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EX-31.2 - Inova Technology Inc.ex31-2.htm
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EX-32.1 - Inova Technology Inc.ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended  July 31, 2010
  
  
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
  
For the transition period from ______________ to _____________
  
  
  
Commission file number     000-27397

INOVA TECHNOLOGY INC.
(Exact name of small business issuer in its charter)

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

2300 W. Sahara Ave. Suite 800 Las Vegas, NV 89102
(Address of principal executive offices)

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filler”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨ Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

State the number of shares of outstanding of each of the issuer’s classes of common equity, as of September 14, 2010: 2,816,915
 
 
Inova Technology Inc.
 
Form 10-Q
 
 
 

 
 
INOVA TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
July 31, 2010
   
April 30, 2010
 
ASSETS
           
Current assets
           
Cash
  $ 436,971     $ 336,746  
Accounts receivable, net of allowance of $0 and $0
    120,641       109,500  
Contract receivables, net of allowance of $21,822 and $21,832
    738,889       2,011,853  
Other receivable
    1,918,776       952,562  
Inventory
    82,465       93,335  
Cost in excess of billing
    119,320       290,329  
Prepaid and other current assets
    62,405       46,423  
Total current assets
    3,479,467       3,840,748  
Fixed assets, net
    233,947       185,017  
Revenue earning equipment, net
    1,125,374       1,250,929  
Intangible assets, net
    336,805       463,976  
Goodwill
    6,669,454       6,669,454  
Other Assets
    14,570       50,432  
Total assets
  $ 11,859,617     $ 12,460,556  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current liabilities
               
Accounts payable
  $ 1,243,083     $ 2,152,657  
Accrued liabilities
    1,815,227       1,465,859  
Deferred income
    479,127       424,872  
Derivative liabilities
    1,756,646       5,607,940  
Notes payable - related parties
    1,650,000       1,650,000  
Notes payable, net of unamortized discount of $112,027
               
       and $134,816
    9,496,536       7,917,610  
Total current liabilities
    16,440,619       19,218,938  
Notes payable - net of current maturities
    137,898       137,898  
Notes payable - related parties, net of current maturities
    142,532       142,532  
Total liabilities
    16,721,049       19,499,368  
                 
Stockholders' deficit
               
Common stock, $0.001 par value; 7,500,000 shares
               
authorized; 2,816,915 and 2,816,915 shares issued and outstanding
    2,817       2,817  
Additional paid-in capital
    4,821,953       4,821,953  
Non-controlling interest
    1,307,506       1,307,506  
Accumulated deficit
    (10,993,708 )     (13,171,088 )
Total stockholders' deficit
    (4,861,432 )     (7,038,812 )
Total liabilities and stockholders' deficit
  $ 11,859,617     $ 12,460,556  
 
See accompanying notes to consolidated financial statements
 

INOVA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended ended July 31, 2010 and 2009
(Unaudited)
 
         
Restated
 
   
2010
   
2009
 
             
Revenues
  $ 7,868,228     $ 4,934,674  
Cost of revenues
    (5,727,849 )     (3,311,636 )
Selling, general and administrative
    (1,366,532 )     (1,405,079 )
Depreciation & amortization expense
    (234,158 )     (193,044 )
Operating income (loss)
    539,689       24,915  
                 
Other income (expense):
               
Other income
    -       690  
Gain (loss) on derivative liabilities
    2,335,394       (1,647,563 )
Interest expense
    (697,703 )     (739,519 )
Net income (loss)
  $ 2,177,380     $ (2,361,477 )
                 
Net income (loss) per share
               
Basic
  $ 0.88     $ (0.96 )
Diluted
  $ 0.29     $ (0.96 )
Weighted average common shares
               
Basic
    2,462,060       2,460,194  
Diluted
    7,309,493       2,460,194  
 
See accompanying notes to consolidated financial statements
 
 
INOVA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended July 31, 2010 and 2009
(Unaudited)
 
         
Restated
 
   
2010
   
2009
 
CASH FLOWS OPERATING ACTIVITIES
           
Net loss
  $ 2,177,380     $ (2,361,477 )
Adjustments to reconcile net income (loss) to net cash provided by
         
(used in) operating activities:
               
Depreciation expense
    88,370       201,965  
Amortization expense - loan discounts, deferred financing costs and intangibles)
    22,789       494,622  
Amortization expense - intangible
    127,172       179,957  
Paid-in kind interest
    88,205       -  
Loss on sale of assets
    -       7,459  
Stock issued for services
    -       70,000  
Derivative (gain) loss
    (2,335,394 )     1,647,563  
Changes in operating assets and liabilities:
               
Accounts receivable
    1,261,823       (573,402 )
Other receivable
    (966,214 )     -  
Inventory
    10,870       (790 )
Cost in excess of billing
    171,009       (322,802 )
Prepaid expenses and other current assets
    (15,982 )     43,733  
Other assets
    35,862       -  
Accounts payable
    (909,574 )     913,212  
Accrued expenses
    349,368       (160,833 )
Deferred income
    54,255       (18,493 )
Net cash provided by (used in) operating activities of operations
    159,939       120,714  
                 
CASH FLOW INVESTING ACTIVITIES
               
  Purchase of fixed assets
    (11,746 )     -  
Net cash used in investing activities
    (11,746 )     -  
                 
CASH FLOW FINANCING ACTIVITIES
               
Proceeds from notes payable
    (47,968 )     579,841  
Repayments made on notes payable
    -       (1,294,137 )
Proceeds from notes payable - related parties
    -       10,736  
Repayments made on notes payable - related parties
    -       -  
Net cash used in financing activities
    (47,968 )     (703,560 )
                 
NET CHANGE IN CASH
    100,225       (582,846 )
CASH AT BEGINNING OF PERIOD
    336,746       1,087,894  
CASH AT END OF PERIOD
  $ 436,971     $ 505,048  
                 
SUPPLEMENTAL INFORMATION:
               
Interest paid
  $ 180,843     $ 856,038  
Income taxes paid
  $ 30,000     $ 55,000  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
         
Reclassification of derivative liability to notes payable
  $ 1,515,900     $ -  
Cumulative effect of change in accounting principle-reclassification of
         
     derivative liability
    -       420,162  
Reclassification of derivative liabilities to APIC
    -       680,779  
Discount on notes payable from derivative liabilities
    -       265,000  
 
See accompanying notes to consolidated financial statements
 
 
INOVA TECHNOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 –BASIS OF PRESENTATION

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

Fair Value Measurements

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

As of July 31, 2010, Inova measured its derivative liabilities using Level 2 inputs as defined by ASC 820 with a total fair value of $1,756,646.

Reclassifications

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

Restatements

The consolidated statements of operations and cash flows for the three months ended July 31, 2009 have been restated due to errors discovered in April 2010. See Note 7 for details.
   
NOTE 2 – GOING CONCERN

As shown in the accompanying consolidated financial statements, we have incurred recurring losses from operations, have an accumulated deficit, negative working capital and are in default on the majority of our notes payable as of July 31, 2010. These conditions raise substantial doubt as to our ability to continue as a going concern. The consolidated financial statements contained herein do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations. However, there is no assurance that profitable operations or sufficient cash flows will occur in the future. Management is trying to raise additional capital through sales of stock and refinancing debt.

 
NOTE 3 – RELATED PARTY TRANSACTIONS

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

Seller notes with a balance of $1,500,000 relate to the Desert Communications, Inc. purchase. They have interest rates of 18%, are secured and are due in December of 2010.

In addition, the Desert sellers are owed $150,000 under a working capital facility established during fiscal 2010 with an interest rate of 18%, due December, 2010.
 
NOTE 4 - DERIVATIVE LIABILITIES & ADDITIONAL CONVERTIBLE NOTE

ASC 815-40 Put Warrant Liabilities

Under ASC 815-40 “Put Warrants”, warrants for put shares should be classified as liabilities and measured at fair value at the end of each reporting period with the change in fair value recorded to earnings.  As a result, the fair value of the warrants granted to Inova’s debt holders in prior years were recorded as  derivative liabilities at inception.  These liabilities are subsequently measured at fair value at the end of each reporting period with the changes recorded to earnings.  As of July 31, 2010, Inova had $1,399,613 of derivative liabilities as a result of these provisions.

Boone Convertible Put Exercise Notes

Inova determined that the instruments embedded in a convertible put note exercised by Boone during fiscal 2010 should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.   During the quarter ended July 31, 2010, Boone exercised warrants to purchase 1,505,572 shares of Inova common stock and 125.80 shares of Desert common stock.  Contemporaneously, Boone exercised the related put options, requiring Inova to repurchase the warrants shares from Boone for $1,515,900.  Under the put option agreement, if Inova fails to repurchase the warrant shares from Boone, the put option liability will become a convertible note.  Inova did not repurchase the warrant shares and accordingly, the put option became a convertible note during the quarter ended July 31, 2010.

The note is convertible into shares of Desert common stock at an amount equal to (A) 350% of Desert’s EBITDA for the 12 full-months preceding such date, minus (i) the aggregate amount of Desert’s indebtedness to the initial Holder at such date and (ii) the aggregate amount of the Company’s indebtedness to the Desert Sellers at such date, divided by (B) the total number of issued and outstanding shares of common stock at such date. The note is also convertible into shares of Inova common stock at the lower of (i) $1.50 per share of Inova common stock and (ii) the lowest per share price of Inova common stock conversion price in effect at April 22, 2010 in any warrant, option, convertible note or other instrument that has been issued by Inova or that is otherwise convertible or exchangeable into Inova, after taking into effect any applicable reset or other conversion or exchange price adjustments. The conversion options are subject to reset provisions that can reduce the conversion prices based on subsequent equity or rights offerings by Desert or Inova below the prices above.  As a result of the exercise, the put option liability was transferred from derivative liabilities to notes payable during the quarter.

Because the number of shares to be issued upon settlement cannot be determined under these instruments, Inova cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments.  As a result of this, under ASC 815-15 “Accounting for  Derivative Financial Instruments Indexed to and Potentially Settled in, a Company's Own Stock” (formerly EITF 00-19), the conversion options noted above and all other share-settleable instruments are classified as liabilities.  Inova has two conversion options embedded in notes payable agreements and 76,407 warrants to purchase Inova common stock that are classified as liabilities as a result of the provisions of the convertible put notes.  As of July 31, 2010, Inova had $357,033 of derivative liabilities as a result of these provisions.

 
The following table summarizes the derivative liabilities included in the consolidated balance sheet:

Derivative Liabilities
     
Balance at April 30, 2010
  $ 5,607,940  
Reclassification of derivative liabilities to notes payable
    (1,515,900 )
Change in fair value
    (2,335,394 )
Balance at July 31, 2010
  $ 1,756.646  
 
Valuation Models

Inova values its warrant derivatives and simple conversion option derivatives using the Black-Scholes option-pricing model. Assumptions used include (1) 3% risk-free interest rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility 261% to 390%, (4) zero expected dividends (5) exercise prices as set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.

Inova valued the conversion options and reset provisions under its convertible put exercise note with Boone using a Monte Carlo simulation model utilizing present value and various probabilities of events. Assumptions used include (1) 0.55% risk free rate, (2) conversion prices as set forth in the agreement, (3) expected Inova stock price volatility of 261%, (4) expected Desert stock price volatility of 25%, and (6) common stock price of the underlying share on the valuation date. Inova valued the note as a combination of the underlying debt payment and series of two options. Since the options are mutually exclusive, the Monte Carlo simulation was used to estimate when either of the options is exercisable. When both are exercisable Inova assumed that the more valuable of the two would be exercised.

NOTE 5 –SEGMENT INFORMATION

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

The following table presents three month segment information:

   
Trakkers, LLC &
   
Edgetech
   
Desert
             
   
RightTag, Inc.
   
Services, Inc.
   
Communications, Inc.
   
Corporate
   
Total
 
                               
Revenues
  $ 496,124     $ -     $ 7,372,104     $ -     $ 7,868,228  
Net income (loss)
    (206,317 )     (21,797 )     565,441       1,840,053       2,177,380  
Total assets
    5,190,611       38       3,213,193       3,455,775       11,859,617  

 
NOTE 6 – WARRANTS

In May, 2010 Boone exercised warrants to purchase 1,505,572 shares of Inova common stock and 125.80 shares of Desert common stock.  Contemporaneously, Boone exercised the related put options, requiring Inova to repurchase the warrants shares from Boone for $1,515,900.  The liability for the put option exercise is included in notes payable.  See Note 4.
 
The following tables summarize common stock warrants outstanding by entity:
 
Warrants to purchase Inova common stock
 
Warrants
   
Weighted average exercise price
   
Aggregate intrinsic value
   
Weighted average remaining contractual life (years)
 
Outstanding at April 30, 2010
    2,408,071       0.05       2,720,778       4.11  
Granted
    -       -                  
Exercised
    (1,505,572 )     0.00                  
Forfeited
    -       -                  
Expired
    -       -                  
      902,499     $ 0.14       299,236       3.30  
                                 
Warrants to purchase Desert common stock
 
Warrants
   
Weighted average exercise price
   
Aggregate intrinsic value
   
Weighted average remaining contractual life (years)
 
Outstanding at April 30, 2010
    130.90     $ -     $ 1,072,842       5.10  
Granted
    -       -                  
Exercised
    (125.80 )     0.00                  
Forfeited
    -       -                  
Expired
    -       -                  
Outstanding at July 31, 2010
    5.10     $ 0.00     $ 41,725       6.46  
                                 
Warrants to purchase Trakkers common stock
 
Warrants
   
Weighted average exercise price
   
Aggregate intrinsic value
   
Weighted average remaining contractual life (years)
 
Outstanding at April 30, 2010
    32.94 %   $ -     $ 1,082,932       3.69  
Granted
    -       -                  
Exercised
    -       -                  
Forfeited
    -       -                  
Expired
    -       -                  
Outstanding at July 31, 2010
    32.94 %   $ -     $ 1,082,932       3.44  
 
All warrants above were exercisable as of July 31, 2010.

 
NOTE 7 – RESTATEMENT

On April 30, 2010, Inova’s Board of Directors identified a classification error in the Company’s financial statements as of and for the three months ended July 31, 2009. The Company determined that the accounting for put warrants granted with various notes payable was incorrect. The original accounting for these transactions classified the relative fair values of the put warrants as equity. After consideration of ASC 480-10-25-8 through 25-13 and 815-40-55-16 through 55-18 “Put Warrants”, the Company determined that these warrants should have originally been recorded as liabilities at their fair value with subsequent changes in fair value recorded through earnings. In addition, the Company identified certain unrecorded expenses and liabilities during fiscal 2010, and has adjusted for these unrecorded transactions as well.

The following table summarizes the impact of the restatements for the three months ended July 31, 2009:
 
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended July 31, 2009
(Unaudited)

    Previously                
   
Reported
   
Adjustments
     
Restated
 
             
Revenues
  $ 4,934,674     $ -       $ 4,934,674  
                           
Cost of revenues
    (3,122,758 )     (188,878 ) (1)     (3,311,636 )
Selling, general and administrative
    (1,481,430 )     76,351   (4)     (1,405,079 )
Depreciation and amortization expense
    (381,922 )     188,878   (1)     (193,044 )
Operating loss
    (51,436 )     76,351         24,915  
                           
Other income (expense):
                         
Loss on derivatives
    (2,344,340 )     696,777   (2)     (1,647,563 )
Other income
    690       -         690  
Interest expense
    (739,519 )     -         (739,519 )
Net loss
  $ (3,134,605 )   $ 773,128       $ (2,361,477 )
                           
Basic and diluted loss per share:
                         
Loss per share
  $ (1.29 )   $ 0.33   (3)   $ (0.96 )
Weighted average common shares
    2,436,675       23,519   (4)     2,460,194  
 
(1) To reclassify depreciation on revenue producing equipment to cost of revenues
   
(2) To record change in fair value of derivative liabilities resulting from reclassification of put warrants
   
(3) Impact of (1), (2) & (4)
       
(4) To record adjustment for shares recorded as issued during the year ended April 30, 2009 that were previously recorded during the three months ended July 31, 2009

 
Item 2. Management Discussion and Analysis of Financial Condition and Result of Operations.
 
The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operation contains “forward looking statements.” Actual results may materially differ from those projected in the forward looking statements as a result of certain risks and uncertainties set forth in this report. Although our management believes that the assumptions made and expectations reflected in the forward looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual future results will not be materially different from the expectations expressed in this Annual Report. The following discussion should be read in conjunction with the unaudited Consolidated Financial Statements and related Notes included in Item 1.
 
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JULY 31, 2010

Net revenues increased from $4,934,674 in the three-month period ending July 31, 2009 to $7,868,228 for the three-month period ending July 31, 2010. The increase in revenue is due to changes in the timing of various projects, in addition to the reversal of the worldwide economic slowdown.

Cost of sales increased from $3,311,636 in the three-month period ending July 31, 2009 to $5,727,849 for the three-month period ending July 31, 2010. The increase came from the revenue increase described above.

Operating expenses decreased from $1,405,079 for the three months ending July 31, 2009 to $1,366,532 for the same period in 2010. This was mainly due to the decrease in bonus and management fee expense in Desert.

Net loss decreased from $2,361,477 for the three months ending July 31, 2009 to net income of $2,177,380 for the same period in 2010. This is due to a change from a derivative loss of $1,647,563 during the three months ended July 31, 2009 to a derivative gain of $2,335,394 for the three months ended July 31, 2010.
 
LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations for the three month period ended July 31, 2010 was $159,939 as compared to cash provided by operations of $120,714 for the three months ended July 31, 2010. This change is primarily due to higher revenues. Cash used in investing activities for the three month period ended July 31, 2010 was $11,746, as compared to $0 for the three months ended July 31, 2009. Cash used in financing activities for the period ended July 31, 2010 was $47,968, as compared to $703,560 used in financing activities for the three months ended July 31, 2009.
  
Our operating activities for the three months ended July 31, 2010, have generated adequate cash to meet our operating needs. As of July 31, 2010, we had cash and cash equivalents totaling $436,971, and total receivables of $2,778,306.
 
As of the date of the filing the Company is attempting to restructure its debt with Boone and some other creditors. If successful there would be a significant decrease in the current portion of debt outstanding, interest rate reductions and extended maturity dates.  If unsuccessful, we will continue to be in default on these loans and incur additional interest expense.
 
 
EBITDA

EBITDA for the 3 month period is $770,231. EBITDA is Earnings before interest, tax, depreciation and amortization:
 
EBITDA
 
July 31, 2010
 
       
Net income
  $
2,177,380
 
         
Interest
   
697,703
 
Derivative gain
   
     (2,335,394
Tax
   
15,000
 
         
Depreciation/Amortization
   
215,542
 
         
EBITDA
   
770,231
 


(a)  Evaluation of disclosure controls and procedures.

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

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

Item 1. Legal Proceedings.

None

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

None

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Other Information

None
 
Item 5. Exhibits
 
(A) Exhibits

 
 
SIGNATURES

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

     
Dated: September 17, 2010
By:
/s/ Adam Radly                                            
  
  
Adam Radly
  
  
Chief Executive Officer
  
  
  
Dated: September 17, 2010
By:
/s/ Bob Bates                                                  
  
  
Bob Bates
  
  
Chief Financial Officer