What changed in this filing

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Item 1. Financial Statements

2012-04-11 compared with 2012-04-11 · 359 added, 575 removed, 293 unchanged (76% of the section changed)

17 unchanged sentences

Accrued expenses

Accrued bonus

Deferred revenue

11 unchanged sentences

14,585,261 and 14,585,261

shares outstanding at June 30, 2011 and December 31, 2010, respectively

shares outstanding at March 31, 2011 and December 31, 2010, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Total Innovaro stockholders equity

4 unchanged sentences

Consolidated Statements of Operations

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended March 31,

Strategic services

21 unchanged sentences

Innovaro, Inc.

Consolidated Statement of Changes in Equity

Innovaro Stockholders Equity

Comprehensive

Balances at December 31, 2010

Comprehensive loss:

Other comprehensive income (loss):

Unrealized gain (loss) from available-for-sale securities

Foreign currency translation adjustments

Other comprehensive income (loss)

Comprehensive loss

Issuance of restricted stock

Stock-based compensation expense

Balances at March 31, 2011

See accompanying notes

Innovaro, Inc.

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Three Months Ended March 31,

Operating Activities:

8 unchanged sentences

Deferred income taxes

Loss (gain) on disposal of fixed assets

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable and contracts in process

Accounts receivable

Prepaid expenses and other assets

7 unchanged sentences

Financing Activities:

Proceeds from borrowings on bank line of credit

Payments on long-term debt

7 unchanged sentences

Consolidated Statements of Cash Flows (continued)

Six Months Ended June 30,

Three Months Ended March 31,

Supplemental Disclosures of Non-Cash Investing and Financing Activities

Unrealized gain (loss) from available-for-sale securities, net

Derivative liability extinguished in connection with exercise of investor warrants

Unrealized gain (loss) from available-for-sale securities

The Company transferred certain equity interests in a subsidiary to satisfy a severance obligation resulting in the

1 unchanged sentence

Increase to additional paid-in capital

The Company issued 243,933 shares of common stock in connection with its investment in Verdant Ventures Advisors,

Supplemental Disclosures of Cash Flow Information

4 unchanged sentences

Notes to Consolidated Financial Statements

Basis of Presentation

Basis of Presentation and Significant Accounting Policies

Interim Financial Information

The financial information for Innovaro, Inc.

(the Company, we, us or Innovaro) as of June 30, 2011 and 2010 and for the three and six month periods

then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals), which, in the opinion of management are necessary in order to make the consolidated financial statements not misleading at such dates and for those

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and, therefore, do not include all

information and notes required by GAAP for complete consolidated financial statements.

These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the

Companys Annual Report on Form 10-K for the year ended December 31, 2010.

Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the entire year.

Company, we, us or Innovaro) as of March 31, 2011 and 2010 and for the three month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals),

which, in the opinion of management are necessary in order to make the consolidated financial statements not misleading at such dates and for those periods.

These consolidated financial statements have been prepared in accordance with accounting

principles generally accepted in the United States of America for interim financial information and, therefore, do not include all information and notes required by accounting principles generally accepted in the United States of America

(GAAP) for complete consolidated financial statements.

These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the Companys Annual

Report on Form 10-K for the year ended December 31, 2010.

Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the entire year.

We commenced operations in

4 unchanged sentences

These services are provided internationally from our offices in the United States and the United Kingdom.

Principles of

Consolidation

of Consolidation

The consolidated financial statements include the accounts of Innovaro and its wholly owned subsidiaries:

Innovaro Europe,

(formerly UTEK Europe, Ltd.) and UTEK Real Estate Holdings, Inc.

and its subsidiaries:

Ybor City Group, Inc., 22nd Street of Ybor City, Inc., ABM of Tampa Bay, Inc., and Cortez 114, LLC (collectively UTEK Real Estate).

intercompany transactions and balances are eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the 2010 balances to conform to the 2011 financial statement presentation.

In particular, reclassifications

were made to the revenue line items in the consolidated statements of operations for the three and six months ended June 30, 2010 to conform to the Companys new business segments.

Reclassifications were also made to the expense line items

in the consolidated statements of operations for the three and six months ended June 30, 2010 to move the direct costs associated with these business lines into two separately captioned line items:

direct costs of revenue strategic

services and direct costs of revenue technology services.

In addition, reclassifications were made to the equity section of the

December 31, 2010 consolidated balance sheet to conform to the June 30, 2011 presentation.

Reclassifications were made to combine the total accumulated loss under investment company accounting of $(52,073,915) with the accumulated deficit

under operating company accounting of $(19,755,429) into one accumulated deficit line item with a balance of $(71,829,344) as of December 31, 2010.

Restatement of Consolidated Financial Statements

The financial statements as of and for the three and six months ended June 30, 2011 have been restated to correct the accounting

treatment previously recorded for certain warrants.

The Company has determined that it should not have recorded a derivative liability related to certain warrants as well as unrealized gain and loss for the changes in the value of the warrants.

further review of the warrant agreement, the Company determined that the exercise price associated with the warrants was not subject to adjustment, and accordingly, removal of the variable feature embedded in the warrant exercise price eliminated

the need to record a derivative liability.

The correction of the derivative liability and unrealized gain or loss included in other (income)

and expense as illustrated below, includes an out-of-period adjustment of approximately $518,000 related to the overstatement of the derivative liability and overstatement of other expense during 2010, which was not material to the 2010 consolidated

financial statements.

In addition, the Company determined that the out-of-period adjustment related to 2010 was not material to the annual results for 2011.

The following schedule illustrates the effects on the consolidated financial statements of the reversal of the derivative liability resulting from the above restatement:

As Previously

Consolidated Balance Sheet As of June 30, 2011:

Derivative liabilities

Total liabilities

Accumulated deficit

Total Innovaro stockholders equity

Consolidated Statement of Operations

For the Three Months Ended June 30, 2011:

Other (income) expense

Total other expenses - net

Net loss before income taxes

Net loss attributable to Innovaro stockholders

Net loss attributable to Innovaro stockholders per share:

Basic and diluted

Consolidated Statement of Operations

For the Six Months Ended June 30, 2011:

Other (income) expense

Total other expenses - net

Net loss before income taxes

Net loss attributable to Innovaro stockholders

Net loss attributable to Innovaro stockholders per share:

Basic and diluted

Significant Accounting Policies

Ybor City Group, Inc., 22nd Street of Ybor City, Inc., ABM of Tampa Bay, Inc., and Cortez 114, LLC (collectively UTEK Real

All intercompany transactions and balances are eliminated in consolidation.

Accounts Receivable

The Company records an allowance for losses on trade receivables based on a review of the current status of existing receivables and managements

The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and managements

evaluation of periodic aging of accounts.

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It is not the Companys policy to accrue interest on past due receivables.

expense associated with the allowance for doubtful accounts is recognized as a component of general and administrative expense in the consolidated statements of operations.

The allowance for doubtful accounts and notes was approximately $27,000 and

$15,000 as of June 30, 2011 and December 31, 2010, respectively.

expense associated with the allowance for doubtful accounts is recognized as general and administrative expense in the consolidated statements of operations.

The provision for doubtful accounts and notes was approximately $12,000 and $15,000 as of

March 31, 2011 and December 31, 2010, respectively.

Cost Method Investments

Cost method investments were not evaluated for impairment as of June 30, 2011.

Cost method investments were not evaluated for impairment as of March 31, 2011.

The Company does not estimate the fair value of a cost method

investment if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value because it is not practicable to estimate fair value on a quarterly basis.

Research and Development

In accordance

with Accounting Standards Codification (ASC) Subtopic 985-20 Costs of Software to Be Sold, Leased, or Marketed , the Company expenses all costs incurred to establish the technological feasibility of a computer product to be sold,

leased, or otherwise marketed as research and development costs.

Research and development costs incurred through the second quarter of 2011 have been expensed in the accompanying statements of operations.

As of June 29, 2011, Version 1.0 of the

Innovaro LaunchPad software (LaunchPad) reached technological feasibility with the introduction of a working model.

As such, any further costs that the Company incurs related to the refinement of Version 1.0 will be capitalized as an

intangible asset in the consolidated balance sheet.

The Company has begun development of the next components of LaunchPad with Version 2.0.

Costs related to the development of this and other versions of the software will continue to be expensed in the accompanying statements of operations until they too reach technological feasibility.

Reclassifications

Certain reclassifications have been made to the 2010 balances to conform to the 2011 financial statement presentation.

In particular, reclassifications were made to the revenue line items on the

consolidated statement of operations to conform to the Companys new business segments.

In addition, reclassifications were made to the expense line items on the consolidated statement of operations to move the direct costs associated with

these business lines into two separately captioned line items:

direct costs of revenue strategic services and direct costs of revenue technology services.

In addition, reclassifications were made to the equity section of the December 31, 2010 consolidated balance sheet and the consolidated statement of changes in equity to conform to the March 31,

2011 presentation.

Reclassifications were made to combine the total accumulated loss under investment company accounting of $(52,073,915) with the accumulated deficit under operating company accounting of $(19,755,429) into one accumulated deficit

line item with a balance of $(71,829,344) as of December 31, 2010.

Earnings per Share (EPS)

Basic earnings

per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding plus

the potential dilutive effect of outstanding stock options, warrants and unvested shares of restricted stock.

Components of basic and diluted

per share data are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings

per share is computed on the basis of the weighted-average number of shares of common stock outstanding plus the potential dilutive effect of outstanding stock options, warrants and unvested shares of restricted stock.

Components of basic and diluted per share data are as follows:

Three Months Ended March 31

Weighted average outstanding shares of common stock (1)

2 unchanged sentences

Shares excluded from calculation of diluted EPS (2)

Included in basic earnings per share are 437,500 fully vested common stock warrants at $0.01 per share.

These shares attributable to outstanding stock options, warrants and unvested restricted stock were excluded from the calculation of diluted EPS because their inclusion

would have been anti-dilutive, primarily as a result of the net loss during the periods presented.

Financial Instruments and Concentrations of Credit Risk

The Companys financial instruments consist of investments, cash and cash equivalents, accounts receivable, accounts payable, accrued expenses,

long-term debt and derivative liabilities.

The fair value of accounts receivable, accounts payable and certain accrued expenses approximate their carrying amounts in the financial statements due to the short-term nature of such instruments.

estimated fair value of the Companys long-term debt as of June 30, 2011 and December 31, 2010 is not materially different from its carrying values at such dates.

The fair value of available-for-sale securities and derivative

liabilities are determined as described in Note 6.

Financial instruments with significant credit risk include investments and cash and cash

The Company maintains its cash and cash equivalents with high credit quality financial institutions in the United States and, at times, balances may exceed federally insured limits.

The Company has not experienced any losses related to

these balances.

The Company had two major customers during each of the three and six months ended June 30, 2011, three major customers

during the three months ended June 30, 2010, and one major customer during the six months ended June 30, 2010, all of which were customers of the strategic services line of business.

Major customers, those generating greater than 10% of

total revenue, accounted for approximately 49% and 38% of the Companys revenue during the three months ended June 30, 2011 and 2010, respectively.

Major customers accounted for approximately 55% and 13% of the Companys revenue

during the six months ended June 30, 2011 and 2010, respectively.

In addition, three customers accounted for approximately 59% of accounts receivable as of June 30, 2011.

Financial Instruments and

Concentrations of Credit Risk

The Companys financial instruments consist of investments, cash and cash equivalents, accounts

receivable, accounts payable, accrued expenses, long-term debt and derivative liabilities.

The fair value of accounts receivable, accounts payable and certain accrued expenses approximate their carrying amounts in the financial statements due to the

short-term nature of such instruments.

The estimated fair value of the Companys long-term debt at March 31, 2011 and December 31, 2010 is not materially different from its carrying values of $5.5 million and $5.8 million,

respectively.

The fair value of available-for-sale securities and derivative liabilities are determined as described in Note 5.

Financial instruments with significant credit risk include investments and cash and cash equivalents.

The Company maintains its cash and cash equivalents

with high credit quality financial institutions in the United States and, at times, balances may exceed federally insured limits.

The Company has not experienced any losses related to these balances.

The Company had two major customers during the three months ended March 31, 2011 and two major customers during the three months ended

March 31, 2010, all of which were customers of the strategic services line of business.

Major customers, those generating greater than 10% of total revenue, accounted for approximately 54% and 29% of the Companys revenue during the

three months ended March 31, 2011 and 2010, respectively.

In addition, three customers accounted for approximately 44% of accounts receivable at March 31, 2011.

Use of Estimates

The preparation of the Companys consolidated financial statements

in conformity with GAAP requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the

The preparation of the Companys consolidated financial statements in conformity with Financial Accounting Standards Board FASB Accounting Standards Codification ASC Topic 275

Risks and Uncertainties requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenue and expenses during the reporting period.

The Companys most significant estimates relate to revenue recognition, the valuation and impairment of certain investments, stock-based compensation, the valuation and

impairment of goodwill and intangible assets, and the valuation of derivative liabilities.

Actual results could differ from these estimates.

Recently Issued Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2011-02 A

Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring for the purpose of measuring the impairment of old receivables and evaluating whether a troubled debt restructuring has occurred.

An entity should disclose

the total amount of receivables and the allowances for credit losses as of the end of the period of adoption related to those receivables that are considered newly impaired under ASC Section 310-10-35 for which impairment was previously

measured under ASC Subtopic 450-20, Contingencies Loss Contingencies .

The ASU is effective for the Company with the reporting period beginning July 1, 2011.

The adoption of this ASU is not expected to have an impact on the

Companys financial statements or disclosures.

In May 2011, the FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value

Measurement and Disclosure Requirements in U.S.

GAAP and IFRSs .

The ASU expands ASC Topic 820s existing disclosure requirements for fair value measurements and makes other amendments that could change how the fair value measurement

guidance in ASC Topic 820 is applied.

The ASU is effective for the Company with the reporting period beginning January 1, 2012.

The adoption of this ASU is not expected to have a significant impact on the Companys financial statements or

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive Income , which revises the manner in which

entities present comprehensive income in their financial statements.

The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but

consecutive statements.

The ASU is effective for the Company with the reporting period beginning January 1, 2012.

The adoption of this ASU will change the way the Company presents comprehensive income in its financial statements.

impairment of goodwill and intangible assets, and the derivative liabilities.

Actual results could differ from those estimates.

Restatement of Consolidated Financial Statements

The financial statements as of and for the three months ended March 31, 2011 have been restated to correct the accounting treatment previously recorded for certain warrants.

The Company has determined

that it should not have recorded a derivative liability related to certain warrants as well as unrealized gain and loss for the changes in the value of the warrants.

Upon further review of the warrant agreement, the Company determined that the

exercise price associated with the warrants was not subject to adjustment, and accordingly, removal of the variable feature embedded in the warrant exercise price eliminated the need to record a derivative liability.

The correction of the derivative liability and unrealized gain or loss included in other (income) and expense as illustrated below, includes an

out-of-period adjustment of approximately $518,000 related to the overstatement of the derivative liability and overstatement of other expense during 2010, which was not material to the 2010 consolidated financial statements.

In addition, the

Company determined that the out-of-period adjustment related to 2010 was not material to the annual results for 2011.

The following schedule

illustrates the effects on the consolidated financial statements of the reversal of the derivative liability resulting from the above restatement:

As Previously

Consolidated Balance Sheet as of March 31, 2011:

Derivative Liabilities

Total liabilities

Accumulated deficit

Total Innovaro stockholders equity

Consolidated Statement of Operations

For the Three Months Ended March 31, 2011:

Other (income) expense

Total other expenses - net

Net loss before income taxes

Net loss attributable to Innovaro stockholders

Net loss attributable to Innovaro stockholders per share:

Basic and diluted

Accounts Receivable

Accounts receivable consist of the following as of June 30, 2011 and December 31, 2010:

Accounts receivable consist of the following as of March 31, 2011 and December 31, 2010:

Trade accounts receivable

allowance for doubtful accounts

Unbilled receivables

Unbilled client costs

1 unchanged sentence

Contracts in Process

Contracts in process consist of the following as of June 30, 2011 and December 31, 2010:

Contracts in process consist of the following as of March 31, 2011 and December 31, 2010:

Contract costs and estimated profits on contracts in process

advances and progress payments

Total contracts in process

Components of contracts in process consist of the following as of June 30, 2011 and December 31, 2010:

Billings in excess of costs and estimated earnings on uncompleted contracts

Costs and estimated earnings in excess of billings on uncompleted contracts

Less advances and progress payments

Total contracts in process

Available-for-Sale Securities

The Company classifies its investments in freely tradable equity securities as available-for-sale in accordance with FASB ASC Topic 320

Investments Debt and Equity Securities and its intentions regarding these instruments.

A summary of the estimated fair value of available-for-sale securities is as follows as of June 30, 2011 and December 31, 2010.

The Company classifies its investments in freely tradable equity securities as available-for-sale in accordance with FASB ASC Topic 320 Investments Debt and Equity Securities and its

intentions regarding these instruments.

A summary of the estimated fair value of available-for-sale securities is as follows as of March 31, 2011 and December 31, 2010.

Unrealized (1)

As of June 30, 2011

As of March 31, 2011

As of December 31, 2010

The net unrealized gain (loss) is included in equity as a component of accumulated other comprehensive income in the consolidated balance sheets.

As of June 30, 2011, none of our five available-for-sale securities were in an unrealized loss position.

The Company had

no sales of available-for-sale securities during the three and six months ended June 30, 2011.

Proceeds from the sale of available-for-sale securities were approximately $214,000 and $249,000 for the three and six months ended June 30,

2010, respectively.

The Company recognized an impairment loss of $201 on available-for-sale securities during the six months ended June 30, 2011.

The net unrealized gain (loss) is included in equity as a component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Proceeds from the sale of available-for-sale securities were approximately $0 and $35,000 for the three months ended

March 31, 2011 and 2010, respectively.

As of March 31, 2011, none of our five available-for-sale securities were in an unrealized loss position.

Gross realized gain (loss) as a result of the sale of available-for-sale securities was

approximately $100,000 and $111,000 for the three and six months ended June 30, 2010, respectively.

In addition, the Company recognized an impairment loss to available-for-sale securities of approximately $146,000 during the six months ended

June 30, 2010.

approximately $(200) and $11,000 for the three months ended March 31, 2011 and 2010, respectively.

In addition, the Company recognized an impairment loss to available-for-sale securities of approximately $146,000 for the three months ended

March 31, 2010.

The realized gain (loss) related to available-for-sale securities is included as a component of other (income) expense in the consolidated statements of operations.

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Unrealized gain (loss) on available-for-sale securities for the three months ended March 31, 2011 is

shown in the accompanying statement of changes in equity net of the reclassification adjustment.

Disclosure of the gross amounts of the current period gain (loss) and amounts that were reclassified out of accumulated other comprehensive income

(loss) into earnings are as follows:

Unrealized holding gain (loss) arising during the period

reclassification adjustment for net gains included in net income

Unrealized gain (loss) from available-for-sale securities, net

Fair Value Measurements

The Company performs fair value measurements in accordance with the guidance provided by FASB ASC Topic 820 Fair Value Measurements

and Disclosures .

Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair

value measurements for assets and liabilities required to be recorded at fair value, management considers the principal or most advantageous market in which the Company would transact and considers assumptions that market participants would use when

pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

Topic 820 establishes a fair value

hierarchy that encourages and is based on the use of observable inputs, but allows for unobservable inputs when observable inputs do not exist.

When there are multiple inputs for determining the fair value of an investment, the Company classifies

the investment in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

The Company performs fair value measurements in accordance with the guidance provided by FASB ASC Topic 820 Fair Value Measurements and Disclosures .

Topic 820 defines fair value as the price that

would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities required to be recorded at

fair value, management considers the principal or most advantageous market in which the Company would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer

restrictions, and risk of nonperformance.

Topic 820 establishes a fair value hierarchy that encourages and is based on the use of observable

inputs, but allows for unobservable inputs when observable inputs do not exist.

When there are multiple inputs for determining the fair value of an investment, the Company classifies the investment in the fair value hierarchy based on the lowest

level input that is significant to the fair value measurement.

Inputs are classified into one of three categories:

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Level 3Unobservable inputs for the asset or liability.

Assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2011 and December 31, 2010 are as follows:

June 30, 2011 (1)

Fair Value Measurements at

December 31, 2010 (1)

Using Level 2

Assets measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2011 and December 31, 2010 are as follows:

Fair Value Measurements

March 31, 2011 Using

Fair Value Measurements

December 31, 2010 Using

Available-for-sale securities

1 unchanged sentence

Total liabilities

The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of June 30, 2011 or

December 31, 2010.

The Companys investments in available-for-sale securities are classified within Level 2 of the

fair value hierarchy.

The Companys investments in available-for-sale securities are classified within Level 2 of the fair value

Our equity interests in companies for which there is no liquid public market are valued using quoted market prices for identical or similar instruments in markets that are not active.

1 unchanged sentence

discounted to account for the illiquid nature of the investment and minority ownership positions.

The value of our equity interests in public companies for which market quotations are readily available is based on quoted market prices for similar

instruments in an active market.

The value of our equity interests in public companies for which market quotations are readily available is based on quoted market prices for

similar instruments in an active market.

These securities are generally thinly traded and/or carry discounts from the public market value for certain restrictions on resale.

The Company utilizes the market approach in determining the fair value of these

The Company utilizes the market approach in determining the fair

value of these securities.

The Companys derivative liabilities are classified within Level 2 of the fair value hierarchy.

The Company utilizes the

Black-Scholes Option Pricing Model to value the derivative liabilities utilizing observable inputs such as the Companys common stock price, the exercise price of the warrants, and expected volatility, which is based on historical volatility.

The Company considered the use of a binomial model, but determined that the probability of the exercise price adjusting downward was remote.

Company utilizes the Black-Scholes Option Pricing Model to value the derivative liabilities utilizing observable inputs such as the Companys common stock price, the exercise price of the warrants, and expected volatility, which is based on

historical volatility.

The Black-Scholes model employs the market approach in determining fair value.

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Derivative Liabilities

In accordance with FASB ASC Topic 815 Derivatives and Hedging , the Company has recorded derivative liabilities for certain stock

warrants with variable exercise prices.

Derivative liabilities are recorded at fair value at inception and then are adjusted to reflect fair value at the end of each reporting period, with any increase or decrease in the fair value being recorded as

a component of other (income) expense in the consolidated statements of operations.

The Company recognized a gain (loss) related to the adjustment of these derivatives to fair value of approximately $79,000 and $(12,000) for the three months ended

June 30, 2011 and 2010, respectively, and $(151,000) and $42,000 for the six months ended June 30, 2011 and 2010, respectively.

Company uses the Black-Scholes option pricing model to estimate the fair value of the derivative instrument.

The Company employed the following assumptions for the Black-Scholes model at December 31, 2010:

In accordance with FASB ASC Topic 815 Derivatives and Hedging , the Company has recorded a derivative liability for certain stock warrants with variable exercise prices.

Derivative liabilities are

recorded at fair value at inception and then are adjusted to reflect fair value at the end of each reporting period, with any increase or decrease in the fair value being recorded as a component of other (income) expense in the consolidated

statements of operations.

The Company recognized a gain (loss) related to this derivative of approximately $(72,000) and $54,000 for the three months ended March 31, 2011 and 2010, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value of the derivative instrument, for which we employed the following

assumptions at March 31, 2011 and December 31, 2010:

Expected dividend yield

4 unchanged sentences

0.35 - $ 1.42

Warrant Exercise

Effective April 6, 2011, 437,500 of the Companys $0.01 fully vested common stock warrants were exercised.

The derivative liability related to the warrants was adjusted to fair value of

approximately $1.3 million on the date of exercise.

The derivative liability related to the warrants was effectively extinguished through the adjustment of the $1.3 million from derivative liabilities to additional paid-in capital at the above

exercise date.

Accumulated Other Comprehensive Income

Components comprising accumulated other comprehensive income as of and for the six months ended June 30, 2011 are as follows:

Unrealized gain

available-for-

sale securities

Foreign currency

Accumulated Other Comprehensive Income (Loss)

Components comprising the accumulated other comprehensive income (loss) balance for the three months ended March 31, 2011 are as follows:

comprehensive

Balances at December 31, 2010

income (loss)

Balance at December 31, 2010

Gain (loss) for the period

Balances at June 30, 2011

Balance at March 31, 2011

Other (Income) Expense

Components comprising other (income) expense for the three and six months ended June 30, 2011 and 2010 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Loss (gain) on sale and impairment of investments

Components comprising the balance in other (income) expense for the three months ended March 31, 2011 and 2010 are as follows:

Three Months Ended

Loss on sale and impairment of investments

Loss (gain) on derivative liabilities

1 unchanged sentence

Other (income) expense

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Comprehensive Income (Loss)

Comprehensive income (loss) for the six months ended June 30, 2011 and 2010 is as follows:

Six Months Ended June 30,

Other comprehensive income (loss):

Unrealized gain (loss) from available-for-sale securities

Foreign currency translation adjustment

Other comprehensive income (loss)

Comprehensive loss

Segment Reporting

FASB ASC Topic 280 Segment Reporting establishes standards for reporting information about operating segments.

segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in

assessing performance.

The Company is organized geographically and by line of business.

Operating segments are defined as components of an enterprise about which separate

financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company is organized geographically and by line

The line of business management structure is the primary basis for which the allocation of resources and financial results are assessed.

A summary of revenue and other financial information by reportable geographic operating segment is shown below:

United States

Long-lived assets June 30, 2011

Total assets June 30, 2011

Long-lived assets March 31, 2011

Total assets March 31, 2011

Long-lived assets December 31, 2010

Total assets December 31, 2010

For the Three Months Ended June 30, 2011

United States

Loss before income taxes

Depreciation and amortization

For the Three Months Ended June 30, 2010

United States

Loss before income taxes

Depreciation and amortization

For the Six Months Ended June 30, 2011

United States

For the Three Months Ended March 31, 2011

Loss before income taxes

Depreciation and amortization

Page 13 of 31

For the Six Months Ended June 30, 2010

United States

For the Three Months Ended March 31, 2010

Loss before income taxes

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Strategic Services and Technology Services.

As a result, business segment information for the six months ended June 30, 2010 has been restated to reflect the new business

As a result, business segment information for the three months ended March 31, 2010 has been restated to reflect the new

business segments.

A summary of revenue and other financial information by reportable line of business segment is shown below:

For the Three Months Ended June 30, 2011

Administrative

Income (loss) before income taxes

For the Three Months Ended June 30, 2010

Administrative

Income (loss) before income taxes

For the Six Months Ended June 30,

For the Three Months Ended March 31, 2011 (Restated)

Administrative

Income (loss) before income taxes

For the Six Months Ended June 30, 2010

For the Three Months Ended March 31, 2010

Administrative

Income (loss) before income taxes

Page 14 of 31

Management Changes

Subsequent Events

Appointment of Chief Executive Officer

Effective April 17, 2011, the Companys Board of Directors appointed Mr.

Effective April 17, 2011, the Companys

Board of Directors appointed Mr.

Asa Lanum as the Companys permanent Chief Executive Officer and a member of the Board of Directors.

Lanum has served as the Interim Chief Executive Officer since August 2010.

The Company agreed to pay Mr.

agreed to pay Mr.

Lanum an annual base salary of $325,000 and awarded him options to purchase 250,000 shares of the Companys common stock.

The Company has also agreed to pay his moving expenses to the Tampa area.

Departure of Managing Director

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Skarzynski resigned from his position as Managing Director of the strategic services division.

In accordance with the terms of his employment agreement,

In accordance with

the terms of his employment agreement, Mr.

Skarzynski remains bound by a covenant regarding the protection of our confidential information and a one-year covenant not to solicit our clients or employees.

Skarzynski continues to act as a consultant to the Company.

On April 22, 2011, the Company appointed Mr.

Skarzynski continues to act as

a consultant to the Company.

The Company has appointed Mr.

Gary Getz as Managing Director of the strategic services division.

held a management position at Innovaro since its acquisition of Strategos in 2008, and held a management position at Strategos since the companys founding.

Stock Compensation Plans

In June 2011, the Companys stockholders approved an amendment and restatement of the Companys three existing equity

compensation plans as one plan, the Innovaro, Inc.

Equity Compensation Plan (the Equity Compensation Plan).

The maximum number of shares available for issuance under the Equity Compensation Plan is 4,626,274, which is the total number of

shares available under the existing Non-Qualified Option Plan, Employee Option Plan and Restricted Stock Plan.

The options and restricted stock previously granted under the three existing equity compensation plans are counted in determining the

shares that remain available for issuance under the Equity Compensation Plan.

The Compensation Committee of the Companys Board of Directors determines those officers, employees, directors and consultants of the Company who are eligible to

participate in the Equity Compensation Plan.

Page 15 of 31

Managements Discussion and Analysis of Financial Condition

and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the

notes thereto included elsewhere in this Form 10-Q/A.

This Form 10-Q/A contains forward-looking statements regarding the plans and objectives of management for future operations.

These forward-looking statements may involve known and unknown risks,

uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

Forward-looking

statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words may, will, should, expect, anticipate,

estimate, believe, intend or project or the negative of these words or other variations on these words or comparable terminology.

These forward-looking statements are based on assumptions that may be

incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass.

Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of

various factors.

Getz has held a management position at Innovaro since its acquisition of Strategos in 2008, and held a management position at Strategos since the companys founding.

Warrant Exercise

Effective April 6, 2011, 437,500 of the Companys $0.01 fully

vested common stock warrants were exercised in a cashless exercise.

The derivative liability related to the warrants was adjusted to fair value on that date of approximately $1.3 million and then reclassified from derivative liabilities into

additional paid-in capital.

Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q/A.

This Form 10-Q/A contains forward-looking

statements regarding the plans and objectives of management for future operations.

These forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or

achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

Forward-looking statements, which involve assumptions and describe our future plans, strategies and

expectations, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend or project or

the negative of these words or other variations on these words or comparable terminology.

These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these

forward-looking statements will come to pass.

Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

Business Overview

We provide services that help clients become stronger innovators, develop compelling strategies to drive and catalyze growth, rapidly source externally developed technologies, create value from their

intellectual property and gain foresight into marketplace and technology developments that affect their business.

We provide services

that help clients become stronger innovators, develop compelling strategies to drive and catalyze growth, rapidly source externally developed technologies, create value from their intellectual property and gain foresight into marketplace and

technology developments that affect their business.

These services are provided internationally from our offices in the United States and the United Kingdom.

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Strategic Services and Technology Services.

Our clients require strategies to help them embrace improved innovation capabilities.

Our clients require

strategies to help them embrace improved innovation capabilities.

We apply innovation insights;

build those strategies with supporting infrastructure, processes and mechanisms;

create 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 services to enable our clients to become more

efficient by finding new avenues to grow, fighting commoditization, improving return on investment, transforming the organization, and removing barriers to innovation.

Business value is delivered to clients through working with a team of seasoned

and experienced professionals capable of unlocking an organizations capacity by:

and create a culture primed for repeatable innovation success.

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 services to enable our clients to become more efficient by finding new avenues to grow, fighting commoditization,

improving return on investment, transforming the organization, and removing barriers to innovation.

Business value is delivered to clients through working with a team of seasoned and experienced professionals capable of unlocking an

organizations capacity by:

Identifying and developing new segments and markets;

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Technology search

Page 16 of 31

In- and out-licensing

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Innovaro LaunchPad

We are continuing the development of our innovation management software

platform, Innovaro LaunchPad (LaunchPad), which is designed to enhance and complement our innovation service offerings to clients.

We have completed an external review by users of Version 1.0 of LaunchPad, which continues to evolve based

on their feedback, and have introduced this version to the market.

We are continuing the development of the next components of LaunchPad, which are designed to take the outputs from the current product and extend them further into the

organizations product delivery process.

We are continuing the development of our innovation management software platform, Innovaro LaunchPad, which is designed to enhance and complement our innovation service offerings to clients.

completed an external review by user clients of version one of the software, which is evolving based on their feedback, and are moving toward the launch of Innovaro LaunchPad in the marketplace.

Recent Developments

On April 18, 2011, our Board of the Directors increased its size from four to five directors and, upon the recommendation of the Nominating and Corporate Governance Committee, elected

Asa Lanum as a new director.

In addition, our Board of Directors appointed Mr.

2011, our Board of the Directors increased its size from four to five directors and, upon the recommendation of the Nominating and Corporate Governance Committee, elected Asa Lanum as a new director of the Company.

our Board of Directors appointed Mr.

Lanum, who has served as our interim Chief Executive Officer since August 2010, as our permanent Chief Executive Officer.

In connection with such appointment,

we agreed to pay Mr.

Lanum an annual base salary of $325,000 and awarded him options to purchase 250,000 shares of the Companys common stock.

Effective April 22, 2011, Peter C.

Skarzynski resigned from his position as Managing Director of the strategic services division.

In accordance with the terms of his employment agreement,

Skarzynski remains bound by a covenant regarding the protection of our confidential information and a one-year covenant not to solicit our clients or employees.

Skarzynski continues to act as a consultant for us.

On April 22, 2011, we appointed Mr.

Gary Getz as Managing Director of the strategic services division.

Getz has held a management

position at Innovaro since its acquisition of Strategos in 2008, and held a management position at Strategos since the companys founding.

In June 2011, our stockholders approved an amendment and restatement of our three existing equity compensation plans as one plan, the Innovaro, Inc.

Equity Compensation Plan (the Equity Compensation Plan).

The maximum number of shares available for issuance under the Equity Compensation Plan is 4,626,274, which is the total number of shares available under the existing Non-Qualified

Option Plan, Employee Option Plan and Restricted Stock Plan.

The options and restricted stock previously granted under the three existing equity compensation plans are counted in determining the shares that remain available for issuance under the

Equity Compensation Plan.

The Compensation Committee of the Companys Board of Directors determines those officers, employees, directors and consultants who are eligible to participate in the Equity Compensation Plan.

The amendment and

restatement of the three existing plans as the Equity Compensation Plan did not increase the number of shares of common stock authorized for issuance as stock-based incentive compensation, but gives the Compensation Committee greater flexibility to

make grants of non-qualified options, incentive stock options or restricted stock as it deems appropriate, since one maximum limit will apply to all three types of stock-based incentive compensation.

Financial Condition

Our total assets

were $25.0 million as of June 30, 2011 and $24.7 million as of December 31, 2010.

As of June 30, 2011, we had $633,000 in cash and cash equivalents, $2.9 million in accounts receivable and contracts in process, $3.4 million in

accounts payable, accrued expenses and accrued bonus and $5.5 million in total debt outstanding.

As of December 31, 2010, we had $263,000 in cash and cash equivalents, $2.0 million in accounts receivable and contracts in process, $1.5 million

in accounts payable and accrued expenses and $5.8 million in total debt outstanding.

As of June 30, 2011, we had a working capital deficit of $402,000 and an accumulated deficit of $73.5 million.

Page 17 of 31

Our total assets were $24.7 million as of March 31, 2011 and

December 31, 2010.

As of March 31, 2011, we had $635,000 in cash and cash equivalents, $2.1 million in accounts receivable and contracts in process, $1.7 million in accounts payable and accrued expenses and $5.5 million in total debt

As of December 31, 2010, we had $263,000 in cash and cash equivalents, $2.0 million in accounts receivable and contracts in process, $1.5 million in accounts payable and accrued expenses and $5.8 million in total debt outstanding.

As of March 31, 2011, we had working capital of $536,000 and positive cash flows from operating activities of $692,000.

Market Conditions

Although the global economic environment has improved somewhat over the last several months, our financial results for

the first quarter of 2011 continued to be negatively impacted by the weakened state of the global economy.

To the extent that the global economic recovery stalls or worsens, our financial condition and operating results could be materially

adversely affected.

Results of Operations

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Our strategic services revenue is derived from consulting services we provide to our clients.

Our strategic services revenue increased by $2.6 million for the three months ended June 30, 2011 in

comparison to the three months ended June 30, 2010.

In addition, our strategic services revenue increased by $4.2 million for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

These increases are

the result of this division having a significant number of new contracts with a higher average value during the three and six months ended June 30, 2011 than we had during the three and six months ended June 30, 2010.

We attribute the

increased contract level in 2011 to a renewed interest in innovation efficiency and new product development in the U.S.

In addition, certain of the contracts have required the work of a specialist consultant who bills out at a

significantly higher rate than that of the other consultants, which contributed to an increase in revenue of approximately $450,000 for both the three and six months ended June 30, 2011.

An increase in reimbursable expenses related to overseas

travel and lodging contributed to an increase in revenue of approximately $600,000 for both the three and six months ended June 30, 2011.

Our strategic services revenue in recent years has largely been dependent on the efforts of certain key consulting professionals whose employment

contracts with us expired in April 2011.

We were able to retain the majority of these consulting professionals under new employment contracts or consulting contracts in order to maintain the level of strategic services revenue we have generated in

recent years.

We expect that our strategic services revenue will continue to increase over 2010 levels for the remainder of 2011, although we

do not expect the increase to be at the level experienced for the second quarter of 2011.

Our strategic services revenue increased by $1.6 million for the three months ended March 31, 2011 in

comparison to the three months ended March 31, 2010.

This increase is the result of the Company having a significant number of new contracts with a higher average value in the first quarter of 2011 than we had in the first quarter of 2010.

We attribute the increased contract level in 2011 to a renewed interest in innovation efficiency and new product development in the U.S.

Our strategic services revenue in recent years has largely been dependent on the efforts of certain key consulting professionals whose employment contracts with us expired in April 2011.

We were able to

retain the majority of these consulting professionals under new employment contracts or consulting contracts in order to maintain the level of strategic services revenue we have generated in recent years.

We expect that our strategic services revenue will continue to increase over 2010 levels for the remainder of 2011.

Technology Services

Our technology services revenue is derived from a combination of global technology partnering search retainer fees, online subscription fees, online

information services revenue, foresight and trend research revenue and IP consulting revenue.

Our technology services revenue decreased by $214,000 for the three months ended June 30, 2011 in comparison to the three months ended June 30,

The decreased revenue is primarily a result of a reduction of $10,000 in monthly fees for our global technology partnering services, a reduction of $93,000 in online marketplace fees and a reduction of $142,000 in intellectual property

analytics research revenue, partially offset by an increase in our online report store sales.

Our technology services revenue decreased by

$479,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

The decreased revenue is primarily a result of a reduction of $50,000 in monthly fees for our global technology partnering services, a

reduction of $269,000 in online marketplace fees and a reduction of $154,000 in foresight and trend research revenue.

The decreased revenue throughout this division for the three and six months ended June 30, 2011 in comparison to the same

periods of 2010 results from a reduction in the number of personnel selling and fulfilling projects, which has had a direct impact on new sales for this business.

Consequently, we have not been able to replace prior year contracts with new contracts

as they come up for renewal.

We expect that our technology services revenue will remain consistent with the six months ended June 30,

2011 for the remainder of 2011.

Page 18 of 31

Our technology

services revenue is derived from a combination of global technology partnering search retainer fees, online subscription fees, online information services revenue, foresight and trend research revenue and IP consulting revenue.

Our technology

services revenue decreased by $265,000 for the three months ended March 31, 2011 in comparison to the three months ended March 31, 2010.

The decreased revenue is primarily a result of a reduction of $39,000 in monthly fees for our

global technology partnering services, a reduction of $90,000 in online marketplace fees and a reduction in foresight and trend research revenue of $128,000.

The decreased revenue results from a reduction in the number of personnel selling and

fulfilling projects, which has had a direct impact on new sales for this business.

Consequently, we have not been able to replace prior year contracts with new contracts as they come up for renewal.

We expect that our technology services revenue will remain consistent with the first quarter of 2011 for the

remainder of 2011.

Direct Costs of Revenue

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Total direct costs of revenue

Direct Costs of Revenue - Strategic Services

Direct costs of revenue for strategic services are comprised of salaries and related taxes, bonuses, certain outside services and other business development costs related to our strategic services

The most significant portion of direct costs of revenue for strategic services is comprised of consulting personnel compensation, which includes bonuses.

Direct costs of strategic services revenue included a $1.5 million bonus accrual as a

result of the high level of revenue for the three and six months ended June 30, 2011.

In comparison, there was no bonus accrual for the three and six months ended June 30, 2010.

In connection with the expiration of certain of the strategic services managers contracts in the second quarter of 2011, we have retained certain of these former managers as consultants.

rate these consultants receive is higher than the pay rate of most other consultants we use due to their experience and relationship with the customers.

In addition, certain of the contracts have required the work of a specialist consultant whose

cost is much higher than that of the other consultants.

We also needed to hire more consultants during the second quarter of 2011 as a result of the high number of contracts in process.

Direct costs of revenue for strategic services increased by $3.3 million for the three months ended June 30, 2011 in comparison to the three months ended June 30, 2010.

The increase is primarily

related to a $1.5 million increase in the bonus accrual, a $1.1 million increase in outside consultant expenditures and a $600,000 increase in overseas travel and lodging during the three months ended June 30, 2011.

The gross margin for the strategic services business decreased to 2% for the three months ended June 30, 2011 in comparison to 39% for the three

months ended June 30, 2010.

The decrease in the gross margin down to 2% in the three months ended June 30, 2011 is a direct result of the bonus accrual.

The first quarter that a bonus is recorded in any given year results in a skewed gross

margin because the cost is recorded in one quarter for a bonus that relates to year-to-date revenue.

Direct costs of revenue for strategic

services increased by $4.0 million for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

The increase is primarily related to a $1.5 million increase in the bonus accrual, a $1.7 million increase in

outside consultant expenditures and a $600,000 increase in overseas travel and lodging during the six months ended June 30, 2011.

gross margin for the strategic services business decreased to 19% for the six months ended June 30, 2011 in comparison to 35% for the six months ended June 30, 2010.

The decrease is primarily related to the bonus accrual and utilization of

contractors at higher than normal rates.

We expect that our direct costs of revenue for strategic services will decrease from the six months

ended June 30, 2011 for the remainder of 2011.

Direct Costs of Revenue - Technology Services

Direct costs of revenue for technology services are comprised of certain salaries and related taxes, commissions, certain outside services and other

direct costs related to technology services.

Direct costs of technology services revenue decreased by $65,000 for the three months ended June 30, 2011 in comparison to the three months ended June 30, 2010.

In addition, direct costs of

revenue for technology services decreased by $176,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

The majority of the decrease relates to a reduction in sales and project management

personnel, as well as the reduced utilization of outside contractors related to the reduced amount of revenue.

Page 19 of 31

The gross margin for the technology services business decreased to 46% for the three months ended

June 30, 2011 in comparison to 51% for the three months ended June 30, 2010.

In addition, the gross margin for the technology services business decreased to 44% for the six months ended June 30, 2011 in comparison to 49% for the six

months ended June 30, 2010.

Direct costs of strategic services revenue are comprised of salaries and related taxes, bonuses, certain outside services

and other business development costs related to our strategic services business.

The most significant portion of direct costs of strategic services revenue is comprised of consulting personnel compensation, which includes bonuses.

of strategic services revenue increased by $678,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

The increase is related to an increase in outside consultants needed to complete the

higher number of jobs in process during the first quarter of 2011.

We expect that our direct costs of strategic services revenue will increase over the first quarter of 2011 for the remainder of 2011 as a result of bonuses being earned by

consulting professionals.

The gross profit margin for the strategic services business increased to 44% for the three months ended

March 31, 2011 as compared to 30% for the three months ended March 31, 2010.

The increase is related to improved utilization of our strategic services employees during the first quarter of 2011.

Direct costs of technology services revenue are comprised of certain salaries and related taxes, commissions, certain outside services and other direct

costs related to technology services.

Direct costs of technology services revenue decreased by $111,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

The majority of the decrease

relates to a reduction in sales and project management personnel.

We expect that our direct costs of technology services revenue will remain consistent with the first quarter of 2011 for the remainder of 2011.

The gross profit margin for the technology services business decreased to 42% for the three months ended March 31, 2011 as compared to 47% for the

three months ended March 31, 2010.

The decrease is related to the aforementioned reduction in sales personnel having had a negative impact on new sales for this business.

We expect that our direct costs of revenue for technology services will remain consistent with the six months ended June 30, 2011 for the remainder of 2011.

Salaries and Wages

Three Months Ended March 31,

(in thousands, except percentages)

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Salaries and wages include non-sales employee and officer salaries and related benefits, including bonuses and stock-based compensation, that are not otherwise allocated to direct costs of

Salaries and wages decreased by $305,000 for the three months ended June 30, 2011 in comparison to the three months ended June 30, 2010.

The decrease relates to a $55,000 reduction in officers salaries as a result of a

CEO change and a $282,000 reduction in administrative staff, partially offset by a $34,000 increase in stock compensation expense as a result of certain options issued to our new CEO during the three months ended June 30, 2011.

Salaries and wages decreased by $659,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

decrease relates to a $133,000 reduction in officers salaries as a result of a CEO change, a $495,000 reduction in administrative staff, and a $31,000 reduction in stock compensation expense as a result of a change in estimate made in

conjunction with the valuation of our stock option issuances.

We expect that our salaries and wages will increase over the six months ended

June 30, 2011 for the remainder of 2011 as a result of the permanent hire of our interim CEO in April 2011.

Salaries and wages decreased by $355,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

$78,000 of the decrease related to the resignation of our former CEO in August 2010,

$213,000 related to reduction in administrative staff, and $65,000 related to reduced stock compensation expense as a result of a change in estimate in conjunction with the valuation of our stock option issuances.

We expect that our salaries and wages will increase over the first quarter of 2011 for the remainder of 2011 as a result of the permanent hire of our

interim CEO in April 2011.

Professional Fees

Three Months Ended March 31,

(in thousands, except percentages)

3 unchanged sentences

Professional fees

decreased by $69,000 for the three months ended June 30, 2011 in comparison to the three months ended June 30, 2010.

The majority of this decrease is related to a reduction in accounting fees as a result of our having become a smaller

reporting company (a designation under the federal securities laws that impacts the level of our disclosure requirement thereunder) during 2010.

As a smaller reporting company, we are subject to a more streamlined reporting regime than the reporting

regime for larger companies, including the elimination of the requirement to have our auditors audit our internal control over financial reporting.

Professional fees decreased by $182,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

Valuation expenses were reduced by $34,000 because our

investments no longer require outside valuations on a quarterly basis.

decreased by $113,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

Valuation expenses were reduced by $27,000 because our investments no longer require valuations on a quarterly basis.

Accounting fees were reduced by $22,000 as a result of our having become a smaller reporting company during 2010.

Legal fees were reduced by $69,000 because of costs incurred

during the six months ended June 30, 2010 related to the preparation of our restricted stock plan and the settlement of a severance liability related to our former CEO that were not repeated during the six months ended June 30, 2011.

Page 20 of 31

We expect that our professional fees will remain consistent with the six months ended June 30, 2011 for

the remainder of 2011.

As a smaller reporting company, we have fewer reporting requirements than that of an accelerated filer.

Legal fees were reduced by

$63,000 because of costs incurred in the first quarter of 2010 related to the preparation of our restricted stock plan and the settlement of a severance liability related to our former CEO that were not repeated or replaced in the first quarter of

We expect that our professional fees will remain consistent with the first quarter of 2011 for the remainder of 2011.

Research and Development

Three Months Ended March 31,

(in thousands, except percentages)

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our innovation management software platform, which is designed to enhance and complement our innovation services offerings to clients.

Research and development costs decreased by $21,000 for the three months ended June 30, 2011 in comparison to

the three months ended June 30, 2010.

The decrease is related to a $66,000 decrease in salaries and related costs and a $16,000 reduction in travel, partially offset by a $53,000 increase in outside service providers and an $8,000 increase in

marketing costs.

Research and development costs increased by $83,000 for the six months ended June 30, 2011 in comparison to the six

months ended June 30, 2010.

The increase is related to a $140,000 increase in outside service providers and a $9,000 increase in marketing costs, partially offset by a $34,000 decrease in salaries and related costs and a $29,000 reduction in

In accordance with accounting guidance, we expense all costs incurred to establish the technological feasibility of our software

platform as research and development expenses.

With the established working model of LaunchPad Version 1.0, all costs related to the refinement of this product will be capitalized.

We have begun development of the next components of LaunchPad with

Version 2.0 and the costs related to the development of this product will be expensed as research and development.

We expect to incur an additional $300,000 on product development of Version 2.0 and refinement of Version 1.0 of LaunchPad during the

third quarter of 2011.

Since a portion of these costs will be capitalized, we expect that research and development expense will decrease from current levels for the remainder of 2011.

Research and development costs increased by $105,000 for the three months ended March 31, 2011 compared to

the three months ended March 31, 2010.

The increase relates to the fact that the software development did not start until mid-first quarter 2010 and we currently have more contractors involved with the development.

We expect that our research and development costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

Sales and Marketing

Three Months Ended March 31,

(in thousands, except percentages)

3 unchanged sentences

travel and other business development expenses.

Sales and marketing expenses decreased by $139,000 for the three months ended June 30, 2011 in comparison to the three months ended June 30, 2010.

The decrease relates primarily to certain

marketing costs incurred in the second quarter of 2010, including $43,000 in rebranding costs and $75,000 for partnering with external search partners, which were not repeated in the second quarter of 2011.

We also participated in and sponsored

conferences totaling $6,000 during the second quarter of 2010 that we did not participate in or sponsor during the second quarter of 2011.

Sales and marketing expenses decreased by $324,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

The decrease relates primarily to certain marketing costs incurred during the six months ended June 30, 2010, including $89,000 in rebranding costs and $150,000 for partnering with external search partners, which were not repeated during the

six months ended June 30, 2011.

We also participated in and sponsored conferences totaling $61,000 during the six months ended June 30, 2010 that we did not participate in or sponsor during the six months ended June 30, 2011.

We expect that our sales and marketing costs will remain consistent with the six months ended June 30, 2011 for the remainder of 2011.

Page 21 of 31

Sales and marketing expenses decreased by $185,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

The decrease relates primarily to a

decrease in marketing costs undertaken in the first quarter of 2010, including $46,000 in rebranding costs and $75,000 for partnering with external search partners, that were not repeated in 2011.

We also participated in and sponsored conferences

during the first quarter of 2010 that we did not participate in or sponsor during the first quarter of 2011.

We expect that our sales and

marketing costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

General and Administrative

Three Months Ended March 31,

(in thousands, except percentages)

1 unchanged sentence

As a percent of revenue

General and administrative expenses decreased by $58,000 for the three months ended June 30, 2011 in comparison to

the three months ended June 30, 2010.

The decrease relates to a $52,000 reduction in insurance and other employee related costs due to having fewer employees;

a $34,000 reduction in printing costs related to the proxy and annual report;

as a continued overall company plan to reduce all aspects of overhead;

partially offset by a $14,000 increase in investment banking costs.

General and administrative expenses decreased by $150,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30,

The decrease relates to a $131,000 reduction in insurance and other employee related costs due to having fewer employees;

a $35,000 reduction in printing costs related to the proxy and annual report;

as well as a continued overall company plan

to reduce all aspects of overhead;

partially offset by a $23,000 increase related to moving and relocation expenses.

We expect that our

general and administrative costs will remain consistent with the six months ended June 30, 2011 for the remainder of 2011.

Depreciation and Amortization

General and administrative expenses decreased by $90,000 for the three months ended March 31, 2011

compared to the three months ended March 31, 2010.

The decrease relates to an $80,000 reduction in insurance and other employee related costs due to having fewer employees;

a $12,000 reduction in investor relations related fees as a result

of reducing all outside investor relations programs;

and a continued overall company plan to reduce all aspects of overhead.

We expect that

our general and administrative costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

Depreciation and

Three Months Ended March 31,

(in thousands, except percentages)

1 unchanged sentence

As a percent of revenue

Depreciation and amortization decreased by $57,000 for the three months ended June 30, 2011 in comparison to the

three months ended June 30, 2010.

Amortization expense decreased by $45,000 as a result of impairment charges related to our intangible assets that were incurred in 2010.

Depreciation expense decreased by $12,000 as a result of impairment

charges related to our fixed assets that were incurred in 2010.

Depreciation and amortization decreased by $116,000 for the six months ended

June 30, 2011 in comparison to the six months ended June 30, 2010.

Amortization expense decreased by $95,000 as a result of impairment charges related to our intangible assets that were incurred in 2010.

Depreciation expense decreased by

$21,000 as a result of impairment charges related to our fixed assets that were incurred in 2010.

We expect that our depreciation and

amortization will remain consistent with the six months ended June 30, 2011 for the remainder of 2011.

Other (Income) Expense

(In thousands, except percentages)

Depreciation and amortization decreased by $59,000 for the three months ended March 31, 2011 compared to the three

months ended March 31, 2010.

Amortization expense decreased by $50,000 as a result of the impairment charges related to our intangible assets that were incurred in 2010.

Depreciation expense decreased by $9,000 as a result of the

impairment charges related to our fixed assets that were incurred in 2010.

We expect that our depreciation and amortization will remain

consistent with the first quarter of 2011 for the remainder of 2011.

Other (Income) Expense

Page 22 of 31

Other (income) expense includes rental income, gains and losses related to adjusting our derivative

liabilities to fair value each reporting period, capital gains and losses and other miscellaneous income (losses).

Other (income) expense decrease by $104,000 for the three months ended June 30, 2011 in comparison to the three months ended

June 30, 2010.

The decrease is attributable to a $100,000 decrease in net capital gain and a $66,000 increase in net loss, partially offset by $45,000 increase in rental income and an $18,000 increase in miscellaneous income.

Other (income) expense decreased by $113,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

decrease is attributable to a $193,000 decrease in net gain/loss on adjustment of our derivative liabilities, partially offset by a $54,000 increase in rental income and a $35,000 increase in net capital gain/loss.

Interest Expense, Net

(In thousands, except percentages)

Other (income) expense includes rental income, gains and losses related to adjusting our derivative liabilities to fair value, capital gains and losses

and other miscellaneous income (losses).

Other (income) expense increased by $9,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

The net other expense of $6,700 for the three months

ended March 31, 2011 is comprised primarily of a loss of $72,000 related to adjusting our derivative liabilities to fair value plus other miscellaneous losses of $5,300, partially offset by rental income of $71,000.

For additional detail

on our derivative liabilities, see Note 6 to the Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q/A.

The net other income of $2,074 for the three months ended March 31, 2010 is comprised of a gain of $54,000 related to adjusting our derivative liabilities to fair value;

rental income of $61,000;

miscellaneous income of $21,000;

partially offset by capital losses of $135,000.

Interest Expense, Net

Interest expense, net decreased by $60,000 for the three months ended June 30, 2011 in comparison to the three

months ended June 30, 2010.

The decrease is attributable to lower interest expense on long-term debt of $23,000, lower amortization of our debt discount of $13,000, and higher interest income on our note receivable of $24,000.

Interest expense, net decreased by $54,000 for the six months ended June 30, 2011 in comparison to the six months ended June 30, 2010.

decrease is attributable to lower interest expense on long-term debt of $33,000 and lower amortization of our debt discount of $26,000, partially offset by lower interest income on our note receivable of $5,000.

Interest expense, net increased by $6,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

net interest expense of $142,000 for the three months ended March 31, 2011 is primarily comprised of interest expense on long-term debt of $109,000 and amortization of our debt discount of $33,000.

The net interest expense of $135,000 for the three months ended March 31, 2010 is primarily comprised of interest expense on long-term debt of

$119,000 and amortization of our debt discount of $46,000, partially offset by interest income on our note receivable of $29,000.

Liquidity and Capital Resources

Cash flows from

operating activities of $783,000 for the six months ended June 30, 2011 increased $2,562,000 from $(1,779,000) for the six months ended June 30, 2010.

Total cash flows from operations of $783,000 in the current period are primarily

operating activities of $692,000 for the three months ended March 31, 2011 increased $1,535,000 from $(842,000) for the three months ended March 31, 2010.

Total cash flows from operations of $692,000 in the current period is primarily

attributable to:

2 unchanged sentences

$83,000 in non-cash stock-based compensation expense related to vesting options;

$212,000 decrease in prepaid expenses and other assets;

$1.9 million increase in accounts payable and accrued expenses.

$289,000 increase in accounts payable and deferred revenue.

Partially offset by:

$1.6 million net loss;

$846,000 increase in accounts receivable and contracts in process.

Cash flows from investing activities of $(23,000) for the six months ended June 30, 2011 decreased $242,000 from $219,000 for the six months ended June 30, 2010.

There were no significant

investing transactions during the current period.

Cash flows from financing activities of $(383,000) for the six months ended June 30,

2011 decreased $389,000 from $6,000 for the six months ended June 30, 2010.

Total cash flows from financing of $(383,000) are related to principal payments on long-term debt.

Research and Development Expenditures

As of June 29, 2011, Version 1.0 of the

Innovaro LaunchPad software (LaunchPad) reached technological feasibility with the introduction of a working model.

In addition, we have begun development of the next components of LaunchPad with Version 2.0.

As of June 30, 2011, we

have invested $1.8 million in this software platform.

We expect to incur approximately $300,000 in additional expenditures for product development of Version 2.0 and refinement of Version 1.0 during the third quarter of 2011.

Page 23 of 31

Accounts Receivable Balances

Our accounts receivable balance as of June 30, 2011 was significantly higher than our historical accounts receivable balance.

The increase in our accounts receivable balance during the second quarter of

2011 is a result of a significant increase in revenue.

Revenue increased because we had a significant number of new contracts in the second quarter of 2011.

Revenue for the three and six months ended June 30, 2011 increased 87% and 74%,

respectively, over revenue for the three and six months ended June 30, 2010.

It is not unusual for our accounts receivable to sustain an elevated balance during periods of increased revenues.

Of the outstanding receivables balance of $2.7 million at June 30, 2011, only 24%, or $632,000, was past due, but only by 1 to 30 days.

As of the date of this filing, we have collected all but

$577,000 of the total accounts receivable balance outstanding at June 30, 2011.

Our primary cash requirements include working capital, research and development expenditures, principal and interest payments on indebtedness, and

employee bonuses.

Our primary sources of funds are cash received from customers in connection with operations and, to a lesser extent, proceeds from the sale from time to time of our investments.

As of June 30, 2011, we had $633,000 in cash and

cash equivalents, $2.9 million in accounts receivable and contracts in process, $521,000 in investments, and a working capital deficit of $402,000.

We currently intend to fund our liquidity needs, including our research and development expenditures, with existing cash and cash equivalent balances, cash generated from operations, collections of our

existing receivables and the potential sales of our investments.

We expect that our recent reductions in costs, coupled with our expected revenue, will be sufficient to fund our scheduled debt service payments of $174,000 and operations for the next

twelve months.

Should we face a more restricted cash flow scenario than projected during the next twelve months, we have the capability to delay all cash intensive activities, including our research and development expenditures, and will look to

reduce costs further.

However, if such measures prove inadequate, we could face liquidity problems and might be required to reduce or delay planned capital expenditures and other initiatives, sell assets, restructure or refinance our debt or seek

additional equity capital, and we may be unable to take any of these actions on satisfactory terms or in a timely manner.

Further, any of these actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact

on our business.

Our failure to generate sufficient cash from our operations could have a material adverse effect on us.

$176,000 net loss.

flows from investing activities of $(23,000) for the three months ended March 31, 2011 decreased $28,000 from $5,000 for the three months ended March 31, 2010.

There were no significant investing transactions during the period.

Cash flows from financing activities of $(292,000) for the three months ended March 31, 2011 decreased $191,000 from $(101,000) for the three months

ended March 31, 2010.

Total cash flows from financing of $(292,000) is related to principal payments on long-term debt.

and Development Expenditures

We are developing an innovation management software platform designed to enhance and complement our

innovation services deliverable to clients.

As of March 31, 2011, we have invested $1.5 million in this software platform.

The Company anticipates a working model of the software platform in the latter part of the second quarter of

2011 and expects to incur approximately $300,000 in additional research and development expenses during the second quarter of 2011.

Our primary cash

requirements include working capital, research and development expenditures, principal and interest payments on indebtedness, and employee bonuses.

Our primary sources of funds are cash received from customers in connection with operations and

proceeds from the sale of our investments.

At March 31, 2011, we had cash and cash equivalents of $635,000, accounts receivable and contracts in process of $2.1 million and working capital of $536,000.

We currently intend to fund our research and development expenditures and liquidity needs with existing cash and cash equivalent balances, cash generated

from operations, collections of our existing receivables and the potential sales of our investments.

We expect that our recent reductions in costs, coupled with the expected revenue for the remainder of 2011, will be sufficient to fund our

scheduled debt service and fund our working capital for the next twelve months.

Should we face a restricted cash flow scenario during 2011, we have the capability to delay all cash intensive activities, including our research and development

expenditures, and will look to reduce costs further.

Critical Accounting Estimates

preparation of financial statements in conformity with GAAP requires management to make assessments, estimates and assumptions that affect the amounts reported in the financial statements.

We evaluate the accounting policies and estimates used

to prepare the financial statements on an ongoing basis.

Critical accounting estimates are those that require managements most difficult, complex, or subjective judgments and have the most potential to impact our financial position and

operating results.

For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued Accounting Pronouncements

In April 2011, the FASB issued new guidance for

the purpose of measuring the impairment of old receivables and evaluating whether a troubled debt restructuring has occurred.

An entity should disclose the total amount of receivables and the allowances for credit losses as of the end of the period

of adoption related to those receivables that are considered newly impaired under the new guidance for which impairment was previously measured under previously authoritative guidance.

The guidance is effective for us for with the reporting period

beginning in July 1, 2011.

The adoption of this guidance is not expected to have an impact on our operations.

In May 2011, the FASB

issued new guidance that expands existing disclosure requirements for fair value measurements and makes other amendments that could change how the fair value measurement guidance is applied.

The guidance is effective for us with the reporting period

beginning in January 1, 2012.

The adoption of this guidance is not expected to have an impact on our operations.

In June 2011, the FASB

issued new guidance that revises the manner in which entities present comprehensive income in their financial statements.

The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of

comprehensive income or (2) two separate but consecutive statements.

The guidance is effective for us with the reporting period beginning in January 1, 2012.

The adoption of this guidance will change the way we present comprehensive income

in our financial statements.

Page 24 of 31

The preparation of financial statements in conformity with GAAP requires management to make assessments, estimates and assumptions that affect the amounts

reported in the financial statements.

We evaluate the accounting policies and estimates used to prepare the financial statements on an ongoing basis.

Critical accounting estimates are those that require managements most difficult,

complex, or subjective judgments and have the most potential to impact our financial position and operating results.

For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended

December 31, 2010.

There have been no material changes to our critical accounting estimates during the three months ended March 31, 2011.

Quantitative and Qualitative Disclosures about Market Risks

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements