Innovaro 10Q 2001 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2001
COMMISSION FILE NUMBER: 001-15941

UTEK CORPORATION
(Exact Name of Registrant as Specified in its Charter)

DELAWARE
(State or Jurisdiction of
Incorporation or Organization)
59-3603677
(IRS Employer
Identification No.)

202 S. Wheeler Street
Plant City, FL 33566
(Address of Principal Executive Offices)

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

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value

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 [ ]

On August 2, 2001 there were 3,856,212 shares outstanding of the
Registrant’s common stock, $0.01 par value.

Page 1 of 25

UTEK CORPORATION

FORM 10-Q INDEX

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements




Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000		3




Consolidated Statements of Income — For the Three and Six Months Ended June 30, 2001, and 2000 (unaudited)		4




Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2001 and 2000 (unaudited)		5




Consolidated Statements of Changes in Net Assets For the Six Months Ended June 30, 2001 and 2000 (unaudited)		6




Financial Highlights For the Six Months Ended June 30, 2001 and 2000 (unaudited)		7




Schedule of Investments as of June 30, 2001 (unaudited) and December 31, 2000		8




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13




Item 3. Quantitative and Qualitative Disclosures about Market Risk		23




PART II. OTHER INFORMATION




Item 1. Legal Proceedings		23




Item 2. Changes in Securities and Use of Proceeds		23




Item 3. Defaults Upon Senior Securities		23




Item 4. Submission of Matters to a Vote of Security Holders		23




Item 5. Other Information		23




Item 6. Exhibits and Reports on Form 8-K		23-24




Signatures		25

Page 2 of 25

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UTEK Corporation

Consolidated Balance Sheets


			June 30		December 31
			2001		2000

			(Unaudited)
ASSETS




	Investments in non-controlled affiliates (cost $8,775,519 and $5,695,788 at June 30, 2001 and December 31, 2000, respectively)		$	9,542,693	$	5,949,582




	Cash and cash equivalents			2,859,931		3,952,280




	Prepaid expenses and other assets			95,457		110,331




	Fixed assets, net			79,809		76,473

		TOTAL ASSETS		12,577,890		10,088,666

LIABILITIES




	Notes payable to bank			—		39,975




	Accrued expenses			63,494		101,901




	Deferred income taxes			2,319,591		1,491,788

		TOTAL LIABILITIES		2,383,085		1,633,664

		NET ASSETS	$	10,194,805	$	8,455,002

Commitments and Contingencies
Composition of net assets:




	Common stock, $.01 par value, 19,000,000 shares authorized; 3,856,212 shares issued and outstanding at June 30, 2001 and 3,782,226 shares issued and outstanding at December 31, 2000, respectively		$	38,562	$	37,822




	Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding			—		—




	Additional paid in capital			6,548,736		6,173,859




	Accumulated income:




		Accumulated net operating income		3,106,626		2,061,314




		Net realized gain on investments, net of income taxes		22,394		23,715




		Net unrealized appreciation of investments, net of deferred income taxes		478,487		158,292

Net assets			$	10,194,805	$	8,455,002

Net asset value per share			$	2.64	$	2.24

See accompanying notes

Page 3 of 25

UTEK Corporation

Consolidated Statements of Income

(Unaudited)


				Three Months Ended June 30						Six Months Ended June 30

				2001			2000			2001			2000

Income from operations:




		Sale of technology rights		$	1,637,500		$	754,110		$	3,083,653		$	1,906,472




		Investment income, net			19,759			5,532			79,507			17,160

					1,657,259			759,642			3,163,160			1,923,632

Expenses:




		Salaries and wages			118,398			88,253			221,571			163,295




		Professional fees			81,221			26,513			234,601			100,970




		Sales and marketing			442,110			124,672			703,140			525,303




		General and administrative			195,842			120,483			323,124			159,822

					837,571			359,921			1,482,436			949,390

Income before income taxes					819,688			399,721			1,680,724			974,242




Provision for income taxes					313,550			151,263			635,412			367,456

		Net income from operations			506,138			248,458			1,045,312			606,786




Net realized and unrealized gains (losses):




	Net realized loss on investment, net of income tax benefit of $550 and $795 for for the three and six months ended June 30, 2001, respectively				(911	)		—			(1,321	)		—




	Net increase in unrealized appreciation (depreciation) of non-controlled affiliate investments, net of deferred tax expense (benefit) of $60,740 and $193,186 for the three and six months of 2001 and ($110,962) and $365,000 for the three and six months of 2000, respectively				105,607			(638,270	)		320,195			150,621

Net increase (decrease) in net assets from operations				$	610,834		$	(389,812	)	$	1,364,186		$	757,407

Net increase (decrease) in net assets from operations per share:




			Basic	$	.16		$	(.14	)	$	.36		$	.27




			Diluted	$	.16		$	(.14	)	$	.35		$	.27




Weighted average shares:




			Basic		3,806,617			2,782,226			3,794,489			2,782,226




			Diluted		3,847,088			2,782,226			3,825,153			2,782,226

See accompanying notes

Page 4 of 25

UTEK Corporation

Consolidated Statements of Cash Flows

(Unaudited)


				For the Six Months Ended June 30

				2001			2000

Operating Activities:




	Net increase in net assets from operations			$	1,364,186		$	757,407




	Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:




		Increase in net unrealized appreciation of investments			(556,700	)		(515,620	)




		Deferred income taxes			827,803			732,456




		Depreciation			11,027			9,580




		Loss on sale of investments			2,116			—




		Changes in operating assets and liabilities:




			Prepaid expenses and other assets		14,874			(391,956	)




			Accrued expenses		(38,407	)		210,167

	Net cash provided by operating activities				1,624,899			802,034

Investing Activities:




	Investment securities received for sale of portfolio companies				(3,083,653	)		(1,706,472	)




	Proceeds received on sale of investments				45,126			—




	Purchases of fixed assets				(14,363	)		(11,056	)

	Net cash used in investing activities				(3,052,890	)		(1,717,528	)

Financing Activities:




	Proceeds from issuance of common stock				375,617			—




	Repayments on short-term borrowings				(39,975	)		—

	Net cash provided by financing activities				335,642			—

Decrease in cash and cash equivalents					(1,092,349	)		(915,494	)




Cash and cash equivalents at beginning of period					3,952,280			1,007,229

Cash and cash equivalents at end of period				$	2,859,931		$	91,735

See accompanying notes

Page 5 of 25

UTEK Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)


			Six Months Ended June 30

			2001			2000

Changes in net assets from operations:




	Net income from operations		$	1,045,312		$	606,786




	Net realized loss on sale of investments			(1,321	)		—




	Change in net unrealized appreciation of investments, net of related deferred taxes			320,195			150,621

		Net increase in net assets from operations		1,364,186			757,407




Capital stock transactions:




	73,986 shares of common stock issued for cash			375,617			—

Net increase in net assets				1,739,803			757,407




Net assets at beginning of year				8,455,002			3,284,453

Net assets at end of period			$	10,194,805		$	4,041,860

See accompanying notes

Page 6 of 25

UTEK Corporation

Financial Highlights

(Unaudited)


		Six Months Ended June 30

		2001			2000

PER SHARE INFORMATION

Net asset value, beginning of period		$	2.24		$	1.18




	Net increase from operations (1)		0.27			0.22




	Net change in realized and unrealized appreciation on investments (after taxes) (1)		.03			0.05




	Net increase from stock transactions		0.10

Net assets value, end of period		$	2.64		$	1.45

Per share closing market price, end of period		$	8.00		$	—


RATIOS/SUPPLEMENTAL DATA

Net assets, end of period		$	10,194,805		$	4,041,860




Ratio of expenses to average net assets (2)			18	%		26	%




Ratio of net income to average net assets			16	%		17	%




Diluted weighted average number of shares outstanding during the period			3,825,153			2,782,226

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




(2)		Excluding income taxes

See accompanying notes

Page 7 of 25

UTEK Corporation

Schedule of Investments

June 30, 2001
(Unaudited)


		Original
		Date of			Original
Shares		Acquisition			Value		Value

				Common stock in non-controlled affiliates -93.6%




	1,013,344		5/98	Lexon, Inc.- publicly traded over the counter development stage enterprise - 2.1%; developer of health care technology	$	288,364	$	212,802




	879,300		1/99	Image Analysis, Inc., privately held - 14.0%; medical and hospital equipment developer		219,825		1,424,466




	1,584,000		5/99	Centrex, Inc., privately held - 0%; developer of water and purification methodologies		522,720		—




	900,000		5/99	Nubar, Inc., privately held - 0.1%; developer of construction materials		126,000		10,800




	1,037,957		6/99	NuElectric, Inc., publicly traded over the counter - 4.0%; environmental services		590,388		404,803




	150		11/99	Rosbon, Inc., privately held - 0.7%; real estate development		90,705		75,636




	100,799		3/00	Graphco Technologies, Inc., privately held - 4.4%; developer of e-commerce technologies		952,362		449,564




	2,377,153		6/00	Advanced Recycling Sciences, Inc., publicly traded over the counter - 20.3%; tire recycling methodologies		2,200,263		2,068,123




	1,068,354		11/00	Torvec, Inc., publicly traded over the counter - 33.1%; advanced automotive technologies		2,147,392		3,375,999




	450,000		4/01	Bitzmart, Inc.,privately held - 10.2%; software products		1,156,500		1,039,500




	1,850,000		5/01	Sense Holdings, Inc.,publicly traded over the counter - - - 4.7%; biometric technologies		481,000		481,000






				TOTAL INVESTMENTS - 93.6%	$	8,775,519	$	9,542,693






				Cash and other assets, less liabilities - 6.4%				652,112






				Net assets at June 30, 2001 - 100%			$	10,194,805

Notes to Schedule of Investments:


•		The above investments 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 restricted securities is determined in good faith by the Board of Directors. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. (Notes 1 and 2)




•		As of June 30, 2001, all of the securities that we have received in exchange for our portfolio companies (with the exception of Lexon, Inc.) are “restricted securities,” as that term is defined under Rule 144. These securities may not be sold in the absence of registration under the 1933 Act or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited.




•		The Company owns more than 10% of the outstanding common stock of each of the above investments with the exception of Graphco Technologies, Inc., Torvec, Inc., Lexon, Inc. and Advanced Recycling Sciences, Inc. As such, the Company is deemed to be an affiliate of the above companies, as defined under Rule 144, except for those specifically noted.

See accompanying notes

Page 8 of 25

UTEK Corporation
Schedule of Investments
December 31, 2000


		Original
		Date of					Original
Shares		Acquisition					Value		Value

					Common stock in non-controlled affiliates - 70.4%




	924,973		5/98		Lexon, Inc.- publicly traded over the counter development stage enterprise - 1.8%; developer of health care technology		$	295,991	$	147,996




	879,300		1/99		Image Analysis, Inc., privately held - 16.8%; medical and hospital equipment developer			219,825		1,424,466




	1,584,000		5/99	Centrex, Inc., privately held - 0%; developer of water and purification methodologies				522,720		—




	900,000		5/99	Nubar, Inc., privately held - 0.6%; developer of construction materials				126,000		51,300




	1,037,957		6/99	NuElectric, Inc., publicly traded over the counter - 7.1%; environmental services				590,388		602,015




	150		11/99	Rosbon, Inc., privately held - 1.0%; real estate development				87,000		82,852




	100,799		3/00	Graphco Technologies, Inc., privately held - 11.3%; developer of e-commerce technologies				952,362		952,362




	931,000		6/00	Advanced Recycling Sciences, Inc., publicly traded over the counter - 2.9%; tire recycling methodologies				754,110		242,060




	1,068,354		11/00	Torvec, Inc., publicly traded over the counter - 28.9%; advanced automotive technologies				2,147,392		2,446,531






						TOTAL INVESTMENTS - 70.4%	$	5,695,788	$	5,949,582






						Cash and other assets, less liabilities - 29.6%				2,505,420






						Net assets at December 31, 2000 - 100%			$	8,455,002

Notes to Schedule of Investments:


•		The above investments 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 restricted securities is determined in good faith by the Board of Directors. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. (Notes 1 and 2)




•		As of December 31, 2000, all of the securities that we have received in exchange for our portfolio companies are “restricted securities,” as that term is defined under Rule 144. These securities may not be sold in the absence of registration under the 1933 Act or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio will be limited.




•		The Company owns more than 10% of the outstanding common stock of each of the above investments with the exception of Graphco Technologies, Inc., Torvec, Inc. and Advanced Recycling Sciences, Inc. As such, the Company is deemed to be an affiliate of the above companies, as defined under Rule 144.

See accompanying notes

Page 9 of 25

UTEK Corporation
Notes to Consolidated Financial Statements

(Information as of June 30, 2001 and 2000 and for the six month
periods then ended is Unaudited)

1. Nature of Business and Significant Accounting Policies

Interim Financial Information

The financial information as of June 30, 2001 and 2000 and for the 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, 2000. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the entire year.

The Company

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

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

As a BDC, we must be primarily engaged in the business of furnishing capital and managerial assistance to companies that 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 provides portfolio companies with managerial assistance in 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.

The Company seeks “merger partners” for portfolio companies, whereby the Company receives common stock in the merger partner in a non-taxable exchange for shares of the portfolio company. The Company generally seeks merger partners that are in the early stages of development. The merger partners normally have little or no prior operating history.

Investments

Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining, in good faith, the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.

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.

Page 10 of 25

UTEK Corporation
Notes to Consolidated Financial Statements

(Information as of June 30, 2001 and 2000 and for the six month
periods then ended is Unaudited)

Investments – (continued)

Without a readily ascertainable market value, the estimated 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. Equity securities at June 30, 2001 and December 31, 2000 (93.6% and 70.4% of net assets, respectively) are stated at fair value as determined by the Board of Directors, in the absence of readily ascertainable fair values.

Revenue Recognition

Effective January 1, 2000, the Company adopted the provisions of SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (“SAB 101”). SAB 101 provides guidance on the recognition, presentation and disclosures of revenue in financial statements. The adoption of SAB 101 has no impact on the Company’s financial statements.

The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of portfolio companies with unrelated merger partners. The Company records revenue based on the value of the consideration received. In most cases, the consideration received for the rights is the common stock of the purchaser. The common stock received is recorded as an investment at fair value. Revenue derived from consulting services is recognized as earned, over the life of the underlying consulting agreements. In some cases, the Company is paid a fee for negotiating a successful technology transfer. In these instances, revenue is recognized upon consummation of the transaction.

Research and Development

Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at discovery of new knowledge that will be useful in developing new products or processes. The Company expenses all research and development costs as they are incurred. During the 6 months ended June 30, 2001 and 2000, the Company incurred $356,000 and $235,000, respectively, in such costs.

Private Placement Memorandum

On June 5, 2001,the Company completed a private placement of 73,986 unregistered shares of its common stock. Schneider Securities, Inc acted as the placement agent in connection with the private placement. The offering was only made to accredited investors and was exempt from registration under Section 4(2) of the Securities Act of 1933. The aggregate offering price was $475,000 less broker commissions of $55,750 and other related Company costs of $43,633. The net proceeds from the private placement, after paying selling fees and expenses and the Company’s offering costs, are to be used as working capital for the Company, including investments in portfolio companies, either as initial or additional investments.

2. Investments

Equity securities at June 30, 2001 and December 31, 2000, (93.6 % and 70.4% of net assets, respectively) were valued at fair value as determined by the Board of Directors, in the absence of readily ascertainable market values.

The values assigned to these securities are based upon available information and do not reflect amounts that could be realized upon immediate sale, nor amounts that ultimately may be realized. Accordingly, the fair values included in the 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, 2001 and December 31, 2000, the Company had established five and eight portfolio companies, respectively, with net assets of $0 and $740, respectively, which are included in other assets.

On January 28, 2000, the Company sold its Cancer Diagnostic, Inc. portfolio company to Lexon, Inc. for $200,000. The Company received $50,000 in cash and a promissory note for $150,000, $120,000 of which was paid to the Company during the year ended December 31, 2000. During March 2001, Lexon, Inc issued 236,000 unregistered shares of their common stock as payment of the remaining principal and interest.

Page 11 of 25

UTEK Corporation
Notes to Consolidated Financial Statements

(Information as of June 30, 2001 and 2000 and for the six month
periods then ended is Unaudited)

2. Investments – (continued)

On March 21, 2000, the Company sold its Digital Personnel, Inc. portfolio company to a subsidiary of Graphco Technologies, Inc. (“GTC”) for 100,799 shares of GTC common stock in a non-taxable exchange.

On June 24, 2000, the Company sold its Advanced Recycling Sciences, Inc. portfolio company to Advanced Recycling Sciences (formerly The Quantum Group, Inc.) for 931,000 unregistered shares of Advanced Recycling Sciences, Inc. common stock in a non-taxable exchange.

On September 21, 2000, the Company sold its Zorax, Inc. portfolio company to NuElectric, Inc. for 546,000 unregistered shares of NuElectric, Inc. common stock in a non-taxable exchange.

On November 29, 2000, the Company sold its Ice Surface Development, Inc. portfolio company to Torvec, Inc. for 1,068,354 unregistered shares of Torvec, Inc. common stock in a non-taxable exchange.

On February 19, 2001, the Company sold its Technology Development, Inc. portfolio company to Advanced Recycling Sciences, Inc., (formerly known as The Quantum Group, Inc.) for 1,446,153 unregistered shares of Advanced Recycling Sciences, Inc. common stock in a non-taxable exchange.

On April 20, 2001, the Company sold its Watermark Technologies, Inc. portfolio company to Bitzmart, Inc. for 450,000 unregistered shares of Bitzmart, Inc. common stock in a non-taxable exchange.

On May 31, 2001, the Company sold its Micro Sensor Technologies, Inc. portfolio company to Sense Holdings, Inc. for 1,850,000 unregistered shares of Sense Holdings, Inc. common stock in a non-taxable exchange.

3. Income Taxes

Prior to October 14, 1999, the Company’s business was structured as a limited liability company (“LLC”). The LLC elected to be treated as a partnership under the provisions of Subchapter K of the Internal Revenue Code. Under those provisions, the LLC did not pay corporate income taxes on its taxable income. Instead, the owners of the LLC were individually liable for income taxes on the LLC’s taxable income. The LLC’s subsidiaries, including UTEK Holdings and UTEK Corporation, were all taxed as C corporations.

On October 14, 1999, the Company restructured its business, whereby the members of the LLC contributed their membership interests to the Company, a newly created corporation. As a result, all of the LLC’s assets, including the stock of its subsidiaries, were transferred to the Company and the LLC was dissolved. In addition, UTEK Holdings and UTEK Corporation were liquidated into the Company. As of October 14, 1999, the Company is taxable as a C corporation.

4. Commitments and Contingencies

On September 13, 2000, the Company obtained a revolving line of credit with a local financial institution. This line of credit allowed the Company to borrow up to $150,000, with a rate of interest at prime. The line of credit was due on demand and was secured by a pledge of a portion of the Company’s investments in non-controlled affiliates and the personal guarantees of the chief executive officer, a director, and a shareholder. At December 31, 2000 the balance due was $39,975. The Company paid the note in full and cancelled the line during the period ended March 31, 2001.

Page 12 of 25

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

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that these projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

GENERAL

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

The income that we derive from our investments in our portfolio companies consists of both cash and equity securities that we receive upon disposition of our portfolio companies. The value of the equities that we receive makes up most of our revenues. Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.

Without a readily ascertainable market value, the estimated 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. Any changes in estimated value are recorded in the Company’s Statements of Income as “Net realized and unrealized gains (losses)” during the period of change.

We have retained Bolten Financial Consulting, Inc., to provide us with valuations of the securities we receive in exchange for portfolio companies, updated to each quarterly valuation date. We pay Bolten Financial Consulting, Inc. a fee each time it values our investments. For the six months ended June 30, 2001 and 2000, we paid Bolten Financial Consulting, Inc. a total of $14,951 and $7,185, respectively for its valuation 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.

On October 25, 2000 the Company completed its IPO of 1,000,000 shares of its common stock at $6.00 per share to raise additional equity to support its growth strategy. The net proceeds of the offering were $4,047,849.

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On June 5, 2001,the Company closed on a private placement offering of 73,986 unregistered shares of its common stock. Schneider Securities, Inc completed the private placement. The aggregate offering price was $475,000 less broker commissions of $55,750 and other related Company costs of $43,633. The private placement was exempt from registration under section 4(2) of the Securities act of 1933. The net proceeds from the private placement, after paying selling fees and expenses and the Company’s offering costs, are to be used to continue the Company’s investments in portfolio companies, either as initial or additional investments.

Financial Condition

The Company’s total assets were $12,577,890 and its net assets were $10,194,805 at June 30, 2001, compared to $10,088,666 and $8,455,002 at December 31, 2000, respectively.

Net asset value per share (“NAV”) was $2.64 at June 30, 2001, compared to $2.24 at December 31, 2000. Net assets increased by $1,739,803 in the six months ended June 30, 2001 and by $5,170,549 in the year ended December 31, 2000.

Among the significant changes that affected total assets, net assets and NAV during the quarter ended June 30, 2001 were:


	• Two technology transfers valued at $1,637,500

	• A private placement of the Company’s common stock which increased net assets by $375,617, after related expenses.

The Company’s common shares outstanding as of June 30, 2001 and December 31, 2000 were 3,856,212 and 3,782,226, respectively.

The Company’s financial condition is dependent on a number of factors including the ability to effectuate technology transfers and the performance of the equity stakes 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, 2001, $6,542,727 or 52% of the Company’s total assets consisted of investments at fair value in publicly traded securities, of which net unrealized appreciation, after income tax effect, was $520,989; the remaining $2,999,966 of the investments which represents 24% of the Company’s total assets consisted of non-publicly traded securities at fair value of which net unrealized depreciation, after income tax effect, was ($42,502). See Note 2 to the accompanying consolidated financial statements.

Results of Operations

The Company accounts for its operations under generally accepted accounting principles for investment companies. On this basis, the principal measure of a Company’s 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 the Company’s income from technology transfers, interest, dividends, fees and other income and its operating expenses, net of applicable income tax provision. The second element is “Net realized gain (loss) on investment,” which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, net of applicable income tax provision. The third element, “Increase in unrealized appreciation (depreciation) 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, 2001 compared to the three months ended June 30, 2000.

Income from operations. Income from operations increased 118% to $1,657,259 for the three months ended June 30, 2001 from $759,642 for the three months ended June 30, 2000. The increase in income from operations resulted from completing two technology transfers for the three months ended June 30, 2001. As described below, in the three months ended June 30, 2001 we completed two tax free mergers valued at $1,637,500, compared to one tax free merger valued at $754,110 for the three months ended June 30, 2000. Our Board of Directors determines the fair value of the shares we receive in the absence of readily ascertainable market values. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. In our transactions during the three months ended June 30, 2001 with Bitzmart, Inc., on April 20, 2001 we received 450,000 shares of common stock valued at the time of sale at $2.31 per share and with Sense Holdings, Inc. on May 31, 2001 we received 1,850,000 shares valued at the time of sale at $.26. In our transaction during the three months ended June 30, 2000 with Advanced Recycling Sciences, Inc. (formerly The Quantum Group, Inc.), on June 29, 2000 we received 931,000 shares of common stock that were valued at the time of sale at $.81 per share.

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Expenses.Total operating expenses for the three months ended June 30, 2001 were $837,571 consisting of salaries and wages of $118,398, professional fees of $81,221, sales and marketing expenses of $442,110, and general and administrative expenses of $195,842. These expenses compared to the $359,921 reported for the three months ended June 30, 2000, consisting of salaries and wages of $88,253, professional fees of $26,513, sales and marketing expenses of $124,672, and general and administrative expenses of $120,483. The 133% increase in total operating expenses was due to additional expenses incurred in operating as a public company, completing a second technology transfer, the increased number of employees and outside services used to grow the business and our ongoing effort to develop the UTEK U2B(SM) brand. The 255% increase in sales and marketing expenses was due to the completion of two technology transfers as compared with one for June 30, 2000. The 34% increase in salaries and wages reflects increased salary costs from the addition of three full-time employees, as well as one part-time employee. The 206% increase in professional fees is largely due to the costs associated with operating and reporting as a public company, preparing the corporate and subsidiary tax returns, as well as additional attorneys’ fees for work related to intellectual property and conforming with BDC requirements. The 63% increase in general and administrative costs is largely due to the increased services required and expenses related to the requirements of being a public company such as investor relations costs, printing and mailing costs, and other related costs.

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

Net Realized and Unrealized Gains (Losses) and Income Taxes.Net realized losses on investments amounted to $911 for the three months ended June 30, 2001 and related to sales of 78,629 shares of its Lexon, Inc. common stock for $23,700 in cash during the reporting period. There were no realized gains (losses) for the three months ended June 30, 2000.

The net unrealized appreciation of investments increased by $105,607 for the three months ended June 30, 2001, versus an increase in unrealized depreciation of $638,270 for the three months ended June 30, 2000. The net unrealized appreciation consisted of increases and declines in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the three months ended June 30, 2001. There were declines in value related to our investments in Graphco Technologies, Inc.; Nubar, Inc.; Torvec, Inc; Rosbon, Inc., Bitzmart, Inc. and Lexon, Inc. However, the decline from those investments was offset by a larger increase in value related to our investments in NuElectric, Inc. and Advanced Recycling Sciences, Inc.; .

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

Our effective tax rate was a provision of approximately 38% for the three months ended June 30, 2001 and June 30, 2000.

Six months ended June 30, 2001 compared to the six months ended June 30, 2000.

Income from operations. Income from operations increased 64% to $3,163,160 for the six months ended June 30, 2001 from $1,923,632 for the six months ended June 30, 2000. The increase in income from operations resulted from completing three technology transfers with substantially more value attributed to such transactions. As described below, in the six months ended June 30, 2001 we completed three tax free mergers valued at $3,083,653, compared to one sale and two tax free mergers valued at $1,906,472 for the six months ended June 30, 2000. Our Board of Directors determines the fair value of the shares we receive in the absence of readily ascertainable market values. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. In our transactions during the six months ended June 30, 2001 with Bitzmart, Inc., on April 20, 2001 we received 450,000 shares of common stock valued at the time of sale at $2.31 per share; with Sense Holdings, Inc., on May 31, 2001 we received 1,850,000 shares valued at the time of sale at $.26 per share; and with Advanced Recycling Sciences, Inc. (formerly The Quantum Group, Inc.), on February 19, 2001 we received 1,446,153 shares of common stock valued at the time of sale at $1.00 per share. In our transactions during the six months ended June 30, 2000 with Advanced Recycling Sciences, Inc. (formerly The Quantum Group, Inc.), on June 29, 2000 we received 931,000 shares of common stock that were valued at the time of sale at $.81 per share; with Graphco Technologies, Inc. on March 21, 2001, we received 100,799 shares of common stock in Graphco Technologies, Inc which were valued at the time of sale at $9.45 per share; and with Lexon, Inc. on January 28, 2000 we sold one of our portfolio company for $200,000.

Expenses.Total operating expenses for the six months ended June 30, 2001 were $1,482,436 consisting of salaries and wages of $221,571, professional fees of $234,601, sales and marketing expenses of $703,140, and general and administrative expenses of $323,124. These expenses compared to the $949,390 reported for the six months ended June 30, 2000, consisting of salaries and wages of $163,295, professional fees of $100,970, sales and marketing expenses of $525,303, and general and administrative expenses of $159,822. The 56% increase in total operating expenses was due to additional expenses incurred in operating as a public company,

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the increased number of employees and outside services used to grow the business and our ongoing effort to develop the UTEK U2B(SM) brand. The 34% increase in sales and marketing expenses was due to additional research and development funded for the three transfers in the six months ended June 30, 2001 as compared to sale and two transfers in the six months ended June 30, 2000. The 36% increase in salaries and wages reflects increased salary costs from the addition of three full-time employees, as well as one part-time employee. The 132% increase in professional fees is largely due to the costs associated with operating and reporting as a public company, preparing the corporate and subsidiary tax returns, as well as additional attorneys’ fees for work related to intellectual property and conforming with BDC requirements. The 102% increase in general and administrative costs is largely due to the increased services required and expenses related to the requirements of being a public company such as investor relations costs, printing and mailing costs, and other related costs.

Net Realized and Unrealized Gains (Losses) and Income Taxes.Net realized losses on investments amounted to $1,321 for the six months ended June 30, 2001 and related to sales of 147,629 shares of its Lexon, Inc. common stock for $45,125 in cash during the reporting period. There were no realized gains (losses) for the six months ended June 30, 2000.

The net unrealized appreciation of investments increased by $320,195 for the six months ended June 30, 2001, a 113% increase from the increase in unrealized appreciation of $150,621 for the six months ended June 30, 2000. The net unrealized appreciation consisted of increases and declines in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the six months ended June 30, 2001. There were declines in value related to our investments in NuElectric, Inc; Graphco Technologies, Inc.; Nubar, Inc.; Rosbon, Inc., Bitzmart, Inc. However, the decline from those investments was offset by a larger increase in value related to our investments in Advanced Recycling Sciences, Inc., Torvec, Inc and Lexon, Inc.

Our effective tax rate was a provision of approximately 38% for the six months ended June 30, 2001 and June 30, 2000.

Liquidity and Capital Resources

Net assets increased 21% to $10,194,805 at June 30, 2001 from $8,455,002 at December 31, 2000, attributable to income from operations and the unrealized appreciation of non-controlled affiliate investments, as well as the private placement of shares of the Company’s common stock completed in June 2001.

Our primary source of liquidity and capital through June 30, 2001 was from the issuance of common stock rather than income from operations. Our income from operations consists primarily of the sale of technology rights for equity securities rather than cash. In total, we have completed four private placement transactions resulting in proceeds of $530,433 in 1998, $1,305,807 in 1999 and $375,617 in 2001. In 2000, we completed the Company’s IPO with net proceeds of $4,047,849. On June 30, 2001 the Company had $2,859,931 in cash and cash equivalents and no notes payable to bank, as compared to December 31, 2000 with $3,952,280 in cash and cash equivalents and $39,975 in notes payable to bank. Based upon our anticipated capital needs for operations, general corporate purposes, and future research and development agreements with universities to complete technology transfer transactions, management believes that the net proceeds received from the IPO and recent private placement will be sufficient to meet our funding requirements for the next 12 months.

On September 13, 2000 the Company secured a $150,000 revolving line of credit with a local financial institution. Advances under the line of credit would bear interest at the financial institutions prime rate. The line of credit was due on demand and was secured by a pledge of a portion of our investments in non-controlled affiliates and the personal guarantees of the chief executive officer, a director and a shareholder. The Company paid the note in full and cancelled the line during the period ended March 31, 2001.

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Investment Considerations

Our quarterly results could fluctuate.

The Company’s quarterly operating results could fluctuate due to a number of factors. These factors include the small number and range of values of the transactions that are completed each quarter, 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 as it relates to our unrealized gains and losses, as well as other general economic conditions. As a result of these factors, quarterly results are not necessarily indicative of the Company’s performance in future quarters.

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

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

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

We invest in development stage companies that our management believes can benefit from our expertise in technology transfer. Development stage companies are subject to all of the risks associated with new businesses. In addition, our portfolio companies are also subject to the risks associated with research and development of new technologies. These risks include the risk that new technologies cannot be identified, developed or commercialized, may not work, or are obsolete. Our portfolio companies must successfully acquire licenses to new technologies, and in some cases further develop new technologies, and then complete a merger transaction for our investments to be successful. 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. In addition, for an investment to be successful, our portfolio companies often must develop the technology and identify buyers who are willing to acquire the technology, in exchange for their common stock or other consideration. We cannot assure you that any of our portfolio companies will be successful or that we will successfully sell our portfolio companies or sell or relicense the technology rights held by our portfolio companies. 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, 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. In addition, we have no control over what types of research are presented to us by universities and government research facilities for evaluation and commercial development. Further, the licenses to technologies that our portfolio companies obtain may be non-exclusive. In the event that we make an investment in a portfolio company, and we are unable to locate a new technology to be acquired by the portfolio company, we could lose our entire investment.

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

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

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

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

Technologies developed with funds provided by the United States Government have restrictions regarding where they may be sold and have limits on exclusivity. A portfolio company that acquires a technology developed with federal funding may be limited as to where it can sell the technology. The technology may only be allowed to be sold, or manufactured within the United States. In addition, under Section 23 of the United States Code, the 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 investments in our portfolio companies to provide them with capital to further develop technologies they license.

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

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

Our agreement with the underwriters 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, which 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 illiquid and we may not be able to sell the portfolio company securities we hold for amounts equal to their recorded value, if at all.

Our portfolio companies are all private entities and we acquire securities in our portfolio company in private transactions. As a result, all of the securities we hold in our portfolio companies are restricted securities, as defined under the Securities Act and are subject to restrictions on resale. Furthermore, we do not anticipate that a public market will exist for any of the securities we hold in our portfolio companies. Therefore, any sale or other transfer of the securities we hold in portfolio companies will be made in private transactions and 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.

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

We do not anticipate selling any of our portfolio companies, except in connection with merger transactions. We anticipate that most, if not all, of such merger transactions will be structured as tax-free exchanges under Section 368 of the Internal Revenue Code. If Section 368 were to be amended so that we were no longer able to structure our merger transactions as tax free exchanges,

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we may not be able to sell our portfolio companies on commercially reasonable terms. If we are unable to successfully sell a portfolio company in a merger transaction, we may lose our investment.

We have been dependent on a small number of companies controlled by the same investor group for the purchase of our portfolio companies. We have only limited experience selling our portfolio companies and of the fourteen transactions that we have completed, six have been to companies controlled by the same group of investors.

As of June 30, 2001, we have completed only fourteen transactions, including thirteen mergers and one stock sale, wherein we sold portfolio companies to other companies and six of these sales have been made to companies that are controlled by the same investor group. As a result, we have only had the benefit and experience of negotiating such agreements with a small number of investors. We cannot assure you that we will be able to successfully negotiate merger transactions for the sales of our portfolio companies in the future.

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

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

We are exposed to significant asset concentration risk.

As of June 30, 2001, six out of the fourteen consummated transactions have been with “merger parties” controlled by a similar group of investors. The value of these investments represented approximately 16.2% of our total net assets as of June 30, 2001.

We are dependent upon our management’s ability to identify acquirers for our portfolio companies.

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

We are dependent upon and have little or no control over the efforts of companies that acquire our portfolio companies to successfully commercialize the technologies they acquire.

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

The companies that have merged with our portfolio companies are development stage companies and, as a result, the value of the securities that we receive in such merger transactions is subject to significant fluctuations.

Historically we have merged, and we intend to continue to merge, our portfolio companies with companies in related fields that are development stage companies. As a result, the securities that we receive when we merge a portfolio company are subject to all of the risks associated with securities of development stage companies. The values of these securities may be subject to significant

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fluctuations. We cannot assure you that when we sell these securities; we will receive the value ascribed to the securities either at the time of acquisition or during subsequent valuation periods.

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

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.

Our investments in our portfolio companies are not made on a multi-tiered basis and are subject to loss.

Substantially all of our portfolio companies are early stage companies. We may make substantial investments in our portfolio companies to enable them to conduct initial research, development and acquisition activities. These investments are not made in companies at different stages of development and, accordingly, our investments do not benefit from any advantages, which might be obtained by making investments on a multi-tiered basis. We cannot assure you that any or all of our portfolio companies will find or acquire new technologies. If any or all of them do find or acquire new technologies, we cannot give you any assurance that the portfolio companies will be able to find suitable merger partners or other suitable purchasers of the technologies. As a result, any or all of our portfolio companies may use the proceeds of our investments to pay the costs and expenses of researching, developing or acquiring technologies.

We generally receive equity securities of the companies that acquire our portfolio companies, rather than cash. We record revenues from these transactions; however, the securities that we receive will be subject to restrictions on resale, which will limit our ability to sell these securities and attain liquidity.

The securities that we receive in exchange for our portfolio companies will be subject to restrictions on resale, which will limit our ability to sell these securities.

As of June 30, 2001, all of the securities we have received in exchange for our portfolio companies (with the exception of Lexon, Inc. are “restricted securities,” as such term is defined under Rule 144. These shares are restricted securities because they were issued in private transactions not involving a public offering and may not be sold in the absence of registration other than in accordance with Rule 144 under the 1933 Act or another exemption from registration. As a result of such restrictions, our ability to sell or otherwise transfer the securities will be limited. We cannot assure you that we will be able to receive the recorded value of our portfolio company securities in merger transactions.

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

At June 30, 2001, we have completed fourteen sales of portfolio companies. Of these sales, eight have been to public companies, and the remainder have been to non-public companies. We are substantially dependent upon the ability of non-public acquirers of our portfolio companies to implement a plan, which would facilitate a trading market for their securities, or other strategy, which would allow for the potential sale of our ownership interest. In addition, to the extent that we own more than 10% of an acquirer’s shares, we may be deemed to be an affiliate of the acquirer which would limit our ability to dispose of securities we receive for our portfolio companies. Further, our ability to sell the securities we receive for our portfolio companies may be limited by, and subject to, the lack of or limited nature of a trading market for the securities and the volatility of the stock market as a whole. Such limitations could prevent or delay any sale of our investments or significantly reduce the amount of proceeds, if any, that might otherwise be realized therefrom.

The values we place on our investments may not accurately reflect their future value or the value that we will receive for them when we sell them.

At June 30, 2001 and December 31, 2000 respectively, equity securities amounting to $9,542,693 or 93.6% of net assets, $5,949,582 or 70.4% of net assets, respectively, have been valued at fair value as estimated by our Board of Directors. As a general matter, restricted securities and securities without an active trading market are more difficult to accurately value than unrestricted, actively traded securities of public companies. Pursuant to the requirements of the 1940 Act, the Board of Directors is responsible

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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 may consider valuation appraisals provided by independent financial experts. See “Determination of Net Asset Value” and our financial statements. 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.

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

We have adopted two stock option plans under which certain of our employees, officers and directors may be granted options. As of June 30, 2001, we have granted 322,000 options to purchase shares of our common stock to certain officers and employees. We have also reserved an additional 428,000 shares of our common stock for issuance under our two stock option plans to key employees and directors. In addition, we have issued warrants to the underwriter, upon payment of the purchase price of $.0003 per warrant, to purchase 100,000 shares of common stock at an exercise price of $9.90 per share. The warrants expire on October 25, 2005. The issuance and sale of these shares of common stock will dilute the ownership interest of investors and may have an adverse effect on the price of our common stock.

We depend upon Clifford M. Gross and Uwe Reischl for our investment decisions in portfolio companies.

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

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

The 1940 Act restricts transactions between the Company 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 in arm’s-length negotiations.

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

Based on the amount of our existing available funds, together with the funds being realized from this offering, 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 could have a material adverse effect on our financial condition.

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 Incentive Act, which modified the 1940 Act. Although the Incentive Act relieves BDCs from compliance with many of the provisions of the 1940 Act, the Incentive Act imposes on BDCs greater restrictions on permitted types of investments. Moreover, the applicable provisions of the 1940 Act impose numerous restrictions on our activities, including restrictions on the nature of our investments and transactions with affiliates. We cannot assure you that this legislation will be interpreted or administratively implemented in a manner consistent with our objectives and manner of operations.

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Upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we elect to withdraw our election, or if we otherwise fail to qualify as a BDC, we may be subject to substantially greater regulation under the 1940 Act. Compliance with such regulations would significantly increase our costs of doing business.

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

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

Our management has limited experience operating a business, and managing and operating a business development company, and has little or no experience in corporate finance and corporate mergers.

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

Our management has broad discretion in investing the proceeds from our recent offering.

Subject to our fundamental policies, our management has broad discretion in the application of the proceeds of our recent IPO. We intend to invest the majority of the net proceeds of the IPO as either initial or additional investments in our portfolio companies. Accordingly, purchasers of our securities must rely on the ability of management in making portfolio investments consistent with our objectives. Investors will not have the opportunity to evaluate personally the relevant economic, financial and other information that will be utilized by management in deciding whether or not to make a particular investment.

There are no significant barriers to entry to our business and we expect to face significant competition as new competitors enter the market.

We expect that if our investment model proves to be successful, our current competitors in the technology transfer market may duplicate our strategy and new competitors may enter the market. We compete against other technology transfer companies, some of which are much larger and have significantly greater financial resources than we do. In addition, these companies will be competing with our portfolio companies to acquire technologies from universities and government research laboratories. We cannot assure you that we will be able to successfully compete against these competitors in the acquisition of technology licenses, funding of technology development or marketing of portfolio companies.

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

Clifford M. Gross, our Chief Executive Officer and Chairman of the Board, beneficially owns approximately 50% of our common stock. Therefore, Dr. Gross will be able, among other things, to elect directors, change our investment policies, and withdraw our election to operate as a BDC.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

There has been no material change in the qualitative and quantitative disclosures about market risk since December 31, 2000.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable

Item 2. Changes in Securities and Use of Proceeds

Private Placement Memorandum

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 on June 8, 2001. The following directors were elected to continue their terms as director: Clifford M. Gross, Sam Reiber, Stuart Brooks, Kwabena Gyimah-Brempong, Arthur Chapnik, Carl Nisser, David Michael. Each Director received 3,179,868 votes for them. There were 2,000 votes withheld.

The following were the other proposals that were brought for a vote at the annual meeting:

	•		To amendment the Company’s Certificate of Incorporation so that its indemnification provisions comply with the Investment Company Act of 1940. For the proposal was 3,173,268 votes, against were 2,100 votes, and abstentions totaled 6,500.




	•		To eliminate the fundamental nature of the Company’s investment objective and policies. For the proposal were 2,471,897, against were 5,633, abstentions were 9,500, and not voted were 696,788.




	•		To ratify the selection of Ernst & Young, LLP as the Company’s independent accountants. For the proposal were 3,176,828, against were 2,540, abstentions were 2,500

Item 5. Other Information

On June 28, 2001, the Board of Directors of UTEK Corporation appointed John J. Micek III as a director to replace David Michael who resigned on June 22, 2001.

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Item 6. Exhibits and Reports on Form 8-K

(a) List of exhibits.


a.		The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the Securities Exchange Act of 1934.




3.(i)		Certificate of Incorporation, dated July 6, 1999, as filed and recorded with the Secretary of State of the State of Delaware on July 13, 1999.




3.(ii)		Certificate of Amendment to Certificate of Incorporation, dated October 14, 1999, as filed and recorded with the Secretary of State of the State of Delaware on October 15, 1999.




3.(iii)		By-Laws of UTEK Corporation.




3 (iv)		Certificate of Amendment to Certificate of Incorporation, dated October 14, 1999, as filed and recorded with the Secretary of State of the State of Delaware on July 24, 2001.




4.1(4)		Form of Representative’s Warrant.




4.2(5)		Certificate of Merger of UTEK Corporation and UTEK LLC, dated October 18, 1999, as filed and recorded with the Secretary of State of the State of Delaware on October 25, 1999.




4.3(6)		Specimen Common Stock Certificate.

Item 6. Exhibits and Reports on Form 8-K – (Continued)

(b) Reports on Form 8-K.

The Company filed a Current Report on Form 8-K on April 27, 2001 regarding the disposition of Watermark Technologies, Inc.

The Company filed a Current Report on Form 8-K on June 12, 2001 regarding the disposition of Micro Sensor Technologies, Inc.

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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 13, 2001		Clifford M. Gross, CEO

		Name and Title

Date: August 13, 2001		Charles L. Pope, CFO

		Name and Title

EXHIBITS

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Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Innovaro (INNI) 10-Q2001 Q2 Quarterly report

Content analysis