the sale of new and used equipment and parts is recognized at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract
have been fulfilled, risk of ownership has been transferred and collectability is reasonably assured. Services revenue is recognized at the time the services are rendered.





Stock based compensation





Effective January 1, 2006, Inova began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment, as interpreted by
SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Inova had accounted for stock options according to the provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. Inova adopted the modified prospective transition method provided for under SFAS No. 123R,
and, consequently, have not retroactively adjusted results from prior periods. Inova did not issue any employee options during the years ended April 30, 2009 and 2008.





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Basic and diluted net income (loss) per share





Basic loss per share is computed using the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the dilutive effects of common stock equivalents on an “as if converted” basis. For the years ended 2009 and 2008, potential dilutive securities had an anti-dilutive
effect and were not included in the calculation of diluted net loss per common share.





Recent accounting pronouncements





Effective May 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements ("SFAS 157"), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 applies whenever another U.S. GAAP standard requires (or permits) measurement of assets or liabilities at fair value, but does not expand the use
of fair value to any new circumstances. The Company also adopted FASB Staff Position ("FSP") No. FAS 157-2, Effective Date of FASB Statement No. 157, which allows us to partially defer the adoption of SFAS 157. This FSP defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or financial liability as defined in paragraph 6 of Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The adoption of SFAS No. 157 and FSP No. 157-2 had no impact on our financial statements.





In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. The statement also provides
guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for Inova as to business combinations the Company makes beginning in fiscal 2010. The Company adopted this standard as of May 1, 2009 and does not expect it to have an impact on the Company’s financial statements.





In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 160 introduces significant changes in the accounting and reporting for business acquisitions and noncontrolling interest in a subsidiary. SFAS 160 also changes the accounting and reporting
for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after January 1, 2009. The Company adopted this standard effectively May 1, 2009 and does not expect it to have an impact on the Company’s financial statements.





In April 2008, the FASB issued Staff Position FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"). The FSP amends the factors considered in developing renewal or extension assumptions for determining the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible
Assets." The FSP's intent is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the U.S. Companies must adopt the FSP for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. Companies must apply the guidance for determining the useful life of a recognized intangible asset prospectively
to intangible assets acquired after the effective date. Companies must also apply certain disclosure requirements prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Company adopted this standard effectively May 1, 2009 and does not expect it to have an impact on the Company’s financial statements.





In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components
in a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods.  FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008.  The Company adopted this standard effectively May 1, 2009 and does not expect it to have an impact on the Company’s financial statements.





In June 2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Paragraph 11(a) of Statement of Financial Accounting Standard No 133, “Accounting for Derivatives and Hedging Activities” (“SFAS
133”) specifies that a contract that would otherwise meet the definition of a derivative, but is both (a) indexed to its own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock, including evaluating the instrument’s contingent
exercise and settlement provisions, and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. It also clarifies the impact of foreign-currency-denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. Inova evaluated all of its financial instruments and determined that the warrants associated with the Boone
financing qualified for treatment under EITF 07-5. See subsequent event footnote for more detail.




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NOTE 3 – CONTRACT RECEIVABLES


30-Apr-09


30-Apr-08Completed contracts

$
1,602,882


$
1,639,799Contract in progress


215,600



593,453Total contract receivables

$
1,818,482


$
2,233,252Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows:30-Apr-09


30-Apr-08Costs incurred on uncompleted contracts

$
446,731


$
483,706Estimated earnings


130,939



302,150Less: billings to date


(539,346
)


(587,201
)Total

$
38,324


$
198,655Included in the accompanying balance sheet under the following captions:30-Apr-09


30-Apr-08Costs and estimated earnings in excess ofbillings on uncompleted contracts

$
38,324


$
198,655Billings in excess of costs and estimatedearnings on uncompleted contracts


-



-Total

$
38,324


$
198,655




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NOTE 4 – PROPERTY AND EQUIPMENT





Property and equipment consisted of the following at April 30, 2009 and 2008:





Life


2009


2008Office equipment

2 to 10 years


$
85,406


$
85,406Office furniture

7 to 8 years



37,223



14,693Vehicles

3 to 5 years



309,548



267,793Leasehold improvements


3.25



164,944



48,087Revenue-producing equipment

5 years



4,476,260



-Subtotal






5,073,381



415,979Less: accumulated depreciation






3,186,426



(232,053
)Total





$
1,886,955


$
183,926





Depreciation expense totaled $537,512and $11,792 in 2009 and 2008, respectively.




NOTE 5 – PURCHASE OF RIGHTTAG, DESERT COMMUNICATIONS, TRAKKERS AND TESSELON





Acquisition of RightTag, Inc.:





On May 1, 2007, Inova completed its purchase of RightTag, Inc. by acquiring all of the outstanding shares of RightTag for the purchase price of $325,000. Inova also agreed to pay RightTag’s previous shareholders additional funds based on RightTag’s gross profit over the next five years. RightTag manufactures standard compliant
and durable RFID (Radio Frequency Identification) equipment and provides customer friendly RFID solutions. The entity was acquired in an effort for Inova to expand and pursue potentially profitable and strong investment opportunities.





The following table presents the allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values:


Cash

$
646Accounts receivable


4,020Inventory


12,850Prepaid expense


115Goodwill


300,870Intangible assets


135,702Accounts payable


(28,231
)Accrued liabilities


(1,812
)Shareholder loans


(99,160
)Total

$
325,000


The $135,702 of acquired intangible assets (customer list/company name) has a useful life of approximately 3 years.





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Acquisition of Desert Communication:





On December 21, 2007, Inova acquired Texas-based Desert Communications (“Desert”) for $5.9 million ($3.3 million paid in cash and $2.6 million to be paid under notes payable). Desert provides IT services to a customer base that primarily consists of Texas based school districts, local government entities and corporations.
Services provided by Desert include IT network and communications solutions and design, implementation and maintenance.





Funding for the acquisition was obtained from IBM and Boone Opportunity Lenders (“Boone”). IBM provided part of a $2.5 million line of credit and Boone Opportunity Lenders provided a $1.8 million debenture. Inova also signed a $2.3 million promissory note payable to the previous owners of Desert.





The following table presents the preliminary allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their preliminary fair values:




Cash

$
2,222,632Accounts receivable


2,406,695Inventory


293,283Prepaid expense


6,654Fixed assets


167,139Goodwill


3,414,445Intangible assets


860,555Accounts payable and accrued liabilities


(3,434,077
)Total

$
5,937,326




Of the $860,555 of acquired intangible assets, $498,930 is the customer list which has a useful life of approximately 3 years and the remaining $361,625 is three employment agreements which have an average contract life of 2 years.





Trakkers/Tesselon:





Inova Technology acquired Trakkers, LLC and a related entity Tesselon, LLC on September 1, 2008. Inova acquired Trakkers and Tesselon for $6.1 million including $500,000 cash, $2.3 million to be paid under notes payable, $2 million paid in the form of a seller note and $1.3 million of redeemable preferred stock (non-convertible and
nonvoting). In order to fund the acquisition of Trakkers, Inova raised money in the form of 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. Trakkers has
filed a patent application and the Mi is currently patent pending.





Inova intends to apply Trakkers RFID technology to several new verticals. Trakkers currently utilizes its technology to provide a secure and advanced lead retrieval solution for the trade show industry worldwide. Trakkers lead retrieval solutions are compatible with 3 different badge formats - RFID, 1 & 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.





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 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

$
66,614Inventory


58,000Prepaid expense


14,000Fixed assets


1,682,772Goodwill


3,210,741Intangible assets


1,021,713Accounts payable and accrued liabilities


(345
)Total

$
6,053,495




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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 Desert, Trakkers and Tesselon had been completed on May 1, 2007:




2009


2008Revenues

$
23,163,353


$
19,861,038Cost of revenues


(15,634,747
)


(12,251,162
)Gross profit


7,528,606



7,609,876Operating expenses


(5,344,020
)


(4,800,420
)Interest expense


(2,011,927
)


(1,260,363
)Depreciation expense


(2,246,972
)


(678,834
)Net income (loss)

$
(2,074,313
)

$
870,259Weighted average shares outstanding


2,237,053



1,500,000Basic and diluted net income per share

$
(0.93
)

$
0.58




The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of
future results.




NOTE 6 – GOODWILL AND INTANGIBLES





RightTag:





In May 2007 when Inova acquired RightTag, Inova accounted for the acquisition using the purchase method of accounting for business combinations. The purchase price and costs associated with the acquisition exceeded the estimated fair value of net assets acquired by $436,572, which was preliminarily assigned to goodwill.





During 2008, Inova completed the valuation of the intangible assets acquired in the RightTag transaction. Pursuant to the valuation, purchase price of $135,702 was assigned to the customer list acquired and the remaining $300,870 was assigned to goodwill.





An impairment analysis was performed on April 30th of each year with no impairment in fiscal 2008 and at April 30, 2009 impairment to intangible assets of $19,481 and to goodwill of $158,075 was booked.





Desert:





In December 2007 when Inova acquired Desert, Inova accounted for the acquisition using the purchase method of accounting for business combinations. The purchase price and costs associated with the acquisition exceeded the preliminary estimated fair value of net assets acquired by $4,275,000, of which $860,555 was assigned to the customer
list and employment agreements acquired and the remaining $3,414,445 was assigned to goodwill.





An impairment analysis was completed at April 30th of each year with no impairment at April 30, 2009 and 2008.





Web’s Biggest:





In June 2005 when Inova acquired Web’s Biggest, the original transaction was accounted for as a recapitalization. No goodwill or other intangibles were recognized.





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In 2008, Inova discovered that the original transaction between Inova and Web’s Biggest was not accounted for properly. The acquisition should have been recorded as a reverse acquisition whereby Web’s Biggest purchased Inova’s assets and liabilities to be recorded at fair value. In 2008, Inova completed its valuation
of the assets and liabilities acquired in the Web’s Biggest merger. Pursuant to the valuation, purchase price of $360,641 was assigned to the customer list acquired and the remaining $2,612,304 was assigned to goodwill. Inova restated its prior year financial statements to reflect the correction of this error.





An impairment analysis at April 30, 2008 was undertaken and impairment to goodwill of $324,310 was booked.





An impairment analysis at April 30, 2009 was undertaken and impairment to goodwill of $793,106 was booked.





Trakkers:





In September 2008 when Inova acquired Trakkers, Inova accounted for the acquisition using the purchase method of accounting for business combinations. The purchase price and costs associated with the acquisition exceeded the preliminary estimated fair value of net assets acquired by $4,232,454, of which $1,021,713 for were assigned
to customer list, employment agreements and IP and the remaining $3,210,741 was assigned to goodwill.




An evaluation was completed at April 30, 2008 for the initial purchase price of Desert and Inova reduced the goodwill amount by $98,527 for the inventory acquired.


Goodwill and Intangible Assets consists of the following as of April 30, 2009 and 2008:




Goodwill


2009



2008RightTag

$
142,795


$
300,870Desert


3,315,918



3,315,918Edgetech


1,494,888



2,287,994Trakkers/Tesselon


3,210,741



-Total

$
8,164,342


$
5,904,782
  Intangible Assets
Life

2009


2008RightTag – customer list
3 years

$
116,221


$
135,702Desert – customer list
3 years


498,930



498,930Desert – employment agreement
2 years


361,625



361,625Edgetech – customer list
3 years


360,640



360,640Trakkers/Tesselon – customer list
3 years


496,179



-Trakkers – employment agreements
3 years


525,534



-Subtotal



2,359,129



1,356,897Less: accumulated amortization



(1,140,989
)


(511,565
)Total


$
1,218,140


$
845,332





For the years ended April 30, 2009 and 2008, Inova recorded impairment loss of $970,662 and $324,310, respectively for all segments. Included in the impairment loss recorded as of April 30, 2009, goodwill from Edgetech acquisition has been written down from $2,287,994 to $1,494,888,
goodwill from RightTag acquisition has been written down from $300,870 to $142,795 and the RightTag customer list has been written down from $135,702 to $116,221.





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For the years ended April 30, 2009 and 2008, Inova recorded amortization expenses of $629,424 and $281,155, respectively.




NOTE 7 – RELATED-PARTY TRANSACTION




A summary of changes in related-party payable account for the years ended April 30, 2009 and 2008 is as follows:




2009


2008Beginning balance

$
3,500,855


$
2,005,918Seller notes obtained from Desert acquisition


-



2,300,000Proceeds from the related-party payable


72,123



524,392Less: repayments made on related-party payable


(845,221
)


(472,765
)Less: shares issued on related-party payable


(994,240
)


(856,690
)Total related-party payable

$
1,733,517


$
3,500,855




Related-party payable account consisted of the following as of April 30, 2009 and 2008:




2009


2008Due to Southbase, entity associated withCEO. Matures May 2017, 7%, unsecured

$
142,532


$
861,564Due to Desert owners, seller notes obtain fromacquisition. Matures December 2009, 7%, Secured by assets


1,500,000



2,300,000Due to Advisors, entity associated withSecretary. Matures January 2010, prime + 2%(5.25% at April 30) Secured by receivables


90,985



91,365Due to Advisors, entity associated withSecretary. Matures January 2010, prime + 3%Secured by receivables


-



247,926Total related-party payable


1,733,517



3,500,855Less: current maturities


(142,532
)


(800,000
)Long-term portion of related-party payable

$
1,590,985


$
2,700,855




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Other related-party transactions:





As of April 30, 2009, part of the related party notes of $90,985 related to a factoring agreement Inova has with Advisors, LLC. The invoices are put into this agreement so monies can be advanced to Inova before Inova’s customers pay, thereby facilitating payment of operating expenses.





During fiscal 2009, 34,311 shares of common stock were issued to Advisors, LLC. Also during fiscal 2009, 113,556 common shares were issued to a related party to repay notes payable and accounts payable. See Common Stock footnote for more details.





In December 2007, Southbase LLC, agreed to convert $600,000 of cash loaned to Inova plus the interest accrued on the loan into 464,912 common shares of Inova. These shares were issued during fiscal 2009. See Common Stock footnote for more details.





There are notes payable to the previous owners of Desert Communications in the amount of $1,500,000 and accrued interest of $188,806 as of April 30, 2009. The interest rates are at 7% per annum and they are payable over two years from the date of the Desert acquisition. The remaining balance is due December 31, 2009. These notes are
secured by a second position in Desert assets.




180,000 and $180,000




NOTE 8 – 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:





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





·
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;





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





·
No concentration above 20% to any single customer;





·
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 April 30, 2009, the Company was not in compliance with these covenants and the agreement indicates the interest rate can increase from 15% to 18%.





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 and the note origination fees created a discount of $219,058.





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 to287,038 shares
of Common Stock for $250,000. The Put is not in effect until Ascendiant exercises their warrants. As of April 30, 2009, 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 total discount to
the note of $280,942





23
 Table of Contents





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. Registrable 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 the year ending April 30, 2009 notes payable of $3,369,400 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. The notes have an interest rate of 11.25% per annum and they mature on various dates.





The original Boone Note of $1,792,000 issued on 11/30/07 has the option to increase to $2,016,000. 437,348 of Inova warrants were issued to Boone with these notes. The warrants expire in 2012. They have an aggregated exercise price of $100. The fair value of these warrants was calculated using the Black-Scholes Model using these
assumptions (1) 3.41% discount rate, (2) warrant life of 5 years, (3) expected volatility of 550%, and (4) zero expected dividends. The warrants relative fair value and the note origination fees created a discount of $678,839.





These loans have the following financial requirements:





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





·
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;





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





·
No concentration above 20% to any single customer;





·
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 April 30, 2009, the Company was not compliance with these covenants but received a waiver from the lender.


Boone
 In connection with these notes, Inova granted warrants to purchase 692,577 shares of Inova's common stock, warrants to purchase 92 shares of Desert Communications, Inc.·s common stock, and warrants to purchase 19.44% of Trakkers, LLC. These warrants resulted in a discount to the notes above of$1,499,329. All of these warrants
are subject to anti-dilution provisions and put option agreements. See note 15 for details.




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 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. Registrable 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.





24
 Table of Contents





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





Note Payable - Agile Opportunity Fund, LLC:





In February 2008, Inova borrowed $250,000 under a note payable from Agile Opportunity Fund, LLC. This note has an interest rate of 18% per annum and it matures on August 15, 2009. At any time from the date of the note through the date this note is paid in full, Agile has the right to convert the outstanding principal balance plus accrued
but unpaid interest into Inova’s common shares at a conversion price equal to $2 per share. This note is secured by all tangible and intangible assets of Inova, in each case whether now owned or hereafter acquired and wherever located, and all proceeds thereof, together with all proceeds, products, replacements and renewals thereof.




62,500 warrants were issued to Agile with this note. These warrants expire in February 2013. They have an exercise price of $2 per share. The fair value of these warrants was calculated using the Black-Scholes Model include (1) 3.48% discount rate, (2) warrant life of 5 years, (3) expected volatility of 550%, and (4) zero expected
dividends. The relative fair value and a discount of $71,429 was recorded.




Inova determined that the conversion feature of the note and the warrants issued were not derivative instruments pursuant to SFAS No. 133, Accounting for Derivatives, as amended. Under the provisions of EITF Issue 98-5 and 00-27, Inova discounted the relative fair value of warrants attached to the notes and calculated the intrinsic
value of the beneficial conversion feature using the Black-Scholes Option Pricing Model to exceed the principal value of the note. The resulting total discount of $21,429 is being amortized over the life of the notes using the effective interest method.




Commencing on February 15, 2010, Agile shall have the right, at its sole option and demand, immediately upon notice to Inova to sell all or any portion of the Warrants, and/or the shares underlying thereunder to the extent the Warrants have been previously exercised, back to the Company for a total consideration equal to one hundred
thousand dollars if all such Warrants or underlying shares were "put" to Inova.  As of April 30, 2009 the warrants have not been exercised.





Inova agreed to file a registration statement covering 120% of the shares of Common Stock issuable upon conversion of the Debenture and exercise of all Warrants, no later than twenty five (25) trading days after Inova begins trading on the OTCBB or other listed exchange, and use its best effort s to have the Registration Statement
declared effective within one hundred-twenty (120) days after such date. However, if the initial registration statement does not register the full amount of shares of Common Stock issuable upon conversion of the Debenture and exercise of all Warrants. Inova shall file an additional registration statement covering the shortfall of such shares into which the then outstanding principal plus accrued interest would convert into within fifteen (15) business days following a request by Investor. Inova shall keep the
registration statement active so long as Agile owns the Debenture, the Warrants or any underlying shares issuable upon conversion or exercise thereof. In the event that Inova is in breach of any provision of this agreement, in addition to any other remedies available to the Investor, Inova shall pay to the Investor an amount equal to one (1%) percent of the outstanding principal amount of the Debenture for each month that the Company is in breach of this agreement. Inova analyzed the registration right arrangement
under FSP EITF 00-19-2 and concluded that there was no contingent liability to be recorded.





Line of Credit with IBM Credit LLC:





Desert 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.





Other significant debt transactions during the year ended April 30, 2009:





1)
A lease facility with IBM was established for $542,056, secured by Trakkers scanners. It has an interest rate of 9.88% and is payable in 48 monthly installments of principal and interest.





2)
A lease facility with Everest was established for $375,000, secured by Trakkers scanners. It has an interest rate of 24%, and is payable in 24 monthly installments of principal and interest.





3)
Seller notes for $2,028,089 were established in connection with the Trakkers/Tesselon acquisition. These notes have interest rates of 7% to 10%, secured by Trakkers’ assets and have terms up to 36 months. These notes can be broken into two tranches: the first tranche is payable annually in the amount of $250,000 and the other is $509,000, payable
in monthly installments of principal and interest.





25
 Table of Contents





During the year ended April 30, 2009 and 2008, Inova made the following cash repayments on its outstanding notes payable:




Notes payable to Boone/Ascendiant/Agile

$
2,109,155


$
358,402LOC from IBM


526,709



-Notes payable to Trakkers/Right Tag previous owners


239,808



-Notes payable to other


178,450



-Total cash paid

$
3,054,122


$
358,402


A summary of changes in notes payable for the years ended April 30, 2009 and 2008 is as follows:




2009


2008Beginning balance

$
2,762,927


$
-Gross proceeds from the notes payable


7,410,586



3,573,938Less: repayments made on notes payable


(3,054,122
)


(358,402
)Less: discount on the warrants


(2,378,519
)


(772,057
)Add: amortization of discount


1,116,724



319,448Total notes payable

$
5,857,596


$
2,762,927


Notes payable consisted of the following as of April 30, 2009 and 2008:


2009


2008Notes payable – Agile/Ascendiant

$
807,672


$
250,000Note payable – Boone


2,717,372



1,433,599LOC from IBM


1,415,952



1,427,820Notes payable – Trakkers previous owners


1,892,399



-Notes payable – other


738,606



104,118Total notes payable


7,572,001



3,215,537Unamortized discount


(1,714,405
)


(452,610
)Total notes payable, net of discount


5,857,596



2,762,927Less: current maturities


(3,589,814
)


(2,598,758
)Long-term portion of notes payable

$
2,267,782


$
164,169


The following are the future minimum payments for the notes payable:


26
Table of Contents


Year

Amount2010

$
3,589,8142011


1,820,6392012


391,5812013


55,5622014


-Total notes payable


5,857,596Less: current maturities


(3,589,814
)Notes payable, net of current maturities

$
2,267,782





NOTE 9 – COMMITMENTS AND CONTINGENCIES





Leases:





There is an office lease for Desert, effective May 2008 until August 2011. Rent is payable at $6,300 per month including tax.





There is an office lease for Trakkers, effective until April 2010. Rent is payable at $8,392 per month including tax.





Rent expense was $148,529 and $22,177 for fiscal 2009 and 2008, respectively. No real estate is owned by the Inova companies.





Litigation:





The Top Layer Networks litigation





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.





The Roy litigation





In February 2006, 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.





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 and is in compliance with these terms.




The Kim’s litigation





Two former officers and directors of Inova, Tae Ho Kim and Sang Ho Kim, filed suit against Inova and its Canadian subsidiary in March 2006 in the Ontario Superior Court of Justice. The Kims claimed in their lawsuit that Inova breached an alleged employment agreement with them, as well as the separation agreement that Inova and the
Kims entered into upon the termination of the Kims employment with Inova. In May 2007, the Kims were awarded $215,691, which has been accrued by Inova in accounts payable as of April 30, 2009 and 2008. The company is planning to appeal.




27
 Table of Contents





NOTE 10 – CAPITAL LEASES





Vehicle lease:





The lease calls for monthly payments of $493, including 4.7% interest. The capitalized cost of the vehicle is $33,638. The amount payable at April 30, 2009 and 2008 was $11,696 and $16,342, respectively and the balances are included in accounts payable on the consolidated balance sheets. The lease expires in December 2010.





Equipment leases:





During 2009, Inova entered into two capital leases:





1)
A lease facility with IBM was established for $542,056, secured by Trakkers scanners. It has an interest rate of 9.88% and is payable in 48 monthly installments of principal and interest.





2)
A lease facility with Everest was established for $375,000, secured by Trakkers scanners. It has an interest rate of 24%, and is payable in 24 monthly installments of principal and interest.





Assets under capital leases, included in property and equipment, consisted of the following at April 30:





2009


2008Vehicle

$
33,638


$
33,638Revenue-producing equipment


917,056



-Less: accumulated depreciation


(155,912
)


-Net assets under capital leases

$
794,782


$
33,638


The following are the future minimum lease payments for the capital leases:





Year

Amount2009

$
360,6982010


302,132Minimum lease payments under capital leases


662,830Less: current maturities


(360,698
)Capital lease obligation, net of current maturities

$
302,132


NOTE 11 – PROFIT SHARING PLAN





Effective January 1999, Desert adopted a profit sharing plan which covers most full-time employees with one year of service. The plan allows for discretionary annual contributions to be made. This plan was discontinued in September 2008 and no contributions were made for the year ending April 30, 2009.





A 401K plan was established in September 2008. Employer contributions are made each pay period and a total of $65,161 was contributed for the year ending April 30, 2009.




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 Table of Contents





NOTE 12 – INCOME TAX





Inova uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.





At April 30, 2009, for federal income tax and alternative minimum tax reporting purposes, Inova had approximately $2,152,197 of unused net operating losses available for carryforward to future years. The benefit from carryforward of such net operating losses will expire in various years through 2029. Under the provisions of Section
382 of the Internal Revenue Code, the benefit from utilization of approximately $2,563,000 of net operating losses incurred prior to June 2005 was significantly limited as a result of the change of control that occurred in connection with Inova’s acquisition of Web’s Biggest. The benefit could be subject to further limitations if significant future ownership changes occur in Inova.





At April 30, 2009, deferred tax assets consisted of the following:


United States


Canada


TotalNOL at April 30, 2009

$
1,815,832


$
336,365


$
2,152,197Estimated tax rate


35
%


20
%


N/ADeferred tax assets


635,541



67,273



702,814Valuation allowance


(635,541
)


(67,273
)


(702,814
)Net deferred tax assets

$
-


$
-


$
-




There are no income taxes payable in 2009 or 2008 as a result of the operating losses recorded during those years. Based on a number of factors, including the lack of a history of profits, management believes that there is sufficient uncertainty regarding the realization of deferred tax assets, and, accordingly, has not booked an income tax
benefit as of April 30, 2009 and 2008. All losses incurred can be carried forward for seven years for Canadian income tax purposes and twenty years for United States income tax purposes.




NOTE 13 – COMMON STOCK





During fiscal 2008, the following transactions were authorized by the board of directors but the shares agreed to be issued were not considered issued until July 2008 when the company’s authorized shares were increased. These shares were all issued in July 2008 when the Company increased its authorized shares to 300,000,000.





114,026 common shares approved to be issued to a related party as partial payment of a note payable and account payable with carrying values totaling $227,113.





In December 2007, Southbase LLC (a company related to the CEO, Mr. Adam Radly), agreed to convert $600,000 of cash loaned to Inova plus the interest accrued on the loan into 464,912 common shares of Inova for total converted value of $929,825. The following conversion of the loan amount (principal and interest) was calculated: $400,000
to be converted into 333,333 common shares at the stated rate of $1.20 per share and $200,000 was to be converted into 131,579 common shares at the stated rate of $1.04 per share.

The remaining 4,951,000 preferred stock shares from the Web’s Biggest transaction (see note 1 for details) were converted into 313,811 shares of common stock per the original terms of the preferred stock agreement.





29
 Table of Contents





During fiscal 2009:


34,311 shares of common stock were issued to Advisors, LLC as full payment of $90,557 for the balance including interest from a note payable.
  There was a reverse stock split at a ratio of 400:1 effective November 12, 2008. All share, per share and par value amounts (except authorized shares) have been retroactively adjusted to reflect the split.





NOTE 14 – REDEEMABLE PREFERRED STOCK





During the third quarter of 2009, 1,500,000 shares of redeemable preferred stock were issued in conjunction with the purchase of Trakkers and Tesselon. This is redeemable Series B, non-voting preferred, which has a dissolution value of $1 per share.  The agreement was amended on December 18, 2008 and again in July 2009.  The
original and first amended preferred stock agreements were determined to have errors and did not represent the intent of both parties causing both to be amended.  Inova must determine the method of redemption of the preferred stock any time over the one year period from issuance and when redeemed Inova may 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 company has
determined it is most likely to elect option 2) and therefore has concluded the instrument belongs in permanent equity.  Option 2) requires the company to issue the 375,000 common shares in three annual installments of 125,000 common shares each beginning no later than October 31, 2010. If elected, options 1) and 3) are due on the third anniversary of the issuance of the preferred stock.  The company determined the value of the preferred stock was $1,307,506.




NOTE 15 – WARRANTS





During the year ended April 30, 2008, Inova granted 52,500 warrants at the exercise prices of $1.32 per share to a related party related to $400,000 borrowed under a term loan. These warrants vest immediately and have a life of three years. These warrants have a fair value of $63,000 and a relative fair value of $54,428.





Variables used in the Black-Scholes option-pricing model include (1) 4.45% risk-free interest rate, (2) warrant life is the contractual life of these warrants, (3) expected volatility 550%, and (4) zero expected dividends.





During the year ended April 30, 2008, in connection with financing arrangements with its lenders, Inova granted 576,255 warrants at an exercise prices ranging from $0.00 to $2.00 per share related to $2,042,000 borrowed. These warrants vest immediately and have a life of five years. These warrants have a fair value of $769,116 and
a relative fair value of $558,629.





Variables used in the Black-Scholes option-pricing model calculating the fair value include (1) 3.48% risk-free interest rate, (2) warrant life is the contractual life of these warrants, (3) expected volatility of 550%, and (4) zero expected dividends.





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 $1,280,000. If Inova fails to make the required payment within 30 days, the repurchase price will become a convertible note that is convertible into
the same number of warrant shares.  The put option is not in effect until the warrants are exercised. As of April 30, 2009, the warrants had not been exercised.





During the year ended April 30, 2009, in connection with financing arrangements with its lenders, Inova granted warrants to purchase 824,818 shares of Inova’s common stock, warrants to purchase 92 shares of Desert Communications, Inc. common stock, and warrants to purchase 19.44% of Trakkers, LLC.  The warrants were
issued in association with several note payable tranches for a total of $3,376,925 in proceeds after original issue discounts of $392,475.  Each warrant can be exercised for a total of $100 for an aggregate exercise price of $1,500 for all warrant shares.   All warrants vest immediately and have contractual terms ranging from 5-7 years.  These warrants had a fair value of $3,781,190 and a relative fair value of $1,665,151.  The relative fair value of these warrants
was recorded as a discount to the notes payable that they were issued with.  All of the warrants issued during the year contain an anti-dilution provision that may result in the issuance of additional warrants.  Under the provision, if Inova sells or issues common stock or an option to purchase common stock at a price that reflects an equity valuation of Inova of less than $10,000,000 (a “dilutive issuance”), the holder is entitled to receive additional warrants so that the warrant
is exercisable into the same percentage of common stock as was outstanding immediately prior to the dilutive issuance.





During the year ended April 30, 2009, an additional 579,968 warrants to purchase Inova common stock were issued to various lenders under the anti-dilution provision above.  The issuance of these anti-diluted warrants are considered as a modification to the original equity instruments and resulted in no accounting impact.
The anti-dilution warrants have the same terms as the original instruments, mainly an exercise price of $100 for all warrant shares and contractual terms ranging from 5-7 years.  On the date of the grant, these warrants have a fair value of $1,192,576.





Variables used in the Black-Scholes option-pricing model calculating the fair value include (1) 1.89% to 3.41% risk-free interest rate, (2) expected term equal to the contractual term of these warrants, (3) expected volatility ranging from 212% to 550, (4) zero expected dividends and (5) number of warrants and exercise price as set
forth in the agreements.





The warrants above are subject to several put option agreements with effective dates ranging from January of 2010 through October of 2013.  The put options allow the lenders to require Inova to repurchase the above warrant shares for amounts ranging from $72,000 - $1,300,000 for a total amount of $3,124,250. If Inova fails
to make the required payment within 30 days, the repurchase price will become a convertible note that is convertible into the same number of warrant shares.  The put options are not in effect until the warrants are exercised. As of April 30, 2009, the warrants had not been exercised.





30
 Table of Contents




Summary information regarding Inova warrants is as follows:





Weighted AverageWarrants


Exercise PriceOutstanding at April 30, 2007


52,500


$
1.32Year ended April 30, 2008:Granted


576,255



0.22Outstanding at April 30, 2008


628,755



0.31Year ended April 30, 2009:Granted


1,404,786



0Outstanding at April 30, 2009


2,033,541


$
0.10


Summary of Inova warrants outstanding and exercisable as of April 30, 2009 is as follows





Number of

Weighted average

Number of


AggregateWarrants

Remaining

Warrants


IntrinsicRanging of Exercise Price


Outstanding

Contractual life

Exercisable


Value$
1.32



52,500

1 year


52,500


$
-$
0.00 - $2.00



1,981,041

3.5 to 6.5 years


1,981,041



2,491,404Total



2,033,541




2,033,541


$
2,491,404
  31
 Table of Contents





Summary of Inova warrants outstanding and exercisable as of April 30, 2008 is as follows




Number of

Weighted average

Number of


AggregateWarrants

Remaining

Warrants


IntrinsicRanging of Exercise Price


Outstanding

Contractual life

Exercisable


Value$
1.32



52,500

2 years


52,500


$
98,700$
0.00 - $2.00



576,255

4-5 years


576,255



1,718,416Total



628,755




628,755


$
1,817,116





NOTE 16 – MAJOR CUSTOMERS AND MAJOR VENDORS





During fiscal 2008 and 2009, revenues generated from three customers were approximately 35% of total revenues. These revenues were generated by Desert from its customers in network solution contracts.





During fiscal 2008 and 2009, purchases from five vendors totaled approximately 45% of total purchases. These purchases were made by Desert.




NOTE 17 – SEGMENT INFORMATION





Inova has three reportable segments, one providing IT solutions and services (Edgetech), one providing RFID products (RFID) and one providing network solutions (DCI).  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding
how to allocate resources and in assessing performance. The following is the summary of operations by segment:





32
 Table of Contents








RFID


Edgetech


DCI


Corporate


TotalRevenues


2,038,005



379,362



20,173,681



-



22,591,048Cost of revenues


(246,062
)


(257,574
)


(15,044,670
)


-



(15,548,306
)Gross profit


1,791,943



121,788



5,129,011



-



7,042,742Operating costs


(1,537,539
)


(11,511
)


(3,617,139
)


(1,766,572
)


(6,932,761
)Operating income


254,404



110,277



1,511,872



(1,766,572
)


109,981Interest expense


(400,700
)


(102,853
)


(883,454
)


(697,669
)


(2,084,676
)Interest income


-



-



1,691



-



1,691Other income


2,488



-



-



-



2,488Net income (loss)


(143,808
)


7,424



630,109



(2,464,241
)


(1,970,516
)Total assets


6,304,539



154,587



2,953,483



5,242,980



14,655,589For the year ended April 30, 2008:RFID


Edgetech


DCI


Corporate


TotalRevenues


158,216



371,678



4,900,481



12,027



5,442,402Cost of revenues


(106,814
)


(238,639
)


(3,764,065
)


-



(4,109,518
)Gross profit


51,402



133,039



1,136,416



12,027



1,332,884Operating costs


(66,013
)


(170,767
)


(1,174,564
)


(784,213
)


(2,195,557
)Operating income


(14,611
)


(37,728
)


(38,148
)


(772,186
)


(862,673
)Interest Expense


(16,113
)


(28,706
)


(8,012
)


(60,558
)


(113,389
)Net income (loss)


(30,724
)


(66,434
)


(46,160
)


(832,744
)


(976,062
)Total assets


416,139



90,874



3,398,895



6,578,448



10,484,356




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NOTE 18 – SUBSEQUENT EVENTS





In May 2009, Inova borrowed $120,750 from Boone. The interest rate of this note is the higher of prime + 3% or 11.25%, with 7 principal payments of $17,250
starting in June 2009. 33,765 Inova warrants at an exercise price of $100 total and 6 Desert warrants at an exercise price of $100 total were issued with this note. These warrants if exercised have a put option of $86,250 and is effective May 31, 2010 through May 21, 2016.




In July 2009, Inova borrowed $168,000 from Boone. The interest rate of this note is the higher of prime + 3% or 11.25%, with 17 payments of $9,882 starting in October 2009. A warrant to acquire 15% of Trakkers at an exercise price of $100 was granted to Boone. This warrant if exercised has a put option of $101,250 and is effective
February 28, 2011 through July 20, 2016.




Inova analyzed the notes and warrants for derivative accounting consideration under SFAS 133, EITF 00-19 and EITF 07-05. Inova evaluated all of its financial instruments and determined that the warrants associated with the Boone financing qualified for treatment under EITF 07-5. As of May 1, 2009, Inova adjusted its financial statements
to reflect the adoption of the EITF 07-5. Inova reclassified the fair value of these warrants as of May 1, 2009 in the amount of $4,886,418 from equity to derivative liabilities as the cumulative effect of the change in accounting principle. Variables used in the Black-Scholes option-pricing model 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. These derivative instruments will be measured on a quarterly basis in the future.




As of the date of the filing the company is attempting to reach an agreement with it’s primary lenders, to modify the anti-dilution wording in the warrant documents so that it may reverse the above entries. If this is accomplished there is not expected to be any material impact to equity from this accounting pronouncement.




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure





There are no disagreements with our accountant on accounting and financial disclosure.





Item 9A. Controls and Procedures





Evaluation of Disclosure Controls and Procedures





Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including
its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  As of the end of the period covered
by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our Chief Financial Officer and Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, our Chief Financial Officer and Chief Executive Officer have concluded that the Company’s disclosure controls and procedures are not effective due to
the identification of material weaknesses in our internal controls.





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Changes in Internal Controls over Financial Reporting





We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





Management’s Annual Report on Internal Control Over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its evaluation, our management concluded that our internal
controls over financial reporting are not effective due to material weaknesses in areas covering impairment determination, revenue recognition and supervisory responsibilities.





In assessing the effectiveness of our internal control over financial reporting, management identified the following material weaknesses in internal control over financial reporting as of April 30, 2009:





·
Deficiencies in the Company's financial reporting process. Due to the adoption of recent pronouncements, the Company had to analyze certain complex accounting treatments during the audit period and seek external consulting advice. All issues are reported properly in these financial statements.





·
Deficiencies in Segregation of Duties.  The Chief Executive Officer and the Chief Financial Officer are actively involved in the preparation of the financial statements, and therefore cannot provide an independent review.  The company is planning to establish an audit committee this year, which should address this problem.





The transactional controls of revenue, cash and assets for the subsidiaries are adequate.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in this annual report.


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PART III.





Item 10.  Directors, Executive Officers and Corporate Governance





Our directors and executive officers as of the date of this Report are as follows:





Name

Age

PositionAdam Radly

40

Chief Executive Officer, President, TreasurerPaul Aunger

50

Secretary, DirectorJeffrey Mandelbaum

45

DirectorBob Bates

40

Chief Financial OfficerAlex Lightman

46

Direcetor




Adam Radly, President, Chief Executive Officer, Chairman and Treasurer




Mr. Radly became Chief Executive Officer of Inova after the merger with Web’s Biggest. Mr. Radly was the founder and CEO of Isis Communications. While he was CEO of Isis, the company’s revenue increased from zero to $22 million, and Mr. Radly helped the company complete an IPO raising approximately $40 million. During his
tenure, Isis completed eight acquisitions, and raised an additional $30 million from U.S. institutional investors in a secondary offering. Isis later merged with AAV Ltd. Mr. Radly is also the founder of XSIQ (International) Pty Ltd., a leading provider of K-12 education software and SponsorAnything.com, a leading sponsorship website.




Paul Aunger, Secretary




Mr. Aunger became a director and the Company’s Secretary on November 22, 2005. He is managing partner of Advisors, LLC.




Jeffrey Mandelbaum, Director




Jeff Mandelbaum is an accomplished software executive with extensive experience in sales, marketing, business development, and management. He has played key executive management roles for more than 25 years
in the growth and development of technology industry leaders including Sybase, Commerce One, and Real Networks. Jeff serves as a Director for Inova Technology, Inc. (INVA) and Expert Realty, Inc., as a venture partner with The Watertower Group, and as an advisor for several private companies.





Bob Bates, Chief Financial Officer




Bob is a CPA with almost 20 years experience as a Controller and CFO for various public and private entities in several countries. He was with Allied Capital (NYSE) as Controller and has worked for other Billion dollar companies. He also worked with KPMG.




Director Independence




The Board of Directors has determined that Mr. Mandelbaum is an independent director under applicable SEC rules. The full Board of Directors fulfills the role of the Audit Committee. We do not have an Audit Committee financial expert. The Board believes that due to the Company’s small size, an audit committee is unnecessary and
would impose high costs in comparison to the potential benefits.





SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (the "SEC”) initial
reports of ownership and reports of changes in ownership of common stock and other equity securities of our Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish our Company with copies of all Section 16(a) forms they file.





Based on our review of the Section 16(a) forms filed with the SEC, no director, officer, or 10% beneficial owner of our securities failed to timely file any report required under Section 16(a). To our knowledge, none of the above persons failed to report a reportable transaction.





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We do not have a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  We have not adopted such a code of ethics because we have determined that such a code would be an unnecessary and bureaucratic practice
given the small size of the Company's management.





Item 11. Executive Compensation.





The following describes the cash and stock compensation paid to our directors and officers during the two past fiscal years. Our fiscal year ends on April 30. As a result, our most recent fiscal year ended April 30, 2009, and is referred to below as 2009. The previous fiscal year ended April 30, 2008 and is referred to as 2008 below.





SUMMARY COMPENSATION TABLE





Name and principal
position
Year
Management fee ($)
Stock Awards ($)
Total ($)Adam Radly, Chairman and CEO
2009
240,000
-0-
240,000Adam Radly, Chairman and CEO
2008
120,000
-0-
120,000Paul Aunger, Secretary and Director
2009
60,000
-0-
60,000Paul Aunger, Secretary and Director
2008
60,000
-0-
60,000Bob Bates, CFO
2009
88,570
-0-
88,570Bob Bates, CFO
2008
47,480
-0-
47,480Alex Lightman, Director
2009
36,500
-0-
36,500Alex Lightman, Director
2008
-0-
-0-
-0-Jeff Mandelbaum, Director
2009
12,000
-0-
12,000Jeff Mandelbaum, Director
2008
12,000
-0-
-0-




Other related party information:





The Company pays professional fees of $5,000 a month to Advisors LLC, a company controlled by Paul Aunger, a director of the company. The Company also pays $20,000 a month in consulting fees to Southbase LLC, a company controlled by our CEO, Adam Radly.





Our executive officers do not have written employment agreements with the Company.





Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





The following table describes the equity compensation available to our management.





Equity Compensation Plan InformationPlan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights

(a)
Weighted-average exercise price of outstanding options, warrants and rights

(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(c)Equity
compensation
plans approved by
security holders
-0-
-0-
1,125,000 (1)Equity
compensation
plans not approved
by security holders
-0-
-0-
-0-Total
-0-
-0-
1,125,000 (1)





(1)


Includes 5,000 non-restricted Class B preferred shares authorized to be issued for each acquisition with more than $40 million in sales or $10 million in EBITDA and 5,000 non-restricted Class B preferred shares authorized to be issued for each acquisition with less than $40 million in sales. Each Class B preferred share is convertible into
common stock at the rate of 1 to 100.





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The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of April 30, 2009 by each person known by us to beneficially own 5% or more of our outstanding common stock; each of our directors; each of the Named Executive Officers; and all of our directors and Named Executive
Officers as a group.





In general, a person is deemed to be a "beneficial owner"of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or direct the disposition of such security. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares of common stock subject to options or debentures held by that person that are currently exercisable or convertible or exercisable or convertible within 60 days of April 30, 2009 are deemed outstanding.





Percentage of beneficial ownership is based upon 2,427,060 shares of common stock outstanding at April 30, 2009. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth
opposite such person's name.





Name and Address of Beneficial
Owner (1)
Number of Shares Beneficially Owned

Percent of ClassAdam Radly - CEO and related entities
1,312,822 Common Stock, $0.001 Par Value

54.1%Paul Aunger-Secretary and related entities
863,441

35.6%





(1)
The address for these owners is 2300 W. Sahara Ave. Suite 800 Las Vegas, Nevada 89102





Item 13. Certain Relationships and Related Transactions.





Our Chairman and CEO, Adam Radly, has loaned the Company money. The amount outstanding under this loan is $142,532. Interest is accruing at the rate of 7% per year.





In December 2007, Southbase LLC agreed to convert $600,000 of cash loaned to the Company plus the interest accrued on the loan into 464,912 common shares of the Company. However, as discussed above, this transaction was not accounted for until July 2008, when the authorized shares were increased.





The Company has an invoice factoring arrangement with Advisors LLC, an entity related to Paul Aunger, our Secretary and a director. The amount of the invoices factored was $379,362 during this fiscal year, and the interest rate on the faciltiy is prime +2%





Item 14. Principal Accountant Fees and Services.





AUDIT FEES




Our fees for fiscal 2009 and 2008 totaled $90,000 and $75,000 respectively.




AUDIT-RELATED FEES




Our fees for fiscal 2009 and 2008 totaled $50,000 and $46,000, respectively.




TAX FEES




There were no tax fees paid to our principal accountants in the last two fiscal years.




ALL OTHER FEES




Our fees for fiscal 2009 and 2008 totaled $15,000 and $0, respectively.




None of the above fees were subject to audit committee pre-approval requirements.


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PART IV.





Item 15. 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.




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SIGNATURES


INOVA TECHNOLOGY INC.





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




INOVA TECHNOLOGY, INC.





By: /s/ Adam Radly


Adam Radly, Chief Executive Officer


Date: August 10, 2009





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.








Signature
Name and Title
Date/s/ Adam Radly
Adam RadlyChairman and CEO
August 10, 2009/s/Bob Bates
Bob BatesCFO
August 10, 2009/s/ Paul Aunger
Paul AungerSecretary and Director
August 10, 2009/s/ Jeff Mandelbaum
Jeff MandelbaumDirector
August 10, 2009







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