##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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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



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UTEK CORPORATION

(Exact Name of
Registrant as Specified in its Charter)



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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



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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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##### Table of Contents

UTEK CORPORATION



FORM 10-Q INDEX



|                                                                                                                   |  |   
|------------------------------------------------------------------------------------------------------------------ |  | --
|PART I -
FINANCIAL INFORMATION                                                                                     |  |   
|Item 1.
Financial Statements                                                                                       |  |   
|Consolidated Statement of Net Assets as of September 30, 2004 (unaudited) and December 31, 2003                    |  | 3 
|Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)  |  | 4 
|Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 (unaudited)            |  | 5 
|Consolidated Statements of Changes in Net Assets for the Nine Months Ended September 30, 2004 and 2003 (unaudited) |  | 6 
|Financial Highlights for the Nine Months Ended September 30, 2004 and 2003 (unaudited)                             |  | 7 
|Schedule of Investments as of September 30, 2004 (unaudited) and December 31, 2003                                 |  | 8 
|Notes to Consolidated Financial Statements                                                                         |  | 12
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 18
|Item 3.
Quantitative and Qualitative Disclosures about Market Risk                                                 |  | 30
|Item 4.
Controls and Procedures                                                                                    |  | 30
|                                                                                                                   | 
|PART II -
OTHER INFORMATION                                                                                        |  |   
|Item 1.
Legal Proceedings                                                                                          |  | 30
|Item 2.
Unregistered Shares of Equity Securities and Use of Proceeds                                               |  | 30
|Item 3.
Defaults Upon Senior Securities                                                                            |  | 30
|Item 4.
Submission of Matters to a Vote of Security Holders                                                        |  | 30
|Item 5.
Other Information                                                                                          |  | 30
|Item 6.
Exhibits                                                                                                   |  | 31
|Signatures                                                                                                         |  | 32
|Exhibits                                                                                                           |  |   



Page 2 of 36



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##### Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



UTEK Corporation

Consolidated Statement of Net Assets



|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---------- | - | ----------------- | - | ---------- | -
|                                                                                                                                                                                           |  | September 30, 2004 |            |   | December 31, 2003 |  
|                                                                                                                                                                                           |  | (Unaudited)        |            |   |                   |  
|ASSETS                                                                                                                                                                                     |  |                    |            |   |                   |   |            |  
|Investments in non-controlled affiliates (cost $15,831,470 and $11,861,995 at September 30, 2004 and December 31, 2003,
respectively)                                                      |  | $                  | 9,364,821  |   |                   | $ | 7,745,354  |  
|Cash and cash equivalents                                                                                                                                                                  |  |                    | 6,339,415  |   |                   |   | 3,704,327  |  
|Short-term investments                                                                                                                                                                     |  |                    | 4,020,960  |   |                   |   |           |  
|Accounts receivable, net of allowance for bad debt                                                                                                                                         |  |                    | 69,448     |   |                   |   | 177,138    |  
|Prepaid expenses and other assets                                                                                                                                                          |  |                    | 97,335     |   |                   |   | 200,353    |  
|Deferred tax asset                                                                                                                                                                         |  |                    |           |   |                   |   | 67,075     |  
|Fixed assets, net                                                                                                                                                                          |  |                    | 87,294     |   |                   |   | 44,279     |  
|Goodwill                                                                                                                                                                                   |  |                    | 531,088    |   |                   |   | 523,807    |  
|Intangible assets                                                                                                                                                                          |  |                    | 70,479     |   |                   |   | 87,115     |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|TOTAL ASSETS                                                                                                                                                                               |  |                    | 20,580,840 |   |                   |   | 12,549,448 |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|LIABILITIES                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|Notes payable                                                                                                                                                                              |  |                    |           |   |                   |   | 847,890    |  
|Accrued expenses                                                                                                                                                                           |  |                    | 232,114    |   |                   |   | 187,897    |  
|Deferred revenue                                                                                                                                                                           |  |                    | 421,008    |   |                   |   | 361,291    |  
|Deferred income taxes                                                                                                                                                                      |  |                    | 177,832    |   |                   |   |           |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|TOTAL LIABILITIES                                                                                                                                                                          |  |                    | 830,954    |   |                   |   | 1,397,078  |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|NET ASSETS                                                                                                                                                                                 |  | $                  | 19,749,886 |   |                   | $ | 11,152,370 |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|Commitments and Contingencies                                                                                                                                                              |  |                    |            |   |                   |   |            |  
|Composition of net assets:                                                                                                                                                                 |  |                    |            |   |                   |   |            |  
|Common stock, $.01 par value, 19,000,000 shares authorized; 5,865,466 shares issued and outstanding at September 30, 2004 and 4,790,550 shares
issued and outstanding at December 31, 2003 |  | $                  | 58,655     |   |                   | $ | 47,906     |  
|Common stock subscribed                                                                                                                                                                    |  |                    |           |   |                   |   | 388,412    |  
|Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding                                                                                                  |  |                    |           |   |                   |   |           |  
|Additional paid in capital                                                                                                                                                                 |  |                    | 19,460,693 |   |                   |   | 10,943,549 |  
|Accumulated income:                                                                                                                                                                        |  |                    |            |   |                   |   |            |  
|Accumulated net operating income                                                                                                                                                           |  |                    | 3,840,205  |   |                   |   | 3,303,505  |  
|Net realized gain (loss) on investments, net of income taxes                                                                                                                               |  |                    | 314,161    |   |                   |   | (1,064,996 | )
|Net unrealized depreciation of investments, net of deferred income taxes                                                                                                                   |  |                    | (4,033,249 | ) |                   |   | (2,567,549 | )
|Foreign currency translation adjustment                                                                                                                                                    |  |                    | 109,421    |   |                   |   | 101,543    |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|Net assets                                                                                                                                                                                 |  | $                  | 19,749,886 |   |                   | $ | 11,152,370 |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|Net asset value per share                                                                                                                                                                  |  | $                  | 3.37       |   |                   | $ | 2.33       |  
|                                                                                                                                                                                           |  |                    |            |   |                   |   |            |  



See accompanying notes



Page 3 of 36



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##### Table of Contents

UTEK Corporation

Consolidated Statements of Operations

(Unaudited)



|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                                                                                                                                                                                                                                                                          |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                                                                                                                                                                                                          |  | 2004                            |            |   | 2003                           |   |           | 2004 |  |   | 2003       |  
|Income from operations:                                                                                                                                                                                                                                                                                                   |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Sale of technology rights                                                                                                                                                                                                                                                                                                 |  | $                               | 1,525,949  |   |                                | $ | 1,473,121 |      |  | $ | 2,932,249  |   |  | $ | 2,035,978 |  
|Consulting fees                                                                                                                                                                                                                                                                                                           |  |                                 | 488,387    |   |                                |   | 241,419   |      |  |   | 1,395,046  |   |  |   | 785,971   |  
|Investment income, net                                                                                                                                                                                                                                                                                                    |  |                                 | 26,150     |   |                                |   | 8,710     |      |  |   | 48,877     |   |  |   | 12,207    |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 | 2,040,486  |   |                                |   | 1,723,250 |      |  |   | 4,376,172  |   |  |   | 2,834,156 |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Expenses:                                                                                                                                                                                                                                                                                                                 |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Salaries and wages                                                                                                                                                                                                                                                                                                        |  |                                 | 228,550    |   |                                |   | 196,073   |      |  |   | 739,694    |   |  |   | 537,489   |  
|Professional fees                                                                                                                                                                                                                                                                                                         |  |                                 | 122,234    |   |                                |   | 258,154   |      |  |   | 367,428    |   |  |   | 641,164   |  
|Sales and marketing                                                                                                                                                                                                                                                                                                       |  |                                 | 693,834    |   |                                |   | 256,468   |      |  |   | 1,372,295  |   |  |   | 445,034   |  
|General and administrative                                                                                                                                                                                                                                                                                                |  |                                 | 271,811    |   |                                |   | 258,083   |      |  |   | 1,062,938  |   |  |   | 860,348   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 | 1,316,429  |   |                                |   | 968,778   |      |  |   | 3,542,355  |   |  |   | 2,484,035 |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Income before income taxes                                                                                                                                                                                                                                                                                                |  |                                 | 724,057    |   |                                |   | 754,472   |      |  |   | 833,817    |   |  |   | 350,121   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |  
|Provision for income taxes (benefit)                                                                                                                                                                                                                                                                                      |  |                                 | 251,871    |   |                                |   | (80,672   | )    |  |   | 297,117    |   |  |   | 131,750   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net income from operations                                                                                                                                                                                                                                                                                                |  |                                 | 472,186    |   |                                |   | 835,144   |      |  |   | 536,700    |   |  |   | 218,371   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |  
|Net realized and unrealized gains (losses):                                                                                                                                                                                                                                                                               |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net realized gains (losses) on investments, net of income tax expense (benefit) of $67,843 and $832,094 for the three and nine months ended
September 30, 2004 and $(31,540) and $(137,389) for the three and nine months ended September 30, 2003 respectively                                                           |  |                                 | 112,446    |   |                                |   | (52,275   | )    |  |   | 1,379,157  |   |  |   | (227,715  | )
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |  
|Change in net unrealized appreciation (depreciation) of non-controlled affiliate investments, net of deferred tax expense (benefit) of
($4,698,376) and ($884,311) for the three and nine months ended September 30, 2004 and $1,582,669 and $294,915 for the three and nine months ended September 30, 2003 respectively |  |                                 | (7,787,343 | ) |                                |   | 2,623,202 |      |  |   | (1,465,700 | ) |  |   | 488,808   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net increase (decrease) in net assets from operations                                                                                                                                                                                                                                                                     |  | $                               | (7,202,711 | ) |                                | $ | 3,406,071 |      |  | $ | 450,157    |   |  | $ | 479,464   |  
|                                                                                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net increase (decrease) in net assets from operations per share:                                                                                                                                                                                                                                                          |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Basic                                                                                                                                                                                                                                                                                                                     |  | $                               | (1.28      | ) |                                | $ | 0.79      |      |  | $ | 0.08       |   |  | $ | 0.12      |  
|Diluted                                                                                                                                                                                                                                                                                                                   |  | $                               | (1.28      | ) |                                | $ | 0.76      |      |  | $ | 0.08       |   |  | $ | 0.11      |  
|Weighted average shares:                                                                                                                                                                                                                                                                                                  |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Basic                                                                                                                                                                                                                                                                                                                     |  |                                 | 5,616,324  |   |                                |   | 4,327,698 |      |  |   | 5,417,886  |   |  |   | 4,159,358 |  
|Diluted                                                                                                                                                                                                                                                                                                                   |  |                                 | 5,616,324  |   |                                |   | 4,465,432 |      |  |   | 5,727,547  |   |  |   | 4,194,825 |  



See accompanying notes



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##### Table of Contents

UTEK Corporation

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                                              |  |                                        |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                              |  | For the Nine Months EndedSeptember 30, |           
|                                                                                                                              |  | 2004                                   |            |   | 2003 |  
|Operating Activities:                                                                                                         |  |                                        |            |   |      |   |            |  
|Net increase in net assets from operations                                                                                    |  | $                                      | 450,157    |   |      | $ | 479,464    |  
|Adjustments to reconcile net increase in net assets from operations to net cash used by operations:                           |  |                                        |            |   |      |   |            |  
|Change in net unrealized (appreciation) depreciation of investments                                                           |  |                                        | 2,350,011  |   |      |   | (763,107   | )
|Depreciation and amortization                                                                                                 |  |                                        | 38,180     |   |      |   | 23,074     |  
|(Gain) loss on sale of investments                                                                                            |  |                                        | (2,211,251 | ) |      |   | 365,104    |  
|Deferred income taxes                                                                                                         |  |                                        | 244,907    |   |      |   | 289,276    |  
|Investment securities received from sales of technology rights                                                                |  |                                        | (2,932,249 | ) |      |   | (2,035,978 | )
|Services rendered in exchange for investment securities                                                                       |  |                                        | (689,195   | ) |      |   | (207,577   | )
|Changes in operating assets and liabilities:                                                                                  |  |                                        |            |   |      |   |            |  
|Accounts receivable                                                                                                           |  |                                        | 107,690    |   |      |   |           |  
|Prepaid expenses and other assets                                                                                             |  |                                        | 96,824     |   |      |   | 193,127    |  
|Deferred revenue                                                                                                              |  |                                        | (74,687    | ) |      |   | 15,551     |  
|Accrued expenses                                                                                                              |  |                                        | 44,217     |   |      |   | (28,549    | )
|Income taxes payable                                                                                                          |  |                                        |           |   |      |   | (16,781    | )
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Net cash used in operating activities                                                                                         |  |                                        | (2,575,396 | ) |      |   | (1,686,396 | )
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Investing Activities:                                                                                                         |  |                                        |            |   |      |   |            |  
|Proceeds received on sale of investments                                                                                      |  |                                        | 2,484,204  |   |      |   | 378,744    |  
|Purchase of investments                                                                                                       |  |                                        | (4,507,543 | ) |      |   |           |  
|Purchases of fixed assets                                                                                                     |  |                                        | (65,646    | ) |      |   | (4,130     | )
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Net cash provided by (used by) investing activities                                                                           |  |                                        | (2,088,985 | ) |      |   | 374,614    |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Financing Activities:                                                                                                         |  |                                        |            |   |      |   |            |  
|Net proceeds from issuance of common stock (including the exercise of common stock options)                                   |  |                                        | 7,291,591  |   |      |   | 1,954,756  |  
|Proceeds from long-term borrowings                                                                                            |  |                                        |           |   |      |   | 760,000    |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Net cash provided by financing activities                                                                                     |  |                                        | 7,291,591  |   |      |   | 2,714,756  |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Foreign currency translation adjustment                                                                                       |  |                                        | 7,878      |   |      |   | 9,014      |  
|                                                                                                                              |  |                                       
|Increase in cash and cash equivalents                                                                                         |  |                                        | 2,635,088  |   |      |   | 1,411,988  |  
|                                                                                                                              |  |                                       
|Cash and cash equivalents at beginning of year                                                                                |  |                                        | 3,704,327  |   |      |   | 745,926    |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                                                                    |  | $                                      | 6,339,415  |   |      | $ | 2,157,914  |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  
|Supplemental Disclosures of Non-Cash Investing Activities 125,715 Shares of Common Stock Issued in Settlement of Note
Payable |  | $                                      | 847,890    |   |      | $ |           |  
|                                                                                                                              |  |                                        |            |   |      |   |            |  



See accompanying notes



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##### Table of Contents

UTEK Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)



|                                                                                                                   |  |                                |            |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ---- | - | --------- | -
|                                                                                                                   |  | Nine Months EndedSeptember 30, |           
|                                                                                                                   |  | 2004                           |            |   | 2003 |  
|Changes in net assets from operations:                                                                             |  |                                |            |   |      |   |           |  
|                                                                                                                   |  |                               
|Net income from operations                                                                                         |  | $                              | 536,700    |   |      | $ | 218,371   |  
|Net realized gain (loss) on sale of investments, net of related income taxes                                       |  |                                | 1,379,157  |   |      |   | (227,715  | )
|Change in net unrealized appreciation (depreciation) of investments, net of related deferred taxes                 |  |                                | (1,465,700 | ) |      |   | 488,808   |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Net increase in net assets from operations                                                                         |  |                                | 450,157    |   |      |   | 479,464   |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Capital stock transactions:                                                                                        |  |                                |            |   |      |   |           |  
|Proceeds from and settlement of note payable by issuance of common stock (including the exercise of stock options) |  |                                | 8,139,481  |   |      |   | 1,954,756 |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Net increase in net assets from capital stock transactions                                                         |  |                                | 8,139,481  |   |      |   | 1,954,756 |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Foreign currency translation adjustment                                                                            |  |                                | 7,878      |   |      |   | 9,014     |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Net increase in net assets                                                                                         |  |                                | 8,597,516  |   |      |   | 2,443,234 |  
|Net assets at beginning of year                                                                                    |  |                                | 11,152,370 |   |      |   | 7,346,057 |  
|                                                                                                                   |  |                                |            |   |      |   |           |  
|Net assets at end of period                                                                                        |  | $                              | 19,749,886 |   |      | $ | 9,789,291 |  
|                                                                                                                   |  |                                |            |   |      |   |           |  



See accompanying notes



Page 6 of 36



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##### Table of Contents

UTEK Corporation

Financial Highlights

(Unaudited)



|                                                                                                             |  |                                 |            |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ---------- | - | ---- | - | --------- | -
|                                                                                                             |  | Nine Months Ended September 30, |           
|                                                                                                             |  | 2004                            |            |   | 2003 |  
|PER SHARE INFORMATION (1)                                                                                    |  |                                 |            |   |      |   |           |  
|                                                                                                             |  |                                
|Net asset value, beginning of period                                                                         |  | $                               | 2.33       |   |      | $ | 1.87      |  
|Net increase from operations                                                                                 |  |                                 | .08        |   |      |   | .05       |  
|Net change in realized gains (losses) and unrealized appreciation (depreciation) on investments, after taxes |  |                                 | (.46       | ) |      |   | (.14      | )
|Foreign currency translation adjustment                                                                      |  |                                 |           |   |      |   |          |  
|Net increase from stock transactions                                                                         |  |                                 | 1.42       |   |      |   | .42       |  
|                                                                                                             |  |                                 |            |   |      |   |           |  
|Net asset value, end of period                                                                               |  | $                               | 3.37       |   |      | $ | 2.20      |  
|                                                                                                             |  |                                 |            |   |      |   |           |  
|Per share market value, end of period                                                                        |  | $                               | 15.15      |   |      | $ | 9.25      |  
|                                                                                                             |  |                                 |            |   |      |   |           |  
|RATIOS/SUPPLEMENTAL DATA                                                                                     |  |                                 |            |   |      |   |           |  
|                                                                                                             |  |                                
|Net assets, end of period                                                                                    |  | $                               | 19,749,886 |   |      | $ | 9,789,291 |  
|Ratio of expenses to average net assets (2)                                                                  |  |                                 | 23         | % |      |   | 29        | %
|Ratio of net income to average net assets                                                                    |  |                                 | 3          | % |      |   | 3         | %
|Diluted weighted average number of shares outstanding during the period                                      |  |                                 | 5,727,547  |   |      |   | 4,194,825 |  

---

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

|(0) | Excluding income taxes
|--- | ----------------------



See accompanying notes



Page 7 of 36



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##### Table of Contents

UTEK CORPORATION

Schedule of Investments

September 30, 2004

(unaudited)



|          |  |                            |  |                                                                                                                                                                               |  |               |           |            |   |          
|--------- |  | -------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------- | - | ---------
|Shares    |  | OriginalDate ofAcquisition |  |                                                                                                                                                                               |  | Original Cost |           | Fair Value
|          |  |                            |  | Common stock in non-controlled affiliates47.4% of our net assets                                                                                                             |  |               |           |            |   |          
|1,344,300 |  | 1/99                       |  | ClearImage, Inc., (formerly Image Analysis, Inc.) privately held  0% of our net assets; medical and hospital equipment developer                                             |  | $             | 1,349,775 |            | $ |         
|900,000   |  | 5/99                       |  | Nubar, Inc., privately held0%; developer of construction materials                                                                                                           |  |               | 126,000   |            |   |         
|960,779   |  | 6/99                       |  | Clean Water Technologies, Inc., publicly traded over the counter0.5% of our net assets; environmental services.                                                              |  |               | 568,006   |            |   | 96,078   
|150       |  | 11/99                      |  | Rosbon, LLC,privately held  .3% of our net assets; real estate development                                                                                                   |  |               | 90,705    |            |   | 54,986   
|136,093   |  | 3/00                       |  | Graphco Holdings Corp., publicly traded over the counter  0% of our net assets; developer of e-commerce technologies                                                         |  |               | 959,606   |            |   |         
|2,094,052 |  | 6/00                       |  | Advanced Recycling Sciences, Inc., publicly traded over the counter  0% of our net assets; tire recycling methodologies                                                      |  |               | 1,970,952 |            |   |         
|63,193    |  | 3/01                       |  | ProVision Operation Systems, Inc. (formerly Lexon, Inc., publicly traded over the counter 0% of our net assets; developer of health care technology                          |  |               | 39,614    |            |   |         
|4,221,165 |  | 4/01                       |  | Stealth MediaLabs, Inc. publicly traded over the counter  0% of our net assets; software products                                                                            |  |               | 1,708,000 |            |   |         
|1,493,550 |  | 9/01                       |  | Prime Pharmaceutical Corporation, privately held 0% of our net assets; pharmaceutical developments in dermatology                                                            |  |               | 783,344   |            |   |         
|1,000,000 |  | 11/01                      |  | Primapharm Funding Corporation, privately held0% of our net assets; intellectual property development                                                                        |  |               | 413,617   |            |   |         
|4,000     |  | 11/01                      |  | Peak Entertainment Holdings, Inc. (formerly Palladium Communications, Inc.), publicly traded over the counter  0.1% of our net assets; telecom, educational internet
service |  |               | 12,028    |            |   | 600      
|47,615    |  | 1/02                       |  | Silver Screen Studios, Inc. (formerlyGroup Management Corporation), publicly traded over the counter  0% of our net assets; corporate management                             |  |               | 46,949    |            |   |         
|3,841,745 |  | 1/02                       |  | Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.), publicly traded on the American Stock Exchange  26.9% of our net assets; digital design and
consulting   |  |               | 878,652   |            |   | 5,301,608
|633,750   |  | 2/02                       |  | Voice and Wireless Corporation, publicly traded over the counter  0%; of our net assets; internet/technology services and products                                           |  |               | 53,161    |            |   |         
|48,000    |  | 4/02                       |  | Hydrogen Technology Applications, Inc., privately held  0% of our net assets; developer of energy technology                                                                 |  |               | 14,040    |            |   |         
|200,000   |  | 6/02                       |  | FullCircle Registry, Inc., publicly traded over the counter 0.1% of our net assets; developer of emergency information technology                                            |  |               | 168,192   |            |   | 12,000   
|645,000   |  | 3/03                       |  | Sequiam Corporation, publicly traded over the counter  0.8% of our net assets; developer of biological authentication and biometrics technologies                            |  |               | 185,726   |            |   | 154,800  
|720,637   |  | 4/03                       |  | Intra-Asia Entertainment Corp. (formerly GloTech Industries, Inc.), publicly traded over the counter  0.6% of our net assets; developer of lighted technology devices        |  |               | 1,607,494 |            |   | 122,508  
|1,284,000 |  | 6/03                       |  | E Med Future, Inc., publicly traded over the counter  2.5% of our net assets; manufacturer of needle destruction device                                                      |  |               | 684,909   |            |   | 500,760  
|545,000   |  | 12/03                      |  | Magic Media Networks, Inc., publicly traded over the counter  0.2% of our net assets; operator of digital display monitor networks                                           |  |               | 125,179   |            |   | 37,060   
|3,871     |  | 12/03                      |  | Assuretec Holdings, Inc., privately held  0% of our net assets; security solutions to automate, manage and authenticate identification documents                             |  |               | 15,029    |            |   |         
|30,000    |  | 1/04                       |  | GeneThera, Inc., publicly traded over the counter 0.2% of our net assets; molecular biotechnology products                                                                   |  |               | 64,272    |            |   | 33,300   



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|          |  |      |  |                                                                                                                                                   |  |         |            |         |   |           
|--------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ---------- | ------- | - | ----------
|9,255,882 |  | 2/04 |  | Zkid Network Company, publicly traded over the counter  1.1% of our netassets; developer of proprietary software                                 |  | 963,156 |            | 222,141
|20,668    |  | 2/04 |  | Telkonet, Inc., publicly traded over the counter 0.2% of our net assets; networking and internetworking products                                 |  |         | 39,110     |         |   | 47,536    
|200,000   |  | 3/04 |  | Swiss Medica, Inc., publicly traded over the counter  0.1% of our net assets; developer of bioscience products                                   |  |         | 34,220     |         |   | 11,400    
|100,000   |  | 3/04 |  | Health Sciences Group, Inc., publicly traded over the counter  0.3% of our net assets; nutraceutical, pharmaceutical, and cosmeceutical products |  |         | 76,344     |         |   | 67,000    
|142,856   |  | 3/04 |  | eFoodSafety.com, Inc., publicly traded over the counter 0.2% of our net assets; safety of fruit, vegetables, poultry, beef and seafood           |  |         | 46,268     |         |   | 32,857    
|133,333   |  | 4/04 |  | Jenex Corporation, publicly traded Canadian Venture Exchange  0.1% of our net assets; developer of consumer and healthcare products              |  |         | 25,657     |         |   | 11,200    
|432,387   |  | 4/04 |  | Xethanol Corporation., privately held  5.4% of our net assets; developer of bioethanol products                                                  |  |         | 1,062,023  |         |   | 1,080,968 
|3,223,529 |  | 4/04 |  | HydroFlo Corporation, publicly traded over the counter  2.0% of our net assets; business development company                                     |  |         | 454,969    |         |   | 386,823   
|221,000   |  | 4/04 |  | Power3 Medical Products, Inc., publicly traded over the counter 1.8% of our net assets; developer of healthcare products                         |  |         | 223,984    |         |   | 346,970   
|2,550,000 |  | 4/04 |  | Manakoa Services Company, publicly traded over the counter  3.0% of our net assets; risk management and continuity planning                      |  |         | 815,560    |         |   | 637,500   
|29,999    |  | 7/04 |  | InyX, Inc., publicly traded over the counter  0.1% of our net assets; aerosol drug delivery technologies                                         |  |         | 19,813     |         |   | 21,899    
|295,500   |  | 7/04 |  | Veridium Corp., publicly traded over the counter  0.1% of our net assets; environmental services business                                        |  |         | 39,665     |         |   | 28,959    
|29,558    |  | 7/04 |  | Elinear, Inc., publicly traded on the American Stock Exchange  0.1% of our net assets; technology solutions provider of security                 |  |         | 32,212     |         |   | 22,760    
|300,000   |  | 9/04 |  | Uniphyd., publicly traded over the counter  0.3% of our net assets; develops and operates managed care plans                                     |  |         | 60,071     |         |   | 60,000    
|36,923    |  | 9/04 |  | Material Technologies, Inc., publicly traded over the counter  0.4% of our net assets; research and development of metal fatigue detection       |  |         | 73,170     |         |   | 73,108    
|100,000   |  | 8/04 |  | Myrmidon Biomaterials, Inc., privately held  0.0% of our net assets; commercialize a proprietary biomaterial                                     |  |         |           |         |   |          
|          |  |      |  |                                                                                                                                                   |  |         |            |         |   |           
|          |  |      |  | TOTAL INVESTMENTS47.4%                                                                                                                           |  | $       | 15,831,473 |         | $ | 9,364,821 
|          |  |      |  |                                                                                                                                                   |  |         |            |         |   |           
|          |  |      |  | Cash and other assets, less liabilities52.6%                                                                                                     |  |         |            |         |   | 10,385,065
|          |  |      |  |                                                                                                                                                   |  |         |            |         |   |           
|          |  |      |  | Net assets at September 30, 2004100%                                                                                                             |  |         |            |         | $ | 19,749,886
|          |  |      |  |                                                                                                                                                   |  |         |            |         |   |           



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 September 30, 2004, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer the securities we
hold in our portfolio is limited.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | We own 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
Holdings, Inc. and Primapharm Funding Corporation.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | As of September 30, 2004, the Company did not have sufficient information to determine the fair value of the investment in Myrmidon Biomaterials, Inc.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes



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##### Table of Contents

UTEK CORPORATION

Schedule of Investments

December 31, 2003



|          |  |                            |  |                                                                                                                                                                             |  |               |            |            |   |           
|--------- |  | -------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------- | - | ----------
|Shares    |  | OriginalDate ofAcquisition |  |                                                                                                                                                                             |  | Original Cost |            | Fair Value
|          |  |                            |  | Common stock in non-controlled affiliates69.5% of our net assets                                                                                                           |  |               |            |            |   |           
|1,344,300 |  | 1/99                       |  | ClearImage, Inc., (formerly Image Analysis, Inc.) privately held  0% of our net assets; medical and hospital equipment developer                                           |  | $             | 1,349,775  |            | $ |          
|900,000   |  | 5/99                       |  | Nubar, Inc., privately held0%; developer of construction materials                                                                                                         |  |               | 126,000    |            |   |          
|960,779   |  | 6/99                       |  | Clean Water Technologies, Inc., publicly traded over the counter1.0% of our net assets; environmental services.                                                            |  |               | 568,006    |            |   | 115,294   
|150       |  | 11/99                      |  | Rosbon, LLC, privately held.5% of our net assets; real estate development                                                                                                  |  |               | 90,705     |            |   | 55,290    
|136,093   |  | 3/00                       |  | Graphco Holdings Corp., publicly traded over the counter  0% of our net assets; developer of e-commerce technologies                                                       |  |               | 959,606    |            |   |          
|2,094,052 |  | 6/00                       |  | Advanced Recycling Sciences, Inc., publicly traded over the counter  0% of our net assets; tire recycling methodologies                                                    |  |               | 1,970,952  |            |   |          
|236,000   |  | 3/01                       |  | Lexon, Inc., publicly traded over the counter 0% of our net assets; developer of health care technology                                                                    |  |               | 39,614     |            |   |          
|4,221,165 |  | 4/01                       |  | Stealth MediaLabs, Inc., publicly traded over the counter  0% of our net assets; software products                                                                         |  |               | 1,708,000  |            |   |          
|1,493,550 |  | 9/01                       |  | Prime Pharmaceutical Corporation, privately held 0% of our net assets; pharmaceutical developments in dermatology                                                          |  |               | 783,344    |            |   |          
|1,000,000 |  | 11/01                      |  | Primapharm Funding Corporation, privately held0% of our net assets; intellectual property development                                                                      |  |               | 413,617    |            |   |          
|4,000     |  | 11/01                      |  | Peak Entertainment Holdings, Inc. (formerly Palladium Communications, Inc.), publicly traded over the counter .1% of our net assets; telecom, educational internet
service |  |               | 12,028     |            |   | 1,520     
|47,615    |  | 1/02                       |  | Silver Screen Studios, Inc. (formerlyGroup Management Corporation), publicly traded over the counter  0% of our net assets; corporate management                           |  |               | 46,949     |            |   |          
|3,800,637 |  | 1/02                       |  | Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.), publicly traded over the counter  53.0% of our net assets; digital design and consulting               |  |               | 753,719    |            |   | 5,908,898 
|633,750   |  | 2/02                       |  | Voice and Wireless Corporation, publicly traded over the counter  0%; of our net assets; internet/technology services and products                                         |  |               | 53,161     |            |   |          
|48,000    |  | 4/02                       |  | Hydrogen Technology Applications, Inc., privately held  0% of our net assets; developer of energy technology                                                               |  |               | 14,040     |            |   |          
|388,500   |  | 6/02                       |  | FullCircle Registry, Inc., publicly traded over the counter 0.1% of our net assets; developer of emergency information technology                                          |  |               | 324,002    |            |   | 15,540    
|34,782    |  | 1/03                       |  | Duraswitch Industries, Inc., publicly traded over the counter 0.3% of our net assets; developer of electronic switch technologies                                          |  |               | 29,031     |            |   | 39,999    
|645,000   |  | 3/03                       |  | Sequiam Corporation, publicly traded over the counter  1.4% of our net assets; developer of biological authentication and biometrics technologies                          |  |               | 181,887    |            |   | 154,800   
|3,198,571 |  | 4/03                       |  | GloTech Industries, Inc., publicly traded over the counter  5.2% of ur net assets; developer of lighted technology devices                                                 |  |               | 1,554,218  |            |   | 575,743   
|1,284,000 |  | 6/03                       |  | E Med Future, Inc., publicly traded over the counter  6.1% of our net assets; manufacturer of needle destruction device                                                    |  |               | 685,591    |            |   | 680,520   
|545,000   |  | 12/03                      |  | Magic Media Networks, Inc., publicly traded over the counter 1.5% of our net assets; operator of digital display monitor networks                                          |  |               | 168,950    |            |   | 168,950   
|240,000   |  | 12/03                      |  | Assuretec Holdings, Inc., privately held  0.3% of our net assets; security solutions to automate, manage and authenticate identification documents                         |  |               | 28,800     |            |   | 28,800    
|          |  |                            |  |                                                                                                                                                                             |  |               |            |            |   |           
|          |  |                            |  | TOTAL INVESTMENTS69.5%                                                                                                                                                     |  | $             | 11,861,995 |            | $ | 7,745,354 
|          |  |                            |  |                                                                                                                                                                             |  |               |            |            |   |           
|          |  |                            |  | Cash and other assets, less liabilities30.5%                                                                                                                               |  |               |            |            |   | 3,407,016 
|          |  |                            |  |                                                                                                                                                                             |  |               |            |            |   |           
|          |  |                            |  | Net assets at December 31, 2003100%                                                                                                                                        |  |               |            |            | $ | 11,152,370
|          |  |                            |  |                                                                                                                                                                             |  |               |            |            |   |           



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##### Table of Contents

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, 2003, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer the securities we hold
in our portfolio is limited.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | We own 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
Holdings, Inc., GloTech Industries, Inc. and Primapharm Funding Corporation.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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:



| |  | First, we form a strategic alliance and learn about the technologies that our client-companies need. We then find, acquire and finance new technologies for our client-companies from
universities and research centers worldwide.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Second, we transfer the technologies to our client-companies in exchange for unregistered stock or cash.
| | - | --------------------------------------------------------------------------------------------------------



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:



|                                                                                                                                            |  |                                 |            |   |                                |   |           |      |  |   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                                                            |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                            |  | 2004                            |            |   | 2003                           |   |           | 2004 |  |   | 2003    |  
|Net increase (decrease) in net assets from operations:                                                                                      |  |                                 |            |   |                                |   |           |      |  |   |         |   |  |   |          |  
|As reported                                                                                                                                 |  | $                               | (7,202,711 | ) |                                | $ | 3,406,071 |      |  | $ | 450,157 |   |  | $ | 479,464  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (38,371    | ) |                                |   | (42,327   | )    |  |   | (93,098 | ) |  |   | (211,147 | )
|                                                                                                                                            |  |                                 |            |   |                                |   |           |      |  |   |         |   |  |   |          |  
|Pro forma                                                                                                                                   |  | $                               | (7,241,082 | ) |                                | $ | 3,363,744 |      |  | $ | 357,059 |   |  | $ | 268,317  |  
|Net increase (decrease) in net assets from Operations per share  Basic:                                                                    |  |                                 |            |   |                                |   |           |      |  |   |         |   |  |   |          |  
|As reported                                                                                                                                 |  | $                               | (1.28      | ) |                                | $ | .79       |      |  | $ | .08     |   |  | $ | .12      |  
|Pro forma                                                                                                                                   |  | $                               | (1.29      | ) |                                | $ | .78       |      |  | $ | .07     |   |  | $ | .06      |  
|Net increase (decrease) in net assets from Operations per share  Diluted:                                                                  |  |                                 |            |   |                                |   |           |      |  |   |         |   |  |   |          |  
|As reported                                                                                                                                 |  | $                               | (1.28      | ) |                                | $ | .76       |      |  | $ | .08     |   |  | $ | .11      |  
|Pro forma                                                                                                                                   |  | $                               | (1.29      | ) |                                | $ | .75       |      |  | $ | .06     |   |  | $ | .06      |  



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:



| | Four technology transfers valued at approximately $1.5 million.
|- | ---------------------------------------------------------------



| | The sale of the Companys investments for $209,000.
|- | ---------------------------------------------------



| | An unrealized depreciation on investments of approximately $7.8 million net of income tax benefit, mainly due to the decrease in the value of our investment in Circle Group
Holdings, Inc. At September 30, 2004, Circle Group accounted for over 26% of our net assets.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The issuance of the Companys common stock in an exempt offering and upon the exercise of stock options for approximately $3.8 million.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



| | The use of approximately $1.3 million in cash to fund operations.
|- | -----------------------------------------------------------------



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:



| | Three technology transfers valued at approximately $1.5 million.
|- | ----------------------------------------------------------------



| | The sales of some of the Companys investments for $140,000.
|- | ------------------------------------------------------------



| | An unrealized appreciation on investments of approximately $2.6 million net of income tax benefit, mainly due to the increase in the value of our investment in Circle Group
Holdings, Inc. Circle Group makes up over 26% of our investment portfolio at value.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The issuance of common stock in a private placement transaction and upon the exercise of stock options for approximately $1.1 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------



| | The use of approximately $1.0 million in cash to fund operations.
|- | -----------------------------------------------------------------



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:



| | The Company exercised warrants to purchase 500,000 shares of common stock of Circle Group Holdings, Inc. for $180,000 with a fair value of $2,115,000.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | The Company entered into fifteen new strategic alliance agreements that generated $1.4 million in value.
|- | --------------------------------------------------------------------------------------------------------



| | The Company sold 458,892 of its shares in Circle Group Holdings, Inc. for $2.4 million with a fair value of $1.4 million.
|- | -------------------------------------------------------------------------------------------------------------------------



| | The Company experienced an overall decrease in the value of its public company securities. This decrease is primarily attributable to a decrease in the value of Circle Group
Holdings, Inc., Intra-Asia Entertainment Corp. and E Med Future, Inc. of approximately $1.5 million. The fair value of the Companys other investments remained relatively constant during the nine months ended September 30, 2004. The
Companys investments can decrease due to factors that are specific to these investments (inability to obtain additional capital, inability to execute their business model, termination of their technology licenses, etc.) or to general
marketplace factors.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                                            |  |                             |            |   |                   |   |            |  
|----------------------------------------------------------- |  | --------------------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                            |  | September 302004(Unaudited) |            |   | December 31, 2003 |  
|Investments, at cost                                        |  | $                           | 15,831,473 |   |                   | $ | 11,861,995 |  
|Unrealized appreciation (depreciation), before income taxes |  |                             | (6,466,652 | ) |                   |   | (4,116,641 | )
|                                                            |  |                             |            |   |                   |   |            |  
|Investments, at fair value                                  |  | $                           | 9,364,821  |   |                   | $ | 7,745,354  |  
|                                                            |  |                             |            |   |                   |   |            |  



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:



|                            |  |                 |  |                      |        
|--------------------------- |  | --------------- |  | -------------------- | -------
|Company Name                |  | Number ofShares |  | Realized Gain (Loss)
|Circle Group Holdings, Inc. |  | 70,000          |  | $                    | 94,304 
|Duraswitch Industries, Inc. |  | 21,000          |  |                      | 18,142 
|                            |  |                 |  |                      |        
|Total                       |  |                 |  | $                    | 112,446
|                            |  |                 |  |                      |        



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:



|                               |  |                 |  |                      |          |  
|------------------------------ |  | --------------- |  | -------------------- | -------- | -
|Company Name                   |  | Number ofShares |  | Realized Gain (Loss) |         
|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.



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:



|                            |  |                 |  |                      |           |  
|--------------------------- |  | --------------- |  | -------------------- | --------- | -
|Company Name                |  | Number ofShares |  | Realized Gain (Loss) |          
|Circle Group Holdings, Inc. |  | 458,892         |  | $                    | 1,442,288 |  
|Full Circle Registry, Inc.  |  | 188,500         |  |                      | (85,395   | )
|Duraswitch Industries, Inc. |  | 34,782          |  |                      | 33,226    |  
|Pure Bioscience, Inc.       |  | 35,560          |  |                      | (10,962   | )
|                            |  |                 |  |                      |           |  
|Total                       |  |                 |  | $                    | 1,379,157 |  
|                            |  |                 |  |                      |           |  



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



|                                  |  |                 |  |               |          |  
|--------------------------------- |  | --------------- |  | ------------- | -------- | -
|Company Name                      |  | Number ofShares |  | Realized Loss |         
|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 | )
|                                  |  |                 |  |               |          |  



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.



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, 2004, approximately 47.4% 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 American Stock Exchange, 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.



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 private equity valuation. The determined values
are generally discounted to account for restrictions on resale and minority ownership positions.



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



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.



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



The net unrealized appreciation on our investments, net of taxes, decreased by $1,465,700 for the nine months ended September 30, 2004, compared to net unrealized appreciation of $488,808 on our investments for the nine 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 nine months ended September 30, 2004 and 2003,
respectively. There was a significant decrease in fair value in the nine months ended September 30, 2004 in our investments in Intra-Asia Entertainment Corp., Zkid Network Company, E Med Future, Inc. and Circle Group Holdings, Inc. at September 30,
2004. The fair value of the Companys other investments remained relatively constant during the nine months ended September 30, 2004.



The Companys most significant portfolio investment is in Circle Group Holdings, Inc., which represented 26.9% of our 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.



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 $457,000 before tax effect for the nine months ended September 30, 2004. Approximately 75% 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 2% 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 the 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.



Liquidity and Capital Resources



Net assets increased 77% to $19,749,886 at September 30, 2004 from
$11,152,370 at December 31, 2003. This increase was primarily attributable to the completion of exempt offerings of shares of our common stock and private placement transactions totaling $8 million during the nine months ended September 30, 2004 as
well as net realized gains of approximately $1.4 million, less the $1.5 million decrease in the net unrealized appreciation in the value of our non-controlled affiliate investments.



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 from such transactions are generally illiquid and subject to restrictions on resale or transferability. As a result, our revenue from our operations
for the foreseeable future may not be sufficient to meet our operating and capital requirements. Our primary source of liquidity and capital for the nine months ended September 30, 2004 was from cash received from exempt offerings of our common
stock and private placement transactions totaling $8 million as well as the sales of our investments totaling approximately $2.5 million. We believe that we currently have the financial resources to meet our operating requirements for the next
twelve months. We may however undertake additional equity financings to better enable the Company to meet its future growth, operating and capital requirements.



In January 2004, we completed two private placement transactions for 407,986 shares of our common stock at $7.00 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 total net proceeds received inclusive of the December receipts of $388,412 was
$2,570,312, net of investment banking fees of $285,590.



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In January 2004, we repaid the loan we obtained in April 2003 by issuing 125,715 shares of our common
shares to the lender. The balance owed at the time the shares were issued was $880,000. The shares were issued at an effective value of $7.00 per share.



In April 2004, the Company completed a private placement transaction with accredited investors of 100,000 shares of its common stock at $10.00 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 $100,000 was
$900,000.



In September 2004, the Company completed an exempt
offering with an accredited investor of 350,000 shares of its common stock at $12.15 per share. The net proceeds after expenses related to the offering of $581,758 was $3,670,742.



Recent Developments



On August 1, 2004, we appointed Doug Schaedler as our Chief Operating Officer and Chief Compliance Officer.



On September 8, 2004, the Companys Board of Directors elected Holly
Callen Hamilton to fill a newly created vacancy on the Companys Board of Directors. Ms. Callen Hamilton will serve on the Compensation and Budget Committees of the Companys Board of Directors.



On November 1, 2004, our 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 such options in connection with our 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.



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:



| | changes in the economy;
|- | -----------------------



| | risk 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.
|- | -------------------------------------------------------------------------------------------------------------------------



Our financial results are largely dependent upon the performance of Circle Group Holdings,
Inc.



Our financial results are largely dependent upon the
performance of Circle Group Holdings, Inc. As of September 30, 2004 the value of our investment in Circle Group Holdings, Inc. was approximately $5.3 million or 26.9% of our net assets.



We may need to undertake additional financings to meet our growth, operating and / or capital needs.



We anticipate that monetizable revenue from our operations for the
foreseeable future may not be sufficient to meet our growth, operating and / or capital requirements. We believe that we currently have the financial resources to meet our operating requirements for the next twelve months. We may however undertake
additional equity financings to better enable the Company to meet its future growth, operating and / or capital requirements. 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 expansion and growth plans, as well as operations, which could have a material adverse effect on us.



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Our quarterly and annual results could fluctuate significantly.



Our 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 our 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 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.



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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, 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 company, 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 mainly 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 subject to legal restrictions on resale. Furthermore, our ability to sell the securities in our portfolio may be limited by, and subject to, the lack of or
limited nature of a trading market for such securities. 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.



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



We do not anticipate selling any of our intellectual property acquisition
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 intellectual property acquisition companies on commercially reasonable terms. If we are unable to successfully sell our
intellectual property acquisition 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 us or our intellectual property acquisition 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 intellectual property acquisition companies.



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We are dependent upon our managements ability to identify portfolio companies to acquire our intellectual
property acquisition companies.



Our investment strategy
is based upon selling our intellectual property acquisition companies in stock for stock exchanges to portfolio companies that wish to acquire the technologies owned by our intellectual property acquisition companies but which they may be neither
operating nor established. We do not expect to sell any securities of our intellectual property acquisition companies to the public. Therefore, if we fail to identify a portfolio company to acquire an intellectual property acquisition companies, 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 intellectual property acquisition company, its
licensed technology and the portfolio company. We then intend to sell the securities that we acquire in exchange for intellectual property acquisition 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 intellectual property acquisition companies will be dependent upon successfully commercializing the technologies
they acquire. We do not have control over the portfolio companies that acquire our intellectual property acquisition 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 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 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 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.



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, 2004 and December 31, 2003, respectively, investments amounting to $9,364,821 or 47.4% of our net assets and $7,745,354 or 69.5% of our
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.



Our business depends on key personnel.



We rely on, and will continue to be substantially dependent upon, the
continued services of our management, principally our Chief Executive Officer and Chairman, 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



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research and development. We also depend upon our managements key contacts with universities to maintain our access
to new technologies, and its relationships with companies in the private sector in order to effectuate the sale of our intellectual property acquisition company.



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



The 1940 Act restricts transactions between us and any of our affiliates,
including our 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 intellectual property acquisition 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, 2004, $9,364,821 or 47.4% of our total assets consisted of investments at fair value in companies whose
securities are quoted on the OTC Bulletin Board or are listed on the American Stock Exchange and the Canadian Venture Exchange. In order for the securities of our portfolio companies to be eligible for continued quotation on the OTC Bulletin Board
or the American Stock Exchange, our portfolio companies must remain in compliance with certain listing standards. Among other things, these standards require that our portfolio companies remain current in their filings 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 American Stock Exchange.



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 under the 1940 Act. The 1940 Act imposes numerous restrictions on our activities, including restrictions on the nature of our investments and
transactions with affiliates. Any change in the law or regulations that govern our business could have a material impact on us or our operations. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and
regulations also are subject to change.



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 33% of our common stock as of September 30, 2004. Therefore Dr. Gross may be able to exert influence over our management and policies. Dr. Gross
may acquire additional equity in the future. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of us, could deprive our shareholders of an opportunity to receive a premium for their
common stock as part of the sale of us and might ultimately affect the market price of our common stock.



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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, 2003.



ITEM 4. CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



As of the
end of the period covered by this quarterly report on Form 10-Q, the Companys principal executive officer and principal financial officer conducted an evaluation of the effectiveness of the design and operations of its disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are
effective in timely altering them to material information relating to the Company, including its consolidated subsidiaries, that is required to be disclosed in the reports it files or submits under the Securities Exchange Act of 1934.



Internal Control Over Financial Reporting



There have been no significant changes in our internal control over
financial reporting (as defined in Rule13a-15(f) of the Securities Exchange Act of 1934) that occurred during the Companys most recently completed fiscal quarter that has materially affected, or is 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 its business, as of September 30, 2004, the Company was not a party to any material pending legal
proceedings.



Item 2. Unregistered Shares of Equity Securities and Use of Proceeds



Not applicable.



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



(a) List of exhibits.



| | a. | The following exhibits are filed with this report:
| | -- | --------------------------------------------------



|     |  |                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                            
|     |  |                                                                                                                                           
|31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-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.



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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, 2004 |  | /s/ Clifford M. Gross               
|                       |  | Clifford M. Gross                   
|                       |  | Chairman and Chief Executive Officer
|                       | 
|Date: November 3, 2004 |  | /s/ Carole R. Wright                
|                       |  | Carole R. Wright, CPA               
|                       |  | Chief Financial Officer             



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