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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A





Amendment 1

(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number 001-15941





INNOVARO, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 59-3603677                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

2109 Palm Avenue

Tampa, FL 33605

(Address of principal executive offices)

(813) 754-4330

(Registrants telephone number)

None

(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No     ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

On May 6, 2011, there were 15,021,274 shares outstanding of registrants common stock, $0.01 par value.









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EXPLANATORY NOTE

The Company is filing this Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 due to the fact that the Company has determined that it should
not have recorded a derivative liability related to certain warrants issued by it during the third quarter of 2010. The derivative liability was first recorded in the Companys financial statements for the quarter ended September 30, 2010
and continued to be recorded through the third quarter of 2011. The Company has determined that this error is not material with respect to its financial statements for the quarter ended September 30, 2010 and the year ended December 31,
2010, but has determined that the error is material with respect to the first three quarters of 2011. As a result, the Company is amending its Form 10-Qs for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011
to reverse the recording of this derivative liability in the financial statements included therein. As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications of our principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, are filed as exhibits to this Quarterly Report. Except as
set forth in this Amendment No. 1, the other Items in the Original Filing remain unchanged. This Amendment No. 1 continues to reflect circumstances as of the date of the initial filing and the Company has not updated the disclosures
contained therein to reflect events that occurred at a later date.



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INNOVARO, INC.

FORM 10-Q/A TABLE OF CONTENTS



|                                                                                                     |  |         
|---------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                     |  | Page    
|PART I. FINANCIAL INFORMATION                                                                        |  | 1       
|ITEM 1. Financial Statements                                                                         |  | 1       
|Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31,
2010                   |  | 1       
|Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
(unaudited) |  | 2       
|Consolidated Statement of Changes in Equity for the three months ended March 31, 2011
(unaudited)    |  | 3       
|Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
(unaudited) |  | 4-5     
|Notes to Consolidated Financial Statements (unaudited)                                               |  | 6-12    
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations        |  | 13      
|ITEM 3. Quantitative and Qualitative Disclosures about Market Risks                                  |  | 18      
|ITEM 4. Controls and Procedures                                                                      |  | 18      
|                                                                                                     | 
|PART II. OTHER INFORMATION                                                                           |  | 19      
|ITEM 1.    Legal Proceedings                                                                         |  | 19      
|ITEM 1A. Risk Factors                                                                                |  | 19      
|ITEM 2.    Unregistered Sales of Equity Securities and Use of
Proceeds                               |  | 19      
|ITEM 3.    Defaults Upon Senior Securities                                                           |  | 19      
|ITEM 4.    Reserved                                                                                  |  | 19      
|ITEM 5.    Other Information                                                                         |  | 19      
|ITEM 6.    Exhibits                                                                                  |  | 19      
|Signatures                                                                                           |  | 20      
|Exhibits                                                                                             |  | Attached



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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Innovaro, Inc.

Consolidated Balance Sheets



|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                        |  | March 31,2011(Unaudited) |             |   | December 31,2010 |  
|                                                                                                                                                                                                        |  | (Restated)               |             |   |                  |  
|ASSETS                                                                                                                                                                                                  |  |                          |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                                         |  |                          |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                                               |  | $                        | 635,254     |   |                  | $ | 262,619     |  
|Accounts receivable, net                                                                                                                                                                                |  |                          | 1,722,780   |   |                  |   | 1,796,454   |  
|Contracts in process                                                                                                                                                                                    |  |                          | 335,023     |   |                  |   | 214,734     |  
|Available-for-sale securities                                                                                                                                                                           |  |                          | 121,443     |   |                  |   | 171,139     |  
|Prepaid expenses and other assets                                                                                                                                                                       |  |                          | 693,848     |   |                  |   | 791,432     |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                    |  |                          | 3,508,348   |   |                  |   | 3,236,378   |  
|Cost method investments                                                                                                                                                                                 |  |                          | 95,589      |   |                  |   | 95,589      |  
|Equity method investments                                                                                                                                                                               |  |                          | 303,454     |   |                  |   | 303,454     |  
|Note receivable and accrued interest                                                                                                                                                                    |  |                          | 1,700,000   |   |                  |   | 1,700,000   |  
|Fixed assets, net                                                                                                                                                                                       |  |                          | 6,686,126   |   |                  |   | 6,736,567   |  
|Goodwill                                                                                                                                                                                                |  |                          | 6,455,152   |   |                  |   | 6,407,640   |  
|Intangible assets, net                                                                                                                                                                                  |  |                          | 5,909,262   |   |                  |   | 6,174,792   |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total assets                                                                                                                                                                                            |  | $                        | 24,657,931  |   |                  | $ | 24,654,420  |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|                                                                                                                                                                                                        |  |                         
|LIABILITIES                                                                                                                                                                                             |  |                          |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                                                                    |  |                          |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                                        |  | $                        | 1,014,658   |   |                  | $ | 1,078,088   |  
|Accrued expenses                                                                                                                                                                                        |  |                          | 658,688     |   |                  |   | 420,707     |  
|Deferred revenue                                                                                                                                                                                        |  |                          | 1,100,781   |   |                  |   | 987,624     |  
|Current maturities of long-term debt                                                                                                                                                                    |  |                          | 198,325     |   |                  |   | 433,964     |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                               |  |                          | 2,972,452   |   |                  |   | 2,920,383   |  
|Long-term debt, less current maturities                                                                                                                                                                 |  |                          | 5,334,757   |   |                  |   | 5,358,173   |  
|Derivative liabilities                                                                                                                                                                                  |  |                          | 1,212,071   |   |                  |   | 1,140,005   |  
|Deferred tax liability                                                                                                                                                                                  |  |                          | 1,209,554   |   |                  |   | 1,220,687   |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                                                       |  |                          | 10,728,834  |   |                  |   | 10,639,248  |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|                                                                                                                                                                                                        |  |                         
|EQUITY                                                                                                                                                                                                  |  |                          |             |   |                  |   |             |  
|Innovaro stockholders 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; 14,756,950 and 14,631,950 shares issued; 14,585,261 and 14,585,261
shares outstanding at March 31, 2011 and December 31, 2010, respectively |  |                          | 145,853     |   |                  |   | 145,853     |  
|Additional paid-in capital                                                                                                                                                                              |  |                          | 85,107,282  |   |                  |   | 85,024,704  |  
|Accumulated deficit                                                                                                                                                                                     |  |                          | (72,002,657 | ) |                  |   | (71,829,344 | )
|Accumulated other comprehensive income (loss)                                                                                                                                                           |  |                          | 155,009     |   |                  |   | 147,922     |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total Innovaro stockholders equity                                                                                                                                                                     |  |                          | 13,405,487  |   |                  |   | 13,489,135  |  
|Noncontrolling interest                                                                                                                                                                                 |  |                          | 523,610     |   |                  |   | 526,037     |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total equity                                                                                                                                                                                            |  |                          | 13,929,097  |   |                  |   | 14,015,172  |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  
|Total liabilities and equity                                                                                                                                                                            |  | $                        | 24,657,931  |   |                  | $ | 24,654,420  |  
|                                                                                                                                                                                                        |  |                          |             |   |                  |   |             |  

See accompanying notes



1



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Innovaro, Inc.

Consolidated Statements of Operations

(Unaudited)



|                                                                            |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | Three Months Ended March 31, |           
|                                                                            |  | 2011                         |            |   | 2010 |  
|                                                                            |  | (Restated)                   |            |   |      |  
|Revenue:                                                                    |  |                              |            |   |      |   |            |  
|Strategic services                                                          |  | $                            | 3,027,861  |   |      | $ | 1,430,042  |  
|Technology services                                                         |  |                              | 574,868    |   |      |   | 840,389    |  
|                                                                            |  |                              |            |   |      |   |            |  
|                                                                            |  |                              | 3,602,729  |   |      |   | 2,270,431  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Expenses:                                                                   |  |                              |            |   |      |   |            |  
|Direct costs of revenue  Strategic services                                |  |                              | 1,681,562  |   |      |   | 1,004,424  |  
|Direct costs of revenue  Technology services                               |  |                              | 333,242    |   |      |   | 443,948    |  
|Salaries and wages                                                          |  |                              | 324,508    |   |      |   | 679,526    |  
|Professional fees                                                           |  |                              | 88,279     |   |      |   | 201,289    |  
|Research and development                                                    |  |                              | 303,577    |   |      |   | 199,159    |  
|Sales and marketing                                                         |  |                              | 61,235     |   |      |   | 246,296    |  
|General and administrative                                                  |  |                              | 504,686    |   |      |   | 595,250    |  
|Depreciation and amortization                                               |  |                              | 341,088    |   |      |   | 400,495    |  
|                                                                            |  |                              |            |   |      |   |            |  
|                                                                            |  |                              | 3,638,177  |   |      |   | 3,770,387  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Other (income) and expense:                                                 |  |                              |            |   |      |   |            |  
|Other (income) expense                                                      |  |                              | 6,703      |   |      |   | (2,074     | )
|Interest expense, net                                                       |  |                              | 141,587    |   |      |   | 135,154    |  
|                                                                            |  |                              |            |   |      |   |            |  
|                                                                            |  |                              | 148,290    |   |      |   | 133,080    |  
|                                                                            |  |                              |            |   |      |   |            |  
|Loss before income taxes                                                    |  |                              | (183,738   | ) |      |   | (1,633,036 | )
|Provision for income tax benefit                                            |  |                              | (7,998     | ) |      |   | (55,711    | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net loss                                                                    |  |                              | (175,740   | ) |      |   | (1,577,325 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net loss attributable to the noncontrolling interest                        |  |                              | (2,427     | ) |      |   | (927       | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net loss attributable to Innovaro stockholders                              |  | $                            | (173,313   | ) |      | $ | (1,576,398 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net loss attributable to Innovaro stockholders per share: Basic and diluted |  | $                            | (0.01      | ) |      | $ | (0.13      | )
|                                                                            |  |                             
|Weighted average shares outstanding: Basic and diluted                      |  |                              | 15,022,761 |   |      |   | 11,797,140 |  

See accompanying notes



2



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Innovaro, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

(Restated)



|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|--------------------------------------------------------- |  | ----------------------------- | ---------- |  | ----------------- |  | ---------- | -------- |  | - | -------------- |  |  | -------------------------- | ---------- |  | ------------------ | - | -------- | -------------------------- |  | - | ------------------- | - |  | ------ | ------- |  |  | - | ------- | - |  | - | ---------- | -
|                                                          |  | Innovaro Stockholders Equity |            |  |                   |  |            |          | 
|                                                          |  | Common Stock                  |            |  |                   |  |            |          |  |   |                |  |  | Accumulated Other          |            |  | Non                |   |          |                            | 
|                                                          |  | SharesIssued                  |            |  | SharesOutstanding |  |            | ParValue |  |   | Paid-InCapital |  |  | ComprehensiveIncome
(Loss) |            |  | AccumulatedDeficit |   |          | ComprehensiveIncome
(Loss) |  |   | controllingInterest |   |  | Totals |        
|Balances at December 31, 2010                             |  |                               | 14,631,950 |  |                   |  | 14,585,261 |          |  | $ | 145,853        |  |  | $                          | 85,024,704 |  |                    |   |          |                            |  | $ | (71,829,344         | ) |  | $      | 147,922 |  |  | $ | 526,037 |   |  | $ | 14,015,172 |  
|Comprehensive loss:                                       |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |           |  
|Net loss                                                  |  |                               |           |  |                   |  |           |          |  |   |               |  |  |                            |           |  |                    | $ | (173,313 | )                          |  |   | (173,313            | ) |  |        |        |  |  |   | (2,427  | ) |  |   | (175,740   | )
|Other comprehensive income (loss):                        |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|Unrealized gain (loss) from available-for-sale securities |  |                               |           |  |                   |  |           |          |  |   |               |  |  |                            |           |  |                    |   | (49,496  | )                          |  |   |                    |   |  |        |        |  |  |   |        |   |  |   |           |  
|Foreign currency translation adjustments                  |  |                               |           |  |                   |  |           |          |  |   |               |  |  |                            |           |  |                    |   | 56,583   |                            |  |   |                    |   |  |        |        |  |  |   |        |   |  |   |           |  
|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|Other comprehensive income (loss)                         |  |                               |           |  |                   |  |           |          |  |   |               |  |  |                            |           |  |                    |   | 7,087    |                            |  |   |                    |   |  |        | 7,087   |  |  |   |        |   |  |   | 7,087      |  
|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|Comprehensive loss                                        |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    | $ | (166,226 | )                          |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|Issuance of restricted stock                              |  |                               | 125,000    |  |                   |  |           |          |  |   |               |  |  |                            |           |  |                    |   |          |                            |  |   |                    |   |  |        |        |  |  |   |        |   |  |   |           |  
|Stock-based compensation expense                          |  |                               |           |  |                   |  |           |          |  |   |               |  |  |                            | 82,578     |  |                    |   |          |                            |  |   |                    |   |  |        |        |  |  |   |        |   |  |   | 82,578     |  
|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  
|Balances at March 31, 2011                                |  |                               | 14,756,950 |  |                   |  | 14,585,261 |          |  | $ | 145,853        |  |  | $                          | 85,107,282 |  |                    |   |          |                            |  | $ | (72,002,657         | ) |  | $      | 155,009 |  |  | $ | 523,610 |   |  | $ | 13,929,097 |  
|                                                          |  |                               |            |  |                   |  |            |          |  |   |                |  |  |                            |            |  |                    |   |          |                            |  |   |                     |   |  |        |         |  |  |   |         |   |  |   |            |  

See accompanying notes



3



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Innovaro, Inc.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                                     |  |                              |          |   |      |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | ---------- | -
|                                                                                                                     |  | Three Months Ended March 31, |         
|                                                                                                                     |  | 2011                         |          |   | 2010 |  
|                                                                                                                     |  | (Restated)                   |          |   |      |  
|Operating Activities:                                                                                                |  |                              |          |   |      |   |            |  
|Net loss attributable to Innovaro stockholders                                                                       |  | $                            | (173,313 | ) |      | $ | (1,576,398 | )
|Adjustments to reconcile net loss attributable to Innovaro stockholders to net cash flows from operating
activities: |  |                              |          |   |      |   |            |  
|Net loss attributable to noncontrolling interest                                                                     |  |                              | (2,427   | ) |      |   | (927       | )
|Depreciation and amortization                                                                                        |  |                              | 341,088  |   |      |   | 400,495    |  
|Amortization of debt discount from investor warrants                                                                 |  |                              | 32,582   |   |      |   | 45,614     |  
|Loss on sale and impairment of available-for-sale securities                                                         |  |                              | 201      |   |      |   | 134,557    |  
|Loss (gain) on derivative liabilities                                                                                |  |                              | 72,066   |   |      |   | (54,309    | )
|Stock-based compensation                                                                                             |  |                              | 82,578   |   |      |   | 147,745    |  
|Deferred income taxes                                                                                                |  |                              | (7,998   | ) |      |   | (55,711    | )
|Other                                                                                                                |  |                              | 7,512    |   |      |   | 7,511      |  
|Changes in operating assets and liabilities:                                                                         |  |                              |          |   |      |   |            |  
|Accounts receivable                                                                                                  |  |                              | (45,140  | ) |      |   | 152,330    |  
|Prepaid expenses and other assets                                                                                    |  |                              | 97,584   |   |      |   | (34,824    | )
|Deferred revenue                                                                                                     |  |                              | 113,157  |   |      |   | (69,906    | )
|Accounts payable and accrued expenses                                                                                |  |                              | 174,551  |   |      |   | 61,652     |  
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Net cash flows from operating activities                                                                             |  |                              | 692,441  |   |      |   | (842,171   | )
|                                                                                                                     |  |                              |          |   |      |   |            |  
|                                                                                                                     |  |                             
|Investing Activities:                                                                                                |  |                              |          |   |      |   |            |  
|Capital expenditures                                                                                                 |  |                              | (22,758  | ) |      |   | (29,729    | )
|Proceeds from sale of available-for-sale securities                                                                  |  |                              |         |   |      |   | 35,074     |  
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Net cash flows from investing activities                                                                             |  |                              | (22,758  | ) |      |   | 5,345      |  
|                                                                                                                     |  |                              |          |   |      |   |            |  
|                                                                                                                     |  |                             
|Financing Activities:                                                                                                |  |                              |          |   |      |   |            |  
|Payments on long-term debt                                                                                           |  |                              | (291,637 | ) |      |   | (101,015   | )
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Net cash flows from financing activities                                                                             |  |                              | (291,637 | ) |      |   | (101,015   | )
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Effect of foreign exchange rates                                                                                     |  |                              | (5,411   | ) |      |   | (1,986     | )
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Increase (decrease) in cash and cash equivalents                                                                     |  |                              | 372,635  |   |      |   | (939,827   | )
|Cash and cash equivalents at beginning of period                                                                     |  |                              | 262,619  |   |      |   | 2,118,970  |  
|                                                                                                                     |  |                              |          |   |      |   |            |  
|Cash and cash equivalents at end of period                                                                           |  | $                            | 635,254  |   |      | $ | 1,179,143  |  
|                                                                                                                     |  |                              |          |   |      |   |            |  

See accompanying notes



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##### Table of Contents

Innovaro, Inc.

Consolidated Statements of Cash Flows (continued)

(Unaudited)



|                                                                                                                               |  |                              |         |   |      |   |         | 
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | ------- | 
|                                                                                                                               |  | Three Months Ended March 31, |        
|                                                                                                                               |  | 2011                         |         |   | 2010 |  
|Supplemental Disclosures of Non-Cash Investing and Financing Activities                                                        |  |                              |         |   |      |   |         | 
|                                                                                                                               |  |                             
|Unrealized gain (loss) from available-for-sale securities                                                                      |  | $                            | (49,496 | ) |      | $ | 79,831  | 
|                                                                                                                               |  |                              |         |   |      |   |         | 
|The Company transferred certain equity interests in a subsidiary to satisfy a severance obligation resulting in the
following: |  |                              |         |   |      |   |         | 
|Noncontrolling interest                                                                                                        |  |                              |         |   |      | $ | 532,132 | 
|Increase to additional paid-in capital                                                                                         |  |                              |         |   |      |   | 17,868  | 
|                                                                                                                               |  |                              |         |   |      |   |         | 
|                                                                                                                               |  |                              |         |   |      | $ | 550,000 | 
|                                                                                                                               |  |                              |         |   |      |   |         | 
|                                                                                                                               |  |                             
|Supplemental Disclosures of Cash Flow Information                                                                              |  |                              |         |   |      |   |         | 
|                                                                                                                               |  |                             
|Cash paid for taxes                                                                                                            |  | $                            |        |   |      | $ |        | 
|                                                                                                                               |  |                              |         |   |      |   |         | 
|Cash paid for interest                                                                                                         |  | $                            | 125,053 |   |      | $ | 84,690  | 
|                                                                                                                               |  |                              |         |   |      |   |         | 

See accompanying notes



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##### Table of Contents

INNOVARO, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Interim Financial Information

The financial information for Innovaro, Inc. (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.

Organization

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

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

The consolidated financial statements include the accounts of Innovaro and its wholly owned subsidiaries: Innovaro
Europe, Ltd. (formerly UTEK 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.

Accounts Receivable

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.



6



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##### Table of Contents

Reclassifications

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 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 |           
|                                                                                   |  | 2011                        |            |  | 2010 | 
|Weighted average outstanding shares of common stock (1)                            |  |                             | 15,022,761 |  |      |  | 11,797,140 | 
|Dilutive effect of stock options, warrants and unvested shares of restricted stock |  |                             |           |  |      |  |           | 
|                                                                                   |  |                             |            |  |      |  |            | 
|Common stock and common stock equivalents                                          |  |                             | 15,022,761 |  |      |  | 11,797,140 | 
|                                                                                   |  |                             |            |  |      |  |            | 
|Shares excluded from calculation of diluted EPS (2)                                |  |                             | 2,942,023  |  |      |  | 1,647,900  | 
|                                                                                   |  |                             |            |  |      |  |            | 



|(1) | Included in basic earnings per share are 437,500 fully vested common stock warrants at $0.01 per share.
|--- | -------------------------------------------------------------------------------------------------------

|(2) | 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 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.



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##### Table of Contents

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.



|2. | Restatement of Consolidated Financial Statements
|-- | ------------------------------------------------

The financial statements as of and for the three months ended March 31, 2011 have been restated to correct the accounting treatment previously recorded for certain warrants. The Company has determined
that it should not have recorded a derivative liability related to certain warrants as well as unrealized gain and loss for the changes in the value of the warrants. Upon further review of the warrant agreement, the Company determined that the
exercise price associated with the warrants was not subject to adjustment, and accordingly, removal of the variable feature embedded in the warrant exercise price eliminated the need to record a derivative liability.

The correction of the derivative liability and unrealized gain or loss included in other (income) and expense as illustrated below, includes an
out-of-period adjustment of approximately $518,000 related to the overstatement of the derivative liability and overstatement of other expense during 2010, which was not material to the 2010 consolidated financial statements. In addition, the
Company determined that the out-of-period adjustment related to 2010 was not material to the annual results for 2011.

The following schedule
illustrates the effects on the consolidated financial statements of the reversal of the derivative liability resulting from the above restatement:



|                                                                                |  |                       |             |   |                       |   |            |             |  |   |             |  
|------------------------------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                                |  | As PreviouslyReported |             |   | Adjustmentsto Restate |   |            | As Restated | 
|Consolidated Balance Sheet as of March 31, 2011:                                |  |                       |             |   |                       |   |            |             |  |   |             |  
|                                                                                |  |                       |            
|Derivative Liabilities                                                          |  | $                     | 2,934,013   |   |                       |   | (1,721,942 | )           |  | $ | 1,212,071   |  
|Total liabilities                                                               |  |                       | 12,450,776  |   |                       |   | (1,721,942 | )           |  |   | 10,728,834  |  
|                                                                                |  |                       |            
|Accumulated deficit                                                             |  |                       | (73,724,599 | ) |                       |   | 1,721,942  |             |  |   | (72,002,657 | )
|Total Innovaro stockholders equity                                             |  |                       | 11,683,545  |   |                       |   | 1,721,942  |             |  |   | 13,405,487  |  
|Total equity                                                                    |  |                       | 12,207,155  |   |                       |   | 1,721,942  |             |  |   | 13,929,097  |  
|                                                                                |  |                       |            
|Consolidated Statement of Operations
For the Three Months Ended March 31, 2011: |  |                       |             |   |                       |   |            |             |  |   |             |  
|                                                                                |  |                       |            
|Other (income) expense                                                          |  |                       | 1,728,645   |   |                       |   | (1,721,942 | )           |  |   | 6,703       |  
|Total other expenses - net                                                      |  |                       | 1,870,232   |   |                       |   | (1,721,942 | )           |  |   | 148,290     |  
|Net loss before income taxes                                                    |  |                       | (1,905,680  | ) |                       |   | 1,721,942  |             |  |   | (183,738    | )
|Net loss                                                                        |  |                       | (1,897,682  | ) |                       |   | 1,721,942  |             |  |   | (175,740    | )
|Net loss attributable to Innovaro stockholders                                  |  |                       | (1,895,255  | ) |                       |   | 1,721,942  |             |  |   | (173,313    | )
|Net loss attributable to Innovaro stockholders per share:                       |  |                       |             |   |                       |   |            |             |  |   |             |  
|Basic and diluted                                                               |  | $                     | (0.13       | ) |                       | $ | (0.12      | )           |  | $ | (0.01       | )

3. Accounts Receivable

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



|                                      |  |               |           |   |                  |   |           |  
|------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                      |  | March 31,2011 |           |   | December 31,2010 |  
|Trade accounts receivable             |  | $             | 1,298,807 |   |                  | $ | 1,408,047 |  
|Less: allowance for doubtful accounts |  |               | (12,403   | ) |                  |   | (14,926   | )
|Unbilled receivables                  |  |               | 99,001    |   |                  |   |          |  
|Unbilled client costs                 |  |               | 337,375   |   |                  |   | 403,333   |  
|                                      |  |               |           |   |                  |   |           |  
|Total accounts receivable             |  | $             | 1,722,780 |   |                  | $ | 1,796,454 |  
|                                      |  |               |           |   |                  |   |           |  

4. Contracts in Process

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



|                                                             |  |               |           |  |                  |   |           | 
|------------------------------------------------------------ |  | ------------- | --------- |  | ---------------- | - | --------- | 
|                                                             |  | March 31,2011 |           |  | December 31,2010 |  
|Contract costs and estimated profits on contracts in process |  | $             | 2,391,145 |  |                  | $ | 3,712,143 | 
|Less advances and progress payments                          |  |               | 2,056,122 |  |                  |   | 3,497,409 | 
|                                                             |  |               |           |  |                  |   |           | 
|Total contracts in process                                   |  | $             | 335,023   |  |                  | $ | 214,734   | 
|                                                             |  |               |           |  |                  |   |           | 

5. Available-for-Sale Securities

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.



|                        |  |      | $00,0000 |  |                |   | $00,0000 |          |  |   | $00,0000 |   |  |            | $00,0000 |   |  |   | $00,0000 | 
|----------------------- |  | ---- | -------- |  | -------------- | - | -------- | -------- |  | - | -------- | - |  | ---------- | -------- | - |  | - | -------- | 
|                        |  |      |          |  | Unrealized (1) |   |          | Realized |  |   |          |  
|                        |  | Cost |          |  | Gains          |   |          | Losses   |  |   | Losses   |   |  | Fair Value |         
|As of March 31, 2011    |  | $    | 42,100   |  |                | $ | 79,544   |          |  | $ |         |   |  | $          | (201     | ) |  | $ | 121,443  | 
|                        |  |      |          |  |                |   |          |          |  |   |          |   |  |            |          |   |  |   |          | 
|As of December 31, 2010 |  | $    | 225,400  |  |                | $ | 129,132  |          |  | $ | (93      | ) |  | $          | (183,300 | ) |  | $ | 171,139  | 
|                        |  |      |          |  |                |   |          |          |  |   |          |   |  |            |          |   |  |   |          | 



|(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.



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##### Table of Contents

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 MonthsEndedMarch 
31, 2011 |        
|Unrealized holding gain (loss) arising during the period                   |  | $                                | (49,588 | )
|Add back: reclassification adjustment for net gains included in net income |  |                                  | 92      |  
|                                                                           |  |                                  |         |  
|Unrealized gain (loss) from available-for-sale securities, net             |  | $                                | (49,496 | )
|                                                                           |  |                                  |         |  

6. 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 March 31, 2011 and December 31, 2010 are as follows:



|                              |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|----------------------------- |  | ---------------------------------------------- | ---------- | - | ------------------------------------------------- | - | ---------- | ------- |  | - | ---------- | - |  | - | ---------- | -
|                              |  | Fair Value Measurements
atMarch 31, 2011 Using |            |   | Fair Value Measurements
atDecember 31, 2010 Using |  
|                              |  | Level 2(Restated)                              |            |   | Total(Restated)                                   |   |            | Level 2 |  |   | Total      |  
|Assets:                       |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|Available-for-sale securities |  | $                                              | 121,443    |   |                                                   | $ | 121,443    |         |  | $ | 171,139    |   |  | $ | 171,139    |  
|                              |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|Total assets                  |  | $                                              | 121,443    |   |                                                   | $ | 121,443    |         |  | $ | 171,139    |   |  | $ | 171,139    |  
|                              |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|                              |  |                                                |            |  
|Liabilities:                  |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|Derivative liabilities        |  | $                                              | (1,212,071 | ) |                                                   | $ | (1,212,071 | )       |  | $ | (1,140,005 | ) |  | $ | (1,140,005 | )
|                              |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  
|Total liabilities             |  | $                                              | (1,212,071 | ) |                                                   | $ | (1,212,071 | )       |  | $ | (1,140,005 | ) |  | $ | (1,140,005 | )
|                              |  |                                                |            |   |                                                   |   |            |         |  |   |            |   |  |   |            |  

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 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 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.



9



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7. Derivative Liabilities

In accordance with FASB ASC Topic 815 Derivatives and Hedging, the Company has recorded a derivative liability 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 this derivative of approximately $(72,000) 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:



|                         |  |               |           |   |                  |   |                 |  
|------------------------ |  | ------------- | --------- | - | ---------------- | - | --------------- | -
|                         |  | March 31,2011 |           |   | December 31,2010 |  
|                         |  | (Restated)    |           |   |                  |  
|Expected dividend yield  |  |               | 0         | % |                  |   | 0               | %
|Expected volatility      |  |               | 52        | % |                  |   | 53-54           | %
|Risk-free interest rate  |  |               | 1.29      | % |                  |   | 2.01            | %
|Expected life of options |  |               | 3.5 years |   |                  |   | 3.8 - 5.0 years |  
|Fair value               |  | $             | 2.77      |   |                  | $ | 0.35 - $ 1.42   |  

8. Accumulated Other Comprehensive Income (Loss)

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



|                             |  |                                                       |         |   |                                      |   |        |                                            |  |   |         | 
|---------------------------- |  | ----------------------------------------------------- | ------- | - | ------------------------------------ | - | ------ | ------------------------------------------ |  | - | ------- | 
|                             |  | Unrealizedgain (loss)fromavailable-for-salesecurities |         |   | Foreigncurrencytranslationadjustment |   |        | Accumulatedothercomprehensiveincome (loss) | 
|Balance at December 31, 2010 |  | $                                                     | 129,040 |   |                                      | $ | 18,882 |                                            |  | $ | 147,922 | 
|Gain (loss) for the period   |  |                                                       | (49,496 | ) |                                      |   | 56,583 |                                            |  |   | 7,087   | 
|                             |  |                                                       |         |   |                                      |   |        |                                            |  |   |         | 
|Balance at March 31, 2011    |  | $                                                     | 79,544  |   |                                      | $ | 75,465 |                                            |  | $ | 155,009 | 
|                             |  |                                                       |         |   |                                      |   |        |                                            |  |   |         | 

9. Other (Income) Expense

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



|                                           |  |                    |         |   |              |   |         |  
|------------------------------------------ |  | ------------------ | ------- | - | ------------ | - | ------- | -
|                                           |  | Three Months Ended |        
|                                           |  | Mar 31, 2011       |         |   | Mar 31, 2010 |  
|                                           |  | (Restated)         |         |   |              |  
|Loss on sale and impairment of investments |  | $                  | 201     |   |              | $ | 134,557 |  
|Loss (gain) on derivative liabilities      |  |                    | 72,066  |   |              |   | (54,309 | )
|Rental income                              |  |                    | (70,686 | ) |              |   | (61,351 | )
|Other                                      |  |                    | 5,122   |   |              |   | (20,971 | )
|                                           |  |                    |         |   |              |   |         |  
|Other (income) expense                     |  | $                  | 6,703   |   |              | $ | (2,074  | )
|                                           |  |                    |         |   |              |   |         |  



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##### Table of Contents

10. 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.

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



|                                    |  |               |           |  |              |   |            |       |  |   |            | 
|----------------------------------- |  | ------------- | --------- |  | ------------ | - | ---------- | ----- |  | - | ---------- | 
|                                    |  | UnitedKingdom |           |  | UnitedStates |   |            | Total | 
|Long-lived assets March 31, 2011    |  | $             | 1,743,743 |  |              | $ | 17,306,797 |       |  | $ | 19,050,540 | 
|Total assets March 31, 2011         |  |               | 1,871,784 |  |              |   | 22,786,147 |       |  |   | 24,657,931 | 
|Long-lived assets December 31, 2010 |  |               | 1,711,729 |  |              |   | 17,607,270 |       |  |   | 19,318,999 | 
|Total assets December 31, 2010      |  |               | 1,796,827 |  |              |   | 22,857,593 |       |  |   | 24,654,420 | 



|                              |  |                                                       |         |   |              |   |           |       |  |   |           |  
|----------------------------- |  | ----------------------------------------------------- | ------- | - | ------------ | - | --------- | ----- |  | - | --------- | -
|                              |  | For the Three Months Ended March 31, 2011 
(Restated) |        
|                              |  | UnitedKingdom                                         |         |   | UnitedStates |   |           | Total | 
|Revenue                       |  | $                                                     | 132,009 |   |              | $ | 3,470,720 |       |  | $ | 3,602,729 |  
|Loss before income taxes      |  |                                                       | (51,356 | ) |              |   | (132,382  | )     |  |   | (183,678  | )
|Depreciation and amortization |  |                                                       | 28,872  |   |              |   | 312,216   |       |  |   | 341,088   |  



|                              |  |                                           |          |   |              |   |            |       |  |   |            |  
|----------------------------- |  | ----------------------------------------- | -------- | - | ------------ | - | ---------- | ----- |  | - | ---------- | -
|                              |  | For the Three Months Ended March 31, 2010 |         
|                              |  | UnitedKingdom                             |          |   | UnitedStates |   |            | Total | 
|Revenue                       |  | $                                         | 239,874  |   |              | $ | 2,030,557  |       |  | $ | 2,270,431  |  
|Loss before income taxes      |  |                                           | (232,304 | ) |              |   | (1,400,732 | )     |  |   | (1,633,036 | )
|Depreciation and amortization |  |                                           | 107,590  |   |              |   | 292,905    |       |  |   | 400,495    |  

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 (Restated) |          
|                                  |  | StrategicServices                                    |           |  | TechnologyServices |   |         | Administrativeand Other |  |   | Total      |  
|Revenue                           |  | $                                                    | 3,027,861 |  |                    | $ | 574,868 |                         |  | $ |           |   |  | $ | 3,602,729 |  
|Income (loss) before income taxes |  |                                                      | 1,202,674 |  |                    |   | (3,022  | )                       |  |   | (1,383,390 | ) |  |   | (183,738  | )



|                                  |  |                                           |           |  |                    |   |         |                         |  |   |            |   |  |   |            |  
|--------------------------------- |  | ----------------------------------------- | --------- |  | ------------------ | - | ------- | ----------------------- |  | - | ---------- | - |  | - | ---------- | -
|                                  |  | For the Three Months Ended March 31, 2010 |          
|                                  |  | StrategicServices                         |           |  | TechnologyServices |   |         | Administrativeand Other |  |   | Total      |  
|Revenue                           |  | $                                         | 1,430,042 |  |                    | $ | 840,389 |                         |  | $ |           |   |  | $ | 2,270,431  |  
|Income (loss) before income taxes |  |                                           | 294,995   |  |                    |   | (63,812 | )                       |  |   | (1,864,219 | ) |  |   | (1,633,036 | )



11



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##### Table of Contents

11. 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. Mr. 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. Mr. 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.
Mr. 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.



12



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##### Table of Contents

|ITEM 2. | Managements 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 Form 10-Q/A. This Form 10-Q/A 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.

Business Overview

We 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 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.

We have two business segments: Strategic Services and Technology Services.

Our clients require
strategies to help them embrace improved innovation capabilities. We apply innovation insights; build those strategies with supporting infrastructure, processes and mechanisms; and create a culture primed for repeatable innovation success. We 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 concepts.

We provide strategic services to enable our clients to become more efficient by finding new avenues to grow, fighting commoditization,
improving return on investment, transforming the organization, and removing barriers to innovation. Business value is delivered to clients through working with a team of seasoned and experienced professionals capable of unlocking an
organizations capacity by:



| |  |  | Identifying and developing new segments and markets;
| | - |  | ----------------------------------------------------



| |  |  | Creating and acting on game-changing strategies;
| | - |  | ------------------------------------------------



| |  |  | Building an enterprise-wide capability for innovation;
| | - |  | ------------------------------------------------------



| |  |  | Accelerating and improving new product development processes; and
| | - |  | -----------------------------------------------------------------



| |  |  | Assessing a companys innovation capability.
| | - |  | --------------------------------------------

Our technology services segment offers expansive networks, experts in scouting, partner sourcing and licensing expertise, and world leading online marketplaces. We also provide an important foundation to
successful licensingunderstanding the true potential value of our clients intellectual property IP and IP portfolio. We access that value and build a roadmap for our clients use, and uncover opportunities and options to
realize any latent value.

We have an online information service, purpose-built for those who need it most-technology transfer, business
development, intellectual property, competitive intelligence, and marketing professionals across the physical and life sciences.

We also
provide the insight and intelligence our clients require, applied to their markets today and into the future. From current market research to predictive intelligence, we help our clients find insights at the intersections affecting their business.
Our research identifies and explains key consumer trendsincluding emerging trends not covered by other sourcesand delivers insights about how these trends will shape the future operating environment.

These services include:



| |  |  | Futures scenario development and planning
| | - |  | -----------------------------------------



| |  |  | Custom and syndicated research
| | - |  | ------------------------------



| |  |  | Online information services
| | - |  | ---------------------------



| |  |  | IP consulting
| | - |  | -------------



| |  |  | IP and market landscape analysis
| | - |  | --------------------------------



| |  |  | Technology search
| | - |  | -----------------



| |  |  | In- and out-licensing
| | - |  | ---------------------



| |  |  | Online marketplaces
| | - |  | -------------------



| |  |  | Partner search and profiling
| | - |  | ----------------------------



13



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##### Table of Contents

Innovaro LaunchPad

We are continuing the development of our innovation management software platform, Innovaro LaunchPad, which is designed to enhance and complement our innovation service offerings to clients. We have
completed an external review by user clients of version one of the software, which is evolving based on their feedback, and are moving toward the launch of Innovaro LaunchPad in the marketplace.

Recent Developments

On April 18,
2011, our Board of the Directors increased its size from four to five directors and, upon the recommendation of the Nominating and Corporate Governance Committee, elected Asa Lanum as a new director of the Company. In addition,
our Board of Directors appointed Mr. Lanum, who has served as our interim Chief Executive Officer since August 2010, as our permanent Chief Executive Officer.

Financial Condition

Our total assets were $24.7 million as of March 31, 2011 and
December 31, 2010. As of March 31, 2011, we had $635,000 in cash and cash equivalents, $2.1 million in accounts receivable and contracts in process, $1.7 million in accounts payable and accrued expenses and $5.5 million in total debt
outstanding. As of December 31, 2010, we had $263,000 in cash and cash equivalents, $2.0 million in accounts receivable and contracts in process, $1.5 million in accounts payable and accrued expenses and $5.8 million in total debt outstanding.
As of March 31, 2011, we had working capital of $536,000 and positive cash flows from operating activities of $692,000.

Current
Market Conditions

Although the global economic environment has improved somewhat over the last several months, our financial results for
the first quarter of 2011 continued to be negatively impacted by the weakened state of the global economy. To the extent that the global economic recovery stalls or worsens, our financial condition and operating results could be materially
adversely affected.

Results of Operations

Revenue



|                                   |  |                             | $000,0000 |  |                  |   | $000,0000 |  |  |  | $000,0000 |   
|---------------------------------- |  | --------------------------- | --------- |  | ---------------- | - | --------- |  |  |  | --------- | --
|                                   |  | Three MonthsEndedMarch 
31, |           |  | PercentageChange |  
|(in thousands, except percentages) |  | 2011                        |           |  | 2010             |   |          
|Strategic services                 |  | $                           | 3,028     |  |                  | $ | 1,430     |  |  |  | 112       | % 
|Technology services                |  |                             | 575       |  |                  |   | 840       |  |  |  | (32       | )%
|                                   |  |                             |           |  |                  |   |           |  |  |  |           |   
|Total revenue                      |  | $                           | 3,603     |  |                  | $ | 2,270     |  |  |  | 59        | % 
|                                   |  |                             |           |  |                  |   |           |  |  |  |           |   

Strategic Services

Our strategic services revenue is derived from consulting services we provide to our clients. Our strategic services revenue increased by $1.6 million for the three months ended March 31, 2011 in
comparison to the three months ended March 31, 2010. This increase is the result of the Company having a significant number of new contracts with a higher average value in the first quarter of 2011 than we had in the first quarter of 2010.
We attribute the increased contract level in 2011 to a renewed interest in innovation efficiency and new product development in the U.S. and abroad.

Our strategic services revenue in recent years has largely been dependent on the efforts of certain key consulting professionals whose employment contracts with us expired in April 2011. We were able to
retain the majority of these consulting professionals under new employment contracts or consulting contracts in order to maintain the level of strategic services revenue we have generated in recent years.

We expect that our strategic services revenue will continue to increase over 2010 levels for the remainder of 2011.

Technology Services

Our technology
services revenue is derived from a combination of global technology partnering search retainer fees, online subscription fees, online information services revenue, foresight and trend research revenue and IP consulting revenue. Our technology
services revenue decreased by $265,000 for the three months ended March 31, 2011 in comparison to the three months ended March 31, 2010. The decreased revenue is primarily a result of a reduction of $39,000 in monthly fees for our
global technology partnering services, a reduction of $90,000 in online marketplace fees and a reduction in foresight and trend research revenue of $128,000. The decreased revenue results from a reduction in the number of personnel selling and
fulfilling projects, which has had a direct impact on new sales for this business. Consequently, we have not been able to replace prior year contracts with new contracts as they come up for renewal.



14



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##### Table of Contents

We expect that our technology services revenue will remain consistent with the first quarter of 2011 for the
remainder of 2011.

Direct Costs of Revenue



|                                            |  |                               |       |  |                   |  |    |                               |  |   |                   |  |  |  |  |  |    |  
|------------------------------------------- |  | ----------------------------- | ----- |  | ----------------- |  | -- | ----------------------------- |  | - | ----------------- |  |  |  |  |  | -- | -
|(in thousands, except percentages)          |  | ThreeMonthsEndedMarch 31,2011 |       |  | GrossProfitMargin |  |    | ThreeMonthsEndedMarch 31,2010 |  |   | GrossProfitMargin | 
|Direct costs of revenuestrategic services  |  | $                             | 1,682 |  |                   |  | 44 | %                             |  | $ | 1,004             |  |  |  |  |  | 30 | %
|Direct costs of revenuetechnology services |  |                               | 333   |  |                   |  | 42 | %                             |  |   | 444               |  |  |  |  |  | 47 | %
|                                            |  |                               |       |  |                   |  |    |                               |  |   |                   |  |  |  |  |  |    |  
|Total direct costs of revenue               |  | $                             | 2,015 |  |                   |  |    |                               |  | $ | 1,448             |  |  |  |  |  |    |  
|                                            |  |                               |       |  |                   |  |    |                               |  |   |                   |  |  |  |  |  |    |  

Direct costs of strategic services revenue are comprised of salaries and related taxes, bonuses, certain outside services
and other business development costs related to our strategic services business. The most significant portion of direct costs of strategic services revenue is comprised of consulting personnel compensation, which includes bonuses. Direct costs
of strategic services revenue increased by $678,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The increase is related to an increase in outside consultants needed to complete the
higher number of jobs in process during the first quarter of 2011. We expect that our direct costs of strategic services revenue will increase over the first quarter of 2011 for the remainder of 2011 as a result of bonuses being earned by
consulting professionals.

The gross profit margin for the strategic services business increased to 44% for the three months ended
March 31, 2011 as compared to 30% for the three months ended March 31, 2010. The increase is related to improved utilization of our strategic services employees during the first quarter of 2011.

Direct costs of technology services revenue are comprised of certain salaries and related taxes, commissions, certain outside services and other direct
costs related to technology services. Direct costs of technology services revenue decreased by $111,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The majority of the decrease
relates to a reduction in sales and project management personnel. We expect that our direct costs of technology services revenue will remain consistent with the first quarter of 2011 for the remainder of 2011.

The gross profit margin for the technology services business decreased to 42% for the three months ended March 31, 2011 as compared to 47% for the
three months ended March 31, 2010. The decrease is related to the aforementioned reduction in sales personnel having had a negative impact on new sales for this business.

Salaries and Wages



|                                   |  |                              |     |   |                  |   |     |   |  |  |     |     
|---------------------------------- |  | ---------------------------- | --- | - | ---------------- | - | --- | - |  |  | --- | ----
|                                   |  | Three Months Ended March 31, |     |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |     |   | 2010             |   |    
|Salaries and wages                 |  | $                            | 325 |   |                  | $ | 680 |   |  |  | (52 | )%  
|As a percent of revenue            |  |                              | 9   | % |                  |   | 30  | % |  |  | (21 | )ppt



|* | The abbreviation ppt denotes percentage points.
|- | -------------------------------------------------

Salaries and wages include non-sales employee and officer salaries and related benefits, including bonuses and stock-based compensation, that are not otherwise allocated to direct costs of
revenue,. Salaries and wages decreased by $355,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. $78,000 of the decrease related to the resignation of our former CEO in August 2010,
$213,000 related to reduction in administrative staff, and $65,000 related to reduced stock compensation expense as a result of a change in estimate in conjunction with the valuation of our stock option issuances.

We expect that our salaries and wages will increase over the first quarter of 2011 for the remainder of 2011 as a result of the permanent hire of our
interim CEO in April 2011.



15



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##### Table of Contents

Professional Fees



|                                   |  |                              |    |   |                  |   |     |   |  |  |     |     
|---------------------------------- |  | ---------------------------- | -- | - | ---------------- | - | --- | - |  |  | --- | ----
|                                   |  | Three Months Ended March 31, |    |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |    |   | 2010             |   |    
|Professional fees                  |  | $                            | 88 |   |                  | $ | 201 |   |  |  | (56 | )%  
|As a percent of revenue            |  |                              | 2  | % |                  |   | 9   | % |  |  | (7  | )ppt

Professional fees include accounting fees, legal fees and valuation expenses for our investments. Professional fees
decreased by $113,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. Valuation expenses were reduced by $27,000 because our investments no longer require valuations on a quarterly basis.
Accounting fees were reduced by $22,000 as a result of our having become a smaller reporting company during 2010. As a smaller reporting company, we have fewer reporting requirements than that of an accelerated filer. Legal fees were reduced by
$63,000 because of costs incurred in the first quarter of 2010 related to the preparation of our restricted stock plan and the settlement of a severance liability related to our former CEO that were not repeated or replaced in the first quarter of
2011.

We expect that our professional fees will remain consistent with the first quarter of 2011 for the remainder of 2011.

Research and Development



|                                   |  |                              |     |   |                  |   |     |   |  |  |    |     
|---------------------------------- |  | ---------------------------- | --- | - | ---------------- | - | --- | - |  |  | -- | ----
|                                   |  | Three Months Ended March 31, |     |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |     |   | 2010             |   |    
|Research and development           |  | $                            | 304 |   |                  | $ | 199 |   |  |  | 52 | %   
|As a percent of revenue            |  |                              | 8   | % |                  |   | 9   | % |  |  | (1 | )ppt

Research and development costs include salaries, outside services, travel and other costs related to the development of
our innovation management software platform, which is designed to enhance and complement our innovation services offerings to clients. Research and development costs increased by $105,000 for the three months ended March 31, 2011 compared to
the three months ended March 31, 2010. The increase relates to the fact that the software development did not start until mid-first quarter 2010 and we currently have more contractors involved with the development.

We expect that our research and development costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

Sales and Marketing



|                                   |  |                              |    |   |                  |   |     |   |  |  |     |     
|---------------------------------- |  | ---------------------------- | -- | - | ---------------- | - | --- | - |  |  | --- | ----
|                                   |  | Three Months Ended March 31, |    |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |    |   | 2010             |   |    
|Sales and marketing                |  | $                            | 61 |   |                  | $ | 246 |   |  |  | (75 | )%  
|As a percent of revenue            |  |                              | 2  | % |                  |   | 11  | % |  |  | (9  | )ppt

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 by $185,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The decrease relates primarily to a
decrease in marketing costs undertaken in the first quarter of 2010, including $46,000 in rebranding costs and $75,000 for partnering with external search partners, that were not repeated in 2011. We also participated in and sponsored conferences
during the first quarter of 2010 that we did not participate in or sponsor during the first quarter of 2011.

We expect that our sales and
marketing costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

General and Administrative



|                                   |  |                              |     |   |                  |   |     |   |  |  |     |     
|---------------------------------- |  | ---------------------------- | --- | - | ---------------- | - | --- | - |  |  | --- | ----
|                                   |  | Three Months Ended March 31, |     |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |     |   | 2010             |   |    
|General and administrative         |  | $                            | 505 |   |                  | $ | 595 |   |  |  | (15 | )%  
|As a percent of revenue            |  |                              | 14  | % |                  |   | 26  | % |  |  | (12 | )ppt



16



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##### Table of Contents

General and administrative expenses decreased by $90,000 for the three months ended March 31, 2011
compared to the three months ended March 31, 2010. The decrease relates to an $80,000 reduction in insurance and other employee related costs due to having fewer employees; a $12,000 reduction in investor relations related fees as a result
of reducing all outside investor relations programs; and a continued overall company plan to reduce all aspects of overhead.

We expect that
our general and administrative costs will remain consistent with the first quarter of 2011 for the remainder of 2011.

Depreciation and
Amortization



|                                   |  |                              |     |   |                  |   |     |   |  |  |     |     
|---------------------------------- |  | ---------------------------- | --- | - | ---------------- | - | --- | - |  |  | --- | ----
|                                   |  | Three Months Ended March 31, |     |   | PercentageChange |  
|(in thousands, except percentages) |  | 2011                         |     |   | 2010             |   |    
|Depreciation and amortization      |  | $                            | 341 |   |                  | $ | 400 |   |  |  | (15 | )%  
|As a percent of revenue            |  |                              | 9   | % |                  |   | 18  | % |  |  | (9  | )ppt

Depreciation and amortization decreased by $59,000 for the three months ended March 31, 2011 compared to the three
months ended March 31, 2010. Amortization expense decreased by $50,000 as a result of the impairment charges related to our intangible assets that were incurred in 2010. Depreciation expense decreased by $9,000 as a result of the
impairment charges related to our fixed assets that were incurred in 2010.

We expect that our depreciation and amortization will remain
consistent with the first quarter of 2011 for the remainder of 2011.

Other (Income) Expense

Other (income) expense includes rental income, gains and losses related to adjusting our derivative liabilities to fair value, capital gains and losses
and other miscellaneous income (losses). Other (income) expense increased by $9,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The net other expense of $6,700 for the three months
ended March 31, 2011 is comprised primarily of a loss of $72,000 related to adjusting our derivative liabilities to fair value plus other miscellaneous losses of $5,300, partially offset by rental income of $71,000. For additional detail
on our derivative liabilities, see Note 6 to the Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q/A.

The net other income of $2,074 for the three months ended March 31, 2010 is comprised of a gain of $54,000 related to adjusting our derivative liabilities to fair value; rental income of $61,000; and
miscellaneous income of $21,000; partially offset by capital losses of $135,000.

Interest Expense, Net

Interest expense, net increased by $6,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The
net interest expense of $142,000 for the three months ended March 31, 2011 is primarily comprised of interest expense on long-term debt of $109,000 and amortization of our debt discount of $33,000.

The net interest expense of $135,000 for the three months ended March 31, 2010 is primarily comprised of interest expense on long-term debt of
$119,000 and amortization of our debt discount of $46,000, partially offset by interest income on our note receivable of $29,000.

Liquidity and Capital Resources

Cash Flows

Cash flows from
operating activities of $692,000 for the three months ended March 31, 2011 increased $1,535,000 from $(842,000) for the three months ended March 31, 2010. Total cash flows from operations of $692,000 in the current period is primarily
attributable to:



| |  |  | $72,000 loss on derivative liabilities;
| | - |  | ---------------------------------------



| |  |  | $374,000 in non-cash depreciation and amortization;
| | - |  | ---------------------------------------------------



| |  |  | $83,000 in non-cash stock-based compensation expense related to vesting options; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | $289,000 increase in accounts payable and deferred revenue.
| | - |  | -----------------------------------------------------------



17



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##### Table of Contents

Partially offset by:



| |  |  | $176,000 net loss.
| | - |  | ------------------

Cash
flows from investing activities of $(23,000) for the three months ended March 31, 2011 decreased $28,000 from $5,000 for the three months ended March 31, 2010. There were no significant investing transactions during the period.

Cash flows from financing activities of $(292,000) for the three months ended March 31, 2011 decreased $191,000 from $(101,000) for the three months
ended March 31, 2010. Total cash flows from financing of $(292,000) is related to principal payments on long-term debt.

Research
and Development Expenditures

We are developing an innovation management software platform designed to enhance and complement our
innovation services deliverable to clients. As of March 31, 2011, we have invested $1.5 million in this software platform. The Company anticipates a working model of the software platform in the latter part of the second quarter of
2011 and expects to incur approximately $300,000 in additional research and development expenses during the second quarter of 2011.

Liquidity

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 March 31, 2011, we had cash and cash equivalents of $635,000, accounts receivable and contracts in process of $2.1 million and working capital of $536,000.

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 expect that our recent reductions in costs, coupled with the expected revenue for the remainder of 2011, will be sufficient to fund our
scheduled debt service and fund our working capital for the next twelve months. Should we face a restricted cash flow scenario during 2011, we have the capability to delay all cash intensive activities, including our research and development
expenditures, and will look to reduce costs further.

Critical Accounting Estimates

The 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 managements 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, 2010. There have been no material changes to our critical accounting estimates during the three months ended March 31, 2011.



|ITEM 3. | Quantitative and Qualitative Disclosures about Market Risks
|------- | -----------------------------------------------------------

Not applicable.



|ITEM 4. | Controls and Procedures
|------- | -----------------------

Disclosure
Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q/A, our chief executive officer and chief
financial officer conducted an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures, (as is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed or submitted under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and such that information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.



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Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule13a-15(f) of the Securities Exchange Act of 1934) that occurred during the most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

Although we may from
time to time be involved in litigation and claims arising out of our operations in the normal course of our business, as of March 31, 2011, we were not a party to any material pending legal proceedings.



|ITEM 1A. | Risk Factors
|-------- | ------------

There have been no material
changes to the risk factors previously disclosed in the Companys Annual Report of Form 10-K for the year ended December 31, 2010.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|ITEM 3. | Defaults upon Senior Securities
|------- | -------------------------------

None.



|ITEM 4. | Reserved
|------- | --------



|ITEM 5. | Other Information
|------- | -----------------

None.



|ITEM 6. | Exhibits
|------- | --------

The following exhibits are
filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the securities Exchange Act of 1934:



|     |  |   |  |                                                                                                                                                                                                                
|---- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  |  |  | Employment Offer Letter for Chief Executive Officer position between Innovaro, Inc. and Asa Lanum dated April 18, 2011. (Incorporated by reference to Exhibit 10.1 to the
Companys 10Q filed on May 10, 2011).
|     |  |  
|31.1 |  |  |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                                                                
|     |  |  
|31.2 |  |  |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                                                                
|     |  |  
|32.1 |  |  |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                
|     |  |  
|32.2 |  |  |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                     |  |  |  |                                              
|-------------------- |  |  |  | ---------------------------------------------
|                     |  |  |  | INNOVARO, INC.
(Registrant)                  
|                     |  | 
|Date: April 11, 2012 |  |  |  | /s/ Asa Lanum                                
|                     |  |  |  | Asa Lanum Chief Executive
Officer            
|                     |  | 
|Date: April 11, 2012 |  |  |  | /s/ Carole R. Wright                         
|                     |  |  |  | Carole R. Wright, CPA Chief
Financial Officer