What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2012-04-11 compared with 2011-03-30 · 650 added, 928 removed, 381 unchanged (81% of the section changed)

1 unchanged sentence

INNOVARO, INC.

INDEX TO CONSOLIDATED FINANCIAL

STATEMENTS AND SCHEDULES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control over Financial

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Operations for the Year Ended December

31, 2010, the Three Months Ended December 31, 2009 and the Nine Months Ended September 30, 2009

Consolidated Statements of Changes in Equity for the Year Ended December

31, 2010, the Three Months Ended December 31, 2009, and the Nine Months Ended September 30, 2009

Consolidated Statements of Cash Flows for the Year Ended December

31, 2010, the Three Months Ended December 31, 2009 and the Nine Months Ended September 30, 2009

Consolidated Statements of Operations for the Years Ended December 31, 2011 and

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2011 and

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and

Notes to Consolidated Financial Statements

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Innovaro, Inc.

and subsidiaries (the Company) as of December 31, 2010 and 2009 and the related consolidated statements of

operations, changes in equity and cash flows for the year ended December 31, 2010, the three months ended December 31, 2009 and the nine months ended September 30, 2009.

These consolidated financial statements are the responsibility

of the Companys management.

and subsidiaries (the Company) as of December 31, 2011

and 2010 and the related consolidated statements of operations, changes in equity and cash flows for the years ended December 31, 2011, and 2010.

These consolidated financial statements are the responsibility of the Companys management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audits to obtain reasonable

assurance about whether the consolidated financial statements are free of material misstatement.

For the year ended December 31, 2010, the Company is not required to have, nor were we engaged to perform, an audit of its internal control over

financial reporting.

Our audit for the year ended December 31, 2010 included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose

of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.

We conducted our audits in

accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free

of material misstatement.

For the years ended December 31, 2011, and 2010 the Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Our audits for the years ended

December 31, 2011 and 2010 included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Companys internal control over financial reporting.

Accordingly, we express no such opinion.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in

the consolidated financial statements.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

We believe that our

audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above

present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009 and the results of its operations and cash flows for the year ended December 31, 2010, the three month period ended

December 31, 2009 and the nine month period ended September 30, 2009 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of

December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report date March 22, 2010 expressed an unqualified

opinion thereon.

/s/ P ENDER N EWKIRK &

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida

March 30, 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors

Innovaro, Inc.

and Subsidiaries

Tampa, Florida

We have audited the internal control over financial reporting of Innovaro, Inc.

(formerly UTEK Corporation) and Subsidiaries (the

Company) as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).

The Companys

management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

Our responsibility is to express an opinion on the Companys

internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the

Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the

assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,

in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance

regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion the Company maintained effective internal control over financial reporting as of December 31, 2009, in all material

respects, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009 and the related statements of operations and cash flows for the three months ended December 31, 2009 and the nine months ended

September 30, 2009, and the statement of changes in net assets for the nine months ended September 30, 2009.

We have audited the statement of changes in equity for the year ended December 31, 2009 and our report dated March 22,

2010 expressed an unqualified opinion thereon.

/s/ P ENDER N EWKIRK &

We believe that our audits provide a

reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the financial position of the Company as of December 31, 2011 and 2010 and the results of its operations and cash flows for the years ended December 31, 2011, and 2010 in conformity with accounting principles generally accepted

in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going

As discussed in Note 1, the Company incurred a net loss of $4,920,723 during the year ended December 31, 2011 and has an accumulated deficit of $76,453,214 and has a working capital deficit of $1,236,512 as of December 31, 2011.

These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern.

Managements plans in regard to these matters are also described in Note 1.

The financial statements do not include any

adjustments that might result from the outcome of this uncertainty.

/s/ PENDER NEWKIRK & COMPANY

Pender Newkirk & Company LLP

1 unchanged sentence

Tampa, Florida

March 22, 2010

April 11, 2012

INNOVARO, INC.

1 unchanged sentence

Current assets:

Cash and cash equivalents

Certificates of deposit

Accounts receivable, net

Contracts in process

Available-for-sale securities

Cost method investments

Prepaid expenses and other assets

Note receivable and accrued interest

Total current assets

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Accrued expenses

Accrued severance payable

Accrued bonus pool

Deferred revenue

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Total liabilities

Commitments and contingencies (Note 19)

Commitments and contingencies

Innovaro stockholders equity:

6 unchanged sentences

Additional paid-in capital

Total accumulated loss under Investment Company Accounting

Accumulated income (deficit) under Operating Company Accounting:

Accumulated deficit

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Total Innovaro stockholders equity

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Consolidated Statements of Operations

Revenue / Income from operations:

Year Ended December 31

Strategic services

Technology services

Investment income, net

Intelligence and Insights services

Direct costs of revenue Strategic services

Direct costs of revenueTechnology services

Direct costs of revenue Intelligence and Insights services

Salaries and wages

9 unchanged sentences

Loss before income taxes

Provision for income taxes

Net loss from operations

Net realized and unrealized gains (losses) from investment company activity:

Net realized losses on investments

Net change in unrealized appreciation (depreciation) of investments

Net loss / Net decrease in net assets from operations

Provision for income tax benefit

Net loss attributable to noncontrolling interest

Net loss attributable to Innovaro stockholders

Net loss attributable to Innovaro stockholders per share / Net decrease in net assets from operations per share:

Net loss attributable to Innovaro stockholders per share:

Basic and diluted

Weighted average shares outstanding:

1 unchanged sentence

See accompanying notes

UTEK Corporation

Consolidated Statement of Changes in Equity

Innovaro Stockholders Equity

Investment Company Accounting

Operating Company Accounting

Net Operating

of investments

Comprehensive

Income (Loss)

Comprehensive

Income (Loss)

Noncontrolling

Balances at December 31, 2008

Stock-based compensation expense

Common stock issued to acquire interest in a subsidiary of UTEK Real Estate Holdings, Inc.

Severance compensation paid out in escrowed shares

Earnout accruals and escrow adjustments

Cumulative translation adjustment

Change in net assets

Balances at September 30, 2009

Adoption of Operating Company Accounting on Oct 1, 2009

Comprehensive loss:

Other comprehensive income (loss):

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

Foreign currency translation adjustments

Other comprehensive gain (loss)

Comprehensive loss

Stock-based compensation expense

Earnout accruals and escrow adjustments

UTEK Corporation

Consolidated Statement of Changes in Equity (continued)

Innovaro Stockholders Equity

Investment Company Accounting

Operating Company Accounting

INNOVARO, INC.

Consolidated Statements of Changes in Equity

For the Years Ended December 31, 2011 and 2010

Comprehensive

2 unchanged sentences

Income (Loss)

Stockholders

Shares Issued

Noncontrolling

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Balances at December 31, 2010

Comprehensive loss:

Other comprehensive income (loss):

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

Foreign currency translation adjustments

Other comprehensive income (loss):

Comprehensive loss

Contribution from noncontrolling interest

Issuance of common shares upon cashless exercise of warrants

Derivative liability extinguished in connection with exercise of warrants

Issuance and vesting of restricted stock, net of forfeitures

Escrow adjustment related to earnout

Stock-based compensation expense

Balances at December 31, 2011

See accompanying notes

1 unchanged sentence

Consolidated Statements of Cash Flows

Operating Company

Year Ended December 31

Operating Activities:

Net loss attributable to Innovaro stockholders / Net decrease in net assets from operations

Adjustments to reconcile net loss attributable to Innovaro stockholders / net decrease in net assets from operations to net cash

flows from operating activities:

Change in net unrealized appreciation (depreciation) of investments from investment company activity

Loss on sale of investments from investment company activity

Proceeds from sale of equity investments from investment company activity

Net proceeds from sale (purchases) of short-term investments from investment company activity

Net loss attributable to Innovaro stockholders

Adjustments to reconcile net loss attributable to Innovaro stockholders to net cash flows from operating

Net loss attributable to noncontrolling interest

1 unchanged sentence

Amortization of debt discount from investor warrants

Goodwill, intangible asset and fixed asset impairment

Goodwill and intangible asset impairment

Fixed asset impairment

Loss on sale and impairment of investments

Loss on disposal of fixed assets

(Gain) loss on derivative liability

Bad debt expense

Loss (gain) on derivative liability

Stock-based compensation

2 unchanged sentences

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable and contracts in process

Prepaid expenses and other assets

Deferred revenue

Accounts payable and accrued expenses

Accounts payable, accrued expenses and accrued bonus

Net cash flows from operating activities

1 unchanged sentence

Capital expenditures

Cash received (paid) in connection with consolidation/ acquisitions

Capitalization of software development costs

Proceeds from sale of available-for-sale securities

2 unchanged sentences

Financing Activities:

Net (repayments) proceeds on bank line of credit

Proceeds from related party debt

Payments on debt

Net repayments on bank line of credit

Proceeds from related party and other debt

Payments on long-term debt

Gross proceeds from registered equity securities offering

1 unchanged sentence

Net cash flows from financing activities

Effect of foreign exchange rates

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Effect of foreign exchange rates on cash

Increase (decrease) in cash

Cash at beginning of year

Cash at end of year

See accompanying notes

1 unchanged sentence

Consolidated Statements of Cash Flows (continued)

Sept 30, 2009

The Company issued 23,484, 58,338 and 85,950 shares of common stock in connection with certain acquisition earnout

contingencies

The Company received a note in connection with the sale of certain investments

The Company received 100,000 shares in Technology Capital Services, LLC in connection with the sale of certain

The Company received 375,000 shares in Oxygen Biotherapeutics, Inc.

in connection with the redemption of 750,000

The Company issued stock in connection with an investment in UTEK Real Estate Holdings, Inc.

176,470 shares of UTEK common stock

240,964 shares of NeoStem, Inc.

The consolidation of UTEK Real Estate Holdings, Inc.

as of October 1, 2009 resulted in the addition of the following assets

and liabilities to the balance sheet:

Accounts receivable

Cost method investments

Other tangible assets

Accounts payable and accrued expenses

Derivative liability recorded upon issuance of investor warrants

Year Ended December 31

Supplemental Disclosures of Non-Cash Investing and Financing Activities

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

The extinguishment of a derivative liability related to the exercise of warrants

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

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Withdrawal of the Companys Election to be Treated as a Business Development Company under the Investment Company Act of 1940

Until September 30, 2009, the Company was 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, the Company filed a notification on Form N-54C with the Securities and Exchange Commission

(SEC) withdrawing its election to be regulated as a BDC under the 1940 Act.

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

Based on the Companys current business focus and the fact that the equity interests it holds have constituted a declining amount of

its assets over the last couple of years, the Company determined that it no longer met the requirements to be regulated as a BDC under the 1940 Act.

In this regard, the Companys current business focus is to provide strategic consulting and

technology services to companies in exchange for cash as opposed to equity interests.

Thus, because of the Companys current business focus of providing strategic consulting and technology services to companies in exchange for cash as opposed

to equity interests, as well as the fact that the Company no longer holds the requisite level of investment securities (as this term is defined in the 1940 Act) to permit it to be an investment company under the 1940 Act and,

as a result, be regulated as a BDC, the Company is operating, and intends to continue to operate, as an operating company rather than an investment company.

Accordingly, and after careful consideration of the requirements applicable to BDCs under the 1940 Act, the cost of compliance with the provisions of the 1940 Act and a thorough assessment of the

Companys current business model, the Companys Board of Directors determined that the Company should withdraw its election to be regulated as a BDC under the 1940 Act.

Under its current business model, the Company intends at all times to conduct its activities in such a way that it will not be deemed an

investment company subject to regulation under the 1940 Act.

Thus, the Company will not hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.

In addition, the Company intends to

conduct its business in a manner so that it will at no time own or propose to acquire investment securities having a value exceeding 40% of the Companys total assets at any one time.

As a result of our de-election from BDC status, we make reference to both Investment Company Accounting and Operating Company Accounting

throughout these consolidated financial statements.

Investment Company Accounting, as we refer to it, is defined as accounting in accordance with U.S.

generally accepted accounting principles (GAAP) for investment companies under the

Operating Company Accounting, as we refer to it, is defined as accounting in accordance with GAAP other than for investment companies under the 1940 Act.

As an operating company, the Company is required to consolidate UTEK Real Estate Holdings, Inc.

and its subsidiaries:

Ybor City Group, Inc., 22nd Street of Ybor City, Inc., ABM of Tampa Bay, Inc., and

Cortez 114, LLC (collectively UTEK Real Estate).

Under Investment Company Accounting, the fair value of UTEK Real Estate was included in the Companys portfolio investments and the operating results of these companies were not

consolidated with those of the Company.

The assets, liabilities and results of operations of UTEK Real Estate have been included in the Companys consolidated financial statements from October 1, 2009.

As of October 1, 2009, none of

the Companys other investments were greater than 20% of the outstanding equity interests of any individual company, and accordingly, consolidation was not required for these investments.

The change in reporting did not have a material affect on the Companys net loss from

operations, net loss or related per share amounts for the three months ended December 31, 2009.

Conversion from Investment Company

Presentation to Operating Company Presentation

ASC Topic 250, Accounting Changes and Error Corrections

The Company was required to make the accounting change at the time that it no longer met the requirements of the 1940 Act and filed its

Form N-54C with the SEC withdrawing its election to be treated as a BDC under the 1940 Act.

The Company has applied the change as of October 1, 2009, which is the first date that it was no longer appropriate for the Company to use Investment

Company Accounting.

The Companys change in financial statement presentation from fair value Investment Company

Accounting to Operating Company Accounting has been accounted for as the initial adoption of or modification of an accounting principle resulting from a change in events or transactions as contemplated by Financial Accounting Standards Board

(FASB) Accounting Standards Codification (ASC) 250-10-45-1.

The Companys change to Operating Company Accounting is clearly different in substance from that previously occurring under Investment Company Accounting.

is not considered to be a change in accounting principle.

In accordance with this view, the Company applied the adoption of accounting as an operating company prospectively beginning October 1, 2009.

ASC Topic 946, Investment Companies

As there was limited authoritative guidance on accounting for the transition from a BDC to an operating company, the Company reviewed the guidance in ASC Topic 946 Financial ServicesInvestment

The Company relied on the guidance in Topic 946, a significant portion of which has been delayed indefinitely.

The guidance that has been delayed is not GAAP and is considered nonauthoritative.

The initial determination of whether the Company was an investment company within the scope of Topic 946 was made upon formation of the

Reconsideration of the provisions of Topic 946 by the Companys Board of Directors during 2009 resulted in the determination that continuation as a BDC was inappropriate.

ASC 946-10-15-5 (delayed) dictates companies that no longer meet

the conditions of an investment company should discontinue application of Topic 946 and report the change in status prospectively by accounting for its investments in conformity with applicable GAAP other than Investment Company Accounting,

beginning as of the date of the change using fair value in conformity with Investment Company Accounting at the date of the change as the carrying amount of investments at the date of the change.

In accordance with this guidance, the Company

reported a change in status and began reporting as an operating company as of October 1, 2009.

In addition, the fair value of the Companys investments as of September 30, 2009 became their cost basis under Operating Company

Accounting beginning on October 1, 2009.

Presentation of Financial Statements

The Company made the following adjustments in order to present two years of financial statements together for which the years include two

different methods of accounting.

Changes made to the accompanying consolidated statements of operations include the following:

Operations for the year ended December 31, 2009 were segregated into two columns in the consolidated statements of operations to properly report

results of operations in accordance with the accounting in effect during the respective periods.

The nine months ended September 30, 2009 are presented in investment company format and the three months ended December 31, 2009 are presented

in operating company format.

The consolidated statement of operations was reformatted for the three months ended December 31, 2009 to conform to an operating company

presentation.

Certain balances are not applicable to an

investment company and are not included prior to the date of change of October 1, 2009.

These include other (income) expense and interest expense, net.

UTEK Real Estates results of operations are consolidated with those of the Company as of the date of change of October 1, 2009.

transactions, including intercompany borrowings and rent, are eliminated in consolidation for the three months ended December 31, 2009.

Through September 30, 2009, UTEK Real Estate is included as one of the Companys portfolio

companies and the fair value of this company is included in the Companys portfolio investments.

Certain balances reported under Investment Company Accounting are not applicable to an operating company and are not included subsequent to the date of

change of October 1, 2009.

These include investment income, net realized gains (losses) on investments and net change in unrealized appreciation (depreciation) of investments.

Under Operating Company Accounting, income and losses from these

sources are classified as follows:

Investment income is included in other (income) expense or interest expense, net, depending on its source.

Realized gains (losses) on investments are included in other (income) expense.

Unrealized appreciation (depreciation) on available-for-sale securities are reported in operating company equity as a component of accumulated other

comprehensive income (loss) in the consolidated balance sheet.

Other changes include the following:

The stockholders equity presentation has separate classification for earnings accounts under Investment Company Accounting and Operating Company

Total accumulated loss under Investment Company Accounting includes earnings through September 30, 2009.

Accumulated deficit under Operating Company Accounting includes earnings incurred subsequent to the date of change of

October 1, 2009.

The Consolidated Schedule of Investments, Consolidated Statements of Changes in Net Assets and the Schedule of Investments in and Advances to

Affiliates, as well as Selected Per Share Data and Ratios are not included as they are requirements under Investment Company Accounting.

The consolidated statements of changes in equity are included for the year ended December 31, 2010, the three months ended December 31, 2009

and the nine months ended September 30, 2009.

In addition, this statement includes the statement of comprehensive income (loss) for the year ended December 31, 2010 and the three months ended December 31, 2009.

Cash flows for the year ended December 31, 2009 were segregated into two columns in the consolidated statements of cash flows to properly report

cash flows in accordance with the accounting in effect during the respective periods.

Cash flows for the nine months ended September 30, 2009 are presented in investment company format and cash flows for the three months ended December 31,

2009 are presented in operating company format.

Nature of Business and Significant Accounting Policies

We commenced operations in 1997 and were originally incorporated under the laws of the State of Florida, and subsequently under the laws of the State of Delaware in July 1999.

provides 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 (IP) and gain foresight into marketplace and technology developments that affect their business.

These services are provided internationally from our offices in

the United States and the United Kingdom.

As of March 16, 2010, we began doing business as Innovaro and changed our ticker

symbol to NYSE Amex:

On July 8, 2010, the Companys shareholders voted to amend the Companys certificate of incorporation to change the Companys name to Innovaro, Inc.

The name change became effective on

July 12, 2010.

Basis of Presentation

commenced operations in 1997 and were originally incorporated under the laws of the State of Florida, and subsequently under the laws of the State of Delaware in July 1999.

Innovaro is The Innovation Solutions Company focused on innovation management

consulting and software.

Innovaro is all about helping companies innovate and grow.

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

combination of consulting services provide innovation expertise, our new LaunchPad software product provides an integrated innovation environment, and Intelligence and Insights Services provide any business with the innovation support they need to

drive success.

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

2010, we began doing business as Innovaro and changed our ticker symbol from NYSE Amex:

UTK to NYSE Amex:

On July 8, 2010, the Companys shareholders voted to amend the Companys certificate of

incorporation to change the Companys name from UTEK Corporation to Innovaro, Inc.

The name change became effective on July 12, 2010.

Going Concern

These consolidated

financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) including the assumption of a going concern basis which contemplates the realization of assets and

the settlement of liabilities and commitments in the normal course of business.

The Company has incurred recurring losses and negative cash flows from operations.

The Company incurred a net loss of approximately $4.9 million, working capital

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

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

The Companys primary cash requirements include working capital, research and development expenditures, principal and interest payments on

indebtedness, and employee bonuses.

Its 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.

The Company currently intends to fund its liquidity needs, including its software development costs, with existing cash balances, cash generated from

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

The Company expects that its recent reductions in costs, coupled with its expected revenue, will be insufficient to fund its scheduled debt service payments

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

The Company is exploring opportunities for obtaining a credit facility, as well as selling equity securities and certain other assets.

In addition, the Company has the

capability to delay all cash intensive activities, including its software development costs, and will look to reduce costs further.

However, if such measures prove inadequate, the Company 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 it may be unable to take any of these actions on satisfactory terms or in a timely manner.

any of these actions may not be sufficient to allow the Company to service its debt obligations or may have an adverse impact on its business.

The failure to generate sufficient cash from operations could have a material adverse effect on

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

profitability.

The 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

If the 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.

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 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.

Principles of Consolidation

2 unchanged sentences

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

October 1, 2009).

All intercompany transactions and balances are eliminated in consolidation.

The Company is reporting

as an investment company for the nine months ended September 30, 2009.

As an investment company, portfolio investments are held for the purpose of deriving investment income and future capital gains.

The operating results of the Companys

portfolio companies, including UTEK Real Estate Holdings, Inc., are not consolidated with the Companys financial statements through September 30, 2009.

The Company is reporting as an operating company for the year ended December 31, 2010 and the three months ended December 31, 2009.

As such, the Company is required to consolidate UTEK Real

Estate Holdings, Inc.

and its subsidiaries:

subsidiaries:

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

The results of operations of UTEK Real Estate have been

included in the Companys operations for the year ended December 31, 2010 and the three months ended December 31, 2009.

In addition, the assets and liabilities of UTEK Real Estate have been included in the Companys financial

position as of December 31, 2010 and 2009.

Business Combinations

The Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired and

liabilities assumed as of the business combination date in accordance with ASC Topic 805 Business Combinations .

The purchase price allocation process requires the Company to use significant estimates and assumptions, including fair value

estimates, as of the business combination date.

While the Company uses its best estimates and assumptions as a part of the

purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, its estimates and assumptions are inherently uncertain and subject to refinement.

During the purchase price allocation

period (one year from the business combination date), the Company records adjustments to the assets acquired and liabilities assumed based on additional information received with the corresponding offset to goodwill.

In addition, there are

contingencies based on earnings (commonly referred to as earnouts) included in some of the Companys purchase agreements entered into during 2008.

The earnout is recorded as it is earned over the contingency period, which is generally one to

three years from the business combination date.

With the exception of unresolved income tax matters or the earnout of contingent consideration, subsequent to the purchase price allocation period any adjustment to assets acquired or liabilities

assumed is included in the Companys operating results in the period in which the adjustment is determined.

Cash and Cash Equivalents

The Company considers all highly liquid, fixed income investments with maturities of three months or less at the time of

acquisition to be cash equivalents.

All intercompany transactions and balances are eliminated in consolidation.

Reclassifications

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

Reclassifications were made to the equity section of the December 31, 2010 consolidated balance sheet to conform to the

December 31, 2011 presentation.

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

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

Significant Accounting Policies

Accounts Receivable

The Company accounts for accounts receivable in accordance with ASC Topic 310 Receivables .

In accordance therewith, the allowance for doubtful accounts is deducted from the accounts receivable

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

existing receivables and managements evaluation of periodic aging of accounts.

In accordance therewith, the allowance for doubtful

accounts is deducted from the accounts receivable balance.

The Company provides an allowance for losses on trade receivables based on a

review of the current status of existing receivables and managements evaluation of periodic aging of accounts.

The Company charges off accounts receivable against the allowance for losses when an account is deemed to be uncollectible.

The Company determines the allowance

based on historical bad debt experience, current receivables aging, expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

It is not the Companys policy to accrue

interest on past due receivables.

Company determines the allowance based on historical bad debt experience, current receivables aging, expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

It is not the

Companys policy to accrue interest on past due receivables.

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

The provision for doubtful accounts and notes was

approximately $15,000 and $83,000 as of December 31, 2010 and 2009, respectively.

In addition, bad debt expense was approximately $(34,000) and $44,000 for the years ended December 31, 2010 and 2009, respectively.

Accounts receivable also includes recoverable contract costs and, where applicable, accrued profit related to long-term contracts that

have been inventoried until the customer is billed.

Contract costs consist primarily of labor and travel expenses.

See Note 3 for further discussion.

Certificates of Deposit

Certificates of deposit are short term investments

that are carried at their fair values.

The provision for

doubtful accounts and notes was approximately $29,000 and $15,000 as of December 31, 2011 and 2010, respectively.

In addition, bad debt expense was negligible for the years ended December 31, 2011 and 2010.

Contracts in Process

process include accrued profit related to certain contracts.

See Note 4 for further detail.

Available-for-Sale Securities

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

InvestmentsDebt and Equity Securities and our intentions regarding these instruments.

Investments in equity securities of public companies continue to be accounted for using the fair value method as long as there is a market in the

stock that provides readily determinable fair values for these securities.

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

Debt and Equity Securities and our intentions regarding these instruments.

Investments in equity securities of public companies continue to be accounted for using the fair value method as long as there is a market in the stock that provides

readily determinable fair values for these securities.

These investments are adjusted to fair value at the end of each quarter.

Unrealized gains and losses are reported in operating company equity as a component of accumulated

other comprehensive income (loss) in the consolidated balance sheets.

Realized gains and losses from the sale of available-for-sale securities are determined on the first-in first-out (FIFO) method of accounting and are included as a

component of other (income) expense in the consolidated statements of operations for the year ended December 31, 2010 and the three months ended December 31, 2009.

Should management determine that an available-for-sale security has an other-than-temporary decline in fair value, the Company recognizes the investment loss in the consolidated statement of operations.

Available-for-sale securities were evaluated for other-than-temporary impairment at December 31, 2010.

Unrealized gains and losses are reported in operating company equity as a component of accumulated other comprehensive

income (loss) in the consolidated balance sheets.

Realized gains and losses from the sale of available-for-sale securities are determined on the first-in first-out (FIFO) method of accounting and are included as a component of other

(income) expense in the consolidated statements of operations for the year ended December 31, 2011 and 2010.

Should management determine

that an available-for-sale security has an other-than-temporary decline in fair value;

the Company recognizes the investment loss in the consolidated statement of operations.

Available-for-sale securities were evaluated for other-than-temporary

impairment at December 31, 2011 and 2010.

See Note 5 for further discussion.

Cost Method Investments

The Company classifies its investments in equity securities of noncontrolled entities that do not have readily determinable fair values as

cost method investments in accordance with ASC Subtopic 325-20 Cost Method Investments .

Cost method investments were reclassified to non-current assets during 2010 in accordance with the Companys intent and ability regarding liquidity

of the investments.

Individual securities classified as cost method investments remain at cost basis unless there is a

permanent impairment.

The Company determines whether a decline in fair value below the cost basis is other than temporary.

If the decline in fair value is judged to be other-than-temporary, the cost basis of the individual

security will be written down to fair value as a new cost basis and the amount of the impairment will be included in earnings as a realized loss.

The new cost basis cannot be adjusted upwards for

subsequent recoveries in fair value.

Realized gains and losses from the sale or impairment of cost method investments are determined on the FIFO method of accounting and are included as a component of other (income) expense in the consolidated

statements of operations for the year ended December 31, 2010 and the three months ended December 31, 2009.

method investments were considered for impairment at December 31, 2010.

The Company determined that two of its cost method investments had suffered a decline in fair value below that of their respective carrying amounts and this decline was

determined to be other-than-temporary.

The Company recognized a loss on impairment of its cost method investments of approximately $468,000 for the year ended December 31, 2010.

The Company classifies its investments in equity securities of noncontrolled entities that do not have readily determinable fair values as cost method

investments in accordance with ASC Subtopic 325-20 Cost Method Investments .

Cost method investments are classified as non-current assets in accordance with the Companys intent and ability regarding liquidity of the investments.

Individual securities classified as cost method investments remain at cost basis unless there is a permanent impairment.

determines whether a decline in fair value below the cost basis is other than temporary.

If the decline in fair value is judged to be other-than-temporary, the cost basis of the individual security will be written down to fair value as a new cost

basis and the amount of the impairment will be included in earnings as a realized loss.

The new cost basis cannot be adjusted

upwards for subsequent recoveries in fair value.

Realized gains and losses from the sale or impairment of cost method investments are determined on the FIFO method of accounting and are included

as a component of other (income) expense in the consolidated statements of operations for the years ended December 31, 2011 and 2010.

Cost method investments were considered for impairment at December 31, 2011 and 2010.

The Company determined that certain of its cost method

investments had suffered a decline in fair value below that of their respective carrying amounts and this decline was determined to be other-than-temporary.

The Company recognized a loss on impairment of its cost method investments of approximately

$9,000 and $468,000 for the year ended December 31, 2011 and 2010, respectively.

Equity Method Investments

The Company evaluated its investment in Verdant

Ventures under ASC Topic 810 Consolidation and concluded that this investment does not meet the requirements for consolidation.

This investment has been recorded as an equity method investment in the consolidated balance sheet as of

December 31, 2010.

Management changed the classification of this investment from the cost method to the equity method in the current period as a result of having obtained new information.

Any adjustments made to the accompanying financial

statements as a result of this change in classification were immaterial.

The Companys share of Verdant Ventures net loss was $(25,856) for the year ended December 31, 2010, which is included as a component of other (income) expense in

the consolidated statements of operations.

This investment has been classified as a non-current asset in accordance with the Companys intent and ability regarding liquidity of the investment.

See Note 5 for a more detailed discussion of the

Verdant Ventures transaction.

The Company evaluated its investment in Verdant Ventures Advisors, LLC under ASC Topic 810 Consolidation and concluded that this investment does

not meet the requirements for consolidation.

This investment has been recorded as an equity method investment in the consolidated balance sheets.

In addition, this investment has been classified as a non-current asset in accordance with the

Companys intent and ability regarding liquidity of the investment.

See Note 6 for a more detailed discussion of the Verdant Ventures transaction.

Equity method investments were considered for impairment at December 31, 2011.

The Company determined that this equity method investment had suffered a decline in fair value below that of its

respective carrying amounts and this decline was determined to be other-than-temporary.

The Company recognized a loss on impairment of its equity method investment of approximately $209,000 and $671,000 for the years ended December 31, 2011 and

2010, respectively.

Note Receivable

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interest at 7% per annum and does not require the payment of such interest or the principal amount of the note until maturity of the note on December 31, 2012.

The Company recorded $104,000 and $96,000 of accrued interest income on the

note for the years ended December 31, 2010 and 2009, respectively.

The note is collateralized by a security interest in certain property located in Pasco County, Florida.

Fixed assets are stated at cost less accumulated

depreciation.

The Company recorded $104,000 of accrued interest income on the note for each

of the years ended December 31, 2011 and 2010.

The note is collateralized by a security interest in certain property located in Pasco County, Florida and certain marketable equity securities.

Fixed assets are stated at

cost less accumulated depreciation.

Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets of between 3 and 39.5 years.

Leasehold improvements are amortized over the shorter of the estimated useful life of the

assets or the lease term.

Leasehold improvements are amortized over the shorter of the estimated

useful life of the assets or the lease term.

The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted.

The Company believes that no unrecorded

impairment of fixed assets exists at December 31, 2010.

See Note 7 for impairment discussion.

Maintenance and repairs

are charged to operations when incurred.

See Note 8 for

impairment discussion.

Maintenance and repairs are charged to operations when incurred.

Betterments and renewals are capitalized.

When fixed assets are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included as

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

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the assets acquired in connection with certain of the

Companys acquisitions.

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 the Companys

acquisitions.

In accordance with ASC Topic 350 IntangiblesGoodwill and Other , goodwill and intangible assets determined to have indefinite lives are not subject to amortization.

Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair value based test on an annual basis or more frequently if circumstances indicate a potential

Intangible assets with finite lives are amortized over their estimated useful lives.

assets are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included as a component of other (income) expense in the consolidated statements of operations.

Goodwill and Intangible Assets with Indefinite Lives

Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations.

Intangible assets with indefinite lives consist principally of trade names and trademarks.

Company follows the provisions of ASC Topic 350 Intangibles Goodwill and Other , which requires an annual impairment test for goodwill and intangible assets with indefinite lives.

If the carrying value of intangibles with indefinite

lives exceeds their fair value, an impairment loss is recognized in an amount equal to that excess.

Goodwill is evaluated using a two-step impairment test at the reporting unit level.

The first step compares the book value of a reporting unit,

including goodwill, with its fair value.

If the book value of a reporting unit exceeds its fair value, we complete the second step in order to determine the amount of goodwill impairment loss that we should record.

In the second step, we determine

an implied fair value of the reporting units goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill.

The amount of impairment is equal to the excess of the book value of goodwill

over the implied fair value of that goodwill.

The Company performs the annual impairment testing using balances as of December 31,

unless there are triggering events earlier in the year.

See Note 9 for impairment discussion.

Impairment of Long-lived Assets

Long-lived assets are tested for impairment on at least an annual basis.

Impairment testing is required more often than annually if an event or circumstance indicates that an impairment, or decline in

value, may have occurred.

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.

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

The Company conducts its annual impairment test using balances as of December 31, unless there are

triggering events earlier in the year.

Identified Intangible Assets

The Company follows the provisions of ASC Topic 360 Property, Plant and Equipment , which establishes accounting standards for the impairment of

long-lived assets such as property, plant and equipment and intangible assets subject to

amortization.

The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be

If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying amount, the asset is considered to be impaired.

Impairment losses are measured as the amount

by which the carrying amount of the asset group exceeds the fair value of the asset.

See Note 8 and 9 for impairment discussion.

Companys intangible assets subject to amortization consist of, customer lists, propriety know-how and non-compete agreements that are amortized on a straight-line basis over the estimated useful lives of the related intangible asset.

estimated useful lives of the respective intangible assets range from three to ten years.

Capitalized Software Costs

The Company will amortize capitalized software costs by the greater of (a) the ratio that current gross revenues for a product bear to the total of

current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.

There has not been a general release of the

LaunchPad software, and accordingly, we have not recorded amortization expense related to the capitalized software for any periods presented.

Derivative Liability

ASC Topic 815 Derivatives and Hedging requires bifurcation of embedded derivative instruments and measurements of their fair value for accounting purposes.

In addition, freestanding derivative

instruments such as certain warrants are also derivative liabilities.

ASC Topic 815

Derivatives and Hedging requires bifurcation of embedded derivative instruments and measurements of their fair value for accounting purposes.

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

The Company estimates the fair value of these instruments using the Black-Scholes option pricing model.

As discussed in Notes 10 and 12, the Company has certain derivative

warrants with a variable exercise price.

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

Derivative liabilities are recorded at fair value at inception and

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

As discussed in Note 11, the Company has certain derivative warrants with a variable exercise price.

The Company considered the use

of a Binomial model, but determined that the probability of the exercise price adjusting downward was remote.

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

period, with any increase or decrease in the fair value being recorded in as a component of other (income) expense in the consolidated statements of operations.

Foreign Currency Translation

The functional currency of the Companys United Kingdom (UK) operations is that countrys local currency.

The Company translates the assets and liabilities of its UK subsidiary into

The functional currency of the Companys United Kingdom

(UK) operations is that countrys local currency.

The Company translates the assets and liabilities of its UK subsidiary into U.S.

Dollars at the exchange rates in effect at the end of each reporting period.

Revenues and expenses of the Companys UK operations are translated into U.S.

Revenues and expenses of

the Companys UK operations are translated into U.S.

Dollars using weighted average exchange rates during the period.

September 30, 2009, the effects of foreign currency translation adjustments were reported as a component of investment company equity.

Beginning October 1, 2009, the translation adjustments are included in operating company equity as a

component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Foreign currency transaction gains and losses are included in other (income) expense in the consolidated statements of operations for the year ended

December 31, 2010 and the three months ended December 31, 2009 and are immaterial for these periods.

The translation adjustments are included in equity as a component of accumulated other comprehensive income (loss) in the

consolidated balance sheets.

Foreign currency transaction gains and losses are included in other (income) expense in the consolidated statements of operations for the years ended December 31, 2011 and 2010 and are immaterial for these periods.

Revenue Recognition

The Company reorganized into two new lines of business, all working under the Innovaro brand:

Servicesdriven by Strategos, an advanced innovation consultancy;

and Technology Servicesonline platforms, partnering services, global licensing, technology transfer services, futures and trends, research, information services and IP

Strategic Services

Company reorganized into two new lines of business, all working under the Innovaro brand:

Strategic Services driven by Strategos, an advanced innovation consultancy;

and Intelligence and Insights Services online platforms, partnering

services, global licensing, technology transfer services, futures and trends, research, information services and IP consulting.

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.

Prior to the commencement of a client engagement, the Company and the client agree on fees for services based upon the scope of the project, staffing requirements and the level of client involvement.

revenues are comprised of professional fees for services rendered to clients and exclude applicable taxes.

These revenues are recognized on

a pro rata basis based upon costs incurred to date compared to total estimated contract costs.

Prior to the commencement of a client engagement, the Company and the client agree on fees for services based upon the scope of the project, staffing

requirements and the level of client involvement.

Total revenues are comprised of professional fees for services rendered to clients and exclude applicable taxes.

The Company bills clients for services and expenses incurred in accordance with the

terms of the client engagement agreement.

Differences between the timing of billings and the recognition of revenue are

recognized as either unbilled services (included as a component of accounts receivable) or deferred revenue in the consolidated balance sheets.

Client prepayments and retainers are classified as deferred revenue and recognized in future periods when

Differences between the timing of billings and the recognition of revenue are recognized as either

unbilled services (included as a component of accounts receivable) or deferred revenue in the consolidated balance sheets.

Client prepayments and retainers are classified as deferred revenue and recognized in future periods when earned.

Revenues from strategic consulting services are also provided on a time-and-expense basis.

Time-and-expense billing

arrangements generally require the client to pay based on the number of hours worked by our consulting professionals at agreed-upon rates.

Time-and-expense billing arrangements generally require the

client to pay based on the number of hours worked by our consulting professionals at agreed-upon rates.

Time-and-expense revenues are billed and recognized as incurred.

Technology Services

Revenues from the sale of subscriptions to the Companys online marketplaces, information services websites and online futures

programs are initially deferred and subsequently recognized ratably over the term of the subscription, which is typically one year.

Global technology licensing services are performed pursuant to service agreements in which the Company provides consulting services by identifying and evaluating technology licensing opportunities for

Intelligence and Insights Services

Revenues from the sale of subscriptions to the Companys online marketplaces, information services websites and online futures programs are initially deferred and subsequently recognized ratably over

the term of the subscription, which is typically one year.

Global technology licensing services are performed pursuant to service agreements

in which the Company provides consulting services by identifying and evaluating technology licensing opportunities for clients.

These agreements are typically cancelable with thirty days notice.

The Company has certain consulting revenue that

is derived from the sale of research services in intellectual property insight, technology foresight, forecasting, scenario playing, vision, creativity and leadership, as well as the sale of services to provide for the design, development and

implementation of custom software applications.

Vendor specific objective evidence is not available to allocate among the respective deliverables in contracts with multiple deliverables.

Accordingly, the Company recognizes revenue for these

consulting services at the point when all the deliverables associated with the consulting contract have been provided to the customer.

The Company has certain consulting revenue that is derived from the sale of research services in intellectual property insight, technology foresight,

forecasting, scenario playing, vision, creativity and leadership, as well as the sale of services to provide for the design, development and implementation of custom software applications.

Before the Company recognizes revenue, the following criteria must be met:

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Collectability of a sale is determined on a customer-by-customer basis.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled

services (included as a component of accounts receivable) or deferred revenue in the consolidated balance sheets.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services

(included as a component of accounts receivable) or deferred revenue in the consolidated balance sheets.

Client prepayments and retainers are classified as deferred revenue and recognized over future periods as earned.

Direct Costs of Revenue

Direct costs of revenue consist of direct costs related to the Companys strategic services and technology services segments.

costs of revenue include salaries and related taxes, bonuses and commissions, certain outside services, business development costs, royalties and other direct project costs.

Research and Development

In accordance with ASC Subtopic 985-20 Costs of Software to Be Sold, Leased, or Marketed , the Company expenses all costs incurred to establish the technological feasibility of a computer product to

be sold, leased, or otherwise marketed as research and development costs.

Research and development costs incurred to date have been expensed in the accompanying statements of operations as the Companys innovation management software platform

has not reached technological feasibility.

Direct costs of

revenue consist of direct costs related to the Companys strategic services and Intelligence and Insights Services segments.

Direct costs of revenue include salaries and related taxes, bonuses and commissions, certain outside services, business

development costs, royalties and other direct project costs.

Software Development Costs

ASC Subtopic 985-20 Costs of Software to Be Sold, Leased or Marketed , requires companies to expense all software development costs incurred until

technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers.

In addition, costs incurred to enhance existing software products or after the general release

of the product are required to be expensed as incurred as research and development costs.

In accordance with ASC Subtopic 985-20, the Company

has expensed all costs incurred to establish the technological feasibility of Version 1.0 of the Innovaro LaunchPad software (LaunchPad) as research and development costs.

As of June 29, 2011, LaunchPad Version 1.0 reached

technological feasibility with the introduction of a working model.

The Company is now incurring costs related to the refinement of Version 1.0, which will be capitalized until the product is available for general release to market.

capitalized $225,000 in software development costs for the year ended December 31, 2011.

The Company has begun development of the next

components of LaunchPad with Version 2.0.

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

Stock-Based Compensation

At December 31, 2010, the Company had two stock-based equity compensation plans, which are described more fully in Note 14.

December 31, 2011, the Company had one stock-based equity plan, which is described in Note 13.

The Company accounts for stock option grants in accordance with ASC Topic 718 Compensation Stock Compensation .

Stock-based compensation cost recognized during the years ended December 31, 2010 and 2009 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their respective grant date fair values

estimated in accordance with Topic 718.

Stock-based compensation

cost recognized during the years ended December 31, 2011 and 2010 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their respective grant date fair values estimated in accordance with

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

The Company uses the Black-Scholes option pricing model to estimate fair value of stock option grants at

the grant date.

The Company uses the Black-Scholes option pricing model to estimate fair value of stock option grants at the grant date.

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

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deferred tax assets will not be realized.

For federal and state income tax purposes, the Company is taxed at regular

corporate rates on ordinary income and recognizes gains on distributions of appreciated property.

As an investment company, the Company was 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, the Company did not distribute at least 90% of investment company taxable income as required by the Internal Revenue Code for such treatment.

Certain guidance located within ASC Topic 740, Income Taxes , clarifies the accounting for uncertainty in income taxes recognized

in an enterprises financial statements.

Topic 740 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Topic 740 also provides guidance on derecognition,

classification, interest and penalties, accounting in interim periods, disclosures, and transition.

The Company had no uncertain tax positions for the years ended December 31, 2010 and 2009.

The Company does not have any income tax benefit related to its net loss from operations in 2010 and 2009, nor does it have a deferred

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

The Company does have an income tax benefit from the reversal of a deferred tax liability related to the impairment and amortization of certain

indefinite-lived intangible assets for the years ended December 31, 2010 and 2009.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation from Investment

Company Activity

Realized gains or losses through September 30, 2009 were measured by the difference between the net

proceeds from the repayment or sale and the original cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized.

Net change in unrealized appreciation or depreciation of investments through

September 30, 2009 reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Reclassifications

connection with the change in the Companys business segments, certain reclassifications have been made to the 2009 balances to conform to the 2010 financial statement presentation.

Reclassifications were made to revenue to conform to the

Companys new line of business segments.

Reclassifications were also made to expenses to move direct costs associated with these business lines into direct costs of revenue.

In addition, the Company reclassified its derivative liabilities to a

non-current asset for both years ended December 31, 2010 and 2009 as management determined this treatment to be more appropriate given the nature of the liability.

There was no effect on net loss or earnings per share from these

reclassifications for all periods presented.

For federal and state income tax purposes, the Company is taxed at regular corporate rates on

ordinary income and recognizes gains on distributions of appreciated property.

Certain guidance located within ASC Topic 740, Income

Taxes , clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements.

Topic 740 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be

taken in a tax return.

Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.

The Company had no uncertain tax positions for the years ended

December 31, 2011 and 2010.

The Company does not have any income tax benefit related to its net loss from operations in 2011 and 2010,

nor does it have a deferred tax asset related to its net operating loss carryforward, because of a 100% valuation allowance.

The Company does have an income tax benefit from the reversal of a deferred tax liability related to the impairment and

amortization of certain indefinite-lived intangible assets for the years ended December 31, 2011 and 2010.

Earnings per Share (EPS)

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Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

Companys dilutive potential common shares consist of outstanding stock options and warrants.

Components of basic and

diluted per share data are as follows:

Sept 30, 2009

Companys dilutive potential common shares consist of outstanding stock options, warrants and unvested shares of restricted stock

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

Year Ended December 31,

Weighted average outstanding shares of common stock

Dilutive effect of stock options and warrants

Dilutive effect of stock options, warrants and unvested shares of restricted stock

Common stock and common stock equivalents

Shares excluded from calculation of diluted EPS (1)

These shares attributable to outstanding common stock options and warrants were excluded from the calculation of diluted EPS because their inclusion would have been

anti-dilutive, primarily as a result of the net loss/ net decrease in net assets from operations during the period.

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

because their inclusion would have been anti-dilutive, primarily as a result of having incurred a net loss during the periods presented.

Financial Instruments and Concentrations of Credit Risk

The Companys financial instruments consist of investments, certificates of deposit, cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt and derivative

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

The estimated fair value of the

Companys long-term debt at December 31, 2010 and 2009 is not materially different from its carrying values of $5.8 million and $6.3 million, respectively.

The fair value of certificates of deposit, available-for-sale securities and

derivative liabilities are determined as described in Note 6.

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

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

The Company hasnt experienced any losses related

to these balances.

All of the non-interest bearing cash balances were insured at December 31, 2010 due to a temporary federal program in affect from December 31, 2010 through December 31, 2012.

Under the program, there is no limit to

the amount of insurance for eligible accounts.

Beginning in 2013, insurance will revert to $250,000 per depositor at each financial institution, and the non-interest bearing cash balances may again exceed federally insured limits.

December 31, 2010, the Company did not hold any amounts in interest-bearing accounts.

The Company had two major

customers during the year ended December 31, 2010 and one major customer during the year ended December 31, 2009.

Major customers, those generating greater than 10% of total revenue, accounted for approximately 28% and 10% of the

Companys revenue during the years ended December 31, 2010 and 2009, respectively.

Major customers relate to the strategic services business segment for both years ended December 31, 2010 and 2009.

In addition, two customers accounted for

approximately 52% of accounts receivable at December 31, 2010.

The Companys financial

instruments consist of investments and cash, accounts receivable, accounts payable, accrued expenses, long-term debt and derivative liabilities.

The fair value of accounts receivable, accounts payable and certain accrued expenses approximate their

carrying amounts in the financial statements due to the short maturity of such instruments.

The estimated fair value of the Companys long-term debt at December 31, 2011 and 2010 is not materially different from its carrying values of $5.6

million and $5.8 million, respectively.

The fair value of available-for-sale securities and derivative liabilities are determined as described in Note 7.

Financial instruments with significant credit risk include investments.

The Company maintains its cash with high credit quality financial institutions in the United States and, at times, balances may

exceed federally insured limits.

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

The Federal Deposit Insurance Corporation provides deposit insurance of $250,000 for substantially all depository accounts as of December 31,

All of the Companys non-interest bearing cash balances were fully insured as of December 31, 2011.

The Company had two major customers during the years ended December 31, 2011 and 2010.

Major customers,

those generating greater than 10% of total revenue, accounted for approximately 57% and 28% of the Companys revenue during the years ended December 31, 2011 and 2010, respectively.

Major customers relate to the strategic services business

segment for both years ended December 31, 2011 and 2010.

In addition, four customers accounted for approximately 51% of accounts receivable at December 31, 2011.

Use of Estimates

The preparation of the Companys consolidated financial statements in conformity with ASC Topic 275 Risks and Uncertainties

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

and expenses during the reporting period.

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

intangible assets, and the derivative liabilities.

The preparation of the Companys consolidated financial statements

in conformity with ASC Topic 275 Risks and Uncertainties requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of

the financial statements and the reported amounts of revenue and expenses during the reporting period.

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

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

Actual results could differ from those estimates.

Recently Issued Accounting

Pronouncements

In April 2010, the FASB issued new guidance that establishes a revenue recognition model for

contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone.

The scope of this guidance is limited to research and development arrangements and requires an entity to record the milestones

payment in its entirety in the period received if the milestone meets all necessary criteria to be considered substantive.

This guidance is effective for fiscal years and interim periods beginning June 15, 2010 and is not expected to have a

material impact on the Companys consolidated financial statements.

In December 2010, the FASB issued amended

guidance to clarify the acquisition date that should be used for reporting pro-forma financial information for business combinations.

If comparative financial statements are presented, the pro-forma revenue and earnings of the combined entity for

the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been completed as of the beginning of the comparable prior annual reporting period.

amendments in this guidance are effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011.

There will be no impact in the Companys operations or financial condition as the amendments

relate only to additional disclosures.

In December 2010, the FASB issued amendments to the guidance on goodwill

impairment testing.

The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.

For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is

more likely than not that a goodwill impairment exists.

In making that determination, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist.

The amendments are effective for fiscal years and

interim periods beginning January 1, 2011 and are not expected to have a material impact on the Companys consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2011, the FASB issued Accounting

Standards Update (ASU) 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.

GAAP and IFRSs .

The ASU expands ASC Topic 820s existing disclosure requirements for fair value

measurements and makes other amendments that could change how the fair value measurement guidance in ASC Topic 820 is applied.

The Company adopted this ASU on January 1, 2012.

The adoption of this ASU is not expected to have a significant

impact on the Companys financial statements or disclosures.

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive

Income , which revises the manner in which entities present comprehensive income in their financial statements.

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

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

The Company adopted this ASU on January 1, 2012.

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

In September 2011, the FASB issued ASU 2011-08 Testing Goodwill for Impairment.

Under the revised guidance, entities testing goodwill

for impairment have the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test.

If entities determine, on the basis of qualitative factors, that the fair value of

the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation is not needed.

The Company adopted this ASU on January 1, 2012.

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

Companys financial statements or disclosures.

Accounts Receivable

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Allowance for doubtful accounts

Contracts in process

Unbilled client costs

Total accounts receivable

Contracts in process consist of the following at December 31, 2010 and 2009:

Contract costs and estimated profits on uncompleted contracts

Less advances and progress payments

Contracts in Process

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

Contract costs and estimated earnings on uncompleted contracts

billings to date

Total contracts in process

Contracts in process of $(32,939) are included in deferred revenue as of December 31, 2009.

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

Costs and estimated earnings in excess of billings on uncompleted contracts

Billings in excess of costs and estimated earnings on uncompleted contracts

Total contracts in process

Available-for-Sale Securities

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

regarding these instruments.

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

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

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

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As of December 31, 2010

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

Proceeds from the sale of available-for-sale securities were approximately $342,000 and $453,000 for

the year ended December 31, 2010 and the three months ended December 31, 2009, respectively.

As of December 31, 2010, one of our five total available-for-sale securities was in an unrealized loss position.

Gross realized gain (loss)

as a result of the sale of available-for-sale securities was approximately $79,000 and $20,000 for the year ended December 31, 2010 and the three months ended December 31, 2009, respectively.

The Company recognized a loss from the impairment of certain available-for-sale securities of approximately $520,000 for the year ended

December 31, 2010.

$146,000 of the loss related to certain warrants classified as available-for-sale securities that the Company determined were permanently impaired and subsequently expired unexercised.

The remaining $374,000 loss related to

three securities that had significant unrealized losses that were written off in the third quarter of 2010 as a result of managements determination that these losses were other-than-temporary.

The realized loss is included as a component of

other (income) expense in the consolidated statement of operations for the year ended December 31, 2010.

Unrealized gain (loss) on available-for-sale securities for the year ended December 31,

2010 and the three months ended December 31, 2009 are shown in the accompanying statement of changes in equity net of the reclassification adjustment.

Disclosure of the gross amounts of the current period gain (loss) and amounts that were

reclassified out of accumulated other comprehensive income (loss) into earnings are as follows:

The net unrealized gain (loss) is included in operating company equity as a component of accumulated other comprehensive income (loss) in the

consolidated balance sheets.

Proceeds from the sale of available-for-sale securities were approximately $43,000 and

$342,000 for the years ended December 31, 2011 and 2010, respectively.

As of December 31, 2011, none of our four total available-for-sale securities was in an unrealized loss position.

Gross realized gain (loss) as a result of the sale of

available-for-sale securities was approximately $19,000 and $79,000 for the years ended December 31, 2011 and 2010, respectively.

Company recognized a loss from the impairment of certain available-for-sale securities of approximately $200 and $520,000 for the years ended December 31, 2011 and 2010.

These losses were written off as a result of managements

determination that these losses were other-than-temporary.

The realized loss is included as a component of other (income) expense in the consolidated statement of operations for the years ended December 31, 2011 and 2010.

Unrealized gain (loss) on available-for-sale securities for the years ended December 31, 2011 and 2010 are shown in the accompanying statement of

changes in equity net of the reclassification adjustment.

Disclosure of the gross amounts of the current period gain (loss) and amounts that were reclassified out of accumulated other comprehensive income (loss) into earnings are as follows:

Year Ended December 31,

Unrealized holding gain (loss) arising during the period

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Equity Method Investments

On April 14, 2010, the Company entered into a limited liability company agreement to form Verdant Ventures Advisors, LLC (Verdant Ventures).

Under this agreement, the Company made an

investment of 243,933 shares of the Companys common stock worth $1,000,125 in exchange for a 15% ownership in Verdant Ventures.

The Company accounts for Verdant Ventures under the equity method of accounting due to the capital account

structure of the investee.

On April 14, 2010, the Company entered into a limited liability company agreement to form Verdant Ventures Advisors, LLC

(Verdant Ventures).

Under this agreement, the Company made an investment of 243,933 shares of the Companys common stock worth $1,000,125 in exchange for a 15% ownership in Verdant Ventures.

The Company accounts for Verdant Ventures

under the equity method of accounting due to the capital account structure of the investee.

Verdant Ventures operates as an independently managed technology transfer venture fund.

John Micek, one of the Companys directors, is managing partner of Verdant Ventures, as well as a member of two limited liability

companies that are also parties to the limited liability company agreement of Verdant Ventures.

Pursuant to the agreement, the Company is not required to make any additional capital contributions or loans to Verdant Ventures and is not involved in

its management.

Verdant Ventures may sell up to one-third of the Companys contributed shares each year during a three-year period from the date the Company first contributed the shares.

As a result of the substantial decline in our stock price during 2010, the Company recorded an impairment loss to its investment in

Verdant Ventures of approximately $671,000.

This realized loss is included as a component of other (income) expense in the consolidated statement of operations for the year ended December 31, 2010.

John Micek, one of the Companys directors, is managing partner

of Verdant Ventures, as well as a member of two limited liability companies that are also parties to the limited liability company agreement of Verdant Ventures.

Pursuant to the agreement, the Company is not required to make any additional capital

contributions or loans to Verdant Ventures and is not involved in its management.

Verdant Ventures may sell up to one-third of the Companys contributed shares each year during a three-year period from the date the Company first contributed the

The Companys share of Verdant Ventures net loss was $(2,511) and $(25,856) for the years ended

December 31, 2011 and 2010, respectively, which is included as a component of other (income) expense in the consolidated statements of operations.

In addition, the Company recorded an impairment loss to its investment in Verdant Ventures of

approximately $209,000 and $671,000 during 2011 and 2010, which is included as a component of other (income) expense in the consolidated statements of operations.

Fair Value Measurements

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

Topic 820 defines fair value as the price that would

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

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

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

and risk of nonperformance.

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

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

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

lowest level input that is significant to the fair value measurement.

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

Disclosures .

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

When determining the fair value

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

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

Topic 820 establishes a fair value

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

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

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

Inputs are classified into one of three categories:

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Level 3 Unobservable inputs for the asset or liability.

Assets measured at fair value on a recurring basis by level within the fair value hierarchy

as of December 31, 2010 and December 31, 2009 are as follows:

Fair Value Measurements at

December 31, 2010 Using

Fair Value Measurements at

December 31, 2009 Using

Certificates of deposit

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

Fair Value Measurements

December 31, 2011 (1)

Fair Value Measurements

December 31, 2010 (1)

Using Level 2

Available-for-sale securities

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Total liabilities

The Companys investments in certificates of deposit and available-for-sale securities are classified

within Level 2 of the fair value hierarchy.

The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of December 31,

2011 or 2010.

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

value hierarchy.

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

The determined values

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

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

for similar instruments in an active market.

The determined values are generally discounted

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

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

in an active market.

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

The Company utilizes the market approach in determining the fair value

of these securities.

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

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

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

historical volatility.

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

The Company recorded impairment of approximately $1,438,000 to certain of its land, building and building improvements during 2010.

commercial real estate market for certain 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 Company utilizes the Black-Scholes

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

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

The Company recorded impairment of approximately $900,000 and $1,438,000 to certain of its land, building and building improvements

during the years ended December 31, 2011 and 2010, respectively.

The commercial real estate market for certain 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 amount of the impairment was determined based on third party valuations of the respective property.

This impairment expense is included as a component of impairment loss in the consolidated statement of operations for the year ended

December 31, 2010.

This impairment expense is included as a component of impairment loss in

the consolidated statements of operations.

Fixed assets consist of the following:

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Accumulated Depreciation

Depreciation expense was approximately $277,000 and $215,000 for the years ended

December 31, 2010 and 2009, respectively.

Depreciation expense was approximately $228,000 and $277,000 for the years ended December 31, 2011 and 2010,

respectively.

Goodwill and Intangible Assets

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corroborate the reasonableness of the conclusion.

In accordance with Topic 350, management performs interim assessments of

goodwill if impairment indicators are present.

One such indicator is an adverse change in the business climate.

The Companys stock price declined significantly subsequent to June 30, 2010.

A decline in stock price may be an indicator of

an adverse change in business climate.

In addition, a decline in stock price affects the Companys market capitalization and may affect fair value measurements for the Companys reporting units.

At the end of the third quarter of 2010, management concluded that the decline in the Companys stock price was other than

This conclusion, coupled with the severity of the decline, triggered a review for impairment outside of the Companys next scheduled annual impairment evaluation date of December 31, 2010.

Due to the reduction in the

Companys market capitalization, third party valuation reports were performed to determine the fair value of the respective reporting units.

As a result of the 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 their carrying values by approximately $10.3 million.

The Company recognized goodwill impairment of approximately $9.4 million and intangible assets impairment of approximately

The $10.3 million impairment expense is included as a component of impairment loss in the consolidated statement of operations for the year ended December 31, 2010.

The Company determined that no additional impairment exists at

The Company obtained third party valuations to assist in the determination of fair value of

our reporting units.

As a result of a reduction in fair value of certain 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

The Company recognized impairment of approximately $275,000 to our goodwill and impairment of approximately $269,000 to our intangible assets in the year ended December 31, 2011.

The $544,000 impairment expense is included as a

component of impairment loss in the consolidated statement of operations for the year ended December 31, 2011.

In accordance with Topic

350, management performs interim assessments of goodwill if impairment indicators are present.

At the end of the third quarter of 2010, management concluded that the significant decline in the Companys stock price subsequent to June 30,

2010 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, 2010.

A decline in stock

price may be an indicator of an adverse change in business climate and it affects market capitalization and may affect fair value measurements for reporting units.

Due to the reduction in the Companys market capitalization, third party

valuations were obtained to assist in the determination of fair value for 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.

The Company recognized impairment of approximately $9.4 million to our goodwill and impairment of approximately $971,000 to our intangible assets in the year ended

December 31, 2010.

The state of the economy early in 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 this divisions employees in favor of an independent, network-based approach in an effort to reduce overhead.

Management concluded that this division suffered a significant adverse change in the business, which included a projection of continuing operating and cash flow losses, which triggered an interim impairment test as of June 30, 2009.

determined that there was impairment of this divisions purchased intangible assets of $1.0 million and impairment of the divisions goodwill of $1.3 million.

This impairment loss is included in the Companys consolidated statement of

operations for the year ended December 31, 2009.

The $10.3 million impairment expense is included as a component of impairment loss in the consolidated statement of operations for the year ended December 31, 2010.

The following table presents goodwill and intangible assets as of December 31, 2011 and 2010.

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Total intangible assets, net

The changes to the net carrying value of goodwill by business segment for the years ended December 31,

2010 and 2009 are as follows:

The changes to the net carrying value of goodwill by business segment for the years ended December 31, 2011 and 2010

are as follows:

Balance as of December 31, 2009

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Balance as of December 31, 2010

Increases due to acquisitions and earnouts

Translation adjustment

Balance as of December 31, 2011

The changes to the net carrying value of intangible assets by business segment for the years

ended December 31, 2010 and 2009 are as follows:

The changes to the net carrying value of intangible assets by business segment for the years ended December 31, 2011

and 2010 are as follows:

Balance as of December 31, 2009

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Balance as of December 31, 2011

Finite-lived intangible assets are being amortized over the estimated useful lives of the respective assets,

which range between three and twelve years.

Finite-lived intangible assets are being amortized over the estimated useful lives of the respective assets, which range

between three and ten years.

Total amortization expense related to intangible assets was approximately $1,044,000 and $1,250,000 for the years ended December 31, 2011 and 2010, respectively.

The estimated aggregate future amortization expense related to the Companys intangible assets with finite lives is as follows:

The estimated aggregate future amortization expense related to the Companys intangible assets with

finite lives is as follows:

For the years ending December 31,

Severance Liability

retired from his position as the Companys chief executive officer on March 1, 2009 following the conclusion of the term of his employment agreement.

The Company entered

into a separation agreement with Dr.

Gross on April 8, 2009 that modified the payment terms, but not the monetary obligation amount that Dr.

Gross was entitled to receive pursuant to the employment agreement.

In connection therewith,

the Company issued to Dr.

Gross a $550,000 promissory note that did not bear any interest and was due and payable on March 1, 2010.

Pursuant to the terms of the promissory note, the Company had the option to elect to transfer certain

equity interests in one of its subsidiaries, Cortez 114, LLC (Cortez), which owns real estate located in Hernando County, Florida, to Dr.

Gross in lieu of making the $550,000 cash payment upon maturity of the promissory note.

On March 2, 2010, the Company satisfied its remaining severance obligation to Dr.

Gross through the conveyance of a

32% ownership interest in Cortez.

In connection with this severance payment, the Company paid approximately $320,000 to satisfy the related payroll taxes, which included an income tax gross-up.

This transaction was accounted for in accordance with ASC Topic 810 Consolidation .

The Company recognized a noncontrolling

interest in the amount of $532,132, as determined by the carrying value of Companys investment in Cortez.

The Company also recorded $17,868 as additional paid-in capital for the

excess of the liability reduction of $550,000 over the adjustment to the carrying amount of the noncontrolling interest.

In addition, the Company has recognized 32% of the profit or loss from

Cortez as net income or loss attributable to noncontrolling interest in the consolidated statement of operations for the year ended December 31, 2010.

Long-term Debt

The Company had the following long-term debt at

December 31, 2010 and 2009:

The Company had the following long-term debt at December 31, 2011 and 2010:

$3,000,000 note payable, bank, due in monthly installments of $20,436 including principal and interest at 6.50% through

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$1,500,000 note payable, due in monthly installments of interest at 7.00% with principal due in full on October 1, 2015;

collateralized by undeveloped land in Hillsborough County, Florida

collateralized by the Companys corporate office building and undeveloped land in Hillsborough County, Florida

$600,000 note payable, bank, due in monthly installments of $14,420 including principal and interest at 7.09% through November

$450,000 bank revolving line of credit, due in monthly installments of interest of 5.25%;

collateralized by certificates of

$200,000 secured loan agreement and promissory note, due in full by February 15, 2012 including interest at 6.00% and

$26,000 in related fees.

This note was extended in February 2012.

$200,000 short term related party promissory note, due in full by February 27, 2011 including interest at 3.50% plus 3.0

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rates of between 9.5% and 16.3%

Insurance financing, due in monthly installments of $11,376 and $9,711 including principal and interest at 5.44% and 5.83%

through July 2010 and September 2009, respectively

$75,000 bank credit card financing, due in monthly installments of interest at 11.99%

Insurance financing, due in monthly installments of up to $13,603 and $11,376 including principal and interest at 5.32% and 5.44%

through September 2012 and July 2011, respectively

$50,000 bank credit card financing, due in monthly installments of interest at 7.74%

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Non current portion

Subsequent to December 31, 2010, this related party note was paid in full.

Payments required for the next five years on the long-term debt balance as of

December 31, 2010 are as follows:

Payments required for the next five years on the long-term debt balance as of December 31, 2011 are as

For the years ending December 31,

Less imputed interest on capital lease obligations

Note and Warrant Purchase Agreement

On October 22, 2009, the Company entered into a Note and Warrant Purchase Agreement (the Purchase Agreement) with Gators Lender, LLC (the Lender), pursuant to which the

Company borrowed $1,750,000 from the Lender.

In connection with this transaction, the Company issued a Promissory Note (the Note) to the Lender in the principal amount of $1,750,000.

UTEK Real Estate is a co-borrower under the Note.

Pursuant to an Absolute Guaranty of Payment and Performance, this loan is guaranteed by all of the Companys

subsidiaries, including newly formed subsidiaries.

In addition, this guaranty was secured pursuant to a Mortgage and 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.

Pursuant to a February 26, 2010, Substitution

of Collateral Agreement and a Membership Interest Pledge Agreement and Release of Mortgage, the Lenders security interest in the Collateral was released and replaced by a security interest in 68 Units, constituting 68% of the outstanding

membership interests of Cortez.

The Note was amended and restated to provide that the Company and UTEK Real Estate must pay down $500,000 of the indebtedness to the Lender within 60 days.

At Innovaros 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.

is payable on the outstanding principal amount of the Note on a quarterly basis, in arrears, at an annual rate of 8.00%.

The entire principal amount outstanding and all accrued interest is payable in full on October 22, 2012.

principal amount outstanding may be repaid earlier at the discretion of the Company, subject to certain prepayment penalties.

The Note also includes customary event of default provisions, including the failure to make timely payments, material

misrepresentations, change of control of the Company, defaults on other obligations in excess of $100,000, the grant of a senior security interest on the property securing this loan, the liquidation of the Company, bankruptcy and certain judicial

As additional consideration for this loan, the Company also entered into a Warrant Agreement with the Lender to

allow the Lender to purchase up to 437,500 shares of the Companys common stock at any time until October 22, 2014 at an exercise price of $4.48 per share.

The exercise price is subject to certain conditions and adjustments that make the

exercise price variable prior to the issuance of the Companys common stock pursuant to the Warrant Agreement.

The exercise price of the warrants was subsequently adjusted down to $0.01.

The Company determined that the embedded feature (ratchet down of exercise price) in the

warrants is not indexed to the Companys own stock due to the variability in the exercise price of the warrants and, therefore, is an embedded derivative financial liability, which requires bifurcation and to be separately accounted for

pursuant to ASC Topic 815 Derivatives and Hedging .

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

ended December 31, 2010 and 2009:

Derivative Liabilities

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

warrants with variable exercise prices.

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

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

The Company recognized a gain (loss) related to the adjustment of these derivatives to fair value of approximately $151,000 and $(186,000) for the years ended

December 31, 2011 and 2010, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value of the

derivative instrument.

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

Expected dividend yield

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Expected life of options

determined the initial value of the derivative instrument to be $554,972 upon issuance of the warrants and recorded a debt discount and offsetting derivative liability.

The debt discount is being amortized over the life of the debt, which is three

The Company recorded interest expense of $280,558 and $35,478 related to the amortization of debt discount for the years ended December 31, 2010 and 2009.

In accordance with Topic 815, the derivative liability is required to be adjusted

to fair value at the end of each reporting period.

The Company recognized a gain (loss) related to this derivative of approximately $44,000 and $(110,000) for the years ended December 31, 2010 and 2009, respectively.

The derivative gain is

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

The following shows the

components comprising the carrying value of this note:

Original issue price of note

Principal payments

Original issue discount

Amortization of discount

Carrying value of note

Accumulated Other Comprehensive Income (Loss)

Components comprising the balance in accumulated other comprehensive income (loss) for the three months ended December 31, 2009 and

the year ended December 31, 2010 are as follows:

3.8 - 5.0 years

$ 0.35 - $ 1.42

Warrant Exercise

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

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

approximately $1.3 million on the date of exercise.

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

exercise date.

Accumulated Other Comprehensive Income

Components comprising the balance in accumulated other comprehensive income for the years ended December 31, 2011 and 2010 are as follows:

Unrealized gain

2 unchanged sentences

comprehensive

income (loss)

Balance at September 30, 2009

Balance at December 31, 2009

Gain (loss) for the period

8 unchanged sentences

registration statement on Form S3 (File No.

On July 9, 2010, the Company entered into an

amendment to the Securities Purchase Agreement with each of the investors to increase the exercise price of the Series A warrants to be issued in connection therewith from $3.43 per share to $3.49 per share.

The Series A warrants are exercisable for

a five-year period commencing nine months after the date of their issuance.

The exercise price of the Series A warrants is subject to certain conditions and adjustments that make the exercise price variable pursuant to the Series A warrant

The exercise price can only adjust downward if the Company issues any securities outside of the Companys plans described in Notes 14 and 17.

On July 12, 2010, the Company completed the offering contemplated by the Securities Purchase Agreement and raised gross proceeds in connection therewith of approximately $3.8 million before advisory

fees and offering expenses.

The Series B warrants are exercisable for a five-year period commencing on the 120 day

anniversary of the date of their issuance.

The Company determined that the Series B warrants are a component of equity and have been included in the cash proceeds of the securities offering as such.

All of the 893,519 Series B warrants were

exercised as of December 31, 2010.

In addition, the Company granted each investor in the offering the right of first

refusal to purchase 100% of the shares of the Companys common stock or securities convertible into or exercisable for shares of the Companys common stock to be issued by the Company in certain offerings until the one (1) year

anniversary of the date of the issuance of the Shares.

Thereafter, each investor will have the right of first refusal to purchase 50% of the shares of the Companys common stock or securities convertible into or exercisable for shares of the

Companys common stock to be issued by the Company in certain offerings until the two (2) year anniversary of the date of the issuance of the Shares.

The Company determined that the embedded feature (ratchet down of exercise price) in the Series A warrants is not indexed to the Companys own stock due to the variability in the exercise price of

the Series A warrants and, therefore, is an embedded derivative financial liability, which requires bifurcation and to be separately accounted for pursuant to ASC Topic 815 Derivatives and Hedging .

The Company uses the Black-Scholes option

pricing model to estimate the fair value of the derivative instrument, for which we employed the following assumptions at inception and for the year ended December 31, 2010:

On July 9, 2010, the Company entered into an amendment to the

Securities Purchase Agreement with each of the investors to increase the exercise price of the Series A warrants to be issued in connection therewith from $3.43 per share to $3.49 per share.

The Series A warrants are exercisable for a five-year

period commencing nine months after the date of their issuance.

On July 12, 2010, the Company completed the offering contemplated by the

Securities Purchase Agreement and raised gross proceeds in connection therewith of approximately $3.8 million before advisory fees and offering expenses.

The Series B warrants are exercisable for a five-year period commencing on the 120 day anniversary of the date of their issuance.

The Company determined that the Series B warrants are a component of

equity and have been included in the cash proceeds of the securities offering as such.

All of the 893,519 Series B warrants were exercised as of December 31, 2010.

In addition, the Company granted each investor in the offering the right of first refusal to purchase 100% of the shares of the Companys common stock or securities convertible into or exercisable

for shares of the Companys common stock to be issued by the Company in certain offerings until the one (1) year anniversary of the date of the issuance of the Shares.

Thereafter, each investor will have the right of first refusal to

purchase 50% of the shares of the Companys common stock or securities convertible into or exercisable for shares of the Companys common stock to be issued by the Company in certain offerings until the two (2) year anniversary of the

date of the issuance of the Shares.

Stock Warrants

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

The Company has Series A warrants to purchase 1,481,481 shares of common stock outstanding as of December 31, 2011.

These warrants are fully vested and have an exercise price of $3.49 per share.

warrants expire in Jan 2016.

Stock-Based Compensation Plans

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

compensation plans as one plan, the Innovaro, Inc.

Equity Compensation Plan (the Equity Compensation Plan).

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

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

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

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

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

eligible to participate in the Equity Compensation Plan.

The options can be granted as incentive stock options within the meaning of

Section 422 of the Internal Revenue Code (the Code) or as options that do not qualify for incentive treatment under Section 422 of the Code.

Options are granted at the fair market value of the stock on the date of grant, except

in the case of a more than 10% shareholder for which grants are exercisable at 110% of fair market value of the stock on the date of grant.

Options generally become fully vested three to four years from the date of grant and expire five to seven

years from the date of grant.

At December 31, 2011, the Company had 2,549,420 shares available for future stock or option grants under the Equity Compensation Plan.

Stock-based compensation cost recognized during the years ended December 31, 2011 and 2010 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on

their respective grant date fair values estimated in accordance with ASC Topic 718 Compensation Stock Compensation .

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

estimates forfeitures, both at the grant date as well as throughout the requisite service period, based on the Companys historical experience and future expectations.

Topic 718 requires management to estimate, at the grant date, the number of stock options for which the

requisite service is expected to be rendered.

The Company applies a forfeiture rate to account for the number of stock options for which the requisite service period is not expected to be rendered.

Management revised its estimate of the forfeiture

rate of its options in 2009 and 2010 to account for significant variances between the estimated forfeitures and the actual forfeitures.

The revision to the forfeiture rate is accounted for as a change in estimate in accordance with ASC Topic 250

Accounting Changes and Error Corrections and the cumulative effect of approximately $178,000, a reduction in stock-based compensation, was recognized for the year ended December 31, 2010.

In addition, the revision to the forfeiture rate

caused an additional reduction in stock-based compensation of approximately $481,000 and $587,000 for the years ended December 31, 2011 and 2010, respectively.

The change in estimate resulted in a beneficial effect of $0.03 and $0.06 per share

on the Companys net loss per share for the years ended December 31, 2011 and 2010, respectively.

In connection with these revisions, stock-based compensation for prospective periods will be reduced by approximately $348,000 over the next

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant.

assumptions employed in the calculation of the fair value of share-based compensation expense were calculated as follows for all years presented:

Expected dividend yield based on the Companys historical dividend yield.

Expected volatility based on the Companys historical market price at consistent points in a period equal to the expected life of the

Risk-free interest rate based on the US Treasury yield curve in effect at the time of grant.

Expected life of options based on the Companys historical life of options exercised, giving consideration to the contractual terms of the

grants, vesting schedules and expectations of future employee behavior.

The following table summarizes the assumptions used

to estimate the fair value of stock options granted during the years ended December 31, 2011 and 2010:

Expected dividend yield

2 unchanged sentences

Expected life of options

In accordance with

Topic 815, the Company recognized a derivative liability for the value of the Series A warrants granted in conjunction with the Securities Purchase Agreement.

The Company determined the value of the derivative instrument to be $661,236 upon issuance

of the Series A warrants and recorded a derivative

liability which offsets additional paid-in capital.

In accordance with Topic 815, the derivative liability is required to be adjusted to fair value at the end of each reporting period.

Company recognized a gain related to this derivative of approximately $143,000 for the year ended December 31, 2010.

The derivative gain is included as a component of other (income) expense in the consolidated statement of operations.

Deferred income tax assets and liabilities are determined based upon differences between financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and

laws that will be in effect when the differences are expected to reverse.

The components of the income tax provision on

operations, excluding income tax expense (benefit) on realized gains (losses) and unrealized appreciation (depreciation) of investments for 2009 are as follows:

Weighted average grant date fair value

The Company did not have any cash proceeds from the exercise of stock options for the years ended December 31, 2011

Total compensation cost related to stock options was approximately $509,000 and $288,000 for the years ended December 31, 2011 and 2010, respectively.

At December 31, 2011, there was approximately $649,000 of unrecognized

compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.4 years.

The following

table represents stock option activity as of and for the two years ended December 31, 2011:

Contractual Life

Options Outstanding December 31, 2009

Forfeited/cancelled/expired

Options Outstanding December 31, 2010

Forfeited/cancelled/expired

Options Outstanding December 31, 2011

Options Exercisable December 31, 2011

The total grant date fair value of options vested during the years ended December 31, 2011 and 2010 was

approximately $423,000 and $622,000, respectively.

The following table summarizes information about outstanding and exercisable stock options as of

December 31, 2011:

Outstanding Options

Exercisable Options

Range of Exercise Prices

Exercise Price

Life in Years

Exercise Price

$0.77 - $ 1.60

$2.34 - $ 2.40

$3.97 - $ 5.05

$9.30 - $13.13

The following table represents restricted stock activity as of and for the two years ended December 31, 2011:

Restricted Stock Outstanding December 31, 2010

Vested and stock issued

Restricted Stock Outstanding December 31, 2011

Other (Income) Expense

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

Year Ended December 31,

(Gain) loss on sale of investments

Impairment of investments

Share in loss of equity method investment

Derivative (gain) loss

Rental income

Other (income) expense

Deferred income tax assets and liabilities are determined based upon differences between financial reporting and the tax basis of

assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The components of the income tax provision on operations, excluding income tax expense (benefit) on

realized gains (losses) and unrealized appreciation (depreciation) of investments for 2011 and 2010 are as follows:

Year Ended December 31,

Provision for income taxes

A reconciliation of the differences between the effective income tax rate and the statutory federal tax rate

A reconciliation of the differences between the effective income tax rate and the statutory federal tax rate follows:

Year Ended December 31,

3 unchanged sentences

Stock options

Gain/loss on derivative liabilities

Impairment and amortization of intangible assets

1 unchanged sentence

Provision for income taxes

The Company has unrealized gains on available-for-sale securities of $199,986 and foreign currency

translation adjustments of $(227,673) for the year ended December 31, 2010.

The Company has unrealized gains on available-for-sale securities of $199,986 and foreign currency translation

adjustments of $(227,673) for the year ended December 31, 2010.

These amounts are included as a component of equity in 2010.

Accordingly, these amounts as tax-effected are included in the Companys valuation allowance, but

would not be reflected in the change in the valuation allowance in the accompanying reconciliation of the effective rate to the statutory rate for 2010.

Significant components of the Companys deferred tax assets and liabilities are as

Accordingly, these amounts as tax-effected are included in the Companys valuation allowance, but would not be

reflected in the change in the valuation allowance in the accompanying reconciliation of the effective rate to the statutory rate for 2010.

Significant components of the Companys deferred tax assets and liabilities are as follows:

Accrued expenses

10 unchanged sentences

subsequent years.

The change in valuation allowance does not correspond to the change reported in the statutory rate reconciliation due to the adjustments to the deferred tax balances related to prior periods.

ASC Topic 740 Income Taxes requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of

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

The Companys management previously determined that it was more likely than not that the Companys net operating loss and

capital loss carryforwards would not be utilized in the future.

ASC Topic 740 Income Taxes requires a valuation allowance to reduce the deferred tax assets reported if, based on

the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Companys management previously determined that it was more likely than not that the Companys net

operating loss and capital loss carryforwards would not be utilized in the future.

Accordingly, a valuation allowance of $22.2 million and $20.3 million was recorded for 2011 and 2010, respectively.

At December 31, 2010, the Company had available U.S.

net operating loss carryforwards of approximately $28,370,000, which expire as

net operating loss carryforwards of approximately $30,702,000, which expire as follows:

2021-$753,000;

6 unchanged sentences

2029-$7,343,000;

2030-$3,706,000;

and 2031 - $2,481,000.

6 unchanged sentences

and 2015-$843,000.

Stock-Based Compensation

The Company has two stock-based equity compensation plans at December 31, 2010.

The Company adopted a stock option plan in September

1999 (the 1999 Plan) and a non-qualified stock option plan in February 2000 (the 2000 Plan).

Under the terms of the 1999 Plan, as amended, the Company is authorized to issue options to purchase up to 2,811,274 shares of the

Companys common stock.

The options are intended to be incentive stock options within the meaning of Section 422 of the Internal Revenue Code (the Code), however, options may be issued under the 1999 Plan, as amended, that do

not qualify for incentive treatment under the Code.

Under the terms of the 2000 Plan, as amended, the Company is authorized to issue options to purchase up to 315,000 shares of the Companys common stock.

The Company may only issue options

under the 2000 Plan that do not qualify for incentive treatment under Section 422 of the Code.

Options, under both plans, are granted at the fair market value of the stock on the date of grant, except in the case of a more than 10% shareholder

for which grants are exercisable at 110% of fair market value of the stock on the date of grant.

Options generally become fully vested three to four years from the date of grant and expire five to seven years from the date of grant.

December 31, 2010, the Company had 1,226,320 shares available for future stock option grants under existing plans.

Stock-based compensation cost recognized during the years ended December 31, 2010 and

2009 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their respective grant date fair values estimated in accordance with ASC Topic 718 CompensationStock Compensation .

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

The Company estimates forfeitures, both at the grant date as well as throughout the requisite service period, based on the Companys historical

experience and future expectations.

Topic 718 requires management to estimate, at the grant date, the number of stock options

for which the requisite service is expected to be rendered.

The Company applies a forfeiture rate to account for the number of stock options for which the requisite service period is not expected to be rendered.

The Company applied a 20% forfeiture

rate to stock options issued from 2006 through 2008, and applied a forfeiture rate of between 20% and 40% to stock options issued from 2009 through 2010.

Management revised its estimate of the forfeiture rate of its options in 2009 and again in 2010

to account for significant variances between the estimated forfeitures and the actual forfeitures.

The revision to the forfeiture rate is accounted for as a change in estimate in accordance with ASC Topic 250 Accounting Changes and Error

Corrections and the cumulative effect of approximately $178,000 and $78,000, a reduction in stock-based compensation, was recognized for the years ended December 31, 2010 and 2009, respectively.

In addition, the revision to the forfeiture

rate caused an additional reduction in stock-based compensation of approximately $587,000 and $376,000 for the years ended December 31, 2010 and 2009, respectively.

The change in estimate resulted in a beneficial effect of $0.06 and $0.04 per

share on the Companys net loss per share for the years ended December 31, 2010 and 2009, respectively.

In connection with these revisions, stock-based compensation for prospective periods will be reduced by approximately $829,000 over the

next 3 years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the

date of grant.

The assumptions employed in the calculation of the fair value of share-based compensation expense were calculated as follows for all years presented:

Expected dividend yieldbased on the Companys historical dividend yield.

Expected volatilitybased on the Companys historical market price at consistent points in a period equal to the expected life of the

Risk-free interest ratebased on the US Treasury yield curve in effect at the time of grant.

Expected life of optionsbased on the Companys historical life of options exercised, giving consideration to the contractual terms of the

grants, vesting schedules and expectations of future employee behavior.

The following table summarizes the

assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2010 and 2009:

Expected dividend yield

Expected volatility

Risk-free interest rate

Expected life of options

Weighted average grant date fair value

The Company did not

have any cash proceeds from the exercise of stock options for the years ended December 31, 2010 and 2009.

Total compensation cost related to stock options was approximately $288,000 and $577,000 for the years ended December 31, 2010 and

2009, respectively.

At December 31, 2010, there was approximately $677,000 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.5 years.

The following table represents stock option activity as of and for the two years ended

December 31, 2010:

Options OutstandingDecember 31, 2008

Forfeited/cancelled/expired

Options OutstandingDecember 31, 2009

Forfeited/cancelled/expired

Options OutstandingDecember 31, 2010

Options ExercisableDecember 31, 2010

The total grant date fair value of options vested during the years ended December 31, 2010 and 2009 was

approximately $622,000 and $544,000, respectively.

The following table summarizes information about outstanding and

exercisable stock options as of December 31, 2010:

Outstanding Options

Exercisable Options

Range of Exercise Prices

Exercise Price

Contractual Life

Exercise Price

$0.77 - $1.60

$3.97 - $5.05

$9.30 - $10.50

$13.00 - $13.48

$18.40 - $22.04

Other (Income) Expense

Components comprising the balance in other (income) expense for the year ended December 31, 2010 and three months ended December 31, 2009 are as follows:

Gain on sale of investments

Impairment of investments

Share in loss of equity method investment

Derivative (gain) loss

Rental income

Other (income) expense

Employee Benefit Plan

On February 1, 2009, the Company adopted the UTEK Corporation 401k Plan (the 401k Plan).

The 401k Plan allows employees who satisfy the service requirements of the 401k Plan, which

include being 21 years of age and having three months of service, to contribute pre-tax wages to the 401k Plan, subject to legal limits.

The Company matches 100% of the first 3%, and 50% of the second 2%, of compensation contributed by employees.

The Companys contributions vest immediately and were approximately $161,000 and $170,000 for the years ended December 31, 2010 and 2009, respectively.

Restricted Stock Plan

On July 8, 2010, the Companys

shareholders voted in favor of a proposal to adopt the Companys Restricted Stock Plan (the Restricted Stock Plan).

The purpose of the Restricted Stock Plan is to provide selected members of the Board of Directors, executive

officers, key employees, consultants and advisors of the Company with awards consisting of shares of the Companys common stock contingent on their long-term continued employment and/or their relationship with the Company.

The maximum number of

shares of common stock that may be issued to participants under the Restricted Stock Plan is 1,500,000.

Segment Reporting

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

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

assessing performance.

Operating segments are

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

The Company is organized geographically and by line of business.

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

From time to time, the Company will reorganize its internal organizational structure to better align its service offerings.

reorganized into two new lines of business, all working under the Innovaro brand:

Strategic Servicesdriven by Strategos, an advanced innovation consultancy and Technology Servicesonline platforms, partnering services, global licensing,

technology transfer services, futures and trends, research, information services and IP consulting.

As a result, business segment information for the year ended December 31, 2009 has been restated to reflect the new business segments.

The Company has two reportable geographical operating segments:

United Kingdom and the United States.

The United Kingdom segment includes

the Companys wholly owned subsidiary Innovaro Europe, Ltd.

The United Kingdom segment includes the

Companys wholly owned subsidiary Innovaro Europe, Ltd.

and the United States segment includes Innovaro, Inc.

and UTEK Real Estate.

A summary of revenue and other financial information by reportable geographical operating

segment is shown below:

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

United Kingdom

7 unchanged sentences

United States

Income (loss) before income taxes

Loss before income taxes

Depreciation and amortization

2 unchanged sentences

United States

Revenue / Income from operations

Income (loss) before income taxes

Loss before income taxes

Depreciation and amortization

The Company recognized a $2.9 million impairment loss for the United Kingdom segment during 2010.

The Company recognized a $1.4 million impairment loss for the United States segment during 2011.

The Company recognized a $2.4 million impairment loss for the United States segment during 2009.

The Company recognized a $2.9 million impairment loss for the United Kingdom segment during 2010.

The Company recognized an $8.9 million impairment loss for the United States segment during 2010.

The Company also has business segments for which certain information can be reported.

These reportable business segments include

Strategic Services and Technology Services.

These reportable business segments include Strategic Services and

Intelligence and Insights Services.

The administrative and other column represents miscellaneous and other income items and general and administrative type expenses that are not allocated amongst the different businesses.

Management does not

analyze assets for decision making purposes as it relates to the segments below.

Management does not analyze

assets for decision making purposes as it relates to the segments below.

Accordingly, information is not available for long-lived assets or total assets.

2 unchanged sentences

Administrative

Loss before income taxes

Income (loss) before income taxes

For the Year Ended December 31, 2010

Administrative

Revenue / Income from operations

Income (loss) before income taxes

The Company recognized a $4.9 million impairment loss for the strategic services segment during 2010.

The Company recognized a $5.5 million impairment loss for the technology services segment during 2010.

Loss before income taxes

The Company recognized a $544,000 impairment loss for the intelligence and insights services segment during 2011.

The Company recognized a $900,000 impairment loss for the administrative and other during 2011.

The Company recognized a $4.9 million impairment loss for the strategic services segment during 2010.

The Company recognized a $5.5 million impairment loss for the Intelligence and Insights Services segment during 2010.

Employee Benefit Plan

On February 1, 2009, the Company adopted the UTEK Corporation 401k Plan (the 401k Plan).

The 401k Plan allows

employees who satisfy the service requirements of the 401k Plan, which include being 21 years of age and having three months of service, to contribute pre-tax wages to the 401k Plan, subject to legal limits.

The Company matches 100% of the first 3%,

and 50% of the second 2%, of compensation contributed by employees.

The Companys contributions vest immediately and were approximately $108,000 and $161,000 for the years ended December 31, 2011 and 2010, respectively.

Commitments and Contingencies

Employment Contracts

The Companys strategic services business in

recent years has largely been dependent on the efforts of certain key consulting professionals whose employment contracts with the Company expire in April 2011.

If the Company is not successful in retaining these consulting professionals or hiring

similarly qualified and skilled consulting professionals to replacement them, then the Company may not be able to maintain the level of strategic services revenue it has generated in recent years.

The Company has various other employment agreements with certain of its executive officers and other employees, some of which were

entered into in connection with the acquisitions made by the Company during 2008.

Obligations under these employment agreements total $643,000 for the year ending December 31, 2011.

In addition, certain agreements provide for discretionary

bonuses and severance packages.

The Company has a Strategos Bonus Plan 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 not later than December 31 st , of each year and are accrued on a quarterly basis.

Approximately 85% to 90% of Strategos 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.

Company is currently in the process of modifying the Strategos Bonus Plan.

Company has a discretionary bonus plan for qualifying strategic services segment employees.

The Company recognized bonus expense of approximately $2.5 million and $3.3 million in connection with this bonus plan during the years ended

December 31, 2011 and 2010, respectively.

Operating Leases

The Company leases its office facilities and certain equipment for various terms under long-term, non-cancelable operating lease

The leases expire at various dates through 2013 and provide for various renewal options.

The Company leases its office facilities and certain equipment for various terms under long-term, non-cancelable operating lease agreements.

The leases expire at various dates through 2013 and provide for

various renewal options.

In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.

The leases provide for

increases in future minimum annual rental payments.

Lease expense charged to operations was approximately $473,000 and $442,000 for the years ended December 31, 2010 and 2009, respectively.

The Company leases the office space for its corporate headquarters from Ybor City Group, Inc., a subsidiary of UTEK Real Estate.

connection with the consolidation of UTEK Real Estate as of October 1, 2009, the rent expense associated with this lease is eliminated as an intercompany transaction.

The following is a schedule by year of future minimum rental payments required under the operating lease agreements:

The leases provide for increases in future minimum annual rental payments.

Lease expense charged

to operations was approximately $176,000 and $159,000 for the years ended December 31, 2011 and 2010, respectively.

The Company leases

the office space for its corporate headquarters from Ybor City Group, Inc., a subsidiary of UTEK Real Estate.

In connection with the consolidation of UTEK Real Estate as of October 1, 2009, the rent expense associated with this lease is

eliminated as an intercompany transaction.

The following is a schedule by year of future minimum rental payments required under the operating

lease agreements:

For the years ending December 31,

Related Party Transactions

During December 2010, the Company borrowed $200,000 for operations from one of its directors, Mark Berset, under a promissory note.

This 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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

This 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

Changes in and Disagreements with Accountants on Accounting and Financial

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 8. Financial Statements and Supplementary Data