What changed in this filing

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Item 1. Financial Statements

2013-11-12 compared with 2013-08-14 · 108 added, 95 removed, 237 unchanged (46% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

Current assets:

16 unchanged sentences

Long-term debt, less current maturities

Derivative liability

Derivative liabilities

Deferred tax liability

1 unchanged sentence

Commitments and contingencies

Innovaro stockholders’ equity (deficit):

Innovaro stockholders’ (deficit) equity:

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

6 unchanged sentences

Accumulated other comprehensive (loss) income

Total Innovaro stockholders’ equity (deficit)

Total Innovaro stockholders’ (deficit) equity

Noncontrolling interest

Total equity (deficit)

Total (deficit) equity

Total liabilities and equity (deficit)

2 unchanged sentences

Consolidated Statements of Comprehensive Loss

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

Nine Months Ended

September 30,

Direct costs of revenue

16 unchanged sentences

Other comprehensive loss

Unrealized loss from available for sale securities

Comprehensive loss

1 unchanged sentence

Loss from continuing operations

Loss from discontinued operations

Loss from discontinued operations, net of tax

Weighted average shares outstanding:

3 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended

Operating Activities:

5 unchanged sentences

Stock issued for services

Financing costs

Loss on write-down of notes receivable

14 unchanged sentences

Capitalization of software development costs

Proceeds from disposal of business

Proceeds from sale of securities

2 unchanged sentences

Net proceeds from stock offering

Proceeds from line of credit

Proceeds from debt financing

Payments on long-term debt

2 unchanged sentences

Net cash flows from discontinued operations

Increase in cash

(Decrease) Increase in cash

Cash at beginning of period

Cash at end of period

Supplemental Disclosures of Non-Cash Investing and Financing Activities

The Company disposed of its Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions.

In conjunction with the disposal, the Company received the following consideration:

Cash received

Note receivable received

Liabilities assumed by buyer

Total sale price

Debt discount recorded

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

Supplemental Disclosures of Cash Flow Information

1 unchanged sentence

Cash paid for interest

Supplemental Disclosures of Non-Cash Investing and Financing Activities

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

See accompanying notes

4 unchanged sentences

The financial information for Innovaro, Inc.

(the “Company”, “we”, “us” or “Innovaro”) as of June 30, 2013 and for the three months and six months ended June 30, 2013 and 2012 is unaudited, but includes all adjustments, 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.

(the “Company”, “we”, “us” or “Innovaro”) as of September 30, 2013 and for the three months and nine months ended September 30, 2013 and 2012 is unaudited, but includes all adjustments, 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, 2012.

Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Innovaro is The Innovation Solutions Company focused on delivering innovation solutions to our clients through a combination of software and associated services as well as information for strategic decision making.

5 unchanged sentences

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

The Company incurred a net loss of $(1.9) million and $(10.0) million for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively.

In addition, the Company has a working capital deficit of $(3.6) million and an accumulated deficit of $(88.4 ) million as of June 30, 2013.

The Company incurred a net loss of $(2,413,050) and $(9,999,599) for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.

In addition, the Company has a working capital deficit of $(3,899,154) and an accumulated deficit of $(88,852,732) as of September 30, 2013.

These factors raise doubt about the Company’s ability to continue as a going concern.

2 unchanged sentences

The Company currently intends to fund its liquidity needs, including its software development costs, with existing cash balances, cash generated from operations, collections of its existing receivables, the proceeds from sales of its investments and the sale of certain of the Company’s common stock.

Given the Company’s cash position, working capital deficit and expected revenues in the near term, the Company does not expect that it will be able to fund its current scheduled debt service payments of $3.0 million and its operating requirements for the next twelve months.

Given the Company’s cash position, working capital deficit and expected revenues in the near term, the Company does not expect that it will be able to fund its current scheduled debt service payments of $3,167,570 and its operating requirements for the next twelve months.

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

3 unchanged sentences

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

The Company has negotiated a one year extension of the debt on the corporate office building of approximately $2,700,000, which is included in current maturities of long term debt at June 30, 2013.

Principles of Consolidation

7 unchanged sentences

The Company has consolidated this entity as of January 1, 2013.

The entity has no operations, or any liablities, and the only asset held by the entity relates to certain marketable securities.

The securities have a readily determinable fair value, and the Company's intent is to sell the securities in the near term to generate profits.

The Company has classified the securities as trading securities.

As of June 30, 2013, all securities in this entity were sold.

The entity has no operations, or any liabilities, and the only asset held by the entity relates to certain marketable securities, which the Company classified as trading securities.

The Company sold all of these securities to generate profits during the nine months ended September 30, 2013

Significant Accounting Policies

3 unchanged sentences

Unrealized gains and losses are recorded as a component of other (income) expense in the consolidated statements of comprehensive loss.

The Company recognized a (loss) gain on trading securities of $(49,000) and $253,000 during the three months and six months ended June 30, 2013, respectively.

As of June 30, 2013, all trading securities were sold.

The Company recognized a gain on trading securities of $253,419 during the nine months ended September 30, 2013, respectively.

All of the Company’s trading securities have been sold as of September 30, 2013.

Equity Method Investments

Equity method investments were considered for impairment at June 30, 2013.

There was no additional impairment for the three months ended June 30, 2013.

At March 31, 2013, the Company determined that the equity method investment had suffered a decline in fair value below that of its respective carrying amounts and this decline was determined to be other-than-temporary.

The Company recognized a loss on impairment of its equity method investment of approximately $70,000 for the six months ended June 30, 2013, which is included as a component of other (income) expense in the consolidated statements of comprehensive loss.

There was no impairment for the three and six months ended June 30, 2012.

At March 31, 2013, the Company determined that the equity method investment had suffered a decline in fair value below that of its carrying amounts and this decline was determined to be other-than-temporary.

The Company recognized a loss on impairment of its equity method investment of $70,148 for the nine months ended September 30, 2013, which is included as a component of other (income) expense in the consolidated statements of comprehensive loss.

Software Development Costs

5 unchanged sentences

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

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

Three Months Ended June 30,

Six Months Ended June 30,

Weighted-average outstanding shares of common stock

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

Common stock and common stock equivalents

Shares excluded from calculation of diluted EPS (1)

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

The calculation of diluted earnings per share does not include 7,749,681 shares of outstanding stock options, warrants and unvested restricted stock for the three and nine months ended September 30, 2013 and 2,992,918 shares of outstanding stock options, convertible debt warrants and unvested restricted stock for the three and nine months ended September 30, 2012, because their inclusion would have been anti-dilutive, primarily as a result of having incurred a net loss during the periods presented.

Financial Instruments

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

The fair value of cash, 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 is not materially different from its carrying value of $4.9 million and $5.2 million as of June 30, 2013 and December 31, 2012, respectively.

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

The estimated fair value of the Company’s long-term debt is not materially different from its carrying value of $5,125,961 and $5,233,416 as of September 30, 2013 and December 31, 2012, respectively.

Concentrations of Credit Risk

2 unchanged sentences

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

All of the Company’s non-interest bearing cash balances were fully insured as of June 30, 2013.

All of the Company’s non-interest bearing cash balances were fully insured as of September 30, 2013.

Recent Accounting Pronouncements

7 unchanged sentences

Adoption of this standard did not have a significant effect on the Company’s consolidated financial statements.

The Company's management does not believe that any recent codified pronouncements by the Financial Accounting Standards Board ("FASB") (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company's current or future consolidated financial statements.

The Company’s management does not believe that any recent codified pronouncements by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with FASB 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 the valuation and impairment of certain investments, stock-based compensation, and the valuation and impairment of fixed assets and intangible assets.

The Company’s most significant estimates relate to the valuation and impairment of certain investments, stock-based compensation, and the valuation of fixed assets and intangible assets.

Actual results could differ from those estimates.

10 unchanged sentences

The outstanding balance will accrue interest at 5% per annum.

During the quarter ended June 30, 2013, the Company received the first $400,000 payment on the note balance.

Strategic Services operating division

4 unchanged sentences

in excess of $10,000,000 during the period from October 2, 2012 to December 31, 2015.

The Company has reflected the operations of these divisions as discontinued operations in the consolidated statements of comprehensive loss for the three and six months ended June 30, 2012.

The Company has reflected the operations of these divisions as discontinued operations in the consolidated statements of comprehensive loss for the three and nine months ended September 30, 2012.

Substantially all the cash flows from discontinued operations for all periods presented relate to operating activities, and accordingly, the Company has presented cash flows from discontinued operations as a single line item in the consolidated statements of cash flows.

1 unchanged sentence

Three Months Ended

June 30, 2012

Six Months Ended

June 30, 2012

Intelligence & Insights

September 30, 2012

Nine Months Ended

September 30, 2012

Long-lived asset impairment charge

1 unchanged sentence

Other income (loss)

Income (loss) before income taxes

Provision for income tax (expense) benefit

Income (loss) from discontinued operations, net of tax

Loss on disposal of business

Loss before income taxes

Provision (benefit) for income tax expense

Loss from discontinued operations, net of tax

Fair Value Measurements

8 unchanged sentences

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 June 30, 2013 and December 31, 2012 are as follows:

Assets measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2013 and December 31, 2012 are as follows:

Fair Value Measurements at

June 30, 2013 (1)

September 30, 2013 (1)

Fair Value Measurements at

5 unchanged sentences

Total liabilities

(1) The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of June 30, 2013 and December 31, 2012.

(1) The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of September 30, 2013 and December 31, 2012.

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

2 unchanged sentences

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

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

These securities are generally thinly traded and have certain restrictions on resale.

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

The Company’s derivative liability is classified within Level 2 of the fair value hierarchy.

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

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The Company’s derivative liabilities is 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 Company’s common stock price, the exercise price of the warrants, conversion price of the convertible debt and expected volatility, which is based on historical volatility.

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

In the process of refinancing the mortgage on the corporate headquarters, the Company had a third party valuation of the property.

As a result of the valuation, management determined that there was a decrease in the fair value of the property.

Management determined that the decrease in the fair value of the property was other-than-temporary.

As a result of the valuation, management determined that there was a decrease in the fair value of the property which was considered to be other than temporary.

Therefore, the Company recorded impairment of $450,000 during the second quarter of 2013.

This impairment expense is included as a component of impairment loss in the consolidated statements of operations for the three and six months ended June 30, 2013.

This impairment expense is included as a component of impairment loss in the consolidated statements of operations for the nine months ended September 30, 2013.

Accrued Expenses

Accrued expenses are comprised of the following:

September 30,

Accrued salaries and related expenses

2 unchanged sentences

Accrued interest

On August 15, 2013, the Company entered into a securities purchase agreement with Asher Enterprises, Inc.

(“Asher”) pursuant to which it sold to Asher an 8% convertible note in the aggregate principal amount of $78,500, convertible into shares of the Company’s common stock upon the terms and subject to the limitations and conditions set forth in the convertible note.

The variable conversion price of the debt created a derivative instrument.

The Company recorded the derivative liability of $79,418, which was offset by a debt discount of $78,500 and fair value loss on derivative of $918.

The derivative liability is adjusted to fair value at each reporting period with gains or losses recognized as a component of other (income) loss in the statements of comprehensive income.

The debt discount is being amortized using the straight-line method over the life of the debt of 8.5 months.

On August 21, 2013, the Company entered into a revolving credit and security agreement with JJJ Family LLLP (“JJJ Family”) pursuant to which it can borrow up to $400,000 from JJJ Family.

In connection with this transaction, we issued a revolving promissory note to JJJ Family in the principal amount of $400,000.

Borrowings under the credit facility will be used for general corporate purposes.

As additional consideration for this credit facility, the Company also entered into a warrant agreement with JJJ Family to allow them to purchase up to 400,000 shares of our common stock at an exercise price of $0.14 per share.

These warrants become exercisable beginning six months after the issuance date and ending five years from that date.

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

This variability in the exercise price of the warrants created a derivative instrument.

The Company recorded a derivative liability in the amount of $43,000 with an offset to debt discount.

The derivative liability is adjusted to fair value at each reporting period with gains or losses recognized as a component of other (income) loss in the statements of comprehensive income.

The debt discount is being amortized using the straight-line method over the life of the debt of 12 months.

The Company also agreed to amend the exercise price of all outstanding options and warrants previously granted to JJJ Family to $0.14 per share.

The Company valued the repricing of the options and warrants using the Black-Scholes option pricing model, which resulted in the Company recording additional financing costs of $37,000.

These financing costs are included as a component of interest expense during the three and nine months ended September 30, 2013.

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Other (Income) Expense

Components comprising the balance in other (income) expense from continuing operations for the three and six months ended June 30, 2013 and 2012 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Gain) Loss on sale and impairment of investments

Realized loss (gain) on trading securities

Components comprising the balance in other (income) expense from continuing operations for the three and nine months ended September 30, 2013 and 2012 are as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Loss (gain) on sale and impairment of investments

Realized gain on trading securities

Loss on write-down of notes receivable to net realizable value

Dividend income

Loss on derivative liabilities

(Gain) on derivative liabilities

Rental income

Other (income) expense

Page 10 of 19

Segment Reporting

5 unchanged sentences

See Note 3 for further discussion of the sale of these divisions.

Accordingly, the Company has reflected the operations of these divisions as discontinued operations for the three and six months ended June 30, 2012.

As a result, revenue and income (loss) from continuing operations before income taxes shown below for the three and six months ended June 30, 2012 do not include amounts related to these divisions.

Accordingly, the Company has reflected the operations of these divisions as discontinued operations for the three and nine months ended September 30, 2012.

As a result, revenue and income (loss) from continuing operations before income taxes shown below for the three and nine months ended September 30, 2012 do not include amounts related to these divisions.

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

United Kingdom

United States

Long-lived assets as of June 30, 2013

Total assets as of June 30, 2013

Long-lived assets as of Dec 31, 2012

Total assets as of Dec 31, 2012

Long-lived assets as of September 30, 2013

Total assets as of September 30, 2013

Long-lived assets as of December 31, 2012

Total assets as of December 31, 2012

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

For the Three Months Ended June 30, 2013

Strategic Services

& Insights Services

Administrative and Other

For the Three Months Ended September 30, 2013

Administrative

Income (loss) from continuing operations before income taxes

For the Three Months Ended June 30, 2012

Strategic Services

& Insights Services

Administrative and Other

For the Three Months Ended September 30, 2012

Administrative

Income (loss) from continuing operations before income taxes

Income (loss) from discontinued operations, net of tax

For the Six Months Ended June 30, 2013

Strategic Services

& Insights Services

Administrative and Other

Loss from discontinued operations, net of tax (1)

Page 12 of 21

For the Nine Months Ended September 30, 2013

Administrative

Income (loss) from continuing operations before income taxes

For the Six Months Ended June 30, 2012

Strategic Services

& Insights Services

Administrative and Other

For the Nine Months Ended September 30, 2012

Administrative

Income (loss) from continuing operations before income taxes

Income (loss) from discontinued operations, net of tax

The Company recognized a $4,756,898 impairment loss for the strategic services business segment during the three and six months ended June 30, 2012.

Loss from discontinued operations, net of tax (1)

The Company recognized a $4,756,898 impairment loss for the strategic services business segment during the nine months ended September 30, 2012.

Subsequent Events

I n October 2013, the Company entered into an additional securities purchase agreement with Asher pursuant to which it sold to Asher an 8% convertible note in the aggregate principal amount of $42,500, convertible into shares of our common stock upon the terms and subject to the limitations and conditions set forth in the convertible note.

Page 13 of 21

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