Innovaro 10Q 2008 Q3 Quarterly report

Innovaro (INNI) 10-Q2008 Q3 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 814-00203

UTEK CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

59-3603677

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

2109 Palm Avenue

Tampa, FL 33605

(Address of principal executive offices)

(813) 754-4330

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

On November 5, 2008, there were 10,877,096 shares outstanding of registrant’s common stock, $0.01 par value.

UTEK CORPORATION

FORM 10-Q TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements		3
Consolidated Statements of Assets and Liabilities as of September 30, 2008 (unaudited) and December 31, 2007		3
Consolidated Statements of Operations — For the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)		4
Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2008 and 2007 (unaudited)		5
Consolidated Statements of Changes in Net Assets — For the Nine Months Ended September 30, 2008 and 2007 (unaudited)		7
Financial Highlights For the Nine Months Ended September 30, 2008 and 2007 (unaudited)		8
Schedule of Investments as of September 30, 2008 (unaudited) and December 31, 2007		9
Notes to Consolidated Financial Statements (unaudited)		19
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks		44
ITEM 4. Controls and Procedures		44

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings		45
ITEM 1A. Risk Factors		45
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		45
ITEM 3. Defaults Upon Senior Securities		45
ITEM 4. Submission of Matters to a Vote of Security Holders		45
ITEM 5. Other Information		45
ITEM 6. Exhibits		45
Signatures		46
Exhibits

Page 2 of 46

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

UTEK Corporation

Consolidated Statements of Assets and Liabilities


	September 30, 2008 (Unaudited)			December 31, 2007
ASSETS
Investments:
Non-affiliate investments (cost: 2008 - $37,619,164; 2007 - $31,588,337)	$	7,246,230		$	6,705,850
Affiliate investments (cost: 2008 - $37,312,344; 2007 - $43,779,616)		3,950,000			14,429,000
Controlled investments (cost: 2008 - $12,430,248; 2007 - $17,231,458)		3,233,300			7,768,561
U.S. Treasuries and certificates of deposit (cost: 2008 - $3,203,990; 2007 - $1,498,346)		3,203,990			1,498,346

Total investments		17,633,520			30,401,757
Cash and cash equivalents		5,588,306			5,254,576
Accounts receivable, net of allowance for bad debt (2008 - $176,000; 2007 - $36,000)		3,448,907			358,338
Prepaid expenses and other assets		738,150			378,248
Fixed assets, net		493,012			476,578
Goodwill		9,993,865			2,821,064
Intangible assets, net		9,437,828			123,812
Deferred tax asset		—			5,406,704

TOTAL ASSETS		47,333,588			45,221,077

LIABILITIES
Accrued expenses		6,740,553			790,693
Deferred revenue		1,090,154			755,836
Deferred tax liability		652,796			—

TOTAL LIABILITIES		8,483,503			1,546,529

NET ASSETS	$	38,850,085		$	43,674,548

Commitments and Contingencies
Composition of net assets:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $.01 par value, 29,000,000 shares authorized; 11,136,932 and 9,011,276 shares issued; 10,378,083 and 9,011,276 shares outstanding at September 30, 2008 and December 31, 2007, respectively	$	103,782		$	90,114
Additional paid-in capital		69,734,893			53,148,643
Accumulated income:
Accumulated net operating income		27,080,725			33,498,108
Net realized loss on investments, net of income taxes		(7,264,775	)		(3,512,598	)
Net unrealized depreciation of investments, net of deferred income taxes		(50,292,449	)		(39,703,173	)
Foreign currency translation adjustment		(512,091	)		153,454

Net assets	$	38,850,085		$	43,674,548

Net asset value per share	$	3.74		$	4.85

See accompanying notes

Page 3 of 46

UTEK Corporation

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended Sept 30						Nine Months Ended Sept 30
	2008			2007			2008			2007
Income from operations:
Innovation consulting services	$	5,139,683		$	—		$	7,719,310		$	—
Sale of technology rights		750,000			2,920,800			4,684,680			14,835,550
Subscription and other services		1,033,792			647,329			2,995,214			2,716,094
Investment income, net		134,931			126,785			254,386			479,490

		7,058,406			3,694,914			15,653,590			18,031,134

Expenses:
Direct costs of innovation consulting services		4,567,812			—			6,885,694			—
Acquisition of technology rights		300,000			837,565			1,780,000			3,170,844
Salaries and wages		1,140,570			889,349			3,505,608			2,663,656
Professional fees		275,967			504,500			834,229			1,118,608
Sales and marketing		602,236			398,110			1,836,020			1,488,388
General and administrative		1,471,260			665,879			3,375,794			2,105,432
Goodwill impairment		—			—			—			33,030

		8,357,845			3,295,403			18,217,345			10,579,958

Income (loss) before income taxes		(1,299,439	)		399,511			(2,563,755	)		7,451,176
Provision for income tax expense (benefit)		4,198,654			211,319			3,853,627			3,093,762

Net (loss) income from operations		(5,498,093	)		188,192			(6,417,382	)		4,357,414

Net realized and unrealized gains (losses):
Net realized loss on investments, net of income tax benefit		(275,303	)		(551,958	)		(3,752,177	)		(1,690,238	)
Change in unrealized appreciation (depreciation) of investments, net of deferred tax expense (benefit)		(6,541,649	)		229,749			(10,589,276	)		(6,792,496	)

Net decrease in net assets from operations	$	(12,315,045	)	$	(134,017	)	$	(20,758,835	)	$	(4,125,320	)

Net decrease in net assets from operations per share:
Basic	$	(1.21	)	$	(0.01	)	$	(2.15	)	$	(0.46	)
Diluted	$	(1.21	)	$	(0.01	)	$	(2.15	)	$	(0.46	)
Weighted average shares:
Basic		10,176,742			9,009,776			9,653,725			8,982,339
Diluted		10,176,742			9,009,776			9,653,725			8,982,339

See accompanying notes

Page 4 of 46

UTEK Corporation

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended Sept 30
	2008			2007
Operating Activities:
Net decrease in net assets from operations	$	(20,758,835	)	$	(4,125,320	)
Adjustments to reconcile net decrease in net assets from operations to net cash flows from operating activities:
Change in net unrealized depreciation of investments		9,274,746			10,890,646
Net proceeds from sale (purchases) of short-term investments		(1,705,644	)		2,487,169
Proceeds received on sale of equity investments		1,865,052			1,169,783
Net repayment from (investment in) UTEK Real Estate Holdings, Inc.		1,965,261			(721,156	)
Depreciation and amortization		663,104			160,455
Goodwill impairment		—			33,030
Loss on sale of investments		6,016,002			2,710,019
Loss on disposal of fixed assets		13,363			14,360
Bad debt expense		78,886			150,467
Stock-based compensation		560,257			443,047
Deferred income taxes		2,904,339			(2,024,168	)
Investment securities received in connection with the sale of technology rights		(4,559,680	)		(14,635,550	)
Consulting and other services rendered in exchange for investment securities		(45,269	)		(953,590	)
Changes in operating assets and liabilities:
Accounts receivable		(695,819	)		252,286
Prepaid expenses and other assets		(265,799	)		40,773
Deferred revenue		(290,439	)		(232,483	)
Accrued expenses		4,466,976			202,548

Net cash flows from operating activities		(513,499	)		(4,137,684	)

Investing Activities:
Cash received in connection with acquisitions		747,808			—
Purchases of fixed assets		(29,725	)		(41,251	)

Net cash flows from investing activities		718,083			(41,251	)

Financing Activities:
Distributions to stockholders		—			(179,032	)
Proceeds from exercise of stock options		189,794			523,091

Net cash flows from financing activities		189,794			344,059

Foreign currency translation adjustment		(60,648	)		14,116

Increase (decrease) in cash and cash equivalents		333,730			(3,820,760	)
Cash and cash equivalents at beginning of year		5,254,576			9,685,111

Cash and cash equivalents at end of period	$	5,588,306		$	5,864,351

See accompanying notes

Page 5 of 46

UTEK Corporation

Consolidated Statements of Cash Flows (continued)

(Unaudited)


	Nine Months Ended Sept 30
	2008		2007
Supplemental Disclosures of Non-Cash Investing Activities
The Company issued 153,967 shares of common stock to purchase Pharmalicensing Limited. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired	$	2,534,197
Fair value of common stock issued		2,150,000

Liabilities assumed	$	384,197

The Company issued 502,970 shares of common stock to purchase Strategos. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired	$	9,339,383
Fair value of common stock issued		6,040,669
Less: contingent liability incurred		1,952,340

Liabilities assumed	$	1,346,374

The Company issued 345,857 shares of common stock to purchase Innovaro Limited. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired	$	4,945,313
Fair value of common stock issued		3,664,313
Foreign currency translation adjustment		52,875

Liabilities assumed	$	1,228,125

The Company issued 329,670 shares of common stock in connection with the Strategos earnout contingency as of September 30, 2008	$	3,959,337

The Company issued 3,328 shares of common stock in connection with the Innovaro earnout contingency as of September 30, 2008	$	35,547

Investment securities received for unearned services	$	87,500	$	280,463

See accompanying notes

Page 6 of 46

UTEK Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)


	Nine Months Ended Sept 30
	2008			2007
Changes in net assets from operations:
Net income (loss) from operations	$	(6,417,382	)	$	4,357,414
Net realized loss on sale of investments, net of related income taxes		(3,752,177	)		(1,690,238	)
Change in net unrealized depreciation of investments, net of related deferred taxes		(10,589,276	)		(6,792,496	)

Net decrease in net assets from operations		(20,758,835	)		(4,125,320	)

Distributions to stockholders:
From net income from operations (1)		—			—

Capital stock transactions:
Proceeds from the exercise of stock options		189,794			523,091
Stock-based compensation		560,257			443,047
Acquisition of Pharmalicensing Ltd.		2,150,000			—
Acquisition of Strategos		6,040,669			—
Acquisition of Innovaro, Ltd.		3,664,313			—
Strategos earnout		3,959,337			—
Innovaro earnout		35,547			—

Net increase in net assets from stock transactions		16,599,917			966,138

Foreign currency translation adjustment		(665,545	)		14,116

Net decrease in net assets		(4,824,463	)		(3,145,066	)
Net assets at beginning of year		43,674,548			50,981,162

Net assets at end of period	$	38,850,085		$	47,836,096

(1)	Distributions to stockholders as noted in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2007 was included in net income from operations for a prior period; therefore, it is not reflected as a distribution to stockholders for purposes of this schedule.

See accompanying notes

Page 7 of 46

UTEK Corporation

Financial Highlights

(Unaudited)


	Nine Months Ended Sept 30
	2008			2007
PER SHARE INFORMATION
Net asset value, beginning of period	$	4.85		$	5.71
Net income (loss) from operations (1)		(0.66	)		0.49
Net change in realized losses and unrealized depreciation on investments, (after taxes) (2)		(2.12	)		(1.00	)
Foreign currency translation adjustment (1)		(0.05	)		—
Net increase from stock transactions (1)		1.72			0.11
Distributions to stockholders from net income from operations		—			—

Net asset value, end of period	$	3.74		$	5.31

Per share market value, end of period	$	10.15		$	14.75

Investment return, based on market price at end of period		(23	)%		30	%
					��
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period	$	38,850,085		$	47,836,096
Ratio of expenses to average net assets		44	%		21	%
Ratio of net income (loss) from operations to average net assets		(16	)%		9	%
Diluted weighted average number of shares outstanding during the period		9,653,725			8,982,339

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

(2)

Calculated as a balancing amount necessary to reconcile the change in net asset value per share with the other per share information presented. This amount may not agree with the aggregate gains and losses for the period because the difference in the net asset value at the beginning and end of period inherently does not equal the per share changes of the line items disclosed.

(3)	Distributions to stockholders as noted in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2007 was accrued at December 31, 2006; therefore, it is not reflected as a distribution to stockholders for purposes of this schedule.

See accompanying notes

Page 8 of 46

UTEK Corporation

Consolidated Schedule of Investments

September 30, 2008

(Unaudited)


Shares	Dates of Acquisition		Original Cost Basis		Value		Percentage of Net Assets
		Non-Affiliate Investments (1)

		Advanced Medical Isotope Corporation (9)
		Medical isotope processes
95,000	9/06	Series A Convertible Preferred Stock	$	1,803,417	$	1,750,400	4.5	%
600,000	5/06	Common Stock		63,000		288,000	0.7
560,003	1/07	MiMedx Group, Inc. (MiMedx, Inc.) Connective tissue technology Cyberlux Corporation(7) LED lighting solutions		—		1,995,000	5.1
148,000	11/06-1/07	Series C Convertible Preferred Stock		2,181,640		1,295,200	3.3
25,931,484	1/07	Common Stock		502,558		121,200	0.3

		Platina Energy Group Inc. Oil and gas exploration and production
92,000	3/08	Series F Convertible Preferred Stock		794,880		794,900	2.0
(6)	4/07	Oxygen Biotherapeutics, Inc.(Synthetic Blood Intn’l, Inc) Biotechnology products Advanced Refractive Technologies, Inc. Ophthalmic technologies		120,000		350,000	0.9
100,000	4/06	Series D Convertible Preferred Stock		1,996,176		140,000	0.4
97,000	3/06	Series C Convertible Preferred Stock		2,066,063		135,800	0.3
97,000	12/05	Series B Convertible Preferred Stock		1,032,675		70,600	0.2
4,000,000	5/06	Common Stock		76,368		100	<0.1
321,020	6/08	CSMG Technologies, Inc. Environmental and medical technologies		300,300		179,800	0.5
40,000	7/06	Bacterin International, Inc.(privately held) Bioactive coatings for medical devices		120,000		40,000	0.1
60,000	12/05	Metamorphix Global, Inc.(privately held) (10) Design and manufacture of countertops		120,000		36,000	<0.1
109,091	7/06	Turbine Truck Engines, Inc. Heavy-duty highway truck engines		72,000		19,200	<0.1
6,706	5/06-6/06	Codima, Inc.(KKS Venture Management/ Rheologics) Study of blood viscosity		86,100		9,900	<0.1
1,200,000	10/06	Laserlock Technologies, Inc. Security solutions for the gaming industry		24,100		7,800	<0.1
86,432	10/06-9/07	GammaCan International, Inc. Anti-cancer immunotherapy		41,859		6,600	<0.1
9,748	4/06-3/07	Xethanol Corporation(10) Bioethanol and derivative products		88,836		2,400	<0.1
1,250,010	5/06	In Veritas Medical Diagnostics, Inc. Medical devices designs and testing		74,400		2,300	<0.1
2,971	12/05-8/06	Industrial Biotechnology Corporation Provider of renewable resources		3,455,105		1,000	<0.1
16,667	9/05-4/06	Quest Minerals & Mining Corporation Coal and mineral mining		69,044		30	<0.1
387,097	6/06	Tradequest International, Inc. Provider of voice over internet protocol		76,092		—	0.0
660,000	6/05	BP International, Inc. Shade structures		78,852		—	0.0
1,886	9/05-6/08	Applied Wellness Corporation (New Life Scientific, Inc.) Pharmaceutical biotechnologies		81,816		—	0.0

Page 9 of 46


232,211	5/05	EFuel EFN Corp. (Preservation Sciences, Inc.) Internet sites host		—		—	0.0
140,000	3/05	AdAl Group, Inc. (5) Aluminum extruded products manufacturer		72,912		—	0.0
6	5/06-6/06	EFT BioTech Holdings, Inc. (HumWare Media Corp.) Media advertising UBA Technology, Inc. Software development		14,236		—	0.0
2,525,740	2/06-6/06	Common Stock		1,652,899		—	0.0
95,000	4/06	Series A Convertible Preferred Stock		1,619,849		—	0.0
7,787,565	6/05-6/06	Trio Industries Group, Inc. Protective powder coating KP Renewables Plc (Kwikpower International Plc) (5)Renewable energy		12,330,401		—	0.0
	5/06	Convertible Debenture, due 5/10/07		4,433,403		—	0.0
	9/05	Convertible Debenture, due 9/30/06		1,884,920		—	0.0
2,500	3/05	Common Stock		94,500		—	0.0
261,234	7/04-7/05	eLinear, Inc. (5)		190,763		—	0.0

		Telecommunication security provider
		Total Investments in Non-Affiliates	$	37,619,164	$	7,246,230	18.7	%

		Affiliate Investments (2)

		World Energy Solutions, Inc. (8) Energy saving technologies
200,000	6/08-9/08	Series C Convertible Preferred Stock	$	1,625,000	$	1,450,000	3.7	%
18,042,749	9/05-6/08	Common Stock		4,715,949		631,500	1.6
		CytoDyn, Inc. Novel therapeutic agents
2,040,000	4/06-7/06	Common Stock		3,640,772		244,800	0.6
100,000	1/07	Series A Convertible Preferred Stock		845,000		260,000	0.7
49,500,000	7/07	MachineTalker, Inc. Intelligent wireless security networks		993,000		334,100	0.9
412,000	9/07	NeoStem, Inc. Stem cell banking services MATECH Corporation (Material Technologies, Inc.) Metal fatigue detection		761,440		329,000	0.8
17,822,061	12/06-6/07	Common Stock		4,170,070		24,200	<0.1
47,500	1/07	Series E Convertible Preferred Stock		694,640		277,900	0.7
6,609,345	6/07	American Soil Technologies, Inc. Fertilizer innovation		1,554,809		115,700	0.3
3,373,107	7/06-9/07	Avalon Oil and Gas, Inc. Oil and gas producers		2,448,681		101,200	0.3
1,426,754	9/07	USTelematics, Inc.(11) Broadband telecommunication for moving vehicles		—		96,300	0.2
15,150,717	4/05-6/08	Emission & Power Solutions, Inc. (Fuel FX International, Inc.) (privately held) Reductional environmental emissions		4,080,142		37,900	<0.1
4,426,136	7/06	DME Interactive Holdings, Inc. Multi-media entertainment		752,443		24,300	<0.1
153,417,714	12/06-4/07	Cargo Connection Logistics Holdings, Inc. World trade logistics		959,972		21,500	<0.1
6,839,500	5/06-8/06	NetFabric Holdings, Inc. Information technology services		581,677		1,600	<0.1
6,000,000	7/07	Pathway One Plc(5) Sales and development licenses		852,300		—	0.0

Page 10 of 46


		Manakoa Services Corporation(9) Compliance analysis and monitoring
95,000	1/07	Series B Convertible Preferred Stock		2,280,000		—	0.0
7,799,515	8/04-4/07	Common Stock		2,122,641		—	0.0
33,730,000	4/05-1/06	WebSky, Inc. Broadband wireless		897,750		—	0.0
4,221,165	4/01-12/02	Stealth MediaLabs, Inc.(11) Software products		1,708,000		—	0.0
		NutriPure Beverages, Inc. (Liberty Diversified Holdings, Inc.) Printing and packaging
5,346	7/06-9/06	Common Stock		1,245,258		—	0.0
63,981	2/07	Series D Convertible Preferred Stock		382,800		—	0.0

		Total Investments in Affiliates	$	37,312,344	$	3,950,000	10.2	%


		Control Investments (3)
1,000	11/99-11/06	UTEK Real Estate Holdings, Inc. (privately held) Real estate development	$	4,131,574	$	3,222,000	8.3	%
15,009,402	3/06-5/07	Klegg Electronics, Inc. Manufacturer/distributor for retail electronic products		6,506,174		11,300	<0.1
210,000,000	1/08	RIM Semiconductor Company		1,792,500		—	0.0

		Data transmission technology
		Total Investments in Control Investments	$	12,430,248	$	3,233,300	8.3	%


		U.S. Treasuries and Certificates of Deposit (4)
		Certificates of Deposit:
95,000	7/08	Wright Express Finl Svcs Corp CD, maturity 10/7/08, interest rate 2.90%		94,997		94,997	0.2	%
100,000	5/08	Sovereign Bank Dallas TX CD, maturity 10/14/08, interest rate @ 3.00%		99,994		99,994	0.3
100,000	5/08	Home Svgs Bank of America Little Falls MN CD, maturity 10/15/08, interest rate @ 2.95%		99,991		99,991	0.3
95,000	6/08	FirstBank PR Santurce CD, maturity 10/20/08, interest rate @ 3.00%		94,990		94,990	0.2
100,000	7/08	Doral Bank Catano PR CD, maturity 10/29/08, interest rate @ 3.55%		99,850		99,850	0.3
95,000	6/08	Fidelity Bank Wichita KS CD, maturity 10/30/08, interest rate @ 3.00%		94,984		94,984	0.2
95,000	6/08	Pacific Comm Bank LA CD, maturity 10/30/08, interest rate @ 3.05%		94,988		94,988	0.2
100,000	5/08	Beal Bank SSB Plano TX CD, maturity 11/12/08, interest rate @ 2.90%		99,967		99,967	0.3
100,000	5/08	GE Money Bank Dep CTF CD, maturity 11/13/08, interest rate @ 3.00%		100,000		100,000	0.3
100,000	5/08	New South Fed Svgs Bank CD, maturity 11/14/08, interest rate @ 2.95%		99,972		99,972	0.3
100,000	5/08	Standard Bank & Trust Co CD, maturity 11/14/08, interest rate @ 3.00%		99,977		99,977	0.3
100,000	5/08	Crescent Bank CD, maturity 11/17/08, interest rate @ 3.00%		99,977		99,977	0.3
100,000	5/08	Merchants Bank CD, maturity 11/17/08, interest rate @ 2.85%		99,958		99,958	0.3
95,000	6/08	EuroBank Hato Rey PR CD, maturity 11/18/08, interest rate @ 3.00%		94,978		94,978	0.2
95,000	6/08	First Chicago Bank & Trust ILL CD, maturity 11/18/08, interest rate @ 3.00%		94,982		94,982	0.2
100,000	5/08	Bank Union CD, maturity 11/21/08, interest rate @ 3.00%		99,981		99,981	0.3

Page 11 of 46


100,000	5/08	Signature Bank of Arkansas CD, maturity 11/21/08, interest rate @ 3.00%		99,981		99,981	0.3
95,000	8/08	National City BK Cleveland OH CTF CD, maturity 11/28/08, interest rate @ 2.30%		94,879		94,879	0.2
95,000	8/08	SCB BK Shelbyville IND CD, maturity 11/28/08, interest rate @ 2.30%		94,880		94,880	0.2
95,000	8/08	Sterling BK & TR Southfield MI CD, maturity 11/28/08, interest rate @ 2.40%		94,894		94,894	0.2
95,000	8/08	Eagle Natl BK Miami FL CTF Dep act CD, maturity 8/29/08, interest rate @ 2.40%		94,889		94,889	0.2
95,000	5/08	GE Capital Finl Inc CD, maturity 12/4/08, interest rate @ 3.00%		94,977		94,977	0.2
95,000	8/08	Israel Disc BK New York NY CD, maturity 12/5/08, interest rate @ 2.30%		94,867		94,867	0.2
95,000	5/08	First Cmnty Bank CD, maturity 12/8/08, interest rate @ 3.00%		94,977		94,977	0.2
95,000	6/08	AmTrust Bank Cleveland OH CD, maturity 12/12/08, interest rate @ 3.05%		94,987		94,987	0.2
95,000	6/08	State Bank India Chicago ILL CD, maturity 12/12/08, interest rate @ 3.10%		94,996		94,996	0.2
100,000	5/08	First State Bank of Blakely CD, maturity 12/16/08, interest rate @ 3.05%		99,993		99,993	0.3
100,000	5/08	Liberty Bank Inc CD, maturity 12/16/08, interest rate @ 3.00%		99,983		99,983	0.3
100,000	5/08	Nevada Sec Bank CD, maturity 12/22/08, interest rate @ 3.05%		99,988		99,988	0.3
95,000	8/08	Cornerstone BK Atlanta GA CD, maturity 12/29/08, interest rate @ 2.40%		94,853		94,853	0.2
95,000	8/08	MBank Manitisque MI CD, maturity 12/29/08, interest rate @ 2.50%		94,875		94,985	0.2
95,000	8/08	Sun Amern BK Boca Raton FL CD, maturity 1/29/09, interest rate @ 2.60%		94,848		94,848	0.2
95,000	8/08	SunTrust Bank CD, maturity 9/12/09, interest rate @ 4.21%		95,537		95,537	0.2

		Total Certificates of Deposit	$	3,203,990	$	3,203,990	8.2	%

		Total Investments in U.S. Treasuries and CDs	$	3,203,990	$	3,203,990	8.2	%

		TOTAL INVESTMENTS	$	90,565,746	$	17,633,520	45.4	%

		Cash and other assets, less liabilities			$	21,216,565	54.6	%

		Net assets at September 30, 2008			$	38,850,085	100.0	%

Page 12 of 46

Notes to Schedule of Investments:

•

Except where otherwise noted, all of our investments listed above are in common stock of companies that are publicly quoted on the OTC Bulletin Board or listed on the American Stock Exchange or other similar markets.

•

The above investments, with the exception of the U.S. Treasuries and certificates of deposits, 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 Note 3 to the Notes to the Consolidated Financial Statements.)

•

As of September 30, 2008, 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.

(1)	Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities.

(2)	Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting securities.

(3)

Control investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns more than 25% of the voting securities or where the Company holds one or more seats on such company’s board of directors. We own 100% of UTEK Real Estate Holdings, Inc. (“UREHI”), which holds four investments: Rosbon LLC, ABM of Tampa Bay, Inc., 22^nd Street of Ybor City, Inc. and Ybor City Group, Inc. UREHI holds 150 equity interests of the total equity interests outstanding of Rosbon LLC and all of the outstanding shares of capital stock of ABM of Tampa Bay, Inc., 22^nd Street of Ybor City, Inc. and Ybor City Group, Inc.

(4)	The Company invests excess cash in a number of U.S. Treasury Bills and certificates of deposit. These short-term investments normally have three month to one year maturities and do not qualify as cash or cash equivalents.

(5)	Non-U.S. company or the company’s principal place of business is outside the U.S.

(6)	Investment consists of warrants to purchase 1,500,000 shares of Oxygen Biotherapeutics, Inc., formerly Synthetic Blood International, Inc., common stock.

(7)	During the period ended September 30, 2008, the Company reclassified this investment from Affiliate investments to Non-affiliate investments based on the criteria in notes (1) and (2).

(8)	During the period ended September 30, 2008, the Company reclassified this investment from Control investments to Affiliate investments based on the criteria in notes (2) and (3).

(9)	Advanced Medical Isotope Corporation and Manakoa Services Company are related through common management.

(10)	Xethanol Corporation and Metamorphix Global are related through common management.

(11)	Stealth MediaLabs, Inc. and USTelematics, Inc. are related through common management.

See accompanying notes

Page 13 of 46

UTEK Corporation

Consolidated Schedule of Investments

December 31, 2007


Shares	Dates of Acquisition		Original Cost Basis		Value		Percentage of Net Assets
		Non-Affiliate Investments (1)

		Advanced Medical Isotope Corporation (12) Medical isotope processes
95,000	9/06	Preferred Stock	$	1,803,417	$	1,750,000	4.0	%
600,000	5/06	Common Stock		63,000		324,000	0.7
478,562	1/06	Broadcast International, Inc. Telecommunications		579,060		1,682,100	3.9
		Advanced Refractive Technologies, Inc. Ophthalmic technologies
100,000	4/06	Series D Preferred Stock		1,996,176		560,000	1.3
97,000	3/06	Series C Preferred Stock		2,066,063		543,200	1.2
97,000	12/05	Series B Preferred Stock		1,032,675		282,300	0.6
4,000,000	5/06	Common Stock		76,368		400	<0.1
560,000	1/07	MiMedx, Inc. (privately held) Connective tissue technology		—		840,000	1.9
(7)	4/07	Synthetic Blood International, Inc. Biotechnology products		120,000		233,700	0.5
40,000	7/06	Bacterin International, Inc. (privately held) Bioactive coatings for medical devices		120,000		120,000	0.3
60,000	12/05	Metamorphix Global, Inc. (privately held) (13) Design and manufacture of countertops		120,000		90,000	0.2
171,432	10/06-9/07	GammaCan International, Inc. Anti-cancer immunotherapy		83,016		65,100	0.1
264,333	1/07	Ecosphere Technologies, Inc. Defense, homeland security and global ship repair		97,300		47,600	0.1
109,091	7/06	Turbine Truck Engines, Inc. Heavy-duty highway truck engines		72,000		41,500	0.1
269,230	8/06	Protocall Technologies, Inc. On-demand software and entertainment		11,577		31,500	0.1
697,860	8/06-11/06	Magnitude Information Systems, Inc. Computer ergonomics		25,920		27,900	0.1
2,560,000	8/04-11/06	TenthGate, Inc. (8) Healthcare related products and services		40,000		24,200	0.1
180,000	5/06	U.S. Starcom, Inc. Communications services and products		17,181		12,000	<0.1
9,748	4/06-3/07	Xethanol Corporation (13) Bioethanol and derivative products		88,836		5,850	<0.1
825,852	5/06-7/06	MM2 Group, Inc. Financial consulting for nutraceuticals		32,685		5,800	<0.1
1,200,000	10/06	Laserlock Technologies, Inc. Security solutions for the gaming industry		24,100		5,100	<0.1
808,529	12/04	SolarBrook Water and Power Corp. (HydroFlo, Inc.) Treatment and purification of water		125,861		3,900	<0.1
660,000	6/05	BP International, Inc. Shade structures		78,852		3,400	<0.1
1,250,010	5/06	In Veritas Medical Diagnostics, Inc. Medical devices designs and testing		74,400		2,700	<0.1
2,011,765	5/06-6/06	KKS Venture Management, Inc (Rheologics, Inc.) Study of blood viscosity		86,100		1,000	<0.1
66,667	9/05-4/06	Quest Minerals & Mining Corporation Coal and mineral mining		69,044		800	<0.1

Page 14 of 46


85,714	9/05	New Life Scientific, Inc. Pharmaceutical biotechnologies		81,816		600	<0.1
384,000	7/06	aeroTelesis, Inc. Satellite and wireless bandwidth utilization		33,394		600	<0.1
387,097	6/06	Tradequest International, Inc. Provider of voice over internet protocol		76,092		400	<0.1
122,449	1/06	5G Wireless Communications, Inc. Broadband wireless		78,851		200	<0.1
232,211	5/05	Preservation Sciences, Inc. Green technologies and development		—		—	0.0
140,000	3/05	AdAl Group, Inc. (5) Aluminum extruded products manufacturer		72,912		—	0.0
37,500	6/05	Modern Technology Corporation Technology development and acquisition company		82,152		—	0.0
6	5/06-6/06	EFT BioTech Holdings, Inc. (HumWare Media Corp.) Media advertising		14,236		—	0.0
		UBA Technology, Inc. Software development
2,482,521	2/06-6/06	Common Stock		1,691,419		—	0.0
95,000	4/06	Series A Convertible Preferred Stock		1,619,849		—	0.0
7,787,565	6/05-6/06	Trio Industries Group, Inc. Protective powder coating		12,330,401		—	0.0
		KP Renewables Plc (Kwikpower International Plc) (5) Renewable energy
	5/06	Convertible Debenture, due 5/10/07		4,433,401		—	0.0
	9/05	Convertible Debenture, due 9/30/06		1,884,920		—	0.0
2,500	3/05	Common Stock		94,500		—	0.0
261,234	7/04-7/05	eLinear, Inc. (5)		190,763		—	0.0

		Telecommunication security provider

		Total Investments in Non-Affiliates	$	31,588,337	$	6,705,850	15.4	%

		Affiliate Investments (2)

		Material Technologies, Inc. (9) Metal fatigue detection
20,550,304	9/04-6/07	Common Stock	$	4,907,329	$	4,521,100	10.4	%
47,500	1/07	Series E Convertible Preferred Stock		694,640		648,400	1.5
		Cyberlux Corporation (9) LED lighting solutions
148,000	11/06-1/07	Series C Preferred Stock		2,181,640		1,781,000	4.1
27,981,484	6/06-1/07	Common Stock		537,920		559,600	1.3
		Emission & Power Solutions, Inc. (Fuel FX International, Inc.)(privately held) Reductional environmental emissions
100,000	1/06	Series B Preferred Stock		2,100,000		840,000	1.9
9,900,717	4/05-4/06	Common Stock		1,980,142		752,500	1.7
3,620,307	5/06-9/07	Avalon Oil and Gas, Inc. Oil and gas producers		2,854,089		868,900	2.0
		Manakoa Services Corporation(12) Compliance analysis and monitoring
95,000	1/07	Series B Preferred Stock		2,280,000		760,000	1.7
7,799,515	8/04-4/07	Common Stock		2,122,641		58,500	0.1
6,000,000	7/07	Pathway One Plc(5) (9) Sales and development licenses		852,300		719,500	1.6
49,500,000	7/07	MachineTalker, Inc. (9) Intelligent wireless security networks		993,000		668,300	1.5

Page 15 of 46


1,426,754	9/07	USTelematics, Inc. (14) Broadband telecommunication for moving vehicles		—		510,100	1.2
412,000	9/07	NeoStem, Inc. (9) Stem cell banking services		761,440		441,700	1.0
		CytoDyn, Inc. Development stage biotechnology company
2,040,000	4/06-7/06	Common Stock		3,640,772		118,300	0.3
100,000	1/07	Series A Preferred Stock		845,000		260,000	0.6
6,909,390	9/05-6/07	American Soil Technologies, Inc. (9) Fertilizer innovation		1,622,606		314,400	0.7
4,426,136	7/06	vidShadow.com, Inc. (DME Interactive Holdings, Inc.) Multi-media entertainment		752,443		199,200	0.5
164,495,817	8/06-4/07	Cargo Connection Logistics Holdings, Inc. World trade logistics		1,026,031		172,700	0.4
7,145,000	5/06-8/06	NetFabric Holdings, Inc. Information technology services		607,034		142,900	0.3
461,222,608	5/05-9/05	GS Energy Corporation (INSEQ Corp.) Waste minimization		2,434,783		89,900	0.2
5,462	8/05-8/06	Industrial Biotechnology Corporation (10) Manufactures and markets flavors and fragrances		6,351,998		2,000	<0.1
33,730,000	4/05-1/06	WebSky, Inc. Broadband wireless		897,750		—	0.0
4,221,165	4/01-12/02	Stealth MediaLabs, Inc. (14) Software products		1,708,000		—	0.0
		Liberty Diversified Holdings, Inc. Printing and packaging
5,346	7/06-9/06	Common Stock		1,245,258		—	0.0
63,981	2/07	Series B Preferred Stock		382,800		—	0.0

		Total Investments in Affiliates	$	43,779,616	$	14,429,000	33.0	%

		Control Investments (3)

1,000	11/99-11/06	UTEK Real Estate Holdings, Inc. (privately held) Real estate development	$	4,131,574	$	3,472,000	7.9	%
16,119,672	9/05-9/07	World Energy Solutions, Inc. (11) Energy saving technologies		4,628,449		2,031,100	4.7
		Common Stock
(6)	1/06-9/07	UTEK Real Estate Holdings, Inc. (privately held) (Demand note, interest rate @ 5%)		1,965,261		1,965,261	4.5
15,009,402	3/06-5/07	Klegg Electronics, Inc.		6,506,174		300,200	0.7

		Manufacturer/distributor for retail electronic products
		Total Investments in Control Investments	$	17,231,458	$	7,768,561	17.8	%


		U.S. Treasuries and Certificates of Deposit (4)
		U.S. Treasuries:
500,000	11/07	United States Treasury Bill, maturity 2/07/08, interest rate @ 3.06%	$	498,550	$	498,550	1.1	%

		Total U.S. Treasuries	$	498,550	$	498,550	1.1	%

		Certificates of Deposit:

100,000	8/07	State Bank India CD, maturity 2/22/08, interest rate @ 5.15%	$	99,983	$	99,983	0.2	%
100,000	8/07	Indymac Bank FSB CD, maturity 2/25/08, interest rate @ 5.2%		100,004		100,004	0.2

Page 16 of 46


100,000	8/07	First Nat’l Bank Arizona CD, maturity 2/27/08, interest rate @ 5.15%		99,982		99,982	0.2
100,000	8/07	Charter Bank West CD, maturity 2/29/08, interest rate @ 5.1%		99,975		99,975	0.2
100,000	8/07	Discover Bank CD, maturity 2/29/08, interest rate @ 5.15%		99,982		99,982	0.2
100,000	8/07	Lehman Coml Bank CD, maturity 2/29/08, interest rate @ 5.15%		99,982		99,982	0.2
100,000	8/07	Sterling Savings Bank CD, maturity 3/24/08, interest rate @ 5.1%		99,966		99,966	0.2
100,000	8/07	Capmark Bank CD, maturity 5/22/08, interest rate @ 5.15%		99,986		99,986	0.2
100,000	8/07	Firstcity Bank CD, maturity 5/22/08, interest rate @ 5.1%		99,967		99,967	0.2
100,000	8/07	Provident Bank CD, maturity 5/27/08, interest rate @ 5.1%		99,969		99,969	0.2

		Total Certificates of Deposit	$	999,796	$	999,796	2.3	%

		Total Investments in U.S. Treasuries and CDs	$	1,498,346	$	1,498,346	3.4	%

		TOTAL INVESTMENTS	$	94,097,757	$	30,401,757	69.6	%

		Cash and other assets, less liabilities				13,272,791	30.4	%

		Net assets at December 31, 2007			$	43,674,548	100.0	%

Notes to Schedule of Investments:

•

The above investments, with the exception of the U.S. Treasuries and certificates of deposits and a demand note issued by UTEK Real Estate Holdings, Inc., are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.

•

As of December 31, 2007, 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.

(1)	Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities.

(2)	Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting securities.

(3)

(4)	The Company invests excess cash in a number of U.S. Treasury Bills and certificates of deposit. These short-term investments normally have three month to one year maturities and do not qualify as cash or cash equivalents.

Page 17 of 46

(5)	Non-U.S. company or the company’s principal place of business is outside the U.S.

(6)	Investment consists of a loan receivable with subsidiaries of UTEK Real Estate Holdings, Inc.

(7)	Investment consists of warrants to purchase 1,500,000 shares of Synthetic Blood International, Inc. common stock.

(8)	During the period ended December 31, 2007, the Company reclassified this investment from Affiliate investments to Non-affiliate investments based on the criteria in notes (1) and (2).

(9)	During the period ended December 31, 2007, the Company reclassified this investment from Non-affiliate investments to Affiliate investments based on the criteria in notes (1) and (2).

(10)	During the period ended December 31, 2007, the Company reclassified this investment from Control investments to Affiliate investments based on the criteria in notes (2) and (3).

(11)	During the period ended December 31, 2007, the Company reclassified this investment from Affiliate investments to Control investments based on the criteria in notes (2) and (3).

(12)	Advanced Medical Isotope Corporation and Manakoa Services Company are related through common management.

(13)	Xethanol Corporation and Metamorphix Global are related through common management.

(14)	Stealth MediaLabs, Inc. and USTelematics, Inc. are related through common management.

See accompanying notes

Page 18 of 46

UTEK Corporation

Notes to Consolidated Financial Statements

Three and Nine Months Ended September 30, 2008 and 2007

(Unaudited)

1. Nature of Business and Significant Accounting Policies

Interim Financial Information

The financial information for UTEK Corporation (the "Company", “we”, “us” or “UTEK”) as of September 30, 2008 and 2007 and for the three and nine month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals), which, in the opinion of management are necessary in order to make the consolidated financial statements not misleading at such dates and for those periods. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and, therefore, do not include all information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. 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, 2007. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the entire year.

The Company

The Company provides services that enable clients to utilize externally developed technologies and create value from their intellectual property. The Company has built a large subscription-based database of intellectual properties available for immediate license, which when combined with its global network of universities, research laboratories and companies, provides clients with access to external technologies. In addition, the Company offers a comprehensive suite of services for businesses seeking to accelerate growth and reduce costs through the development of enhanced innovation capabilities. The Company also provides foresight as to the direction of customer and industry trends so clients’ businesses can evolve accordingly.

The Company is 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”).

Innovation Consulting

The Company provides strategic innovation consulting services to clients to help them become more efficient innovators. The process involves our clients working with a handful of seasoned and experienced professionals capable of unlocking an organization's capacity for strategy and innovation.

Technology Transfers

To effectuate a technology transfer, we will typically create a newly formed company to acquire a new technology from a university, medical center, corporation or federal research laboratory and then sell this newly formed company to our client for securities or cash. It is our plan that the shares we receive in these exchanges will, in the course of our business, be sold for cash or other assets. A benefit of effectuating technology transfers through our innovation process is that such transactions do not result in a current taxable event for us for income tax purposes. We have not acquired, and do not currently intend to acquire a new technology from a university, medical center and federal research laboratory in connection with our innovation process without the prior agreement of our client to subsequently acquire such new technology from us.

Subscription and Other Services

Technology Acquisition Alliance

The Company’s technology acquisition alliance agreements are designed to help our customers enhance their new product pipeline through the acquisition of proprietary technologies primarily from universities, medical centers, corporations and federal research laboratories. The Company may receive cash or unregistered shares of common stock from companies as payment for the services we provide. Technology transfers are completed according to the terms set forth in these agreements with our client companies.

Page 19 of 46

Patent Analytic Services

UTEK Intellectual Capital Consulting, a division of the Company, uses a team of on-call scientists and industry experts to provide technical and business knowledge to help our clients identify, assess, protect and leverage their intellectual property assets (“IP”). This division helps clients identify the strengths and weaknesses of corporate IP and competitors’ IP. This division also identifies gaps in competitors’ IP portfolios that reveal opportunities to pursue for our clients.

Online Exchanges and Databases

UTEK Information Services is a division that operates a group of subscription-based websites.

•

Pharma Transfer provides a source of research and business development opportunities for the international pharmaceutical market encompassing all areas of pipeline development, from early-stage discovery, through pre-clinical and clinical trials, to registered products that are all available for co-development or licensing.

•

TechEx is an online searchable database for life science discoveries.

•

Knowledge Express is a searchable database of valuable information for licensing professionals, which provides our clients with comprehensive coverage of licensing agreements, corporate profiles, clinical trials, deals, drug pipelines, drug sales, licensable technologies, patents and royalty rates.

•

Pharmalicensing is a biopharmaceutical innovation resource designed for professionals involved with partnering, licensing and business development worldwide. Pharmalicensing affords clients the ability to in-license and out-license intellectual property and also provides partnering services, business development reports, industry news and a jobs source for candidates and employers.

•

TekScout enables companies to outsource unfinished research and development (“R&D”) projects to scientists from around the world. TekScout provides a platform for companies to supplement internal R&D and resources to accelerate product development.

Principles of Consolidation

UTEK Corporation commenced operations in 1997, originally incorporated under the laws of the State of Florida and subsequently under the laws of the State of Delaware in July 1999. The consolidated financial statements include the accounts of UTEK Corporation and its wholly owned subsidiaries; UTEK-Europe, Ltd. (Europe), UTEKip, Ltd. (Israel) and Innovaro, Ltd. All intercompany transactions and balances are eliminated in consolidation.

Portfolio investments are held for the purpose of deriving investment income and future capital gains. The financial results of the Company’s portfolio companies are not consolidated in the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the nine months ended September 30, 2008 balances and the three and nine months ended September 30, 2007 balances to conform to the three months ended September 30, 2008 financial statement presentation.

Business Combinations

We determine and allocate the purchase price of an acquired company to the tangible and intangible assets acquired and liabilities assumed as of the business combination date in accordance with Financial Accounting Standards Board (FASB) Statement No. 141,Business Combinations. The purchase price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date.

While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, there are contingencies based on earnings included in some of our purchase agreements. The earnout is recorded as it is earned over the contingency period, which is generally one to three years from the business combination date. With the exception of unresolved income tax matters or the earnout of contingent consideration, subsequent to the purchase price allocation period any adjustment to assets acquired or liabilities assumed is included in our operating results in the period in which the adjustment is determined.

Page 20 of 46

Goodwill Impairment

The Company determined that there was an impairment of the goodwill related to the Pharma Transfer acquisition in the first quarter of 2007. The Company recorded a partial impairment of the goodwill for the United States segment in 2007. This resulted in a write-down of approximately $33,000, $21,000 after tax, which is an operating expense in the consolidated statements of operations for the nine months ended September 30, 2007. There were no indicators during the nine months ended September 30, 2008 that required any impairment to goodwill.

Revenue Recognition

Innovation Consulting Services

The Company recognizes certain strategic consulting revenues in accordance with Statement of Position 81-1,Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Accordingly, revenues on fixed fee contracts are recognized under the percentage-of-completion methods of accounting, whereby contract revenues are recognized on a pro rata basis based upon costs incurred to date compared to total estimated contract costs. In cases where losses are estimated to be incurred upon completion of contracts, the full provision for such losses is charged to operations when they become known. In addition, some of the Company’s contracts provide for substantial contingent fees if future performance milestones are successfully met. Contingent fees are recorded based on the Company’s estimate of the likelihood of reaching future performance milestones.

Certain other consulting revenues are billed on an hourly basis and recognized as incurred.

Sale of Technology Rights

The Company recognizes revenue from the sale of technology rights upon the exchange of the securities of our newly formed companies for securities in the portfolio company that acquires such newly formed company and the technology held by such newly formed company. The Company records revenue based on the fair value of the consideration received. In most cases, the consideration received for the rights is unregistered shares of common or preferred stock of the portfolio company.

Subscription and Other Services

Revenue from the sale of subscriptions to the Company’s websites generally is received in the form of cash and initially is deferred and subsequently recognized ratably over the term of the subscription, which is typically one year.

Technology acquisition alliance services are performed pursuant to service agreements in which UTEK provides consulting services by identifying and evaluating technology acquisition opportunities in exchange for unregistered shares of the portfolio company or cash. These agreements are typically cancelable with thirty days notice.

Revenue from technology acquisition alliance agreements in which unregistered shares of common stock are received before they are earned are deferred and recognized over the term of each agreement. For technology acquisition 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 income based on the fair value of the consideration received. At September 30, 2008, the Company did not have any technology acquisition alliance agreements for which payment was to be received in stock.

Income Taxes

During the third quarter of 2008, management determined that it was more likely than not that net operating loss carryforwards in UTEK would not be utilized in the future and, accordingly, a valuation allowance of $9.3 million was recorded against the related deferred tax asset. A portion of the valuation allowance ($4.5 million) was recorded as part of the provision for income tax expense and a similar portion ($4.8 million) is included in the change in unrealized depreciation of investments. The valuation allowance resulted in a significant additional decrease to our net decrease in net assets from operations and per share values.

Net realized losses on investments in the accompanying consolidated statements of operations are net of income tax benefits of $(166,102) and $(2,263,822) for the three and nine months ended September 30, 2008, respectively, and $(333,016) and $(1,019,780) for the three and nine months ended September 30, 2007, respectively. Change in unrealized appreciation (depreciation) of investments in the accompanying consolidated statements of operations are net of deferred tax expense (benefit) of $(1,048,012) and $(3,490,087) for the three and nine months ended September 30, 2008, respectively, and $138,616 and $(4,098,150) for the three and nine months ended September 30, 2007, respectively. In addition, a portion of the aforementioned valuation allowance of ($4.8 million) was included in the change in unrealized depreciation for the three and nine months ended September 30, 2008.

Earnings per Share (EPS)

Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. The Company’s dilutive potential common shares consist of outstanding stock options.

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Components of basic and diluted earnings per share are as follows:


	Three Months Ended		Nine Months Ended
	2008	2007	2008	2007
Weighted-average outstanding shares of common stock	10,176,742	9,009,776	9,653,725	8,982,339
Dilutive effect of stock options	—	—	—	—

Common stock and common stock equivalents	10,176,742	9,009,776	9,653,725	8,982,339
Shares excluded from calculation of diluted EPS (1)	829,650	569,525	829,650	569,525

(1)	These shares attributable to outstanding stock options were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, primarily as a result of the net decrease in net assets from operations during the period.

Financial Instruments and Concentrations of Credit Risk

The Company’s financial instruments consist of investments, U.S. Treasuries and certificates of deposit, cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The fair value of trade accounts receivable and payable and certain accrued expenses approximate their carrying amounts in the financial statements due to the short maturity of such instruments. The fair value of U.S. Treasuries and certificates of deposit is recorded based upon their market value. The fair value of all other investments is determined by the Board of Directors as further discussed in Note 3.

Financial instruments with significant credit risk include investments and cash and cash equivalents. The Company invests its cash and cash equivalents and its U.S. Treasuries and certificates of deposit with high credit quality financial institutions. Certain cash and cash equivalents were in excess of FDIC insurance limits at September 30, 2008. The Company has not experienced any losses on such accounts.

The Company had five major customers during the three months ended September 30 2008, four major customers during the nine months ended September 30, 2008, two major customers during the three months ended September 30, 2007 and four major customers during the nine months ended September 30, 2007. Major customers, those generating greater than 10% of total income from operations, accounted for approximately 80% and 75% of the Company’s sales during the three months ended September 30, 2008 and 2007, respectively. Major customers accounted for approximately 66% and 59% of the Company’s sales during the nine months ended September 30, 2008 and 2007, respectively. Major customers accounted for approximately 55% of accounts receivable at September 30, 2008.

The Company’s most significant portfolio investments at September 30, 2008 were in UTEK Real Estate Holdings, Inc., Advanced Medical Isotope Corporation, World Energy Solutions, Inc., MiMedx Group, Inc. and Cyberlux Corporation. These five investments totaled $10.8 million in fair value and represented 75% of our investments excluding our investments in U.S. Treasuries and certificates of deposits and 28% of net assets at September 30, 2008.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates relate to the fair value of the investments and the purchase price allocation process for business combinations. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurementsas it relates to financial assets and liabilities recognized or disclosed on a recurring basis. The effective date of this Statement for non-financial assets and liabilities that are not recognized or disclosed on a recurring basis has been delayed to fiscal years beginning after November 15, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of the effective portion of SFAS No. 157 expanded the Company’s disclosures regarding the fair value measurements of its investments.

Effective January 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115. SFAS No. 159 expands the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company’s most significant financial instruments are its investments, which are currently carried at fair value. The Company has not adopted the fair value provisions of SFAS No. 159 for any of its other financial assets or liabilities, and therefore, there is no effect on our results of operations or financial position.

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In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 requires additional disclosures related to the use of derivative instruments, the accounting for derivatives and the financial statement impact of derivatives. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 will not impact the Company’s consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

2. Stock-Based Compensation

The Company had two stock-based equity compensation plans at September 30, 2008. See Note 8 of our consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2007. In June 2008, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Employee Stock Option Plan to increase the number of shares of common stock authorized for issuance under the Plan by 600,000 options.

Options under both plans are granted at the fair market value of the stock on the date of grant, except in the case of a more than 10% stockholder, for which grants are exercisable at 110% of fair market value of the stock on the date of grant. Options generally become fully vested three to four years from the date of grant and expire five to seven years from the date of grant. During the three and nine months ended September 30, 2008, respectively, we granted 88,500 and 312,500 options to purchase shares of common stock. During the three and nine months ended September 30, 2007, respectively, we granted 22,500 and 204,500 options to purchase shares of common stock. At September 30, 2008, there were 2,300,000 shares authorized for issuance and the Company had 840,563 shares available for future stock option grants under existing plans.

The Company accounts for stock option grants in accordance with the provisions of SFAS No. 123(R),Share-Based Payment. Under the modified prospective approach of SFAS 123(R), compensation cost recognized during the nine months ended September 30, 2008 and 2007 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

The Company recorded approximately $202,000 and $167,000 for the three months ended September 30, 2008 and 2007, respectively, and $560,000 and $443,000 for the nine months ended September 30, 2008 and 2007, respectively, in compensation expense related to share-based payments pursuant to SFAS 123(R). Stock-based compensation expense is included in salaries and wages in the accompanying consolidated statements of operations.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. The assumptions employed in the calculation of the fair value of stock-based compensation expense for the three and nine months ended September 30, 2008 and 2007 were determined as follows:

•

Expected dividend yield — based on the Company’s historical dividend yield.

•

Expected volatility — based on the Company’s historical market price at consistent points in a period equal to the expected life of the options.

•

Risk-free interest rate — based on the U.S. Treasury yield curve in effect at the time of grant.

•

Expected life of options — 2008: based on the Company’s historical life of options exercised; 2007: calculated using the simplified method as prescribed in Staff Accounting Bulletin No. 107, where the expected life is equal to the sum of the vesting period and the contractual term divided by two.

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The weighted-average input assumptions used and resulting fair values were as follows during the nine months ended September 30, 2008 and 2007.


	2008			2007
Expected dividend yield		0	%		0.25	%
Expected volatility		35.17	%		37.64	%
Risk-free interest rate		2.71	%		4.46	%
Expected life		4.00 years			3.79 years
Grant date fair value	$	3.29		$	4.58

Net cash proceeds from the exercise of stock options were approximately $190,000 and $523,000 for the nine months ended September 30, 2008 and 2007, respectively. At September 30, 2008, there was approximately $2,057,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted-average period of 3.0 years.

The following table represents stock option activity as of and for the nine months ended September 30, 2008:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Options Outstanding - January 1, 2008	652,025		$	14.08	3.25 years	$	451,000
Granted	312,500		$	10.45
Exercised	(31,015	)	$	6.12		$	129,000
Forfeited/expired/cancelled	(103,860	)	$	12.98

Options Outstanding - September 30, 2008	829,650		$	13.15	4.20 years	$	—

Outstanding Exercisable - September 30, 2008	240,900		$	15.16	2.00 years	$	—

The total grant date fair value of options vested during the nine months ended September 30, 2008 and 2007 was $352,000 and $283,000, respectively.

3. Investments

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

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 securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such securities, and the differences could be material. Substantially all of the Company’s investments owned at September 30, 2008 and December 31, 2007 are stated at fair value as determined by the Board of Directors, in the absence of readily available fair values. The Company uses the first-in, first-out (FIFO) method of accounting for sales of its investments.

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Shares of stock received by portfolio companies in exchange for both strategic alliance services and technology transfer transactions are recorded at fair value on the day that the transactions are executed. The fair value of such shares is recorded as revenue in our statements of operations and as the cost of such shares in our statements of assets and liabilities. The certificates are received subsequent to the transaction date.

The Company values substantially all of its investments at fair value as determined in good faith by the Board of Directors in accordance with the Company’s valuation policy and the provisions of the Investment Company Act of 1940 and SFAS No. 157. SFAS No. 157 establishes a fair value hierarchy that encourages and is based on the use of observable inputs, but allows for unobservable inputs when observable inputs do not exist. Inputs are classified into one of three categories:

•

Level 1—Quoted prices (unadjusted) in active markets for identical assets

•

Level 2—Inputs other than quoted prices that are observable to the market participant for the asset or quoted prices in a market that is not active

•

Level 3—Unobservable inputs

When there are multiple inputs for determining the fair value of an investment, the Company classifies the investment in total based on the lowest level input that is significant to the fair value measurement.

Assets measured at fair value on a recurring basis by level within the fair value hierarchy at September 30, 2008, were as follows:


			Fair Value Measurements at Reporting Date Using
Description	Fair Value at 9/30/08		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investments	$	17,633,520	$	—	$	17,633,520	$	—

In May 2008, the Company received repayment of its entire loan receivable held with certain subsidiaries of UTEK Real Estate Holdings, Inc. This loan receivable was previously included in the Company’s investment portfolio at December 31, 2007. This repayment resulted in additional cash inflows of $2 million during the nine months ended September 30, 2008.

Technology Transfers

All of our technology transfers are generally completed as set forth in our technology acquisition alliance service agreements with our clients. During the nine months ended September 30, 2008, the Company completed the following seven technology transfers:


Date	Name of Company Acquiring the Newly Formed Company	Newly Formed Company	Consideration – Unregistered Shares or Cash*			Price per Share (1)
January 28	RIM Semiconductor Company	Broadband Distance Systems, Inc.		60,000,000		$	0.015
February 25	Artilium Plc		$	125,000 cash	(2)
March 24	RIM Semiconductor Company	Multi-Carrier Communications, Inc.		150,000,000			0.006
March 31	Platina Energy Group Inc.	Enhanced Oil Recovery Technologies, Inc.		92,000 preferred	(3)		8.640
June 10	World Energy Solutions, Inc.	Advanced Alternative Energy, Inc.		100,000 preferred	(4)		8.7500
June 26	CSMG Technologies, Inc.	Carbon Capture Technologies, Inc.		371,020			.936
September 26	World Energy Solutions, Inc.	H-Hybrid Technologies, Inc.		100,000 preferred	(5)		7.50

*	Unless otherwise noted, the Company received unregistered shares of common stock of the company acquiring the Company’s newly formed company.

(1)	Represents the valuation price per share at the date of acquisition.

(2)	Represents a technology transfer assistance fee we received for assisting Artilium Plc with an acquisition.

(3)	Preferred F shares convertible into common shares based on a value of $1,324,800.

(4)	Preferred B shares convertible into common shares based on a value of $3,500,000.

(5)	Preferred B shares convertible into common shares based on a value of $3,750,000.

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During the nine months ended September 30, 2007, the Company completed the following fourteen technology transfers:


Date	Name of Company Acquiring the Newly Formed Company	Newly Formed Company	Consideration – Unregistered Shares or Cash*			Price per Share (1)
January 4	Manakoa Services Corporation	Infinite Identification Technologies, Inc.		95,000 preferred	(2)	$	24.000
January 11	Cyberlux Corporation	Hybrid Lighting Technologies, Inc.		50,000 preferred 26,500,000 common	(3)		11.530 0.020
January 30	CytoDyn, Inc.	Advanced Genetic Technologies, Inc.		100,000 preferred	(4)		8.450
January 31	Material Technologies, Inc.	Stress Analysis Technologies, Inc.		47,500 preferred	(5)		14.620
February 12	Liberty Diversified Holdings, Inc.	Sero Tonin Solutions, Inc.		63,981 preferred	(6)		6.000
March 12	Metamorphix Global, Inc.	Flex Crete Technologies, Inc.	$	200,000 cash			—
March 12	Klegg Electronics, Inc.	Tempo Control Technologies, Inc.		10,901,250			0.040
March 28	Avalon Oil & Gas, Inc.	Leak Location Technologies, Inc.		34,875,000			0.020
April 30	Material Technologies, Inc.	Damage Assessment Technologies, Inc.		7,125,000			0.215
May 30	Klegg Electronics, Inc.	Klegg Network Storage Technologies, Inc.		8,550,000			0.255
June 28	Material Technologies, Inc.	Non-Destructive Assessment Technologies, Inc.		6,412,500			0.240
July 12	Pathway One Plc	WebMed Technologies, Inc.		6,000,000			0.14
July 20	MachineTalker, Inc.	Wideband Detection Technologies, Inc.		3,000,000			0.05
September 28	World Energy Solutions, Inc.	Hydrogen Safe Technologies, Inc.		7,500,000			0.26

*	Unless otherwise noted, the Company received unregistered shares of common stock of the company acquiring the Company’s newly formed company.

(1)	Represents the valuation price per share at the date of acquisition.

(2)	Preferred A shares convertible into common shares based on a value of $3.8 million.

(3)	Preferred C shares convertible into common shares based on a value of $768,500.

(4)	Preferred A shares convertible into common shares based on a value of $1.3 million.

(5)	Preferred E shares convertible into common shares based on a value of $926,250.

(6)	Preferred D shares convertible into common shares based on a value of $638,000.

4. Acquisitions

Strategos

On April 17, 2008, UTEK purchased all of the shares of Carmi, Inc., a 100% owned subsidiary of Strategos, LLC, wherein Carmi, Inc. became a subsidiary of UTEK. Carmi, Inc. was dissolved and is now an operating unit of UTEK and is doing business as and is referred to as “Strategos” throughout this Form 10-Q. We acquired Strategos primarily to expand our strategic innovation consulting services. We have included the financial results of Strategos from the date of acquisition in our consolidated financial statements as of September 30, 2008.

Preliminary Purchase Price

Strategos was acquired for potentially 1,248,960 shares of UTEK unregistered common stock valued at $15 million as of such date. Under the terms of the acquisition agreement, Strategos stockholders were entitled to 502,970 shares of UTEK unregistered common stock valued at approximately $6,041,000 as of the acquisition date. In addition, Strategos stockholders are eligible to receive an additional 745,990 shares of UTEK unregistered common stock, which are being held in escrow, pursuant to meeting specific revenue targets for 2008 and 2009 (“contingency shares”). The Company recorded a contingent liability of approximately $1,952,000 with respect to the contingency shares, which reflected the amount of the fair value of the assets acquired in excess of the cost. When the contingency is resolved and the consideration is issued or becomes issuable, any excess of the fair value of the contingent consideration issued or issuable over the amount that was recognized as if it was a liability will be recognized as an additional cost of the acquisition. As of September 30, 2008, 329,670 contingency shares, with a value of approximately $3,959,000, were issued and earned and were recognized as an additional cost of the acquisition. This also resulted in a reduction of the contingent liability balance to zero.

Page 26 of 46

Preliminary Purchase Price Allocation

Pursuant to our business combinations accounting policy, the total purchase price for Strategos was allocated to the net tangible assets and intangible assets acquired based upon their estimated fair values as of April 17, 2008, as set forth below. The excess of the net tangible assets and intangible assets acquired over the purchase price resulted in a contingent liability. The preliminary allocation of the purchase price was based upon the preliminary purchase price, which is subject to change based on the earnout of the contingency shares through December 2009. Our preliminary purchase price allocation as of September 30, 2008 is as follows:


Cash and cash equivalents	$	678,980
Accounts receivable		2,189,305
Other tangible assets		91,098
Intangible assets		6,380,000
Goodwill		4,406,996
Accounts payable and other liabilities		(1,262,512	)
Deferred revenues		(83,861	)
Deferred tax liability		(2,400,000	)

Total preliminary purchase price	$	10,000,006

Intangible Assets

The following table sets forth the preliminary components of intangible assets associated with the Strategos acquisition:


	Preliminary Fair Value		Useful Life
Trade names/trademarks/websites	$	1,620,000	Indefinite
Proprietary processes/know-how		1,970,000	6 years
DiscoverySpace software platform		120,000	8 years
Non-compete agreements		240,000	4 years
Customer list		2,430,000	7 years

Total intangible assets	$	6,380,000

Other 2008 Acquisitions

On December 20, 2007, the Company entered into a stock purchase agreement with Partnering Intelligence Limited and Bridgehead International Limited to acquire Pharmalicensing Limited (“Pharmalicensing”). The transaction closed and became effective on January 3, 2008, at which time the Company issued 153,967 shares of unregistered UTEK common stock, valued at $2,150,000, to Partnering Intelligence in consideration for all of the shares of Pharmalicensing owned by Partnering Intelligence. The value of the shares was based on the average ten-day closing price prior to execution of the stock purchase agreement. The shares acquired represent 100% of the issued and outstanding shares of Pharmalicensing. The Company acquired the shares of Pharmalicensing through its subsidiary UTEK Europe, Ltd. Transfer of the 153,967 shares of UTEK common stock is restricted for twelve months following the completion of the transaction.

On July 3, 2008, the Company entered into a stock purchase agreement to acquire 100% of Innovaro Limited (“Innovaro”), a company incorporated in the United Kingdom and Wales. Innovaro was acquired for potentially 691,714 shares of UTEK unregistered common stock valued at $7.4 million as of such date. The number of shares is based on the average twenty-day closing price prior to execution of the stock purchase agreement. Under the terms of the agreement, Innovaro stockholders received one half, or 345,857, of the UTEK shares worth $3.7 million at closing. Transfer of the 345,857 UTEK unregistered shares is restricted for at least 12 months following the close of the transaction. The remaining UTEK shares are held in escrow, to be released in three installments, 12, 24 and 36 months after closing. Delivery of the escrowed shares to Innovaro is dependent on the achievement of specific revenue targets for the three years following the closing. If such targets are not met, a portion of the escrowed shares will be returned to UTEK. The cost of these contingent shares will be accounted for as an additional element of the purchase price when and if the shares are earned.

A summary of these acquisitions are as follows:


	Pharmalicensing			Innovaro
Tangible assets acquired	$	149,168		$	365,953
Intangible assets acquired		858,386			3,003,488
Goodwill acquired		1,526,643			1,575,872
Foreign currency translation adjustment		—			(52,875	)
Accounts payable and other liabilities assumed		(384,197	)		(1,228,125	)

Total preliminary purchase price	$	2,150,000		$	3,664,313

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We have included the financial results of Pharmalicensing and Innovaro from their respective dates of acquisition in our consolidated financial statements as of September 30, 2008.

Unaudited Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of Strategos, Innovaro and Pharmalicensing acquired during fiscal 2008, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal 2007. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of each of the periods presented. The pro forma financial information for all periods presented also includes the business combination accounting effects on the historical companies’ operating results including the depreciation and amortization expenses from acquired fixed assets and intangible assets, respectively, and related tax effects as though the companies had been combined as of the beginning of fiscal 2007.

The unaudited pro forma financial information for the nine months ended September 30, 2008 combines the historical results of UTEK for the nine months ended September 30, 2008 and the historical results of Strategos, Innovaro and Pharmalicensing for the nine months ended September 30, 2008, and the pro forma adjustments discussed above. The unaudited pro forma financial information for the nine months ended September 30, 2007 combines the historical results of UTEK for the nine months ended September 30, 2007 and the historical results of Strategos, Innovaro and Pharmalicensing for the nine months ended September 30, 2007, and the pro forma adjustments discussed above.


	Nine Months Ended Sept 30,
	2008			2007
Total income from operations	$	19,179,757		$	27,765,708
Net decrease in net assets from operations	$	(20,152,741	)	$	(4,265,442	)
Basic and diluted net decrease in net assets from operations per share	$	(2.00	)	$	(0.43	)

5. Intangible Assets and Goodwill

The changes in intangible assets for the nine months ended September 30, 2008 were as follows:


	Balances Dec 31, 2007			Additions			Balances Sept 30, 2008			Weighted Average Useful life
Trade names/trademarks/websites	$	293,095		$	2,817,251		$	3,110,346		(1	)
Proprietary processes/know-how		—			2,901,775			2,901,775		6.0 years
Software platform		—			120,000			120,000		8.0 years
Non-compete agreements		—			765,363			765,363		3.3 years
Customer list		80,000			3,637,485			3,717,485		7.3 years

		373,095			10,241,874			10,614,969
Currency exchange		—			(383,360	)		(383,360	)
Less: Accumulated amortization		(249,283	)		(544,498	)		(793,781	)

	$	123,812		$	9,314,016		$	9,437,828

(1)	The weighted average useful life for $831,598 of the trade names/trademarks/websites is 5.9 years and the remaining $2,278,748 has a weighted average useful life that is indefinite. Indefinite lived intangible assets are not amortized for GAAP purposes.

Total amortization expense related to our intangible assets was approximately $545,000 and $51,000 for the nine months ended September 30, 2008 and 2007, respectively. The estimated aggregate future amortization expense related to our intangible assets with finite lives is as follows:


For the twelve months ending September 30,
2009	$	1,289,460
2010		1,200,354
2011		1,142,679
2012		1,005,184
2013		957,684
Thereafter		1,563,719

Total	$	7,159,080

Page 28 of 46

The changes in the carrying amount of goodwill, which is generally not deductible for tax purposes, by reporting unit for the nine months ended September 30, 2008 were as follows:


	Balances Dec 31, 2007		Additions			Balances Sept 30, 2008
Knowledge Express purchase	$	1,437,000	$	—		$	1,437,000
Pharma-Transfer purchase		372,000		—			372,000
EKMS purchase		426,869		—			426,869
UTEK-Europe purchase		562,501		—			562,501
Pharmalicensing purchase		—		1,526,643			1,526,643
Strategos purchase & earnout		—		4,406,996			4,406,996
Innovaro purchase & earnout		—		1,611,419			1,611,419

		2,798,370		7,545,058			10,343,428
Currency exchange		22,694		(372,257	)		(349,563	)

	$	2,821,064	$	7,172,801		$	9,993,865

6. Stockholders’ Equity

Transactions in common stock for the nine months ended September 30, 2008, were as follows:


Common Stock	Shares Issued	Shares Outstanding	Par Value		Paid-In Capital
Balance at December 31, 2007	9,011,276	9,011,276	$	90,114	$	53,148,643
Employee stock options exercised	31,015	31,015		310		189,485
Share-based compensation expense	—	—		—		560,258
Acquisition of Pharmalicensing	153,967	153,967		1,540		2,148,460
Acquisition of Strategos	1,248,960	502,970		5,030		6,035,640
Acquisition of Innovaro	691,714	345,857		3,458		3,660,853
Strategos earnout accrual	—	329,670		3,297		3,956,040
Innovaro earnout accrual	—	3,328		33		35,514

Balance at September 30, 2008	11,136,932	10,378,083	$	103,782	$	69,734,893

See Note 2 for further information on share-based compensation expense and employee stock options exercised. See Note 4 for further information on acquisitions and the earnout accrual.

7. Commitments and Contingencies

Employment Agreements

On March 10, 2008, UTEK entered into a one year employment agreement, effective January 1, 2008, with its Chief Executive Officer, Clifford M. Gross, Ph.D. Under the terms of the employment agreement, Dr. Gross will receive a base salary of $550,000 per year and for each annual period thereafter. In addition to his base salary, Dr. Gross will be entitled to:

•

A reasonable automobile allowance to cover the cost of leasing, insuring and maintaining a vehicle for the duration of the employment agreement, and

•

Participate in UTEK’s executive officer health insurance program. UTEK will pay all of the premiums related to Dr. Gross’ participation in such program.

The employment agreement provides that if (i) Dr. Gross is terminated or requested or forced to resign during the term of the employment agreement, (ii) the employment agreement is not renewed at the end of its term by either party or (iii) UTEK terminates Dr. Gross’s employment for cause or in any way that is a breach of the employment agreement, then Dr. Gross shall receive a severance payment equal to the number of years Dr. Gross has worked for the Company times $100,000 per year, “grossed-up” to cover any tax liability on such severance payment. In addition, all stock options held by Dr. Gross accelerate and become immediately vested, and we will be obligated to file a registration statement with the SEC to register any of our unregistered securities held by Dr. Gross.

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The employment agreement also provides that in the event of a “change of control,” Dr. Gross will be entitled to receive a one-time bonus equal to twice his annual salary, “grossed-up” to cover any tax liability on such bonus. In addition, all stock options held by Dr. Gross accelerate and become immediately vested upon a change of control, and the Company will be obligated to file a registration statement with the SEC to register any of its unregistered securities held by Dr. Gross. A “change of control” occurs, as defined in the employment agreement, when: (i) a person or group becomes the beneficial owner of more than 30% of our outstanding securities; (ii) at any time that the board nominated slate of directors is not elected; (iii) the Company consummates a merger in which it is not the surviving entity; or (iv) substantially all of the Company’s assets are sold or the stockholders approve the Company’s dissolution or liquidation.

The employment agreement obligates the Company to nominate Dr. Gross to serve as a member of our Board of Directors during the term of the employment agreement.

In consideration of the benefits provided under the employment agreement, Dr. Gross has agreed to protect UTEK’s confidential or secret information and, during the period of employment and one year thereafter, to not compete with UTEK.

Strategos Bonus Plan

In connection with the acquisition of Strategos, the Company implemented the Strategos Bonus Plan for qualifying Strategos division employees. The award pool is determined from eligible earnings and aggregate revenues and is limited to the extent required to permit Strategos to maintain sufficient operating cash. Awards are to be paid out by December 15^th of each year and are accrued on a quarterly basis. Approximately 85% to 90% of Strategos net income will be paid out in connection with this bonus plan. The Company accrued approximately $4.8 million in connection with the Strategos Bonus Plan as of September 30, 2008.

Innovaro Bonus Plan

In connection with the acquisition of Innovaro, the Company implemented the Innovaro Bonus Plan for qualifying Innovaro division employees. The award pool is determined from eligible earnings and aggregate revenues and is limited to the extent required to permit Innovaro to maintain sufficient operating cash. Awards are to be paid out by June 30^th of each year and are accrued on a quarterly basis. Approximately 75% to 85% of Innovaro net income will be paid out in connection with this bonus plan. There was no accrual in connection with the Innovaro Bonus Plan as of September 30, 2008.

Other

From time to time, some of the Company’s portfolio companies may receive correspondence or other notices of alleged breach of a 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 Company’s portfolio companies to cure the alleged breach may have a material adverse impact on the Company’s results of operations and financial position.

In May 2008, we obtained a $1,000,000 line of credit with the Bank of Tampa. The advances on the line of credit accrue interest (payable monthly) at prime (5.00% as of September 30, 2008). The principal and any unpaid interest are due upon demand. This line is collateralized with commercial real estate owned by UTEK Real Estate Holdings, Inc. There are no borrowings on this line at September 30, 2008.

8. Segment Reporting

The Company’s principal area of activity is providing technology transfer services and supporting innovation consulting services. The Company has three reportable operating segments: United Kingdom, Israel and the United States. The United Kingdom segment includes our wholly owned subsidiary UTEK-Europe, Ltd. and Innovaro, the Israel segment includes our wholly owned subsidiary UTEKip, Ltd., and the United States segment includes UTEK Corporation. UTEKip was dissolved in the second quarter of 2008 and all operations of that segment are currently being serviced by the U.S. segment.

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A summary of income from operations and other financial information by reportable operating segment is shown below:


	United Kingdom			Israel			United States			Total
Long-lived assets September 30, 2008	$	6,707,112		$	—		$	13,217,593		$	19,924,705
Total assets September 30, 2008		6,756,774			—			40,576,814			47,333,588
Long-lived assets December 31, 2007		589,406			13,621			2,818,427			3,421,454
Total assets December 31, 2007		681,140			39,317			44,500,620			45,221,077

	For the Three Months Ended September 30, 2008
	United Kingdom			Israel			United States			Total
Income from operations (revenues)	$	644,897		$	—		$	6,413,509		$	7,058,406
Income (loss) before income taxes		(155,532	)		—			(1,143,907	)		(1,299,439	)
Depreciation and amortization		123,002			—			269,208			392,210

	For the Three Months Ended September 30, 2007
	United Kingdom			Israel			United States			Total
Income from operations (revenues)	$	122,069		$	15,810		$	3,557,035		$	3,694,914
Income (loss) before income taxes		(5,177	)		(60,795	)		465,483			399,511
Depreciation and amortization		424			1,608			48,956			50,988

	For the Nine months ended September 30, 2008
	United Kingdom			Israel			United States			Total
Income from operations (revenues)	$	1,127,773		$	8,638		$	14,517,179		$	15,653,590
Income (loss) before income taxes		(251,593	)		634,433	(1)		(2,946,595	)(1)		(2,563,755	)
Depreciation and amortization		195,290			2,750			465,064			663,104

	For the Nine months ended September 30, 2007
	United Kingdom			Israel			United States			Total
Income from operations (revenues)	$	234,320		$	104,653		$	17,692,161		$	18,031,134
Income (loss) before income taxes		(79,541	)		(114,913	)		7,645,630	(2)		7,451,176
Depreciation and amortization		1,245			4,713			154,497			160,455

(1)	During the nine months ended September 30, 2008, we dissolved UTEKip, which resulted in a gain for the Israel segment and an offsetting loss for the U.S. segment of approximately $753,000. We dissolved UTEKip with the transfer of operations to the U.S. segment.

(2)	During the nine months ended September 30, 2007, the United States segment recorded goodwill impairment for Pharma Transfer of $33,030, which is included in that segment’s loss for the period.

The Company has recently changed the way it classifies and records its revenues and certain expenses to provide additional information for management. This change was as a result of the Company’s new products and services from the addition of TekScout and the acquisitions of Pharmalicensing, Strategos and Innovaro. Consequently, the Company has new product segments for which certain information can be reported. These new product segments include: technology transfer business; innovation consulting comprised of the consulting portion of Strategos and Innovaro businesses; subscription services comprised of the Company’s information services business; and all other services comprised of Intellectual Capital Consulting, technology alliance services, and the TekScout business. The administrative and other column represents miscellaneous and other income items and general and administrative type expenses that are not allocated amongst the different businesses. Management does not analyze assets for decision making purposes as it relates to the segments below. Accordingly, information is not available for long-lived assets or total assets.

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A summary of income from operations and other financial information by product segment is shown below:


					For the Three Months Ended September 30, 2008
	Sale of Technology Rights		Innovation Consulting		Subscription Services			All Other Consulting			Administrative and Other			Total
Income from operations (revenue)	$	750,000	$	5,139,683	$	536,934		$	496,858		$	134,931		$	7,058,406
Income (loss) before income taxes		189,125		285,793		(40,580	)		(17,227	)		(1,716,550	)		(1,299,439	)


					For the Nine months ended September 30, 2008
	Sale of Technology Rights		Innovation Consulting		Subscription Services			All Other Consulting			Administrative and Other			Total
Income from operations (revenue)	$	4,684,680	$	7,719,310	$	1,557,292		$	1,437,922		$	254,386		$	15,653,590
Income (loss) before income taxes		2,039,170		380,473		(130,629	)		(201,112	)		(4,651,657	)		(2,563,755	)

9. Related Party Transactions

During the nine months ended September 30, 2008 and 2007, we loaned funds for operations and real estate improvements of approximately $0 and $721,000, respectively, to certain subsidiaries of UTEK Real Estate Holdings, Inc., one of UTEK’s portfolio companies. The entire outstanding loan balance of approximately $2 million was repaid to the Company in May 2008. In addition, we paid rent of approximately $255,000 and $193,000 to Ybor City Group, Inc., a subsidiary of UTEK Real Estate Holdings, Inc., during the nine months ended September 30, 2008 and 2007, respectively.

10. Subsequent Events

On October 10, 2008, pursuant to a stock exchange agreement the Company purchased 100% of Social Technologies Group, Inc. (“STG”), a company incorporated in Virginia. STG was acquired for potentially 998,027 shares of UTEK unregistered common stock valued at approximately $10.2 million as of such date. The number of shares is based on the average ten-day closing price prior to execution of the stock exchange agreement. Under the terms of the agreement, STG stockholders received one half, or 499,013 of the UTEK shares worth approximately $5.1 million at closing. Transfer of the 499,013 UTEK unregistered shares is restricted for at least 12 months following the close of the transaction. The remaining UTEK shares are held in escrow, to be released in three installments, 12, 24 and 36 months after closing. Delivery of the escrowed shares to STG is dependent on the achievement of specific revenue targets for the three years following the closing. If such targets are not met, a portion of the escrowed shares will be returned to UTEK. The cost of these contingent shares will be accounted for as an additional element of the purchase price when and if the shares are earned. In connection with this acquisition, the Company assumed a $600,000 bank note that is payable over a four-year term.

The Company disclosed herein all information regarding this acquisition that was practicable as of the date of this filing given the time constraints.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

The following discussion should be read in conjunction with our consolidated 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. These forward-looking statements 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 the 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.

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Overview

Recent Business Developments

In 2008, the Company continued to enhance its ability to provide comprehensive innovation consulting services for clients. To enhance our ability to provide these services, the Company has acquired four companies since January 2008 and has launched the TekScout division. We believe that collectively, these efforts have increased the Company’s ability to service its clients. In subsequent periods it is our intention to pursue additional strategic acquisitions to further enhance our innovation capabilities, the number of clients we can service and our geographic representation.

In January 2008, the Company acquired Pharmalicensing.com, a biopharmaceutical open innovation resource designed for professionals involved with partnering, licensing, and business development worldwide. In April 2008, the Company acquired Carmi, Inc., a 100% owned subsidiary of Strategos, LLC, a strategic innovation consulting firm that provides consulting services, primarily to large companies. In July 2008, the Company acquired Innovaro Limited, a European innovation consulting and insight firm. In October 2008, the Company acquired Social Technologies Group, Inc., an innovation consulting and insight firm.

Executive Summary

Our total assets were $47.3 million and our net assets were $38.9 million at September 30, 2008, compared to $45.2 million and $43.7 million at December 31, 2007, respectively. Net asset value per share was $3.74 at September 30, 2008 and $4.85 at December 31, 2007. At September 30, 2008, we had no long-term debt outstanding, $5.6 million in cash and cash equivalents and $3.2 million of investments in U.S. Treasuries and certificates of deposit.

Income from operations for the nine months ended September 30, 2008 totaled approximately $15.7 million, as compared to $18.0 million for the nine months ended September 30, 2007. Net income (loss) from operations for the nine months ended September 30, 2008 totaled approximately $(6.4 million) as compared to $4.4 million for the same period of 2007. Net realized losses on investments, net of deferred tax effect, totaled approximately $(3.8 million) for the nine months ended September 30, 2008 as compared to $(1.7 million) for the same period of 2007. In this regard, we received gross proceeds of $1.9 million for the nine months ended September 30, 2008 and $1.2 million for the same period of 2007 in connection with the sale of the securities we received in connection with our technology acquisition alliance agreements and technology transfers. Net change in unrealized depreciation of investments, net of deferred tax benefit, was $(10.6 million) for the nine months ended September 30, 2008 as compared to $(6.8 million) for the same period of 2007.

Our financial condition is dependent on a number of factors including our ability to effectuate technology transfers and the performance of the equity investments that we receive in connection with these transfers. Substantially all of our investments are in development stage and start-up companies and thinly traded public companies. These businesses are thinly capitalized, unproven, small companies that lack management depth, are dependent on new, commercially unproven technologies and have no or a limited history of operations.

Current Market Conditions

Since mid-2007, global credit and other financial markets have suffered substantial stress, volatility, illiquidity and disruption. These forces reached unprecedented levels in late 2008, resulting in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. These events have significantly diminished overall confidence in the financial markets and caused increasing global economic uncertainty. This reduced confidence and uncertainty could further exacerbate the overall market disruptions and risks to businesses in need of capital, including us and our portfolio companies. Moreover, the deterioration in the equity markets has had a significant impact on the valuations of our investments and the cash proceeds that we have been able to obtain upon the sale of our investments. A further worsening of this situation or a prolonged period without improvement from the levels at the end of the third quarter of 2008 could adversely affect our financial position.

Technology Transfers and Technology Acquisition Alliances

For the nine months ended September 30, 2008, we had a similar number of active technology acquisition alliance clients over September 30, 2007, but due to the longer time required to close technology transfers with our expanding client base of larger client companies, the number of completed technology transfers decreased. The following provides additional information regarding our technology acquisition alliance and technology transfer activities:

•

As of September 30, 2008, we had 50 active technology acquisition alliance agreements as compared to 53 active technology acquisition alliances at September 30, 2007; and

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•

During the nine months ended September 30, 2008, we completed 7 technology transfers valued at approximately $4.7 million as compared to 14 technology transfers valued at approximately $14.8 million in the same period of 2007.

Portfolio Activity

The following is a list of significant changes in our portfolio during the nine months ended September 30, 2008:

•

The sale of some or all of our shares in Broadcast International, Inc., Ecosystem Corporation, Industrial Biotechnology Corporation, Material Technologies, Inc., Avalon Oil and Gas, Inc. and various other portfolio companies for approximately $1.9 million, which resulted in realized losses of $3.8 million (net of income tax effect);

•

The completion of 7 technology transfers for stock valued at approximately $4.6 million and $125,000 in cash; and

•

Net unrealized depreciation of $5.8 million (net of income tax effect) in the fair value of our investments.

Our most significant portfolio investments at September 30, 2008 were in UTEK Real Estate Holdings, Inc., Advanced Medical Isotope Corporation, World Energy Solutions, Inc., MiMedx Group, Inc. and Cyberlux Corporation. These five investments totaled $10.8 million in fair value and represented 75% of our investments excluding our investments in U.S. Treasuries and certificates of deposits and 28% of net assets at September 30, 2008.

Our capital investments made in our newly formed companies during the nine months ended September 30, 2008 totaled $1.8 million. Of the total capital invested in our newly formed companies during the nine months ended September 30, 2008, $500,000 was expended on license and consulting fees and $1.3 million was to assist our clients in commercializing their new technology. All of these items are reflected in the accompanying consolidated statement of operations as acquisition of technology rights.

The net unrealized depreciation for the nine months ended September 30, 2008 was primarily due to a reduction in value of the following investments in our portfolio: Advanced Refractive Technologies, Inc., Cyberlux Corporation, Material Technologies, Inc., Emission & Power Solutions, Inc., Manakoa Services Corp., Pathway One PLC, RIM Semiconductor Company and World Energy Solutions, Inc.; partially offset by the reversal of unrealized depreciation on various investments upon their sale during the period.

While these unrealized losses were significant, failures among small cap companies are not unexpected and may occur in the future. The current portfolio is comprised of fifty holdings. Many of these positions are in small capitalization companies, which over time may have high failure rates due to a variety of factors. For clients that fail, UTEK may lose the entire amount of its capital spent acquiring and transferring the technology to them.

The value of our investments can fluctuate due to factors that are specific to each investment (e.g., inability of these companies to obtain additional capital, to execute their business model, or termination or obsolescence of their technology licenses, etc.) or to general marketplace factors. Moreover, in the event that the United States economy enters into a prolonged recession, it is possible that these companies could be negatively impacted, which could ultimately lead to greater difficulty in our ability to sell our equity investments in such companies at acceptable levels, or at all.

Results of Operations

Income from Operations (Revenue)


	Three months ended September 30,				Percentage Change		Nine months ended September 30,				Percentage Change
(in thousands, except percentages)	2008		2007				2008		2007
Innovation Consulting Services	$	5,139	$	-0-	—	%	$	7,719	$	-0-	—	%
Sale of Technology Rights		750		2,921	(74	)%		4,685		14,836	(68	)%
Subscription and Other Services		1,034		647	60	%		2,995		2,716	10	%
Other Income, net		135		127	6	%		255		479	(47	)%

Income from Operations	$	7,058	$	3,695	91	%	$	15,654	$	18,031	(13	)%

Innovation Consulting Services

As a result of our acquisitions of innovation consulting services companies in 2008, our innovation consulting revenue increased to $5.1 million and $7.7 million for the three and nine months ended September 30, 2008, respectively, versus $-0- for each of the three and nine months ended September 30, 2007. In subsequent periods, it is our intention to pursue additional strategic acquisitions which will continue to increase the innovation consulting services revenue and enhance our ability to better service the innovation needs of our clients.

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Sale of Technology Rights

Sale of technology rights revenue for the three months ended September 30, 2008 decreased as a result of our having completed one technology transfer during the three months ended September 30, 2008 as compared to completing three technology transfers during the three months ended September 30, 2007. Sale of technology rights revenue decreased for the nine months ended September 30, 2008 as a result of having completed seven technology transfers in 2008 versus fourteen in 2007. In addition, the average revenue per technology transfer decreased 23% and 37%, respectively, for the three and nine months ended September 30, 2008 versus 2007. Overall equity market conditions have generally forced micro-capitalization stock prices down, making it more difficult for some of our clients to issue a reasonable amount of stock with sufficient value in exchange for these technologies. To mitigate the risk of declining stock prices with respect to the stock consideration we receive in connection with our technology transfers, the Company is pursuing technology transfers on a more selective basis.

Subscriptions and Other Services

Our subscriptions and other services revenue was $1.0 million for the three months ended September 30, 2008 versus $647,000 for the three months ended September 30, 2007. Similarly, our subscriptions and other services revenue was $3.0 million for the nine months ended September 30, 2008 versus $2.7 million for the nine months ended September 30, 2007. The increase is partially attributable to the acquisition of Pharmalicensing in January 2008, which contributed $185,000 and $565,000 to subscription revenues for the three and nine months ended September 30, 2008, respectively. In addition, the acquisition of Strategos in April 2008 contributed $193,000 and $374,000 to other services revenues for the three and nine months ended September 30, 2008, respectively. We also had increases of $104,000 and $283,000, respectively, in information services revenue for the three and nine months ended September 30, 2008 versus 2007. We had net decreases of $95,000 and $943,000, respectively, in all other related revenues for the three and nine months ended September 30, 2008 versus 2007. It is our intention to grow our subscriptions and other services revenue internally as well as with additional strategic acquisitions.

Investment Income, net

Investment income increased marginally in for the three months ended September 30, 2008 as compared to the same period of 2007. However, there was an overall decrease for the nine months ended September 30, 2008 over 2007 due to a decrease in the cash and cash equivalents balances in the beginning of 2008 as well as lower interest rates.

Our income from operations can vary substantially on a quarterly basis due to a variety of factors. Therefore, quarterly income from operations should not be annualized to predict expected annual results and may not be indicative of future performance.

Expenses

Direct Costs of Innovation Consulting Services


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Direct costs of innovation consulting services	$	4,568		$	-0-		—	%	$	6,886		$	-0-		—	%
As a percent of innovation consulting services		89	%		—	%	—	ppt		89	%		—	%	—	ppt

*	The abbreviation “ppt” denotes percentage points.

Direct costs of innovation consulting services are comprised of salaries and related taxes, bonuses, certain outside services and other direct project costs related to innovation consulting services revenue. This expense line item was created in 2008 as a result of the acquisition of Strategos and Innovaro.

The most significant portion of direct costs of innovation consulting services is comprised of bonuses. These bonuses comprised $2.7 million and $4.8 million of direct costs of innovation consulting services for the three and nine months ended September 30, 2008, respectively. The Company had $4.8 million in accrued bonuses included in accrued expenses in the consolidated statement of assets and liabilities as of September 30, 2008. A significant portion of this accrual is expected to be paid out from available cash and short-term investments during the fourth quarter of 2008.

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Acquisition of Technology Rights


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Acquisition of technology rights	$	300		$	838		(64	)%	$	1,780		$	3,171		(44	)%
As a percent of sale of technology rights		40	%		29	%	11	ppt		38	%		21	%	17	ppt

Acquisition of technology rights costs consist of the direct costs associated with our technology transfers, which include cash to further accelerate commercialization efforts, license fees to acquire new technologies, consulting fees with the inventor of the technologies, and sponsored research fees with the university or research facility transferring the technologies. The acquisition of technology rights costs as a percentage of sale of technology rights revenue increased by 11 and 17 percentage points, respectively, for the three and nine months ended September 30, 2008 versus 2007. Overall equity market conditions have had a significant impact on our revenue to cost ratio. Stock prices for our micro-capitalization clients have decreased, making it more difficult for some of our clients to issue stock with sufficient value in exchange for technologies. Consequently, the costs we have incurred relative to the declining value of stock we have been able to receive in connection with technology transfers has resulted in an increase in the acquisition of technology rights costs as a percentage of technology rights revenue.

Acquisition of technology rights costs are directly related to sale of technology rights revenue. In an effort to curb costs associated with technology transfers, our plan is to focus for the remainder of 2008 on technology transfers for cash remuneration and equity transfers which do not require significant amounts of upfront cash costs.

The following tables provide certain information related to the acquisition of technology rights expenses we incurred in connection with our technology transfers during the three and nine months ended September 30, 2008:


Date	Name of Company Acquiring the Newly Formed Company	Newly Formed Company	Dollar Amount of Expenses
September 27	World Energy Solutions, Inc.	H-Hybrid Technologies, Inc.	$	300,000

		Total for three months ended September 30, 2008		300,000

June 26	CSMG Technologies, Inc.	Carbon Capture Technologies, Inc.		60,000
June 10	World Energy Solutions, Inc.	Advanced Alternative Energy, Inc.		236,000
March 31	Platina Energy Group Inc.	Enhanced Oil Recovery Technologies, Inc.		360,500
March 24	RIM Semiconductor Company	Multi-Carrier Communications, Inc.		383,500
January 28	RIM Semiconductor Company	Broadband Distance Systems, Inc.		440,000

		Total for nine months ended September 30, 2008	$	1,780,000


Date	Name of Company Acquiring the Newly Formed Company	Newly Formed Company	Dollar Amount of Expenses
Sept 28	World Energy Solutions, Inc.	Hydrogen Safe Technologies, Inc.	$	492,350
July 20	MachineTalker, Inc.	Wideband Detection Technologies, Inc.		40,000
July 12	Pathway One Plc	WebMed Technologies, Inc.		305,215

		Total for three months ended September 30, 2007		837,565

June 28	Material Technologies, Inc.	Non-Destructive Assessment Technologies, Inc.		280,000
May 30	Klegg Electronics, Inc.	Klegg Network Storage Technologies, Inc.		450,000

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April 30	Material Technologies, Inc.	Damage Assessment Technologies, Inc.		300,000
March 28	Avalon Oil & Gas, Inc.	Leak Location Technologies, Inc.		155,000
March 12	Klegg Electronics, Inc.	Tempo Control Technologies, Inc.		135,388
March 12	Metamorphix Global, Inc.	Flex Crete Technologies, Inc.		52,884
February 12	Liberty Diversified Holdings, Inc.	Sero Tonin Solutions, Inc.		70,052
January 31	Material Technologies, Inc.	Stress Analysis Technologies, Inc.		130,000
January 30	CytoDyn, Inc.	Advanced Genetic Technologies, Inc.		167,500
January 11	Cyberlux Corporation	Hybrid Lighting Technologies, Inc.		192,455
January 4	Manakoa Services Corporation	Infinite Identification Technologies, Inc.		400,000

		Total for nine months ended September 30, 2007	$	3,170,844

Salaries and Wages


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Salaries and wages	$	1,141		$	889		28	%	$	3,506		$	2,664		32	%
As a percent of revenue		16	%		24	%	(8	) ppt		22	%		15	%	7 ppt

Salaries and wages include non-sales employees and officer salaries and related benefits including stock-based compensation. Of the $252,000 increase in salaries and wages during the three months ended September 30, 2008, $132,000 related to the addition of Pharmalicensing employees to the payroll in connection with the acquisition, $50,000 related to a bonus to our chief operating officer, and $48,000 related to additional salaries for our newTekScout online exchange.

Salaries and wages increased $842,000 during the nine months ended September 30, 2008 as a result of the addition of Pharmalicensing employees to the payroll of $316,000, additional salaries related to our newTekScout online exchange of $125,000, increased officer salaries of $258,000 and an increase in stock-based compensation expense of $117,000 resulting from additional option grants.

We expect salaries and wages to continue to increase during the remainder of 2008 as a result of our intention to pursue additional strategic acquisitions.

Professional Fees


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Professional fees	$	276		$	505		(45	)%	$	834		$	1,119		(25	)%
As a percent of revenue		4	%		14	%	(10	) ppt		5	%		6	%	(1	) ppt

Professional fees include accounting fees, legal fees and valuation expenses for our investments. The decrease in professional fees relates to a decrease in legal fees of $258,000 and $301,000, respectively, for the three and nine months ended September 30, 2008, partially offset by modest increases in accounting and valuation fees.

Sales and Marketing


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Sales and marketing	$	602		$	398		51	%	$	1,836		$	1,488		23	%
As a percent of revenue		9	%		11	%	(2	) ppt		12	%		8	%	4 ppt

Sales and marketing expenses include advertising, marketing, salaries and commissions paid to sales personnel, commissions paid to outside service providers, travel and other costs of sales and selling expenses. Sales and marketing expenses increased

Page 37 of 46

$204,000 for the three months ended September 30, 2008 as compared to 2007. The increase was a result of the increased costs related to the three acquisitions described elsewhere in this Form 10-Q of $97,000 and additional sales conferences costing $60,000.

Sales and marketing expenses increased $348,000 for nine months ended September 30, 2008 as compared to 2007. The increase was a result of the increased costs related to the three acquisitions described elsewhere in this Form 10-Q of $155,000 and additional sales managers added to the business development and technology licensing sales divisions of $230,000. This increase was partially offset by a decrease in commissions earned of $80,000 due to the decrease in related revenue for the nine months ended September 30, 2008.

We expect sales and marketing costs to continue to increase during the remainder of 2008 as a result of our intention to pursue additional strategic acquisitions and the creation of new sales management positions to strengthen the senior management team and enhance the potential for Company development.

General and Administrative


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
General and administrative	$	1,471		$	666		121	%	$	3,376		$	2,105		60	%
As a percent of revenue		21	%		18	%	3 ppt			22	%		12	%	10 ppt

General and administrative costs increased $805,000 for the three months ended September 30, 2008 as compared to 2007. The increase was a result of the costs related to the 2008 acquisitions described elsewhere in this Form 10-Q of $39,000; outside services of $102,000; the amortization of the intangible assets acquired of $308,000; additional employee costs including benefits and taxes of $226,000; and rent of $55,000.

General and administrative costs increased $1.3 million for the nine months ended September 30, 2008 as compared to 2007. The increase was a result of the costs related to the 2008 acquisitions described elsewhere in this Form 10-Q of $90,000; outside services of $108,000; the amortization of the intangible assets acquired of $464,000; additional employee costs including benefits and taxes of $407,000; and rent of $155,000.

We expect to have an increase in general and administrative expenses for the year ended December 31, 2008 as a result of our acquisitions.

Goodwill Impairment

The Company determined that there was an impairment of the goodwill related to the Pharma Transfer acquisition in the first quarter of 2007. The Company recorded a partial impairment of the goodwill in 2007. This resulted in a write-down of approximately $33,000, $21,000 after tax, which is an operating expense in the consolidated statements of operations for the nine months ended September 30, 2007. There were no indicators during the nine months ended September 30, 2008 that required any impairment to goodwill.

Net Realized Gains (Losses) on Investments


	Three months ended September 30,						Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007					2008			2007
Realized gains/ (losses)	$	(275	)	$	(552	)	(50	)%	$	(3,752	)	$	(1,690	)	122	%

Page 38 of 46

Net realized losses on investments, net of income tax effect, amounted to $275,303 for the three months ended September 30, 2008 and were related to sales as follows:


Company Name	Number of Shares	Realized Gain (Loss)
American Soil Technologies, Inc.	70,343	$	(9,721	)
CSMG Technologies, Inc.	50,000		4,990
Ecosphere Technologies Inc	208,333		3,119
Gammacan International, Inc.	85,000		(17,635	)
Material Technologies, Inc.	1,308,241		(220,982	)
Net Fabric Corporation	240,000		(12,092	)
TGI Solar Power Group, Inc (Tenth Gate International, Inc.)	17,400		(22,982	)
Total		$	(275,303	)

Net realized losses on investments, net of income tax effect, amounted to $551,958 for the three months ended September 30, 2007 and were related to sales as follows:


Company Name	Number of Shares	Realized Gain (Loss)
American Soil Technologies, Inc.	300		(18	)
Broadcast International, Inc.	232,452		(13,446	)
Health Sciences Group, Inc.	781,703		(355,079	)
Power3 Medical Products, Inc.	185,000		(80,247	)
Rival Technologies, Inc.	78,500		(7,623	)
Swiss Medica, Inc.	785,000		(77,022	)
XELR8 Holdings, Inc.	2,500		1,170
World Energy Solutions, Inc.	19,500		(19,693	)

Total		($	551,958	)

Net realized losses on investments, net of income tax effect, amounted to $3,752,177 for the nine months ended September 30, 2008 and were related to sales as follows:


Company Name	Number of Shares	Realized Gain (Loss)
5G Wireless Communications, Inc.	122,379	$	(49,160	)
aeroTelesis, Inc.	384,000		(20,512	)
American Soil Technologies, Inc.	300,045		(34,890	)
Avalon Oil and Gas, Inc.	247,200		(235,050	)
Broadcast International, Inc.	478,562		479,441
Cargo Connection Logistics Holdings, Inc.	11,078,103		(35,934	)
CSMG Technologies, Inc.	50,000		4,990
Cyberlux Corporation	2,050,000		3,440
Ecosphere Technologies Inc	264,333		1,310
EcoSystem Corporation	922,446		(1,513,603	)
Gammacan International, Inc.	85,000		(17,635	)
Industrial Biotechnology Corporation	2,491		(1,805,369	)
Material Technologies, Inc.	2,728,243		(323,273	)
Magnitude Information Systems, Inc.	697,860		(8,968	)
MM2 Group Inc.	825,852		(19,914	)
Modern Technology Corporation	37,500		(51,193	)
Net Fabric Corporation	305,500		(15,194	)
Protocall Technologies, Inc.	269,230		(5,068	)
SolarBrook Water and Power Corp.	808,529		(75,956	)
TGI Solar Power Group, Inc. (Tenth Gate International, Inc.)	837,400		(22,219	)
US Starcom Inc.	180,000		(7,420	)

Total		($	3,752,177	)

Page 39 of 46

Net realized losses on investments, net of income tax effect, amounted to $1,690,238 for the nine months ended September 30, 2007 and were related to sales as follows:


Company Name	Number of Shares	Realized Gain (Loss)
Advanced Refractive Technologies, Inc.	1,533,333	$	(46,064	)
American Soil Technologies, Inc.	87,855		96
Shumate Industries, Inc.	171,432		127,234
Health Sciences Group, Inc.	3,023,703		(974,894	)
Swiss Medica, Inc.	1,735,000		(181,851	)
Xethanol Corporation	136,838		(378,936	)
Broadcast International, Inc.	312,952		(38,069	)
Rival Technologies, Inc.	120,000		(224	)
Power3 Medical Products, Inc.	221,033		(106,931	)
XELR8 Holdings, Inc.	2,500		1,170
World Energy Solutions, Inc.	19,500		(19,693	)
Manakoa Services Corporation	578,958		(72,076	)

Total		($	1,690,238	)

Net realized gains and losses can vary substantially due to a variety of factors and may not be indicative of future performance. As a result of the uncertainty surrounding the future values of our investments, we are unable to make any projections or estimates regarding realized gains or losses expected in 2008.

Net Change in Unrealized Appreciation or Depreciation on Investments

We estimate the value of each investment in our portfolio on a quarterly basis and changes in value result in unrealized appreciation or depreciation being recognized. 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 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 market in the security. The fair value of these securities is frequently less than the market quotations for such securities. Because there is typically no readily available market value for the investments in our portfolio (other than U.S. Treasuries and certificates of deposit), we value substantially all of our investments at fair value as determined in good faith by the Board of Directors. In making its determination, our Board of Directors may consider valuation appraisals provided by independent valuation service providers. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.


	Three months ended September 30,					Percentage Change		Nine months ended September 30,						Percentage Change
(In thousands, except percentages)	2008			2007				2008			2007
Unrealized appreciation/ (depreciation)	$	(6,542	)	$	230	(2,947	)%	$	(10,589	)	$	(6,792	)	56	%

Overall negative equity market conditions and a weakening U.S. economy have resulted in significant decreases in market prices for some of our portfolio companies. This has resulted in significant unrealized depreciation on many of our investments during the current period. In addition, we recorded a valuation allowance against our deferred tax asset during the third quarter of 2008. A portion of the valuation allowance ($4.8 million) was charged as an expense against the change in unrealized depreciation of investments for the three and nine months ended September 30, 2008. The valuation allowance was recorded as a result of management’s determination that it was more likely than not that our net operating loss carryforwards would not be utilized in the future.

Page 40 of 46

Net change in unrealized appreciation (depreciation) on investments, net of income tax effect, amounted to $(6,541,649) for the three months ended September 30, 2008 and was related to our investments as follows:


Company Name	Net unrealized Appreciation (Depreciation)
Cyberlux Corporation	$	(409,584	)
Oxygen Biotherapeutic		(371,725	)
World Energy Solutions, Inc.		(227,276	)
Advanced Refractive Technologies, Inc.		(216,237	)
MachineTalker		(277,858	)
Cytodyn, Inc		217,172
Effect of recognition of gains/losses		37,408
All other investments		(488,931	)
Deferred tax asset valuation allowance		(4,804,618	)

	$	(6,541,649	)

Net change in unrealized appreciation (depreciation) on investments, net of income tax effect, amounted to $229,749 or the three months ended September 30, 2007 and was related to our investments as follows:


Company Name	Net Unrealized Appreciation (Depreciation)
Material Technologies, Inc.	$	772,265
Klegg Electronics, Inc.		(538,315	)
Mimedx, Inc.		523,908
USTelematics, Inc.		427,110
Advanced Refractive Technologies, Inc.		(436,466	)
All other investments		(518,753	)

	$	229,749

Net change in unrealized appreciation (depreciation) on investments, net of income tax effect, amounted to $(10,589,276) for the nine months ended September 30, 2008 and was related to our investments as follows:


Company Name	Net Unrealized Appreciation (Depreciation)
Advanced Refractive Technologies, Inc.	$	(648,274	)
Cyberlux Corporation		(746,094	)
Emission & Power Solutions, Inc.		(969,603	)
Material Technologies, Inc.		(2,575,969	)
Manakoa Services Corporation		(510,498	)
Pathway One Plc		(448,753	)
RIM Semiconductor Company		(1,117,982	)
World Energy Solutions		(1,036,651	)
Effect of recognition of gains/losses		2,824,709
All other investments		(555,543	)
Deferred tax valuation allowance		(4,804,618	)

	$	(10,589,276	)

Page 41 of 46

Net change in unrealized appreciation (depreciation) on investments, net of income tax effect, amounted to $(6,792,496) for the nine months ended September 30, 2007 and was related to our investments as follows:


Company Name	Net unrealized Appreciation (Depreciation)
Advanced Refractive Technologies, Inc.	$	(826,717	)
American Soil Technologies, Inc.		(664,320	)
vidShadow, Inc.		(827,789	)
Klegg Electronics, Inc.		(2,741,099	)
Industrial Biotechnology Corporation		(1,242,660	)
Emission & Power Supply, Inc.		(766,589	)
Mimedx, Inc.		523,908
Material Technologies, Inc.		1,164,448
Manakoa Services Corporation		(876,141	)
Cytodyn, Inc.		(658,316	)
All other investments		122,779

	$	(6,792,496	)

Liquidity and Capital Resources

At September 30, 2008, we had cash and cash equivalents of $5.6 million. We also had investments in U.S. Treasuries and certificates of deposit (CDs) of $3.2 million. We typically invest our excess cash in U.S. Treasuries and CDs, which normally have three-month to one-year maturities. These investments do not qualify as cash equivalents.

In prior years, we had financed substantially all of our operations through the issuance of equity securities and, to a lesser extent, sales of investments, cash received in connection with the provision of technology acquisition alliance and other consulting services and the use of funds from our investments in U.S. Treasuries and certificates of deposit. Our primary sources of liquidity and capital for the nine months ended September 30, 2008 were $10.0 million received in connection with consulting operations, $2.0 million received from the repayment of our loan receivable from UTEK Real Estate Holdings, Inc., $1.9 million in proceeds generated from the sale of shares of our portfolio companies and $190,000 in proceeds from the exercise of stock options.

A portion of our income from operations consists of the sale of technology rights and consulting income from technology acquisition alliances in exchange for equity securities rather than cash. In the nine months ended September 30, 2008, 30% of our income from operations was paid in the form of equity securities. Of the $15.7 million in income from operations in the nine months ended September 30, 2008, $11.0 million was received in the form of cash. During the nine months ended September 30, 2008, we used approximately $1.8 million to fund our technology transfer transactions and approximately $15.7 million for operating expenses. Looking forward to the rest of 2008, we expect that our cash generating operations and operating expenses will both increase as a result of our acquisitions. We expect our cash outflow for technology transfer transactions will be scaled to available cash.

During 2008, we acquired $749,000 in cash in connection with our acquisitions. A substantial portion of this cash was invested in certificates of deposit.

In May 2008, we obtained a $1,000,000 line of credit with the Bank of Tampa. The advances on the line of credit accrue interest (payable monthly) at prime (5% as of September 30, 2008). The principal and any unpaid interest are due upon demand. This line is collateralized with commercial real estate owned by UTEK Real Estate Holdings, Inc. At September 30, 2008, we had no long-term debt outstanding.

We currently intend to fund our capital expenditures and liquidity needs with existing cash and cash equivalent balances, our investments in U.S. Treasuries and certificates of deposit, as well as with cash generated by operations and the sales of our investments. We believe that these sources will be sufficient to meet working capital needs, capital requirements, and current commitments for at least the next twelve months. However, our capital requirements will depend on many factors, the most important factor is our sales of technology rights. In addition, the sale of our investments is dependent on market price, which is unpredictable. We may need to scale the number of sales of technology rights to available cash resources in the near term. In addition, we may seek to raise additional funds through public or private debt or equity financing for long-term liquidity. Additional funds may not be available on favorable terms to us, if at all.

Page 42 of 46

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Critical accounting estimates 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. We consider the following accounting policies and related estimates to be critical:

Valuation Methodology

Currently, we primarily receive cash in connection with our technology acquisition alliance agreements and illiquid securities in connection with our technology transfers. Historically, we primarily received illiquid securities in connection with both our technology acquisition alliance agreements and technology transfers. The securities received are generally subject to restrictions on resale and generally are thinly traded or have no established market.

We estimate 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 process is intended to provide a consistent basis for determining the fair value of our portfolio investments. We record unrealized depreciation on investments when we believe that an investment has become impaired, including where realization of an equity security is doubtful. We 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. Upon the sale of our investments, the values that are ultimately realized may be different from the presently determined fair values of such securities. This difference could be material.

We adopted SFAS 157 on a prospective basis in the first quarter of 2008. SFAS 157 requires us to assume that the portfolio investment is to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with SFAS 157, we have considered our principal market, or the market in which we exit our portfolio investments with the greatest volume and level of activity.

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.

The fair value of our investments at September 30, 2008 and December 31, 2007 was determined by our Board of Directors. At September 30, 2008 and December 31, 2007, we received valuation assistance from our independent valuation firm, Klaris, Thomson & Schroeder, Inc., on our entire portfolio of investments for which market quotations were not available.

Net Realized Gains/Losses and Net Change in Unrealized Appreciation/Depreciation

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the original cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized. The original cost basis of the securities we receive in connection with our technology acquisition alliance agreements and technology transfers is equal to the amount of revenue we recognized upon the receipt of such securities.

Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Stock-Based Compensation

We account for stock option grants in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R),Share-Based Payment. Under the modified prospective approach of SFAS 123(R), compensation cost recognized during the nine months ended September 30, 2008 and 2007 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

Page 43 of 46

We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant, using assumptions for volatility, expected term, risk-free interest rate and dividend yield. We have used one grouping for the assumptions as our option grants are primarily basic with similar characteristics. The expected term of options granted is based upon our historical term of options exercised. Historical data was used to estimate option exercises and employee terminations. Estimated volatility is based upon our historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and the dividend yield is based on the historical dividend yield.

Recently Issued Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 requires additional disclosures related to the use of derivative instruments, the accounting for derivatives and the financial statement impact of derivatives. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 will not have an impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,Determination of the Useful Life of Intangible Assets.FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142,Goodwill and Other Intangible Assets.FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risks

There has been no material change in the quantitative and qualitative disclosures about market risk since December 31, 2007.

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, our principal executive officer and principal financial officer conducted an evaluation of the effectiveness of the design and operations of the Company’s disclosure controls and procedures, (as is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and such that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule13a-15(f) of the Securities Exchange Act of 1934) that occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Page 44 of 46

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

Although we may from time to time be involved in litigation and claims arising out of our operations in the normal course of our business, as of September 30, 2008, we were not a party to any material pending legal proceedings.

ITEM 1A.

Risk Factors

There have been no material changes to the risk factors previously disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2007.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

ITEM 3.

Defaults Upon Senior Securities

Not Applicable

ITEM 4.

Submission of Matters to a Vote of Security Holders

Not Applicable

ITEM 5.

Other Information

Not Applicable

ITEM 6.

Exhibits

The following exhibits are filed with this report on Form 10-Q:


31.1	—	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2	—	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) 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.

Page 45 of 46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		UTEK CORPORATION
		(Registrant)

Date: November 7, 2008		/s/ Clifford M. Gross
		Clifford M. Gross, Ph.D.
		Chairman and Chief Executive Officer

Date: November 7, 2008		/s/ Carole R. Wright
		Carole R. Wright, CPA
		Chief Financial Officer

Page 46 of 46

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company