Total revenue decreased to $3.4 million for the three months ended September 30, 2011 from $4.2 million for the three months ended September 30, 2010.

Total operating expenses decreased to $4.5 million for the three months ended September 30, 2011 from $17.2 million for the three months ended September 30, 2010.

Net loss for the three months ended September 30, 2011 was ($624,000) and included the following non-cash (income) and expense items: ($513,000) gain on derivative liabilities; $330,000 in non-cash depreciation and amortization; and $140,000 in non-cash stock-based compensation expense related to vesting options. Net loss for the three months ended September 30, 2010 was ($13.2 million), and included the following non-cash (income) expense items: ($776,000) gain on derivative liabilities; $544,000 in non-cash depreciation and amortization; $92,000 in non-cash stock-based compensation expense related to vesting options; and non-cash impairment charges of $11.6 million.

Total revenue increased to $12.2 million for the nine months ended September 30, 2011 from $9.3 million for the nine months ended September 30, 2010.

Strategic Services revenue for the nine months ended September 30, 2011 increased by 57% over the nine months of 2010.

Technology Services revenue for the nine months ended September 30, 2011 decreased by 32% over the nine months of 2010.

Total operating expenses decreased to $14.9 million for the nine months ended September 30, 2011 from $25.0 million for the nine months ended September 30, 2010.

Net loss for the nine months ended September 30, 2011 was ($3.5 million) and included the following non-cash (income) and expense items: $911,000 loss on derivative liabilities; $1,075,000 in non-cash depreciation and amortization; and $408,000 in non-cash stock-based compensation expense related to vesting options. Net loss for the nine months ended September 30, 2010 was ($25.0 million), and included the following non-cash (income) expense items: ($817,000) gain on derivative liabilities; $1.4 million in non-cash depreciation and amortization; and $213,000 in non-cash stock-based compensation expense related to vesting options; and non-cash impairment charges of $11.6 million.

Current assets:

Cash and cash equivalents

Accounts receivable, net

Contracts in process

Available-for-sale securities

Prepaid expenses and other assets

Total current assets

Cost method investments

Equity method investments

Note receivable and accrued interest

Fixed assets, net

Goodwill

Intangible assets, net

Total assets

Current liabilities:

Accounts payable

Accrued expenses

Accrued bonus

Deferred revenue

Current maturities of long-term debt

Total current liabilities

Long-term debt, less current maturities

Derivative liabilities

Deferred tax liability

Total liabilities

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; 15,161,274 and 14,631,950 shares issued; 15,041,274 and 14,585,261 shares outstanding at September 30, 2011 and December 31, 2010, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Total Innovaro stockholders’ equity

Noncontrolling interest

Total equity

Total liabilities and equity

Revenue:

Strategic services

Technology services

Expenses:

Direct costs of revenue – Strategic services

Direct costs of revenue – Technology services

Salaries and wages

Professional fees

Research and development

Sales and marketing

General and administrative

Depreciation and amortization

Impairment loss

Other (income) and expense:

Other (income) expense

Interest expense, net

Loss before income taxes

Provision for income tax benefit

Net loss

Net loss attributable to the noncontrolling interest

Net loss attributable to Innovaro stockholders

Net loss attributable to Innovaro stockholders per share: Basic and diluted

Weighted average shares outstanding: Basic and diluted

Operating Activities:

Net loss attributable to Innovaro stockholders

Adjustments to reconcile net loss attributable to Innovaro stockholders to net cash flows from operating activities:

Goodwill and intangible asset impairment

Fixed asset impairment

Net loss attributable to noncontrolling interest

Depreciation and amortization

Amortization of debt discount from investor warrants

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

Loss (gain) on derivative liabilities

Stock-based compensation

Deferred income taxes

Other

Changes in operating assets and liabilities:

Accounts receivable and contracts in process

Prepaid expenses and other assets

Deferred revenue

Accounts payable, accrued expenses and accrued bonus

Net cash flows from operating activities

Investing Activities:

Capital expenditures

Capitalization of software development costs

Proceeds from sale of available-for-sale securities

Proceeds from redemption of certificates of deposit

Net cash flows from investing activities

Financing Activities:

Net repayments on bank line of credit

Payments on long-term debt

Gross proceeds from private equity securities offering

Offering costs paid from private equity securities offering

Net cash flows from financing activities

Effect of foreign exchange rates

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period