Innovaro, Inc. 10-K

Item 1. Business Unless the context requires otherwise, reference in this Form 10-K to “Innovaro,” the “Company,” “we,” “us” and words of similar import refer to Innovaro, Inc. and its wholly owned subsidiaries, Innovaro Europe, Ltd. (“Europe”) and UTEK Real Estate Holdings, Inc. (“UTEK Real Estate”). We commenced operations in 1997 and were originally incorporated under the name UTEK Corporation under the laws of the State of Florida, and subsequently under the laws of the State of Delaware in July 1999. On March 16, 2010, we began doing business as Innovaro and changed our ticker symbol from NYSE Amex: “UTK” to NYSE Amex: “INV”. On July 12, 2010, we formally changed our name from UTEK Corporation to Innovaro, Inc. We have currently have two reportable lines of business, all working under the Innovaro brand: Strategic Services – driven by Innovaro Strategos, an advanced innovation consultancy, and Intelligence and Insights Services – online platforms, partnering services, global licensing, technology transfer services, futures trends, research and information services and intellectual property “IP” consulting. We envision the continued evolution of our business to include the ongoing development and sale of software products such as the innovation management software platform to support the innovation services business. Innovaro is The Innovation Solutions Company; focused on innovation management consulting and software. At Innovaro, we are all about helping companies innovate and grow. Whether it is fueling companies’ current innovation process with insights and intelligence on consumer, market or technology trends, or providing a fully scalable and repeatable innovation solution such as LaunchPad, we can help companies navigate and simplify an innovation process. Innovaro offers a comprehensive set of services and software to assure the success of any innovation project, regardless of the size or intent. Our unique 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. 1 Table of Contents Business Strategy Innovaro has evolved from a technology transfer firm, organized as a closed-end investment company that had elected to be regulated as a business development company under the Investment Company Act of 1940, into an operating company. We have shifted the focus of the business to become an innovation solutions business. We provide innovation consulting services, innovation software, IP licensing, technology acquisition and partnering and trends analysis. During the course of 2010, Innovaro recognized the opportunity to develop a new innovation management software platform and began to develop a working model of Version 1.0 of the software platform. Innovaro envisions the continued evolution of its business to include the ongoing development and sale of software products such as the innovation management software platform to support its innovation services business. Over time, we expect the software product component of our business to grow at a greater rate than the growth in our other business segments and we feel it will represent an important component of our overall revenue stream. As the innovation management software capability matures, our innovation engine will allow us to more broadly engage clients depending on their requirements, whether people, software or data, across their innovation cycle. A key component of our strategy is to embrace both software and information offerings from other firms through an open innovation approach. Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Using this approach, our clients will be able to incorporate our offerings to suit their requirements to most effectively drive innovation. Operating Segments We currently have strategically aligned our business into two reportable segments: Strategic Services and Intelligence and Insights Services. Strategic Services Segment Overview People are the key to providing innovation expertise though our consulting services. Our people have defined and refined our methodology for over 15 years with more than 250 clients in over 750 engagements, which has created a proven effective process to get a company through the innovation cycle. This process has served to develop our Leading Edge Innovation Practices contained within our methodology. We provide strategic services to enable our clients to become more efficient by finding new avenues to grow, fighting commoditization, improving return on investment, transforming the organization, and removing barriers to innovation. Business value is delivered to clients through working with a team of seasoned and experienced professionals capable of unlocking an organization’s capacity by: • Identifying and developing new segments and markets; • Creating and acting on game-changing strategies; • Building an enterprise-wide capability for innovation; • Accelerating and improving new product development processes; and • Assessing a company’s innovation capability. Clients Approximately 83% and 75% of our revenue in 2011 and 2010, respectively, was from our Strategic Services segment. We have a global client base including both private and public sector organizations, representing multiple industries including fast moving consumer goods, consumer packaged goods, retail, medical, telecommunications, chemicals, media, financial services, energy, utilities and government agencies. The strategic services business had two significant clients for each of the years ended December 31, 2011 and 2010, which accounted for 57% and 28% of our total revenue, respectively, during such periods. Competition The strategic services business is highly competitive. We currently have significant competitors for many of our strategic service offerings, including, but not limited to, McKinsey & Company, The Boston Consulting Group and Monitor Group, Inc. 2 Table of Contents We believe the primary factors affecting competition in our markets include firm and consultant reputations, client relationships and experiences, a legacy of successes, referrals and referral sources, the ability to attract and retain top talent, the ability to manage client engagements effectively, responsiveness, and the ability to listen and provide high quality services. There is competition on price, as evidenced by the price competition we experienced during the recent severe economic downturn. However, given the critical nature of many of the issues that our services address, we are not typically competing on price alone. Many of our competitors have a greater share of the markets in which we operate, have more high profile personnel and greater financial and marketing resources than we do. We believe that our experience, our reputation (collectively and as previously independent businesses), our focus on innovation, and our comprehensive approach to our clients’ innovation challenges enable us to compete favorably and effectively in this marketplace. Intelligence and Insights Services Segment Overview Our intelligence and insights services business provides information to assist clients in gaining insights and making decisions. We offer expansive networks, experts in scouting, partner sourcing and licensing expertise, and world leading online marketplaces. We also provide an important foundation to successful licensing – understanding the true potential value of our clients’ IP and IP portfolio. We access that value and build a roadmap for our clients’ use, and uncover opportunities and options to realize any latent value. We have an online information service, purpose-built for those who need it most – technology transfer, business development, intellectual property, competitive intelligence, and marketing professionals across the physical and life sciences. We also provide the insight and intelligence our clients require, applied to their markets today and into the future. From current market research to predictive intelligence, we help our clients find insights at the intersections affecting their business. Our research identifies and explains key consumer trends – including emerging trends not covered by other sources – and delivers insights about how these trends will shape the future operating environment. Online Marketplaces Pharmalicensing is a biopharmaceutical innovation resource designed for life science professionals driving partnering, licensing and business development worldwide. Pharmalicensing affords clients the ability to in-license and out-license intellectual property and also provides partnering services, business development reports, industry news and a jobs source for candidates and employers. We are tracking at approximately 200,000 unique visitors per month and developing partnerships with external search partners to further drive traffic growth. Knowledge Express is an online, information service built for business development, technology transfer and marketing professionals across technology industries. It is a premier business development resource with expert IP search capabilities and report generation functionality. Our service includes access to key corporate profiles, industry contacts, technology pipelines, investigational technologies, deal information, sales data and patent data. Pharma Transfer provides an online source of research and peer reviewed business development opportunities for the international pharmaceutical market encompassing all areas of pipeline development including early-stage discovery, pre-clinical and clinical trials and registered products that are all available for co-development or licensing. Technology Licensing Our global technology licensing service enables clients to enhance their new product pipeline through the acquisition of proprietary technologies primarily from universities, medical centers, federal research laboratories, select corporations and university incubator programs. A global network of technology providers, coupled with an in-house staff of scientists and researchers, offers companies low-cost, low-risk access to review and acquire new technologies from research centers around the world. After gaining an understanding of our clients’ technology and business needs, we find and assess technologies for our clients. With the added benefit of our licensing professionals, we can negotiate agreements on behalf of our clients and offer a variety of flexible terms and transaction models. IP Consulting We also offer IP consulting to deliver value through the identification of intellectual property opportunities and execution of IP optimization and exploitation strategies for clients in a wide range of industries. Our approach is designed to help our clients determine market viability, product viability and buyer viability and determine the best means to maximize the value from commercially available assets. 3 Table of Contents Our IP analysis, coupled with collaborative planning and execution, delivers focused results. Because our model is science-based, the result has a greater probability of high value realization. Strategies we employ are directly proportional to the return on IP investment and our holistic IP value consists of several phases in order to determine the right IP for our clients – one that employs strategies designed to deliver the desired business goals. Global Lifestyles and Technology Foresight Global Lifestyles is an online resource for professionals who work in trend-dependent functions such as consumer insights, strategy and planning, innovation, new product development, and market research. Our research illuminates not only how consumers’ lives are changing but also why giving clients a deeper understanding of the underlying drivers of consumer trends. To do this, we track developments in a range of categories from demography, to technology usage, to consumer values and attitudes. As in all of our work, our singular focus is to provide a point-of-view on important consumer trends and what these changes mean for our clients’ business. Technology Foresight is also an online source that has tracked dozens of scientific and technological fields – and examined topics that range from genetics to emerging applications in social networking. Foresight is the ability of an organization to understand the ways in which the future might emerge and to apply that understanding in organizationally useful ways. Strategic foresight may also be used to detect adverse conditions, guide policy and help shape strategy. We track dozens of scientific and technological fields – from information and communication technology to material science and from nutrition to neuroscience. Our team identifies and analyzes authoritative global forecasts about technological change, and we also craft our own point-of-view briefs on important emerging technologies. Both of these methods allow us to deliver insights about how changes in technology will shape the future business environment, making Technology Foresight the perfect resource for professionals who need to get beyond the churn of daily tech headlines and view technology from a strategic point of view. Clients Approximately 17% and 25% of our revenue in 2011 and 2010, respectively, was from our Intelligence and Insights Services segment. We have a global client base including private and public sector organizations of varying sizes, representing a wide range of industries. Clients for our subscription services include universities, research centers and primarily large companies across a diversified group of industries. Clients for our other services within the Intelligence and Insights Services segment include both private and public sector organizations, representing multiple industry sectors including retail, government, telecommunications, chemicals, media, financial services, energy and utilities. Competition We have capable competitors in the global technology licensing business including IP Group plc, British Technology Group plc, Intellectual Ventures, Yet2.com and Competitive Technologies, Inc. Competitors for online marketplace services are significant and include Reed Elsevier, PharmaVentures, Nerac, Inc., Thomson S.A., BioPharm Insight and EvaluatePharma. Competitors for IP consulting services include The Patent Board, Ocean Tomo, LLC, PatentCafé and 1790 Analytics. In addition, university technology commercialization offices also provide location specific competition with regard to the licensing of IP technology that they have developed. Competitors for global lifestyles and technology foresight include Forrester Research, Inc. and Gartner, Inc. We believe the primary factors affecting competition in our markets include firm and consultant reputations, client relationships and experiences, a legacy of successes, referrals and referral sources, the ability to attract and retain top talent, the ability to manage client engagements effectively, responsiveness, and the ability to listen and provide high quality services. There is competition on price, as evidenced by the price competition we experienced during the recent severe economic downturn. However, given the critical nature of many of the issues that our services address, we are not typically competing on price alone. Many of our competitors have a greater share of the markets in which we operate, have more high profile personnel and greater financial and marketing resources than we do. We believe that our experience, our reputation (collectively and as previously independent businesses), our focus on innovation, and our comprehensive approach to our clients’ innovation challenges, enable us to compete favorably and effectively in this marketplace. Innovaro LaunchPad In addition to our two business segments, we are continuing the development of our innovation management software platform, Innovaro LaunchPad (“LaunchPad”), which is designed to enhance and complement our innovation service offerings to clients. Our LaunchPad software product provides an integrated innovation environment which embodies our Leading Edge Innovation Practices to offer a process that is repeatable, reliable and scalable. LaunchPad helps innovation teams by making their jobs better, faster and easier. Previously in 2011, we introduced a working model of Version 1.0 of the LaunchPad software to certain customers. We are continuing to incur costs related to the refinement of Version 1.0 while proceeding with the development of the next components of LaunchPad with Version 2.0 and Version 3.0. The next components of LaunchPad are designed to take the outputs from the current product and extend them further into the organization’s product delivery process. 4 Table of Contents The full-scale release of the complete product is dependent on the results of our testing procedures and the use of third-party consultants. Intellectual Property We consider our products as proprietary. We attempt to protect our proprietary technology by relying primarily on a combination of copyright and trademark laws, trade secrets, patents, confidentiality procedures and contractual provisions. Business Development and Marketing Our business development and marketing efforts are aimed at developing relationships and building strong awareness and brand reputation with the key economic buyers, specifically; innovation leaders, business and business unit leaders, research and consumer insights professionals, research and development (“R&D”) leaders, product marketers, brand managers, licensing professionals, industry analysts, academic institutions, law firms, and others. We believe strong relationships and a client-driven approach to service are critical to building and maintaining our business and brand reputation. We emphasize high quality client service to all of our employees. We generate new business opportunities through relationships with individuals, through direct sales, cross selling, trade show and conference participation and sponsorship, direct marketing outreach, and our extensive network of contacts. We hold ongoing thought leadership programs to generate awareness and build brand recognition. These activities include a quarterly Innovation Index which ranks businesses in a different industry each quarter in terms of their level of innovation; an Innovation Update, which is a topical monthly opinion piece; bi-annual Innovation Leaders rankings; and book sponsorships. Financial Information about Financial Reporting Segments and Geographic Areas Information concerning revenue and segment income attributable to each of our financial reporting segments and geographic areas is set forth in Note 16 of our Notes to Consolidated Financial Statements under Item 8. “Financial Statements and Supplementary Data” and is incorporated herein by reference. Recent Developments The following developments that occurred during the year ended December 31, 2011 are considered to be significant to our business: • On April 18, 2011, our Board of the Directors increased its size from four to five directors and, upon the recommendation of the Nominating and Corporate Governance Committee, elected Asa Lanum as a new director. In addition, our Board of Directors appointed Mr. Lanum, who has served as our interim Chief Executive Officer since August 2010, as our permanent Chief Executive Officer. • Effective April 22, 2011, Peter C. Skarzynski resigned from his position as Managing Director of the strategic services division. In accordance with the terms of his employment agreement, Mr. Skarzynski remains bound by a covenant regarding the protection of our confidential information and a one-year covenant not to solicit our clients or employees. • On April 22, 2011, we appointed Gary Getz as Managing Director of the strategic services division. Mr. Getz has held a management position at Innovaro since its acquisition of Strategos in 2008, and held a management position at Strategos since that company’s founding. • In June 2011, our stockholders approved an amendment and restatement of our three existing equity compensation plans as one plan, the Innovaro, Inc. Equity Compensation Plan (the “Equity Compensation Plan”). The maximum number of shares available for issuance under the Equity Compensation Plan is 4,626,274, which is the total number of shares available under the then existing Non-Qualified Option Plan, Employee Option Plan and Restricted Stock Plan. • In June 2011, we announced the release of a working model of Version 1.0 of LaunchPad. We are continuing to refine Version 1.0 while proceeding with the development of the next components of LaunchPad with Version 2.0 and Version 3.0. The next components of LaunchPad are designed to take the outputs from the current product and extend them further into the organization’s product delivery process. • We recognized $1.6 million in impairment losses related to our intangible assets, fixed assets and investments as of December 31, 2011. 5 Table of Contents Costs and Effects of Compliance with Environmental Laws and Regulations We are not in a business that involves the use of materials in a manufacturing stage where such materials are likely to result in the violation of any existing environmental rules and/or regulations. Therefore, we do not anticipate that there will be any substantial costs associated with complying with environmental laws and regulations. Scientific Advisory Council Our Scientific Advisory Council is comprised of more than 40 experts in a broad range of scientific, medical and engineering disciplines. Our Scientific Advisory Council assists our management in the evaluation of new technologies for our clients. Employees As of March 9, 2012, we had 31 full-time employees. We believe our relations with our employees are good. Corporate Offices and Available Information Our executive offices are located at 2109 Palm Avenue, Tampa, Florida 33605 and our telephone number is (813) 754-4330. We also have offices in Illinois, Washington D.C., California and the United Kingdom. Our Internet address is www.innovaro.com . We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information contained on our website to be part of this Annual Report on Form 10-K. Item 1A. Risk Factors Not applicable. Item 1B. Unresolved Staff Comments Not applicable.