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Innovaro, Inc. Reports Financial Results For The Three And Nine Months Ended September 30, 2012

On October 2, 2012, we entered into an asset purchase agreement to sell certain assets, primarily intellectual property rights and equipment, relating to our strategic services division, known as Strategos, to one of our officers and employees for $100,000. In connection with the asset purchase agreement, we entered into separation and release agreements with all of the officers and employees of our Strategos division pursuant to which they agreed to forgo approximately $1.4 million in bonuses we owed them (and which bonuses had previously been accrued as an expense in our financial statements) in exchange for $150,000. Finally, as part of the transaction, we also entered into a technology license agreement with Strategos, Inc., a newly formed company that will carry on the business formerly conducted by our Strategos division, pursuant to which we agreed to license Strategos, Inc. certain technology and intellectual property rights relating to our Strategos division, including the use of the name “Strategos,” for royalty payments equal to 12.5% of the professional fee revenue earned by Strategos, Inc. in excess of $10 million during the period from October 2, 2012 to December 31, 2015.

On October 22, 2012, our lender agreed to extend the maturity date on the $1.25 million that would otherwise be due on that date. We and the lender are in the process of documenting the agreement.

Innovaro, Inc.

Consolidated Balance Sheets
 

September 30, 2012

(Unaudited)

December 31, 2011
ASSETS
Current assets:
Cash $313,787 $268,170
Accounts receivable, net 117,077 101,785
Stock subscriptions receivable 250,000 -
Available-for-sale securities 5,242 55,038
Prepaid expenses and other current assets 99,324 225,657
Current portion of notes receivable and accrued interest 2,282,044 1,804,000
Current assets held for sale - 1,279,458
Total current assets 3,067,474 3,734,108
Cost method investments 86,784 86,784
Equity method investments 92,148 92,148
Notes receivable, net of current portion 932,949 -
Fixed assets, net 5,463,508 5,610,956
Intangible assets, net 2,576,043 3,158,505
Noncurrent assets held for sale 307,748 8,083,764
Total assets $12,526,654 $20,766,265
 
LIABILITIES
Current liabilities:
Accounts payable $518,855 $512,840
Accrued expenses 711,509 364,891
Deferred revenue 159,436 123,836
Current maturities of long-term debt 4,043,591 1,644,664
Current liabilities held for sale 1,541,508 2,324,389
Total current liabilities 6,974,899 4,970,620
Long-term debt, less current maturities 1,250,000 3,997,775
Deferred tax liability 189,233 189,233
Noncurrent liabilities held for sale 94,075 801,309
Total liabilities 8,508,207 9,958,937
 
EQUITY
Innovaro stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding - -
Common stock, $.01 par value, 29,000,000 shares authorized; 15,471,410 and 15,159,544 shares issued; 15,471,410 and 15,039,544 shares outstanding at September 30, 2012 and December 31, 2011, respectively 154,714 150,396
Common stock payable 250,000 -
Additional paid-in capital 87,399,671 86,820,437
Accumulated deficit (84,019,275) (76,453,214)
Accumulated other comprehensive income 3,616 53,939
Total Innovaro stockholders’ equity 3,788,726 10,571,558
Noncontrolling interest 229,721 235,770
Total equity 4,018,447 10,807,328
Total liabilities and equity $12,526,654 $20,766,265

Innovaro, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)
   

Three Months Ended September 30,

Nine Months Ended September 30,
2012   2011 2012   2011
Revenue:
Intelligence and Insights services $190,416 $61,484 $417,334 $316,676
 
Expenses:
Direct costs of revenue – Intelligence and Insights services 177,273 154,468 542,525 479,344
Salaries and wages 169,959 258,064 574,943 665,486
Professional fees 97,255 97,097 253,955 274,707
Research and development 94,637 27,936 334,888 661,600
Sales and marketing 5,499 88,058 45,857 118,774
General and administrative 250,448 281,536 939,282 940,356
Depreciation and amortization 246,908 261,714 758,157 868,458
1,041,979 1,168,873 3,449,607 4,008,725
Other (income) and expense:
Other (income) expense (156,406) (87,657) (512,110) (70,941)
Interest expense, net 100,662 106,308 315,161 329,257
(55,744) 18,651 (196,949) 258,316
 
Loss from continuing operations before income taxes (795,819) (1,126,040) (2,835,324) (3,950,365)
Provision for income tax expense (benefit) - - - (19,628)
Loss from continuing operations (795,819) (1,126,040) (2,835,324) (3,930,737)
Income (loss) from discontinued operations, net of tax (including loss on disposal) (601,634) (11,413) (4,736,786) 1,151,067

Net loss
(1,397,453) (1,137,453) (7,572,110) (2,779,670)
 
Net loss attributable to the noncontrolling interest (1,886) (2,835) (6,049) (7,238)
Net loss attributable to Innovaro stockholders (1,395,567) (1,134,618) (7,566,061) (2,772,432)
 
Other comprehensive income (loss) (1,310) (11,854) (33,523) (60,195)
 
Comprehensive loss $(1,396,877) $(1,146,472) $(7,599,584) $(2,832,627)
 
Basic and diluted income (loss) per share:
Loss from continuing operations $(0.05) $(0.08) $(0.19) $(0.26)
Income (loss) from discontinued operations $(0.04) $0.00 $(0.31) $0.07
Net loss $(0.09) $(0.08) $(0.50) $(0.19)
 
Weighted average shares outstanding: Basic and diluted 15,458,040 15,024,970 15,233,278 15,003,871

Innovaro, Inc.

Consolidated Statements of Cash Flows

(Unaudited)
 
Nine Months Ended September 30,
2012   2011
Operating Activities:
Net loss $(7,572,110) $(2,779,670)
Less: Income (loss) from discontinued operations, net of tax (4,736,786) 1,151,067
 
Loss from continuing operations (2,835,324) (3,930,737)
Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities:
Depreciation and amortization 758,157 868,458
Amortization of debt discount from investor warrants 98,831 98,832
Stock issued for services 97,499 -
Loss (gain) on sale and impairment of available-for-sale securities (47,630) 201
Loss on derivative liabilities - 150,825
Stock-based compensation 262,767 240,918
Deferred income taxes - (19,628)
Other 52,036 12,673
Changes in operating assets and liabilities:
Accounts receivable (15,292) 41,671
Prepaid expenses and other assets 9,644 113,436
Deferred revenue 35,600 (27,068)
Accounts payable and other liabilities 422,963 445,711
Net cash flows from operating activities of continuing operations (1,160,749) (2,004,708)
 
Investing Activities:
Capital expenditures (661) (26,733)
Capitalization of software development costs (45,525) (185,272)
Proceeds from disposal of business 600,000 -
Proceeds from sale of available-for-sale securities 63,903 -
Net cash flows from investing activities of continuing operations 617,717 (212,005)
 
Financing Activities:
Net proceeds from stock offering 223,286 -
Payments on long-term debt (457,909) (525,466)
Net cash flows from financing activities of continuing operations (234,623) (525,466)
 
Net cash flows from continuing operations (777,655) (2,742,179)
 
Net cash flows from discontinued operations 823,272 4,025,502
 
Increase in cash 45,617 1,283,323
Cash at beginning of period 268,170 262,619
Cash at end of period $313,787 $1,545,942

Conference Call Information

We will host a live conference call at 4:30 p.m. ET today to discuss the results. Investors and analysts are invited to attend the conference call.

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