The accompanying unaudited interim
consolidated financial statements of Inova Technology, Inc. (we, our, Inova or the Company)
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 (SEC) and should be
read in conjunction with the audited financial statements and notes
thereto contained in Inovas 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
Fair Value Measurements
Financial Accounting Standards
Board Accounting Standards Codification (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, 2012, Inova measured its derivative liabilities
using Level 3 inputs as defined by ASC 820 with a total fair value of $1,238,323.
Certain prior year amounts have been reclassified
to conform to the current year presentation.