Item 1. Financial Statements
ITEM 1. Financial Statements
INNOVARO, INC.
Consolidated Balance Sheets
September 30,
2013
December 31,
2012
(unaudited)
ASSETS
Current assets:
Cash
$
16,919
$
75,910
Accounts receivable, net
179,710
250,426
Available-for-sale securities
1,191
4,765
Prepaid expenses and other assets
101,399
188,567
Current portion of note receivable and accrued interest
676,000
1,199,611
Total current assets
975,219
1,719,279
Cost method investments
17,216
86,784
Equity method investments
22,000
92,148
Note receivable and accrued interest
304,982
829,670
Fixed assets, net
4,914,965
5,420,138
Intangible assets, net
245,615
321,323
Total assets
$
6,479,997
$
8,469,342
LIABILITIES
Current liabilities:
Accounts payable
$
928,958
$
723,211
Accrued expenses
570,374
450,271
Deferred revenue
207,471
250,936
Current maturities of long-term debt
3,167,570
3,294,896
Total current liabilities
4,874,373
4,719,314
Long-term debt, less current maturities
1,958,391
1,938,520
Derivative liabilities
114,658
29,000
Deferred tax liability
38,002
38,002
Total liabilities
6,985,424
6,724,836
Commitments and contingencies
-
-
EQUITY
Innovaro stockholders’ (deficit) equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding
-
-
Common stock, $.01 par value, 29,000,000 shares authorized; 16,165,952 shares issued; 16,150,952 shares outstanding
161,510
161,510
Additional paid-in capital
87,963,591
87,796,900
Accumulated deficit
(88,852,732
)
(86,445,142
)
Accumulated other comprehensive (loss) income
(435
)
3,139
Total Innovaro stockholders’ (deficit) equity
(728,066
)
1,516,407
Noncontrolling interest
222,639
228,099
Total (deficit) equity
(505,427
)
1,744,506
Total liabilities and equity (deficit)
$
6,479,997
$
8,469,342
See accompanying notes
Page 3 of 21
INNOVARO, INC.
Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2012
2013
2012
Revenue
$
168,420
$
190,416
$
414,189
$
417,334
Expenses:
Direct costs of revenue
134,772
177,273
347,672
542,525
Salaries and wages
154,767
169,959
525,238
574,943
Professional fees
51,110
97,255
119,616
253,955
Research and development
52,500
94,637
163,125
334,888
Sales and marketing
34,987
5,499
60,538
45,857
General and administrative
180,749
250,448
546,519
939,282
Depreciation and amortization
63,414
246,908
199,220
758,157
Impairment loss
-
-
450,000
-
672,299
1,041,979
2,411,928
3,449,607
Other (income) and expense:
Other (income) expense
(121,665
)
(156,406
)
77,667
(512,110
)
Interest expense, net
114,857
100,662
337,644
315,161
(6,808
)
(55,744
)
415,311
(196,949
)
Loss from continuing operations before income taxes
(497,071
)
(795,819
)
(2,413,050
)
(2,835,324
)
Provision for income tax expense (benefit)
-
-
-
-
Loss from continuing operations
(497,071
)
(795,819
)
(2,413,050
)
(2,835,324
)
Loss from discontinued operations, net of tax
-
(601,634
)
-
(4,736,786
)
Net loss
(497,071
)
(1,397,453
)
(2,413,050
)
(7,572,110
)
Net loss attributable to the noncontrolling interest
(1,820
)
(1,886
)
(5,460
)
(6,049
)
Net loss attributable to Innovaro stockholders
(495,251
)
(1,395,567
)
(2,407,590
)
(7,566,061
)
Net loss
(497,071
)
(1,397,453
)
(2,413,050
)
(7,572,110
)
Other comprehensive loss
(870
)
(1,310
)
(3,574
)
(33,523
)
Comprehensive loss
$
(497,941
)
$
(1,398,763
)
$
(2,416,624
)
$
(7,605,633
)
Basic and diluted loss per share:
Loss from continuing operations
$
(0.03
)
$
(0.05
)
$
(0.15
)
$
(0.19
)
Loss from discontinued operations, net of tax
-
(0.04
)
-
(0.31
)
Net loss
$
(0.03
)
$
(0.09
)
$
(0.15
)
$
(0.50
)
Weighted average shares outstanding: Basic and diluted
16,150,952
15,458,040
16,150,952
15,233,278
See accompanying notes
Page 4 of 21
INNOVARO, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
2013
2012
Operating Activities:
Net loss
$
(2,413,050
)
(7,572,110
)
Less: Loss from discontinued operations, net of tax
-
(4,736,786
)
Loss from continuing operations
(2,413,050
)
(2,835,324
)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization
199,220
758,157
Amortization of debt discount from investor warrants
70,364
98,831
Stock issued for services
-
97,499
Financing costs
37,000
-
Loss on write-down of notes receivable
593,437
-
Realized gain on trading securities
(253,419
)
Loss (gain) on sale and impairment of equity and available-for-sale securities
70,148
(47,630
)
Gain on derivative liabilities
(35,842
)
-
Fixed asset impairment
450,000
-
Stock-based compensation
129,691
262,767
Other
204
52,036
Changes in operating assets and liabilities:
Accounts receivable
70,716
(15,292
)
Prepaid expenses and other assets
86,248
9,644
Deferred revenue
(43,465
)
35,600
Accounts payable and accrued expenses
325,850
422,963
Net cash flows from operating activities of continuing operations
(712,898
)
(1,160,749
)
Investing Activities:
Payments on notes receivable
475,000
-
Capital expenditures
(60,395
)
(661
)
Capitalization of software development costs
-
(45,525
)
Proceeds from disposal of business
-
600,000
Proceeds from sale of securities
322,987
63,903
Net cash flows from investing activities of continuing operations
737,592
617,717
Financing Activities:
Net proceeds from stock offering
-
223,286
Proceeds from line of credit
240,000
-
Proceeds from debt financing
75,000
-
Payments on long-term debt
(398,685
)
(457,909
)
Net cash flows from financing activities of continuing operations
(83,685
)
(234,623
)
Net cash flows from continuing operations
(58,991
)
(777,655
)
Net cash flows from discontinued operations
-
823,272
(Decrease) Increase in cash
(58,991
)
45,617
Cash at beginning of period
75,910
268,170
Cash at end of period
$
16,919
$
313,787
Page 5 of 21
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
$
600,000
Note receivable received
1,329,670
Liabilities assumed by buyer
70,330
Total sale price
$
2,000,000
Debt discount recorded
$
121,500
$
-
Unrealized gain (loss) from available-for-sale securities
$
(3,574
)
$
(33,523
)
Supplemental Disclosures of Cash Flow Information
Cash paid for taxes
$
-
$
-
Cash paid for interest
$
228,017
$
398,213
See accompanying notes
Page 6 of 21
INNOVARO, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Interim Financial Information
The financial information for Innovaro, Inc. (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 nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.
The Company
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. Innovaro offers software to ensure the success of any innovation project, regardless of the size or intent. The Company’s LaunchPad software provides an integrated innovation environment, and intelligence and insights services provide any business with the innovation support they need to drive success. These services are provided primarily from the Company’s offices in the United States.
Going Concern
These consolidated financial statements have been prepared in accordance with GAAP including the assumption of a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations. The Company incurred a net loss of $(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.
The Company’s primary cash requirements include working capital, research and development expenditures, principal and interest payments on indebtedness, and employee salaries. Its primary sources of funds are cash received from collections of notes receivable, payments from customers in connection with operations and, to a lesser extent, proceeds from the sale from time to time of its investments and common stock.
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 $3,167,570 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. In addition, the Company has the capability to delay all cash intensive activities, including its software development costs, and will look to reduce costs further. However, if such measures prove inadequate, the Company could face liquidity problems and might be required to reduce or delay planned capital expenditures and other initiatives and it may be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not be sufficient to allow the Company to service its debt obligations or may have an adverse impact on its business. The failure to generate sufficient cash from operations could have a material adverse effect on the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of Innovaro and its wholly owned subsidiaries: Innovaro Europe, Ltd. and UTEK Real Estate Holdings, Inc. and its subsidiaries: Ybor City Group, Inc., 22nd Street of Ybor City, Inc., ABM of Tampa Bay, Inc., and Cortez 114, LLC (collectively “UTEK Real Estate”). All intercompany transactions and balances are eliminated in consolidation.
Page 7 of 21
On January 1, 2013, the Company acquired 100% ownership of an entity as a result of an assignment and transfer of certain collateral shares held in the entity. The Company has consolidated this entity as of January 1, 2013. 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
2. Significant Accounting Policies
Trading Securities
Trading securities include equity securities that the Company intends to sell in the near term to generate profits. Trading securities are carried at fair value in the consolidated balance sheets. Unrealized gains and losses are recorded as a component of other (income) expense in the consolidated statements of comprehensive loss.
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
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
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 985-20 Costs of Software to Be Sold, Leased or Marketed , requires companies to expense all software development costs incurred until technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers. In addition, costs incurred to enhance existing software products or after the general release of the product are required to be expensed as incurred as research and development costs.
In accordance with FASB ASC Subtopic 985-20, the Company has expensed all costs incurred to establish the technological feasibility of the Innovaro LaunchPad software (“LaunchPad”) as research and development costs.
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 potential dilutive effect of outstanding stock options, warrants and unvested shares of restricted stock. 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 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
Financial instruments that the Company holds with significant credit risk include cash and investments. The Company maintains its cash with high credit quality financial institutions in the United States and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. All of the Company’s non-interest bearing cash balances were fully insured as of September 30, 2013.
Recent Accounting Pronouncements
In December 2011, the FASB issued an accounting standards update to require disclosure of information about the effect of rights of setoff with certain financial instruments on an entity’s financial position. In January 2013, the FASB issued an accounting standards update that clarifies the aforementioned offsetting disclosure requirements. The disclosure requirements are only applicable to rights of setoff of certain derivative instruments, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with standards set forth by the FASB Codification or master netting arrangements or similar agreements. The Company has adopted the amendments in these standards effective in the first quarter of 2013. Adoption of this standard had no impact on the Company’s consolidated financial statements.
Page 8 of 21
In February 2013, the FASB issued an accounting standards update that requires presentation for reclassification adjustments from accumulated other comprehensive income into net income in a single note or on the face of the financial statements. The Company has adopted the amendments in this standard effective in the first quarter of 2013. 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 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 of fixed assets and intangible assets. Actual results could differ from those estimates.
3. Discontinued Operations
Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions
Pursuant to an asset purchase agreement dated September 12, 2012, the Company sold the Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions to IP Technology Exchange, Inc. (“IP Tech Ex”) effective as of August 31, 2012. These divisions operated out of the United States and the United Kingdom as part of the Company’s intelligence and insights services segment. Under the terms of the original agreement, the Company was receive $2,000,000, consisting of (i) a lump-sum payment of $600,000 upon closing, (ii) the assumption of approximately $70,000 of debt relating to the divisions, (iii) quarterly payments of $100,000 through August 2014, and (iv) payment of the remaining balance on September 1, 2014. In addition, IP Tech Ex was entitled to a $125,000 reduction in the purchase price if all amounts were paid to the Company by May 1, 2013.The outstanding balance accrued interest at 5% per annum.
The Company’s Board of Directors approved a reduction to the balance of the note receivable from IP Tech Ex in return for the acceleration of the payments on the note. IP Tech Ex agreed to make a $400,000 payment in May 2013 and a $300,000 in December 2014 in full satisfaction of the note. Accordingly, the Company recorded a loss of approximately $489,000 during the first quarter of 2013 related to the write-down of this note to its net realizable value of approximately $700,000. The outstanding balance will accrue interest at 5% per annum.
Strategic Services operating division
On October 2, 2012, the Company entered into an asset purchase agreement to sell certain assets, primarily intellectual property rights and equipment, relating to our strategic services division, known as Strategos, to one of its officers and employees for $100,000. In connection with the asset purchase agreement, the Company entered into separation and release agreements with all of the officers and employees of our Strategos division pursuant to which they agreed to forgo approximately $1,489,000 in accrued bonuses owed them in exchange for $150,000. Finally, as part of the transaction, the Company also entered into a technology license agreement with Strategos, Inc., a newly formed company that will carry on the business formerly conducted by our Strategos division, pursuant to which we agreed to license Strategos, Inc. certain technology and intellectual property rights relating to our Strategos division, including the use of the name “Strategos,” for royalty payments equal to 12.5% of the professional fee revenue earned by Strategos, Inc. 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 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.
Page 9 of 21
The summary financial results of discontinued operations are as follows:
Three Months Ended
September 30, 2012
Nine Months Ended
September 30, 2012
Strategic
Services
Intelligence
& Insights
Strategic
Services
Intelligence
& Insights
Revenue
$
22,004
$
247,866
$
2,500,534
$
1,199,098
Long-lived asset impairment charge
-
-
(4,756,898
)
(255,126
)
Operating expense
(405,953
)
(271,469
)
(2,711,484
)
(963,610
)
Other income (loss)
(102,163
)
10
(169,170
)
144
Loss on disposal of business
-
(87,539
)
-
(87,539
)
Loss before income taxes
(486,112
)
(111,132
)
(5,137,018
)
(107,033
)
Provision (benefit) for income tax expense
-
(4,390
)
515,531
(8,266
)
Loss from discontinued operations, net of tax
$
(486,112
)
$
(115,522
)
$
(4,621,487
)
$
(115,299
)
4. Fair Value Measurements
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. Inputs are classified into one of three categories:
●
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.
●
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, 2013 and December 31, 2012 are as follows:
Fair Value Measurements at
September 30, 2013 (1)
Fair Value Measurements at
December 31, 2012 (1)
Using Level 2
Total
Using Level 2
Total
Assets:
Available-for-sale securities
$
1,191
$
1,191
$
4,765
$
4,765
Total assets
$
1,191
$
1,191
$
4,765
$
4,765
Liabilities:
Derivative liability
$
114,658
$
114,658
$
29,000
$
29,000
Total liabilities
$
114,658
$
114,658
$
29,000
$
29,000
(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. 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. 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.
Page 10 of 21
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.
5. Fixed Assets
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 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 nine months ended September 30, 2013.
6. Accrued Expenses
Accrued expenses are comprised of the following:
September 30,
2013
December 31,
2012
Accrued salaries and related expenses
$
248,136
$
178,030
Property taxes payable
219,686
163,279
Board of Director fees payable
49,500
49,500
Accrued interest
40,749
43,265
Other
12,303
16,197
Total
$
570,374
$
450,271
7. Debt
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.
Page 11 of 21
8. Other (Income) Expense
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,
2013
2012
2013
2012
Loss (gain) on sale and impairment of investments
$
-
$
-
$
70,148
$
(47,630
)
Realized gain on trading securities
-
-
(253,419
)
-
Loss on write-down of notes receivable to net realizable value
-
-
593,437
-
Dividend income
-
(70,000
)
-
(127,500
)
(Gain) on derivative liabilities
(12,842
)
-
(35,842
)
-
Rental income
(83,878
)
(34,643
)
(247,436
)
(289,803
)
Other
(24,945
)
(51,763
)
(49,221
)
(47,177
)
Other (income) expense
$
(121,665
)
$
(156,406
)
$
77,667
$
(512,110
)
9. Segment Reporting
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.
The Company sold certain of its operating divisions during the year ended December 31, 2012. 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 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
Total
Long-lived assets as of September 30, 2013
$
-
$
5,160,580
$
5,160,580
Total assets as of September 30, 2013
80
6,479,917
6,479,997
Long-lived assets as of December 31, 2012
-
5,741,461
5,741,461
Total assets as of December 31, 2012
3,064
8,466,278
8,469,342
A summary of revenue and other financial information by reportable line of business segment is shown below:
For the Three Months Ended September 30, 2013
Strategic
Services
Intelligence
& Insights
Services
Administrative
and Other
Total
Revenue
$
-
$
168,420
$
-
$
168,420
Income (loss) from continuing operations before income taxes
-
18,474
(515,545
)
(497,071
)
For the Three Months Ended September 30, 2012
Strategic
Services
Intelligence
& Insights
Services
Administrative
and Other
Total
Revenue
$
-
$
190,416
$
-
$
190,416
Income (loss) from continuing operations before income taxes
-
49,759
(845,578
)
(795,819
)
Loss from discontinued operations, net of tax (1)
(486,112
)
(115,522
)
-
(601,634
)
Page 12 of 21
For the Nine Months Ended September 30, 2013
Strategic
Services
Intelligence
& Insights
Services
Administrative
and Other
Total
Revenue
$
-
$
414,189
$
-
$
414,189
Income (loss) from continuing operations before income taxes
-
33,256
(2,446,306
)
(2,413,050
)
For the Nine Months Ended September 30, 2012
Strategic
Services
Intelligence
& Insights
Services
Administrative
and Other
Total
Revenue
$
-
$
417,334
$
-
$
417,334
Income (loss) from continuing operations before income taxes
-
35,841
(2,871,165
)
(2,835,324
)
Loss from discontinued operations, net of tax (1)
(4,621,487
)
(115,299
)
-
(4,736,786
)
(1)
The Company recognized a $4,756,898 impairment loss for the strategic services business segment during the nine months ended September 30, 2012.
10. 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
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.