Item 1. Business
Item 1.
Business
Unless the context requires otherwise, reference in this Form 10-K to UTEK, the Company, we, us and words of similar import refer to UTEK Corporation and its wholly owned subsidiaries,
UTEK-Europe, Ltd. (Europe), UTEKip, Ltd. (Israel) and UTEK Real Estate Holdings, Inc. UTEKip, Ltd. was dissolved in 2008 and all operations of that subsidiary are currently being serviced by UTEK. In addition, the legal entities for Innovaro, Ltd.,
Pharmalicensing, Ltd. and Carmi, Inc. (Strategos) still exist, but their operations have been assumed by UTEK and UTEK-Europe, Ltd.
We commenced operations in 1997 and were originally incorporated under the laws of the State of Florida, and subsequently under the laws of the State of Delaware in July 1999.
Until September 30, 2009, we were a non-diversified, closed-end management investment company that had elected to be treated as a
business development company (BDC) under the Investment Company Act of 1940 (1940 Act).
Withdrawal of our Election
to be Treated as a Business Development Company under the Investment Company Act of 1940
On October 1, 2009, we filed
a notification on Form N-54C with the Securities and Exchange Commission (SEC) withdrawing our election to be regulated as a BDC under the 1940 Act. As such, we are reporting as an operating company as of October 1, 2009.
We determined, based on our current business focus and the fact that the equity interests we hold have constituted a
declining amount of our assets over the last couple of years, that we no longer met the requirements to be regulated as a BDC under the 1940 Act. Accordingly, and after careful consideration of the requirements applicable to BDCs under the 1940 Act,
the cost of compliance with the provisions of the 1940 Act and a thorough assessment of our current business model, our Board of Directors determined that we should withdrawal our election to be regulated as a BDC under the 1940 Act.
The withdrawal of our election to be regulated as a BDC caps the transition of our business to a global IP licensing and innovation services
company. We believe that this change will reduce our administrative and regulatory compliance costs, including the significant legal, valuation and other compliance-related expenses associated with the business development company regulatory regime,
as well as increase our ability to raise financing and provide us with greater flexibility in operating our business.
As an operating company, we are required to consolidate UTEK Real Estate Holdings, Inc. and its subsidiaries: Ybor City Group, Inc., 22 nd Street of Ybor City, Inc., ABM of Tampa Bay, Inc. and Cortez 114, LLC (collectively UTEK Real Estate).
This represents a change because, pursuant to accounting standards applicable to BDCs, UTEKs investments in these companies were categorized as portfolio company investments and were not consolidated into UTEK. The assets, liabilities and
results of operations of UTEK Real Estate have been included in our consolidated financial statements from October 1, 2009. The consolidation of UTEK Real Estate had a significant effect on our balance sheet as of December 31, 2009 as it
added approximately $500,000 in investments, $8.0 million in land and buildings and $4.2 million in related long-term debt. The consolidation did not have a material effect on our results of operations for the three months ended December 31,
2009.
As a result of our de-election from BDC status, we make reference to both Investment Company Accounting and Operating
Company Accounting throughout this document. Investment Company Accounting, as we refer to it, is defined as accounting in accordance with U.S. generally accepted accounting principles (US GAAP) for investment companies under the 1940
Act. Operating Company Accounting, as we refer to it, is defined as accounting in accordance with US GAAP other than for Investment Companies under the 1940 Act.
1
Table of Contents
Business Overview
We help clients become stronger innovators, develop compelling strategies to drive and catalyze growth, rapidly source externally developed technologies, create added value from their intellectual
property and gain foresight into marketplace and technology developments that affect their business. These services are primarily provided throughout the United States and the United Kingdom.
Innovation Consulting Services
Strategic Innovation Consulting
Our clients require strategies to help them embrace greater innovation
capabilities. We apply innovation insights and build those strategies with supporting infrastructure, processes & mechanisms, creating a culture primed for repeatable innovation success. We help organizations create and realize new,
breakthrough growth strategies, create and execute non-incremental new growth platforms and opportunities, and develop the capability for ongoing creation and execution of those growth platforms and concepts.
We provide strategic innovation consulting services to enable clients to become more efficient by finding new avenues to growth, fighting
commoditization, improving return on investment, transforming the organization, and removing barriers to innovation. Business value is delivered to our clients through working with a team of seasoned and experienced professionals capable of
unlocking an organizations capacity by offering the following services:
Identify and develop new segments and markets;
Create and act on game-changing strategies;
Build an enterprise-wide capability for innovation;
Accelerate and improve new product development processes; and
Assess a companys innovation capability.
Foresight and Trend Research
Foresight is the ability of an organization
to understand the ways in which the future might emerge and to apply that understanding in organizationally useful ways. Strategic foresight may also be used to detect adverse conditions, guide policy and help shape strategy. We provide services to
clients that build the capacity for foresight, including monitoring trends, researching topics of interest, forecasting alternative scenarios, developing technology roadmaps, creating growth platforms and embedding futures thinking within the
organization.
We also offer innovative futures programs that provide clients with up-to-the-minute knowledge, expert insight,
high-level learning experiences, and opportunities to network with experts and peers. Our futures programs are as follows:
Futures Consortium is a membership service that provides members access to research briefs, member meetings and networking events, and onsite workshops.
Futures Observatory is a membership service that provides members a steady stream of observations that illustrate the latest developments in key global trends. The observations are
brief, timely discussions of real-life events or circumstances in key markets, which exemplify how trends are playing out in the market.
Futures Interactive is a customizable, web-based knowledge management tool that gathers and organizes information from across a company in one, intuitive platform.
2
Table of Contents
Clients
Approximately 70%, 55% and 0% of our revenue in 2009, 2008 and 2007, respectively, was from innovation consulting services. We have a global client base including both private and public sector
organizations, representing multiple industries including fast moving consumer goods, consumer packaged goods, retail, medical, telecommunications, chemicals, media, financial services, energy, utilities and government agencies. We had one
significant consulting client for the year ended December 31, 2009 and two significant consulting clients for the year ended December 31, 2008, which accounted for 10% and 27% of the total revenue, respectively.
Competition
The strategic
innovation consulting business is highly competitive. We currently have significant competitors for many of our service offerings, including but not limited to McKinsey & Company, The Boston Consulting Group and Monitor Group, Inc. for
strategic innovation consulting and Forrester Research, Inc. and Gartner, Inc. for foresight and trend research.
Sale of Technology
Rights
Our services enable companies to acquire externally developed technologies from universities, university
incubators, federal labs, medical centers, and corporate research laboratories worldwide to augment their internal research and development efforts. A sale of technology rights refers to the process by which these technologies are licensed to
companies for potential commercial development and use. Our goal is to provide our clients an opportunity to acquire and commercialize innovative technologies primarily developed external to their business.
Historically, to effectuate a technology transfer, we would typically create a newly formed company to acquire a new technology from a
university, medical center, corporation or federal research laboratory and then sell this newly formed company to our client for securities or cash. In the ordinary course of business, we would then sell the securities we received in exchange for
cash or other assets. A benefit of effectuating technology transfers through this process is that such transactions did not result in a current taxable event for income tax purposes. A disadvantage resulted from the fact that our business focused on
small- and mid-cap companies, which are typically more volatile and left us open to the risk of declining stock prices.
Overall equity market conditions generally forced micro-capitalization stock prices down, making it more difficult for some of our clients to issue a reasonable amount of stock with sufficient value in exchange for these technologies during
2008. In addition, we began to pursue technology transfers on a more selective basis to mitigate the risk of declining stock prices with respect to the stock consideration we have historically received in connection with our technology transfers.
Following our study of the potential market and resulting opportunity for UTEK, we shifted our focus from technology
transfers with small- and micro-cap companies to developing relationships with large capitalization clients in 2009. Our shift toward these larger capitalization clients, which are expected to be more stable and more amenable to cash based
technology transfer services, requires us to develop a modified sales approach. This strategy helps us mitigate the risk of declining stock prices with respect to the stock consideration previously received in connection with technology transfers
with small- to mid-cap companies whose stock is typically more volatile.
Our client make up is now more heavily weighted
towards larger capitalization companies, which has caused a significant slowdown in the process to complete a technology transfer given the more measured decision making process with respect to executing a technology transfer by these companies.
This has resulted in a decrease in the number of executed technology transfers during 2009.
3
Table of Contents
Clients
Approximately 0%, 23% and 81% of our revenue in 2009, 2008 and 2007, respectively, was from the sale of technology rights. We have a global client base including private and public sector organizations of
varying sizes, representing a wide range of industries.
Competition
We have capable competitors in the licensing business including, IP Group plc, British Technology Group plc, Intellectual Ventures, Yet2.com,
Competitive Technologies, Inc. and many other firms. In addition, university technology commercialization offices also provide location specific competition with regard to the intellectual property which they have developed and have available for
license.
Subscription and Other Services
Subscription and other services include income from both our subscription services segment and our other services segment.
Online Licensing Platform
Our online licensing services division provides
the following subscription-based website services:
Pharmalicensing is a biopharmaceutical innovation resource designed for life science professionals driving partnering, licensing and
business development worldwide. Pharmalicensing affords clients the ability to in-license and out-license intellectual property and also provides partnering services, business development reports, industry news and a jobs source for candidates and
employers. To further grow traffic, we are continuing to develop partnerships with sites such as Patents.com.
Medical Device Licensing is an online global resource for open innovation, partnering, licensing and business development within the
medical device industry. Medical Device Licensing benefits from the Pharmalicensing traffic and partnerships as well as establishing some of its own with member associations around the globe to further its reach and exposure.
Knowledge Express is a searchable database of information for licensing professionals, which provides clients with comprehensive coverage
of licensing agreements, corporate profiles, clinical trials, deals, drug pipelines, drug sales, licensable technologies, patents and royalty rates.
Pharma Transfer provides a source of research and peer reviewed business development opportunities for the international pharmaceutical
market encompassing all areas of pipeline development including early-stage discovery, pre-clinical and clinical trials and registered products that are all available for co-development or licensing.
TekScout , a development stage platform, enables companies to outsource unfinished R&D projects to scientists from around the world.
TekScout provides a platform for companies to supplement internal R&D and resources to accelerate product development.
Global Technology Licensing
Our global technology licensing service enables clients to enhance their new
product pipeline through the acquisition of proprietary technologies primarily from universities, medical centers, federal research laboratories, select corporations, and university incubator programs. A global network of technology providers,
coupled with an in-house staff of scientists and researchers, offers companies low-cost, low-risk access to review and acquire new technologies from research centers around the world. After gaining an understanding of our clients
technology and business needs, we find and assess technologies for our clients. With the added benefit of licensing professionals, we negotiate agreements on behalf of our clients and offer a variety of flexible terms and transaction models.
4
Table of Contents
A component of our global technology licensing division is our patent analytic service
designed to help our clients create marketplace value from their intellectual property (IP). We help clients identify the strengths and weaknesses of their own IP as well as that of companies in the same or adjacent
industries. Additionally, by identifying gaps and opportunities in the IP landscape, we assist clients with developing IP acquisition, disposition, and management strategies.
Clients
Approximately 30%, 20% and 16% of our revenue in 2009, 2008 and
2007, respectively, was from online subscription and other services. Clients for our subscription services segment include universities, research centers and primarily large companies across a diversified group of industries. Clients for our other
services segment include both private and public sector organizations, representing multiple industry sectors including retail, government, telecommunications, chemicals, media, financial services, energy and utilities.
C ompetition
Competitors
for online licensing services are significant and include: Reed Elsevier, PharmaVentures, Nerac, Inc., Thomson S.A., BioPharm Insight, EvaluatePharma and many others. Competitors for global technology licensing that are significant and well
developed include: IP Group plc, British Technology Group plc, Competitive Technologies, Inc. and Yet2.com. Competitors for patent analytic services include: The Patent Board, Ocean Tomo, LLC, PatentCafé, 1790 Analytics and many other private
firms. In addition, university technology commercialization offices also provide location specific competition with regard to the intellectual properties, which they have developed and are available for license.
We believe the primary factors affecting competition in our market include firm and consultant reputations, client relationships and
experiences, a legacy of successes, referrals and referral sources, the ability to attract and retain top talent, the ability to manage client engagements effectively, responsiveness, and the ability to listen and provide high quality services.
There is competition on price, especially during this last economic downturn. However, given the critical nature of many of the issues that our services address, we are not typically competing on price alone. Many of our competitors have greater
mindshare in the market, more high profile personnel and greater financial and marketing resources than we do. We believe that our experience, our heritage, our reputation (collectively and as previously independent businesses), our focus on
innovation, and our comprehensive approach to our clients innovation challenges enable us to compete favorably and effectively in this marketplace.
Business Development and Marketing
Our business development and marketing
efforts are aimed to develop relationships and build strong awareness and brand reputation with the key economic buyers and influences, specifically; innovation leaders, business and business unit leaders, research and consumer insights
professionals, R&D leaders, product marketers, brand managers, licensing professionals, industry analysts, academic institutions, legal firms, and others. We believe strong relationships and a client-driven approach to service are critical to
building and maintaining our business and brand reputation. We emphasize high quality client service to all of our employees.
We generate new business opportunities through relationships with individuals, through direct sales, cross selling, trade show and conference participation and sponsorship, direct marketing outreach, and our extensive network of contacts.
We have thought leadership programs in action to generate awareness and build brand associations of expertise. These activities include a quarterly Innovation Index which ranks businesses in a different industry each quarter in terms of their level
of innovation; an Innovation Update, which is a topical monthly opinion piece; bi-annual Innovation Leaders rankings; and book sponsorships, most recently including The Future of Innovation .
5
Table of Contents
Financial Information about Financial Segments and Geographic Areas
Information concerning sales and segment income attributable to each of our product segments and geographic areas is set forth in Note 11 of
our Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data and is incorporated herein by reference.
Recent Developments
Beginning in 2008, we have acquired and integrated
certain companies in an effort to enhance our ability to provide end-to-end innovation services. During 2010, we will bring those companies together under a single go-to-market brand strategy, expecting to leverage both market and cost efficiencies
while creating a more comprehensive brand with the large-capitalization companies we increasingly serve.
In January 2008, we acquired Pharmalicensing Limited (Pharmalicensing), a leading biopharmaceutical innovation website designed for
professionals involved with partnering, licensing and business development worldwide. Actively supporting in- and out-licensing activities, Pharmalicensing provides partnering services, business development reports and industry news. With the
acquisition of Pharmalicensing, we significantly expanded our online marketplace presence. We are able to use it as a platform to launch other targeted marketplaces, such as our 2009 launch of the Medical Device Licensing marketplace, and we will
continue to launch market specific verticals in the future. It is also a substantial online traffic generator and awareness builder for our entire business.
In April 2008, we acquired Carmi, Inc., a 100% owned subsidiary of Strategos, LLC that we refer to as Strategos. Founded in 1995 by a small
group of experienced consultants and industry veterans, including management strategist Gary Hamel, the firm focuses on helping clients achieve and sustain industry leadership, develop innovative growth strategies, identify and bring to market new
growth opportunities and build a culture of innovation into their organization. Strategos helps companies bring innovation to their core business and organization. The acquisition of Strategos lends credibility to our move into Global 1000 list of
clients and prospects, providing us with a thought leadership platform, considerable consulting and management strength and better positions us with the innovation leadership of the Global 1000.
In July 2008, we acquired Innovaro Limited (Innovaro). Founded in 2000, Innovaro was headquartered in London (UK) and has a global client
base including both private and public sector organizations. Innovaro provides consulting and insight support to many organizations, across industry sectors ranging from fast moving consumer goods, retail, government and telecommunications to
chemicals, media, financial services, energy and utilities. The acquisition of Innovaro, like Strategos, lends credibility to our move into Global 1000 list of clients and prospects, extending us geographically into western Europe, providing us with
a thought leadership platform, considerable consulting and management strength and better positions us with the innovation leadership of the Global 1000.
In October 2008, we acquired Social Technologies Group, Inc. (Social Technologies). Founded in 1999, Social Technologies is headquartered
in Washington, D.C. The firm has helped clients across a wide range of industries guide policy, shape business strategy, explore new markets, and develop new products and services. The firm helps organizations protect against unexpected risks, spot
opportunities before competitors do, and ultimately better prepare for the future from a far more informed, empowered perspective. The acquisition of Social Technologies enhances our service offerings to the research and insights professionals in
the Global 1000 and beyond, a critical role in an organizations innovation development.
Our business
strategy has evolved significantly since our inception. Starting as a company in 1997, we focused solely on working with the technology transfer offices at universities. We now also serve mid- and large-cap organizations who are increasingly seeking
the technologies our university partners have developed. We have aligned our management structure to maximize the benefit gained from the talented executives within
6
Table of Contents
our team. We have hired experienced professionals from a variety of leading organizations. We have added executives and functions to progress us in our mission, including a VP of Marketing. We
have gone from being a sole office in Tampa, FL, our current headquarters, to also having offices in Chicago, IL, Washington, D.C. and York, England.
As of March 16, 2010, we began doing business as Innovaro and changed our ticker symbol to NYSE Amex: INV. Our proxy statement for the 2010 Annual Meeting of Shareholders will include a proposal to
amend our articles of incorporation to change the corporate name to Innovaro, Inc. Beginning in March 2010, the Company will reorganize into three primary business groups, all working under the Innovaro brand: Strategic Servicesdriven by
Strategos, an advanced innovation consultancy; Technology Marketplacesonline platforms, partnering services, global licensing and technology transfer services; Insights & Researchfutures and trends, research, information
services and more. In connection therewith, our business segments will change beginning with our quarterly reporting period ending March 31, 2010 and this change will require certain reclassifications to prior period financial information.
Scientific Advisory Council
Our Scientific Advisory Council is comprised of more than 40 experts in a broad range of scientific, medical and engineering disciplines. Our Scientific Advisory Council assists our management in the
evaluation of new technologies for our clients.
Employees
As of March 16, 2010, we had 61 employees. We believe our relations with our employees are good.
Corporate Offices and Available Information
Our executive offices are located at 2109 Palm Avenue, Tampa, Florida 33605 and our telephone number is (813) 754-4330. We also have offices in Illinois, Washington D.C. and the United Kingdom.
Our Internet address is www.innovaro.com . We make available free of charge through our website our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website
is not incorporated by reference into this annual report on Form 10-K, and you should not consider information contained on our website to be part of this annual report on Form 10-K.