Innovaro, Inc. Reports Financial Results For The Three Months Ended June 30, 2012

Innovaro, Inc. (NYSE Amex: INV), today announced that total revenue from continuing operations was $1.9 million for the quarter ended June 30, 2012 as compared to $800,000 for the quarter ended March 31, 2012 and compared to $4.7 million for the quarter ended June 30, 2011 and loss from continuing operations for the quarter ended June 30, 2012 was ($4.8) million as compared to ($1.4) million for the quarter ended March 31, 2012 and compared to ($1.6) million for the quarter ended June 30, 2011.

Second Quarter 2012 Financial Results Summary from Continuing Operations
  • Total revenue decreased to $1.9 million for the three months ended June 30, 2012 from $4.7 million for the three months ended June 30, 2011.
  • Strategic Services revenue decreased by 62% over second quarter 2011.
  • Intelligence and Insights revenue increased by 32% over second quarter 2011.
  • Total expenses increased to $7.3 million for the three months ended June 30, 2012 from $6.2 million for the three months ended June 30, 2011. The expenses for the three months ended June 30, 2012 included an impairment loss related to goodwill and intangibles of $4.8 million.
  • Loss from continuing operations for the three months ended June 30, 2012 was ($4.8) million, which included the following non-cash expenses: $4.8 million impairment loss, $259,000 in non-cash depreciation and amortization, and $91,000 in non-cash stock-based compensation expense related to vesting options, partially offset by a non-cash benefit of $516,000 from the provision for income tax. Loss from continuing operations for the three months ended June 30, 2011 was ($1.6) million, which included the following non-cash expenses: $310,000 in non-cash depreciation and amortization and $186,000 in non-cash stock-based compensation expense related to vesting options.

Discontinued Operations

During the quarter ended June 30, 2012, as part of the Company’s strategy to maximize cash flow, the Company decided to dispose of certain of its operating divisions that are included in its Intelligence and Insights segment. On June 4, 2012, the Company entered into a non-binding letter of intent with IPFlow International, LLC to sell its Pharmalicensing, Pharma Transfer, Global Licensing and Knowledge Express operating divisions and all related assets for $2,000,000. Under the letter of intent, a definitive agreement had to be reached before August 4, 2012. However, the Company is in continuing discussions with the buyer and believes that it is probable that a definitive agreement will still be reached. The agreement remains subject to customary conditions including negotiation of mutually agreeable terms, satisfactory completion of due diligence and the buyer securing financing. No assurances can be provided that a definitive agreement will be reached and that the sale will be completed.

The Company has determined that these divisions meet the criteria for classification as discontinued operations as of June 30, 2012. Should the sale be completed, the operations and cash flows of these divisions will be eliminated from the Company’s ongoing operations, and the Company will have no significant continuing involvement in these divisions’ operations. Based on an estimate of proceeds from the sale of these divisions, the Company recognized impairment totaling $255,126 in the second quarter of 2012. The Company has reflected the operations of these divisions as discontinued operations in the statements of comprehensive income for all periods presented in this press release and in the Form 10-Q. In addition, the Company has classified the assets and liabilities of the discontinued divisions as current and noncurrent assets and liabilities held for sale in the consolidated balance sheets for all periods presented in this press release and in the Form 10-Q. Substantially all the cash flows from discontinued operations for all periods presented relate to operating activities, and accordingly, the Company has presented cash flows from discontinued operations as a single line item in the consolidated statements of cash flows in this press release and in the Form 10-Q.

The summary of comparative revenue is as follows:
Revenue for the quarter ended   June 30, 2012   March 31, 2012   June 30, 2011
From continuing operations   $1,900,000   $800,000   $4,700,000
From discontinued operations $500,000   $400,000   $600,000
From all operations $2,400,000   $1,200,000   $5,300,000

Financial Condition

Our total assets were $15.0 million and $20.8 million as of June 30, 2012 and December 31, 2011, respectively. As of June 30, 2012, we had $570,000 in cash, $640,000 in accounts receivable, $38,000 in contracts in process, $3.0 million in accounts payable, accrued expenses and accrued bonus, and $5.4 million in total debt outstanding (of which $1.25 million is due in October 2012 and $2.8 million is due in May 2013). As of December 31, 2011, we had $268,000 in cash, $507,000 in accounts receivable, $513,000 in contracts in process, $2.4 million in accounts payable, accrued expenses and accrued bonus, and $5.6 million in total debt outstanding.

Recent Developments

On August 8, 2012, Bruce Lucas, a member of our Board of Directors, resigned from our Board of Directors effective immediately. On August 9, 2012, Charles Pope, the Chairman of our Board of Directors, resigned from our Board of Directors effective immediately. Each director confirmed that his resignation was due to personal reasons and not as a result of any disagreement with us with respect to our policies, operations or practices. Our Board of Directors has elected Mark Berset to serve as Chairman of the Board of Directors.

Asa Lanum, Innovaro’s CEO stated, “We are pleased with the improved performance in revenue for the second quarter of 2012 versus the first quarter of 2012. Although we see significant opportunity, there remains substantial work to do to make the transition into a mode of repeatable revenue growth and achieve our goals. The third quarter will be challenging for us as we continue to make that transition and restructure Innovaro.”
   

Innovaro, Inc.

Consolidated Balance Sheet
 

June 30, 2012 (Unaudited)

December 31, 2011
ASSETS
Current assets:
Cash $570,401 $268,170
Accounts receivable, net 639,752 507,482
Contracts in process 37,849 513,040
Available-for-sale securities 6,552 55,038
Prepaid expenses and other current assets 171,349 235,285
Note receivable and accrued interest 1,856,000 1,804,000
Current assets held for sale 221,077   351,093  
Total current assets 3,502,980 3,734,108
Cost method investments 86,784 86,784
Equity method investments 92,148 92,148
Fixed assets, net 5,521,077 5,619,003
Goodwill - 3,386,898
Intangible assets, net 3,085,483 4,831,630
Noncurrent assets held for sale 2,715,956   3,015,694  
Total assets $15,004,428   $20,766,265  
 
LIABILITIES
Current liabilities:
Accounts payable $821,423 $512,840
Accrued expenses 739,069 449,432
Accrued bonus pool 1,408,332 1,444,955
Deferred revenue 247,292 123,836
Current maturities of long-term debt 4,183,006 1,644,664
Current liabilities held for sale 742,143   794,893  
Total current liabilities 8,141,265 4,970,620
Long-term debt, less current maturities 1,250,000 3,997,775
Deferred tax liability 283,308 798,839
Noncurrent liabilities held for sale 194,890   191,703  
Total liabilities 9,869,463   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; 15,551,410 and 15,159,544 shares issued; 15,456,410 and 15,039,544 shares outstanding at June 30, 2012 and December 31, 2011, respectively 154,564 150,396
Additional paid-in capital 87,335,178 86,820,437
Accumulated deficit (82,623,709 ) (76,453,214 )
Accumulated other comprehensive income 37,325   53,939  
Total Innovaro stockholders’ equity 4,903,358 10,571,558
Noncontrolling interest 231,607   235,770  
Total equity 5,134,965   10,807,328  
Total liabilities and equity $15,004,428   $20,766,265  
 
   

Innovaro, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
2012   2011 2012   2011
Revenue:
Strategic services $1,734,860 $4,555,245 $2,478,531 $7,583,106
Intelligence and Insights services 148,750   112,317   226,916   255,192  
1,883,610   4,667,562   2,705,447   7,838,298  
Expenses:
Direct costs of revenue – Strategic services 1,123,430 4,475,680 1,947,248 6,157,242
Direct costs of revenue – Intelligence and Insights services

168,935

150,237

365,140

315,117
Salaries and wages 240,928 352,444 503,687 520,473
Professional fees 91,309 96,136 163,580 178,109
Research and development 139,988 330,087 240,251 633,664
Sales and marketing 30,885 40,105 84,009 78,864
General and administrative 469,632 463,603 903,929 907,853
Depreciation and amortization 258,661 309,867 521,402 622,082
Impairment loss 4,756,898   -   4,756,898   -  
7,280,666   6,218,159   9,486,144   9,413,404  
Other (income) and expense:
Other (income) expense (230,748 ) 8,685 (351,534 ) 14,678
Interest expense, net 142,560   81,623   277,336   223,210  
(88,188 ) 90,308   (74,198 ) 237,888  
 
Loss from continuing operations before income taxes (5,308,868 ) (1,640,905 ) (6,706,499 ) (1,812,994 )
Provision for income tax expense (benefit) (515,531 ) (9,814 ) (515,531 ) (19,628 )
Loss from continuing operations (4,793,337 ) (1,631,091 ) (6,190,968 ) (1,793,366 )
Income (loss) from discontinued operations, net of tax (73,747 )

164,614
  16,310  

151,149
 

Net loss
(4,867,084 )

(1,466,477

)
(6,174,658 )

(1,642,217

)
 
Net loss attributable to the noncontrolling interest (2,977 ) (1,976 ) (4,163 ) (4,403 )
Net loss attributable to Innovaro stockholders (4,864,107 ) (1,464,501 ) (6,170,495 ) (1,637,814 )
 
Other comprehensive income (loss) (37,801 ) 1,155   (32,213 ) (48,341 )
 
Comprehensive loss $(4,901,908 ) $(1,463,346 ) $(6,202,708 ) $(1,686,155 )
 
Basic and diluted income (loss) per share:
Loss from continuing operations $(0.32 ) $(0.11 ) $(0.41 ) $(0.12 )
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
Net loss (0.32 ) (0.10 ) (0.41 ) (0.11 )
 
Weighted average shares outstanding: Basic and diluted 15,174,780 14,963,859 15,119,662 14,993,148
 
 

Innovaro, Inc.

Consolidated Statements of Cash Flows

(Unaudited)
 
Six Months Ended June 30,
2012   2011
Operating Activities:
Net loss $(6,174,658 ) $(1,642,217 )
Less: Income from discontinued operations, net of tax 16,310   151,149  
 
Loss from continuing operations (6,190,968 ) (1,793,366 )
Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities:
Depreciation and amortization 520,259 620,897
Amortization of debt discount from investor warrants 65,889 65,526
Stock issued for services 97,499 -
Goodwill impairment 3,386,898 -
Intangible asset impairment 1,370,000 -
Loss (gain) on sale and impairment of available-for-sale securities (47,630 ) 201
Loss on derivative liabilities - 150,825
Stock-based compensation 189,580 268,135
Deferred income taxes (515,531 ) (19,628 )
Other 45,596 12,082
Changes in operating assets and liabilities:
Accounts receivable and contracts in process 342,921 (610,388 )
Prepaid expenses and other assets (23,430 ) (40,855 )
Deferred revenue 123,456 (14,849 )
Accounts payable and other liabilities 561,597   1,857,510  
Net cash flows from operating activities of continuing operations (73,864 ) 496,090  
 
Investing Activities:
Capital expenditures (661 ) (22,758 )
Capitalization of software development costs (45,525 ) -
Proceeds from sale of available-for-sale securities 63,903   -  
Net cash flows from investing activities of continuing operations 17,717   (22,758 )
 
Financing Activities:
Net proceeds from stock offering 231,830 -
Payments on long-term debt (285,552 ) (383,350 )
Net cash flows from financing activities of continuing operations (53,722 ) (383,350 )
 
Net cash flows from continuing operations (109,869 ) 89,982
 
Net cash flows from discontinued operations 412,100   280,386  
 
Increase in cash 302,231 370,368
Cash at beginning of period 268,170   262,619  
Cash at end of period $570,401   $632,987  
 

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.

Investors and analysts can participate in the call by dialing:

US & Canada: 866-578-1005

UK: 0-800-368-0590

Other International Callers: 713-481-0091

About Innovaro, Inc.

Innovaro is The Innovation Solutions Company. The focus of our business is to help clients innovate and grow. Innovaro offers a comprehensive set of services and software to ensure the success of any innovation project, regardless of the size or intent. The Company’s unique combination of consulting services provides innovation expertise, its new LaunchPad software product provides an integrated innovation environment, and Intelligence and Insights services provide businesses the innovation support to drive success. For more information about Innovaro, please visit its website at www.innovaro.com.

Forward-Looking Statements

Certain matters discussed in this press release are “forward-looking statements.” These forward-looking statements can generally be identified as such because the context of the statement will include words such as “expects,” “should,” “believes,” “anticipates” or words of similar import. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements and these factors are identified from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This press release is available at www.innovaro.com.

Copyright Business Wire 2010

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