Innovaro, Inc. Reports Financial Results for the Three and Nine Months Ended September 30, 2012

Innovaro, Inc. (NYSE MKT: INV) today announced that total revenue from continuing operations was $190,000 for the quarter ended September 30, 2012 as compared to $61,000 for the quarter ended September 30, 2011 and loss from continuing operations for the quarter ended September 30, 2012 was ($796,000) as compared to ($1.1) million for the quarter ended September 30, 2011.

Third Quarter 2012 Financial Results Summary from Continuing Operations

  • Intelligence and Insights revenue increased by 210% over third quarter 2011.
  • Total expenses from continuing operations decreased to $1.0 million for the three months ended September 30, 2012 from $1.2 million for the three months ended September 30, 2011.
  • Loss from continuing operations for the three months ended September 30, 2012 was ($796,000), which included $247,000 in non-cash depreciation and amortization expense, Loss from continuing operations for the three months ended September 30, 2011 was ($1.1 million), which included $262,000 in non-cash depreciation and amortization expense.

Nine Months 2012 Financial Results Summary from Continuing Operations

  • Intelligence and Insights revenue increased by 32% over the nine months ended September 30, 2011.
  • Total expenses from continuing operations decreased to $3.4 million for the nine months ended September 30, 2012 from $4.0 million for the nine months ended September 30, 2011.
  • Loss from continuing operations for the nine months ended September 30, 2012 was ($2.8 million), which included $758,000 in non-cash depreciation and amortization. While loss from continuing operations for the nine months ended September 30, 2011 was ($3.9 million), which included $868,000 in non-cash depreciation and amortization.

Discontinued Operations

Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions

The Company sold the Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions to IP Technology Exchange, Inc. (“IP TechEx”) effective as of August 31, 2012, pursuant to an asset purchase agreement dated September 12, 2012.

Strategic Services operating division

During the third quarter of 2012, as part of the Company’s strategy to maximize cash flow the Company’s Board of Directors approved the disposal of the strategic services division, Strategos. The sale of this division was subsequently completed on October 2, 2012.

The Company has determined that each of these divisions meet the criteria for classification as discontinued operations as of September 30, 2012. The Company has reflected the operations of these divisions as discontinued operations in the consolidated statements of comprehensive income for all periods presented. 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.

Financial Condition

Our total assets were $12.5 million and $20.8 million as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012, our assets and liabilities from continuing operations included $314,000 in cash, $117,000 in accounts receivable, $1.2 million in accounts payable and accrued expenses, and $5.3 million in total debt outstanding. As of December 31, 2011, our assets and liabilities from continuing operations included $268,000 in cash, $102,000 in accounts receivable, $878,000 in accounts payable and accrued expenses, and $5.6 million in total debt outstanding.

Recent Developments

On September 12, 2012, we sold our Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions to IP Technology Exchange, Inc. effective as of August 31, 2012. Under the Asset Purchase Agreement, IP Technology Exchange, Inc. will pay the Company $2,000,000 consisting of (i) a lump-sum payment of $600,000 at the time of the sale, (ii) assumption of approximately $70,000 of debt relating to the Divisions, (iii) quarterly payments of $100,000 through August 2014, and (iv) the remaining balance of the purchase price on September 1, 2014. On November 30, 2012, any outstanding balance of the purchase price will begin accruing interest at 5% per annum. IP Technology Exchange, Inc. is entitled to a $125,000 reduction in the purchase price if all amounts are paid to us by May 1, 2013. Two of our current executive officers collectively own 14% equity interest in IP Technology Exchange, Inc.

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 307,7488,083,764
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 1,541,5082,324,389
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 94,075801,309
Total liabilities 8,508,2079,958,937
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 3,61653,939
Total Innovaro stockholders’ equity 3,788,726 10,571,558
Noncontrolling interest 229,721235,770
Total equity 4,018,44710,807,328
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,

2012201120122011
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 246,908261,714758,157868,458
1,041,9791,168,8733,449,6074,008,725
Other (income) and expense:
Other (income) expense (156,406) (87,657) (512,110) (70,941)
Interest expense, net 100,662106,308315,161329,257
(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,
20122011
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 422,963445,711
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 823,2724,025,502
Increase in cash 45,617 1,283,323
Cash at beginning of period 268,170262,619
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.

Investors and analysts can participate in the call by dialing:

US & Canada: 866-578-1005

Other International Callers: 713-481-0091

About Innovaro, Inc.

Innovaro is The Innovation Solutions Company. We help clients innovate and grow. Innovaro offers a comprehensive set of services and software to assure the success of any innovation project, regardless of the size or intent. The Company's unique combination of LaunchPad software 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.

Contacts:

Innovaro
Tania Bernier, 813-754-4330 x223
media@innovaro.com
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