What changed in this filing

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Item 1. Financial Statements

2011-05-10 compared with 2010-11-12 · 169 added, 1077 removed, 158 unchanged (89% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

Current assets:

1 unchanged sentence

Accounts receivable, net

Certificates of deposit

Contracts in process

Available-for-sale securities

Investments under cost method

Prepaid expenses and other assets

Total current assets

Investments under cost method

Investments under equity method

Cost method investments

Equity method investments

Note receivable and accrued interest

4 unchanged sentences

Accrued expenses

Accrued severance payable

Deferred revenue

Current maturities of long-term debt

Derivative liabilities

Total current liabilities

Long-term debt, less current maturities

Derivative liabilities

Deferred tax liability

2 unchanged sentences

Preferred stock, $.01 par value, 1,000,000 shares authorized;

none issued and outstanding

none issued and

Common stock, $.01 par value, 29,000,000 shares authorized;

14,602,419 and 12,286,768 shares issued;

14,756,950 and

shares outstanding at September 30, 2010 and December 31, 2009, respectively

14,631,950 shares issued;

14,585,261 and 14,585,261 shares outstanding at

March 31, 2011 and December 31, 2010, respectively

Additional paid-in capital

Total accumulated loss under Investment Company Accounting

Accumulated income (deficit) under Operating Company Accounting:

Accumulated deficit

6 unchanged sentences

Consolidated Statements of Operations

Revenue / Income from operations:

Three Months Ended March 31,

Strategic services

Technology marketplaces

Insights and research

Investment income, net

Direct costs of revenue

Technology services

Direct costs of revenue – Strategic services

Direct costs of revenue – Technology services

Salaries and wages

4 unchanged sentences

Depreciation and amortization

Impairment loss

Other (income) and expense:

Other (income) expense (Note 12)

Other (income) expense

Interest expense, net

2 unchanged sentences

Net loss from operations

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

Net realized gains (losses) on investments

Net change in unrealized appreciation (depreciation) of investments

Net loss / Net decrease in net assets from operations

Net loss attributable to noncontrolling interest

Net loss attributable to the 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:

4 unchanged sentences

Innovaro Stockholders' Equity

Noncontrolling

Comprehensive

2 unchanged sentences

Income (Loss)

Shares Issued

Additional Paid-

Balances at December 31, 2010

Settlement of severance liability for 32% interest in Cortez 114, LLC

Comprehensive loss:

2 unchanged sentences

Foreign currency translation adjustments

Other comprehensive loss

Other comprehensive income (loss)

Comprehensive loss

Investment in Verdant Ventures Advisors, LLC

Private offering of equity securities, net of offering costs of $593,440

Warrants issued as direct offering costs in connection with private equity securities offering

Issuance of shares upon exercise of warrants

Earnout accrual

Issuance of restricted stock

Stock-based compensation expense

Balances at September 30, 2010

Balances at March 31, 2011

See accompanying notes

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 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

Net loss attributable to Innovaro stockholders

Adjustments to reconcile net loss attributable to Innovaro stockholders 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

Net proceeds from sale (purchase) of short-term investments

Proceeds from sale of equity investments from investment company activity

Goodwill and intangible asset impairment

Net loss attributable to noncontrolling interest

1 unchanged sentence

Amortization of debt discount from investor warrants

Loss on sale and impairment of investments

Fixed asset impairment

Gain on derivative liabilities

Loss on sale and impairment of available-for-sale securities

Loss (gain) on derivative liabilities

Stock-based compensation

Severance compensation paid for in escrowed shares

Deferred income taxes

7 unchanged sentences

Capital expenditures

Cash paid in connection with Strategos acquisition

Proceeds from sale of available-for-sale securities

Proceeds from redemption of certificates of deposit

Net cash flows from investing activities

Financing Activities:

Net proceeds (repayments) on bank line of credit

Payments on long-term debt

Gross proceeds from private equity securities offering

Offering costs paid from private equity securities offering

Net cash flows from financing activities

6 unchanged sentences

Consolidated Statements of Cash Flows (continued)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Disclosures of Non-Cash Investing and Financing Activities

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 Innovaro common stock

240,964 shares of NeoStem, Inc.

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

the nine months ended September 30, 2010 and 2009, respectively

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

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

The Company transferred certain equity interests in a subsidiary to satisfy a

severance obligation resulting in the following:

Noncontrolling interest

Increase to additional paid-in capital

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

Warrants issued as direct offering costs in connection with private equity securities offering

Supplemental Disclosures of Cash Flow Information

7 unchanged sentences

The financial information for Innovaro, Inc.

Company, we, us or Innovaro) as of September 30, 2010 and 2009 and for the three and nine month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring

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

These consolidated financial statements have been prepared in accordance with

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

for complete consolidated financial statements.

These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the Companys Annual Report on Form 10-K for

the year ended December 31, 2009.

Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the entire year.

Basis of Presentation

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.

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 generally accepted accounting principles in the United

States (GAAP) for investment companies under the 1940 Act and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946 Financial Services - Investment Companies .

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 and Topic 946.

Presentation of Financial Statements

The Company made the following adjustments in

order to present two periods of financial statements together for which the periods include two different methods of accounting.

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

Operations in the consolidated statements of operations are presented comparatively in two different formats to properly report results of operations

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

Operations for the three and nine months ended September 30, 2010 are presented in operating company format and operations for the three and nine months ended

September 30, 2009 are presented in investment company format.

The statements of operations for the three and nine months ended September 30, 2010 are presented in operating company format.

Certain operating

company balances are not applicable to an investment company and are not included for the three and nine months ended September 30, 2009.

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

UTEK Real Estate Holdings, Inc.s results of operations are consolidated with those of Innovaro for the three and nine months ended

September 30, 2010 and intercompany transactions, including intercompany borrowings and rent, are eliminated in consolidation.

At September 30, 2009, UTEK Real Estate Holdings, Inc.

was included as one of the Companys portfolio

companies and its results of operations are not consolidated into those of Innovaro for the three and nine months ended September 30, 2009.

The statements of operations for the three and nine months ended September 30, 2009 are presented in investment company format.

Certain investment

company balances are not applicable to an operating company and are not included for the three and nine months ended September 30, 2010.

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

appreciation (depreciation) of investments.

During the three and nine months ended September 30, 2010, 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 gain (loss) from available-for-sale securities is reported in operating company equity as a component of accumulated other comprehensive

income (loss) in the consolidated balance sheet.

Other changes include the following:

Other comprehensive income (loss) is not applicable to investments companies, and therefore, any related disclosures are applicable only for the three

and nine months ended September 30, 2010.

The Consolidated Schedule of Investments, Consolidated Statement of Changes in Net Assets and Financial Highlights are not presented as they are

financial statement requirements under Investment Company Accounting.

The Company 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 primarily provided internationally from

our offices in the United States and the United Kingdom.

On March 16, 2010, the Company began doing business as Innovaro and changed its

ticker symbol to NYSE Amex:

INV. 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.

(the “Company”, “we”, “us” or “Innovaro”) as of March 31, 2011 and 2010 and for the three month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals), which, in the opinion of management are necessary in order to make the consolidated financial statements not misleading at such dates and for those periods.

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

These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 .

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

We commenced operations in 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.

The Company 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.

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 three and 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 for the three and nine months ended September 30, 2009.

The Company is reporting as an operating company for the three and nine months ended September 30, 2010.

As such, the Company is required to consolidate UTEK Real Estate Holdings, Inc.

subsidiaries:

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”).

The results of operations of UTEK Real Estate have been included in the Companys

operations for the three and nine months ended September 30, 2010.

In addition, the assets and liabilities of UTEK Real Estate have been included in the Companys financial position as of September 30, 2010 and December 31, 2009.

As of September 30, 2010, none of the Companys other equity investments qualify for consolidation in accordance with GAAP.

All intercompany transactions and balances are eliminated in consolidation.

Accounts Receivable

The allowance for

doubtful accounts was approximately $3,000 and $83,000 as of September 30, 2010 and December 31, 2009, respectively.

Beginning in March 2010, the Company reorganized into three new lines of business, all working under the Innovaro brand:

Strategic Services driven by Strategos, an advanced innovation consultancy;

Technology Marketplaces online platforms, partnering services, global licensing and technology transfer services;

and Insights & Research

futures and trends, research, information services and IP consulting.

Strategic Services

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.

Total revenues are comprised of professional fees for services rendered to clients plus reimbursement of out-of-pocket expenses and exclude applicable taxes.

The Company bills clients for services and expenses incurred in

accordance with the terms of the client engagement agreement.

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 revenues are

billed and recognized as incurred.

Technology Marketplaces

Revenues from the sale of subscriptions to the Companys online marketplaces 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.

Revenues from the sale of technology rights are recognized upon consummation of the agreement and transfer of the technology rights.

Insights and Research

Revenues from the

sale of subscriptions to the Companys 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.

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.

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

Evidence of a financial arrangement or agreement must exist between the Company and its customer.

Purchase orders, signed contracts, or electronic

confirmations are three examples of items accepted by the Company to meet this criterion.

Delivery of the products or services must have occurred.

The Company treats either physical or electronic delivery as having met this requirement.

The price of the products or services is fixed and measurable.

Collectability of the sale is reasonably assured and receipt is probable.

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.

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, technology marketplaces and insights & research 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.

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 software platform has not reached technological feasibility.

The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s 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 Company’s 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 $12,000 and $15,000 as of March 31, 2011 and December 31, 2010, respectively.

Cost Method Investments

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

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

Reclassifications

In 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

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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, reclassifications were made

to 2010 balances to segregate research and development costs on the statements of operations.

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

In particular, reclassifications were made to the revenue line items on the consolidated statement of operations to conform to the Company’s new business segments.

In addition, reclassifications were made to the expense line items on the consolidated statement of operations to move the direct costs associated with these business lines into two separately captioned line items:

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

In addition, reclassifications were made to the equity section of the December 31, 2010 consolidated balance sheet and the consolidated statement of changes in equity to conform to the March 31, 2011 presentation.

Reclassifications were made to combine the total accumulated loss under investment company accounting of $(52,073,915) with the accumulated deficit under operating company accounting of $(19,755,429) into one accumulated deficit line item with a balance of $(71,829,344) as of December 31, 2010.

Earnings per Share (EPS)

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

Diluted earnings

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

The Companys dilutive

potential common shares consist of outstanding stock options and warrants.

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

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

Three Months Ended March 31

Weighted average outstanding shares of common stock (1)

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 (2)

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 periods presented.

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

These shares attributable to outstanding stock options, warrants and unvested restricted stock were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, primarily as a result of the net loss during the periods presented.

Financial Instruments and Concentrations of Credit Risk

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

derivative liabilities.

With the exception of investments under cost method discussed in Note 2, investments under equity method discussed in Note 3 and fair value measurements discussed in Note 5, the carrying amounts of the Companys

financial instruments approximate their fair values.

Financial instruments with significant credit risk include cash and cash equivalents,

certificates of deposit and investments.

The Company invests its cash and cash equivalents and certificates of deposit with high credit quality financial institutions.

Certain cash and cash equivalents were in excess of FDIC insurance limits at

September 30, 2010 and December 31, 2009.

The Company has not experienced any losses on such accounts.

The Company had two major

customers during the three months ended September 30, 2009, one major customer during the nine months ended September 30, 2009, four major customers during the three months ended September 30, 2010 and two major customers during the

nine months ended September 30, 2010, all of which were customers of the strategic services line of business.

Major customers, those generating greater than 10% of total revenue, accounted for approximately 62% and 22% of the Companys

revenue during the three months ended September 30, 2010 and 2009, respectively.

Major customers accounted for approximately 26% and 11% of the Companys revenue during the nine months ended September 30, 2010 and 2009, respectively.

In addition, three customers accounted for approximately 61% of accounts receivable at September 30, 2010.

Investments under Cost

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

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

Investments under cost method comprising $564,085 have been classified as non-current assets in accordance with the Companys intent

and ability regarding liquidity of the investments.

During the third quarter of 2010, these investments were reclassified from current assets based on the Companys ability to liquidate these investments.

The Company estimated that the fair

value of these investments exceeded their respective carrying amounts as of September 30, 2010.

Investments under Equity Method

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.

Verdant Ventures operates as an

independently

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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.

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 investment under equity method in the accompanying balance sheet as of September 30, 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.

This investment has been classified as a non-current asset in accordance with the

Companys intent and ability regarding liquidity of the investment.

As a result of the substantial decline in our stock price subsequent

to June 30, 2010, the Company recorded an impairment loss to its investment in Verdant Ventures of approximately $671,000 during the quarter ended September 30, 2010.

This realized loss is included as a component of other (income) expense

in the consolidated statements of operations for the three and nine months ended September 30, 2010.

The Company’s financial instruments consist of investments, cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt and derivative liabilities.

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

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

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

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

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

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

The Company had two major customers during the three months ended March 31, 2011 and two major customers during the three months ended March 31, 2010, all of which were customers of the strategic services line of business.

Major customers, those generating greater than 10% of total revenue, accounted for approximately 54% and 29% of the Company’s revenue during the three months ended March 31, 2011 and 2010, respectively.

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

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” Topic 275 Risks and Uncertainties requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

The Company’s 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.

Accounts Receivable

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

Trade accounts receivable

allowance for doubtful accounts

Unbilled receivables

Unbilled client costs

Total accounts receivable

Contracts in Process

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

Contract costs and estimated profits on

contracts in process

Less advances and progress payments

Total contracts in process

Available-for-Sale Securities

The Company classifies its investments in freely tradable equity securities as available-for-sale in accordance with 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 September 30, 2010.

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

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

Unrealized (1)

Equity securities (available-for-sale)

The net unrealized gain of $100,101 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 $63,000 and $312,000 for the three and nine

months ended September 30, 2010, respectively.

As of September 30, 2010, none of our six total available-for-sale securities were in an unrealized loss position.

Gross realized gains (losses) as a result of the sale of available-for-sale

securities were approximately $(57,000) and $54,000 for the three and nine months ended September 30, 2010, respectively.

In addition, the Company recognized losses as a result of impairment to available-for-sale securities of approximately

$374,000 and $520,000 for the three and nine months ended September 30, 2010, respectively.

$146,000 of the loss during the nine months ended September 30, 2010 related to certain warrants classified as available-for-sale securities that

the Company determined were permanently impaired.

These warrants subsequently expired unexercised.

The remaining $374,000 loss related to three securities that had significant unrealized losses to date as of September 30, 2010.

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

These realized losses are included as a component of other (income) expense in the consolidated statements of

operations for the three and nine months ended September 30, 2010.

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

nine months ended September 30, 2010 is shown in the accompanying statement of 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:

As of March 31, 2011

As of December 31, 2010

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

Proceeds from the sale of available-for-sale securities were approximately $0 and $35,000 for the three months ended March 31, 2011 and 2010, respectively.

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

Gross realized gain (loss) as a result of the sale of available-for-sale securities was approximately $(200) and $11,000 for the three months ended March 31, 2011 and 2010, respectively.

In addition, the Company recognized an impairment loss to available-for-sale securities of approximately $146,000 for the three months ended March 31, 2010.

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

Unrealized gain (loss) on available-for-sale securities for the three months ended March 31, 2011 is shown in the accompanying statement of changes in equity net of the reclassification adjustment.

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

Three Months Ended

March 31, 2011

Unrealized holding gain (loss) arising during the period

reclassification adjustment for net (gains) losses included in net income

reclassification adjustment for net gains included

in net income

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

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Fair Value Measurements

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

Disclosures .

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

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

When determining the fair value

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

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

Topic 820 establishes a fair value

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

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

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

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:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in

markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 2—Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

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 September 30, 2010 and December 31, 2009 are as follows:

Fair Value Measurements

September 30, 2010 Using

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

Fair Value Measurements at

March 31, 2011 Using

Fair Value Measurements at

December 31, 2010 Using

Certificates of deposit

Available-for-sale securities

1 unchanged sentence

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 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 Company’s investments in available-for-sale securities are classified within Level 2 of the fair value hierarchy.

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

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 is based on quoted market prices for similar instruments in an active market.

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

The Company utilized the assistance of an independent valuation firm in determining

these values at December 31, 2009.

The Company and the valuation firm utilized 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 Company’s derivative liabilities are classified within Level 2 of the fair value hierarchy.

The Company utilizes the Black-Scholes Option Pricing Model to value the derivative liabilities

utilizing observable inputs such as the Companys common stock price, the exercise price of the related warrants, and expected volatility, which is based on historical volatility.

The Black-Scholes model employs the market approach in the

determination of fair value.

See Notes 9 and 10 for further discussion of the derivative liabilities.

The Company recorded impairment of approximately $1,288,000 to certain of its land, building and building improvements during the third quarter of 2010.

The commercial real estate market for the 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 a third party valuation of the property.

This impairment expense is included as a component of impairment loss in the consolidated statements of operations for the three and nine months ended

September 30, 2010.

Page 13 of 37

Goodwill and Intangible Assets

In accordance with ASC Topic 350 Intangibles Goodwill and Other , management performs interim assessments of goodwill if

impairment indicators are present.

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

As previously discussed in the Companys Form 10-Q for the quarter ended June 30, 2010, 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.

As of September 30, 2010, management concluded that the decline in the

Companys stock price is other than short-term in nature.

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 is 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 $971,000.

The $10.3 million impairment expense is included as a component of impairment loss in the consolidated statements of operations for the three and nine months ended September 30, 2010.

If the decline in the Companys stock is significantly further extended, additional material write-downs or impairment charges may be

required in the future.

The magnitude and timing of those charges would be dependent on the severity and duration of the decline and cannot be determined at this time.

However, any additional material non-cash impairment charges related to goodwill

or other intangible assets would have a material adverse effect on the Companys operating results.

The following table presents

goodwill and intangible assets as of September 30, 2010 and December 31, 2009.

September 30, 2010

December 31, 2009

Amortizable intangible assets:

Trade names/ trademarks/ websites

Proprietary software/ processes/ know-how

Non-compete agreements

Customer list

Total amortizable intangible assets, net

Infinite-lived intangible assets:

Total intangible assets, net

The changes to the net carrying value of goodwill by product segment for the nine months ended September 30, 2010 are

Balance as of December 31, 2009

Increases due to acquisitions and earnouts

Translation adjustment

Balance as of September 30, 2010

Page 14 of 37

The changes to the net carrying value

of intangible assets by product segment for the nine months ended September 30, 2010 are as follows:

Balance as of December 31, 2009

Increases due to acquisitions and earnouts

Translation adjustment

Balance as of September 30, 2010

Severance Liabilities

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.

The noncontrolling

interest is adjusted each quarter based on the net profit or loss of Cortez.

Long-term Debt

Note and Warrant Purchase Agreement

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.

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.

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

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% of the outstanding membership interests of Cortez.

In addition, the Note was amended and restated to provide that Innovaro

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.

In accordance with ASC Topic 815 Derivatives and Hedging , the Company recognized a derivative liability for the

value of certain warrants that were granted in conjunction with the Purchase Agreement.

The Company adjusts the derivative liability to fair value at the end of each quarter.

The Company recognized a gain on adjustment of this derivative liability

of approximately $207,000 and $249,000 for the three and nine months ended September 30, 2010, respectively.

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

Page 15 of 37

The Company utilizes the Black-Scholes Option Pricing Model to value the derivative liabilities utilizing observable inputs such as the Company’s 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.

Derivative Liabilities

In accordance with FASB ASC Topic 815 Derivatives and Hedging , the Company has recorded two 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 these derivatives of approximately $(1,794,000) and $54,000 for the three months ended March 31, 2011 and 2010, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value of the derivative instrument, for which we employed the following assumptions at March 31, 2011 and December 31, 2010:

Expected dividend yield

Expected volatility

Risk-free interest rate

Expected life of options

3.5 - 4.8 years

3.8 - 5.0 years

$1.16 - $2.77

$0.35 - $ 1.42

Accumulated Other Comprehensive Income (Loss)

Components comprising the balance in accumulated other comprehensive income (loss) for the nine months ended September 30, 2010 are as follows:

Unrealized gain

available-for-

sale securities

Foreign currency

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

from available-

comprehensive

2 unchanged sentences

Gain (loss) for the period

Balance at September 30, 2010

Securities Offering

On July 8, 2010, the Company entered into a definitive securities purchase agreement (the Securities Purchase Agreement) with three institutional investors, pursuant to which the Company

agreed to issue to the investors in a registered offering 1,481,481 shares (the Shares) of the Companys common stock priced at $2.565 per share along with Series A warrants to purchase up to 1,481,481 shares of common stock with an

exercise price of $3.43 per share of common stock and Series B warrants to purchase up to 893,519 shares of common stock with an exercise price of $0.01 per share of common stock.

These securities were offered pursuant to our effective shelf

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 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 agreement.

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 A warrants are exercisable for a five-year period commencing nine months after the date of their issuance.

The Series B warrants are

exercisable for a five-year period commencing on the 120 day anniversary of the date of their issuance.

595,680 of the Series B warrants were exercised as of September 30, 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 GAAP.

The Company uses the Black-Scholes option pricing model to estimate the fair value of the derivative instrument, for which we employed certain assumptions as follows:

The expected dividend yield is based on the current

historical yield of 0%.

The expected volatility is based on historical volatility for a period equal to the expected life of the warrants of 41%.

The risk-free interest rate is based on the US Treasury yield curve in effect of 1.85% at July 12,

2010 and 1.27% at September 30, 2010.

The expected term of the warrants is based on the contractual term of the warrants and expectations of the warrants holders behavior of 5 years.

This model also uses the current market price of the

Companys common stock and the exercise price of the warrants in the fair value calculation.

In accordance with ASC Topic 815

Derivatives and Hedging , 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

Page 16 of 37

of each reporting period.

The Company recognized a gain on adjustment of this derivative liability of approximately $568,000 for the three and nine months ended September 30, 2010.

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

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.

Employee Stock Option Plan

July 8, 2010, the Companys shareholders voted in favor of a proposal to amend the Companys Amended and Restated Employee Stock Option Plan (the Option Plan) to increase the number of shares authorized for issuance by

600,000 shares.

The maximum number of shares that may be issued through the exercise of options granted under the Option Plan as amended is 2,811,274.

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.

Stock-Based Compensation

The Company had two stock-based equity compensation plans at September 30, 2010.

See Note 9 of our consolidated financial statements included in the

Companys Form 10-K for the year ended December 31, 2009.

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% stockholder, 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.

The Company granted 246,667 and 291,667 options to purchase shares of common stock during the three and nine months ended September 30, 2010, respectively.

The Company granted

211,500 and 436,500 options to purchase shares of common stock during the three and nine months ended September 30, 2009, respectively.

On July 8, 2010, the number of shares authorized for issuance was increased by 600,000 shares by

stockholder vote.

As of September 30, 2010, there were 3,126,274 shares authorized for issuance and the Company had 1,393,485 shares available for future stock option grants under existing plans.

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

Compensation cost recognized during the nine months ended September 30, 2010 and 2009 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance

with the provisions of Topic 718.

The 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.

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 the current period of 2010.

Management revised its estimate of the

forfeiture rate of its options in the third quarter of 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 and its

cumulative effect of approximately $178,000, a reduction in stock-based compensation, was recognized in the third quarter of 2010.

In addition, stock-based compensation for the third quarter of 2010 was reduced by approximately $83,000 and

compensation for prospective periods will be reduced by approximately $538,000 over the next 3.25 years.

The change in estimate resulted in a beneficial effect of $0.02 per share on the Companys net loss attributable to Innovaro stockholders

per share for each of the three and nine months ended September 30, 2010.

Page 17 of 37

Balance at March 31, 2011

Other (Income) Expense

Components comprising the balance in other (income) expense for the three and nine months ended September 30, 2010 are as follows:

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

Three Months Ended

Loss on sale and impairment of investments

Derivative (gain) loss

Loss (gain) on derivative liabilities

Rental income

1 unchanged sentence

Segment Reporting

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

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

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

The Company is organized geographically and by line

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

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

The Company is organized geographically and by line 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.

In connection with the Companys rebranding as Innovaro in March 2010, the

Company reorganized into three new lines of business:

Strategic Services driven by Strategos, an advanced innovation consultancy;

Technology Marketplaces online platforms, partnering services, global licensing and technology transfer

and Insights & Research futures and trends, research, information services and IP consulting.

Previously reported segment information has been restated to reflect this change.

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

United States

Long-lived assets September 30, 2010

Total assets September 30, 2010

Long-lived assets March 31, 2011

Total assets March 31, 2011

Long-lived assets December 31, 2010

Total assets December 31, 2010

For the Three Months Ended Sept.

United States

Loss before income taxes

Depreciation and amortization

For the Three Months Ended Sept.

United States

Loss before income taxes

Depreciation and amortization

Page 18 of 37

For the Nine Months Ended Sept.

United States

For the Three Months Ended March 31, 2011

Loss before income taxes

Depreciation and amortization

For the Nine Months Ended Sept.

United States

For the Three Months Ended March 31, 2010

Loss before income taxes

Depreciation and amortization

A summary of revenue and other

financial information by reportable line of business segment is shown below:

For the Three Months Ended September 30, 2010

Administrative

Loss before income taxes

For the Three Months Ended September 30, 2009

From time to time, the Company will reorganize its internal organizational structure to better align its service offerings.

In 2010, we reorganized into two new lines of business:

Strategic Services and Technology Services.

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

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

For the Three Months Ended March 31, 2011

Administrative

Income (loss) before income taxes

For the Nine months Ended September 30, 2010

Administrative

Loss before income taxes

For the Nine months Ended September 30, 2009

For the Three Months Ended March 31, 2010

Administrative

Loss before income taxes

Page 19 of 37

Commitments and Contingencies

Resignation of Chief Executive Officer

Effective August 16, 2010, Douglas Schaedler resigned from his position as Chief Executive Officer of the Company and from his position as a member of the board of directors.

Per his employment

agreement, Mr.

Schaedler is entitled to receive pay for the 90 days following his giving notice to the Company as well as a onetime lump sum payment equal to six months pay, totaling $243,750, less payroll taxes and other applicable

payroll deductions.

In addition, under the employment agreement, 137,835 of the 325,000 stock options previously granted to Mr.

Schaedler vested on a pro rata basis upon termination of his employment contract, and the remaining stock options

and the 60,000 shares of restricted stock previously granted to Mr.

Schaedler were deemed terminated and forfeited.

Pursuant to the employment agreement, Mr.

Schaedler remains bound by a one-year covenant not to compete with the Company

and a covenant regarding protection of the Companys confidential information.

In place of Mr.

Schaedler, the Companys board

of directors appointed Mr.

Asa Lanum as Interim Chief Executive Officer.

The Companys board of directors will engage in a search for a permanent Chief Executive Officer and, as part of such search, will identify and evaluate Chief

Executive Officer candidates from within and outside the Company.

Employment Contracts

The Companys strategic services revenue 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.

For more information relating to this risk, see Item 1A.

Risk Factors in the Companys Annual Report on Form 10-K for the year ended

December 31, 2009.

Page 20 of 37

Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this

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

These forward-looking statements may involve known and unknown risks, uncertainties and other factors which may

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

Forward-looking statements, which involve assumptions and

describe our future plans, strategies and expectations, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe,

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

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

projections included in these forward-looking statements will come to pass.

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

Recent Developments

2010, we held an annual meeting of stockholders to:

(i) elect nine directors who will serve for one year, or until their successors are elected and qualified;

(ii) ratify the selection of Pender Newkirk & Company LLP to serve

as our registered independent public accounting firm for the year ending December 31, 2010;

(iii) approve an amendment to our amended and restated employee stock option plan to increase the number of shares authorized for issuance;

(iv) approve the adoption of our restricted stock plan;

and (v) approve an amendment to our certificate of incorporation to change our name to Innovaro, Inc.

All matters submitted to a vote of our stockholders at the annual meeting were approved and all director nominees were elected.

However, because Holly Callen Hamilton, Keith A.

Witter and Kwabena

Gyimah-Brempong received a greater number of votes withheld for election as a director than votes for such election, they tendered their respective conditional resignations to our board of directors on July 8, 2010.

Pursuant to our Corporate Governance Guidelines and Majority Withheld Vote Policy contained therein, directors are expected to tender a conditional offer of resignation to our board of directors following certification of the stockholder vote at

which he or she receives a greater number of votes withheld for his or her election as a director than votes for such election.

The conditional resignation offers were first considered by the nominating and corporate

governance committee of our board of directors (with Messrs.

Witter and Gyimah-Brempong and Ms.

Callen Hamilton abstaining) and then by our full board of directors (also with Messrs.

Witter and Gyimah-Brempong and Ms.

Callen Hamilton

In light of the results at the annual meeting, our board of directors, following the deliberation process outlined in our Corporate Governance Guidelines, determined unanimously to accept the resignations of Messrs.

Gyimah-Brempong and Ms.

Callen Hamilton as members of our board of directors.

With the addition of three new board members in February

2010, we currently have an appropriate number of independent board members in accordance with NYSE guidelines for a smaller reporting company.

In addition, we believe the current board members have the required business knowledge and breadth of

Effective August 16, 2010, Douglas Schaedler resigned from his position as our Chief Executive Officer and from his position

as a member of the board of directors.

Per his employment agreement, Mr.

Schaedler is entitled to receive pay for the 90 days following his giving notice as well as a onetime lump sum payment equal to six months pay, totaling $243,750,

less payroll taxes and other applicable payroll deductions.

In addition, under the employment agreement, 137,835 of the 325,000 stock options previously granted to Mr.

Schaedler vested on a pro rata basis upon termination of his employment

contract, and the remaining stock options and the 60,000 shares of restricted stock previously granted to Mr.

Schaedler were deemed terminated and forfeited.

Pursuant to the employment agreement, Mr.

Schaedler remains bound by a one-year

covenant not to compete with us and a covenant regarding protection of our confidential information.

In place of Mr.

Schaedler, the

board of directors appointed Mr.

Asa Lanum as Interim Chief Executive Officer.

The board of directors will engage in a search for a permanent Chief Executive Officer and, as part of such search, will identify and evaluate Chief Executive

Officer candidates from within and outside the organization.

On July 12, 2010, we completed the registered offering of 1,481,481 shares

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

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

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

The Series A warrants are exercisable for a five-year period commencing nine months after the date of their issuance.

The Series B warrants

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

595,680 of the Series B warrants were exercised as of September 30, 2010.

Page 21 of 37

In addition, we granted each investor

the right of first refusal to purchase 100% of the shares of our common stock or securities convertible into or exercisable for shares of our common stock to be issued by us in certain offerings until July 12, 2011.

Thereafter, each investor

will have the right of first refusal to purchase 50% of the shares of our common stock or securities convertible into or exercisable for shares of our common stock to be issued by the Company in certain offerings until the July 12, 2012.

As previously discussed in our Form 10-Q for the quarter ended June 30, 2010, our 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 market capitalization and may affect fair value measurements for our reporting units.

As of September 30, 2010, management concluded that the decline in our stock price is 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.

Due to the reduction in our 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 is less than

their carrying values by approximately $10.3 million.

We recognized goodwill impairment of approximately $9.4 million and intangible assets impairment of approximately $971,000.

If the decline in our stock is significantly further extended, additional material write-downs or impairment charges may be required in the future.

The magnitude and timing of those charges would be

dependent on the severity and duration of the decline and cannot be determined at this time.

However, any additional material non-cash impairment charges related to goodwill or other intangible assets would have a material adverse effect on our

operating results.

We also recorded impairment of approximately $1,288,000 to certain of our land, building and building improvements during

the third quarter of 2010.

The commercial real estate market for the 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 a third party valuation of the property.

Business Overview

provide services that help clients become stronger innovators, develop compelling strategies to drive and catalyze growth, rapidly source externally developed technologies, create value from their intellectual property (IP) and gain

foresight into marketplace and technology developments that affect their business.

These services are primarily provided throughout the United States and the United Kingdom.

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

The purpose of the innovation

software platform is to enable our clients to access, apply and extract value from a proven innovation approach through an on-demand service.

Management is planning to begin testing and marketing of the software platform in 2011.

On March 16, 2010, we began doing business as Innovaro and changed our ticker symbol to NYSE Amex:

INV. On July 12, 2010, we

formally changed our name to Innovaro, Inc. In connection with our rebranding as Innovaro, we reorganized into three new lines of business, all working under the Innovaro brand:

Strategic Services driven by Strategos, an advanced

innovation consultancy;

Technology Marketplaces online platforms, partnering services, global licensing and technology transfer services;

and Insights & Research futures and trends, research, information services and IP

In connection therewith, our business segments have changed beginning with the reporting period ended March 31, 2010 and this change has required certain reclassifications to prior period financial information.

Strategic Services

require strategies to help them embrace improved innovation capabilities.

We apply innovation insights, build those strategies with supporting infrastructure, processes and mechanisms;

creating a culture primed for repeatable innovation success.

help organizations create and realize new, breakthrough growth strategies, create and execute non-incremental new growth platforms and opportunities, and develop the capability for ongoing creation and execution of those growth platforms and

We provide strategic innovation consulting services to enable our clients to become more efficient by finding new avenues to grow,

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

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

unlocking an organizations capacity by:

Identifying and developing new segments and markets;

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Creating and acting on game-changing strategies;

Building an enterprise-wide capability for innovation;

Accelerating and improving new product development processes;

Assessing a companys innovation capability.

Technology Marketplaces

Whether partnering or licensing, our clients need exposure

to the broadest and most relevant communities to identify needs, fulfill technology demands, and take technology development forward and into the market.

We offer expansive networks, experts in scouting, partner sourcing and licensing experiences,

and a world leading online marketplace.

An important aspect of licensing is understanding the true potential value of the intellectual property portfolio.

We assess that value by building a roadmap for our clients to use to uncover opportunities and

options to realize latent value.

Online Marketplaces

Innovaro Pharmalicensing is a biopharmaceutical innovation resource designed for life science professionals driving partnering, licensing and business

development worldwide.

Pharmalicensing.com 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

We are tracking at approximately 200,000 unique visitors per month and developing partnerships with external search partners to further drive traffic.

Innovaro Medical Device Licensing is an online global resource for open innovation, partnering, licensing and business development within the medical

device industry.

Medical Device Licensing benefits from the Pharmalicensing traffic and strategic partnerships as well as establishing its own with member associations around the globe to further its reach and exposure.

Global Technology Licensing

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.

Insights and Research

Our clients require intelligence applied to their markets in order to have confidence in where to put their development capital.

From current market

research to predictive intelligence, we help clients determine the factors impacting or that will likely impact their business including social, geopolitical, competitive, economic, environmental and technological factors.

Information Services

Knowledge Express

is an online, information service built for those who need it most 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.

Foresight and Trend Research

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

We provide services to clients that build the capacity for foresight, including monitoring trends, researching topics of interest, forecasting alternative scenarios, developing technology roadmaps, creating growth platforms and embedding

futures thinking within the organization.

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We offer innovative futures programs

that provide clients with up-to-the-minute knowledge, expert insight, high-level learning experiences, and opportunities to network with experts and peers, including:

Futures Consortium - a membership service that provides access to research briefs, member meetings and networking events, and onsite workshops.

Futures Observatory - a membership service that provides a steady stream of observations that illustrate the latest developments in

key global trends.

The observations are brief, timely discussions of real-life events or circumstances in key markets, which exemplify how trends are playing out in the market.

Futures Interactive - a customizable, web-based knowledge management tool that gathers and organizes information from across a client in one,

intuitive platform.

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

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.

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.

Current Market Conditions

We believe that our financial results for the first nine months of 2010 continued to be negatively impacted by weakened economic conditions.

deterioration in consumer confidence and a general reduction in spending by consumers and businesses have had an adverse effect on our operations as businesses have delayed spending on these types of services.

Recent improvements in demand trends

globally may not continue, and our future financial results and growth could be further harmed or constrained if the recovery was to stall or conditions were to worsen.

Results of Operations

Revenue / Income from Operations

September 30,

(in thousands, except percentages)

Strategic services

Technology marketplaces

Insights and research

Investment income, net

Total revenue / income from operations

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

information, see Note 1 to our consolidated financial statements included elsewhere in this Form 10-Q.

Strategic Services

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

Our strategic services revenue increased by

$1.8 million and $1.9 million, respectively, for the three and nine months ended September 30, 2010 in comparison to the same periods ended September 30, 2009.

Strategic services revenue declined in 2009 as a result of adverse economic

We attribute the increased revenue in 2010 to a renewed interest in innovation efficiency and new product development in the US and abroad.

Strategic services revenue for the quarter ended September 30, 2010 was at a level not

previously seen for this segment since 2008.

Based on current activity, we expect these revenues to increase compared to 2009 for the remainder of 2010.

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Our strategic services revenue in

recent years has largely been dependent on the efforts of certain key consulting professionals whose employment contracts with us expire in April 2011.

If we are not successful in retaining these consulting professionals or hiring similarly

qualified and skilled consulting professionals to replacement them, then we may not be able to maintain the level of strategic services revenue we have generated in recent years.

For more information relating to this risk, see Item 1A.

Factors in our Annual Report on Form 10-K for the year ended December 31, 2009.

Technology Marketplaces

Our technology marketplaces revenue is a combination of global technology licensing search retainer fees and our online marketplaces subscription fees.

Our technology marketplaces revenue decreased $142,000 and $396,000, respectively, for the three and nine months ended September 30, 2010 in comparison to the same periods of 2009.

The decreased revenue in 2010 is due to a reduced number of

both retainer based and online marketplace customers for our global technology licensing services.

Based on current activity, we expect these revenues to remain flat for the remainder of 2010.

Insights and Research

Our insights and

research revenue is made up of our online information services, foresight and trend research and IP consulting.

Our insights and research revenue increased $216,000 and $84,000, respectively, for the three and nine months ended September 30,

2010 in comparison to the same periods of 2009.

The increased revenue in 2010 is primarily a result of an increase in our IP consulting revenue and consulting engagements for our insights division;

partially offset by a decrease in renewals of our

information services subscriptions.

Based on current activity, we expect these revenues to be lower in 2010 as compared to 2009.

Investment Income, net

As an operating

company, investment income is recorded as other (income) and expense in the accompanying statements of operations for the three and nine months ended September 30, 2010.

Direct Costs of Revenue

(in thousands, except percentages)

Direct costs of strategic services

Direct costs of technology marketplaces

Direct costs of insights and research

Total direct costs of revenue

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

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

Our direct costs of strategic services revenue increased by $2.0 million and $1.1 million for the three and nine months ended September 30, 2010 in comparison

to the same periods of 2009.

The majority of the increase in direct costs of strategic services for both the three and nine month periods related to a third quarter accrual pertaining to the year-end bonus pool, an increase in the use of outside

contractors and increased travel expense, partially offset by a decrease in salaries and related payroll taxes throughout 2010.

We expect these costs to increase for the remainder of 2010 in connection with an increase in the related revenue.

The strategic services gross profit margin decreased to 6% for the third quarter of 2010 as compared to 29% for the third quarter of 2009.

This decrease is related to the significantly higher revenues having generated bonus pool earnings for employees in the third quarter of 2010, which was not the case until the fourth quarter of 2009.

The strategic services gross profit margin

increased to 21% for the nine months ended September 30, 2010 as compared to 12% for the nine months ended September 30, 2009.

This increase is primarily the result of employees of this segment having been fully utilized in 2010.

comparison, this operating segment was overstaffed for a period of time in 2009, which unnecessarily increased costs related to the jobs.

In addition, certain employees have been replaced by other personnel with lower salaries.

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Direct costs of technology

marketplaces revenue are comprised of certain salaries and related taxes, commissions, certain outside services and other direct costs related to online marketplaces.

Our direct costs of technology marketplaces revenue decreased by $27,000 and

$128,000, respectively, for the three and nine months ended September 30, 2010 in comparison to the same periods of 2009.

The majority of the decrease in direct costs of technology marketplaces during 2010 is related to a decrease in salaries

and commissions due to a reduction in sales.

Gross profit margins for this operating segment remained relatively uniform during 2009 and 2010.

We expect these costs to remain flat for the remainder of 2010.

Direct costs of insights and research revenue are comprised of certain salaries and related taxes, certain outside services, business development costs

and royalty costs related to information services.

Our direct costs of insights and research revenue decreased by $79,000 and $72,000, respectively, for the three and nine months ended September 30, 2010 in comparison to the same periods of

The majority of the decrease in direct costs of insights and research during 2010 is due to a decrease in salaries related to significant staff cuts in 2009.

We expect these costs to remain flat for the remainder of 2010.

The insights and research gross profit margin increased to 58% for the third quarter of 2010 as compared to 19% for the third quarter of 2009.

increase is the result of the recognition of certain consulting revenues and IP consulting revenues, which generally have high margins.

Gross profit margins remained relatively uniform during the nine months ended September 30, 2009 and 2010.

Salaries and Wages

September 30,

(In thousands, except percentages)

Salaries and wages

As a percent of revenue

The abbreviation ppt denotes percentage points.

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

compensation.

Salaries and wages increased $114,000 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

The increase related to severance pay to the former CEO in August of 2010 in the

amount of $244,000 and increase in salaries of $70,000, partially offset by a change in estimate related to stock options that resulted in a decrease of $201,000 in stock-based compensation quarter over quarter.

Salaries and wages decreased $2.7 million for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.

Approximately $2.5 million of the decrease related to a charge to salaries and wages related to the modification of the acquisition and employment agreements with the division manager of our Social Technologies division in 2009.

In addition, the

retirement of our former CEO in 2009 resulted in a decrease in salaries of $300,000 and a change in estimate related to stock options resulted in a decrease of $225,000 in stock-based compensation over 2009.

These decreases were partially offset by

an increase related to severance pay to the former CEO in August of 2010 in the amount of $244,000 and an increase in other salaries of $170,000.

We expect salaries and wages to remain flat for the remainder of 2010.

Professional Fees

September 30,

(In thousands, except percentages)

Professional fees

As a percent of revenue

Professional fees include accounting

fees, legal fees and valuation expenses for our investments.

Professional fees decreased $87,000 and $140,000, respectively, for the three and nine months ended September 30, 2010 compared to the same periods of 2009.

The decrease in

professional fees for the three and nine month periods relates primarily to a decrease in valuation expenses due to the reduced number of investment holdings requiring valuations in 2010.

In addition, there was a decrease in legal fees from 2009

related employment issues, restricted stock plan preparation and Verdant Venture structure discussions that were not repeated in 2010.

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We expect to continue to have a

decrease in professional fees over 2009 for the remainder of 2010 as a result of a reduction in the number of investments requiring quarterly valuations and a reduction in legal and accounting fees related to the change from an investment company to

an operating company.

Research and Development

September 30,

(In thousands, except percentages)

Research and development

As a percent of revenue

Research and development costs include

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

Management is planning to begin testing

and marketing the software platform in 2011.

We expect to incur additional software platform costs of $300,000 by year-end and an additional $950,000 to commercialize the platform.

Sales and Marketing

September 30,

(In thousands, except percentages)

Sales and marketing

As a percent of revenue

Sales and marketing expenses include

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

Sales and marketing expenses decreased $47,000 for the three months ended September 30, 2010 compared to the three

months ended September 30, 2009.

The decrease in sales and marketing expenses relates to a credit received in the third quarter of 2010 for previously expensed costs of partnering with external search partners of $45,000.

Sales and marketing expenses increased $102,000 for the nine months ended September 30, 2010 compared to the nine months ended September 30,

The increase in sales and marketing expenses relates primarily to $91,000 in rebranding costs and $105,000 in costs of partnering with external search partners to market our products on their websites, partially offset by a decrease in travel

We expect sales and marketing expenses to remain flat for the remainder of 2010.

General and Administrative

September 30,

(In thousands, except percentages)

General and administrative

As a percent of revenue

General and administrative expenses

decreased $28,000 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

The decrease relates to a $41,000 loss related to fixed asset dispositions in 2009 and a $98,000 reduction in rent

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

partially offset by an increase in

insurance of $17,000 mostly related to a workers compensation audit, a $36,000 increase in outside services, a $20,000 increase in investor relations costs and an $18,000 increase in administrative travel related to the interim CEOs

visits to all divisions.

General and administrative expenses decreased $515,000 for the nine months ended September 30, 2010 compared to

the nine months ended September 30, 2009.

The decrease relates to a $67,000 reduction in insurance due to having fewer employees;

a $306,000 reduction in rent related to consolidating UTEK Real Estate operations, closing one of our offices in

the United Kingdom, closing our Pennsylvania office, and reducing the amount of space leased for our Washington, DC office;

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reduction in investment banking related to our having de-listed from the London Stock Exchange AIM;

a $75,000 reduction in bad debt expense due to implementation of a strict collection policy;

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

We expect general and administrative expenses to remain flat for the

remainder of 2010.

Depreciation and Amortization

September 30,

(In thousands, except percentages)

Depreciation and amortization

As a percent of revenue

Depreciation and amortization expense

increased $3,000 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

Depreciation and amortization expense decreased $22,000 for the nine months ended September 30, 2010 compared to the

nine months ended September 30, 2009.

Amortization expense decreased by $18,000 and $91,000 for the three and nine months ended September 30, 2010 compared to the three and nine months ended September 30, 2009, respectively, resulting

primarily from a decrease of $700,000 in definite-lived intangible assets as a result of impairment in the second quarter of 2009.

Depreciation expense increased by $22,000 and $69,000 for the three and nine months ended September 30, 2010

compared to the three and nine months ended September 30, 2009, respectively, resulting primarily from the addition of $4 million in depreciable assets from the consolidation of UTEK Real Estate in the fourth quarter of 2009.

We expect depreciation and amortization expenses for the remainder of 2010 to remain flat in comparison to 2009.

Impairment Loss

As previously

discussed in our Form 10-Q for the quarter ended June 30, 2010, our 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 market capitalization and may affect fair value measurements for our reporting units.

As of September 30,

2010, management concluded that the decline in our stock price is 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.

Due to the reduction in our market capitalization, third party valuation reports were performed to determine the fair value of the respective reporting units.

As a result of a reduction in the fair value of

the reporting units, management determined that the implied fair value of its goodwill and intangible assets is less than their carrying values by approximately $10.3 million.

We recognized goodwill impairment of approximately $9.4 million and

intangible assets impairment of approximately $971,000.

If the decline in our stock is significantly further extended, additional material

write-downs or impairment charges may be required in the future.

The magnitude and timing of those charges would be dependent on the severity and duration of the decline and cannot be determined at this time.

However, any additional material

non-cash impairment charges related to goodwill or other intangible assets would have a material adverse effect on our operating results.

also recorded impairment of approximately $1,288,000 to certain of our land, building and building improvements during the third quarter of 2010.

The commercial real estate market for the 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 a third party valuation of the property.

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

The state of the economy during 2009 contributed to potential Social Technologies clients focusing on short-term survival rather than long-term foresight planning.

As a result, management terminated the majority of the divisions

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

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

cash flow losses.

We determined that there was impairment of the divisions purchased intangible assets of approximately $1.0 million and impairment of the divisions goodwill of approximately $1.3 million, which is included in the

consolidated statement of operations for the nine months ended September 30, 2009.

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Other (Income) Expense

Other (income) expense is a new line item in our statement of operations related to reporting as an operating company.

The net other

expense of $283,000 for the three months ended September 30, 2010 is comprised primarily of a loss on the impairment of investments of $1,045,000 and a loss on the sale of investments of $57,000, partially offset by a gain of $776,000 related

to adjusting our derivative liabilities to fair value and rental income of $42,000 from the consolidation of UTEK Real Estate.

The net other

expense of $127,000 for the nine months ended September 30, 2010 is comprised primarily of a loss on the impairment of investments of $1,191,000, partially offset by a gain on the sale of investments of $54,000, a gain of $818,000 related to

adjusting our derivative liabilities to fair value and rental income of $126,000 from the consolidation of UTEK Real Estate.

Other income may

continue to increase or decrease significantly as the value of our derivative liability increases or decreases in connection with a change in our stock price.

Interest Expense, Net

Interest expense, net is a new line item in our statement of

operations related to reporting as an operating company.

The net interest expense of $235,000 for the three months ended September 30, 2010 is primarily comprised of interest expense on long-term debt of $108,000 and amortization of our debt

discount of $156,000, partially offset by interest income on our note receivable of $28,000.

The net interest expense of $512,000 for the

nine months ended September 30, 2010 is primarily comprised of interest expense on long-term debt of $351,000 and amortization of our debt discount of $247,000, partially offset by interest income on our note receivable of $85,000.

Net Realized Gains (Losses) on Investments from Investment Company Accounting

In connection with our plan to de-elect business development company status, we liquidated a significant portion of our investment portfolio during the first nine months of 2009.

We sold some or all of

our shares in a significant number of our portfolio companies for $2.6 million in cash and other assets, which resulted in net realized losses of $49.6 million for the nine months ended September 30, 2009.

Net Change in Unrealized Appreciation (Depreciation) on Investments from Investment Company Accounting

The net unrealized appreciation of $44.3 million for the nine months ended September 30, 2009 was primarily due to the reversal of unrealized

depreciation on various investments upon their sale during the period of approximately $42.9 million.

Liquidity and Capital Resources

used in operating activities of $2.86 million for the nine months ended September 30, 2010 increased approximately $284,000 from cash used in operating activities of $2.58 million for the nine months ended September 30, 2009.

used in operations of $2.86 million in the current period is primarily attributable to:

$16.0 million net operating loss;

$818,000 non-cash gain on derivative liabilities;

$1.3 million decrease in accounts receivable related to significant billings in the third quarter of 2010;

$599,000 decrease in deferred revenue;

$320,000 cash payment for payroll taxes, which included an income tax gross-up, paid in conjunction with the settlement of our severance liability;

$374,000 cash payment for other severance liabilities.

Partially offset by:

$11.6 million in non-cash impairment charges;

$1.4 million in non-cash depreciation and amortization;

$1.1 million in non-cash losses on investments;

$213,000 in non-cash stock-based compensation expense related to vesting options;

$1.8 million increase in accounts payable and accrued expenses.

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Cash provided by (used in) investing

activities of $765,000 for the nine months ended September 30, 2010 increased $1,064,000 from $(299,000) for the nine months ended September 30, 2009.

Total cash provided by operations of $765,000 in the current period is primarily

attributable to:

$312,000 in proceeds from available-for-sale securities;

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

Cash provided by (used in) financing activities of $2.16 million for the nine months ended September 30, 2010 increased $2.11 million from $51,000 for the nine months ended September 30, 2009.

Total cash provided by financing of $2.16 million is primarily attributable to:

$3.8 million in gross proceeds from a private equity securities offering.

Partially offset by:

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

$250,000 in cash paid on our line of credit;

$792,000 in cash paid for long-term debt.

Changes to Contractual Obligations

On October 22, 2009, we entered into a

Promissory Note (the Note) with Gators Lender, LLC (the Lender), pursuant to which we borrowed $1,750,000 from the Lender.

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

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

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

In addition, the

guaranty was secured pursuant to a security agreement encumbering vacant real property located in Hernando County, Florida (the Collateral), which is owned by Cortez 114, LLC (Cortez), a subsidiary of UTEK Real Estate.

On February 26, 2010, we entered into a Substitution of Collateral Agreement and a Membership Interest Pledge Agreement and Release of

Mortgage, pursuant to which the Lenders security interest in the Collateral was released and replaced by a security interest in 68% of the outstanding membership interests of Cortez.

In addition, the Note was amended and restated to

provide that Innovaro and UTEK Real Estate must pay down $500,000 of the indebtedness to the Lender within 60 days of February 26, 2010.

At our request, the Lender subsequently extended the repayment date for the $500,000 payment, which was

made in accordance with this extension on July 12, 2010.

During the third quarter of 2010, we repaid all outstanding obligations on our

line of credit and closed the account.

On July 12, 2010, we completed a registered offering of 1,481,481 shares of our common stock priced at $2.565 per share along with Series A warrants to purchase up to 1,481,481 shares of common stock

with an exercise price of $3.43 per share (subsequently amended to $3.49 per share) of common stock and Series B warrants to purchase up to 893,519 shares of common stock with an exercise price of $0.01 per share of common stock.

We raised gross

proceeds of approximately $3.8 million before advisory fees and offering expenses in connection with the offering.

Development Expenditures

In the first quarter of 2010, we began development of an innovation software platform designed to enhance and

complement our innovation services deliverable to clients.

As of September 30, 2010, we have invested $848,000 in this software platform.

Management is planning to begin testing and marketing the software platform in 2011.

We are forecasting

additional software platform costs of $300,000 by year-end and an additional $950,000 to commercialize the platform.

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

indebtedness and employee bonuses.

Our primary sources of funds are cash received from customers in connection with operations and proceeds from the sale of our investments.

At September 30, 2010, we had cash and cash equivalents of $2.2

million and accounts receivable of $2.8 million.

During the three months ended September 30, 2010, we redeemed our certificates of

deposit resulting in an increase in our cash and cash equivalents balance.

In addition, we repaid all outstanding obligations on our line of credit and closed the account.

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We currently intend to fund our

research and development expenditures and liquidity needs with existing cash and cash equivalent balances, cash generated from operations, collections of our existing receivables and the potential sales of our investments.

We believe that these

sources will be sufficient to fund our scheduled debt service and provide required resources for working capital for the next twelve months.

Critical Accounting Estimates

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

We evaluate the accounting policies and estimates used

to prepare the financial statements on an ongoing basis.

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

operating results.

For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

Quantitative and Qualitative Disclosures about Market Risks

Not required.

Income (loss) before income taxes

Subsequent Events

Appointment of Chief Executive Officer

Effective April 17, 2011, the Company’s Board of Directors appointed Mr.

Asa Lanum as the Company’s permanent Chief Executive Officer and a member of the Board of Directors.

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

The Company agreed to pay Mr.

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

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

Departure of Managing Director

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.

Skarzynski continues to act as a consultant to the Company.

The Company has appointed Mr.

Gary Getz as Managing Director of the strategic services division.

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

Warrant Exercise

Effective April 6, 2011, 437,500 of the Company’s $0.01 fully vested common stock warrants were exercised in a cashless exercise.

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

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

What changed 10-Q

Item 1. Financial Statements