Innovaro, Inc.

What they do

The company delivers innovation solutions through innovation management software (LaunchPad Imagine, Design and Listen) combined with social media mining and trends and foresight research services. It currently reports one business segment, Intelligence and Insights Services, and states it envisions a future second segment, Innovation Software and Services. During 2012 it divested its Strategic Services division and large portions of its Intelligence and Insights services, including the Pharmalicensing, Global Licensing, Pharma Transfer and Knowledge Express operating divisions.

Revenue drivers

• Intelligence and Insights Services — The company's only reported segment, providing market research, predictive intelligence and trends/foresight work for clients. This is the sole revenue source reflected in the continuing operations figures.
• LaunchPad software platform — LaunchPad Imagine was introduced in 2011, Listen in 2012, with Design also released; the company says it is incurring continued refinement costs and is designing LaunchPad Accelerate. It is described as intended to complement innovation services, with no separate revenue disclosed.
• Discontinued operations — The 2012 divestitures of Strategic Services and most Intelligence and Insights operations are classified as discontinued operations in the filings, meaning they are excluded from continuing results shown above.

Recent performance

Annual revenue fell from $13.1 million in 2010 to $435,425 in 2011 and $530,834 in 2012. Net losses were $19.1 million in 2010, $4.6 million in 2011 and $10.0 million in 2012, with diluted EPS of -$1.44, -$0.33 and -$0.65 respectively. Operating cash flow improved from -$4.9 million in 2010 to -$2.8 million in 2011 and -$1.7 million in 2012. Recent quarterly revenue was $113,502 (Q4 2012), $151,308 (Q1 2013), $94,461 (Q2 2013) and $168,420 (Q3 2013). At September 30, 2013, total assets were $6.5 million, total liabilities $7.0 million, shareholder equity was negative $728,066, and cash was $16,919.

Strategy

Management states it is focusing investments on sales and marketing to grow its software and innovation solutions businesses and believes the 2012 divestitures strengthen the balance sheet and provide financial wherewithal to extend software capabilities. The company is continuing to refine LaunchPad Imagine, Design and Listen and is proceeding with design of LaunchPad Accelerate. It says it envisions evolving into a second segment, Innovation Software and Services, built around the LaunchPad platform. However, it also reports that because of limited resources, management has not developed a plan to mitigate the identified material weaknesses in internal control.

Risks

• Severe revenue decline — Continuing-operations revenue was only $530,834 in 2012, down from $13.1 million in 2010, with quarterly revenue between roughly $94,000 and $168,000 during 2013.
• Going-concern liquidity — At September 30, 2013 the company had $16,919 of cash, total liabilities of $7.0 million exceeding total assets of $6.5 million, negative shareholder equity of $728,066, and $2.0 million of long-term debt.
• Material weakness in internal control — Management concluded disclosure controls and internal control over financial reporting were not effective as of December 31, 2012 due to inadequate segregation of duties, and states it has not developed a plan to mitigate these weaknesses because of limited resources.
• Listing and accounting events — The company received delisting notices in December 2012 and March 2013 and changed accountants in January 2013, while its common stock trades on the OTCQB under INNI.

Outlook

Management says it expects the 2012 divestitures to strengthen the balance sheet and help provide financial wherewithal to extend software capabilities and deliver additional solutions. It states its goal is growth of the software and innovation solutions businesses and continued development of LaunchPad components, including Accelerate. The filings note that the company has not developed a plan to remediate its material weaknesses due to limited resources, and no financial forecasts or guidance are provided.