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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, 2004

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 13 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  ¨

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

On October 31, 2004, there were 5,865,466 shares outstanding of the Registrant’s common stock, $0.01 par value.

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UTEK CORPORATION

FORM 10-Q INDEX

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UTEK Corporation

Consolidated Statement of Net Assets

See accompanying notes

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UTEK Corporation

Consolidated Statements of Operations

(Unaudited)

See accompanying notes

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UTEK Corporation

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes

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UTEK Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)

See accompanying notes

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UTEK Corporation

Financial Highlights

(Unaudited)

See accompanying notes

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UTEK CORPORATION

Schedule of Investments

September 30, 2004

(unaudited)

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Notes to Schedule of Investments:

See accompanying notes

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UTEK CORPORATION

Schedule of Investments

December 31, 2003

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Notes to Schedule of Investments:

See accompanying notes

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UTEK Corporation

Notes to Consolidated Financial Statements

(Information as of September 30, 2004 and 2003 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”, “we”, “us” or “UTEK”) as of September 30, 2004 and 2003 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, 2003. Operating results for the three or nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the entire year.

The Company

We are a technology transfer company that assists companies in acquiring technologies from universities and federal research laboratories. Our business model generally involves two steps:

The result is an opportunity for our client-companies to grow and expand their intellectual capital. We call this process U2B^®.

We are dedicated to building brides between university-developed technologies and commercial organizations. We, along with our TechEx, UVentures and Techno-L on-line services and UTEK - Pax, Ltd., our European subsidiary, identify and transfer new technologies from universities and research centers to the marketplace. We also provide research-outsourcing services to companies and technology transfer services to research institutions.

We focus on creating value for universities and laboratory research centers by facilitating the transfer of their intellectual capital to commercial partners. Our client-companies benefit from having the opportunity to acquire and commercialize new technologies primarily developed by universities, medical centers and federal research laboratories.

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 UTEK - Pax Ltd. (formerly 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 UTEK - Pax Ltd. (formerly 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.

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In November 2003, UTEK Corporation acquired the UVentures.com website and certain other intellectual property assets from UVentures, Inc., an innovative Internet-based exchange primarily used for the marketing of physical science technologies developed at universities and research organizations.

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 on behalf of its clients.

Usually we have executed or will execute our investments in portfolio companies through the creation and capitalization of a wholly owned subsidiary company of UTEK, which we refer to as an intellectual property acquisition company, to acquire a new technology. We will then seek to sell such intellectual property acquisition company to a company in a non-taxable exchange of shares. In connection with such transaction, we receive shares of common stock in the company (which company then becomes the portfolio company) in exchange for the securities of our intellectual property acquisition company. In addition to holding a license to a new technology, our intellectual property acquisition company may also hold cash and other assets. The companies which we engage in such transactions frequently have little or no prior operating history.

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

Investments

Pursuant to the requirements of 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 resale are generally valued at a discount from the market value of the securities as quoted on the national securities exchange or national securities association. In addition, restricted and unrestricted 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, 2004 and December 31, 2003, (47.4% and 69.5% 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.

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Revenue Recognition

Sale Of Technology Rights

The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of our intellectual property acquisition companies with companies (which companies then become our 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 rights is unregistered shares of common stock of the portfolio company. 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 transactions, we offer the strategic alliance consulting services. A method of technology transfer already being used by UTEK - Pax Ltd. (formerly Pax Technology Transfer Ltd), strategic alliance services are performed pursuant to service agreements (usually one year in length) in which UTEK 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, UTEK - Pax Ltd. (formerly 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 and UVentures.com websites generally is received in the form of cash and initially is deferred and subsequently recognized ratably over the term of the subscription.

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, 2004, the Company had the following two stock-based equity compensation plans: The UTEK Corporation Amended and Restated Stock Option Plan and UTEK Corporation Amended and Restated Non-Qualified Stock Option Plan. 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 the stock-based employee awards.

The pro forma net increase (decrease) in net assets from operations and basic and diluted earnings per share for the three and nine months ended September 30, 2004 and 2003 would have been as follows:

During the quarter ended September 30, 2004, the Company granted options to purchase 25,000 shares of its common stock.

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2. Investments

Equity securities at September 30, 2004 and December 31, 2003 (47.4 % and 69.5% 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. 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, 2004 and 2003, the Company had established three and four intellectual property acquisition companies, respectively, which had $-0- net assets.

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 34,000 shares.

On June 23, 2003, the Company sold its Advanced Illumination Technologies, Inc. intellectual property acquisition company to GloTech Industries, Inc., (now known as Intra-Asia Entertainment Corp.) 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. intellectual property acquisition company to GloTech Industries, Inc. (now known as Intra-Asia Entertainment Corp.) for 2,130,000 unregistered shares of GloTech Industries, Inc.’s common stock in a non-taxable exchange.

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

On December 3, 2003, the Company received 545,000 unregistered shares of common stock from Magic Media Networks, Inc. in a six-month strategic alliance agreement. The Company has recognized consulting fees to date relating to 545,000 shares.

On December 10, 2003, the Company received 240,000 unregistered shares of common stock from AssureTec Holdings, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 120,000 shares. The strategic alliance was cancelled in June 2004 and 120,000 shares were returned to AssureTec Holdings, Inc.

On December 30, 2003, the Company sold its Medical Safety Technologies, Inc. intellectual property acquisition company to E Med Future, Inc. for 1,250,000 unregistered shares of E Med Future, Inc.’s common stock in a non-taxable exchange.

On January 26, 2004, the Company received 30,000 unregistered shares of common stock from GeneThera, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 21,694 shares. The strategic alliance was cancelled in October 2004.

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On February 18, 2004, the Company received 38,585 unregistered shares of common stock from Telkonet, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 20,668 shares. The strategic alliance was cancelled in July 2004 and 17,917 shares were returned to Telkonet, Inc.

On February 17, 2004, the Company received 705,882 unregistered shares of common stock from ZKid Network Company in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 458,414 shares.

On March 12, 2004, the Company received 100,000 unregistered shares of common stock from Health Sciences Group, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 58,331 shares.

On March 29, 2004, the Company received 200,000 unregistered shares of common stock from Swiss Medica, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 103,835 shares.

On March 30, 2004, the Company entered into a strategic alliance agreement with eFoodSafety.com, Inc. The agreement provides for a total of 244,987 unregistered shares of eFoodSafety.com, Inc.’s common stock to be distributed to the Company pro rata during the term of the agreement. The Company has received 142,856 and recognized to date consulting fees in relation to 129,485 unregistered shares of eFoodSafety.com, Inc.

On April 1, 2004, the Company received 63,157 unregistered shares of common stock from Xethanol Corporation in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 31,578 shares.

On April 5, 2004, the Company received 150,000 unregistered shares of common stock from Manakoa Services Company in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 72,916 shares.

On April 16, 2004, the Company received 240,000 unregistered shares of common stock from Power3 Medical Products, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 49,333 shares. The strategic alliance was cancelled in August 2004 and 160,000 shares were returned to Power3 Medical Products, Inc.

On April 23, 2004, the Company received 133,333 unregistered shares of common stock from The Jenex Corporation in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 133,333 shares.

On April 28, 2004, the Company received 400,000 unregistered shares of common stock from HydroFlo Corporation in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 168,887 shares.

On April 30, 2004, the Company sold its Web Safe Technologies, Inc. intellectual property acquisition company to Xethanol Corporation for 9,550,000 unregistered shares of Zkid Network Company’s common stock in a non-taxable exchange.

On May 27, 2004, the Company entered into a strategic alliance agreement with eLinear, Inc. The agreement provides for a monthly fee of $10,000 per month of unregistered shares of eLinear, Inc. common stock to be distributed to the Company during the term of the agreement. The Company has received 29,558 and recognized to date consulting fees in relation to 29,558 unregistered shares of eLinear, Inc.

On June 25, 2004, the Company sold its Advanced Bioethanol Technologies, Inc. intellectual property acquisition company to Xethanol Corporation for 200,000 unregistered shares of Xethanol Corporation’s common stock in a non-taxable exchange.

On July 1, 2004, the Company entered into a strategic alliance agreement with INyX, Inc. The agreement provides for a total of 126,316 unregistered shares of INyX, Inc. common stock to be distributed to the Company pro rata during the term of the agreement. The Company has received 31,578 and recognized to date consulting fees in relation to 31,578 unregistered shares of INyX, Inc.

On July 8, 2004, the Company received 300,000 unregistered shares of common stock from Veridium Corporation in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 83,000 shares.

On August 2, 2004, the Company sold its Arsenic Removal Technologies, Inc. intellectual property acquisition company to Hydroflo, Inc. for 2,823,529 unregistered shares of Hydroflo, Inc.’s common stock in a non-taxable exchange.

On August 2, 2004, the Company under contract with the Shriners Hospitals for Children assisted the Shriners Hospitals for Children in transferring a tendon replacement technology it had developed and patented to Crystal Point Partners. For part of its consideration for the assistance in the transfer, the Company received 50% of the upfront consideration from the license agreement with Shriners Hospitals for Children and Myrmidon Biomaterials, Inc., which included 100,000 unregistered shares of common stock from Myrmidon Biomaterials, Inc.

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On August 5, 2004, the Company sold its Advanced Cyber Security, Inc. intellectual property acquisition company to Manakoa Services Company for 2,000,000 unregistered shares of Manakoa Services Company ‘s common stock in a non-taxable exchange.

On August 10, 2004, the Company sold its Ice Technologies, Inc. intellectual property acquisition company to Power3 Medical, Inc. for 141,000 unregistered shares of Power3 Medical Products, Inc.’s common stock in a non-taxable exchange.

On September 27, 2004, the Company received 36,923 unregistered shares of common stock from Material Technologies, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 410 shares.

On September 28, 2004, the Company received 300,000 unregistered shares of common stock from Uniphyd Corporation in a strategic alliance agreement with Global Fasteners, Inc. The Company has recognized consulting fees to date relating to 2,500 shares.

On September 30, 2004, the Company sold its Ethanol Extraction Technologies, Inc. intellectual property acquisition company to Xethanol for 169,230 unregistered shares of Xethanol 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 their license agreements. 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. As of the date of filing, the Company was not aware of any such alleged breaches.

Effective September 1, 2004, the Company entered into a three year employment agreement with its Chief Executive Officer, Clifford M. Gross, providing for an annual base salary of $300,000 for his services. For a discussion of the material terms of such employment agreement, please see the Form 8-K the Company filed with the Securities and Exchange Commission on September 7, 2004.

4. 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.

5. Subsequent Events

On November 2, 2004, the Company’s Chairman and Chief Executive Officer, Clifford M. Gross, established a stock trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. Pursuant to the stock trading plan, Dr. Gross instructed a broker to exercise options to purchase 100,000 shares of the Company’s common stock and sell such 100,000 shares of common stock during the upcoming year. Dr. Gross received the options to purchase 100,000 shares of the Company’s common stock in connection with its initial public offering in October 2000. Such options would otherwise expire in September 2005.

Circle Group Holdings, Inc. represented 26.9% of our net assets at the quarter ended September 30, 2004. On November 2, 2004, the $1.30 market closing price per share of Circle Group Holdings, Inc. on the American Stock Exchange represented a decrease of 28% from the $1.81 market closing price per share on the American Stock Exchange on September 30, 2004. This decline in the market value of Circle Group Holdings, Inc. may have a material negative impact on UTEK’s financial condition from that reported for the period ended September 30, 2004. Management estimates that, based on this decline in the market price for Circle Group Holdings, Inc., the Company’s net asset value per share would decrease by approximately $0.16 per share or 5% from the net asset value per share reported at September 30, 2004.

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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. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our most critical accounting policy relates to the valuation of our 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 investments for which market quotations are not readily available. Although the securities of many of our portfolio companies are quoted on the OTC Bulletin Board or listed on the American Stock Exchange, our Board of Directors is required to determine the fair value of 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 or illiquid market in the security.

We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Our valuation policy considers the fact that no ready market exists for substantially all of the securities in which we invest. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. 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. We will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value.

Our equity interests in portfolio companies for which there is no liquid public market are 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 valuation. The determined values are generally discounted to account for restrictions on resale and minority ownership positions.

The value of our equity interests in public companies for which market quotations are readily available is based on the public market price on the balance sheet date. Securities that carry certain restrictions on resale are typically valued at a discount from the public market value of the security.

General

Our primary investment objective is to increase our net assets by exchanging stock in new companies that we form to acquire intellectual property, which we refer to as an “intellectual property acquisition company,” for cash and other assets upon the completion of technology transfer transactions. We seek to achieve our investment objective by creating intellectual property acquisition companies to identify, license and market new technologies invented primarily by employees of universities and federal research laboratories. We intend to sell our intellectual property acquisition companies principally to privately owned and publicly traded companies (which we refer to as “portfolio companies” or our “investments”) in tax-free stock for stock exchanges. It is our plan that shares of those privately owned and publicly traded companies received in those exchanges will, in the course of our business, be sold for cash or other assets to permit us to acquire additional technologies and to fund our operations. We seek to sell our intellectual property acquisition companies into publicly traded portfolio companies whenever possible, as this provides us with the potential for added liquidity.

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To facilitate establishing on-going consulting engagements with our clients, we have developed a strategic alliance process. Our strategic alliances are designed to help technology companies enhance their new product pipeline through the acquisition of proprietary intellectual capital primarily from universities and federal laboratories. We normally receive unregistered shares of common stock from our clients as payment for the services we render under our strategic alliance consulting engagements. Whenever possible, we will seek to receive cash payments as compensation for our services.

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 $20,580,840 and its net assets were $19,749,886 at September 30, 2004, compared to $12,549,448 and $11,152,370 at December 31, 2003, respectively.

Net assets increased by $8,597,516 in the nine months ended September 30, 2004 and increased by $2,443,234 in the nine months ended September 30, 2003.

Net asset value per share increased to $3.37 per share at September 30, 2004 from $2.23 per share at December 31, 2003.

The changes in total assets, net assets and net asset value per share during the three months ended September 30, 2004 were primarily attributable to:

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

The Company’s common shares outstanding as of September 30, 2004 were 5,865,466, compared to 4,790,550 at December 31, 2003. The number of common shares increased as a result of the issuance of the Company’s common stock in connection with exempt offerings, private placement transactions as well as the issuance of common shares upon the exercise of employee stock options that were exercised during the nine months ended September 30, 2004.

The Company’s financial condition is dependent on a number of factors including the ability to effectuate technology transfer transactions and the performance of the equity investments that we receive for these transfers. 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.

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At September 30, 2004, $8,228,867 or 88% of our investments consisted of equity securities at fair value in thinly traded public companies and $1,135,954 or 12% of our investments consisted of equity securities at fair value in private companies.

At December 31, 2003, $7,661,264 or 99% of our investments consisted of equity securities at fair value in thinly traded public companies and $84,090 or 1% of our investments consisted of equity securities at fair value in private companies.

The net increase in the value of publicly traded securities from $7,745,354 to $9,364,821 in the nine months ended September 30, 2004 is primarily due to the following events:

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

Results of Operations

The principal measure of our financial performance is the “Net increase in net assets from operations” which is the sum of three elements. The first element is “Net income from operations,” which is the difference between our income from technology transfer transactions, consulting fees, interest income, dividends, fees and other income and our operating expenses, net of applicable income tax provision. The second element is “Net realized gain (loss) on investments,” 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, 2004 compared to the three months ended September 30, 2003.

Income from operations. Income from operations increased 18% to $2,040,486 for the three months ended September 30, 2004 from $1,723,250 for the three months ended September 30, 2003. Approximately 71% and 89% of our income from operations (revenue) was received in the form of equity securities for the three months ended September 30, 2004 and September 30, 2003, respectively. The increase in income from operations resulted from completing four technology transfer transactions valued at $1,525,949 during the period ended September 30, 2004, as compared to three technology transfer transactions valued at $1,473,121 during the quarter ended September 30, 2003. In the three months ended September 30, 2004, we rendered services in connection with nineteen strategic alliance agreements (four of which began in the three months ended September 30, 2004) valued at $326,338 (all of such amount was received in the form of unregistered common stock), as compared to seven strategic alliance agreements (none of which began during the quarter ended September 30, 2003) valued at $112,502 (all of such amount was received in the form of unregistered common stock). Income from operations included consulting fees of $128,999 generated from UTEK—Pax Ltd., (formerly known as Pax Technology Transfer, Ltd.) and subscription income from the two websites owned by UTEK comprised the balance of consulting fees. Our Board of Directors

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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 appraisals provided by an independent valuation service provider.

Expenses. Total operating expenses for the three months ended September 30, 2004 were $1,316,429, consisting of salaries and wages of $228,550, professional fees of $122,234, sales and marketing expenses of $693,834, and general and administrative expenses of $271,811. These expenses compared to the $968,778 reported for the three months ended September 30, 2003, 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. The 36% increase in total operating expenses was due to the increased costs of completing four technology transfer transactions, an increase in the number of our sales personnel, extended marketing efforts and investor relations services provided by a third party vendor. It is our intention to continue to grow our sales force by increasing the number of sales personnel in locations around the United States, Europe and Canada. The 17% increase in salaries and wages reflects an increase in the number of employees as well as the increase in the base salary of our Chief Executive Officer. The 171% increase in sales and marketing expenses was due to the increased costs of completing four technology transfer transactions. The 53% decrease in professional fees was due to the lowered costs of quarterly review fees by our registered public accounting firm, as well as a decrease in legal fees. The 5% increase in general and administrative costs was due to the cost of investor and public relations services provided by a third party vendor that were not provided in 2003, an increase in payroll taxes related to an increase in staff, which were partially offset by a reduction in interest expense and certain outside services.

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 gains on investments net of income tax effect amounted to $112,446 for the three months ended September 30, 2004 and were related to sales as follows:

Net realized losses on investments net of income tax effect amounted to $52,275 for the three months ended September 30, 2003 and were related to sales as follows:

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.

Change in Unrealized Appreciation or Depreciation

The net unrealized appreciation on our investments, net of taxes, decreased by $7,787,343 for the three months ended September 30, 2004, compared to net unrealized appreciation of $488,808 on our investments for the three months ended September 30, 2003. The net unrealized appreciation and depreciation consisted of fluctuations in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the three months ended September 30, 2004 and 2003, respectively. There was a significant decrease in fair value in the three months ended September 30, 2004 in our investment in Circle Group Holdings, Inc. at September 30, 2004, as well as minor decreases in some of our other investments.

The Company’s most significant portfolio investment is in Circle Group Holdings, Inc., which represented 26.9% of our net assets at the quarter ended September 30, 2004. The following is a simplified summary of the methodology that we used to determine the fair value of this investment.

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At September 30, 2004, the fair value of our investment in Circle Group was approximately $5.3 million. The value of our investment in Circle Group decreased by approximately $11.2 million before tax effect for the quarter ended September 30, 2004. Approximately 6% of the decrease was a result of the sale of shares in the open market. The remaining decrease in the value of our investment in Circle Group resulted from our Board of Directors determination that our investment in Circle Group had depreciated by 67% because of a decrease in the market price of shares of common stock of Circle Group. The Board of Directors determined that market quotations for shares of common stock of Circle Group on the American Stock Exchange are readily available. As a result, the Board of Directors took the closing market price for a share of common stock of Circle Group on the American Stock Exchange as of September 30, 2004 and then discounted such market price to take in account that the shares of common stock of Circle Group that the Company holds are subject to legal restrictions on resale.

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

Nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.

Income from operations. Income from operations increased 54% to $4,376,172 for the nine months ended September 30, 2004 from $2,834,156 for the nine months ended September 30, 2003. As described below, in the nine months ended September 30, 2004, we completed six technology transfer transactions valued at $2,932,249, compared to five technology transfer transactions valued at $2,035,978 for the nine months ended September 30, 2003. During the nine months ended September 30, 2004, we completed technology transfer transactions with Xethanol Corporation in which we received 200,000 shares of common stock valued at $2.50 per share, with Zkid Network Company in which we received 8,550,000 of unregistered shares of common stock valued at $.106 per share, with Manakoa Services Corporation in which we received 1,900,000 shares of common stock valued at $.27 per share, HydroFlo Inc. in which we received 2,823,529 shares of common stock valued at $.14 per share, with Power 3 Medical, Inc. in which we received 141,000 shares of common stock of Power 3 Medical Products, Inc. valued at $1.38 per share, and with Xethanol Corporation in which we received 169,230 shares of common stock valued at $2.50 per share. In the nine months ended September 30, 2004, we rendered services in connection with twenty-five strategic alliance agreements valued at $823,598 (all of such amount was received in the form of unregistered common stock), as compared to nine strategic alliance agreements valued at $362,457 (all of such amount was received in the form of unregistered common stock) for the nine months ended September 30, 2003. Income from operations included consulting fees of $471,927 from UTEK-Pax Ltd., (formerly known as Pax Technology Transfer, Ltd.) and subscription income from the two websites owned by UTEK comprised the balance of the consulting fees. 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, 2004 were $3,542,335 consisting of salaries and wages of $739,694, professional fees of $367,428, sales and marketing expenses of $1,372,295, and general and administrative expenses of $1,062,938. These expenses compared to the $2,484,035 reported for the nine months ended September 30, 2003, 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. The 43% increase in total operating expenses was due to an increased number of employees, increased costs of completing technology transfer transactions, commissions to outside service providers used strictly to generate strategic alliance agreements and an extended marketing effort at various conferences in order to increase the number of potential strategic alliance customers, increased costs related to investor and public relations, a bonus of $150,000 paid to the Chief Executive Officer of the Company, and increased use of temporary personnel. It is our intention to continue to grow our sales force by increasing the number of sales personnel in locations around the United States, Europe and Canada. The 38% increase in salaries and wages reflects an increase in the number employees, a bonus of $150,000 paid to the Chief Executive Officer of the Company as well as an increase in the base salary of our Chief Executive Officer. The 208% increase in sales and marketing expenses was due to increased costs related to the six technology transfer transactions, commissions paid to outside service providers used strictly to generate strategic alliance agreements and an extended marketing effort at various conferences in order to increase the number of potential strategic alliance customers, and an increase in the number of sales personnel. The 43% decrease in professional fees is largely due a significant decrease in accounting fees, professional fees that were associated with a specific first quarter project in 2003 that were not repeated in 2004, as well as a decrease in legal fees. The 24% increase in general and administrative costs is largely due to the cost of investor and public relations services provided by third party vendors that were not provided in 2003, an increase in the number of temporary staff, an increase in payroll taxes related to an increase in employees, and the increased printing costs of producing our annual report.

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.

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Net Realized Gains (Losses).

Net realized gains on investments net of income tax effect amounted to $1,379,157 for the nine months ended September 30, 2004 and were related to sales as follows: