##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934   FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2004 COMMISSION FILE NUMBER: 001-15941 UTEK CORPORATION  DELAWARE
(State or Jurisdiction of
Incorporation or Organization) 59-3603677
(IRS Employer
Identification No.) 202 S. Wheeler Street
Plant City, FL 33563
(Address of Principal Executive Offices) REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 754-4330 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES
x   NO o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES o   NO x On August 2, 2004, there were 5,501,899 shares outstanding of the
Registrants common stock, $0.01 par value.     Page 1 of 35




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UTEK CORPORATION FORM 10-Q INDEX PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004
and 2003 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003
(unaudited)
    
    
    5Consolidated Statements of Changes in Net Assets for the Six Months Ended June 30, 2004
and 2003 (unaudited)
    
    
    6Financial Highlights for the Six Months Ended June 30, 2004 and 2003 (unaudited)
    
    
    7Schedule of Investments as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    8Notes to Consolidated Financial Statements (unaudited)
    
    
    12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits and Reports on Form 8-K
    
    
    28Signatures
    
    
    29Exhibits
    
    
    30Ex-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification
  Page 2 of 35




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS UTEK Corporation 
 Consolidated Balance Sheets
 June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSInvestments in non-controlled affiliates
(cost $13,944,448 and $11,861,995 at June 30,
2004 and December 31, 2003, respectively)
    
    $
    19,963,515
    
    
    $
    7,745,354Cash and cash equivalents
    
    
    3,486,970
    
    
    
    3,704,327Short-term investments
    
    
    4,007,809
    
    
    
    Accounts receivable, net of allowance for bad debt
    
    
    126,781
    
    
    
    177,138Prepaid expenses and other assets
    
    
    210,371
    
    
    
    200,353Deferred tax asset
    
    
    
    
    
    
    67,075Fixed assets, net
    
    
    65,434
    
    
    
    44,279Goodwill
    
    
    532,144
    
    
    
    523,807Intangible assets
    
    
    76,025
    
    
    
    87,115TOTAL ASSETS
    
    
    28,469,049
    
    
    
    12,549,448LIABILITIESNotes payable
    
    
    
    
    
    
    847,890Accrued expenses
    
    
    129,283
    
    
    
    187,897Deferred revenue
    
    
    621,847
    
    
    
    361,291Deferred income taxes
    
    
    4,556,493
    
    
    
    TOTAL LIABILITIES
    
    
    5,307,623
    
    
    
    1,397,078NET ASSETS
    
    $
    23,161,426
    
    
    $
    11,152,370Commitments and ContingenciesComposition of net assets:Common stock, $.01 par value, 19,000,000
shares authorized; 5,488,386 shares issued
and outstanding at June 30, 2004 and
4,790,550 shares issued and outstanding
at December 31, 2003
    
    $
    54,884
    
    
    $
    47,906Common stock subscribed
    
    
    
    
    
    
    388,412Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Additional paid in capital
    
    
    15,671,972
    
    
    
    10,943,549Accumulated income:Accumulated net operating income
    
    
    3,368,019
    
    
    
    3,303,505Net realized gain (loss) on investments,
net of income taxes
    
    
    201,715
    
    
    
    (1,064,996
    )Net unrealized appreciation (depreciation) of investments,
net of deferred income taxes
    
    
    3,754,094
    
    
    
    (2,567,549
    )Foreign currency translation adjustment
    
    
    110,742
    
    
    
    101,543Net assets
    
    $
    23,161,426
    
    
    $
    11,152,370Net asset value per share
    
    $
    4.22
    
    
    $
    2.33
 See accompanying notes Page 3 of 35




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UTEK Corporation 
 Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended June 30
    
    Six Months Ended June 302004
    
    2003
    
    2004
    
    2003Income from operations:Sale of technology rights
    
    $
    1,406,300
    
    
    $
    300,000
    
    
    $
    1,406,300
    
    
    $
    562,857Consulting fees
    
    
    494,370
    
    
    
    304,729
    
    
    
    906,659
    
    
    
    544,552Investment income, net
    
    
    24,917
    
    
    
    1,906
    
    
    
    22,727
    
    
    
    3,4971,925,587
    
    
    
    606,635
    
    
    
    2,335,686
    
    
    
    1,110,906Expenses:Salaries and wages
    
    
    334,086
    
    
    
    164,104
    
    
    
    511,144
    
    
    
    341,416Professional fees
    
    
    157,045
    
    
    
    122,149
    
    
    
    245,194
    
    
    
    383,010Sales and marketing
    
    
    451,504
    
    
    
    97,102
    
    
    
    678,461
    
    
    
    188,566General and administrative
    
    
    433,023
    
    
    
    316,554
    
    
    
    791,127
    
    
    
    602,2651,375,658
    
    
    
    699,909
    
    
    
    2,225,926
    
    
    
    1,515,257Income (loss) before income taxes
    
    
    549,929
    
    
    
    (93,274
    )
    
    
    109,760
    
    
    
    (404,351
    )Provision for income taxes (benefit)
    
    
    207,076
    
    
    
    (79,975
    )
    
    
    45,246
    
    
    
    212,422Net income (loss) from operations
    
    
    342,853
    
    
    
    (13,299
    )
    
    
    64,514
    
    
    
    (616,773
    )Net realized and unrealized gains
(losses):Net realized gain (loss) on
investments, net of income tax
expense (benefit) of $212,391 and
$764,252 for the three and six
months ended June 30, 2004,
respectively and ($4,180) and
($105,849) for the three and six
months ended June 30, 2003,
respectively
    
    
    352,028
    
    
    
    (6,929
    )
    
    
    1,266,711
    
    
    
    (175,440
    )Change in unrealized appreciation
(depreciation) of
non-controlled affiliate
investments, net of deferred
tax expense (benefit) of
($886,342) and $3,814,608 for
the three and six months
ended June 30, 2004,
respectively and $357,908 and
($361,327) for the three and
six months ended June 30,
2003, respectively
    
    
    (1,469,070
    )
    
    
    885,061
    
    
    
    6,321,643
    
    
    
    (2,134,394
    )Net increase (decrease) in net
assets from operations
    
    ($
    774,189
    )
    
    $
    864,833
    
    
    $
    7,652,868
    
    
    ($
    2,926,607
    )Net increase (decrease) in net
assets from operations per share:Basic
    
    ($
    0.14
    )
    
    $
    0.20
    
    
    $
    1.47
    
    
    ($
    0.72
    )Diluted
    
    ($
    0.14
    )
    
    $
    0.20
    
    
    $
    1.39
    
    
    ($
    0.72
    )Weighted average shares:Basic
    
    
    5,433,420
    
    
    
    4,220,287
    
    
    
    5,190,736
    
    
    
    4,073,794Diluted
    
    
    5,433,420
    
    
    
    4,259,058
    
    
    
    5,500,397
    
    
    
    4,073,794
 See accompanying notes Page 4 of 35




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UTEK Corporation 
 Consolidated Statements of Cash Flows
 (Unaudited)
 For the Six Months Ended June 302004
    
    2003Operating Activities:Net increase (decrease) in net assets from operations
    
    $
    7,652,868
    
    
    $
    (2,926,607
    )Adjustments to reconcile net increase (decrease) in net assets from
operations
to net cash provided by operations:Change in net unrealized depreciation of investments
    
    
    (10,136,251
    )
    
    
    2,507,172Depreciation and amortization
    
    
    24,238
    
    
    
    14,033(Gain) loss on sale of investments
    
    
    (2,030,963
    )
    
    
    281,289Deferred income taxes
    
    
    4,623,568
    
    
    
    (245,589
    )Investment securities received from sales of technology rights
    
    
    (1,406,300
    )
    
    
    (562,857
    )Services rendered in exchange for investment securities
    
    
    (392,148
    )
    
    
    (143,072
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    50,357
    
    
    
    Prepaid expenses and other assets
    
    
    (18,089
    )
    
    
    (159,295
    )Deferred revenue
    
    
    (55,084
    )
    
    
    (108
    )Accrued expenses
    
    
    (58,614
    )
    
    
    (23,051
    )Net cash used in operating activities
    
    
    (1,746,418
    )
    
    
    (1,258,085
    )Investing Activities:Proceeds received on sale of investments
    
    
    2,275,398
    
    
    
    238,763Purchase of investments
    
    
    (4,220,066
    )
    
    
    Purchases of fixed assets
    
    
    (34,569
    )
    
    
    (4,130
    )Net cash provided by (used in) investing activities
    
    
    (1,979,237
    )
    
    
    234,633Financing Activities:Net proceeds from issuance of common stock (including the exercise of
common stock options)
    
    
    3,499,099
    
    
    
    890,500Proceeds from long-term borrowings
    
    
    
    
    
    
    1,000,000Net cash provided by financing activities
    
    
    3,499,099
    
    
    
    1,890,500Foreign currency translation adjustment
    
    
    9,199
    
    
    
    6,230Increase
(decrease) in cash and cash equivalents
    
    
    (217,357)
    
    
    
    873,278Cash and cash equivalents at beginning of year
    
    
    3,704,327
    
    
    
    745,926Cash and cash equivalents at end of period
    
    $
    3,486,970
    
    
    $
    1,619,204Supplemental Disclosures of Non-Cash Investing Activities125,715 Shares of Common Stock Issued in Settlement of Note Payable
    
    $
    833,890
    
    
    $
    
 See accompanying notes Page 5 of 35




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##### Table of Contents



UTEK Corporation 
 Consolidated Statements of Changes in Net Assets
 (Unaudited)
 Six Months Ended June 302004
    
    2003Changes in net assets from operations:Net income (loss) from operations
    
    $
    64,514
    
    
    $
    (616,773
    )Net realized gain (loss) on sale of investments
    
    
    1,266,711
    
    
    
    (175,440
    )Change in net unrealized appreciation (depreciation) of
investments, net of related deferred taxes
    
    
    6,321,643
    
    
    
    (2,134,394
    )Net increase (decrease) in net assets from operations
    
    
    7,652,868
    
    
    
    (2,926,607
    )Capital stock transactions:Proceeds from issuance of common stock (including the exercise of
common stock options)
    
    
    4,346,989
    
    
    
    890,500Net increase in net assets from stock transactions
    
    
    4,346,989
    
    
    
    890,500Foreign currency translation adjustment
    
    
    9,199
    
    
    
    6,230Net increase (decrease) in net assets
    
    
    12,009,056
    
    
    
    (2,029,877
    )Net assets at beginning of year
    
    
    11,152,370
    
    
    
    7,346,057Net assets at end of period
    
    $
    23,161,426
    
    
    $
    5,316,180
 See accompanying notes Page 6 of 35




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##### Table of Contents



UTEK Corporation 
 Financial Highlights
 (Unaudited)
 Six Months Ended June 302004
    
    2003PER SHARE INFORMATION (1)Net asset value, beginning of period
    
    $
    2.33
    
    
    $
    1.87Net increase from operations
    
    
    .01
    
    
    
    (.15
    )Net change in realized gains (losses) and unrealized appreciation
(depreciation) on investments, after taxes
    
    
    1.08
    
    
    
    (.68
    )Foreign currency translation adjustment
    
    
    .00
    
    
    
    .00Net increase from stock transactions
    
    
    .80
    
    
    
    .21Net assets value, end of period
    
    $
    4.22
    
    
    $
    1.25Per share market value, end of period
    
    $
    15.59
    
    
    $
    8.45RATIOS/SUPPLEMENTAL DATANet assets, end of period
    
    $
    23,161,426
    
    
    $
    5,316,180Ratio of expenses to average net assets (2)
    
    
    13
    %
    
    
    22
    %Ratio of net income (loss) to average net assets
    
    
    .4
    %
    
    
    (9
    )%Diluted weighted average number of shares
outstanding during the period
    
    
    5,500,397
    
    
    
    4,073,794
  (1)
    
    Calculated based on diluted weighted average number of shares
outstanding during the period(2)
    
    Excluding income taxes See accompanying notes Page 7 of 35




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##### Table of Contents



UTEK CORPORATION 
 Schedule of Investments
 June 30, 2004
 (Unaudited)
 OriginalDate of
    
    
    
    Original
    
    FairShares
    
    Acquisition
    
    
    
    Cost
    
    ValueCommon
stock in non-controlled affiliates86.0% of our net assets1,344,300
    
    
    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0.7% of
our net assets; environmental services.
    
    
    568,006
    
    
    
    153,724150
    
    
    11/99
    
    Rosbon, LLC,privately held  .2% of our net assets; real estate
development
    
    
    90,705
    
    
    
    54,986136,093
    
    
    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
    
    
    
    1,12047,615
    
    
    1/02
    
    Silver Screen Studios, Inc.(formerly Group Management Corporation),
publicly traded over the counter  0% of our net assets; corporate
management
    
    
    46,949
    
    
    
    3,911,745
    
    
    1/02
    
    Circle Group Holdings, Inc. (formerly Circle Group Internet, Inc.),
listed on the American Stock Exchange,  71.4% of our net assets; digital
design and consulting
    
    
    887,052
    
    
    
    16,546,681633,750
    
    
    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
    
    
    
    16,80021,000
    
    
    1/03
    
    Duraswitch Industries, Inc., publicly traded over the counter,  0.2% of
our net assets; developer of electronic switch technologies
    
    
    20,117
    
    
    
    41,160645,000
    
    
    3/03
    
    Sequiam Corporation, publicly traded over the counter,  .8% of our net
assets; developer of biological authentication and biometrics
technologies
    
    
    185,726
    
    
    
    187,050595,637
    
    
    4/03
    
    Intra-Asia Entertainment Corp. (formerly GloTech Industries, Inc.),
publicly traded over the counter, 1.3% of our net assets; developer of
lighted technology devices
    
    
    1,553,494
    
    
    
    297,8191,284,000
    
    
    6/03
    
    E Med Future, Inc., publicly traded over the counter,  2.1% of our net
assets; manufacturer of needle destruction device
    
    
    684,909
    
    
    
    487,920545,000
    
    
    12/03
    
    Magic Media Networks, Inc., publicly traded over the counter,  .2% of
our net assets; operator of digital display monitor networks
    
    
    125,179
    
    
    
    45,780
 Page 8 of 35




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##### Table of Contents



OriginalDate of
    
    
    
    Original
    
    FairShares
    
    Acquisition
    
    
    
    Cost
    
    Value240,000
    
    
    12/03
    
    Assuretec Holdings, Inc.,privately held,  .2% of our net assets;
security solutions to automate, manage and authenticate identification
documents
    
    
    31,297
    
    
    
    57,60030,000
    
    
    1/04
    
    GeneThera, Inc., publicly traded over the counter, 0.1% of our net
assets; molecular biotechnology products
    
    
    77,977
    
    
    
    29,4009,255,882
    
    
    2/04
    
    Zkid Network Company, publicly traded over the counter,  2.5% of our net
assets; developer of proprietary software
    
    
    984,440
    
    
    
    592,37638,585
    
    
    2/04
    
    Telkonet, Inc., publicly traded over the counter, 0.5% of our net
assets; networking and internetworking products
    
    
    69,579
    
    
    
    104,951200,000
    
    
    3/04
    
    Swiss Medica, Inc., publicly traded over the counter,  0.1% of our net
assets; developer of bioscience products
    
    
    34,193
    
    
    
    20,000100,000
    
    
    3/04
    
    Health Sciences Group, Inc.,publicly traded over the counter,  .2% of
our net assets; nutraceutical, pharmaceutical, and cosmeceutical products
    
    
    83,547
    
    
    
    55,00081,632
    
    
    3/04
    
    eFoodSafety.com, Inc.,publicly traded over the counter, .1% of our net
assets; safety of fruit, vegetables, poultry, beef and seafood
    
    
    27,205
    
    
    
    29,388133,333
    
    
    4/04
    
    Jenex Corporation,publicly traded Canadian Venture Exchange, 
..1% of our net assets; developer of consumer and healthcare products
    
    
    25,550
    
    
    
    18,667263,157
    
    
    4/04
    
    Xethanol Corporation.,privately held , 2.8% of our net assets;
developer of bioethanol products
    
    
    620,000
    
    
    
    657,893400,000
    
    
    4/04
    
    HydroFlo Corporation,publicly traded over the counter,  .1% of our net
assets; business development company
    
    
    75,952
    
    
    
    25,200240,000
    
    
    4/04
    
    Power3 Medical Products, Inc.,publicly traded over the counter 2.1% of
our net assets; developer of healthcare products
    
    
    85,373
    
    
    
    480,000150,000
    
    
    4/04
    
    Manakoa Services Company,publicly traded over the counter,  0.3% of our
net assets; risk management and continuity planning
    
    
    68,869
    
    
    
    60,000TOTAL INVESTMENTS86.0%
    
    $
    13,944,448
    
    
    $
    19,963,515Cash and other assets, less liabilities14.0%
    
    
    
    
    
    
    3,197,911Net assets at June 30, 2004100%
    
    
    
    
    
    $
    23,161,426
 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 June 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. See accompanying notes Page 9 of 35




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##### Table of Contents



UTEK CORPORATION Schedule of Investments
December 31, 2003 OriginalDate of
    
    
    
    Original
    
    FairShares
    
    Acquisition
    
    
    
    Cost
    
    ValueCommon stock in non-controlled affiliates69.5% of our net assets1,344,300
    
    
    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
    
    
    
    115,294150
    
    
    11/99
    
    Rosbon, LLC,privately held.5% of our net assets; real estate
development
    
    
    90,705
    
    
    
    55,290136,093
    
    
    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
    
    
    
    1,52047,615
    
    
    1/02
    
    Silver Screen Studios, Inc.(formerly Group 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
    
    
    
    5,908,898633,750
    
    
    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
    
    
    
    15,54034,782
    
    
    1/03
    
    Duraswitch Industries, Inc., publicly traded over the counter,
0.3% of our net assets; developer of electronic switch
technologies
    
    
    29,031
    
    
    
    39,999645,000
    
    
    3/03
    
    Sequiam Corporation, publicly traded over the counter,  1.4% of
our net assets; developer of biological authentication and
biometrics technologies
    
    
    181,887
    
    
    
    154,8003,198,571
    
    
    4/03
    
    GloTech Industries, Inc., publicly traded over the counter,  5.2%
of our net assets; developer of lighted technology devices
    
    
    1,554,218
    
    
    
    575,7431,284,000
    
    
    6/03
    
    E Med Future, Inc., publicly traded over the counter,  6.1% of
our net assets; manufacturer of needle destruction device
    
    
    685,591
    
    
    
    680,520545,000
    
    
    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
    
    
    
    168,950240,000
    
    
    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
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TOTAL INVESTMENTS69.5%
    
    $
    11,861,995
    
    
    $
    7,745,354Cash and other assets, less liabilities30.5%
    
    
    
    
    
    
    3,407,016Net assets at December 31, 2003100%
    
    
    
    
    
    $
    11,152,370
 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 Page 11 of 35




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UTEK Corporation 
 Notes to Consolidated Financial Statements (Information as of June 30, 2004 and 2003 and for the three and six month
periods then ended is unaudited) 1. Nature of Business and Significant Accounting Policies Interim Financial Information The financial information for UTEK Corporation (the Company) as of June
30, 2004 and 2003 and for three and six 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 six months ended June 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 bridges between university-developed
technologies and commercial organizations. We, along with our TechEx,
UVentures and Techno-L on-lineservices and UTEK-Pax, Ltd. Europeansubsidiary, 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. Page 12 of 35




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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 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 out-license their existing proprietary technologies. Investments Pursuant to the requirements of the Investment Company Act of 1940 (the
1940 Act), our Board of Directors is responsible for determining, in good
faith, the fair value of our securities and assets for which market quotations
are not readily available. In making its determination, the Board of Directors
has considered valuation appraisals provided by an independent valuation
service provider. With respect to equity securities in privatelyowned
companies, each investment is valued using industry valuation benchmarks, and
then the value is assigned a discount reflecting the illiquid nature of the
investment as well as our minority, non-control position. When an external
event such as a purchase transaction, public offering, or subsequent equity
sale occurs, the pricing indicated by the external event is used to corroborate
our private equity valuation. Equity securities in public companies that carry
certain restrictions on resale are generally valued at a discount from the
market value of the securities as quoted on the a national securities exchange
or by the 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 June 30, 2004 and December 31, 2003, (86.0% 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. Revenue Recognition Sale Of Technology Rights Page 13 of 35




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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 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 for 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 June 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 on 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 six months ended June
30, 2004 and 2003 would have been as follows: Three Months Ended June 30
    
    Six Months Ended June 302004
    
    2003
    
    2004
    
    2003Net increase (decrease) in net assets from operations:As reported
    
    ($
    774,189
    )
    
    $
    864,833
    
    
    $
    7,652,868
    
    
    $
    (2,926,607
    )Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (318,648
    )
    
    
    (76,842
    )
    
    
    (516,820
    )
    
    
    (101,855
    )Pro forma
    
    $
    (1,092,837
    )
    
    $
    787,991
    
    
    $
    7,136,048
    
    
    $
    (3,028,462
    )
 Page 14 of 35




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Three Months Ended June 30
    
    Six Months Ended June 302004
    
    2003
    
    2004
    
    2003Net increase (decrease) in net assets from
Operations per share  Basic:As reported
    
    
    ($.14
    )
    
    $
    .20
    
    
    $
    1.47
    
    
    $
    (.72
    )Pro forma
    
    
    ($.20
    )
    
    $
    .19
    
    
    $
    1.37
    
    
    $
    (.74
    )Net increase (decrease) in net assets from
Operations per share  Diluted:As reported
    
    
    ($.14
    )
    
    $
    .20
    
    
    $
    1.39
    
    
    $
    (.72
    )Pro forma
    
    
    ($.20
    )
    
    $
    .19
    
    
    $
    1.30
    
    
    $
    (.74
    )
 During the quarter ended June 30, 2004, there were no options granted. 2. Investments Equity securities at June 30, 2004 and December 31, 2003 (86.0 % 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 June 30, 2004 and 2003, the Company had established three and four
intellectual property acquisition companies, respectively, which had $-0- net
assets. On March 4, 2003, Peak Entertainment Holdings, Inc. (formerly Palladium
Communications, Inc.) completed a 100 for 1 reverse split, which reduced the
number of shares the Company holds to 4,000 from 400,000 shares. On March 18, 2003, the Company received 160,000 unregistered shares of
common stock from Sequiam Corporation pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
160,000 shares. On March 26, 2003, the Company received 35,294 unregistered shares of
common stock from Graphco Technologies, Inc. pursuant to strategic alliance
agreement. The Company has recognized consulting fees to date relating to
35,294 shares. On March 26, 2003, the Company received 821,429 unregistered shares of
common stock from Circle Group Holdings, Inc. in connection with an assignment
of a technology license. On June 17, 2003, the Company received 34,000 unregistered shares of
common stock from E Med Future, Inc. pursuant to 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. pursuant to a six-month strategic
alliance agreement. The Company has recognized consulting fees to date relating
to 545,000 shares. Page 15 of 35




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On December 10, 2003, the Company received 240,000 unregistered shares of
common stock from AssureTec Holdings, Inc. pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
60,000 shares 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. pursuant to a strategic alliance agreement.
The Company has recognized consulting fees to date relating to 14,394 shares. On February 18, 2004, the Company received 38,585 unregistered shares of
common stock from Telkonet, Inc. pursuant to a strategic alliance agreement.
The Company has recognized consulting fees to date relating to 14,190 shares. On February 17, 2004, the Company received 705,882 unregistered shares of
common stock from ZKid Network Company pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
281,745 shares. On March 12, 2004, the Company received 100,000 unregistered shares of
common stock from Health Sciences Group, Inc. pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
33,332 shares. On March 29, 2004, the Company received 200,000 unregistered shares of
common stock from Swiss Medica, Inc. pursuant to 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 81,632 and recognized to date consulting fees in relation to 68,261
unregistered shares of eFoodSafety.com, Inc. On April 1, 2004, the Company received 63,157 unregistered shares of
common stock from Xethanol Corporation pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
15,789 shares. On April 5, 2004, the Company received 150,000 unregistered shares of
common stock from Manakoa Services Company pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
35,416 shares. On April 16, 2004, the Company received 240,000 unregistered shares of
common stock from Power3 Medical Products, Inc. pursuant to a strategic
alliance agreement. The Company has recognized consulting fees to date relating
to 49,333 shares. On April 23, 2004, the Company received 133,333 unregistered shares of
common stock from The Jenex Corporation pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
74,443 shares. On April 28, 2004, the Company received 400,000 unregistered shares of
common stock from HydroFlo Corporation pursuant to a strategic alliance
agreement. The Company has recognized consulting fees to date relating to
68,888 shares. On April 30, 2004, the Company sold its Web Safe Technologies, Inc.
intellectual property acquisition company to ZKid Network Company for 9,550,000
unregistered shares of ZKid Network Companys common stock in a non-taxable
exchange. 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. 3. Commitments and Contingencies From time to time, some of the Companys portfolio companies may receive
correspondence or other notices of alleged breach of the license agreement.
Some of these correspondences and notices provide for a period of time in which
to cure the alleged breach. The failure of the portfolio companies to cure the
alleged breach may have a material adverse impact on their value and as a
result on the Companys results of operations and financial position. Effective September 1, 1999, the Company entered into a five year
employment agreement with its CEO providing for an annual base salary of
$150,000 for his services. 4. Valuations Page 16 of 35




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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 Circle
Group Holdings, Inc. represented 71.4% of our net assets at the
quarter ended June 30, 2004. On August 4, 2004, the $2.06 market closing price
per share of Circle Group Holdings, Inc. on the American Stock Exchange represented a decrease
of 60% from the $5.15 market closing price per share on the American
Stock Exchange on June 30, 2004. This decline in the market value of Circle
Group Holdings, Inc. will have a material negative impact on UTEKs financial
condition from that reported for the period ended June 30, 2004. Management
estimates that, based on this decline in market price for Circle Group Holdings, Inc.,
the Companys net asset value per share would decrease by approximately $1.13 per share
or 27% from the net value per share reported at June 30, 2004. On
August 2, 2004, under its Strategic Alliance Agreement with the
Shriners Hospitals for Children (Shriners), the Company facilitated
the technology-transfer to Crystal Point Partners of a Shriners developed
biomaterial for tendon and ligament reconstruction. As the success fee for this transaction,
the Company will receive ten percent of Tendon and Ligament, Inc., a new company formed
by Crystal Point Partners to commercialize the Shriners Technology. The
Company has not yet determined the value of its equity stake in Tendon and Ligament, Inc. On
August 3, 2004, Arsenic Removal Technologies, Inc., a wholly owned subsidiary of UTEK
Corporation acquired the worldwide exclusive license to a technology for the removal of water-soluble
forms of arsenic from water utilizing a compound developed by researchers at the Department of Renewable Resources
at the University of Wyoming, HydroFlo, Inc. has acquired Arsenic Removal Technologies, Inc. (ARTI), a
wholly owned subsidiary of UTEK Corporation, in a stock transaction. In connection with the sale, we
received 3,200,000 shares of unregistered shares of common stock of HydroFlo, Inc. with a fair
value of approximately $400,000. On
August 4, 2004, Advanced Cyber Security, Inc., a wholly owned subsidiary of UTEK Corporation
acquired the worldwide exclusive license to the prototype software system called
Systems Administrator Simulation Trainer (SAST). Manakoa Services Corporation has acquired Advanced Cyber Security, Inc.
(ACSI), a wholly owned subsidiary of UTEK Corporation, in a stock transaction. In
connection with the sale, we received 2,000,000 shares of unregistered shares of common stock
of Manakoa Services Corporation, with a fair value of approximately $500,000. Page 17 of 35




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION 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 Page 18 of 35




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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. 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 $28,469,049 and its net assets were
$23,161,426 at June 30, 2004, compared to $12,549,448 and $11,152,370 at
December 31, 2003, respectively.
Net asset value per share (NAV) was $4.22 at June 30, 2004 and $2.33 at
December 31, 2003. Net assets increased by $12,009,056 in the six months ended June 30,
2004 and decreased by $(2,029,877) in the six months ended June 30, 2003. The changes in total assets, net assets and net asset value during the
three months ended June 30, 2004 were primarily attributable to:  
    
    An unrealized depreciation on investments of approximately $2.4
million, mainly due to the decrease in the value of our investment in
Circle Group Holdings, Inc. Circle Group makes up over 70% of our
investment portfolio at value  
    
    The sale of some investments for approximately $780,000.  
    
    The use of approximately $1.4 million in cash to fund our operations.  
    
    The issuance of common stock in private placement transactions and upon the
exercise of stock options of approximately $1.3 million.  
    
    Two technology transfers valued at approximately $1.4 million. The changes in total assets, net assets and net asset value during the
three months ended June 30, 2003 were primarily attributable to:  
    
    One technology transfer valued at approximately $300,000 and strategic alliance agreements and other consulting agreements
with earned revenue of approximately $304,000.  
    
    An increase of approximately $600,000 in the value of the Companys investments.  
    
    The issuance of common stock in private placement transactions and proceeds from a loan, net of expenses and prepaid
interest, of $1.7 million  
    
    The use of approximately $700,000 in cash to fund our operations. The Companys common shares outstanding as of June 30, 2004 were
5,488,386, compared to 4,790,550 at December 31, 2003. The number of common
shares increased as a result of the completion of private placement
transactions as well as the issuance of common shares upon the exercise of
employee stock options that were exercised during the quarter ended June 30,
2004. The Companys financial condition is dependent on a number of factors
including the ability to effectuate technology transfers 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. At June 30, 2004, $19,193,036 or 96% of our investments consisted of
equity securities at fair value in thinly traded public companies and
$770,479 or 4% of our investments consisted of equity securities at fair
value in private companies. Page 19 of 35




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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 investment securities from $7,745,354 to
$19,963,515 in the six months ended June 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 eleven new strategic alliance agreements that generated $1 million in value.  
    
    The Company sold 388,892 of its shares in Circle Group Holdings, Inc. for $2.2 million with a fair value of $1 million.  
    
    The Company completed two sales of technology rights valued at $1.4 million  
    
    The Company experienced an overall increase in the value of its public company securities. This increase is primarily
attributable to an increase in the value of Circle Group Holdings, Inc. of approximately $8.6 million. The Companys other
investments experienced a net decrease in their fair value of approximately $134,000. 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: June 302004
    
    December 31,(Unaudited)
    
    2003Investments, at cost
    
    $
    13,944,448
    
    
    $
    11,861,995Unrealized appreciation (depreciation), before income taxes
    
    
    6,019,067
    
    
    
    (4,116,641
    )Investments, at fair value
    
    $
    19,963,515
    
    
    $
    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 June 30, 2004 compared to the three months ended June 30,
2003. Income from operations. Income from operations increased 217% to
$1,925,587 for the three months ended June 30, 2004 from $606,635 for the three
months ended June 30, 2003. Approximately 86% and 61% of our income from
operations (revenue) was received in the form of equity securities for the
three months ended June 30, 2004 and June 30, 2003, respectively. The increase
in income from operations resulted from completing two sales of technology
rights valued at $1,406,300, which was received in the form of common stock,
during the period ended June 30, 2004, as compared to one sale of technology
rights valued at $300,000, which was received in the form of common stock,
completed during the quarter ended June 30, 2003. In the three months ended
June 30, 2004, we rendered services in connection with eighteen strategic
alliance agreements (seven of which began in the three months ended June 30,
2004) valued at $311,874, as compared to seven strategic alliance agreements
(three of which began during the quarter ended June 30, 2003) valued at
$149,492. Other services including income of $148,496 generated from UTEK-Pax
Ltd., (formerly known as Pax Technology Transfer, Ltd.) and subscription income
from the two websites owned by UTEK comprise the balance of consulting fees.
Our Board of Directors determines the fair value of the shares we receive in
the absence of readily determinable 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 June 30,
2004 were $1,375,658, consisting of salaries and wages of $334,086,
professional fees of $157,045, sales and marketing expenses of $451,504, and
general and administrative expenses of $433,023. These expenses compared to the
$699,909 reported for the three months ended June 30, 2003, consisting of
salaries and wages of $164,104, professional fees of $122,149, sales and
marketing expenses of $97,102, and general and administrative expenses of
$316,554. The 97% increase in total operating expenses was due to the increased
costs of completing Page 20 of 35




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two technology transfer transactions, an increase in the number of our
sales personnel, a bonus for the CEO of the Company, extended marketing efforts
and investor relations services provided by a third party vendor. The 103%
increase in salaries and wages reflects a bonus paid to the CEO in the second
quarter. The 365% increase in sales and marketing expenses was due to the
increased costs of completing two sales of technology rights, an increase in
the number of our sales personnel, 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. The 28% increase in professional fees
is due to the timing of the audit fees offset partially by reduced costs in
legal fees. The 37% increase in general and administrative costs is due to the
cost of investor and public relations services provided by a third party vendor
that were not provided in 2003 and an increase in the number of temporary
staff, an increase in payroll taxes related to an increase in staff, and
increased printing costs for producing our annual report. 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
$914,683 for the three months ended June 30, 2004 and were related to sales as
follows: Number of
    
    RealizedCompany Name
    
    Shares
    
    GainCircle Group Holdings, Inc.
    
    
    245,892
    
    
    $
    914,683Total
    
    
    
    
    
    $
    914,683
 Net realized losses on investments net of income tax effect amounted to
$168,511 for the three months ended June 30, 2003 and were related to sales as
follows: Number of
    
    RealizedCompany Name
    
    Shares
    
    LossAdvanced Recycling Sciences, Inc.
    
    
    9,000
    
    
    $
    (3,556
    )Centrex, Inc.
    
    
    1,343,400
    
    
    
    (160,284
    )Sense Holdings, Inc.
    
    
    166,000
    
    
    
    (4,671
    )Total
    
    
    
    
    
    $
    (168,511
    )
 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. Six months ended June 30, 2004 compared to the six months ended June 30,
2003. Income from operations. Income from operations increased 110% to
$2,335,686 for the six months ended June 30, 2004 from $1,110,906 for the six
months ended June 30, 2003. The increase in income from operations resulted
from completing two sales of technology rights with greater value than the two
transactions for the six months ended June 30, 2003. As described below, in the
six months ended June 30, 2004 we completed two sales of technology rights
valued at $1,406,300, compared to two sales of technology rights valued at
$562,857 for the six months ended June 30, 2003. During the six months ended
June 30, 2004, we completed sales of technology rights transactions with
Xethanol Corporation in which we received 200,000 shares of common stock of
that were valued at $2.50 per share and with Zkid Network Company in which we
received 8,550,000 of unregistered shares of common stock of that were valued
at $.106 per share. In the six months ended June 30, 2004, we rendered services
in connection with eighteen strategic alliance agreements valued at $497,260,
as compared to seven strategic alliance agreements valued at $249,955 for the
six months ended June 30,2003. Other services including income of $342,927 from
UTEK-Pax Ltd., (formerly known as Pax Technology Transfer, Ltd.) and
subscription income from the two websites owned by UTEK comprise 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 appraisals
provided by an independent valuation service provider. Expenses.Total operating expenses for the six months ended June 30,
2004 were $2,225,926 consisting of salaries and wages of $511,144, professional
fees of $245,194, sales and marketing expenses of $678,461, and general and
administrative expenses of $791,127. These expenses compared to the $1,515,257
reported for the six months ended June 30, 2003, consisting of salaries and
wages of $341,416, professional fees of $383,010, sales and marketing expenses
of $188,566, and general and Page 21 of 35




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administrative expenses of $602,265. The 90% increase in total operating
expenses was due to an increased number of employees, increased costs of
completing sales of technology rights, 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 paid to the CEO 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 50% increase in salaries and wages reflects an increase in the number
employees in the second quarter as well as a bonus to the CEO of the Company.
The 260% increase in sales and marketing expenses was due to increased costs
related to the two sales of technology rights, 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, and an increase in the number
of sales personnel. The 36% 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 31% 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 We do not see a continued increase in these
overhead costs as the Company has discontinued the use at this time of
temporary help and the outside public relations firm. 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
$1,266,711 for the six months ended June 30, 2004 and were related to sales as
follows: Number of
    
    RealizedCompany Name
    
    Shares
    
    Gain (Loss)Circle Group Holdings, Inc.
    
    
    388,892
    
    
    $
    1,347,984Full Circle Registry, Inc.
    
    
    188,500
    
    
    
    (85,395
    )Duraswitch Industries, Inc.
    
    
    13,782
    
    
    
    15,084Pure Bioscience, Inc.
    
    
    35,560
    
    
    
    (10,962
    )Total
    
    
    
    
    
    $
    1,266,711
 Net realized losses on investments net of income tax effect amounted to
$175,440 for the six months ended June 30, 2003 and were related to sales as
follows: Number of
    
    RealizedCompany Name
    
    Shares
    
    LossAdvanced Recycling Sciences, Inc.
    
    
    9,000
    
    
    $
    (3,556
    )Centrex, Inc.
    
    
    1,343,400
    
    
    
    (160,284
    )Sense Holdings, Inc.
    
    
    200,000
    
    
    
    (6,763
    )Circle Group Holdings, Inc.
    
    
    12,000
    
    
    
    (4,837
    )Total
    
    
    
    
    
    $
    (175,440
    )
 On a quarterly basis, net realized gains and losses can vary
substantially, due to a variety of factors. Therefore, quarterly net realized
gains and losses should not be annualized to predict expected annual results,
and may not be indicative of future performance. Changes in Unrealized Appreciation or Depreciation. We determine the value of each investment in our portfolio on a quarterly
basis, and changes in value result in unrealized appreciation or depreciation
being recognized. At June 30, 2004, approximately 96% 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 available market value for the investments
in our portfolio, we value Page 22 of 35




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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. 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 depreciation on our investments, net of taxes,
increased by $1,469,070 for the three months ended June 30, 2004, compared to
net unrealized appreciation of $885,061 on our investments for the three months
ended June 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 June 30, 2004 and 2003,
respectively. There was a significant decrease in value in the three months
ended June 30, 2004 in our investment in Circle Group Holdings, Inc., as well
as minor decreases in some of our other investments. However, this was offset
slightly by an increase in appreciation related to our investments in
Duraswitch Industries, Inc., Intra-Asia Entertainment Corp. (formerly GloTech
Industries, Inc.), AssureTec Holdings Inc. and eFoodSafety.com, Inc. The Companys most significant portfolio investment is in Circle Group
Holdings, Inc., which represented 71.4% of our net assets in the quarter ended
June 30, 2004. The following is a simplified summary of the methodology that we
used to determine the fair value of this investment. At June 30, 2004, the fair value of our investment in Circle Group was
approximately $16.5 million. The value of our investment in Circle Group
decreased by approximately $2.1 million before tax effect for the quarter ended
June 30, 2004. Approximately 28% 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 114% 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 balance
sheet date 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 Page 23 of 35




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Net assets increased 108% to $23,161,426
at June 30, 2004 from $11,152,370
at December 31, 2003. This increase was primarily attributable to the
completion of private placement transactions totaling $3.1 million during the
six months as well as net realized gains of approximately $1.3 million, and the
$6.3 million increase in the net unrealized appreciation in the value of our
non-controlled affiliate investments. Our
primary sources of liquidity and capital for the three months ended
June 30, 2004 was from cash received from private placement transactions
totaling $3.5 million as well as from the sales of our investments totaling
approximately $2.3 million . In January 2004, we completed two private placements 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. 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. Recent Developments Circle
Group Holdings, Inc. represented 71.4% of our net assets at the
quarter ended June 30, 2004. On August 4, 2004, the $2.06
market closing price per share of Circle Group Holdings, Inc. on the
American Stock Exchange represented a decrease of 60% from the $5.15
market closing price per share on the American Stock Exchange on
June 30, 2004. This decline in the market value of Circle Group
Holdings, Inc. will have a material negative impact on UTEKs
financial condition from that reported for the period ended
June 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 $1.13 per share or 27% from the net asset value per
share reported at June 30, 2004. On
August 2, 2004, under its Strategic Alliance Agreement with the
Shriners Hospitals for Children (Shriners), the Company
facilitated the technology-transfer to Crystal Point Partners of a
Shriners developed biomaterial for tendon and ligament
reconstruction. As the success fee for this transaction, the Company
will receive ten percent of Tendon and Ligament, Inc., a new company
formed by Crystal Point Partners to commercialize the Shriners
technology. The Company has not yet determined the value of its
equity stake in Tendon and Ligament, Inc. On
August 3, 2004, Arsenic Removal Technologies, Inc., a wholly
owned subsidiary of UTEK Corporation acquired the worldwide exclusive
license to a technology for the removal of water-soluble forms of
arsenic from water utilizing a compound developed by researchers at
the Department of Renewable Resources at the University of Wyoming.
HydroFlo, Inc. has acquired Arsenic Removal Technologies, Inc.
(ARTI), a wholly owned subsidiary of UTEK Corporation in a stock
transaction. In connection with the sale, we received 3,200,000
shares of unregistered shares of common stock of HydroFlo, Inc. with
a fair value of approximately $400,000. On
August 4, 2004, Advanced Cyber Security, Inc., a wholly owned
subsidiary of UTEK Corporation acquired the worldwide exclusive
license to the prototype software system called Systems Administrator
Simulation Trainer (SAST). Manakoa Services Corporation has acquired
Advanced Cyber Security, Inc. (ACSI), a wholly owned subsidiary of
UTEK Corporation, in a stock transaction. In connection with the
sale, we received 2,000,000 shares of unregistered shares of common
stock of Manakoa Services Corporation, with a fair value of
approximately $500,000. 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 June 30, 2004, the value of our investment in Circle
Group Holdings, Inc. was approximately $16.5 million or 71.4% of our net
assets. 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. Page 24 of 35




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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. 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. 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, 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 Page 25 of 35




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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 these type of 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 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 us or one of our intellectual
property acquisition companies. 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 company, our entire investment
could be lost. We are dependent upon and have little or no control over the efforts of
portfolio companies to successfully commercialize the acquired technologies or
to retain the license to the technology. We receive common stock from the portfolio company based upon the mutually
agreed upon values of the 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
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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 June 30, 2004 and December 31, 2003, investments amounting to $19,963,515 or
86.0% of net assets and $7,745,354 or 69.5% of net assets, respectively, 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 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 companies. 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
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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 June 30, 2004, $19,193,036 or 96% 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. 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 BDC 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 37% of our common stock as of June 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 our company, could deprive our shareholders of an opportunity to receive a
premium for their common stock as part of the sale of our company and might
ultimately affect the market price of our common stock. 
 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 Rules
13a-15(e) and 15d-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 Rule 13a-15(f) and 15d-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
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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 June 30, 2004, the Company was not a party to any material pending legal
proceedings. 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities On April 23, 2004, the Company issued 100,000 shares of common stock for
an aggregate offering price of $1,000,000 to accredited investors pursuant to
an exception from the registration requirements of the Securities Act of 1933
as amended under Section 4(2) of the Securities Act or Regulation D promulgated
thereunder as transactions by an issuer not involving any public offering.
GunnAllen Financial, Inc. acted as placement agent in connection with the
offering of such shares and received an aggregate commission of $100,000 for
its services in connection therewith. 
 Item 3. Defaults upon Senior Securities Not Applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of stockholders on June 25, 2004.
Shareholders voted on five matters; the substance of these matters and the
results of the voting of each such matter are described below. There were no
broker non-votes for either matter. The first item was to elect seven directors: Clifford Gross, Stuart
Brooks, Sam Reiber, Kwabena Gyimah-Brempong, Arthur Chapnik, John Micek and
Keith Witter were elected to continue their terms. Clifford Gross received
4,595,426 votes in favor, 11,023 votes withheld. Kwabena Gyimah-Brempong,
Arthur Chapnik and Keith Witter received votes 4,595,926 in favor, 10,523 votes
withheld. , John Micek received votes 4,595,826 in favor, 10,623 votes
withheld. Stuart Brooks received 4,562,026 votes in favor, 44,423 votes
withheld. Sam Reiber received 4,579,726 votes in favor, 26,723 votes withheld The second item brought for a vote at the annual meeting of stockholders
was to approve an amendment to the existing Companys 1999 Employee Stock
Option Plan to increase the number of shares of common stock authorized for
issuance under the plan by 185,000 shares. Votes cast were as follows:
3,206,510 votes for the proposal, 69,283 against, and 17,970 abstentions. The third item brought for a vote at the annual meeting of stockholders
was to approve an amendment to the Companys existing 2000 Non-Qualified Stock
Option Plan to increase the number of shares of common stock authorized for
issuance under the plan by 65,000 shares. Votes cast were as follows: 3,204,535
votes for the proposal, 69,283 against, and 19,945 abstentions. The fourth item brought for a vote at the annual meeting of stockholders
was to authorize the issuance from time to time of warrants to purchase shares
up to 50,000 shares of common stock of the Company. Votes cast were as follows:
3,283,955 votes for the proposal, 42,858 against, and 16,950 abstentions The fifth item brought for a vote at the annual meeting of stockholders
was to ratify the selection of Pender Newkirk and Company as the Companys
independent accountants for the year ending December 31, 2004. Votes cast were
as follows: 4,581,056 votes for the proposal, 18,343 against, and 7,050
abstentions. 
 Item 5. Other Information Not applicable. 
 Item 6. Exhibits and Reports on Form 8-K (a) List of exhibits.  a.
    
    The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule
12b-32 under the Securities Exchange Act of 1934. 31.1*
    
    
    
    Certification of the Chief Executive Officer
pursuant to Rule 13a-14 of the Securities
 Page 29 of 35




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Exchange Act of 1934.31.2*
    
    
    
    Certification of the Chief Financial Officer
pursuant to Rule 13a-14 of the Securities Exchange
Act of 1934.32.1*
    
    
    
    Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350.32.2*
    
    
    
    Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350.
 (b) Reports on Form 8-K. On May 4, 2004, the Company filed a Form 8-K pursuant to Items 5 and 7
reporting that Web Safe Technologies, Inc., a Florida corporation and 100%
owned subsidiary of the Company was acquired by Zkid Network Company in a
tax-free stock-for-stock exchange. On May 10, 2004, the Company furnished a Form 8-K pursuant to Item 12
reporting the issuance of a press release announcing the Companys financial
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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:  August 5, 2004
    /s/  Clifford M. GrossClifford M. GrossChairman and Chief Executive Officer Date:  August 5, 2004
    /s/  Carole R. WrightCarole R. Wright, CPAChief Financial Officer Page 31 of 35