What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2012-04-11 compared with 2011-03-30 · 420 added, 487 removed, 122 unchanged (88% of the section changed)

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Through March 15, 2010, our shares of common stock traded on the NYSE Amex under the symbol UTK. As of March 16,

2010, we began doing business as Innovaro and changed our ticker symbol on the NYSE Amex to INV. Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, CO 80401;

303-262-0600, serves as transfer agent for our

common stock.

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Through March 15, 2010, our shares of common stock traded on the NYSE Amex under the symbol

UTK. As of March 16, 2010, we began doing business as Innovaro and changed our ticker symbol on the NYSE Amex to INV. Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, CO 80401;

303-262-0600,

serves as transfer agent for our common stock.

We had approximately 3,000 stockholders of record at March 1, 2012.

Price Range of Common Stock and Dividends

The following table reflects the high and low closing prices for our common stock as reported on the NYSE Amex and the

cash dividends declared per common share for the periods indicated:

Price Range of

Common Stock and Dividends

The following table reflects the high and low closing prices for our common stock as reported on the NYSE Amex

and the cash dividends declared per common share for the periods indicated:

Fiscal year 2011

8 unchanged sentences

Fourth quarter

Directors has sole discretion in determining whether to declare and pay cash dividends in the future.

The declaration of cash dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors

deemed relevant by our Board of Directors.

Our ability to pay cash dividends in the future could be limited or prohibited by the terms of financing agreements that we may enter into or by the terms of any preferred stock that we have or may

authorize and issue.

Our Board of Directors has sole discretion in determining whether to declare and pay cash dividends in the future.

declaration of cash dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.

Our ability to pay cash dividends in the future could be limited or

prohibited by the terms of financing agreements that we may enter into or by the terms of any preferred stock that we have or may authorize and issue.

Selected Financial Data

Not applicable.

Managements Discussion and Analysis of Financial Condition and Results of Operations

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.

Managements Discussion and Analysis of Financial Condition and Results

of Operations

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.

These services are provided to clients located in countries throughout the world.

We have two business segments:

Strategic Services and Technology Services.

strategic services segment helps clients achieve and sustain industry leadership through innovation, developing game-changing strategies for growth, and implementing these strategies through capability development, opportunity management and

organizational excellence.

We also help our clients programmatically develop a core competence for innovation.

In addition, we assist clients apply innovation tools and techniques to create and act on breakthrough strategies and profitable

growth platforms and opportunities.

We work closely with our clients to jointly structure and execute a tailored journey that is right for their situation.

We combine the business acumen of seasoned executives, the learning focus of a leadership

development expert and the creativity of an innovation specialist to get our clients on the path to sustainable and profitable growth.

These services include:

Strategic innovation consulting

Business model and product development consulting

Identify and develop new segments and markets

Create and act on game-changing strategies

Our technology services segment offers expansive networks, experts in scouting, partner sourcing and licensing expertise, and world leading online marketplaces.

We also provide an important foundation to

successful licensingunderstanding the true potential value of our clients IP and IP portfolio.

We access that value and build a roadmap for our clients use, and uncover opportunities and options to realize any latent value.

We have an online information service, purpose-built for those who need it most-technology transfer, business development,

intellectual property, competitive intelligence, and marketing professionals across the physical and life sciences

provide the insight and intelligence our clients require, applied to their markets today and into the future.

From current market research to predictive intelligence, we help our clients find insights at the intersections affecting their business.

Our research identifies and explains key consumer trendsincluding emerging trends not covered by other sourcesand delivers insights about how these trends will shape the future operating environment.

These services include:

Futures scenario development and planning

Custom and syndicated research

Online information services

IP consulting

IP and market landscape analysis

Technology search

In- and out-licensing

Online marketplaces

Partner search and profiling

Innovation Engine Innovaro Solutions

Innovaro offers a comprehensive set of services and software to assure the success of any innovation project, regardless of the size or intent.

services and software leverage our Leading Edge Innovation Practices as a proven methodology for innovation success.

We currently have two

reportable business segments:

Strategic Services and Intelligence and Insights Services.

Strategic Services

Our Strategic Services segment leverages our Leading Edge Innovation Practices, or LEIPs methodology to enhance creativity, expand business thinking and

accelerate time-to-profitability for new products, new business models and market expansion.

We combine the business acumen of seasoned executives, the learning focus of a leadership development expert and the creativity of an innovation specialist

to get our clients on the path to sustainable and profitable growth.

We work closely with our clients to identify, develop and act on profitable growth opportunities and

game-changing business strategies.

We help our clients to systematically manage their innovation process, optimizing results while reducing the risks associated with new products, services and business ventures.

Intelligence and Insights Services

Innovaro delivers the information clients need to accelerate innovation, including real-time market and buyer trends, IP landscapes, industry reports and

trends, automated intelligence updates and custom research initiatives.

Our focus is to deliver highly relevant, out-of-the-box intelligence

and insights to clients that stimulate the entire innovation process.

We help our clients expand their perspectives to fuel new ideas, enhance business concepts with new insights and accelerate innovation time-to-market as a result of shared

knowledge, IP and partnerships.

Intelligence and Insights Services are designed to stimulate new thinking and approaches.

As a result of

providing continuous updates and analysis to our clients, they are able to identify and act on real world trends and behaviors that portend next generation opportunities for business growth.

Intelligence and Insights are delivered in a variety of

formats to meet each client need.

Innovaro LaunchPad Software

In addition to our two business segments, we are currently developing our innovation management software platform.

We are uniquely positioned through the LaunchPad software offering to service our

clients requirements to develop new and innovative products and services for their prospects and customers.

With the use of advanced technology in conjunction with a proven innovation methodology we are able to offer a truly unique, next

generation innovation software to our clients.

LaunchPad is the only fully integrated innovation environment available, and it rapidly accelerates the innovation process.

Strategies to Drive Our Growth into the Future

We remain focused on

growing our business with the objectives of improving our financial results and generating returns for our shareholders.

We continue to focus on delivering strong financial performance in both the near term and the long term.

We remain focused on growing our

business with the objectives of improving our financial results and generating returns for our shareholders.

We continue to focus on our goal of delivering strong financial performance in both the near term and the long term.

We have identified the

following four key challenges and related strategic business imperatives that we believe will enable us to drive growth into the future.

Continue to develop our innovation management software platform

following four key strategic business imperatives that we believe will enable us to drive growth into the future.

Continue to develop our

innovation management software platform

Our first imperative is to continue to develop our innovation management software platform.

We announced the controlled release of the first phase of our software product in December 2010, for which we

have subsequently begun testing in 2011.

We anticipate the controlled release of two additional phases of the software product during 2011, thereby expanding the product capability further into the innovation cycle process.

The full-scale release of

the complete product is dependent on the results of our testing procedures, which is dependent on the use of third-party consultants.

Over time, we expect the software product component of our business to grow at a greater rate than the growth in our current business segments until it represents an important component of our overall

revenue stream.

A key component of our strategy is to embrace both software and information offerings from other firms

through an open innovation approach.

Using this approach, our clients that have already begun to utilize other software and information services will be able to incorporate our offerings to suit their requirements to most effectively drive

Build and expand our current consulting and technology services business

Our second imperative is to sustainably and profitably grow our current consulting and technology services businesses worldwide.

recently hired a Senior Vice President of Sales who brings with him twenty years of global experience in technology sales at the enterprise and executive sales management level.

As the Senior Vice President of Sales at Innovaro, he will establish

sales and engagement models while continuing to build upon our core pillars of business.

He will also take on identical responsibilities as we move into the future with our software product offering.

announced the release of a working model of Version 1.0 of Innovaro LaunchPad in June 2011.

We announced that Version 2.0 of Innovaro LaunchPad was in alpha testing in Feb 2012.

We anticipate the controlled release of Version 3.0 of the software

product during 2012, thereby expanding the product capability further into the innovation cycle.

The full-scale release of the complete product is dependent on the results of our testing procedures and the use of third-party consultants.

Over time, we expect the software product component of our business to grow at a greater rate than the growth in our other business segments and we feel

it will represent an important component of our overall revenue stream.

As the innovation management software capability matures, our i nnovation engine will allow us to more broadly engage clients depending on their requirements, whether

people, software or data across their innovation cycle.

A key component of our strategy is to embrace both software and information offerings

from other firms through an open innovation approach.

Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their

Using this approach, our clients will be able to incorporate our offerings to suit their requirements to most effectively drive innovation.

Continue to expand our current Strategic and Intelligence and Insights Services businesses

Our second imperative is to sustainably and profitably grow our current Strategic and Intelligence and Insights Services businesses worldwide.

deep commitment to continuously improving our business.

This includes our efforts to develop innovation solutions that offer a flexible range of innovation guidance and support, capable of meeting a wide range of innovation needs for our clients.

we further transform the way we go to market we continue to seek out ways to be more efficient.

Cherish our Innovaro associates

6 unchanged sentences

Achieve operational excellence

Our fourth and final imperative is the sum total of the other three.

Our continued success requires that we do everything we can to position ourselves to achieve operational excellence in each of the

areas mentioned above.

By focusing on the four key challenges and related strategic business imperatives discussed above, we believe we can achieve this goal.

fourth and final imperative is the total of the other three.

Our continued success requires that we do everything we can to position ourselves to achieve operational excellence in each of the areas mentioned above.

By focusing on the three key

challenges and related strategic business imperatives discussed above, we believe we can achieve this goal.

Financial Condition

Our total assets were $20.8 million at December 31, 2011 compared to $24.7 million at December 31, 2010.

At December 31, 2010, we had $263,000 in cash and cash equivalents, $2.0 million in

accounts receivable, $1.5 million in accounts payable and accrued expenses and $5.8 million in long-term debt outstanding.

At December 31, 2009, we had $2.1 million in cash and cash equivalents, $492,000 in certificates of deposit, $1.5 million

in accounts receivable, $917,000 in accounts payable and accrued expenses and $6.3 million in long-term debt outstanding.

cash balance as of December 31, 2010 was significantly lower than our historical cash position.

The cash balance decreased significantly in the fourth quarter of 2010 as a result of the Company having to pay bonuses to employees of its

strategic services business segment in accordance with the terms of the Strategos Bonus Plan.

We have subsequently rebuilt our cash position to approximately $700,000 as of the date of this filing.

See the Liquidity section for further discussion.

Current Market Conditions

We believe that our financial results for 2010 continued to be negatively impacted by weakened economic conditions.

Since mid-2007, global credit and other financial markets have suffered substantial

stress, volatility, illiquidity and disruption.

These forces reached unprecedented levels in late 2008, resulting in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions.

These events significantly diminished overall confidence in the financial markets and caused increasing global economic uncertainty.

This reduced confidence and uncertainty could further exacerbate the overall market disruptions and risks to

businesses in need of capital, including us.

Moreover, the deterioration in the equity markets has had a negative impact on the cash proceeds that we have been able to obtain upon the sale of our investments and has resulted in our having to

recognize certain impairment losses related to decreases in the fair value of our assets.

In addition, the deterioration in consumer confidence and a general reduction in spending by consumers and business have had an adverse effect on certain of

our operations as businesses have delayed spending on these types of services.

Recent improvements in demand trends globally may not continue, and our future financial results and growth could be further harmed or constrained if the recovery was to

stall or conditions were to worsen.

Investment Portfolio Activity

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).

On October 1, 2009, because we no longer met the requirements, we filed a notification on Form N-54C with the SEC withdrawing

our election to be regulated as a BDC under the 1940 Act.

As such, we began reporting as an operating company as of October 1, 2009.

In connection with our plan to de-elect BDC status, we liquidated a significant portion of our investment portfolio during 2009.

We sold some or all of our shares in a significant number of our portfolio

companies for $3.1 million in cash and other assets, which resulted in realized losses of $49.6 million and unrealized appreciation of $44.3 million, which is primarily related to the reversal of previously recorded unrealized depreciation upon the

sale of these investments.

Conversion from Investment Company Presentation to Operating Company Presentation

The withdrawal of our election to be regulated as a BDC under the 1940 Act resulted in a significant change in our method of accounting.

Investment company financial statement presentation and accounting utilizes the value method of accounting used by investment companies, which requires investment companies to value their investments at market value as opposed to historical cost,

and recognize income related to unrealized gains and

losses in the current period.

As an operating company, the required financial statement presentation and accounting for investments held is either fair value or historical cost methods of

accounting, depending on the classification of the investment and the Companys intent with respect to the period of time it intends to hold the investment.

In addition, the financial accounts of majority-owned entities were not consolidated with ours under Investment Company Accounting;

rather, investments in those entities were reflected in our balance

sheet at fair value.

As an operating company, we are required to consolidate the accounts of majority-owned entities in which we have a controlling financial interest with our accounts.

In this regard, the accounts of UTEK Real Estate Holdings,

Inc., which was previously reflected as an investment at fair value in our balance sheet, have been consolidated with our accounts from October 1, 2009.

For a detailed discussion of the impact of the withdrawal of our election to be regulated as a BDC under the 1940 Act on our method of accounting and a discussion of how we account for investments as an

operating company, see Notes 1 and 2 to the Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

December 31, 2011, we had $268,000 in cash, $1.3 million in accounts receivable and contracts in process, $2.5 million in accounts payable and accrued expenses and $5.6 million in term debt outstanding.

At December 31, 2010, we had

$263,000 in cash, $2.0 million in accounts receivable and contracts in process, $1.5 million in accounts payable and accrued expenses and $5.8 million in term debt outstanding.

The cash balance decreased significantly in the fourth quarter of 2011 as a result of our having paid bonuses to employees of our strategic services business segment under a discretionary bonus plan.

million remains payable to certain employees in connection with this bonus plan as of December 31, 2011.

Our consolidated financial

statements as of December 31, 2011 have been prepared under the assumption that we will continue as a going concern.

Our independent registered public accounting firm has issued a report on our financial statements that included an explanatory

paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.

Our ability to continue as a going concern is dependent upon

our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue.

The consolidated financial statements do not include any adjustments that might result from the outcome of this

Results of Operations for the Years Ended December 31, 2011 and 2010

For comparability purposes, the revenues and expenses for the nine months ended September 30, 2009 under investment company accounting and for the three months ended December 31, 2009 under

operating company accounting are presented combined for the year ended December 31, 2009 in this section.

Management believes this presentation is more meaningful to readers as there was no significant change in revenue streams as a result of

our change in status from an investment company to an operating company.

Revenue / Income from Operations

(in thousands, except percentages)

Percent Change

Strategic services

Technology services

Investment income, net

This percentage change is not meaningful (NM) given that it relates to the manner in which we reported our operating results during the two reporting

For more information, see Note 1 to our consolidated financial statements included elsewhere in this annual report on Form 10-K.

Intelligence and Insights services

Total revenue

Strategic Services

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 year ended December 31, 2011 in comparison to the year ended December 31, 2010.

This increase is the result of the Company

having a significant number of new contracts in the second half of 2010.

We attribute the increased revenue in 2010 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 expire in April 2011.

If we are not successful in retaining these consulting professionals or timely hiring of similarly qualified and skilled consulting professionals to replace them, then we may not be able to maintain

the level of strategic services revenue we have generated in recent years.

We expect 2011 strategic services revenue to remain consistent with 2010 levels, unless all

or a substantial portion of the employment contracts described above are not renewed.

Technology Services

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

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

Our technology services revenue decreased by $571,000 for the year ended December 31, 2010 in comparison to the year ended December 31,

The decreased revenue in 2010 is primarily a result of a reduction of $433,000 in monthly fees for our global technology partnering services and a reduction of $464,000 in online marketplace fees, partially offset by a $300,000 increase in IP

consulting revenue.

We expect 2011 technology services revenue to remain consistent with 2010 levels.

Investment Income, net

Beginning on October 1, 2009, we changed from Investment Company Accounting to Operating Company Accounting.

As an operating company,

investment income is recorded as other (income) and expense in the accompanying statements of operations for the year ended December 31, 2010 and the three months ended December 31, 2009.

Direct Costs of

The increase is the result of this business

segment having a significant number of new contracts with a higher average value during the year ended December 31, 2011 in comparison to the year ended December 31, 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 current year contracts have specifically requested 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 $800,000 for year ended December 31, 2011 compared to the same period of 2010.

An increase in billable client expenses related to overseas travel

and lodging contributed to an increase in revenue of approximately $885,000 for the year ended December 31, 2011 compared to the same period of 2010.

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 decrease in 2012 from that of the year ended

December 31, 2011 as one of our major customers has reduced its budget for innovation in 2012.

Intelligence and Insights Services

Our intelligence and insights services revenue decreased by $827,000 for the year ended December 31, 2011 in comparison to the year

ended December 31, 2010.

The decreased revenue is primarily a result of a reduction of $27,000 for our global technology licensing services, a reduction of $137,000 in online marketplace fees, a reduction of $602,000 in foresight and trend

research revenue, and a reduction of $42,000 in intellectual property consulting revenue.

The decreased revenue throughout this business segment for the year ended December 31, 2011 in comparison to the same period of 2010 resulted from a

reduction in the number of personnel selling and fulfilling projects, as well as budget cuts for a large group of our customers.

This has had a significant, direct impact on new sales and renewals for this business line.

We expect that our intelligence and insights services revenue will remain consistent in 2012 with that of the year ended December 31, 2011.

Direct Costs of Revenue

(in thousands, except percentages)

Direct costs of revenue strategic services

Direct costs of revenuetechnology services

Direct costs of revenue Intelligence and Insights Services

Total direct costs of revenue

Direct Costs of Revenue Strategic Services

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

other business development costs related to strategic services.

Our direct costs of strategic services revenue increased by $2.9 million for the year ended December 31, 2010 in comparison to the year ended December 31, 2009.

of the increase in direct costs of strategic services related to the year-end bonus pool and an increase in the use of outside contractors.

The Strategos Bonus Plan is for qualifying Strategos division employees.

The award pool is determined from eligible earnings and aggregate revenues and is limited to the extent required to permit

Strategos to maintain sufficient operating cash.

Awards are to be paid out by December 15 th , but no later than December 31 st , of each year and are accrued on a quarterly basis.

Approximately 85% to 90% of Strategos division net income is required to be paid out in connection with this bonus plan.

The Company recognized bonus

expense of approximately $3.3 million and $1.7 million in connection with the Strategos Bonus Plan during the years ended December 31, 2010 and 2009, respectively.

The strategic services gross profit margin decreased to 14% for the year ended December 31, 2010 as compared to 18% for the year ended December 31, 2009.

This decrease relates to our foresight

and trend research division.

This division had significantly more consulting projects in 2009 than in 2010, the loss of which caused a reduction in our overall profit margin.

We expect 2011 costs of strategic services to remain consistent with 2010 levels.

Direct Costs of RevenueTechnology Services

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.

costs of technology services revenue decreased by $486,000 for the year ended December 31, 2010 in comparison to the year ended December 31, 2009.

The majority of the decrease in direct costs of technology services during 2010 is related

to a decrease in salaries and commissions due to staff cuts and a reduction in sales.

The technology services gross profit

margin increased to 55% for the year ended December 31, 2010 as compared to 49% for the year ended December 31, 2009.

This increase is the result of a decrease in salaries related to having fewer employees in exchange for the utilization

of outside contractors on an as needed basis.

We expect 2011 costs of technology services to remain consistent with 2010

Direct costs of revenue 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 strategic services is comprised of consulting personnel compensation, which includes bonuses.

Direct costs of revenue strategic services included a bonus expense of $2.5

million for the year ended December 31, 2011.

In comparison, direct costs of revenue strategic services included a bonus expense of $3.3 million for year ended December 31, 2010.

In connection with the expiration of the employment contracts for the management team of the strategic services business segment in the second quarter of

2011, we have retained certain of these former professionals as consultants.

The pay 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.

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 2011 as a result of the high number of contracts in

process and a reduction in the number of employees.

Direct costs of revenue strategic services increased by $2.2 million for the year

ended December 31, 2011 in comparison to the year ended December 31, 2010.

The increase is primarily related to a $3.3 million increase in outside consultant expenditures and in overseas travel and lodging, partially offset by a $1.1

million decrease in salaries and bonus.

The gross margin for the strategic services business remained consistent at 14% for each of the years

ended December 31, 2011 and 2010.

We expect 2012 costs of strategic services to decrease from that of the year ended December 31,

2011 due to the expected decrease in engagements for this business segment.

Direct Costs of Revenue Intelligence and Insights

Direct costs of revenue intelligence and insights services are comprised of certain salaries and related taxes,

commissions, certain outside services and other direct costs related to this business segment.

Our direct costs of revenue intelligence and insights services decreased by $175,000 for the year ended December 31, 2011 in comparison to the

year ended December 31, 2010.

The majority of the decrease is related to a decrease in salaries and commissions due to staff cuts and a reduction in sales.

The intelligence and insights services gross profit margin decreased to 47% for the year ended

December 31, 2011 as compared to 55% for the year ended December 31, 2010.

This decrease is the result of a decrease in sales with fixed costs remaining unchanged.

We expect 2012 costs of intelligence and insights services to remain consistent with that of the year ended December 31, 2011.

Salaries and Wages

(in thousands, except percentages)

Percent Change

Salaries and wages

1 unchanged sentence

The abbreviation ppt throughout this section denotes percentage points.

Salaries and wages include non-sales employee and officer salaries that are not otherwise allocated to direct costs of revenue, employee

related benefits including bonuses, and stock-based compensation.

Salaries and wages decreased by $2.6 million for the year ended December 31, 2010 compared to the year ended December 31, 2009.

Decreases in salaries in wages during

2010 related to 1) the modification of the acquisition and employment agreements with the division manager of our former Social Technologies division resulting in a $2.5 million charge to salaries and wages in 2009;

2) the retirement of our former

CEO in 2009 resulting in a decrease in salaries of $300,000 in 2010;

and 3) a change in estimate related to stock options resulting in a decrease of $289,000 in stock-based compensation in 2010.

These decreases were partially offset by increases of

$244,000 in severance pay, related to another former CEO in August of 2010, and $152,000 in other salaries.

salaries and wages to decrease in 2011 due to a reduced number of employees over that of 2010.

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

compensation.

Salaries and wages decreased by $894,000 for the year ended December 31, 2011 in comparison to the year ended December 31, 2010.

The decrease relates to a $286,000 reduction in officers salaries as a result of

severance expense incurred in 2010 related to our former CEO and an $829,000 reduction in administrative staff salaries in 2011, partially offset by a $221,000 increase in stock compensation expense as a result of options issued to our new CEO

We expect salaries and wages to continue to decrease in 2012 due to the reduced number of employees.

Professional Fees

(in thousands, except percentages)

Percent Change

Professional fees

As a percent of revenue

Professional fees include accounting fees, legal fees and valuation expenses for our investments.

Professional fees

include accounting fees, legal fees and valuation expenses for our investments.

Professional fees decreased by $205,000 for the year ended December 31, 2010 compared to the year ended December 31, 2009.

Valuation expenses were reduced by

$73,000 because our investments required fewer valuations in 2010.

Accounting fees were reduced by $77,000 as a result of our having changed to a smaller reporting company in 2010.

As a smaller reporting company, we are not required to have an audit

of our internal

controls over financial reporting.

Legal fees were reduced by $55,000 because of 2009 employment issues, restricted stock plan preparation and other legal matters that were not repeated in 2010.

decreased by $266,000 for the year ended December 31, 2011 in comparison to the year ended December 31, 2010.

Valuation expenses were reduced by $46,000 because our investments no longer require outside valuations on a quarterly basis.

Accounting fees were reduced by $154,000 as a result of our having become a smaller reporting company during 2010.

Legal fees were reduced by $65,000 because of costs incurred during the year ended December 31, 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 year ended December 31, 2011.

We expect our professional fees for 2012 to remain relatively consistent with 2011.

Research and Development

and Development

in thousands, except percentages)

Percent Change

Research and development

As a percent of revenue

development costs include salaries, outside services, travel and other costs related to the development of our innovation management software platform, which is designed to enhance and complement our innovation services offerings to clients.

release of phase one of the software is dependent on the results of our testing, but is tentatively scheduled for the end of the second quarter of 2011.

During the first quarter of 2011, phase one of the software will have reached technological

feasibility and additional costs will be capitalized.

Management has subsequently begun testing and marketing the software platform in 2011.

We expect to incur additional research and development expenses of approximately $900,000 to commercialize all phases of the platform.

Research and development costs include certain salaries, outside services, travel and other costs related to the

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

Research and development costs decreased by $479,000 for the year ended December 31, 2011 in comparison to

the year ended December 31, 2010.

The decrease is primarily related to the capitalization of $225,000 in software costs in 2011 related to Version 1.0 rather than the allocation of such costs to research and development expense.

In addition, we

scaled back the amount of resources allocated to the development of LaunchPad to approximately $200,000 in the second half of 2011, due to the completion of our working model of Version 1.0 and certain cash restrictions during the year.

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

platform as research and development expenses.

Having established a working model of LaunchPad Version 1.0, all costs related to the refinement of this product will be capitalized until general release of the product to customers.

We will continue

to incur costs related to the refinement of Version 1.0 while proceeding with the development of

the next components of LaunchPad with Version 2.0.

The costs related to the development of Version 2.0 will be expensed as research and development until we have completed a working model.

expect to incur an additional $300,000 in costs related to the product development of Version 2.0 and Version 3.0 of the software, as well as continued refinement of Version 1.0, during 2012.

We expect that research and development expense will decrease from that of the year ended December 31, 2011, due to a decrease in total expenditures related to the software platform and the fact that

a significant portion of the costs will be capitalized.

Sales and Marketing

in thousands, except percentages)

Percent Change

Sales and marketing

As a percent of revenue

Sales and marketing

expenses include advertising, marketing, commissions paid to outside service providers, certain travel and other business development expenses.

Sales and marketing expenses increased by $89,000 for the year ended December 31, 2010 compared to

the year ended December 31, 2009.

During 2010, we incurred $91,000 in name change costs and $105,000 in costs of partnering with external search partners to market our products on their websites.

These additional costs were offset by a decrease

in sales related travel expenses of $129,000 in 2010.

We expect sales and marketing expenses to decrease for the year ending

December 31, 2011 because we will not have rebranding costs or partnering costs, the latter of which have been discontinued.

and Administrative

Sales and marketing expenses include advertising, marketing, commissions paid to outside service providers, certain

travel and other business development expenses.

Sales and marketing expenses decreased by $255,000 for the year ended December 31, 2011 in comparison to the year ended December 31, 2010.

The decrease relates primarily to certain marketing

costs incurred during the year ended December 31, 2010, including $91,000 in rebranding costs and $105,000 for partnering with external search partners, which were not repeated during the year ended December 31, 2011.

There were additional

decreases of $94,000 in telephone expenses and travel and entertainment expenses related to the closing of certain offices and reduced sales personnel.

This decrease in costs was partially offset by an increase of $44,000 in marketing costs incurred

during the year ended December 31, 2011 in connection with an increase in marketing efforts related to our new software platform.

expect sales and marketing expenses to increase for the year ending December 31, 2012 due to sales and marketing efforts related to the software platform.

General and Administrative

(in thousands, except percentages)

Percent Change

General and administrative

As a percent of revenue

administrative expenses decreased by $502,000 for the year ended December 31, 2010 compared to the year ended December 31, 2009.

The decrease relates to a $111,000 reduction in insurance and payroll taxes due to having fewer employees;

$283,000 reduction in rent related to consolidating UTEK Real Estate operations, closing one of our offices in the United Kingdom, closing our Pennsylvania office, and reducing the amount of space leased for our Washington, DC office;

reduction in investment banking

related to our having delisted from the Aim market of the London Stock Exchange;

a $78,000 reduction in bad debt expense due to implementation of a strict collection policy and the collections of

such amount by us;

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

partially offset by an increase of $170,000 for outside services which includes consulting services of $65,000 and payments to our interim CEO of $99,000.

We expect 2011 general and administrative expenses to remain consistent with 2010 levels.

General and administrative expenses decreased by $362,000 for the year ended December 31, 2011 in comparison to the

year ended December 31, 2010.

The decrease relates to a $211,000 reduction in insurance and other employee related costs due to having fewer employees;

a $49,000 reduction in investor relations costs;

an $160,000 decrease in outside services

which partially relates to having hired our CEO in the second quarter of 2011 as opposed to paying him as a consultant;

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

partially offset by a $29,000 increase in state

and local taxes and a $28,000 increase related to moving and relocation expenses for our new CEO and Senior VP of Sales.

We expect 2012

general and administrative expenses to remain consistent with 2011 levels.

Amortization and Depreciation

(in thousands, except percentages)

Percent Change

Amortization and depreciation

As a percent of revenue

Depreciation and

amortization expense decreased by $89,000 for the year ended December 31, 2010 compared to the year ended December 31, 2009.

Amortization expense decreased $150,000 as a result of the impairment of certain definite-lived intangible assets

in the second quarter of 2009 and the third quarter of 2010.

Depreciation expense increased $61,000 as a result of the addition of $4 million in depreciable assets from the consolidation of UTEK Real Estate in the fourth quarter of 2009.

We expect amortization and depreciation for the year ending December 31, 2011 to decrease from 2010 as a result of impairment to

certain of these assets in 2010.

Depreciation and amortization expense decreased by $255,000 for the year ended December 31, 2011 in comparison to

the year ended December 31, 2010.

Amortization expense decreased $207,000 as a result of the impairment of certain definite-lived intangible assets in 2010.

Depreciation expense decreased by $48,000 as a result of impairment charges related to

our fixed assets that were incurred in 2010.

We expect amortization and depreciation for the year ending December 31, 2012 to remain

consistent with 2011 levels.

Impairment Loss

(in thousands, except percentages)

Percent Change

Impairment loss

Our stock price declined

significantly subsequent to June 30, 2010.

Management considered the fact that a decline in stock price may be an indicator of an adverse change in business climate.

In addition, a decline in stock price affects market capitalization and may

affect fair value measurements for our reporting units.

At the end of the third quarter of 2010, management concluded that

the decline in our stock price was other than short-term in nature.

This conclusion, coupled with the severity of the decline, triggered a review for impairment outside of our next scheduled annual impairment evaluation date of December 31,

Due to the reduction in our market capitalization, third party valuations were obtained to assist in the determination of the fair value of the respective reporting units.

As a result of a reduction in the fair value of the reporting units,

management determined that the implied fair value of its goodwill and intangible assets was less than its carrying values by approximately $10.3 million.

We recognized goodwill impairment of approximately $9.4 million and intangible assets

impairment of approximately $971,000 in 2010.

We also recorded impairment of approximately $1,438,000 to certain of our land,

building and building improvements during 2010.

The commercial real estate market for such property has taken a significant downturn that is not expected to reverse in the near future.

As a result, management determined that the decrease in the fair

value of the property was other-than-temporary.

The impairment loss was determined based on third party valuations of the respective property.

In 2009, the then existing Social Technologies division of Innovaro had a significant decrease in revenues related to its futures and foresight projects.

The state of the economy during 2009 contributed

to potential Social

Technologies clients focusing on short-term survival rather than long-term foresight planning.

As a result, management terminated the majority of the divisions employees in favor of

an independent, network based approach in an effort to reduce overhead.

Management concluded that this division had suffered a significant adverse change in the business, which included a projection of continuing operating and cash flow losses.

recognized impairment of the divisions purchased intangible assets of approximately $1.0 million and impairment of the divisions goodwill of approximately $1.3 million in 2009.

Management performed its regular annual impairment testing of goodwill and other long-lived assets as of

December 31, 2011, in accordance with applicable accounting guidance.

We recognized impairment of approximately $275,000 to our goodwill and impairment of approximately $269,000 to our intangible assets for the year ended December 31, 2011

as a result of a reduction in the fair value of certain of our reporting units.

Third party valuations were obtained to assist in the determination of fair value of our reporting units.

The significant decline in our stock price during 2010 caused a reduction in our market capitalization and third party valuations were obtained to assist in the determination of fair value of our

reporting units.

As a result of a reduction in fair value of our reporting units, management determined that the implied fair value of our goodwill and intangible assets was less than their respective carrying values by approximately $10.3 million.

We recognized impairment of approximately $9.4 million to our goodwill and impairment of approximately $971,000 to our intangible assets for the year ended December 31, 2010.

We also recorded impairment of approximately $900,000 and $1.4 million to our fixed assets during the years ended December 31, 2011 and 2010, respectively, as a result of the commercial real estate

market for certain of our properties having taken a significant downturn that is not expected to reverse in the near future.

Management determined that the decreases in fair value of the property were other-than-temporary.

These impairment losses

were determined based on third party valuations of the respective property.

Other (Income) Expense

(in thousands, except percentages)

Percent Change

Other (income) expense

Other (income) expense is

a new line item in our statement of operations related to reporting as an operating company.

The net other expense of $1.15 million for the year ended December 31, 2010 is comprised of a net loss on the sale and impairment of investments of

$1.6 million, partially offset by a gain of $186,000 related to adjusting our derivative liabilities to fair value and rental income of $178,000 from the consolidation of UTEK Real Estate.

Other (income) expense may continue to increase or decrease significantly as the value of our derivative liability increases or decreases

in connection with a change in our stock price.

For more information on the derivative liability, see the Notes 10 and 12 to the Consolidated Financial Statements located elsewhere in this Annual Report on Form 10-K.

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.

Other (income) expense changed by $1.2 million for the year ended December 31, 2011 in comparison to the year ended December 31, 2010.

The variance is

attributable to a $1.4 million decrease in net capital loss and related impairment and a $139,000 increase in rental income, partially offset by a $337,000 decrease in net gain on adjustment of our derivative liabilities.

Interest Expense, Net

(in thousands, except percentages)

Percent Change

Interest expense, net

Interest expense, net is a

new line item in our statement of operations related to reporting as an operating company.

The net interest expense of $621,000 for the year ended December 31, 2010 is primarily comprised of interest expense on long-term debt of $453,000 and

amortization of our debt discount of $281,000, partially offset by interest income on our note receivable of $112,000.

Gains or Losses on Investments and Net Changes in Unrealized Appreciation or Depreciation on Investments (from investment company activity)

In connection with our plan to de-elect BDC status, we liquidated a significant portion of our investment portfolio during 2009.

We sold some or all of our shares in a significant number of our portfolio

sale of these investments.

Interest expense, net decreased by $187,000 for the year ended December 31, 2011 in comparison to the year ended

December 31, 2010.

The decrease is primarily attributable to lower interest expense from the amortization of our debt discount.

Income Tax Matters

Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred

tax liabilities are recognized for taxable temporary differences.

Deferred taxes are

provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.

Future tax benefits for net operating loss carryforwards are

recognized to the extent that realization of these benefits is considered more likely than not.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is

more likely than not that some portion or all of the deferred tax assets will not be realized.

For federal and state income tax purposes, we

are taxed at regular corporate rates on ordinary income and recognize gains on distributions of appreciated property.

As an investment company, we were not entitled to the special tax treatment available to BDCs that elect to be treated as regulated

investment companies under the Internal Revenue Code because, among other reasons, we did not distribute at least 90% of investment company taxable income as required by the Internal Revenue Code for such treatment.

We do not have any income tax benefit related to the net loss from operations in 2010 or 2009, nor do we have a deferred tax asset related to our net

operating loss carryforward, because of a 100% valuation allowance.

We do have an income tax benefit from the reversal of a deferred tax liability related to the impairment and amortization of an indefinite-lived intangible asset of approximately

$56,000 and $275,000 for the years ended December 31, 2010 and 2009, respectively.

Future tax benefits for net operating loss carryforwards are recognized to the extent that realization of these

benefits is considered more likely than not.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

For federal and state income tax purposes, we are taxed at regular corporate rates on ordinary income and recognize gains on distributions of

appreciated property.

We do not have any income tax benefit related to the net loss from operations in 2011 or 2010, nor do we

have a deferred tax asset related to our net operating loss carryforward, because of a 100% valuation allowance.

We do have an income tax benefit from the reversal of a deferred tax liability related to the impairment and amortization of an

indefinite-lived intangible asset of approximately $230,000 and $56,000 for the years ended December 31, 2011 and 2010, respectively.

Liquidity and Capital Resources

used in operating activities of $4.9 million for the year ended December 31, 2010 increased approximately $1.2 million from cash used in operating activities of $3.7 million for the year ended December 31, 2009.

Total cash used in

operations of $4.9 million in the current period is primarily attributable to:

$19.1 million net operating loss;

$529,000 increase in accounts receivable related to significant billings in the last half of 2010;

$646,000 decrease in deferred revenue.

Partially offset by:

Cash flows from

operating activities of $651,000 for the year ended December 31, 2011 increased approximately $5.5 million from cash used in operating activities of $(4.9) million for the year ended December 31, 2010.

Total cash flows from operations of

$651,000 in the current period are primarily attributable to:

$1.6 million in non-cash impairment charges;

$1.6 million in non-cash losses on investments;

$1.4 million in non-cash depreciation and amortization;

$509,000 in non-cash stock-based compensation expense related to vesting options;

$255,000 increase in accounts payable and accrued expenses.

Cash provided by investing activities of $754,000 for the year ended December 31, 2010 increased $585,000 from $169,000 for the year ended December 31, 2009.

Total cash provided by investing

activities of $754,000 in the current period is primarily attributable to:

$342,000 in proceeds from the sale of available-for-sale securities;

$492,000 in proceeds from the redemption of certificates of deposit.

Partially offset by:

$80,000 in capital expenditures.

Cash provided by financing activities of $2.3 million for the year ended December 31,

2010 increased $591,000 from $1.7 million for the year ended December 31, 2009.

Total cash provided by financing of $2.3 million is primarily attributable to:

$3.8 million in gross proceeds from a registered equity securities offering;

$200,000 in related party proceeds.

$1.2 million decrease in accounts receivable and other assets;

$977,000 increase in accounts payable, accrued expenses and accrued bonus.

Partially offset by:

$593,000 in offering costs from a registered equity securities offering;

$250,000 in cash payments on the line of credit;

$845,000 in cash payments on debt.

On July 12, 2010, we completed a registered offering

of 1,481,481 shares of our common stock priced at $2.565 per share along with Series A warrants to purchase up to 1,481,481 shares of common stock with an exercise price of $3.43 per share (subsequently amended to $3.49 per share) of common stock

and Series B warrants to purchase up to 893,519 shares of common stock with an exercise price of $0.01 per share of common stock.

We raised gross proceeds of approximately $3.8 million before advisory fees and offering expenses in connection with

the offering.

Research and Development Expenditures

In the first quarter of 2010, we began development of an innovation management software platform designed to enhance and complement our innovation services deliverable to clients.

As of December 31,

2010, we have invested $1.2 million in this software platform.

Management has begun testing and marketing the software platform in 2011.

We expect to incur additional software platform costs of approximately $900,000 to commercialize all phases of

the platform during 2011.

As of October 1, 2009, the financial results of UTEK Real Estate have been consolidated with those of Innovaro.

UTEK Real Estate has a $3 million bank note payable due in monthly installments of

$4.6 million net loss attributable to stockholders;

$297,000 net loss attributable to noncontrolling interest.

Cash flows from investing activities of $(222,000) for the year ended December 31, 2011 decreased $976,000 from $754,000 for the year ended December 31, 2010.

Total cash flows from investing

activities of $(222,000) in the current period are primarily attributable to $225,000 in capitalization of software development costs.

flows from financing activities of $(421,000) for the year ended December 31, 2011 decreased $2.7 million from $2.3 million for the year ended December 31, 2010.

Total cash flows from financing activities of $(421,000) in the current

period are primarily attributable to $621,000 in cash payments on long-term debt partially offset by $200,000 in debt proceeds.

On July 12, 2010,

we completed a registered offering of 1,481,481 shares of our common stock priced at $2.565 per share along with Series A warrants to purchase up to 1,481,481 shares of common stock with an exercise price of $3.43 per share (subsequently amended to

$3.49 per share) of common stock and Series B warrants to purchase up to 893,519 shares of common stock with an exercise price of $0.01 per share of common stock.

We raised gross proceeds of approximately $3.8 million before advisory fees and

offering expenses in connection with the offering.

Software Development Costs

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

We will continue to incur costs related to the refinement of Version 1.0 while proceeding with the development of the next components of LaunchPad with Version 2.0.

As of December 31, 2011, we had invested $2.2 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 2012.

We have a $3 million bank note payable due in monthly installments of

$20,436 including principal and interest at 6.50% through April 1, 2013 with a balloon payment due on May 1, 2013.

As of December 31, 2011, the amount outstanding on this note was approximately $2.8 million.

In addition, UTEK Real

Estate has a $1.5 million note payable due in monthly installments of interest at 7.00% with principal due in full on October 1, 2015.

In addition, we have a

$1.5 million note payable due in monthly installments of interest at 7.00% with principal due in full on October 1, 2015.

As of December 31, 2011, the amount outstanding on this note was approximately $1.25 million.

loans were entered into in connection with the purchases of land and building that serves as our company headquarters and certain other undeveloped land located in Hillsborough County, Florida.

These loans are collateralized by the property related

to the purchases.

On October 22, 2009, we entered into a Promissory Note (the Note) with Gators Lender, LLC

(the Lender), pursuant to which we borrowed $1,750,000 from the Lender.

Interest is payable at an annual rate of 8% on a quarterly basis, in arrears, beginning April 15, 2010.

The entire principal amount outstanding and all accrued

interest is payable in full no later than October 22, 2013.

UTEK Real Estate is a co-borrower under the Note and the loan is guaranteed by all subsidiaries.

In addition, the guaranty was secured pursuant to a security agreement encumbering

vacant real property located in Hernando County, Florida (the Collateral), which is owned by Cortez 114, LLC (Cortez), a subsidiary of UTEK Real Estate.

On February 26, 2010, we entered into a Substitution of Collateral

Agreement and a Membership Interest Pledge Agreement and Release of Mortgage (the Modification Agreements), pursuant to which the Lenders security interest in the Collateral was released

and replaced by a security interest in 68% of the outstanding membership interests of Cortez.

The Note was amended and restated to provide that UTEK and UTEK Real Estate must pay down

$500,000 of the indebtedness to the Lender within 60 days.

At our request, the Lender subsequently extended the repayment date for the $500,000 payment, which was made in accordance with this extension on July 12, 2010.

These loans were

entered into in connection with the purchases of land and building that serves as our company headquarters and certain other undeveloped land located in Hillsborough County, Florida.

These loans are collateralized by the property related to the

We have a Promissory Note (the Note) with Gators Lender, LLC (the Lender), pursuant to which we borrowed

$1,750,000 from the Lender.

Interest is payable at an annual rate of 8% on a quarterly basis, in arrears.

The entire principal amount outstanding and all accrued interest is payable in full no later than October 22, 2012.

UTEK Real Estate is a

co-borrower under

the Note and the loan is guaranteed by all subsidiaries.

In addition, the Lender has a security interest in 68% of the outstanding membership interests of Cortez 114, LLC

(Cortez), a subsidiary of UTEK Real Estate that owns vacant real property located in Hernando County, Florida.

$500,000 of the indebtedness was repaid in July 2010 in connection with an amendment to the Note.

As of December 31,

2010, the face amount outstanding on the Note was approximately $1.25 million.

As additional consideration for the Note, we

also entered into a Warrant Agreement with the Lender to allow the Lender to purchase up to 437,500 shares of our common stock at an exercise price of $4.48 until October 22, 2014.

The exercise price is subject to certain conditions and

adjustments that make the exercise price variable.

During December 2010, the Company borrowed $200,000 for operations from

one of its Directors under a promissory note.

2011, the face amount outstanding on the Note was $1.25 million.

We borrowed $200,000 for operations from one of our directors under a

promissory note in December 2010.

The note was subsequently repaid in full on February 21, 2011 including interest at 3.5% and 3.0 points.

This transaction is not necessarily indicative of amounts, terms and conditions that the

Company may have received with unrelated third parties.

Cash and Accounts Receivable Balances

Our cash balance as of December 31, 2010 was significantly lower than our historical cash position.

balance decreased significantly in the fourth quarter of 2010 as a result of the Company having to pay bonuses to employees in its strategic services business segment in accordance with the terms of the Strategos Bonus Plan.

These bonuses are based

on adjusted earnings of the strategic services business segment without taking into account any working capital requirements of the business segment and are required to be paid by December 15 th , but no later than December 31 st , of each year with respect to such year.

Accounts receivable related

to the strategic services business segment due within 30 days of December 31, 2010 were included in the amounts eligible to be paid as bonuses under the terms of the Strategos Bonus Plan.

As a result, we were required to pay bonuses to these

employees prior to our collection of the related amounts of accounts receivable, which significantly lowered the Companys cash balance as of December 31, 2010.

We have subsequently rebuilt our cash position to approximately $700,000 as of the date of this filing.

Our accounts receivable balance as of December 31, 2010 was significantly higher than our historical accounts receivable balance.

The increase in our accounts receivable balance during the third and

fourth quarters of 2010 is a result of a significant increase in revenue.

Revenue increased because the Company had a significant number of new contracts in the second half of 2010.

Revenue for the third and fourth quarters of 2010 increased 58%

over revenue for the first and second quarters of 2010.

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

Of the outstanding receivables balance of $2.0 million at December 31, 2010, only 14%, or $279,000, was overdue.

As of the date of

this filing, we have collected all but $26,000 of the total accounts receivable balance outstanding at December 31, 2010.

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 December 31, 2010, we had cash and cash equivalents of $263,000 and accounts receivable of $2.0 million.

We had $316,000 in working capital as of December 31, 2010.

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 believe that these sources will be sufficient to fund our scheduled debt service and provide required resources for

working capital for the next twelve months.

As of December 31, 2010, our strategic services business segment had $6.0 million of

contracts in progress, of which $3.5 million had been billed, leaving $2.5 million to be billed in 2011.

As of the date of this filing, this business has already secured an additional $4.5 million in contracts to be fulfilled before the end of 2011.

In addition, we are in the process of modifying the aforementioned Strategos Bonus Plan to be more reflective of cash collected.

In addition to the confirmed revenue stream for 2011, we have significantly cut our costs in each of the expense categories listed below:

Salaries and Wages:

$1.2 million reduction;

Sales and Marketing:

$200,000 reduction in non-repetitive costs related to name change and partner search fees;

General and Administrative:

$350,000 reduction in employee related costs such as health insurance, payroll taxes and retirement funding;

expenses related to certain terminated employees;

and investor relations costs.

We expect these reductions

in costs, coupled with the expected revenue for 2011, to be sufficient to 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 look to reduce costs further.

This transaction is not necessarily indicative of amounts, terms and conditions that the Company may have

received with unrelated third parties.

During December 2011, we borrowed $200,000 for operations from IIM Holding II, LLC under a promissory

note including interest at 6% and $26,000 in other fees.

We have incurred recurring losses and negative cash flows from operations.

We incurred a net loss of $4.9 million for the year ended December 31, 2011.

We had a working capital deficit of

$1.2 million and an accumulated deficit of $76.5 million as of December 31, 2011.

These factors raise substantial doubt about our ability to continue as a going concern.

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.

We currently intend to fund our liquidity needs, including our software development costs, 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 insufficient to fund our scheduled debt service

payments of $1.6 million and our operating requirements for the next twelve months.

We are exploring opportunities for obtaining a credit facility, as well as selling equity securities and certain other assets.

In addition, we have the capability to

delay all cash intensive activities, including our software development costs, 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.

The Companys future success depends on its ability to raise capital and ultimately generate revenue and attain profitability.

Company cannot be certain that additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to it or, if available, will be on terms acceptable to the Company.

Company issues additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of its common stock, and the Companys current shareholders may experience dilution.

If the Company is unable to

obtain funds when needed or on acceptable terms, the Company may be required to curtail their current development programs, cut operating costs and forego future development and other opportunities.

Without sufficient capital to fund their

operations, the Company will be unable to continue as a going concern.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are materially likely to have a current or future material

effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We have no off-balance sheet arrangements that have or are materially likely to have a current or future material effect on our financial condition,

revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

The preparation of financial statements in conformity with US Generally Accepted Accounting Principles (GAAP) requires management to make assessments, estimates and assumptions that affect the

amounts reported in the financial statements.

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.

We consider the following accounting policies and related estimates to be critical as they require the most subjective judgment or involve uncertainty that could have a material impact on our financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America

(GAAP) requires management to make assessments, estimates and assumptions that affect the amounts reported in the financial statements.

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.

We consider the following accounting policies and related estimates to be critical as they require the most subjective judgment or involve

uncertainty that could have a material impact on our financial statements.

Revenue Recognition

The Company has revenues from fixed fee contracts for the sale of strategic consulting services.

These revenues are recognized on a pro rata basis based upon costs incurred to date compared to total

estimated contract costs.

The determination of estimated contract costs is critical to the determination of revenue recognition in any given period.

If costs incurred to date are compared to total estimated contract costs that have not been updated

for the most recent information, material variances in revenue recognition can occur.

As a result, management evaluates the accuracy of estimated contract costs for each in-process job in light of available information regarding job status at the

end of each reporting period.

These revenues are recognized on a pro rata basis based

upon costs incurred to date compared to total estimated contract costs.

The determination of estimated

contract costs is critical to the determination of revenue recognition in any given period.

If costs incurred to date are compared to total estimated contract costs that have not been updated for

the most recent information, material variances in revenue recognition can occur.

As a result, management evaluates the accuracy of estimated contract costs for each in-process job in light of available information regarding job status at the end of

each reporting period.

In addition, management prepares an analysis to determine the accuracy of our estimated total contract costs on closed jobs.

We have historically been able to estimate total contract costs with the required accuracy to

produce materially correct revenue results.

We have historically been able to estimate total contract costs with the required accuracy to produce

materially correct revenue results.

Valuation and Impairment of Investments

Our investments include cost method investments, available-for-sale securities, and equity method investments.

The assessment of the fair

value of certain of our cost method and equity method investments can

be difficult and subjective due in part to our having only limited information on these investments.

The assessment of the fair value of certain

of our cost method and equity method investments can be difficult and subjective due in part to our having only limited information on these investments.

In addition, determination of permanent impairment for available-for-sale securities can be

difficult and subjective due in part to limited trading activity of certain of these equity instruments.

We conduct periodic

reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments, as required under current accounting standards.

We conduct periodic reviews to

identify and evaluate each investment that is in an unrealized loss position, in accordance with the meaning of other-than-temporary impairment and its application to certain investments, as required under current accounting standards.

An unrealized

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Unrealized losses on available-for-sale securities that are determined to be temporary are recorded in accumulated other comprehensive loss.

For available-for-sale equity securities with unrealized losses, management performs an analysis to assess whether the

securitys decline in fair value would be deemed to be other-than-temporary.

For available-for-sale equity securities with unrealized losses, management performs an analysis to assess whether the securitys

decline in fair value would be deemed to be other-than-temporary.

This can be difficult as many of our holdings have limited trading activity and prices can fluctuate significantly.

Fluctuations in price are generally determined to

be temporary unless the price level is maintained for an extended period of time.

Fluctuations in price are generally determined to be temporary

unless the price level is maintained for an extended period of time.

Significant declines in a securitys fair value are determined to be other-than-temporary when the decline is maintained over several reporting periods.

decline in stock price is deemed to be other-than-temporary, the unrealized loss included in accumulated other comprehensive loss is reversed and recorded as a capital loss in the statement of operations.

When a decline in

stock price is deemed to be other-than-temporary, the unrealized loss included in accumulated other comprehensive loss is reversed and recorded as a capital loss in the statement of operations.

Our cost method investments and equity method investments are in small, privately held companies.

These investments are not publicly

traded, and, therefore, because no established market for these securities exists, the estimate of the fair value of our investments requires significant judgment.

These investments are not publicly traded, and,

therefore, because no established market for these securities exists, the estimate of the fair value of our investments requires significant judgment.

Investments that are accounted for using the cost method are valued at cost unless an

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Stock-Based Compensation

Stock-based compensation cost for share-based payments are based on their relative grant date fair values estimated in

accordance with current accounting standards.

Stock-based compensation cost for share-based payments are based on their relative grant date fair values estimated in accordance with

current accounting standards.

The Company recognizes compensation expense on a straight-line basis over the requisite service period.

The determination of the fair value of stock-based compensation requires significant judgment and

the use of estimates, particularly surrounding assumptions such as stock price volatility, expected option lives and forfeiture rates.

The determination of the fair value of stock-based compensation requires significant judgment and the use of

estimates, particularly surrounding assumptions such as stock price volatility, expected option lives and forfeiture rates.

These estimates involve inherent uncertainties and the application of management judgment.

As a result, if

circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

The expected term of options granted represents the period of time that the options are expected to be outstanding and is based on historical experience of similar grants, giving consideration to the

contractual terms of the grants, vesting schedules and expectations of future employee behavior.

As a result, if circumstances

change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

The expected term

of options granted represents the period of time that the options are expected to be outstanding and is based on historical experience of similar grants, giving consideration to the contractual terms of the grants, vesting schedules and expectations

of future employee behavior.

The expected volatility is based upon our historical market price at consistent points in a period equal to the expected life of the options.

forfeitures are based on historical experience and expectations of future employee behavior.

Expected forfeitures are based on historical experience and expectations of

future employee behavior.

We are required to estimate future forfeitures of stock-based awards for recognition of compensation expense.

We will record additional expense if the

actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated.

We will record additional expense if the actual forfeitures are lower than estimated and will record a recovery

of prior recognized expense if the actual forfeitures are higher than estimated.

The actual expense recognized over the vesting period will only be for those awards that vest.

our actual forfeiture rate or performance outcomes are materially different from our estimate, the actual stock-based compensation expense could be significantly different from what we have recorded in the current period.

If our actual forfeiture rate or performance outcomes are materially

different from our estimate, the actual stock-based compensation expense could be significantly different from what we have recorded in the current period.

Valuation and Impairment of Goodwill and Intangible Assets

Goodwill represents the excess of the aggregate consideration paid for an acquisition over the fair value of the net tangible and

intangible assets acquired.

Intangible assets represent the cost of trade marks, trade names, websites, customer lists, non-compete agreements, and proprietary processes and software obtained in connection with certain of these acquisitions.

Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, which range from 5 to 12 years.

In accordance with current accounting standards, goodwill and intangible assets determined to have

indefinite lives are not subject to amortization but are tested for impairment annually, or more frequently if events or changes in circumstances indicate a potential impairment may have occurred.

Circumstances that may indicate impairment include

qualitative factors such as an adverse change in the business climate, loss of key personnel, and unanticipated competition.

Additionally, management considers quantitative factors such as current estimates of the future profitability of the

Companys reporting units, the current stock price, and the Companys market capitalization compared to its book value.

The consideration of qualitative and quantitative factors when considering circumstances that may indicate impairment

requires the application of management judgment.

As a result, managements determinations with regard to current circumstances affecting the Company could have a significant affect the recognition of impairment charges.

Goodwill represents the

excess of the aggregate consideration paid for an acquisition over the fair value of the net tangible and intangible assets acquired.

Intangible assets represent the cost of trademarks, trade names, websites, customer lists,

compete agreements, and proprietary processes and software obtained in connection with certain of these acquisitions.

Intangible assets with finite lives are amortized on a straight-line basis

over their estimated useful lives, which range from 3 to 10 years.

In accordance with current accounting standards, goodwill and intangible assets determined to have indefinite lives are not subject to amortization but are tested for impairment

annually, or more frequently if events or changes in circumstances indicate a potential impairment may have occurred.

Circumstances that may indicate impairment include qualitative factors such as an adverse change in the business climate, loss of

key personnel, and unanticipated competition.

Additionally, management considers quantitative factors such as current estimates of the future profitability of the Companys reporting units, the current stock price, and the Companys market

capitalization compared to its book value.

The consideration of qualitative and quantitative factors when considering circumstances that may indicate impairment requires the application of management judgment.

As a result, managements

determinations with regard to current circumstances affecting the Company could have a significant affect the recognition of impairment charges.

If management determines that an impairment test is necessary, it must determine the fair value of the respective reporting units.

determination of the fair value of reporting units requires significant judgment.

The determination of the fair value of reporting units requires

significant judgment.

Management typically enlists the assistance of a third-party valuation firm in determining fair value of reporting units for use in its impairment analysis.

conducting its impairment test, the Company compares the fair value of each of its reporting units to the related book value.

In conducting its impairment test, the Company compares the fair value

of each of its reporting units to the related book value.

If the fair value of a reporting unit exceeds its net book value, long-lived assets are considered not to be impaired.

the net book value of a reporting unit exceeds it fair value, an impairment loss is measured and recognized.

If the net book value of a reporting unit exceeds its fair value, an

impairment loss is measured and recognized.

The Company conducts its impairment test using balances as of December 31.

The Company accounts for long-lived assets, including intangibles that are amortized, in accordance with GAAP, which requires that all

long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Management considers both qualitative and quantitative factors when considering circumstances that

may indicate impairment.

This consideration requires significant management judgment and could have a significant affect of the recognition of impairment charges.

If indicators of impairment are present, reviews are performed to determine whether

the carrying value of an asset to be held and used is impaired.

Such reviews involve a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset over its remaining useful life.

determination of future cash flows involves inherent uncertainties and the application of management judgment regarding the future operations of the Company.

If the comparison indicates that there is impairment, the impaired asset is written down to

its fair value.

The impairment to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Assets to be disposed are reported at the lower of the carrying

amount or fair value, less cost to dispose.

accounts for long-lived assets, including intangibles that are amortized, in accordance with GAAP, which requires that all long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset

may not be recoverable.

Management considers both qualitative and quantitative factors when considering circumstances that may indicate impairment.

This consideration requires significant management judgment and could have a significant effect of

the recognition of impairment charges.

If indicators of impairment are present, reviews are performed to determine whether the carrying value of an asset to be held and used is impaired.

Such reviews involve a comparison of the carrying amount of an

asset to future net undiscounted cash flows expected to be generated by the asset over its remaining useful life.

The determination of future cash flows involves inherent uncertainties and the application of management judgment regarding the future

operations of the Company.

If the comparison indicates that there is impairment, the impaired asset is written down to its fair value.

The impairment to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying

amount of the asset exceeds the fair value of the asset.

Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to dispose.

Valuation of Derivative Liabilities

ASC Topic 815 Derivatives and Hedging requires bifurcation of embedded derivative instruments and measure of their fair value for

accounting purposes.

ASC Topic 815 Derivatives and Hedging

requires bifurcation of embedded derivative instruments and measure of their fair value for accounting purposes.

In addition, freestanding derivative instruments such as certain warrants are also derivative liabilities.

Derivative liabilities are recorded at fair value at inception and then are adjusted to reflect fair value at the end of

each quarter, with any increase or decrease in the fair value being recorded in results of operations as a component of other (income) expense.

We estimate the fair value of these instruments using the Black-Scholes option pricing model, which takes

into account a variety of factors that require judgment, including estimating the expected term of the warrants and the expected volatility of the Companys stock price.

The expected term of the warrants represents the period of time that they

are expected to be outstanding and is based on the contractual term of the warrants and expectations of the warrants holders

The expected volatility is based upon our historical market price at consistent points in a period equal to the expected life of the warrants.

These estimates involve inherent

uncertainties and the application of management judgment.

As a result, if circumstances change and we use different assumptions, our derivative liability and the related gain or loss could be materially different in the future.

Derivative liabilities

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

estimate the fair value of these instruments using the Black-Scholes option pricing model, which takes into account a variety of factors that require judgment, including estimating the expected term of the warrants and the expected volatility of the

Companys stock price.

The expected term of the warrants represents the period of time that they are expected to be outstanding and is based on the contractual term of the warrants and expectations of the warrants holders behavior.

expected volatility is based upon our historical market price at consistent points in a period equal to the expected life of the warrants.

These estimates involve inherent uncertainties and the application of management judgment.

As a result, if

circumstances change and we use different assumptions, our derivative liability and the related gain or loss could be materially different in the future.

As of December 31, 2011, the Companys derivative liabilities have been extinguished.

Recently Issued Accounting Pronouncements

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Data and is incorporated herein by reference.

Quantitative and Qualitative

Disclosures about Market Risk

Not applicable.

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-K

Item 5. Market for Registrant’s Common Equity