UTEK CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2003

COMMISSION FILE NUMBER: 001-15941

UTEK CORPORATION

(Exact Name of Registrant as Specified in its Charter)

DELAWARE
(State or Jurisdiction of
Incorporation or Organization)

59-3603677
(IRS Employer
Identification No.)

202 S. Wheeler Street
Plant City, FL 33563
(Address of Principal Executive Offices)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 754-4330

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as 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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES o NO x

On October 20, 2003, there were 4,452,122 shares outstanding of the
Registrant’s common stock, $0.01 par value.

Page 1 of 33

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		Consolidated Statement of Net Assets
		Consolidated Statements of Operations
		Consolidated Statements of Cash Flows
		Consolidated Statements of Changes in Net Assets
		Financial Highlights
		Schedule of Investments
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
	ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Certification of CEO
Certification of CFO
Section 906 Certification of CEO
Section 906 Certification of CFO

UTEK CORPORATION

FORM 10-Q INDEX


PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Statement of Net Assets as of September 30, 2003 (unaudited) and December 31, 2002	3
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)	4
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (unaudited)	5
		Consolidated Statements of Changes in Net Assets for the Nine Months Ended September 30, 2003 and 2002 (unaudited)	6
		Financial Highlights for the Nine Months Ended September 30, 2003 and 2002 (unaudited)	7
		Schedule of Investments as of September 30, 2003 (unaudited) and December 31, 2002	8
		Notes to Consolidated Financial Statements	12
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
	Item 4. Controls and Procedures		31
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings		31
	Item 2. Changes in Securities and Use of Proceeds		31
	Item 3. Defaults Upon Senior Securities		31
	Item 4. Submission of Matters to a Vote of Security Holders		31
	Item 5. Other Information		31
	Item 6. Exhibits and Reports on Form 8-K		32
	Signatures		33
	Exhibits

Page 2 of 33

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

UTEK Corporation
Consolidated Statement of Net Assets


			September 30,			December 31,
			2003			2002

			(Unaudited)
ASSETS
	Investments in non-controlled affiliates at fair value (cost $11,051,203 and $9,541,631 at September 30, 2003 and December 31, 2002, respectively)		$	8,480,769		$	6,208,090
	Cash and cash equivalents			2,157,914			745,926
	Prepaid expenses and other assets			157,839			308,722
	Fixed assets, net			50,090			65,255
	Intangible assets			547,014			535,147

		TOTAL ASSETS		11,393,626			7,863,140

LIABILITIES
	Notes payable			817,890			—
	Accrued expenses			98,398			126,947
	Income taxes payable			—			16,781
	Deferred revenue			153,182			127,766
	Deferred income taxes			534,865			245,589

		TOTAL LIABILITIES		1,604,335			517,083

		NET ASSETS	$	9,789,291		$	7,346,057

Commitments and Contingencies
Composition of net assets:
	Common stock, $.01 par value, 19,000,000 shares authorized; 4,452,122 shares issued and outstanding at September 30, 2003 and 3,925,672 shares issued and outstanding at December 31, 2002		$	44,521		$	39,257
	Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding			—			—
	Additional paid in capital			9,008,433			7,058,941
	Accumulated income:
		Accumulated net operating income		3,341,308			3,122,937
		Net realized loss on investments, net of income taxes		(1,063,840	)		(836,125	)
		Net unrealized depreciation of investments, net of deferred income taxes		(1,603,180	)		(2,091,988	)
		Foreign currency translation adjustment		62,049			53,035

Net assets			$	9,789,291		$	7,346,057

Net asset value per share			$	2.20		$	1.87

See accompanying notes

Page 3 of 33

UTEK Corporation
Consolidated Statements of Operations
(Unaudited)


				Three Months Ended September 30,						Nine Months Ended September 30,

				2003			2002			2003			2002

Income from operations:
		Sale of technology rights		$	1,473,121		$	465,150		$	2,035,978		$	2,088,254
		Consulting fees			241,419			221,596			785,971			796,009
		Investment income, net			8,710			2,082			12,207			31,779

					1,723,250			688,828			2,834,156			2,916,042

Expenses:
		Salaries and wages			196,073			180,261			537,489			599,238
		Professional fees			258,154			116,090			641,164			427,851
		Sales and marketing			256,468			173,137			445,034			613,280
		General and administrative			258,083			176,814			860,348			830,339

					968,778			646,302			2,484,035			2,470,708

Income before income taxes					754,472			42,526			350,121			445,334
Provision for income taxes (benefit)					(80,672	)		15,851			131,750			172,059

		Net income from operations			835,144			26,675			218,371			273,275

Net realized and unrealized gains (losses):
		Net realized loss on investments, net of income tax benefit of $31,540 and $137,389 for the three and nine months ended September 30, 2003 and $20,786 and $82,640 for the three and nine months ended September 30, 2002 respectively			(52,275	)		(34,444	)		(227,715	)		(136,963	)
	Change in net unrealized appreciation (depreciation) of non-controlled affiliate investments, net of deferred tax expense (benefit) of $1,582,669 and $294,915 for the three and nine months ended September 30, 2003 and $(446,797) and $(1,474,047) for the three and nine months ended September 30, 2002 respectively				2,623,202			(740,546	)		488,808			(2,443,477	)

Net increase (decrease) in net assets from operations				$	3,406,071		$	(748,315	)	$	479,464		$	(2,307,165	)

Net increase (decrease) in net assets from operations per share:
			Basic	$	0.79		$	(0.19	)	$	0.12		$	(0.59	)
			Diluted	$	0.76		$	(0.19	)	$	0.11		$	(0.59	)
Weighted average shares:
			Basic		4,327,698			3,925,672			4,159,358			3,920,141
			Diluted		4,465,432			3,925,672			4,194,825			3,920,141

See accompanying notes

Page 4 of 33

UTEK Corporation
Consolidated Statements of Cash Flows
(Unaudited)


					For the Nine Months Ended
					September 30,

					2003			2002

Operating Activities:
		Net increase (decrease) in net assets from operations			$	479,464		$	(2,307,165	)
		Adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by operating activities:
			Change in net unrealized (appreciation) depreciation of investments			(763,107	)		3,917,714
			Depreciation and amortization			23,074			25,489
			Loss on disposal of fixed asset			—			1,024
			Proceeds received on sale of investments			378,744			1,084,958
			Loss on sale of investments			365,104			219,603
			Deferred income taxes			289,276			(1,384,628	)
			Investment securities received for sale of subsidiary companies			(2,035,978	)		(2,088,254	)
			Services rendered in exchange for investment securities			(207,577	)		(445,562	)
			Changes in operating assets and liabilities:
				Prepaid expenses and other assets		193,127			12,782
				Deferred revenue		15,551			(8,760	)
				Accrued expenses		(28,549	)		(3,428	)
				Income taxes payable		(16,781	)		—

				Total adjustments		(1,787,116	)		1,330,938

		Net cash used in operating activities				(1,307,652	)		(976,227	)

Investing Activities:
		Purchases of fixed assets				(4,130	)		(4,455	)

		Net cash used by investing activities				(4,130)			(4,455)

Financing Activities:
		Proceeds from issuance of common stock (including the exercise of stock options)				1,954,756			—
		Proceeds on long-term borrowings				760,000			—

		Net cash provided by financing activities				2,714,756			—

Foreign currency translation adjustment						9,014			45,461
Increase (decrease) in cash and cash equivalents						1,411,988			(935,221	)
Cash and cash equivalents at beginning of period						745,926			1,432,473

Cash and cash equivalents at end of period					$	2,157,914		$	497,252

Supplemental Disclosures of Non Cash Investing Activities
	Acquisition of Techex Acquisition Corporation				$	—		$	70,900

See accompanying notes

Page 5 of 33

UTEK Corporation
Consolidated Statements of Changes in Net Assets
(Unaudited)


			Nine Months Ended September 30

				2003			2002

Changes in net assets from operations:
	Net income from operations			$	218,371		$	273,275
	Net realized loss on sale of investments				(227,715	)		(136,963	)
	Change in net unrealized appreciation (depreciation) of investments, net of related deferred taxes				488,808			(2,443,477	)

		Net increase (decrease) in net assets from operations			479,464			(2,307,165	)

Capital stock transactions:
	Proceeds from issuance of common stock (including the exercise of stock options)				1,954,756			—
	10,000 shares of common stock issued for acquisition of Techex Acquisition Corporation				—			70,900

		Net increase in net assets from capital stock transactions			1,954,756			70,900

Foreign currency exchange adjustment					9,014			45,461

Net increase (decrease) in net assets					2,443,234			(2,190,804	)
Net assets at beginning of year					7,346,057			9,909,440

Net assets at end of period				$	9,789,291		$	7,718,636

See accompanying notes

Page 6 of 33

UTEK Corporation
Financial Highlights
(Unaudited)


		Nine Months Ended September 30

			2003			2002

PER SHARE INFORMATION
Net asset value, beginning of period			$	1.87		$	2.53
	Net increase from operations (1)			0.05			0.07
	Net change in realized and unrealized depreciation on investments (after taxes)			(.14	)		(0.65	)
	Net increase from stock transactions			0.42			0.02

Net asset value, end of period			$	2.20		$	1.97

Per share market value, end of period			$	9.25		$	7.10

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period			$	9,789,291		$	7,718,636
Ratio of expenses to average net assets (2)(3)				29	%		29	%
Ratio of net income to average net assets (3)				3	%		3	%
Diluted weighted average number of shares outstanding during the period				4,194,825			3,920,141

(1) Calculated based on diluted weighted average number of shares outstanding during the period.

(2) Excluding income taxes

(3) Ratios are on an annualized basis

See accompanying notes

Page 7 of 33

UTEK CORPORATION
Schedule of Investments
September 30, 2003
(Unaudited)


		Original
		Date of					Original		Fair
Shares		Acquisition					Cost		Value

						Common stock in non-controlled affiliates-86.6%
	236,000		3/01		Lexon, Inc., publicly traded over the counter—0%; developer of health care technology		$	39,614	$	—
	1,344,300		1/99		ClearImage, Inc.(formerly Image Analysis, Inc.), privately held— 0%; medical and hospital equipment developer			1,349,775		—
	900,000		5/99		Nubar, Inc., privately held—0%; developer of construction materials			126,000		—
	960,778		6/99		Clean Water Technologies, Inc. (formerly NuElectric Corporation), publicly traded over the counter—1.4%; environmental services.			568,006		134,509
	150		11/99		Rosbon, LLC (formerly Rosbon, Inc.), privately held—.6%; real estate development			90,705		56,505
	136,093		3/00		Graphco Holdings Corp., publicly traded over the counter— 0%; developer of e-commerce technologies			959,606		—
	2,094,053		6/00		Advanced Recycling Sciences, Inc. (formerly The Quantum Group, Inc.) publicly traded over the counter—0%; tire recycling methodologies			1,970,952		—
	4,221,165		4/01		Stealth MediaLabs, Inc. (formerly BitzMart, Inc.) publicly traded over the counter-0%; software products			1,708,000		—
	1,493,550		9/01		Prime Pharmaceutical Corporation, privately held—0%; pharmaceutical developments in dermatology			783,344		—
	1,000,000		11/01		Primapharm Funding Corporation, privately held—0%; intellectual property development			413,617		—
	4,000		11/01		Peak Entertainment Holdings, Inc. (formerly Palladium Communications, Inc.), publicly traded over the counter—.1%; telecom, educational internet service			12,028		1,640
	47,615		1/02		Silver Screen Studios, Inc. (formerly Group Management Corporation), publicly traded over the counter—0%; corporate management			46,949		—
	3,788,637		1/02		Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.), publicly traded over the counter,—67.8%; digital design and consulting			735,975		6,640,274
	633,750		2/02		Voice and Wireless Corporation, publicly traded over the counter, —0%; internet/technology services and products			53,161		—
	48,000		4/02		Hydrogen Technology Applications, Inc., privately held, —0%; developer of energy technology			14,040		—
	388,500		6/02		FullCircle Registry, Inc., publicly traded over the counter, —0.1%; developer of emergency information technology			332,244		15,540
	71,060		9/02		Innovative Medical Services, Inc., publicly traded Nasdaq Small Cap. —.5%; developer of anti-microbial technology			42,544		46,189
	34,782		1/03		Duraswitch Industries, Inc., publicly traded over the counter, —0.4% developer of electronic switch technologies			29,031		37,217
	645,000		3/03		Sequiam Corporation, publicly traded over the counter, —1.5%; developer of biological authentication and biometrics technologies			183,385		148,350
	3,198,571		4/03		GloTech Industries, Inc., publicly traded over the counter, —14.0%; developer of lighted technology devices			1,563,852		1,375,385
	34,000		6/03		E Med Future, Inc., publicly traded over the counter, -— .2% manufacturer of needle destruction device			28375		25,160

				TOTAL INVESTMENTS—86.6%			$	11,051,203	$	8,480,769

					Cash and other assets, less liabilities—13.4%					1,308,522

					Net assets at September 30, 2003—100%				$	9.789,291

Notes to Schedule of Investments:

Page 8 of 33

or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited.

• The Company owns more than 10% of the outstanding common stock of Image Analysis, Inc., Nubar, Inc., Clean Water Technologies, Inc., Rosbon LLC, Stealth MediaLabs, Inc., Circle Group Internet, Inc., Glotech Industries, Inc. and Primapharm Funding Corporation. As such, the Company is deemed to be an affiliate of these companies, as defined under Rule 144 of the Securities Act of 1933.

See accompanying notes

Page 9 of 33

UTEK Corporation
Schedule of Investments
December 31, 2002


		Original
		Date of			Original		Fair
Shares		Acquisition			Cost		Value

				Common stock in non-controlled affiliates-100.8%
	236,000		3/01	Lexon, Inc., publicly traded over the counter —0%; developer of health care technology	$	39,614	$	—
	1,344,300		1/99	Image Analysis, Inc., privately held — 0%; medical and hospital equipment developer		1,349,775		—
	1,343,400		5/99	Centrex, Inc., publicly traded over the counter—3.5%; developer of water and purification methodologies		443,322		255,246
	900,000		5/99	Nubar, Inc., privately held—0%; developer of construction materials		126,000		—
	980,778		6/99	Clean Water Technologies, Inc. (formerly NuElectric Corporation), publicly traded over the counter—.6%; environmental services		573,806		45,116
	150		11/99	Rosbon, LLC (formerly Rosbon, Inc.), privately held—1.0%; real estate development		90,705		76,451
	100,799		3/00	Graphco Technologies, Inc., privately held— 2.8%; developer of e-commerce technologies		952,551		207,646
	2,103,053		6/00	Advanced Recycling Sciences, Inc. (formerly The Quantum Group, Inc.) publicly traded over the counter — 3.1%; tire recycling methodologies		1,978,242		231,336
	4,221,165		4/01	Stealth MediaLabs, Inc. (formerly BitzMart, Inc.) publicly traded over the counter – 62.5%; software products		1,708,000		4,586,435
	228,089		5/01	Sense Holdings, Inc., publicly traded over the counter— 1.0%; biometric technologies		59,303		70,708
	1,493,550		9/01	Prime Pharmaceutical Corporation, privately held— 1.4%; pharmaceutical developments in dermatology		783,344		104,548
	1,000,000		11/01	Primapharm Funding Corporation, privately held— 1.4%; intellectual property development		393,001		100,000
	400,000		11/01	Palladium Communications, Inc. (formerly USAOnestar.Net Inc.), publicly traded over the counter —0%; telecom, educational internet service		12,028		—
	47,615		1/02	Group Management Corporation, publicly traded over the counter — 0%; corporate management		46,949		—
	2,844,000		1/02	Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.), publicly traded over the counter, digital design and consulting — .8%;		358,102		59,724
	633,750		2/02	Voice and Wireless Corporation, publicly traded over the counter, —.2%; internet/technology services and products		53,161		13,942
	48,000		4/02	Hydrogen Technology Applications, Inc., privately held, — 0%; developer of energy technology		14,040		—
	486,750		6/02	FullCircle Registry, Inc., publicly traded over the counter, — 5.6%; developer of emergency information technology		519,803		413,738
	120,000		9/02	Innovative Medical Services, Inc., publicly traded over the counter, — .6% developer of anti-microbial technology		39,885		43,200

				TOTAL INVESTMENTS—84.5%	$	9,541,631	$	6,208,090

				Cash and other assets, less liabilities—15.5%				1,137,967

				Net assets at December 31, 2002—100%			$	7,346,057

Notes to Schedule of Investments:

• The above investments with the exception of Rosbon, LLC are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.

• The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Notes 1 and 2 to the consolidated financial statements).

• As of December 31, 2002, all of the securities that we own are “restricted securities,” as that term is defined under Rule 144 of the Securities Act of 1933. These securities may not be sold in the absence of registration under the Securities Act of 1933 or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited. The Company owns more than 10% of the outstanding common stock of each of the above investments with the exception of Full Circle Registry, Inc., Centrex, Inc., Graphco Technologies, Inc., Prime Pharmaceutical Corporation, Lexon, Inc., Voice and Wireless Corporation, Palladium Communications, Inc., Hydrogen Technology Applications, Inc., Innovative Medical Services, Inc., Sense Holdings, Inc., Advanced Recycling Sciences, Inc. and Group Management

Page 10 of 33

Corporation. As such, the Company is deemed to be an affiliate of these companies, as defined under Rule 144 of the Securities Act of 1933, except for those specifically noted.

See accompanying notes

Page 11 of 33

UTEK Corporation
Notes to Consolidated Financial Statements

(Information as of September 30, 2003 and 2002 and for the three and nine month
periods then ended is Unaudited)

1. Nature of Business and Significant Accounting Policies

Interim Financial Information

The financial information for UTEK Corporation (the “Company”) as of September 30, 2003 and 2002 and for the three and nine 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 financial statements not misleading at such dates and for those periods. These financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2002. Operating results for the three or nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the entire year.

The Company

We are a non-diversified, closed-end management investment company that has elected to be treated as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”).

We commenced operations in 1997 as UTEK Corporation (“UTEK Florida”), which was incorporated under the laws of the State of Florida in August 1996. UTEK Florida was engaged in the business of technology transfer. On December 31, 1998, we formed UTEK, LLC, a limited liability company organized under the laws of the State of Florida. Subsequent thereto, the shareholders of UTEK Florida exchanged their shares of common stock for membership units in UTEK, LLC. In July 1999, we formed UTEK Corporation under the laws of the State of Delaware and in October 1999, UTEK LLC was merged into UTEK Corporation.

In September 2001, UTEK Corporation acquired 100% of the outstanding common stock of PAX Technology Transfer Ltd., a United Kingdom corporation, in a stock for stock transaction. In May 2002, UTEK Corporation acquired 100% of the outstanding common stock of Techex Acquisition Corporation (“TechEx”) in a stock for stock transaction. TechEx owned the TechEx.com website. The TechEx.com website, founded at Yale University, is used by many technology transfer and research professionals to efficiently exchange biomedical licensing opportunities and innovations available for partnering. The financial position and results of operation of PAX Technology Transfer Ltd. and TechEx have been consolidated into the financial position and results of operation of the Company since the dates of their respective acquisition.

As a BDC, we must be primarily engaged in the business of furnishing capital and making available managerial assistance to companies that generally do not have ready access to capital through conventional financial channels. Such companies are termed “portfolio” companies.

The Company invests in portfolio companies that management believes are positioned to benefit from the acquisition of new technology. The Company’s investments in portfolio companies generally are used by the portfolio companies to acquire the license rights to new technologies developed at universities and/or government research facilities. The Company offers to provide portfolio companies with managerial assistance primarily related to technology transfer. Technology transfer is the process by which technologies developed by universities or research laboratories are licensed to companies for commercial use. The Company also may make additional investments to fund continued research and development of the acquired technologies.

Usually we have executed or will execute our investments in portfolio companies through the creation and capitalization of a subsidiary to acquire a new technology, which subsidiary will then be merged with a portfolio company in a non-taxable exchange of shares of the portfolio company. In connection with such transaction, we receive shares of common stock in the portfolio company in exchange for the securities of our subsidiary company. In addition to holding a license to a new technology, our subsidiary company may also hold cash and other assets. The portfolio companies frequently have little or no prior operating history.

To establish on-going consulting engagements with its clients, the Company has also developed strategic alliance consulting services. UTEK’s strategic alliances are designed to help technology companies rapidly enhance their new product pipeline through the acquisition of proprietary intellectual capital primarily from universities and federal laboratories. Some of our strategic alliance clients engage us to license their existing proprietary technologies.

Page 12 of 33

Investments

Pursuant to the requirements of the Investment Company Act of 1940 (the “1940 Act”), our Board of Directors is responsible for determining, in good faith, the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. With respect to equity securities in privately owned companies, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the market value of the securities as quoted on the stock exchanges. In addition, restricted and unregistered publicly traded stocks may also be valued at further discounts due to the size of our investment or market liquidity concerns.

The Board of Directors bases its determination upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.

Without a readily available market value, the value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. All equity securities owned at September 30, 2003 and December 31, 2002 (86.6% and 84.5% of net assets, respectively) are stated at fair value as determined by the Board of Directors, in the absence of readily available fair values. The Company uses the first-in, first-out (FIFO) method of accounting for sales of its investments.

Revenue Recognition

Sale of Technology Rights

The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of our subsidiary companies with unrelated portfolio companies. The Company records revenue, based on the fair value as determined by the Board of Directors, of the consideration received. In most cases, the consideration received for the technology rights is unregistered shares of common stock of the purchaser. The common stock received is recorded as an investment at fair value as determined by the Board of Directors.

Consulting and Other Services

In addition to technology transfer merger transactions we offer strategic alliance consulting services. A method of technology transfer already being used by PAX Technology Transfer Ltd., strategic alliance services are performed pursuant to service agreements (usually one year in length) in which the Company provides consulting services by identifying and evaluating technology acquisition opportunities in exchange for unregistered shares of the company, or cash. These agreements are cancelable at any time.

Revenues from strategic alliance agreements in which unregistered shares of common stock are received before they are earned, are deferred and recognized over the term of each agreement. For strategic alliance agreements in which the stock is received ratably over the agreement, revenue is recognized as earned. The common stock received as payment is recorded as an investment at fair value as determined by the Board of Directors. In some cases, the Company is paid a fee in connection with a technology transfer transaction. In these instances, revenue is recognized upon consummation of the transaction.

The Company’s consolidated subsidiary, PAX Technology Transfer, Ltd., derives its revenue primarily from consulting contracts with third parties. Revenue from consulting contracts is recognized ratably over the term of the contract, typically ninety days. These contracts are generally paid in the form of cash.

Revenue from the sale of subscriptions to the TechEx.com website, generally is received in the form of cash, and initially is deferred and subsequently recognized ratably over the term of the subscription, typically one year.

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Research and Development

Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at discovery of new knowledge that will be useful in developing new products or processes. The Company expenses all research and development costs as they are incurred. During the nine months ended September 30, 2003 and 2002, the Company incurred no such costs.

Foreign currency translation

The Company translates the assets and liabilities of its non-U.S. functional currency subsidiary into dollars at the current rates of exchange in effect at the end of each reporting period. Revenues and expenses are translated using rates that approximate those in effect during the period. Translation adjustments are included in the Consolidated Balance Sheets under the caption “Foreign currency translation adjustment.”

Stock-Based Compensation

At September 30, 2003, the Company had the following two stock-based equity compensation plans: The UTEK Corporation Stock Option Plan and 2000 Non-Qualified Stock Option Plan of UTEK Corporation. The Company accounts for these plans and related grants thereunder using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees”. No stock-based employee compensation cost is reflected in net increase (decrease) in net assets from operations, as all of the options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect of the net increase (decrease) in net assets from operations and the net increase (decrease) in net assets from operations per share if the Company had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-based Compensation” to these stock based employee awards.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Under the fair value method of accounting prescribed under SFAS 123, employee compensation cost related to stock options, net of related income tax effects, would have been $42,327 and $14,346 for the quarters ended September 30, 2003 and 2002, respectively and $211,147 and $43,038 for the nine months ended September 30, 2003 and 2002, respectively. The pro forma net increase (decrease) in net assets from operations and basic and diluted earnings per share for the quarters ended September 30, 2003 and 2002 would have been as follows:


		Three months ended						Nine months ended

		September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Net increase (decrease) in net assets from operations:
	As reported	$	3,406,071		$	(748,315	)	$	479,464		$	(2,307,165	)
	Fair value stock compensation expense		(42,327	)		(14,346	)		(211,147	)		(43,038	)

	Pro forma	$	3,363,744			(762,661	)	$	268,317		$	(2,350,203	)
Net increase (decrease) in net assets from operations per share – Basic:
	As reported	$	.79		$	(.19	)	$	.12		$	(.59	)
	Pro forma	$	.78		$	(.19	)	$	.06		$	(.60	)
Net increase (decrease) in net assets from operations per share – Diluted:
	As reported	$	.76		$	(.19	)	$	.11		$	(.59	)
	Pro forma	$	.75		$	(.19	)	$	.06		$	(.60	)

2. Investments

Equity securities at September 30, 2003 and December 31, 2002 (86.6% and 84.5% of net assets, respectively) were valued at fair value as determined by the Board of Directors, with the assistance of appraisals provided by an independent valuation service provider, in the absence of readily available market values.

The values assigned to these securities are based upon available information and may not reflect amounts that could be realized if the Company found it necessary to immediately sell such securities, or amounts that ultimately may be realized.

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Accordingly, the fair values included in the accompanying schedule of investments may differ from the values that would have been used had a ready market existed for these securities and such differences could be significant.

As of September 30, 2003 and December 31, 2002, the Company had established three and four subsidiary companies, respectively, with $-0- net assets.

On January 11, 2002, the Company entered into a strategic alliance agreement with Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.). The agreement provides for a total of 48,000 unregistered shares of Circle Group Holdings, Inc.’s common stock to be distributed to the Company pro rata during the term of the agreement. The Company has recognized consulting fees in relation to 48,000 unregistered shares of Circle Group Holdings, Inc. The strategic alliance was renewed in February 2003.

On January 21, 2002, the Company received 114,276 unregistered shares of Group Management Corporation’s common stock in connection with a strategic alliance agreement. The Company recognized consulting fees related to 47,615 shares. The strategic alliance was cancelled in June 2002 and 66,661 shares were returned to Group Management Corporation.

On February 11, 2002, the Company entered into a strategic alliance agreement with Voice and Wireless Corporation. The agreement provides for a total of 540,000 unregistered shares of Voice and Wireless Corporation’s common stock to be distributed to the Company pro rata during the term of the agreement. The Company recognized consulting fees related to 315,000 shares. The strategic alliance was cancelled in August 2002.

On April 2, 2002, the Company received 48,000 unregistered shares of common stock from Hydrogen Technology Applications, Inc. in a strategic alliance agreement. The agreement was not renewed in April 2003. The Company has recognized consulting fees relating to 48,000 shares.

On May 7, 2002, the Company sold its Nitrone Scientific, Inc. subsidiary company to Prime Pharmaceutical Corporation for 683,550 shares of Prime Pharmaceutical Corporation’s common stock in a non-taxable exchange.

On May 7, 2002, the Company sold its Digital Image Enhancement Technologies, Inc. subsidiary company to Image Analysis, Inc. for 465,000 unregistered shares of Image Analysis, Inc.’s common stock in a non-taxable exchange.

On May 31, 2002, the Company received 30,000 unregistered shares of common stock from FullCircle Registry, Inc. in a strategic alliance agreement. The agreement was not renewed in May 2003. The Company has recognized consulting fees relating to 30,000 shares.

On June 11, 2002, the Company sold its Energy Management Technologies, Inc. subsidiary company to Voice and Wireless Corporation for 318,750 unregistered shares of Voice and Wireless Corporation’s common stock in a non-taxable exchange.

On June 12, 2002, the Company sold its Electronic Luminescent Technologies, Inc. subsidiary company to FullCircle Registry, Inc. for 68,250 unregistered shares of FullCircle Registry, Inc.’s common stock in a non-taxable exchange.

On August 27, 2002, the Company sold its Fiber-Gel Technologies, Inc. subsidiary company to Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.) for 2,800,000 unregistered shares of Circle Group Holdings, Inc.’s common stock and a warrant to purchase an additional 500,000 shares of its common stock at $0.36 per share in a non-taxable exchange.

On September 27, 2002, the Company sold its Spoken Data Technologies, Inc. subsidiary company to FullCircle Registry, Inc. for 157,500 unregistered shares of FullCircle Registry, Inc.’s common stock in a non-taxable exchange.

On September 12, 2002, the Company received 120,000 unregistered shares of common stock from Innovative Medical Services, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 120,000 shares.

On December 24, 2002, the Company received 231,000 unregistered shares of common stock from FullCircle Registry, Inc. in connection with a consulting agreement. The Company has recognized consulting fees relating to 231,000 shares.

On January 15, 2003, the Company received 83,478 unregistered shares of common stock from Duraswitch Industries, Inc. in a strategic alliance agreement. The Company has recognized consulting fees relating to 34,782 shares. The strategic alliance was cancelled in June 2003 and unvested 48,696 shares were returned to Duraswitch Industries, Inc.

On February 5, 2003, the Company entered into a strategic alliance agreement with Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.). The agreement provides for a total of 48,000 unregistered shares of Circle Group Holdings, Inc.’s

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common stock to be distributed to the Company pro rata during the term of the agreement. The Company has recognized to date consulting fees relating to 32,000 unregistered shares of Circle Group Holdings, Inc.

On March 4, 2003, Peak Entertainment Holdings, Inc. (formerly Palladium Communications, Inc.) completed a 100 for 1 reverse stock split, which reduced the number of shares the Company holds to 4,000 from 400,000 shares.

On March 18, 2003, the Company received 160,000 unregistered shares of common stock from Sequiam Corporation in a strategic alliance agreement. The Company has recognized consulting fees relating to 85,778 shares.

On March 26, 2003, the Company received 35,294 unregistered shares of common stock from Graphco Technologies, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 18,130 shares.

On March 26, 2003, the Company received 821,429 unregistered shares of common stock from Circle Group Holdings, Inc. in connection with an assignment of a technology license.

On April 11, 2003, the Company received 68,571 unregistered shares of common stock from GloTech Industries, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 31,999 shares.

On June 17, 2003, the Company received 34,000 unregistered shares of common stock from E Med Future, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 9,728 shares.

On June 23, 2003, the Company sold its Advanced Illumination Technologies, Inc. subsidiary company to GloTech Industries, Inc. for 1,000,000 unregistered shares of GloTech Industries, Inc.’s common stock in a non-taxable exchange.

On July 23, 2003, the Company received 130,208 unregistered shares of common stock from Circle Group Holdings, Inc. in connection with an assignment of a technology license.

On August 28, 2003, the Company sold its Sports Technologies, Inc. subsidiary to GloTech Industries, Inc. for 2,130,000 unregistered shares of GloTech Industries, Inc.’s common stock in a non-taxable exchange. The Company has recognized technology transfer income to date relating to the 2,130,000 shares received.

On September 10, 2003, the Company sold its Fingerprint Detection Technologies, Inc. subsidiary to Sequiam Corporation for 485,000 unregistered shares of Sequiam Corporation’s common stock in a non-taxable exchange.

3. Commitments and Contingencies

From time to time, some of the Company’s portfolio companies may receive correspondence or other notices of alleged breach of the license agreement. Some of these correspondences and notices provide for a period of time in which to cure the alleged breach. The failure of the portfolio companies to cure the alleged breach may have a material adverse impact on the Company’s results of operations and financial position.

4. Note Payable

In April 2003, the Company obtained a loan for $1,000,000 at 12% per annum with interest paid in advance, which resulted in net proceeds of $760,000 with an effective interest rate of approximately 14%. The term of the loan is two years, and no principal payments are required prior to maturity. The loan is non-recourse except with respect to 360,360 unissued shares of common stock of the Company pledged as collateral under the loan.

5. Valuations

The Board of Directors bases its determination of fair value upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.

6. Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51 “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation defines the concept of “variable interests” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. This interpretation applies immediately to variable

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interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. If it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity when this interpretation becomes effective, the enterprise shall disclose information about those entities in all financial statements issued after January 31, 2003. The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. We do not believe this interpretation will have a material impact on our financial position or results of operation.

In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement addresses the accounting for certain financial instruments that, under previous guidance, could be accounted for as equity. SFAS 150 requires that those instruments be classified as liabilities in the statement of financial position. In addition, SFAS 150 also requires disclosures about alternative ways of settling the instruments and the capital structure of certain entities. Most of the guidance in SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Management has not fully evaluated the effect of adopting this standard.

7. Subsequent Events

UTEK acquired the UVentures.com website and certain other intellectual property assets from UVentures, Inc., a leading Internet-based exchange for the marketing of technology developed at universities and research organizations. The transaction was structured as an asset purchase.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. This information 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 these 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.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements. You should understand that our reported operating results, financial condition and changes in financial condition depend on estimates and assumptions we use in applying these significant accounting policies. On a regular basis, management reviews these estimates and assumptions including those related to revenue recognition and the valuation of investments.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of our subsidiaries, which hold the license to the technology rights, with unrelated merger partners. In most cases, the consideration received for the technology rights is the common stock of the purchaser. The common stock received is recorded as an investment at fair value as determined by the Board of Directors. In some cases, the Company is paid a fee for negotiating a successful technology transfer. In these instances, revenue is recognized upon consummation of the transaction.

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Revenues from strategic alliance agreements in which shares of common stock are received before they are earned, are deferred and recognized over the term of each agreement, typically twelve months. For strategic alliance agreements in which the stock is received ratably over the agreement, revenue is recognized as earned. The common stock received is recorded as an investment at fair value as determined by the Board of Directors. These agreements are cancelable at any time. . In some cases, the Company is paid a fee in connection with a technology transfer transaction. In these instances, revenue is recognized upon consummation of the transaction.

The Company’s consolidated subsidiary, PAX Technology Transfer, Ltd., derives its revenue primarily from consulting contracts with third parties. Revenue from consulting contracts is generally received in cash and are deferred and recognized ratably over the term of the contract, typically ninety days.

Valuation of Investments

The income that we derive from the sale of technology rights and the provision of consulting services consists of both cash and equity securities that we receive. The value of the equity securities that we receive makes up most of our revenues. Pursuant to the requirements of the Investment Company Act of 1940 (the “1940 Act”), our Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. Although many of the securities we hold in our portfolio are quoted on the OTC Bulletin Board or listed on the Nasdaq SmallCap Market, our board of directors is required to fair value price such securities if the validity of the market quotations appears to be questionable, or if the number of quotations is such as to indicate that there is a thin market in the security. In making its determination, the Board of Directors may consider valuation appraisals provided by independent valuation service providers. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the appraisal is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.

We have retained Bolten Financial Consulting, Inc., to provide us with valuations of our investments (the securities we own), and also updated valuations as of each quarter end. We pay Bolten Financial Consulting, Inc. a fee each time it values our investments. For the nine months ended September 30, 2003 and 2002, we paid Bolten Financial Consulting, Inc. a total of $82,114 and $68,931, respectively for its valuation services.

GENERAL

Our primary business is to invest in companies that possess or will likely identify emerging and established technologies and markets for those technologies. Our primary investment objective is to increase our net assets by exchanging stock in our subsidiary companies for cash and other assets, which we will use to acquire licenses to additional technologies. We believe that we will be able to achieve our objectives by concentrating on investments in companies which we believe are likely to benefit from our management’s expertise in technology transfer.

Our expenses include salaries and wages, professional fees, sales and marketing costs as well as general and administrative costs. Sales and marketing costs include license and sponsored research fees, as well as advertising, commissions, travel and other expenses that vary with revenues. General and administrative costs include rent, depreciation, office, investor relations and other overhead costs.

Financial Condition

The Company’s total assets were $11,393,626 and its net assets were $9,789,291 at September 30, 2003, compared to $7,863,140 and $7,346,057 at December 31, 2002, respectively.

Net asset value per share (“NAV”) was $2.20 at September 30, 2003, compared to $1.87 at December 31, 2002. Net assets increased by $4,473,111 in the three months ended September 30, 2003 and decreased by $748,342 in the three months ended September 30, 2002. Net assets increased by $2,443,234 in the nine months ended September 30, 2003 and decreased by $2,190,804 in the nine months ended September 30, 2002.

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The net increase in total assets, net assets and net asset value during the three months ended September 30, 2003 were primarily attributable to:

• Three technology transfers valued at approximately $1,473,000 and strategic alliance agreements and other consulting agreements with earned revenue of approximately $241,000 in the form of stock..

• A loss on sale, net of income tax benefit of approximately $52,000, as a result of sales of the Company’s investments of $140,000.

• An increase, net of tax effect, of approximately $2,623,000 in the value of the Company’s investments.

• The completion of a private placement of 146,450 shares of our common stock for net proceeds of $782,256 and the sale of 50,000 shares of our common stock upon the exercise of stock options for net proceeds of $282,000.

• The net decrease in total assets, net assets and net asset value during the three months ended September 30, 2002 were primarily attributable to:

• Two technology transfers valued at approximately $465,000 and strategic alliance agreements and other consulting agreements with earned revenue of approximately $222,000.

• A decline net of tax effect of approximately $741,000 in the value of the Company’s investments.

• A loss on sale, net of income tax benefit of approximately $34,000, as a result of sales of the Company’s investments of $369,000

The Company’s common shares outstanding as of September 30, 2003 and December 31, 2002 were 4,452,122 and 3,925,672, respectively.

The Company’s financial condition is dependent on a number of factors including the ability to effectuate technology transfers and the performance of the equity investments that we receive. The Company has invested a substantial portion of its assets in private development stage or start-up companies. These private businesses are thinly capitalized, unproven, small companies that lack management depth, are dependent on new, commercially unproven technologies and have no history of operations. At September 30, 2003, $8,424,264 or 74% of the Company’s total assets consisted of investments at fair value in thinly traded public companies, of which net unrealized appreciation net of tax effect was $93,893; and an additional $56,505 or .5% of the Company’s total assets consisted of non-publicly traded securities as fair value of which net unrealized depreciation was $1,697,073.

At December 31, 2002, $5,719,445 or 73% of the Company’s total assets consisted of investments at fair value in thinly traded public companies, of which net unrealized depreciation net of tax effect, was $70,334; an additional $488,645 or 7% of the Company’s total assets consisted of non-publicly traded securities at fair value, of which net unrealized depreciation was $2,021,654.

The net increase in the value of publicly traded securities from $5,719,445 to $8,424,264 in the nine months ended September 30, 2003 is primarily due to the following events:

• During the nine months ended September 30, 2003, the Company completed five technology transfer transactions with publicly traded companies. Two transactions were completed with Circle Group Holdings, Inc. and added $369,628 in initial value of investments; two transactions with GloTech Industries, Inc. added $1,535,400 in initial value of investments, as well as a transaction with Sequiam Corporation, which added $130,950 in initial value. Transactions of this nature result in an increase in the value of thinly traded public securities.

• During the nine months ended September 30, 2003, the Company sold all of its shares in Centrex, Inc. and Sense Holdings, Inc. and a portion of it’s shares in Circle Group Holdings, Inc., Full Circle Registry, Inc., Innovative Medical Services, Inc., and Clean Water Technologies, Inc. As a result of these sales, the value of these thinly traded public traded securities decreased by approximately $373,000. Transactions of this nature result in a decrease in the value of thinly traded public securities.

• During the nine months ended September 30, 2003, the Company experienced an overall increase in the fair market value of its thinly traded public securities. This increase is primarily attributable to a increase in value of Circle Group Holdings, Inc. of approximately $6,200,000 partially offset by a decrease in the value of Stealth MediaLabs, Inc. of approximately $4,600,000. The Company’s other investments in thinly traded public companies experienced significant declines totaling approximately $800,000 in their fair market value. The Company’s investments can decrease due to factors that are specific to

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these investments (inability to obtain additional capital, inability to execute their business model, termination of their technology licenses, etc.) or to general marketplace factors As a result of all these changes in market value, the net value of our publicly traded securities increased by approximately $800,000.

A summary of the Company’s investment portfolio is as follows:


	September 30,			December 31,
	2003			2002
	(Unaudited)

Investments, at cost	$	11,051,203		$	9,541,631
Unrealized depreciation, before income tax		(2,570,434	)		(3,333,541	)

Investments, at fair value	$	8,480,769		$	6,208,090

Following an initial investment in a portfolio company, the Company may make additional investments in such portfolio company or subsequent acquirer in order to: (1) increase its ownership percentage; (2) exercise warrants or options that were acquired in a prior financing; (3) preserve the Company’s proportionate ownership in a subsequent financing; (4) transfer additional technologies to enhance the portfolio company’s intellectual capital or (5) attempt to preserve or enhance the value of the Company’s investment. Such additional investments are referred to as “follow-on” investments. There can be no assurance that the Company will make follow-on investments or have sufficient funds to make additional investments. The failure to make such follow-on investments could jeopardize the viability of the portfolio company, and the Company’s investment or could result in a missed opportunity for the Company to participate to a greater extent in a portfolio company’s successful operations. The Company attempts to maintain adequate liquid capital to make follow-on investments in its private portfolio companies. However, there can be no assurance that the Company will have liquid capital. The Company may elect not to make a follow-on investment either because it does not want to increase its concentration of risk, because it prefers other opportunities, or because it is inhibited by compliance with Business Development Company (BDC) requirements, even though the follow-on investment opportunity appears attractive.

Results of Operations

The Company accounts for its operations under generally accepted accounting principles for investment companies. On this basis, the principal measure of the Company’s financial performance is the “Net increase (decrease) in net assets from operations” which is the sum of three elements. The first element is “Net income (loss) from operations,” which is the difference between the Company’s income from technology transfers, consulting fees, interest, dividends, fees and other income and its operating expenses, net of applicable income tax provision. The second element is “Net realized gain (loss) on investment,” which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, net of applicable income tax provision. The third element, “Increase (decrease) in unrealized appreciation on investments,” is the net change in the fair value of the Company’s investment portfolio, net of increase (decrease) in deferred income taxes that would become payable if the unrealized appreciation were realized through the sale or other disposition of the investment portfolio.

Three months ended September 30, 2003 compared to the three months ended September 30, 2002.

Income from operations. Income from operations increased 150% to $1,723,250 for the three months ended September 30, 2003 from $688,828 for the three months ended September 30, 2002. For the three months ended September 30, 2003, approximately 89% of our income from operations (revenue) was received in the form of equity securities, which was received for the sale of technology rights and for providing consulting services. The increase in income from operations resulted from an increase in the number of technology rights transactions for the quarter ended September 30, 2003. During the three months ended September 30, 2003, we completed three technology rights transactions valued at $1,473,121, compared to two transactions valued at $465,150 for the three months ended September 30, 2002. During the three months ended September 30, 2003, we completed technology transfer transactions with Glotech Industries, Inc. in which we received 2,130,000 shares valued at $.51 per share, with Circle Group Holdings, Inc. in which we received 130,208 shares valued at $.82, and with Sequiam Corporation in which we received 485,000 shares valued at $.27. Our Board of Directors determines the fair value of the shares we receive in the absence of readily available market values. In making its determination, the Board of Directors has considered valuation reports provided by an independent valuation service provider.

Expenses. Total operating expenses for the three months ended September 30, 2003 were $968,778 consisting of salaries and wages of $196,073, professional fees of $258,154, sales and marketing expenses of $256,468, and general and administrative expenses of $258,083. These expenses compared to the $646,302 reported for the three months ended September 30, 2002, consisting of salaries and wages of $180,261, professional fees of $116,090, sales and marketing expenses of $173,137, and general and administrative expenses of $176,814. The 50% increase in total operating expenses was due to

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increased professional fees, greater technology transfer costs, interest expense on loan, increased investment banking fees, and the cost of an increased marketing effort. The 48% increase in sales and marketing expenses was due to costs related to completing additional technology transfer transactions, as well as the additional costs of participating in marketing trade shows. The 49% increase in salaries and wages reflects an increase in salaries for PAX employees, offset by a reduction of UTEK employees. The 122% increase in professional fees is due to an increase in accounting fees associated with the quarterly reviews, an increase in legal fees related to quarterly reviews and capital raising transactions, as well as an increase in valuation costs due to an increasing number of investments. The 46% increase in general and administrative costs is due to interest expense on additional debt financing, increased outside services related to fundraising and an increase in investor relations costs.

Income from operations can vary substantially on a quarterly basis due to the small number and wide range of value of the transactions. Therefore, quarterly income from operations should not be annualized to predict expected annual results.

Net Realized Gains (Losses). Net realized losses before income tax effect on investments amounted to $52,275 for the three months ended September 30, 2003 and were related to sales as follows:


	Number of		Realized
	Shares		Gain (Loss)
Company Name
Innovative Medical Services.		48,940	$	10,821
Clean Water Technologies, Inc.		20,000		(335	)
Sense Holdings, Inc.		28,089		(1,892	)
Circle Group Holdings, Inc.		31,000		50,292
Full Circle Registry, Inc.		98,250		(111,161	)

Total			$	(52,275	)

On a quarterly basis, net realized gains and losses can vary substantially, due to a variety of factors. Therefore, quarterly net realized gains and losses should not be annualized to predict expected annual results, and may not be indicative of future performance.

Changes in Unrealized Appreciation or Depreciation. We determine the value of each investment in our portfolio on a quarterly basis, and changes in value result in unrealized appreciation or depreciation being recognized. At September 30, 2003, approximately 86.6% of our net assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Although many of the securities we hold in our portfolio are quoted on the OTC Bulletin Board or listed on the Nasdaq SmallCap Market, our board of directors is required to fair value price such securities if the validity of the market quotations appears to be questionable, or if the number of quotations is such as to indicate that there is a thin market in the security. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the Board of Directors. In making its determination, our Board of Directors may consider valuation appraisals provided by independent valuation service providers. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we have an indication that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value, where appropriate.

With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities. Restricted and unrestricted publicly traded stocks may also be valued at discounts due to the size of our investment or market liquidity concerns.

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We have retained Bolten Financial Consulting, Inc. to provide us with quarterly valuations of our portfolio of equity securities.

The net unrealized depreciation of investments (net of deferred taxes) decreased by $2,623,202 for the three months ended September 30, 2003, versus an increase in unrealized depreciation of $740,546 for the three months ended September 30, 2002. The net unrealized gains for September 30, 2003 consisted of a net increase in the fair value resulting from the Board of Directors’ valuation of the Company’s assets for the three months ended September 30, 2003. There were increases in value related to our investments in GloTech Industries, Inc., Innovative Medical Services, Inc., Clean Water Technologies, Inc., Peak Entertainment Holdings, Inc., and Circle Group Holdings, Inc.

Our two most significant portfolio investments are in Circle Group Holdings, Inc. and GloTech Industries, Inc. The following is a simplified summary of the methodology that we used to determine the fair value of these investments.

Circle Group Holdings, Inc. At September 30, 2003, the fair value of our investment in Circle Group Holdings, Inc. was approximately $6.6 million. The fair value of our investment in Circle Group Holdings, Inc. increased by approximately $3.0 million for the three months ended September 30, 2003. This increase is due to the approximately 111,000 shares received for technology rights transactions and a 140% increase in the market price per common share of Circle Group Holdings, Inc. in the nine months ended September 30, 2003.

GloTech Industries, Inc. At September 30, 2003, the fair value of our investment in GloTech Industries, Inc. was approximately $1.4 million. The fair value of our investment in GloTech Industries, Inc. decreased by approximately $200,000 for the three months ended September 30, 2003, due to a decline in the market value of the stock.

Nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

Income from operations. Income from operations decreased 3% to $2,834,156 for the nine months ended September 30, 2003 from $2,916,042 for the nine months ended September 30, 2002. As described below, in the nine months ended September 30, 2003 we completed five sales of technology rights valued at $2,035,978, compared to six sales of technology rights valued at $2,088,254 for the nine months ended September 30, 2002. During the nine months ended September 30, 2003, we completed technology rights transactions with Circle Group Holdings, Inc. in which we received 821,429 shares of common stock valued at $.32 per share, Glotech Industries, Inc. in which we received 1,000,000 shares of common stock valued at $.30 per share, GloTech Industries, Inc. in which we received 2,130,000 shares of common stock valued at $.51 per share, Sequiam Corporation in which we received 485,000 shares of common stock valued at $.27 per share and Circle Group Holdings, Inc. in which we received 130,208 shares valued due to a rising market price at an increased $.82. Our Board of Directors determines the fair value of the shares we receive in the absence of readily available market values. In making its determination, the Board of Directors has considered valuation reports provided by an independent valuation service provider.

Expenses. Total operating expenses for the nine months ended September 30, 2003 were $2,484,035 consisting of salaries and wages of $537,489, professional fees of $641,164, sales and marketing expenses of $445,034, and general and administrative expenses of $860,348. These expenses compared to the $2,470,708 reported for the nine months ended September 30, 2002, consisting of salaries and wages of $599,238, professional fees of $427,851, sales and marketing expenses of $613,280, and general and administrative expenses of $830,339. The 27% decrease in sales and marketing expenses was due to lower costs related to travel for sales, a reduction in advertising, and lower costs related to the five technology transfers. The 10% decrease in salaries and wages reflects the reduction of staff in the second quarter of 2003. The 50% increase in professional fees is largely due to the costs associated with a specific first quarter project, as well as increased fees related to the SEC filing reviews and capital raising transactions.

Income from operations can vary substantially on a quarterly basis due to the small number and wide range of values of the transactions. Therefore, quarterly income from operations should not be annualized to predict expected annual results.

Net Realized Gains (Losses). Net realized losses on investments amounted to $227,715 for the nine months ended September 30, 2003 and were related to sales as follows:

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	Number of		Realized
	Shares		Loss
Company Name
Advanced Recycling Sciences, Inc.		9,000	$	(3,556	)
Centrex, Inc.		1,343,400		(160,284	)
Sense Holdings, Inc.		228,089		(8,655	)
Full Circle Registry, Inc.		98,250		(111,161	)
Circle Group Holdings, Inc.		43,000		45,455
Clean Water Technologies, Inc.		20,000		(335	)
Innovative Medical Services, Inc.		48,940		10,821

Total			$	(227,715	)

Net realized gains and losses can vary substantially, due to a variety of factors, on a quarterly basis. Therefore, quarterly net realized gains and losses should not be annualized to predict expected annual results, and may not be indicative of future performance.

Change in Unrealized Appreciation or Depreciation. For a discussion of our fair value methodology and how it affects the net change in unrealized appreciation or depreciation, see “Change in Unrealized Appreciation or Depreciation” included in the “Comparison of Three Months Ended September 30, 2003 and 2002.”

The net unrealized depreciation of investments, net of taxes, decreased by $488,808 for the nine months ended September 30, 2003, compared to an increase in net unrealized depreciation of $2,443,477 for the nine months ended September 30, 2002. The net unrealized losses resulted from the Board of Directors’ valuation of the Company’s assets for the nine months ended September 30, 2003 and 2002. There was an increase in value in the nine months ended September 30, 2003 in our investments in Clean Water Technologies, Inc., Circle Group Holdings, Inc., Prime Pharmaceutical Corporation, Primapharm Funding Corporation, Duraswitch Industries, Inc., Peak Entertainment Holdings, Inc., Circle Group Internet, Inc. and Innovative Medical Services, Inc. Net change in unrealized appreciation or depreciation for the nine months ended September 30, 2003 included those discussed under the caption “Change in Unrealized Appreciation or Depreciation” included in the “Comparison of Three Months Ended September 30, 2003 and 2002.” In addition, the fair value of our investment in StealthMedia Labs, Inc. decreased by approximately $4.0 million for the nine months ended September 30, 2003.

Circle Group Holdings, Inc. At September 30, 2003, the fair value of our investment in Circle Group Holdings, Inc. was approximately $6.6 million. The fair value of our investment in Circle Group Holdings, Inc. increased by approximately $6.6 million before tax effect for the nine months ended September 30, 2003. This increase is due to the approximately 945,000 shares received for technology rights transactions and an approximately 7,600% increase in the market price per common share of Circle Group Holdings, Inc. in the nine months ended September 30, 2003.

StealthMedia Labs, Inc.At September 30, 2003, the fair value of our investment in StealthMedia Labs, Inc. was nil. The fair value of our investment in StealthMedia Labs, Inc. decreased by approximately $4.0 million for the nine months ended September 30, 2003. This decrease was due to publicly-disclosed information about its failing financial condition and agreement to sell a substantial number of shares for eight cents per share.

Liquidity and Capital Resources

Our primary source of liquidity and capital for the three months ended September 30, 2003 was from the completion of two private placements of our securities and loan proceeds, as described below. Our income from operations consists primarily of the sale of technology rights and consulting income from strategic alliances for equity securities rather than cash. Our goal is to monetize the equity stakes we receive in consideration for the technology rights transactions. Until the proceeds from these sales cover our operating expenses, we will seek additional equity or debt financing as needed. Management believes it has the necessary resources on hand to fund its operations for the next twelve months.

On September 30, 2003 and December 31, 2002, we had $2,157,914 and $745,926, respectively, in cash and cash equivalents.

In April 2003, the Company completed a private placement transaction of 330,000 shares of its common stock at $3.00 per share. The purchasers of the shares of common stock agreed not to sell or otherwise transfer the shares for a period of one-year after the completion of the private placement transaction. In addition, the purchasers of the shares of common stock were granted certain piggyback registration rights, which will allow them to include their shares in a registered offering initiated by

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the Company within the next twelve months. The net proceeds after deducting investment banking fees of $99,500 was $890,500.

In August 2003, the Company completed a private placement transaction of 146,450 shares of its common stock at $6.00 per share. The purchasers of the shares of common stock agreed not to sell or otherwise transfer the shares for a period of one-year after the completion of the private placement transaction. The net proceeds after investment banking fees of $96,444 was $782,256.

In August 2003, 50,000 employee stock options were exercised which resulted in the issuance of 50,000 shares of common stock and net proceeds to the Company of $282,000.

The total net proceeds of all of these equity transactions to UTEK Corporation, after deducting investment banking fees was $1,954,756.

In April 2003, the Company also obtained a loan for $1,000,000 at 12% per annum with interest paid in advance, which resulted in net proceeds of $760,000 with an effective interest rate of approximately 14%. The term of the loan is two years, and no principal payments are required prior to maturity. The loan is non-recourse except with respect to 360,360 unissued shares of common stock of the Company pledged as collateral under the loan.

Currently, our income from operations consists primarily of the sale of technology rights and the consulting income from strategic alliances for equity securities rather than cash. The equity securities that we receive are generally illiquid and subject to restrictions on resale or transferability. Thus, we have decided to focus on growing the amount of cash we generate from our operations. To augment our current business, we may seek to grow the amount of cash generated from our operations through the acquisition of businesses, whether or not complementary to our business, with proven cash flow revenue streams. In this regard, we believe that there may be a number of opportunities to accomplish our goal through the acquisition of businesses in the real estate service industry, including title insurance companies, and other related businesses. We intend to finance most acquisitions through the issuance of our equity securities. There can be no assurance that we will be able to identify and make acquisitions on acceptable terms or that we will be able to obtain financing for such acquisitions on acceptable terms.

In addition, to augment our net assets, we may acquire real estate through the issuance of our equity securities. Even if we complete these acquisitions, we may experience:

• delays in realizing the benefits of any acquired company or product lines;

• diversion of our management’s time and attention from our business;

• adverse market reaction;

• difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions; or

• additional risks we may assume in connection with our acquisitions.

Risk Factors

Investing in the Company involves a number of significant risks relating to its business and investment objective. As a result, there can be no assurance that the Company will achieve its investment objective. In addition to the risk factors described below, other factors that could cause actual results to differ materially include:

• the ongoing global economic downturn;

• risks associated with possible disruption in the Company’s operations due to terrorism;

• future regulatory actions and conditions in the Company’s operating areas; and

• other risks and uncertainties as may be detailed from time to time in the Company’s public announcements and SEC filings.

The Company’s financial results are largely dependent upon the performance of Circle Group Holdings, Inc.

The Company’s financial results are largely dependent upon the performance of Circle Group Holdings, Inc. As of September 30, 2003, the value of its investment in Circle Group Holdings, Inc. was approximately $6.6 million or 68% of its net assets.

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The Company’s financial results are largely dependent upon the performance of Glotech Technologies, Inc.

The Company’s financial results are largely dependent upon the performance of Glotech Technologies, Inc. As of September 30, 2003, the value of its investment in GloTech Industries, Inc. was approximately $1.3 million or 13% of its net assets.

We may need to undertake additional financings to continue our operations.

We anticipate that cash revenue from our operations for the foreseeable future will not be sufficient to meet our operating and capital requirements. As a result, we will likely be required to undertake additional financings to continue our operations. We have no commitments for any financings, and there can be no assurance that any such commitments can be obtained on terms acceptable to us, if at all. Any equity financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to raising future capital and other financial and operational matters. If we are unable to obtain financing as needed, we may be required to reduce the scope of our operations, which could have a material adverse effect on us.

Our quarterly and annual results could fluctuate significantly.

The Company’s quarterly and annual operating results could fluctuate significantly due to a number of factors. These factors include the small number and range of values of the transactions that are completed each quarter, fluctuations in the values of our investments, the timing of the recognition of unrealized gains and losses, the degree to which we encounter competition in our markets, the volatility of the stock market and its impact on our unrealized gains and losses, as well as other general economic conditions. As a result of these factors, quarterly and annual results are not necessarily indicative of the Company’s performance in future quarters and years.

Our investment model is highly speculative in nature and our history of using the model is limited.

Our investment model is highly speculative since it involves making investments in new development stage companies and having those companies invest in new, untested technology. Furthermore, we have only been using our investment model for a relatively short period of time and have little or no historical information upon which to judge whether or not the model is successful. We cannot assure you that our investment model will be successful or that any of our investments will be successful.

Our portfolio companies are development stage companies dependent upon the successful commercialization of new technologies. Each of our investments in portfolio companies is subject to a high degree of risk and we may lose all of our investment in a portfolio company if it is not successful.

We invest in development stage companies that our management believes can benefit from our expertise in technology transfer. Development stage companies are subject to all of the risks associated with new businesses. In addition, our portfolio companies are also subject to the risks associated with research and development of new technologies. These risks include the risk that new technologies cannot be identified, developed or commercialized, may not work, or become obsolete. Our portfolio companies must successfully acquire licenses to new technologies, and in some cases further develop new technologies. We cannot assure you that any of our investments in our portfolio companies will be successful. Our portfolio companies will be competing with larger, established companies, with greater access to, and resources for, further development of these new technologies. We may lose our entire investment in any or all of our portfolio companies.

Our portfolio companies depend upon the research and development activities of universities and research laboratories, over which neither our portfolio companies nor we have any control.

Our portfolio companies depend upon the research activities of universities and government research facilities. Neither we, nor our portfolio companies, have any control over the research activities of universities and research laboratories. As neither we, nor our portfolio companies provide supervision of any university or laboratory research, we cannot warrant that the research will be done properly and that the results, which we may license will be reproducible. In addition, we have no control over what types of research are presented to us by universities and government research facilities for evaluation and commercial development. Further, the licenses to technologies that our portfolio companies obtain may be non-exclusive. In the event that we make an investment in a portfolio company, and we are unable to locate a new technology to be acquired by the portfolio company, we could lose our entire investment.

Technologies acquired by our portfolio companies may become obsolete before we can sell their securities.

Neither our portfolio companies nor we have any control over the pace of technology development. There is a significant risk that a portfolio company could acquire the rights to a technology that is currently or is subsequently made obsolete by other

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technological developments. We cannot assure you that any of our portfolio companies will successfully acquire, develop and transfer any new technology.

The patents on the technologies that our portfolio companies license may infringe upon the rights of others and patent applications that the universities have submitted may not be granted.

Many of our portfolio companies rely upon patents to protect the technologies that they license. If the patents on technologies that they license are found to infringe upon the rights of others, or are held to be invalid, then the licenses to such technologies will have little or no value to our portfolio companies. In addition, if a patent licensed by a portfolio company is found to infringe upon the rights of others, the portfolio company may be liable for monetary damages. Our portfolio companies are dependent upon the universities or government research facilities to file, secure and protect patents on licensed technologies. In the event that a patent is challenged or violated, our portfolio companies may not have the financial resources to defend the patent either in the preliminary stages of litigation or in court. In addition, if our portfolio companies acquire licenses to technologies with patents pending, we cannot assure you that such patents will be granted.

Technologies that have been developed with funding from the United States government may have limits on their use, which could affect the value of the technology to a portfolio company.

Technologies developed with funds provided by the United States government have restrictions regarding where they may be sold and have limits on exclusivity. A portfolio company that acquires a technology developed with federal funding may be limited as to where it can sell the technology. The technology may only be allowed to be sold or manufactured within the United States. In addition, under Section 23 of the United States Code, the U.S. government has the right to use technologies that it has funded regardless of whether the technology has been licensed to a third party. Such regulations may limit the marketability of a technology and therefore reduce the value of the technology to our portfolio companies.

We may need to make additional cash investments in our portfolio companies to provide them with capital to further develop licensed technologies.

We may have to make additional cash investments in our portfolio companies to protect our overall investment value in the particular company. We retain the discretion to make any additional investments as our management determines. The failure to make such additional investments may jeopardize the continued viability of a portfolio, and our initial (and subsequent) investments. Moreover, additional investments may limit the number of companies in which we can make initial investments. We have no established criteria in determining whether to make an additional investment except that our management will exercise its business judgment and apply criteria similar to those used when making the initial investment. We cannot assure you that we will have sufficient funds to make any necessary additional investments, which could adversely affect our success and result in the loss of a substantial portion or all of our investment in a portfolio company.

We may be unable or decide not to make additional investments in our portfolio companies which could result in our losing our initial investment if the portfolio company fails. Our ownership and control may be diluted if a portfolio company obtains additional funds from third-party investors.

Our agreement with third-party investors restricts the size of our investment in any single portfolio company and, as a result, could prohibit an additional investment in a portfolio company in the event that our initial investment represented 10% or more of our assets. Even if we are able to make an additional investment in a portfolio company within the prescribed limits, we may elect not to make an additional investment in a portfolio company in order to limit the size of our investment, which is at risk. It is also our policy not to make loans to our portfolio companies that in the aggregate exceed 25% of our net assets. Therefore, if a portfolio company requires additional funds to continue operating, and we cannot or choose not to make an additional investment, our investment in the portfolio company may decline in value. In addition, to the extent that a portfolio company seeks additional financing from third parties, our ownership interest and control of the portfolio company may be diluted.

The securities we hold in our portfolio companies are subject to restriction on resale and we may not be able to sell the securities we hold for amounts equal to their recorded value, if at all.

Our portfolio companies are all private entities or thinly traded public companies and we acquire securities in our portfolio company in private transactions. As a result, all of the securities we hold in our portfolio companies are restricted securities, as defined under the Securities Act of 1933, and are subject to restrictions on resale. Furthermore, we do not anticipate that a highly liquid public market will exist for any of the securities we hold in our portfolio companies. Therefore, we cannot assure you that we will be able to sell our portfolio company securities for amounts equal to the values that we have ascribed to them or at the time we desire to sell.

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We are dependent on merger transactions, structured as tax-free exchanges to sell our subsidiary companies. A change in the Internal Revenue Code affecting tax-free exchanges could reduce our ability to sell our subsidiary companies.

We do not anticipate selling any of our subsidiary companies, except in connection with merger transactions. We anticipate that most, if not all, of such merger transactions will be structured as tax-free exchanges under Section 368 of the Internal Revenue Code. If Section 368 were to be amended so that we were no longer able to structure our merger transactions as tax-free exchanges, we may not be able to sell our subsidiary companies on commercially reasonable terms. If we are unable to successfully sell our subsidiary companies in a merger transaction, we may lose our investment.

The agreements we have with universities do not guarantee that the universities will grant licenses to our subsidiary companies.

The agreements that we have entered into with universities provide us with the ability to evaluate the commercial potential for technologies at an early stage of development. These agreements, however, do not provide us with any guarantee that following our evaluation, a university will grant us a license. As a result, we may expend time and resources evaluating a technology and not be able to secure a license to such technology for one of our subsidiary companies.

We are dependent upon our management’s ability to identify portfolio companies to acquire our subsidiary companies.

Our investment strategy is based upon selling our subsidiary companies in stock for stock exchanges to portfolio companies that wish to acquire the technologies owned by our subsidiary companies but which they may be neither operating nor established. We do not expect to sell any securities of our subsidiary companies to the public. Therefore, if we fail to identify a portfolio company to acquire a subsidiary company, our entire investment could be lost.

We are dependent upon and have little or no control over the efforts of portfolio companies to successfully commercialize the acquired technologies or to retain the license to the technology.

We receive common stock from the portfolio company based upon the mutually agreed upon values of the subsidiary company, its licensed technology and the portfolio company. We then intend to sell the securities that we acquire in exchange for our subsidiary companies at some time in the future. Therefore, our ability to profit from an investment is ultimately dependent upon the price we receive for the shares of the portfolio company. In most cases, the companies that acquire our subsidiary companies will be dependent upon successfully commercializing the technologies they acquire. We do not have control over the portfolio companies that acquire our subsidiary companies. These portfolio companies may face intense competition, including competition from companies with greater financial resources, more extensive research and development, manufacturing, marketing and service capabilities and a greater number of qualified and experienced managerial and technical personnel. They may face additional risks of product and technological obsolescence and government regulation over which we will have little or no control. They may need additional financing which they are unable to secure and we are unable or unwilling to provide or they may be subject to adverse developments unrelated to the technologies they acquire. They may lose the rights granted to them for the technology for failure to comply with the license agreement. We cannot assure you that any of the portfolio companies will be successful or that we will be able to sell the securities we receive at a profit or for sufficient amounts to even recover our initial investment in the portfolio companies or that our portfolio companies will not take actions that could be detrimental to us.

Our investments are in development stage companies and, as a result, the value of the securities that we receive in such merger transactions is subject to significant fluctuations.

Historically we have merged, and we intend to continue to merge, our subsidiary companies with companies in related fields that are development stage companies. In addition, the companies for which we render services in connection with strategic alliances are development stage companies. As a result, the securities that we receive in such transactions are subject to all of the risks associated with securities of development stage companies. The values of these securities may be subject to significant fluctuations. We cannot assure you that when we sell these securities we will receive the value ascribed to the securities either at the time of acquisition or during subsequent valuation periods.

Our investments in our portfolio companies may be concentrated in one or more industries and if these industries should decline or fail to develop as expected our investments will be lost.

Our investments in our portfolio companies may be concentrated in one or more industries. This concentration will mean that our investments will be particularly dependent on the development and performance of those industries. Accordingly, our investments may not benefit from any advantages, which might be obtained with greater diversification of the industries in

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which our portfolio companies operate. If those industries should decline or fail to develop as expected, our investments in our portfolio companies in those industries will be subject to loss.

We generally receive equity securities as payment for the services we render, rather than cash. The securities that we receive will be subject to restrictions on resale, which will limit our ability to sell these securities and attain liquidity.

The securities that we receive are subject to restrictions on resale, which will limit our ability to sell these securities. As of September 30, 2003, all of the securities we have received are “restricted securities,” as such term is defined under Rule 144 of the Securities Act of 1933. These shares are restricted securities because they were issued in private transactions not involving a public offering and may not be sold in the absence of registration other than in accordance with Rule 144 under the Securities Act of 1933 or another exemption from registration. As a result of such restrictions, our ability to sell or otherwise transfer the securities will be limited. We cannot assure you that we will be able to receive upon resale, the recorded value of our portfolio company securities.

We may not be able to merge our subsidiary companies with publicly traded entities and so we may receive non-publicly traded securities in exchange for our subsidiary companies. We may be required to sell the securities we receive at a substantial discount to their fair value if no public market exists.

At September 30, 2003, we have completed twenty-six sales of subsidiary companies. Of these sales, eighteen have been to companies that are currently publicly traded, and the remaining transactions have been with privately-owned companies. We are substantially dependent upon the ability of non-public acquirers of our subsidiary companies to implement a plan, which would facilitate a trading market for their securities, or other strategy, which would allow for the potential sale of our ownership interest. In addition, to the extent that we own more than 10% of an portfolio company’s shares, we may be deemed to be an affiliate of the portfolio company which would limit our ability to dispose of securities we receive for our subsidiary companies. Further, our ability to sell the securities we receive for our subsidiary companies may be limited by, and subject to, the lack of or limited nature of a trading market for the securities and the volatility of the stock market as a whole. Such limitations could prevent or delay any sale of our investments or significantly reduce the amount of proceeds, if any that might otherwise be realized therefrom.

Substantially all of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty regarding the value of our portfolio investments.

At September 30, 2003 and December 31, 2002, respectively, investments amounting to $8,480,769 or 86.6% of net assets and $6,208,090 or 84.5% of net assets, have been valued at fair value as determined by our Board of Directors. Pursuant to the requirements of the 1940 Act, the Board of Directors is responsible for determining in good faith the fair value of our investments for which market quotations are not readily available. Since there is typically no readily available market value for the investments in our portfolio, our Board of Directors determines in good faith the fair value of these investments pursuant to a valuation policy and a consistently applied valuation process. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to sell any of such investments, there is no assurance that the fair value, as determined by the Board of Directors, would be obtained. If we were unable to obtain fair value for such investments, there would be an adverse effect on our net asset value and on the price of our common stock.

We adjust quarterly the valuation of our portfolio to reflect the Board of Directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as “Change in unrealized appreciation (depreciation) of non-controlled affiliate investments.”

Your ownership interest and the value of the shares of our common stock may be diluted by the exercise of stock options and warrants we have granted or may grant in the future.

We have adopted two stock option plans under which certain of our employees, officers and directors may be granted options. As of September 30, 2003, we have granted options to purchase 630,017 shares of our common stock to certain officers and employees. We have also reserved an additional 59,983 shares of our common stock for issuance under our two stock option plans to key employees and directors. In addition, we have issued warrants to the underwriter of our initial public offering, upon payment of the purchase price of $.0003 per warrant, to purchase 100,000 shares of common stock at an exercise price of $9.90 per share. The warrants expire on October 25, 2005. The issuance and sale of these shares of common stock will dilute the ownership interest of investors and may have an adverse effect on the price of our common stock.

Our business depends on key personnel.

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We rely, and will continue to be substantially dependent upon, the continued services of our management, principally our Chief Executive Officer and Chairman of the Board, Clifford M. Gross. Our management team is responsible for the review of potential investments by and the provision of advice to our portfolio companies regarding the acquisition of technologies and additional research and development. We also depend upon our management’s key contacts with universities, to maintain our access to new technologies, and their relationships with companies in the private sector in order to effectuate the sale of our subsidiaries.

Any transactions we engage in with affiliates may involve conflicts of interest.

The 1940 Act restricts transactions between the Company and any of its affiliates, including its officers, directors or employees and principal stockholders. In many cases, the 1940 Act prohibits transactions between such persons and ourselves unless we first apply for and obtain an exemptive order from the SEC. Delays and costs in obtaining necessary approvals may decrease or even eliminate any profitability of such transactions or make it impracticable or impossible to consummate such transactions. These affiliations could cause circumstances that would require the SEC’s approval in advance of proposed transactions by us in portfolio companies. Further, depending upon the extent of our management’s influence and control with respect to such portfolio companies, the selection of the affiliates of management to perform such services may not be a disinterested decision, and the terms and conditions for the performance of such services and the amount and terms of such compensation may not be determined at arm’s-length negotiations.

We have a limited amount of funds available for investment in either portfolio or subsidiary companies and, as a result, our investments will lack diversification.

Based on the amount of our existing available funds, it is unlikely that we will be able to commit our funds to investments in, and the acquisition of, securities of a large number of companies. We intend to continue to operate as a non-diversified investment company within the meaning of the 1940 Act. Prospective investors should understand that our current investments are not, and in the future may not be, substantially diversified. We will not be able to achieve the same level of diversification as larger entities engaged in similar venture capital activities. Therefore, our assets may be subject to greater risk of loss than if they were more widely diversified, because the failure of one or more of our limited number of investments would have a material adverse effect on our financial condition and the price of our common stock.

If our portfolio companies fail to comply with the requirements of the forum in which their securities are quoted or the trading market on which their securities are listed, the liquidity and prices of our investments would be materially adversely affected.

At September 30, 2003, $8,424,264 or 73% of our total assets consisted of investments at fair value in companies whose securities are quoted on the OTC Bulletin Board or listed on the Nasdaq SmallCap Market. In order for the securities of our portfolio companies to be eligible for continued quotation on the OTC Bulletin Board or listing on the Nasdaq SmallCap Market, our portfolio companies must remain in compliance with certain standards. Among other things, these standards require that our portfolio companies remain current in their filing with the SEC and comply with certain of the provisions of the Sarbanes-Oxley Act of 2002. If our portfolio companies are no longer in compliance with these requirements, there would be no forum or market for the quotation or listing of the securities of our portfolio companies. Without such a forum or market, the liquidity and prices of our investments would be materially adversely affected. We cannot give any assurance that our portfolio companies will remain in compliance with the requirements to be quoted on the OTC Bulletin Board or listed on the Nasdaq SmallCap Market.

We are subject to government regulations because of our status as a business development company.

We have elected to be treated as a Business Development Company or BDC under the Small Business Incentive Act of 1980, which modified the 1940 Act. Although the Incentive Act relieves BDCs from compliance with many of the provisions of the 1940 Act, the Incentive Act imposes on BDCs greater restrictions on permitted types of investments. Moreover, the applicable provisions of the 1940 Act impose numerous restrictions on our activities, including restrictions on the nature of our investments and transactions with affiliates. We cannot assure you that this legislation will be interpreted or administratively implemented in a manner consistent with our objectives and manner of operations. Upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we elect to withdraw our election, or if we otherwise fail to qualify as a BDC, we may be subject to substantially greater regulation under the 1940 Act. Compliance with such regulations would significantly increase our costs of doing business.

We have a limited operating history upon which you can assess our prospects and we are subject to the risks associated with any new business.

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As a result of our short history of operations, we have only consummated transactions with a very small number of companies. Therefore, there is little historical information regarding our operations upon which you can base your investment decision. In addition, we are subject to all of the business risks and uncertainties associated with any new business enterprise. We cannot assure you that our investment objective will be attained.

Our management has limited experience operating a technology transfer business, and managing and operating a business development company.

The members of our management have been engaged in the operation of our business for a short period of time and so have limited experience. Some of our directors and executive officers only have experience in science and research. Furthermore, we commenced operations as a business development company in September 2000 and so our directors and executive officers have only had limited experience operating a business development company. In addition, our management has had limited experience in the areas of corporate finance and corporate mergers.

One of our current stockholders has significant influence over our management and affairs.

Clifford M. Gross, our Chief Executive Officer and Chairman, beneficially owns approximately 44% of our common stock as of September 30, 2003. Therefore, Dr. Gross will be able, among other things, to elect directors, change our investment policies, and withdraw our election to operate as a BDC.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

There has been no material change in the qualitative and quantitative disclosures about market risk since December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934) as of the end of period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be disclosed in the reports it files or submits under the Securities Exchange Act of 1934.

Internal controls

There been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2003 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Although the Company may from time to time be involved in litigation and claims arising out of its operations in the normal course of our business, as of September 30, 2003, the Company was not a party to any material pending legal proceedings.

Item 2. Changes in Securities and Use of Proceeds

On August 28, 2003, we issued 146,450 shares of our common stock for an aggregate offering pricing of $878,700 pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. GunnAllen Financial, Inc. acted as the placement agent in connection with the offering of such shares and received an aggregate commission of $96,444 for its services in connection therewith.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits and Reports on Form 8-K

(a) List of exhibits.

a. 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.

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

The Company filed a Current Report on Form 8-K pursuant to Item 5 on September 3, 2003 regarding the disposition of Sports Technologies, Inc., its wholly owned subsidiary, to GloTech Industries, Inc., and the issuance of a press release announcing the closing of such transaction.

The Company filed a Current Report on Form 8-K pursuant to Item 5 on September 9, 2003 announcing that Ernst & Young LLP (“Ernst & Young”) resigned as UTEK Corporation’s (“UTEK”) independent certified public accountants effective immediately.

The Company filed a Current Report on Form 8-K/A pursuant to Item 5 on September 16, 2003 announcing that UTEK Corporation has engaged Pender Newkirk & Company to serve as its independent public accountants for the fiscal year ending December 31, 2003.

The Company filed a Current Report on Form 8-K pursuant to Item 5 on September 16, 2003 disclosing that it had completed a private placement transaction of 146,450 shares of its common stock at $6.00 per share. The total net proceeds of these transactions to UTEK Corporation, after deducting investment banking fees in connection with the private placement transaction was $782,256.

The Company filed a Current Report on Form 8-K pursuant to Item 5 on September 17, 2003 regarding the disposition of Fingerprint Detection Technologies, Inc., its wholly owned subsidiary, to Sequiam Corporation.

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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.


		UTEK CORPORATION (Registrant)

Date: November 3, 2003		/s/ Clifford M. Gross

		Clifford M. Gross
		Chairman and Chief Executive Officer

Date: November 3, 2003		/s/ Carole R. Wright

		Carole R. Wright, CPA
		Chief Financial Officer

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(1)		Calculated based on diluted weighted average number of shares outstanding during the period.

(2)		Excluding income taxes

(3)		Ratios are on an annualized basis

	•		The above investments with the exception of Rosbon, LLC are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.

	•		The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Notes 1 and 2 to the consolidated financial statements).

	•		As of September 30, 2003, all of the securities that we own are “restricted securities,” as that term is defined under Rule 144 of the Securities Act of 1933. These securities may not be sold in the absence of registration under the Securities Act of 1933

			or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited.

	•		The Company owns more than 10% of the outstanding common stock of Image Analysis, Inc., Nubar, Inc., Clean Water Technologies, Inc., Rosbon LLC, Stealth MediaLabs, Inc., Circle Group Internet, Inc., Glotech Industries, Inc. and Primapharm Funding Corporation. As such, the Company is deemed to be an affiliate of these companies, as defined under Rule 144 of the Securities Act of 1933.

	•		The above investments with the exception of Rosbon, LLC are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.

	•		The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Notes 1 and 2 to the consolidated financial statements).

	•		As of December 31, 2002, all of the securities that we own are “restricted securities,” as that term is defined under Rule 144 of the Securities Act of 1933. These securities may not be sold in the absence of registration under the Securities Act of 1933 or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited. The Company owns more than 10% of the outstanding common stock of each of the above investments with the exception of Full Circle Registry, Inc., Centrex, Inc., Graphco Technologies, Inc., Prime Pharmaceutical Corporation, Lexon, Inc., Voice and Wireless Corporation, Palladium Communications, Inc., Hydrogen Technology Applications, Inc., Innovative Medical Services, Inc., Sense Holdings, Inc., Advanced Recycling Sciences, Inc. and Group Management

•		Three technology transfers valued at approximately $1,473,000 and strategic alliance agreements and other consulting agreements with earned revenue of approximately $241,000 in the form of stock..

•		A loss on sale, net of income tax benefit of approximately $52,000, as a result of sales of the Company’s investments of $140,000.

•		An increase, net of tax effect, of approximately $2,623,000 in the value of the Company’s investments.

•		The completion of a private placement of 146,450 shares of our common stock for net proceeds of $782,256 and the sale of 50,000 shares of our common stock upon the exercise of stock options for net proceeds of $282,000.

•		The net decrease in total assets, net assets and net asset value during the three months ended September 30, 2002 were primarily attributable to:

•		Two technology transfers valued at approximately $465,000 and strategic alliance agreements and other consulting agreements with earned revenue of approximately $222,000.

•		A decline net of tax effect of approximately $741,000 in the value of the Company’s investments.

•		A loss on sale, net of income tax benefit of approximately $34,000, as a result of sales of the Company’s investments of $369,000

•		During the nine months ended September 30, 2003, the Company completed five technology transfer transactions with publicly traded companies. Two transactions were completed with Circle Group Holdings, Inc. and added $369,628 in initial value of investments; two transactions with GloTech Industries, Inc. added $1,535,400 in initial value of investments, as well as a transaction with Sequiam Corporation, which added $130,950 in initial value. Transactions of this nature result in an increase in the value of thinly traded public securities.

•		During the nine months ended September 30, 2003, the Company sold all of its shares in Centrex, Inc. and Sense Holdings, Inc. and a portion of it’s shares in Circle Group Holdings, Inc., Full Circle Registry, Inc., Innovative Medical Services, Inc., and Clean Water Technologies, Inc. As a result of these sales, the value of these thinly traded public traded securities decreased by approximately $373,000. Transactions of this nature result in a decrease in the value of thinly traded public securities.

•		During the nine months ended September 30, 2003, the Company experienced an overall increase in the fair market value of its thinly traded public securities. This increase is primarily attributable to a increase in value of Circle Group Holdings, Inc. of approximately $6,200,000 partially offset by a decrease in the value of Stealth MediaLabs, Inc. of approximately $4,600,000. The Company’s other investments in thinly traded public companies experienced significant declines totaling approximately $800,000 in their fair market value. The Company’s investments can decrease due to factors that are specific to

	•		delays in realizing the benefits of any acquired company or product lines;

	•		diversion of our management’s time and attention from our business;

	•		adverse market reaction;

	•		difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions; or

	•		additional risks we may assume in connection with our acquisitions.

•		the ongoing global economic downturn;

•		risks associated with possible disruption in the Company’s operations due to terrorism;

•		future regulatory actions and conditions in the Company’s operating areas; and

•		other risks and uncertainties as may be detailed from time to time in the Company’s public announcements and SEC filings.

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.