Item 1. Business
General
UTEK Corporation, a Delaware corporation, is a non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”). As a BDC, UTEK Corporation, referred to as the “Company” or “we”, must be primarily engaged in the business of furnishing capital and making available significant managerial assistance to companies that do not have ready access to capital through conventional financial channels. Such companies are termed “portfolio” companies.
The Company commenced operations in 1997 as UTEK Corporation (“UTEK Florida”), which was incorporated under the laws of the State of Florida in August 1996. UTEK Florida was engaged in the business of technology transfer. On December 31, 1998, we formed UTEK, LLC, a limited liability company organized under the laws of the State of Florida. Subsequent thereto, the shareholders of UTEK Florida exchanged their shares of common stock for membership units in UTEK, LLC. In July 1999, we formed UTEK Corporation under the laws of the State of Delaware and in October 1999, UTEK LLC was merged into UTEK Corporation. Prior to and since our election to operate as a BDC, we have been engaged in the business of technology transfer.
Recent Developments
In September 2001, the Company acquired 100% of PAX Technology Transfer Ltd., a United Kingdom corporation, in a stock for stock transaction. PAX has provided technology transfer services for more than 20 years.
We may seek to make additional acquisitions of technology transfer entities in the future. In considering whether to purchase a technology transfer company, we evaluate a number of factors including purchase price, strong ties and relationships with universities and research centers, intellectual property rights to significant technologies, and equity ownership in portfolio companies which possess significant opportunity for growth.
Strategies
Our primary investment objective is to increase our net assets by exchanging stock in our portfolio companies for cash and other assets we will use to acquire additional technologies. We seek to achieve our investment objective by developing our portfolio companies that identify, license and market new technologies invented primarily by employees of universities and laboratories. We intend to merge our portfolio companies principally into private and publicly traded companies in tax free stock for stock exchanges. Shares received in those exchanges will, in the course of our business, be converted to cash and other assets to permit us to invest in additional portfolio companies. As of December 31, 2001, we have completed fifteen transactions, including fourteen mergers and one stock sale.
As a BDC, we generally may change our non-fundamental investment objectives and policies without stockholder approval but we require stockholder approval to change our fundamental investment objectives. We do not have a registered investment adviser and our management, under the supervision of our Board of Directors, makes our management decisions.
Since our election to operate as a BDC, we have concentrated our efforts on making controlling equity investments in portfolio companies in private transactions. Our investments consist of funding to be used to identify, research and market new technologies and for the acquisition of licenses to those new technologies and, when appropriate, the support of sponsored research programs to further the development of licensed technology. In return for our investments, we principally receive common stock in our portfolio companies. We also provide these portfolio companies with significant managerial assistance, which includes, among other things, having one or more members of our management serve as directors and officers of our portfolio companies. After we have made an investment, we help our portfolio companies by researching, identifying and developing new technologies and markets. We also assist them in acquiring the licenses to new
technologies developed at universities and research laboratories. Our management provides portfolio companies with significant assistance in locating and acquiring these technologies and markets for them. We then find merger partners for our portfolio companies that will acquire the portfolio company from us in exchange for cash and other assets.
Our investments are concentrated in small or development stage companies that license and develop new technologies for commercial applications. Moreover, our investments in portfolio companies may be concentrated in one or more industries. In this event, we will not obtain any advantages that may result from diversifying our portfolio company investments among more industries. We do not contemplate permitting our portfolio companies to expend significant sums of money on a new venture, which cannot be recovered in due course, absent the execution of letters of intent or definitive merger agreements for the resale of the technology or the merger of the portfolio company. However, we intend to make initial investments in our portfolio companies in amounts sufficient to permit them to conduct initial research, acquire technology licenses and, in some cases, to fund additional development of new technologies and markets. Since all of our portfolio companies are early stage companies, our portfolio company investments do not benefit from any diversification of risk that may result from spreading investments among companies at various stages of development. Furthermore, a portfolio company may spend all of the money that we have invested without finding, acquiring or locating a new technology or suitable market for a new technology, in which case we would likely lose our entire investment in the portfolio company.
We intend to take advantage of our experience in the field of technology transfer to maximize the return on our investments in portfolio companies. Technology transfer refers to the process by which new technologies, developed in universities, government research facilities, or similar research settings, are licensed to companies for commercial development and use. Our management and certain members of our Board of Directors have experience in technology transfer. Our investments in our portfolio companies are structured, through our U2B® investment model, to allow us to take advantage of our management’s expertise and to give us control of the portfolio company. In addition, we intend to capitalize on relationships that members of our management and Board of Directors have developed with universities and government research laboratories.
To facilitate establishing on-going consulting engagements with its clients, the Company has developed a strategic alliance process. UTEK’s strategic alliances are designed to help technology companies enhance their new product pipeline through the acquisition of proprietary intellectual capital from universities and federal laboratories.
UTEK normally receives unregistered common stock from its clients as payment for strategic alliance consulting engagements.
Subject to limitations imposed by the 1940 Act, our investment objectives, policies and investment diversification status may change at any time and from time to time without stockholder approval.
We anticipate that a substantial portion of our investment opportunities will be presented to us as a result of management’s contacts with universities, research laboratories and in private industry.
Our Investment Model
Our investments in portfolio companies generally follow a specific series of steps, which our management believes provide the greatest opportunity for long term appreciation of our assets. As our investments are designed to bring and develop technologies from their inception at universities to the private sector, we refer to our investment model as “U2B”®. Using our U2B® investment model, we intend to acquire securities in portfolio companies and eventually exchange those securities for securities in companies that acquire our portfolio companies. The following is a list of the steps that we generally take when we make an investment in a portfolio company using our investment model:
	1. Evaluate potential technology growth 	fields. 	
	2. Form and make a controlling equity 	investment in the portfolio company. 	
	3. Assist the portfolio company in the 	identification and evaluation of new technologies and markets 	that offer the portfolio company a significant opportunity for 	growth. 	
	4. When appropriate, advise and assist the 	portfolio company in negotiating a sponsored research agreement 	to further develop the technology. 	
	5. Identify and contact potential 	“merger partners” to merge with the portfolio company. 	
	6. Advise and assist the portfolio company 	in completing the technology transfer with the research 	institution and acquiring the license to the technology. 	
	7. Complete the sale of the portfolio 	company to the “merger partners” and receive 	compensation for the sale of all the stock we hold in the 	portfolio company. 	
	8. Sell any securities received in exchange 	for the portfolio company and use the proceeds to make 	additional investments. 	
Investment Evaluation Process
New technology opportunities may come to our attention from many sources. The primary sources to date have been from our management’s contacts with universities and the private sector. We believe that the ability of our management to maintain and develop relationships with university and research laboratories is a key factor in our ability to identify new potential investment opportunities.
Prior to the Company committing funds to an investment opportunity, we will assist the portfolio company by conducting research regarding the prospects and risks of the potential investment. Our Scientific Advisory Council (discussed below) and management’s experience is helpful in evaluating:
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new technologies, 	
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products, 	
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markets, 	
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industry trends, 	
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financial requirements, 	
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competition, and 	
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the operating record and quality of the 	entrepreneurial group associated with a prospective investment. 	
Although our management has scientific and professional experience, they may have limited or no experience in the specific areas of business in which potential merger candidates are engaged.
Strategic Alliances
To facilitate establishing on-going consulting engagements with its clients, the Company has developed a strategic alliance process. UTEK’s strategic alliances are designed to help technology companies rapidly enhance their new product pipeline through the acquisition of proprietary intellectual capital from universities and federal laboratories.
This process usually includes performing the following activities:
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Constructing a technology acquisition profile 	that is approved by the client. 	
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Acquiring and reviewing new technology 	acquisition opportunities from leading university and federal 	laboratory research centers that potentially meet this profile. 	
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When a client has expressed an interest in 	learning more about a specific technology acquisition 	opportunity, UTEK will acquire additional information about the 	technology and share it with the client. 	
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At our client’s request, UTEK will negotiate 	licenses to acquire technologies. 	
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On a case-by-case basis, when both UTEK and our 	client agree to move forward to acquire a specific technology, 	UTEK will propose an equity-financing plan for the technology 	acquisition. Alternatively, our clients may acquire UTEK 	introduced technology directly from the research institutions. 	
Investments in Portfolio Companies
Our initial investments will be made in transactions that will normally be negotiated directly by our management, with the portfolio company or an affiliate of the portfolio company. In all prior and most future instances, we have formed or will form our portfolio companies as subsidiaries. Our management will seek to structure the terms of the investment so as to provide for the capital needs and success of the portfolio company and at the same time to maximize our opportunity for long-term capital appreciation.
We intend to limit our total cash investments in any individual portfolio company to the lesser of $500,000 or an amount equal to ten percent of our net assets at the time of investment. To date, our initial investments in portfolio companies have been significantly less than $500,000. By limiting the size of our total investment in any one portfolio company, we hope to reduce and diversify our risks. In exchange for our investment, we will receive such number of shares of common stock in the portfolio company to give us a controlling interest. To date, all of our portfolio company securities have been common stock, and we anticipate that we will continue to acquire common stock in portfolio companies. Use of the funds that we provide to portfolio companies will be restricted to obtaining licenses to new technologies and developing and marketing those technologies. Our management’s involvement with the portfolio companies will primarily be directed towards helping them acquire technology licenses and, when appropriate, establishing sponsored research programs to further develop the technology. We then plan to sell our portfolio investments to public and private companies.
Identifying New Technologies
We have developed relationships with a number of universities and research centers in the United States and Europe. In order to provide us early access to new technologies, or to acquire or develop specific technologies, we have entered into alliances, licensing, license option agreements and/or sponsored research agreements with the following institutions:
Agreement with the University of South Florida
In January 1998, we entered into an agreement with the University of South Florida pursuant to which we have agreed to review and evaluate the commercial potential of certain new technologies developed at the university that are presented to us. In return, we have the ability, if we and the university deem it appropriate, to enter into license option agreements with the university providing us with the exclusive right to seek a licensee or other commercial opportunity for the technology, provided mutually agreeable terms are reached, for a limited period of time. We have reviewed and negotiated licenses with the University of South Florida on the following technologies:
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a new diagnostic test for colon, testicular and 	ovarian cancer, 	
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a new software technology for digitally coloring 	MRIs to facilitate their reading and the rendering of diagnoses, 	and 	
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a new technique to identify cryptosporidium (a 	water-borne parasite) in water. 	
The term of the original agreement was for three years. On February 15, 2001, the agreement was extended for an additional three years, but may be terminated by either party on 60 days written notice.
Agreement with the University of Memphis
In May 1998, we entered into an agreement with the University of Memphis pursuant to which we have agreed to evaluate the commercial potential of select technologies developed at the university that are presented to us for review. The university has agreed that upon our request, it will file patents to protect technologies that we wish to have protected. In addition, under the agreement, the university may grant to us
license option agreements which will give us the exclusive rights to license a particular technology, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with Johns Hopkins University
In June 1999, we entered into an agreement with Johns Hopkins University pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at the university that are presented to us for review. The university has agreed that upon our request, it will file patents to protect technologies that we wish to have protected. In addition, under the agreement, the university may grant to us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with the University of Florida
In October 1999, we entered into an agreement with the University of Florida pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at the university that are presented to us for evaluation. Under the agreement, the university may grant us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with Fraunhofer Institute of Germany for Interfacial Engineering and Biotechnology IGB
In November 1999, we entered into a strategic alliance with Fraunhofer Institute pursuant to which we have agreed to review certain technologies developed at Fraunhofer to gauge the potential for successful commercialization in the United States. Pursuant to the agreement, Fraunhofer may grant to us a 12-month, exclusive, royalty-free license option for the technologies reviewed, if we so request. We may then license these technologies, provided mutually agreeable terms are reached.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with Virginia Tech Intellectual Properties
In December 1999, we entered into an agreement with Virginia Tech Intellectual Properties pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at Virginia Tech Intellectual Properties that are presented to us for evaluation. Under the agreement, Virginia Tech Intellectual Properties may grant us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years, but may be terminated by either party on 30 days written notice.
Agreement with Florida State University Research Foundation
In December 1999, we entered into an agreement with Florida State University Research Foundation to review certain technologies developed at the Research Foundation to gauge their potential for successful commercialization. Under the agreement, the Research Foundation may grant us a 12-month exclusive, royalty-free license option agreement for these technologies. We may then license these technologies, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years but may be terminated by either party on 60 days written notice.
Agreement with Florida Institute of Technology
In March 2000, we entered into an agreement with Florida Institute of Technology to review certain technologies developed at Florida Institute of Technology to gauge their potential for successful commercialization. Under the agreement, Florida Institute of Technology may grant us a 12-month exclusive, royalty-free license option agreement for these technologies. We may then license these technologies, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years but may be terminated by either party on 60 days written notice.
Agreement with Sopartec
In May 2000, we entered into an agreement with Sopartec of Louvain-la-Neuve, to review certain technologies developed at the Universite Catholique de Louvain, a university located in Belgium, to gauge their potential for successful commercialization in the United States. Under the agreement, either the Universite or Sopartec may grant us exclusive 12-month options to license certain technologies, provided mutually agreeable terms are reached.
The term of the agreement is for five years but may be terminated by either party on 60 days written notice.
Agreement with Auburn University
In June 2000, we entered into an agreement with Auburn University to review certain technologies developed at Auburn to gauge their potential for successful commercialization. Under the agreement, Auburn may grant us an exclusive, 12-month royalty-free license option agreement for these technologies.
The term of the agreement is five years but may be terminated by either party on 60 days written notice.
Agreement with California Institute of Technology
In March 2000, we entered into a license agreement with California Institute of Technology (also known as Caltech) for their new software technology designed to produce human likenesses that should be able to simulate conversations for e-commerce applications. We merged our portfolio company Digital Personnel, Inc., which held this license, with Graphco Technologies Inc. in March 2000. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with Dartmouth College
In December 2000, we entered into an agreement with Dartmouth College to review its selected intellectual properties and/ or new invention disclosures to gauge their potential for successful commercialization. Under the agreement, Dartmouth College may grant us a 12-month exclusive, royalty-free license option agreement for these technologies.
The term of the agreement is for five years but may be terminated by either party on 60 days written notice.
In addition, we have acquired two licenses to a new deicing technology developed at Dartmouth College. We merged our portfolio companies Ice Surface Development, Inc. and Technology Development, Inc., which held these licenses in November 2000 and February 2001, respectively. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with Cornell University
In May 1999, we entered into a license agreement with Cornell University for their carbon fiber reinforcing bar technology. In addition, we funded a sponsored research project at Cornell to further test the technology. We merged our portfolio company Advanced Reinforcing Sciences, Inc., which held this license,
with NuBar, Inc in May 1999. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with Florida International University
In August 2001, we entered into an agreement with Florida International University to review certain technologies developed at Florida International University to gauge their potential for successful commercialization. Under the agreement, the Florida International University may grant us a 12-month exclusive, royalty-free license option agreement for these technologies. We may the license these technologies, provided mutually agreeable terms are reached, for a period of 12 months.
The term of the agreement is five years, but may be terminated by either party on 30 days written notice.
Agreement with Rutgers University
In December 2001, we entered into an agreement with Rutgers University pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at the university that are presented to us for evaluation. The university has agreed that upon our request, it will file patents to protect technologies that we wish to have protected. In addition, under the agreement, the university may grant to us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached, for a period of 3 months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with University of Akron
In August 2001, we entered into an agreement with the University of Akron pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at the university that are presented to us for evaluation. The university has agreed that upon our request, it will file patents to protect technologies that we wish to have protected. In addition, under the agreement, the university may grant to us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached, for a period of 6 months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with University of Hawaii
In May 2001, we entered into an agreement with the University of Hawaii pursuant to which we have agreed to evaluate the commercial potential of certain technologies developed at the university that are presented to us for evaluation. The university has agreed that upon our request, it will file patents to protect technologies that we wish to have protected. In addition, under the agreement, the university may grant to us license option agreements which will give us the exclusive rights to license the technology, provided mutually agreeable terms are reached.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with University of Maryland
In January 2000, we entered into a license agreement with the University of Maryland for a lung cancer diagnostic technology. In addition, we funded a sponsored research project at the university to further test the technology. We sold our portfolio company Cancer Diagnostics, Inc., which held this license, to Lexon, Inc. in January 2000. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with University of Missouri
In September 2001, we entered into a license agreement with the University of Missouri for a new technology, which allows for the encapsulation of a variety of substances at low temperatures. We merged our
portfolio company Advanced Microsphere Technology, Inc., which contained this license, with Prime Pharmaceutical Corporation in September 2001. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with University of Miami
In April 2001, we entered into an agreement with the University of Miami to review certain technologies developed at the University of Miami to gauge their potential for successful commercialization. Under the agreement, the University of Miami may grant us a 9-month exclusive, royalty-free license option agreement for these technologies. We may the license these technologies, provided mutually agreeable terms are reached, for a period of 9-months.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
In addition, in April 2001, we entered into a license agreement with the University of Miami for a new technology for masking an Auxiliary Channel in the phase of Spectrum of Stereo Audio. We merged our portfolio company Watermark Technologies, Inc., which held this license, with Bitzmart, Inc. in April 2001. For a detailed discussion of this transaction, see “Business - Identifying Acquisition Candidates”.
Agreement with University of South Alabama
In May 2000, we entered into a license agreement with the University of South Alabama to acquire a process for converting crumb rubber into commodity chemicals. We sold our Advanced Recycling Sciences portfolio company, which held this license, to the Quantum Group, Inc in May 2000. Subsequently, the Quantum Group changed their name to Advanced Recycling Sciences, Inc.
Agreement with University of Warwick
In January 2002, we entered into an agreement with the University of Warwick, a university located in England, to review certain technologies developed at the University of Warwick to gauge their potential for successful commercialization. Under the agreement, the University of Warwick may grant us a 90-day exclusive, royalty-free license option agreement for these technologies. We may the license these technologies, provided mutually agreeable terms are reached, for a period of 90-days.
The term of the agreement is five years, but may be terminated by either party on 60 days written notice.
Agreement with University of West Florida
In March 2001, we entered into an agreement with the University of West Florida to review certain technologies developed at the University of West Florida to gauge their potential for successful commercialization. Under the agreement, the University of West Florida may grant us a 12-month exclusive, royalty-free license option agreement for these technologies. We may the license these technologies, provided mutually agreeable terms are reached, for a period of 12-months.
The term of the agreement is five years, but may be terminated by either party on 30 days written notice.
Evaluation and Acquisition of Technology
With few exceptions, all technologies developed by university faculty are the property of the universities and are licensed by the university’s research foundations or similar organizations to our portfolio companies for commercialization. To help facilitate the identification of and access to new technology, we have created a Scientific Advisory Council to review technologies developed at universities and laboratories.
When we assist a portfolio company to evaluate a new technology, we review the technology to make sure that it meets three criteria:
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the technology should represent a significant 	advance over existing technologies; 	
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there should be an existing global market for the 	technology once it is commercialized; and 	
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the technology should be socially responsible 	(i.e., not intended for destructive or harmful purposes). 	
If, in our management’s view, a technology meets these criteria, then we will assist the portfolio company in commencing negotiations with the technology developer to arrange for a license. Normally, we seek to acquire on behalf of our portfolio companies a worldwide exclusive license for the field of use beneficial to acquirers of our portfolio companies. These licenses usually have an upfront fee, royalty provision, and minimum annual royalties. Pursuant to the terms of our license agreements, all rights to royalties remain with the university or research institute that grants the license. The term for most agreements is for the life of the intellectual property underlying the license. Our management will review license agreements and advise portfolio companies as to license terms and requirements. In addition, when we require assistance in evaluating a technology, our management will have the technology reviewed by members of our Scientific Advisory Council or other individuals we may deem appropriate.
Scientific Advisory Council
Dr. Uwe Reischl, our president, serves as the executive director of the Scientific Advisory Council. During 2001 our Scientific Advisory Council consisted of the following members:
The Company had established a European Advisory Council for the purpose of developing business in Europe. Following the acquisition of PAX Technology Transfer, Ltd., as the base of our European operations, the Company dissolved the European Advisory Council in February 2002 as it had achieved its purpose.
Portfolio Companies
As of the date of this report, each of our investments in our portfolio companies was for amounts of less than 5% of our total assets. We have controlling interests in each of our portfolio companies and members of our management also serve as officers and directors of each portfolio company. The principal place of business of each portfolio company is located at our executive offices at 202 South Wheeler Street, Plant City, Florida. In addition to our investment, we provide portfolio companies with managerial assistance in completing technology transfers. We have not made loans to any of our portfolio companies. The following is a list of our portfolio companies as of December 31, 2001, with a brief description of their business:
	Ocular Technologies, Inc. 	(formerly Advanced Desalination 	Technologies, Inc.) is a development stage company that is 	seeking to acquire medical diagnostic technologies. We own 100% 	of the common stock of Ocular Technologies, Inc. We have 	invested $300 in Ocular Technologies, Inc. as of 	December 31, 2001. Dr. Uwe Reischl, our president, is 	the sole director and president of Ocular Technologies, Inc. 	
	UTEK Real Estate Holdings, Inc. 	(formerly Doppler Tomography 	International, Inc.) is a development stage company that is 	to hold future real estate assets for the Company. The Company, 	through UTEK Real Estate Holdings, Inc., may purchase an office 	facility for its principal executive office and/or for 	investment. We own 100% of the common stock of UTEK Real Estate 	Holdings, Inc. We have invested $900 in UTEK Real Estate 	Holdings, Inc. as of December 31, 2001. Sam Reiber, our 	vice president and general counsel, is the sole director and 	president of UTEK Real Estate Holdings, Inc. 	
	Advanced Sensor Technologies, Inc. 	(formerly Composite Springs 	Technologies, Inc.) is a development stage company that is 	currently seeking to acquire licenses to new nano science 	technologies. We own 100% of the common stock of Advanced Sensor 	Technologies, Inc. We have invested $1,002 in Advanced Sensor 	Technologies, Inc. as of December 31, 2001. Dr. Uwe 	Reischl, our president, is the sole director and president of 	Advanced Sensor Technologies, Inc. 	
	Fiber-Gel Technologies, 	Inc. (formerly Universal Key Pad, 	Inc.) is a development stage company that is seeking to 	acquire licenses to new food science technologies. We own 100% 	of the common stock of Fiber-Gel Technologies, Inc. We have 	invested $400 in Fiber-Gel Technologies, Inc. as of 	December 31, 2001. Dr. Uwe Reischl, our president, is 	the sole director and president of Fiber-Gel Technologies, Inc. 	
All of the foregoing portfolio companies are privately held and their shares have been valued in good faith by our Board of Directors in lieu of a readily ascertainable market value.
Identifying Acquisition Candidates
In order to realize a return on our investments in our portfolio companies, we must sell our portfolio companies or the technology and development rights they hold. Based on current federal tax law and industry conditions, it is our policy to sell our portfolio companies to acquirers in merger transactions where we receive shares in the acquiring company in a federal tax-free exchange for all of our shares in our portfolio company. In this manner, all rights to technologies held by our portfolio company transfer to the acquirer, and the acquirer assumes all obligations under the license agreement and sponsored research agreement if present. Our merger transactions to date have been with both public companies and private companies whose common stock is not publicly traded. As a result of merger transactions, the Company holds shares in public companies, including Lexon, Inc., Advanced Recycling Sciences, Inc., NuElectric Corporation., Torvec, Inc., Sense Holdings, Inc. and Centrex Inc. As of December 31, 2001, all of the securities that we have received in exchange for our portfolio companies are “restricted securities,” as that term is defined under Rule 144. These securities may not be sold in the absence of registration under the Securities Act of 1933 or an exemption therefrom. As a result, our ability to sell or otherwise transfer the securities we hold will be limited.
Our management and staff have primary responsibility for locating suitable merger partners.
Technology transfer transactions that we have completed include the following:
Gentest, Inc./Lexon, Inc.
In May 1998, Gentest, Inc. a portfolio company, merged with Lexon, Inc., a development stage Oklahoma corporation. In connection with the merger, we received 1,000,000 unregistered shares of Lexon common stock and Lexon acquired ownership of Gentest, Inc., which had acquired the exclusive license to develop, manufacture and market a blood test that will potentially allow for the early screening of colon cancer and certain types of ovarian and testicular cancers. Lexon is developing this blood test for general laboratory use. The prototype blood test kit requires additional evaluation and testing and cannot be sold in the United States. The blood test kit requires FDA approval before it can be sold in the United States. Lexon is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol LXXN. As of December 31, 2001, we owned 236,000 shares of Lexon common stock, which represents approximately 1.5% of the issued and outstanding common stock of Lexon as of December 31, 2001.
Image Analysis Corporation/Image Analysis, Inc.
In January 1999, Image Analysis Corporation, a portfolio company, merged with Image Analysis, Inc., a development stage Oklahoma corporation. In connection with the merger, we received 879,300 unregistered shares of common stock of Image Analysis, Inc. As a result of the merger, Image Analysis, Inc. holds the exclusive license, patented in the United States and other countries, to a new technology for producing color magnetic resonance images, or MRI, from existing MRI scanners. Image Analysis, Inc. is currently funding research and development of this new technology. The research is being conducted at Brenau University in Georgia under the direction of Dr. Keith Brown, the inventor of the technology. Image Analysis, Inc. is a privately held company. As of December 31, 2001, we owned 879,300 shares of common stock of Image Analysis, Inc., which represents approximately 11.2% of the issued and outstanding common stock of Image Analysis, Inc. as of December 31, 2001.
E. Coli Measurement Systems, Inc./Centrex, Inc.
In May 1999, E. Coli Measurement Systems, Inc., a portfolio company, merged with Centrex, Inc., a development stage Oklahoma corporation. In connection with the merger, we received 900,000 unregistered shares of Centrex, Inc. common stock. As a result of this acquisition Centrex has acquired the exclusive license to a new technology for the detection of E. Coli bacteria in food and water. In July 1999, E. Coli Measurement Systems, Inc. entered into a licensing and sponsored research agreement with the University of
California regarding an E. Coli detection technology. The technology was developed at the Los Alamos National Laboratory and may be useful for the rapid detection of E. Coli in food and water. Centrex, Inc. is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol CNEX. As a result of two transactions with Centrex, Inc., we owned 1,584,000 shares of Centrex common stock at December 31, 2001, which represents approximately 12.8% of the issued and outstanding common stock of Centrex as of December 31, 2001.
Advanced Reinforcing Technologies, Inc./Nubar, Inc.
In May 1999, Advanced Reinforcing Technologies, Inc., a portfolio company, merged with Nubar, Inc., a development stage Oklahoma corporation (formerly Nucor Enterprises, Inc.). In connection with the merger, we received 900,000 unregistered shares of common stock of Nubar, Inc. Nubar, Inc. is involved with the development of new materials for rebuilding and enhancing the infrastructure of roads and bridges. Pursuant to the merger, Nubar, Inc. acquired the exclusive license for a new carbon fiber composite rebar building technology developed at Cornell University. In addition, Advanced Reinforcing Technologies established a sponsored research program for further development of its technology. Nubar, Inc. is a privately held company. As of December 31, 2001, we owned 900,000 shares of common stock of Nubar, Inc., which represents approximately 12.9% of the issued and outstanding common stock of Nubar, Inc. as of December 31, 2001.
Clean Water Technologies, Inc./NuElectric Corporation.
In June 1999, our portfolio company Clean Water Technologies, Inc., merged with NuElectric Inc., a development stage Delaware corporation. NuElectric is in the business of acquiring, developing and marketing new technologies for conserving energy and protecting the environment. In connection with the merger, we received 791,957 unregistered shares of NuElectric common stock. As a result of the merger, NuElectric acquired the exclusive license to a new technology for removing arsenic from water. As of December 31, 2001, we owned 1,037,957 shares of NuElectric common stock, which represents approximately 22.0% of the issued and outstanding common stock of NuElectric as of December 31, 2001.
Safe Water Technologies, Inc./Centrex, Inc.
In September 1999, Safe Water Technologies, Inc., a portfolio company, merged with Centrex, Inc., a development stage Oklahoma corporation. In connection with the merger, we received 684,000 unregistered shares of Centrex, Inc. common stock. As a result of the merger, Centrex holds an exclusive license to a new technology developed at the University of South Florida for the automated detection of Cryptosporidium and Giardia in water. Centrex, Inc. is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol CNEX. As a result of two transactions, we owned 1,584,000 shares of Centrex common stock at December 31, 2001, which represents approximately 12.8% of the issued and outstanding common stock of Centrex as of December 31, 2001.
Cancer Diagnostics, Inc./Lexon, Inc.
In January 2000, Lexon, Inc. purchased all of the issued and outstanding stock of Cancer Diagnostics, Inc., one of our portfolio companies, for $200,000. Under the terms of the stock purchase agreement, we have received $170,000 from Lexon, Inc. However, Lexon, Inc. was not able to pay us the remaining balance as required by the stock purchase agreement. We received 236,000 shares of Lexon, Inc. common stock for payment in full of the outstanding balance plus interest in 2001.
Digital Personnel, Inc./Graphco-DPI Holding Company
In March 2000, Digital Personnel, Inc., a portfolio company, merged with Graphco-DPI Holding Company, a wholly-owned subsidiary of Graphco Technologies, Inc., a development stage New Jersey corporation. In connection with the merger, we received 100,799 unregistered shares of common stock of Graphco Technologies, Inc. Graphco Technologies, Inc. is involved with the development of personal
identification technology and software solutions for computer aided maintenance and support. As a result of the merger, Graphco Technologies, Inc. acquired the exclusive worldwide license to technology for new software designed to produce human likenesses that should be able to simulate conversation for e-commerce applications. Graphco Technologies, Inc. is a privately held company. As of December 31, 2001, we owned 100,799 shares of common stock of Graphco Technologies, Inc., which represents approximately 0.6% of the issued and outstanding common stock of Graphco Technologies, Inc. as of December 31, 2001.
Advanced Recycling Sciences, Inc./Advanced 	Recycling Sciences, Inc. (formerly The Quantum Group, 	Inc.)
In June 2000, Advanced Recycling Sciences, Inc., a portfolio company, merged with Advanced Recycling Sciences, Inc., a development stage Nevada corporation. In connection with the merger, we received 931,000 unregistered shares of common stock of Advanced Recycling Sciences, Inc. Advanced Recycling Sciences, Inc. is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol ARYC. Advanced Recycling Sciences, Inc. provides technology for recycling vehicular tires. As a result of the merger, Advanced Recycling Sciences, Inc. acquired the worldwide license to a technology for a method of reclamation of scrap-vulcanized rubber using supercritical fluids. As of December 31, 2001, we owned 2,326,153 shares of common stock of Advanced Recycling Sciences, Inc., which represents approximately 14.1% of the total issued and outstanding common stock of Advanced Recycling Sciences, Inc. as of December 31, 2001.
Zorax, Inc./NuElectric Corporation.
In September 2000, our portfolio company Zorax, Inc. merged with NuElectric Corporation., a development stage Delaware corporation. NuElectric is in the business of acquiring, developing and marketing new technologies for conserving energy and protecting the environment. In connection with the merger, we received 546,000 unregistered shares of NuElectric common stock. As a result of the merger, NuElectric acquired an exclusive license to a technology for the separation of cystic parasitic forms from water. NuElectric is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol NRGE. As of December 31, 2001, we owned 1,037,957 shares of NuElectric common stock, which represents approximately 22.0% of the issued and outstanding common stock of NuElectric as of December 31, 2001.
Ice Surface Development, Inc./Torvec, Inc.
In November 2000, Ice Surface Development, Inc., a portfolio company, merged with Torvec, Inc., a development stage New York corporation. Torvec, Inc., is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol TOVC. In connection with the merger, we received 1,068,354 unregistered shares of common stock of Torvec, Inc. Torvec, Inc. is a developer of highly advanced automotive technologies. As a result of the merger, Torvec, Inc. acquired the exclusive worldwide license to a technology that acts as an electronic system for modifying ice adhesion. As of December 31, 2001, we owned 1,068,354 shares of common stock of Torvec, Inc., which represents approximately 4.6% of the issued and outstanding common stock of Torvec, Inc. as of December 31, 2001.
Technology Development, Inc./Advanced 	Recycling Sciences, Inc. (formerly The Quantum Group, 	Inc.)
In February 2001, Technology Development, Inc., a portfolio company, merged with Advanced Recycling Sciences, Inc., a development stage Nevada corporation. In connection with the merger, we received 1,446,153 unregistered shares of common stock of Advanced Recycling Sciences, Inc. Advanced Recycling Sciences, Inc. is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol ARYC. As a result of the merger, Advanced Recycling Sciences, Inc. acquired the worldwide license to a technology for ground surface application of a novel ice adhesion modification technology. As of December 31, 2001, we owned 2,326,153 shares of common stock of Advanced Recycling Sciences, Inc., which represents approximately 14.1% of the total issued and outstanding common stock of Advanced Recycling Sciences, Inc. as of December 31, 2001.
Watermark Technologies, Inc./Bitzmart, Inc..
In April 2001, Watermark Technologies, Inc., a portfolio company, merged with Bitzmart, Inc., a development stage Colorado corporation. Bitzmart, Inc., is a privately held development stage company. In connection with the merger, we received 450,000 unregistered shares of common stock of Bitzmart, Inc. Bitzmart, Inc. is a developer of software for downloading media products. As a result of the merger, Bitzmart, Inc. acquired the exclusive worldwide license to a technology for masking an Auxiliary Channel in the phase of Spectrum of Stereo Audio. As of December 31, 2001, we owned 641,667 shares of common stock of Bitzmart, Inc., which represents approximately 28.6% of the issued and outstanding common stock of Bitzmart, Inc. as of December 31, 2001.
Micro Sensor Technologies, Inc./Sense Holdings, Inc.
In May 2001, Micro Sensor Technologies, Inc., a portfolio company, merged with Sense Holdings, Inc., a development stage Florida corporation. Sense Holdings, Inc., is a public development stage company with shares traded on the over-the-counter bulletin board under the symbol SEHO. In connection with the merger, we received 1,850,000 unregistered shares of common stock of Sense Holdings, Inc. Sense Holdings, Inc. is a engaged in the manufacture and sale of biometric technology. As a result of the merger, Sense Holdings, Inc. acquired the exclusive worldwide license to a technology for the detection of unexploded ordinances whether buried or camouflaged. As of December 31, 2001, we owned 1,850,000 shares of common stock of Sense Holdings, Inc., which represents approximately 15.6% of the issued and outstanding common stock of Sense Holdings, Inc. as of December 31, 2001.
Advanced Microsphere Technology, Inc./Prime Pharmaceutical Corporation
In April 2001, Advanced Microsphere Technology, Inc., a portfolio company, merged with Prime Pharmaceutical Corporation, a development stage Canadian corporation. Prime Pharmaceutical Corporation is a privately held development stage company. In connection with the merger, we received 560,000 unregistered shares of common stock of Prime Pharmaceutical Corporation. Prime Pharmaceutical Corporation is a developer of dermatological treatments incorporating the latest biotechnology. As a result of the merger, Prime Pharmaceutical Corporation acquired the exclusive worldwide license to a new technology, which allows for the encapsulation of a variety of substances at low temperatures. As of December 31, 2001, we owned 810,000 shares of common stock of Prime Pharmaceutical Corporation, which represents approximately 6.2% of the issued and outstanding common stock of Prime Pharmaceutical Corporation as of December 31, 2001.
To date, we have entered into the following strategic alliance agreements:
	Bitzmart, 	Inc. - On 	September 14, 2001, we entered into a strategic alliance 	agreement to provide consulting services in exchange for 100,000 	shares of common stock of Bitzmart, Inc. The agreement 	terminated as scheduled September 30, 2001. The Company 	recognized $231,000 in consulting revenue related to this 	agreement. On November 1, 2001, we entered an additional 	strategic alliance agreement to provide consulting services in 	exchange for 50,000 shares of common stock of Bitzmart, Inc. for 	the time period ended December 31, 2001. The Company 	recognized $145,500 in consulting revenue related to the second 	agreement. Revenue from strategic alliance agreements are 	deferred and recognized over the term of each agreement. For a 	detailed discussion of the strategic alliance process see 	Business “Strategic Alliances”. 	
	Primapharm Funding 	Corporation - On 	October 29, 2001, we entered into a strategic alliance 	agreement to provide consulting services in exchange for 	1,000,000 shares of common stock of Primapharm Funding 	Corporation. The term of the agreement was for one year 	commencing November 9, 2001. The Company recognized $71,151 	in consulting revenue in 2001 related to the agreement. Revenue 	from strategic alliance agreements are deferred and recognized 	over the term of each agreement. For a detailed discussion of 	the strategic alliance process see Business “Strategic 	Alliances”. 	
	USAOneStar.Net, 	Inc. - On 	November 28, 2001, we entered into a strategic alliance 	agreement to provide consulting services in exchange for 400,000 	shares of common stock of USAOneStar.Net, Inc. The term of the 	agreement was for one year commencing October 22, 2001. The 	Company recognized $71,151 in consulting revenue related to the 	agreement. Revenue from strategic alliance agreements are 	deferred and recognized over the term of each agreement. For a 	detailed discussion of the strategic alliance process see 	Business “Strategic Alliances”. 	
Determination of Net Asset Value
We determine the net asset value per share of our common stock quarterly. The net asset value per share of common stock is equal to the value of our total assets minus total liabilities divided by the total number of shares of common stock outstanding.
Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities. Restricted and unrestricted publicly traded stocks may also be valued at discounts due to the size of our investment or market liquidity concerns.
The Board of Directors bases its determination upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.
Without a readily ascertainable market value, the estimated value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. Any changes in estimated value are recorded in the Company’s Statements of Operations as “Net realized and unrealized gains (losses).”
We have retained Bolten Financial Consulting, Inc. to provide us with quarterly valuations of the securities we receive in exchange for portfolio companies. We pay Bolten Financial Consulting, Inc. a fee each time it values our investments. In 2001, we paid Bolten Financial Consulting, Inc. $53,921 for its valuation services.
Portfolio Transactions
The capital stock we receive from portfolio companies is expected to be acquired primarily in private transactions negotiated directly with the portfolio company or an affiliate. Our management will continue to be principally responsible for conducting negotiations with respect to our investments in portfolio companies.
In addition to securities of public companies that we receive as a result of mergers by our portfolio companies, we may invest a portion of our other assets in the publicly traded securities of public companies. Such investments and other investments that are not “qualifying assets” may not exceed 30% of the value of our total assets at the time of any such investment.
Based on the amount of existing available funds, it is not likely that we will be able to acquire securities in a large number of companies. As a result, our investments will not be substantially diversified. Furthermore, the technologies that our portfolio companies acquire have been, and are expected to be, sold primarily to early stage public and private companies. Accordingly, the securities we receive upon the merger of our portfolio companies will not be diversified among companies at various stages of development and we will not derive the benefits, which may arise from making multi-tiered investments.
Employees
As of December 31, 2001, we employed nineteen employees in our two offices. Of these employees, thirteen are based in our Plant City, FL office and six are based in our UK office. We believe our relations with our employees are good.
Regulation Under the 1940 Act
We have elected to be regulated as a BDC under the 1940 Act. A BDC is a special type of closed-end, non-diversified investment company regulated by the 1940 Act. The Small Business Investment Incentive Act of 1980 (which we refer to as the Incentive Act) modified the provisions of the 1940 Act applicable to a BDC. After filing its election to be treated as a BDC, a company may not withdraw its election without first obtaining the approval of holders of a majority of its outstanding voting securities (as defined under the 1940 Act). The following is a brief description of certain provisions of the 1940 Act, as modified by the Incentive Act, and is qualified in its entirety by reference to the full text of the 1940 Act, the Incentive Act and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage in the business of furnishing capital and making available significant managerial assistance to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed “eligible portfolio companies.” More specifically, in order to qualify as a BDC, a company must (i) be a domestic company; (ii) have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Exchange Act; (iii) be operated for the purpose of investing in the securities of certain types of portfolio companies, namely, development-stage or emerging companies and businesses suffering or just recovering from financial distress; (iv) make available significant managerial assistance generally to such portfolio companies; (v) have a majority of directors who are not “interested persons” (as defined in the 1940 Act), and (vi) file a proper notice of election with the SEC.
An eligible portfolio company is generally a domestic company that is not an investment company and that (i) does not have a class of securities registered on an exchange or included in the Federal Reserve Board’s over-the-counter margin list; (ii) is actively controlled by the BDC and has an affiliate of a BDC on its board of directors; or (iii) meets such other criteria as may be established by the SEC. Control under the 1940 Act is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that BDCs may acquire to certain prescribed qualifying assets and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of the BDC’s assets consists of qualifying assets. Qualifying assets include:
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privately acquired securities of companies that 	were eligible portfolio companies at the time such BDC acquired 	their securities; 	
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securities of bankrupt or insolvent companies; 	
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securities of eligible portfolio companies 	controlled by a BDC; 	
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securities received in exchange for or 	distributed on or with respect to any of the foregoing, and 	
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cash items, government securities and 	high-quality short-term debt. 	
The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. Such restrictions include limiting purchases to transactions not involving a public offering and acquiring securities directly from either the portfolio company or their officers, directors or affiliates.
We are permitted by the 1940 Act, under specified conditions, to issue multiple classes of senior debt and a single class of preferred stock if our asset coverage, as defined in the 1940 Act, is at least 200% after the issuance of the debt or the preferred stock (i.e., such senior securities may not be in excess of 50% of our net assets). If the value of our net assets, as defined, were to increase through the issuance of additional capital stock or otherwise, we would be permitted under the 1940 Act to issue additional senior securities. We have no senior securities outstanding and have no current intention of issuing any senior securities although we may do so in the future.
We may sell our securities at a price that is below the net asset value per share only (i) after a majority of our disinterested directors has determined that such a sale would be in our best interests and the best interests of our stockholders, and (ii) upon the approval by the holders of a majority of our outstanding voting securities, including a majority of the voting securities held by non-affiliated persons, of such a policy or practice within one year prior to such sale. If the offering of the securities is underwritten, a majority of the disinterested directors must determine in good faith that the price of the securities being sold is not less than a price which closely approximates the market value of the securities, less any distribution discounts or commissions. As defined in the 1940 Act, the phrase “majority of our outstanding voting securities” means the vote of (i) 67% or more of our common stock present at a meeting, if the holders of more than 50% of our outstanding common stock are present or represented by proxy, or (ii) more than 50% of our outstanding common stock, whichever is less.
Many of our transactions with our affiliates (as well as affiliates of those affiliates) which were prohibited without the prior approval of the SEC under the 1940 Act prior to its amendment by the Incentive Act are now permissible upon the prior approval of a majority of our disinterested directors and a majority of the directors having no financial interest in the transactions. However, certain transactions involving certain persons with whom we are associated, including our directors, officers, and employees, may still require the prior approval of the SEC. In general:
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any person who owns, controls or holds power to 	vote more than 5% of our outstanding common stock; 	
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any director, executive officer or general 	partner of that person; and 	
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any person who directly or indirectly controls, 	is controlled by, or is under common control with, that person, 	must obtain the prior approval of a majority of our 	disinterested directors and, in some situations, the prior 	approval of the SEC, before engaging in certain transactions 	involving us or any company under our control. The 1940 Act 	generally does not restrict transactions between a company and 	its portfolio companies. 	
While a BDC may change the nature of its business so as to cease being a BDC or, under certain circumstances, to change its business purpose, it may do so only if authorized by a majority vote (as defined in the 1940 Act) of its outstanding voting securities. We are entitled to change our non-diversification status without stockholder approval. If we lose our status as a BDC, we would become subject to more stringent regulation under the 1940 Act to the extent we could qualify for an exemption from 1940 Act regulation.
Income Tax Matters
For federal and state income tax purposes, we are taxed at regular corporate rates on ordinary income and recognize gains on distributions of appreciated property. We are not entitled to the special tax treatment available to most regulated investment companies because, among other reasons, we do not distribute at least 90% of “investment company taxable income” as required by the Internal Revenue Code for such treatment. Distributions of cash or property by us to our stockholders, if any, will be taxable as dividends only to the extent that we have current or accumulated earnings and profits. Distributions in excess of current or accumulated earnings and profits will be treated first as a return of capital to the extent of the holder’s tax basis and then as gain from the sale or exchange of property. Each investor is urged to consult with his or her tax advisor concerning the federal, state and local, and foreign tax consequences of an investment in our company.
Competition
Technology transfer is a highly competitive business. We expect that if our investment model proves to be successful, our current competitors in the technology transfer market may duplicate our strategy and new competitors may enter the market. We compete against other technology transfer companies, some of which are much larger and have significantly greater financial resources than we do. In addition, these companies will be competing with our portfolio companies to acquire technologies from universities and government research laboratories. We cannot assure you that we will be able to successfully compete against these competitors in the acquisition of technology licenses, funding of technology development or marketing of portfolio companies.
Risk Factors
Our quarterly and annual results could fluctuate significantly.
The Company’s quarterly and annual operating results could fluctuate significantly due to a number of factors. These factors include the small number and range of values of the transactions that are completed each quarter, the timing of the recognition of unrealized gains and losses, the degree to which we encounter competition in our markets, the volatility of the stock market as it relates to our unrealized gains and losses, as well as other general economic conditions. As a result of these factors, quarterly and annual results are not necessarily indicative of the Company’s performance in future quarters and years.
Our investment model is speculative in nature and our history of investments using the model is limited.
Our investment model is highly speculative since it involves making investments in new development stage companies and having those companies invest in new, untested technology. Furthermore, we have only been using our investment model for a relatively short period of time and have little or no historical information upon which to judge whether or not the model is successful. We cannot assure you that our investment model will be successful or that any of our investments will be successful.
Our portfolio companies are development stage companies dependent upon the successful commercialization of new technologies. Each of our investments in portfolio companies is subject to a high degree of risk and we may lose all of our investment in a portfolio company if it is not successful.
We invest in development stage companies that our management believes can benefit from our expertise in technology transfer. Development stage companies are subject to all of the risks associated with new businesses. In addition, our portfolio companies are also subject to the risks associated with research and development of new technologies. These risks include the risk that new technologies cannot be identified, developed or commercialized, may not work, or are obsolete. Our portfolio companies must successfully acquire licenses to new technologies, and in some cases further develop new technologies, and then complete a merger transaction for our investments to be successful. We cannot assure you that any of our investments in our portfolio companies will be successful. Our portfolio companies will be competing with larger, established companies, with greater access to, and resources for, further development of these new technologies. In addition, for an investment to be successful, our portfolio companies often must develop the technology and identify buyers who are willing to acquire the technology, in exchange for their common stock or other consideration. We cannot assure you that any of our portfolio companies will be successful or that we will successfully sell our portfolio companies or sell or relicense the technology rights held by our portfolio companies. We may lose our entire investment in any or all of our portfolio companies.
Our portfolio companies depend upon the research and development activities of universities and laboratories, over which neither our portfolio companies nor we have any control.
Our portfolio companies depend upon the research activities of universities and government research facilities. Neither we, nor our portfolio companies, have any control over the research activities of universities and research laboratories. As neither we nor our portfolio companies provide supervision of any university or laboratory research, we cannot warrant that the research will be done properly and that the results which we may license will be reproducible. In addition, we have no control over what types of research are presented to us by universities and government research facilities for evaluation and commercial development. Further, the
licenses to technologies that our portfolio companies obtain may be non-exclusive. In the event that we make an investment in a portfolio company, and we are unable to locate a new technology to be acquired by the portfolio company, we could lose our entire investment.
Technologies acquired by our portfolio companies may become obsolete before we can sell the portfolio companies.
Neither our portfolio companies nor we have any control over the pace of technology development. There is a significant risk that a portfolio company could acquire the rights to a technology that is currently or is subsequently made obsolete by other technological developments. We cannot assure you that any of our portfolio companies will successfully acquire, develop and transfer any new technology.
The patents on the technologies that our portfolio companies license may infringe upon the rights of others and patent applications that universities or laboratories have filed may not be granted.
Many of our portfolio companies rely upon patents to protect the technologies that they license. If the patents on technologies that they license are found to infringe upon the rights of others, or are held to be invalid, then the licenses to such technologies will have little or no value to our portfolio companies. In addition, if a patent licensed by a portfolio company is found to infringe upon the rights of others, the portfolio company may be liable for monetary damages. Our portfolio companies are dependent upon the universities or government research facilities to file, secure and protect patents on licensed technologies. In the event that a patent is challenged or violated, our portfolio companies may not have the financial resources to defend the patent either in the preliminary stages of litigation or in court. In addition, if our portfolio companies acquire licenses to technologies with patents pending, we cannot assure you that such patents will be granted.
Technologies that have been developed with funding from the United States government may have limits on their use, which could affect the value of the technology to a portfolio company.
Technologies developed with funds provided by the United States government have restrictions regarding where they may be sold and have limits on exclusivity. A portfolio company that acquires a technology developed with federal funding may be limited as to where it can sell the technology. The technology may only be allowed to be sold or manufactured within the United States. In addition, under Section 23 of the United States Code, the U.S. government has the right to use technologies that it has funded regardless of whether the technology has been licensed to a third party. Such regulations may limit the marketability of a technology and therefore reduce the value of the technology to our portfolio companies.
We may need to make additional investments in our portfolio companies to provide them with capital to further develop licensed technologies.
We may have to make additional investments in portfolio companies to protect our initial investments. We retain the discretion to make any additional investments as our management determines. The failure to make such additional investments may jeopardize the continued viability of a portfolio company and our initial (and subsequent) investments. Moreover, additional investments may limit the number of companies in which we can make initial investments. We have no established criteria in determining whether to make an additional investment except that our management will exercise its business judgment and apply criteria similar to those used when making the initial investment. We cannot assure you that we will have sufficient funds to make any necessary additional investments, which could adversely affect our success and result in the loss of a substantial portion or all of our investment in a portfolio company.
We may be unable or decide not to make additional investments in our portfolio companies, which could result in our losing our initial investment if the portfolio company fails. Our ownership and control may be diluted if a portfolio company obtains additional funds from third party investors.
Our agreement with the underwriters in connection with our IPO restricts the size of our investment in any single portfolio company and, as a result, could prohibit an additional investment in a portfolio company in the event that our initial investment represented 10% or more of our assets. Even if we are able to make an additional investment in a portfolio company within the prescribed limits, we may elect not to make an additional investment in a portfolio company in order to limit the size of our investment, which is at risk. It is
also our policy not to make loans to our portfolio companies, which in the aggregate exceed 25% of our net assets. Therefore, if a portfolio company requires additional funds to continue operating, and we cannot or choose not to make an additional investment, our investment in the portfolio company may decline in value. In addition, to the extent that a portfolio company seeks additional financing from third parties, our ownership interest and control of the portfolio company may be diluted.
The securities we hold in our portfolio companies are illiquid and we may not be able to sell the portfolio company securities we hold for amounts equal to their recorded value, if at all.
Our portfolio companies are all private entities and we acquire securities in our portfolio company in private transactions. As a result, all of the securities we hold in our portfolio companies are restricted securities, as defined under the Securities Act of 1933 (the “1933 Act”) and are subject to restrictions on resale. Furthermore, we do not anticipate that a public market will exist for any of the securities we hold in our portfolio companies. Therefore, any sale or other transfer of the securities we hold in portfolio companies will be made in private transactions and we cannot assure you that we will be able to sell our portfolio company securities for amounts equal to the values that we have ascribed to them.
We are dependent on merger transactions, structured as tax-free exchanges to sell our portfolio companies. A change in the Internal Revenue Code affecting tax-free exchanges could reduce or eliminate our ability to sell portfolio companies.
We do not anticipate selling any of our portfolio companies, except in connection with merger transactions. We anticipate that most, if not all, of such merger transactions will be structured as tax-free exchanges under Section 368 of the Internal Revenue Code. If Section 368 were to be amended so that we were no longer able to structure our merger transactions as tax-free exchanges, we may not be able to sell our portfolio companies on commercially reasonable terms. If we are unable to successfully sell a portfolio company in a merger transaction, we may lose our investment.
We have been dependent on a small number of companies controlled by the same investor group for the purchase of our portfolio companies. We have only limited experience selling our portfolio companies and of the fifteen transactions that we have completed, six have been with companies controlled by the same group of investors.
At December 31, 2001, we have completed only fifteen transactions, including fourteen mergers and one stock sale, wherein we sold portfolio companies to other companies and six of these sales have been made to companies that are controlled by the same investor group. As a result, we have only had the benefit and experience of negotiating such agreements with a small number of investors. We cannot assure you that we will be able to successfully negotiate merger transactions for the sales of our portfolio companies in the future.
The agreements we have with universities do not guarantee that the universities will grant licenses to our portfolio companies.
The agreements that we have entered into with universities provide us with the ability to evaluate the commercial potential for technologies at an early stage of development. These agreements however, do not provide us with any guarantee that following our evaluation, a university will grant us a license. As a result, we may expend time and resources evaluating a technology and not be able to secure a license to such technology for one of our portfolio companies.
We are dependent upon our management’s ability to identify acquirers for our portfolio companies.
Our investment strategy is based upon selling our portfolio companies in stock for stock exchanges to companies that wish to acquire the technologies owned by our portfolio companies but which themselves may be neither operating nor established. We do not expect to sell any portfolio company securities to the public. Therefore, if we fail to identify an acquirer for a portfolio company, our entire investment in the portfolio company could be lost.
We are dependent upon and have little or no control over the efforts of companies that acquire our portfolio companies to successfully commercialize the acquired technologies.
When we sell a portfolio company, we receive common stock from the acquiring company based upon the mutually agreed upon values of the portfolio company, its licensed technology and the acquiring company. We then intend to sell the securities that we acquire in exchange for our portfolio companies at some time in the future. Therefore, our ability to profit from an investment in a portfolio company is ultimately dependent upon the price we receive for the shares of the acquiring company. In most cases, the companies that acquire our portfolio companies will be dependent upon successfully commercializing the technologies they acquire. We do not have control over the companies that acquire our portfolio companies and we do not intend to provide them with managerial assistance. These operating companies may face intense competition, including competition from companies with greater financial resources, more extensive research and development, manufacturing, marketing and service capabilities and a greater number of qualified and experienced managerial and technical personnel. They may face additional risks of product and technological obsolescence and government regulation over which we will have little or no control. They may need additional financing which they are unable to secure and we are unable or unwilling to provide or they may be subject to adverse developments unrelated to the technologies they acquire. We cannot assure you that any of the companies that acquire our portfolio companies will be successful or that we will be able to sell the securities we receive at a profit or for sufficient amounts to even recover our initial investment in the portfolio company.
The companies that have merged with our portfolio companies to date are development stage companies and, as a result, the value of the securities that we receive in such merger transactions is subject to significant fluctuations.
Historically we have merged, and we intend to continue to merge, our portfolio companies with companies in related fields that are development stage companies. As a result, the securities that we receive when we merge a portfolio company are subject to all of the risks associated with securities of development stage companies. The values of these securities may be subject to significant fluctuations. We cannot assure you that when we sell these securities; we will receive the value ascribed to the securities either at the time of acquisition or during subsequent valuation periods.
Our investments in our portfolio companies may be concentrated in one or more industries and if these industries should decline or fail to develop as expected our investments will be lost.
Our investments in our portfolio companies may be concentrated in one or more industries. This concentration will mean that our investments will be particularly dependent on the development and performance of those industries. Accordingly, our investments may not benefit from any advantages, which might be obtained with greater diversification of the industries in which our portfolio companies operate. If those industries should decline or fail to develop as expected, our investments in our portfolio companies in those industries will be subject to loss.
We generally receive equity securities of the companies that acquire our portfolio companies, rather than cash. We record revenues from these transactions; however, the securities that we receive will be subject to restrictions on resale, which will limit our ability to sell these securities and attain liquidity.
The securities that we receive in exchange for our portfolio companies will be subject to restrictions on resale, which will limit our ability to sell these securities.
As of December 31, 2001, all of the securities we have received in exchange for our portfolio companies are “restricted securities,” as such term is defined under Rule 144. These shares are restricted securities because they were issued in private transactions not involving a public offering and may not be sold in the absence of registration other than in accordance with Rule 144 under the 1933 Act or another exemption from registration. As a result of such restrictions, our ability to sell or otherwise transfer the securities will be limited. We cannot assure you that we will be able to receive upon resale, the recorded value of our portfolio company securities in merger transactions.
We may not be able to merge our portfolio companies with publicly traded entities and may receive non-publicly traded securities in exchange for our portfolio companies. We may be required to sell the securities we receive at a substantial discount to their appraised value if no public market exists.
As of December 31, 2001, we have completed fifteen sales of portfolio companies. Of these sales, eight have been to companies that are currently public, and the remaining transactions been with non-public companies. We are substantially dependent upon the ability of non-public acquirers of our portfolio companies to implement a plan, which would facilitate a trading market for their securities, or other strategy, which would allow for the potential sale of our ownership interest. In addition, to the extent that we own more than 10% of an acquirer’s shares, we may be deemed to be an affiliate of the acquirer which would limit our ability to dispose of securities we receive for our portfolio companies. Further, our ability to sell the securities we receive for our portfolio companies may be limited by, and subject to, the lack of or limited nature of a trading market for the securities and the volatility of the stock market as a whole. Such limitations could prevent or delay any sale of our investments or significantly reduce the amount of proceeds, if any that might otherwise be realized there from. The values we place on our investments may not accurately reflect their future value or the value that we will receive for them when we sell them.
The values we place on our investments may not accurately reflect their future value or the value that we will receive for them when we sell them.
At December 31, 2001 and December 31, 2000, respectively, equity securities amounting to $9,988,772 or 100.8% of net assets and $5,949,582 or 70.4% of net assets, have been valued at fair value as estimated by our Board of Directors. As a general matter, restricted securities and securities without an active trading market are more difficult to accurately value than unrestricted, actively traded securities of public companies. Pursuant to the requirements of the 1940 Act, the Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. See “Determination of Net Asset Value” and our financial statements. If we were required to sell any of such investments, there is no assurance that the fair value, as determined by the Board of Directors, would be obtained. If we were unable to obtain fair value for such investments, there would be an adverse effect on our net asset value and on the price of our common stock.
Your ownership interest and the value of the shares of our common stock may be diluted by the exercise of stock options and warrants we have granted or may grant in the future.
We have adopted two stock option plans under which certain of our employees, officers and directors may be granted options. As of December 31, 2001, we have granted options to purchase 498,000 shares of our common stock to certain officers and employees. We have also reserved an additional 252,000 shares of our common stock for issuance under our two stock option plans to key employees and directors. In addition, we have issued warrants to the underwriter, upon payment of the purchase price of $.0003 per warrant, to purchase 100,000 shares of common stock at an exercise price of $9.90 per share. The warrants expire on October 25, 2005. The issuance and sale of these shares of common stock will dilute the ownership interest of investors and may have an adverse effect on the price of our common stock.
Our business depends on key personnel.
We rely, and will continue to be substantially dependent upon, the continued services of our management, including our Chief Executive Officer and Chairman of the Board, Clifford M. Gross, and our President, Uwe Reischl. Our management team is responsible for the review of potential investments by and the provision of advice to our portfolio companies regarding the acquisition of technologies and additional research and development. We also depend upon our management’s key contacts with universities, to maintain our access to new technologies, and their relationships with companies in the private sector in order to effectuate the sale of our portfolio companies.
Any transactions we engage in with affiliates may involve conflicts of interest.
The 1940 Act restricts transactions between the Company and any of our affiliates, including our officers, directors or employees and principal stockholders. In many cases, the 1940 Act prohibits transactions between such persons and ourselves unless we first apply for and obtain an exemptive order from the SEC. Delays and costs in obtaining necessary approvals may decrease or even eliminate any profitability of such transactions or make it impracticable or impossible to consummate such transactions. These affiliations could cause circumstances that would require the SEC’s approval in advance of proposed transactions by us in portfolio companies. Further, depending upon the extent of our management’s influence and control with respect to such portfolio companies, the selection of the affiliates of management to perform such services may not be a disinterested decision, and the terms and conditions for the performance of such services and the amount and terms of such compensation may not be determined in arm’s-length negotiations.
We have a limited amount of funds available for investment in portfolio companies and as a result, our investments will lack diversification.
Based on the amount of our existing available funds, it is unlikely that we will be able to commit our funds to investments in, and the acquisition of, securities of a large number of companies. We intend to continue to operate as a non-diversified investment company within the meaning of the 1940 Act. Prospective investors should understand that our current investments are not, and in the future may not be, substantially diversified. We will not be able to achieve the same level of diversification as larger entities engaged in similar venture capital activities. Therefore, our assets may be subject to greater risk of loss than if they were more widely diversified, because the failure of one or more of our limited number of investments could have a material adverse effect on our financial condition and the price of our common stock.
We are subject to substantial government regulations because of our status as a business development company.
We have elected to be treated as a BDC under the Incentive Act, which modified the 1940 Act. Although the Incentive Act relieves BDCs from compliance with many of the provisions of the 1940 Act, the Incentive Act imposes on BDCs greater restrictions on permitted types of investments. Moreover, the applicable provisions of the 1940 Act impose numerous restrictions on our activities, including restrictions on the nature of our investments and transactions with affiliates. We cannot assure you that this legislation will be interpreted or administratively implemented in a manner consistent with our objectives and manner of operations. Upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we elect to withdraw our election, or if we otherwise fail to qualify as a BDC, we may be subject to substantially greater regulation under the 1940 Act. Compliance with such regulations would significantly increase our costs of doing business.
We have a limited operating history upon which you can assess our prospects and we are subject to the risks associated with any new business.
As a result of our short history of operations, we have only consummated transactions with a very small number of companies. Therefore, there is little historical information regarding our operations upon which you can base your investment decision. In addition, we are subject to all of the business risks and uncertainties associated with any new business enterprise. We cannot assure you that our investment objective will be attained.
Our management has limited experience operating a technology transfer business, and managing and operating a business development company.
The members of our management have been engaged in the operation of our business for a short period of time and so have limited experience. Some of our directors and executive officers only have experience in science and research. Furthermore, we commenced operations as a business development company in June 2000 and so our directors and executive officers have only had experience operating a business development company since June 2000. In addition, some of our management have had limited experience in the areas of corporate finance and corporate mergers.
One of our current stockholders has significant influence over our management and affairs.
Clifford M. Gross, our Chief Executive Officer and Chairman of the Board, beneficially owns approximately 50% of our common stock as of December 31, 2001. Therefore, Dr. Gross will be able, among other things, to elect directors, change our investment policies, and withdraw our election to operate as a BDC.
Item 2.
Item 2. Properties
Our principal office is located at 202 S. Wheeler Street, Plant City, Florida. Our lease for approximately 2700 square feet of office space at that location expires in March 2004. We believe our office space is suitable for our needs for the foreseeable future.
Our UK office is located at Buckland House, Dower Mews, High Street, Berkhamsted Herts HP4 2BL, UK. Our lease of office space at that location expires in September 2003. We believe our office space is suitable for our needs for the foreseeable future.
Item 3.
Item 3. Legal 	Proceedings
The Company is not a party to material legal proceedings.
Item 4.
Item 4. Submission 	of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the year ended December 31, 2001.
PART II
Item 5.
Item 5. Market 	for Registrant’s Common Equity and Related Stockholder 	Matters
Computershare Trust Company Inc., 350 Indiana Street, Suite 800, Golden, CO 80401; 303-262-0600, serves as transfer agent for the Company’s common stock. Certificates to be forwarded should be mailed directly to the transfer agent, preferably by registered mail.
The Company’s shares of common stock began to trade on the Nasdaq SmallCap Market on October 25, 2000, under the symbol “UTOB”. The Company had approximately 400 shareholders at December 31, 2001 and 500 shareholders at December 31, 2000. The net asset value per share of the Company’s common stock at December 31, 2001 was $2.53. The following table reflects the high and low closing prices by quarter for the Company’s common stock on the Nasdaq SmallCap Market for 2001 and 2000.
For the fiscal years ended December 31, 2001 and 2000, the Company did not declare or pay dividends.
On March 25, 2002, our shares of common stock commenced trading on the American Stock Exchange (AMEX) under the symbol “UTK”. In conjunction with our move to AMEX, our common stock no longer trades on the Nasdaq Small Cap Market.
During 2001, we issued 133,446 shares of our common stock pursuant to an exemption from the registration requirements of the 1933 Act under section 4(2) of the 1933 Act as a transaction by an issuer not involving a public offering
We have never declared or paid any dividends to the holders of our common stock and we do not anticipate paying dividends in the foreseeable future. We currently intend to retain all earnings for use in connection with the expansion of our business and for general corporate purposes. Our Board of Directors will have sole discretion in determining whether to declare and pay dividends in the future. The declaration of dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by our Board of Directors. Our ability to pay dividends in the future could be limited or prohibited by regulatory requirements and the terms of financing agreements that we may enter into or by the terms of any preferred stock that we may authorize and issue.
Item 6.
Item 6. Selected Financial Data
The following table presents our summary consolidated financial and other data and has been derived from our audited financial statements for the years ended December 31, 2001, 2000, 1999, 1998, and 1997. The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto, each of which is included in another section of this report.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 10-K. This Form 10-K contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied
by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that these projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.
Critical Accounting Policies and Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements. On a regular basis, management reviews these estimates and assumptions including those related to revenue recognition and the valuation of investments.
Management believes the following critical accounting policies, among others, affect it more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
Effective January 1, 2000, the Company adopted the provisions of SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (“SAB 101”). SAB 101 provides guidance on the recognition, presentation and disclosures of revenue in financial statements. The adoption of SAB 101 had no material impact on the Company’s financial statements.
The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of portfolio companies with unrelated merger partners. The Company records revenue based on the value of the consideration received. In most cases, the consideration received for the rights is the common stock of the purchaser. The common stock received is recorded as an investment at value. Revenue derived from consulting services is recognized as earned, over the life of the underlying consulting agreements. In some cases, the Company is paid a fee for negotiating a successful technology transfer. In these instances, revenue is recognized upon consummation of the transaction.
Revenue from strategic alliance agreements is deferred and recognized over the term of each agreement, typically twelve months. These agreements are cancelable at any time.
Valuation of Investments:
The income that we derive from our investments in our portfolio companies consists of both cash and equity securities that we receive upon disposition of our portfolio companies. The value of the equities that we receive makes up most of our revenues. Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.
The Board of Directors bases its determination of fair value upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.
Without a readily ascertainable market value, the estimated value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. Any changes in estimated value are recorded in the Company’s Statements of Operations as “Net realized and unrealized gains (losses)” during the period of change.
We have retained Bolten Financial Consulting, Inc., to provide us with valuations of the securities we receive in exchange for portfolio companies, updated to each quarterly valuation date.
Without a readily ascertainable market value, the estimated value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. Any changes in estimated value are recorded in the Company’s Statements of Operations as “Net realized and unrealized gains (losses)” during the period of change.
We have retained Bolten Financial Consulting, Inc., to provide us with valuations of the securities we receive in exchange for portfolio companies, updated to each quarterly valuation date.
General
Our primary business is to make investments in companies that possess or will likely identify emerging and established technologies and markets for those technologies. Our primary investment objective is to increase our net assets by exchanging stock in our portfolio companies for cash and other assets we will use to acquire licenses to additional technologies. We believe that we will be able to achieve our objectives by concentrating on investments in companies which we believe are likely to benefit from our management’s expertise in technology transfer.
The income that we derive from our investments in our portfolio companies consists of both cash and equity securities that we receive upon disposition of our portfolio companies. The value of the equities that we receive makes up most of our revenues. Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining in good faith the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.
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 ascertainable market value, the estimated value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. Any changes in estimated value are recorded in the Company’s Statements of Operations as “Net realized and unrealized gains (losses)” during the period of change.
We have retained Bolten Financial Consulting, Inc., to provide us with valuations of the securities we receive in exchange for portfolio companies, updated to each quarterly valuation date. We pay Bolten Financial Consulting, Inc. a fee each time it values our investments. In 2001, we paid Bolten Financial Consulting, Inc. a total of $53,921 for its valuation services.
Our expenses include salaries and wages, professional fees, sales and marketing costs as well as general and administrative costs. Sales and marketing costs include license and sponsored research fees, as well as advertising, commissions, salaries, travel and other expenses that vary with revenues. General and administrative costs include rent, depreciation, office, investor relations and other overhead costs.
We used an equity-based method of compensating certain outside service providers during 1998 and 1999. Those costs are reflected in the general and administrative costs of the statement of operations. Some service agreements were for periods in excess of one year and any remaining value was recorded as a prepaid expense for the period.
On October 25, 2000, the Company completed its IPO of 1,000,000 shares of its common stock at $6.00 per share to raise additional equity to support its growth strategy. The net proceeds of the offering were $4,047,849.
Financial Condition
The Company’s total assets were $12,410,958 and its net assets were $9,909,440 at December 31, 2001, compared to $10,088,666 and $8,455,002 at December 31, 2000 respectively.
Net asset value per share (“NAV”) was $2.53 at December 31, 2001, compared to $2.24 at December 31, 2000. Net assets increased by $1,454,438 in 2001 and by $5,170,549 in 2000.
Among the significant changes that affected total assets, net assets and NAV during 2001 were:
•
Four technology transfers valued at $3,419,653; 	
•
Private placement of common stock for net 	proceeds of $375,617; 	
•
Four strategic alliance agreements with earned 	revenue of $534,782; and 	
•
Acquisition of PAX Technology Transfer Ltd. 	valued at $440,000. 	
The Company’s common shares outstanding as of December 31, 2001 were 3,915,672, compared to 3,782,226 at December 31, 2000. The Company’s outstanding shares were increased as a result of the issuance of shares in a private placement and in connection with the acquisition of PAX Technology Transfer, Ltd.
The Company’s financial condition is dependent on a number of factors including the ability to effectuate technology transfers and the performance of the equity securities that we receive for these transfers. The Company has invested a substantial portion of its assets in private development stage or start-up companies. These private businesses are thinly capitalized, unproven, small companies that lack management depth, are dependent on new, commercially unproven technologies and have no history of operations. At December 31, 2001, $4,932,861 or 40% of the Company’s total assets consisted of investments at fair value in publicly traded securities, of which net unrealized depreciation, after income tax effect, was $(18,827); the remaining $5,055,911 or 41% of the Company’s total assets consisted of non-publicly traded securities at fair value of which net unrealized appreciation, after income tax effect, was $644,294. See Note 2 to the Consolidated Financial Statements under Item 8.
At December 31, 2000, $3,438,602 or 34% of the Company’s total assets consisted of investments at fair value in publicly traded securities, of which net unrealized appreciation, after income tax effect, was $(217,845); the remaining $2,510,980 or 25% of the Company’s total assets consisted of investments at fair value in private businesses, of which net unrealized appreciation, after income tax effect, was $376,137. The increase in the value of publicly traded securities from $3,438,602 in 2000 to $4,932,861 in 2001 is primarily owing to the two technology transfer transactions with Advanced Recycling Sciences, Inc., and Sense Holdings, Inc. originally valued at $1,927,153. Additionally, Centrex, Inc. became a publicly traded company during 2001.
A summary of the Company’s investment portfolio is as follows:
Following an initial investment in a portfolio company, the Company may make additional investments in such portfolio company or subsequent acquirer in order to: (1) increase its ownership percentage; (2) exercise
warrants or options that were acquired in a prior financing; (3) preserve the Company’s proportionate ownership in a subsequent financing; (4) transfer additional technologies to enhance the portfolio company’s intellectual capital or (5) attempt to preserve or enhance the value of the Company’s investment. Such additional investments are referred to as “follow-on” investments. There can be no assurance that the Company will make follow-on investments or have sufficient funds to make additional investments. The failure to make such follow-on investments could jeopardize the viability of the portfolio company and the Company’s investment or could result in a missed opportunity for the Company to participate to a greater extent in a portfolio company’s successful operations. The Company attempts to maintain adequate liquid capital to make follow-on investments in its private portfolio companies. However there can be no assurance that the Company will have liquid capital. The Company may elect not to make a follow-on investment either because it does not want to increase its concentration of risk, because it prefers other opportunities, or because it is inhibited by compliance with BDC requirements, even though the follow-on investment opportunity appears attractive.
The following table is a summary of the Company’s capital investments made in its portfolio companies during the year ended December 31, 2001:
(1)
Technology Development merged with Advanced 	Recycling Sciences, Inc. on February 19, 2001. 	
(2)
Watermark Technologies, Inc. merged with 	Bitzmart, Inc. on April 20, 2001. 	
(3)
Micro Sensor Technologies, Inc. merged with Sense 	Holdings, Inc. on May 31, 2001. 	
(4)
Advanced Microsphere Technology, Inc. merged with 	Prime Pharmaceutical Corporation on September 26, 2001. 	
Of the total capital invested in our subsidiaries during the year ended December 31, 2001, $356,000 was expended on research and development costs, $141,000 on license and consulting fees, both of which are reflected in the Consolidated Statement of Operations in sales and marketing expenses.
Results of Operations
The Company accounts for its operations under generally accepted accounting principles for investment companies. On this basis, the principal measure of a Company’s financial performance is the “Net increase in net assets from operations” which is the sum of three elements. The first element is “Net income from operations,” which is the difference between the Company’s income from technology transfers, consulting fees, interest, dividends, fees and other income and its operating expenses, net of applicable income tax provision. The second element is “Net realized gain (loss) on investments,” which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, net of applicable income tax provision. The third element, “Increase (decrease) in unrealized appreciation on investments,” is the net change in the fair value of the Company’s investment portfolio, net of increase (decrease) in deferred income taxes that would become payable if the unrealized appreciation were realized through the sale or other disposition of the investment portfolio.
Year Ended December 31, 2001 Compared To The Year Ended December 31, 2000
Income from operations. Income from operations decreased 11% to $4,075,248 for the twelve months ended December 31, 2001 from $4,576,814 for the twelve months ended December 31, 2000. The decrease in income from operations resulted from completing four tax-free mergers in 2001 as compared to four tax-free mergers and a sale in 2000, offset by an increase in consulting fees of $534,782 related to strategic alliance
agreements. As described below, we completed four tax free mergers in 2001 in which we received securities valued at $3,419,653, compared to four tax free mergers and a sale in 2000 valued at $4,501,584.
In 2001, we completed the following transactions:
•
Advanced Recycling Sciences, 	Inc. We received an additional 	1,466,153 shares of common stock of Advanced Recycling Sciences, 	Inc. that were valued at the time of sale at $1.00 per share in 	connection with a technology transfer. 	
•
Bitzmart, Inc. We 	received 450,000 shares of common stock of Bitzmart, Inc. that 	were valued at the time of sale at $2.31 per share in connection 	with a technology transfer. 	
•
Sense Holdings, Inc. 	We received an additional 1,850,000 shares of common stock of 	Sense Holdings, Inc. that were valued at the time of sale at 	$.26 per share in connection with a technology transfer. 	
•
Prime Pharmaceutical 	Corporation. We received 560,000 	shares of common stock of Prime Pharmaceutical Corporation that 	were valued at the time of the sale at $.60 per share in 	connection with a technology transfer. 	
Consulting fees increased to $534,782 in the year ended December 31, 2001 from $-0- in the year ended December 31, 2000. The fees were paid in the form of unregistered shares of common stock in our client. The increase was a direct result of the implementation of the strategic alliance initiative, which began in 2001. To facilitate establishing on-going consulting engagements with its clients, the Company has developed a strategic alliance process. UTEK’s strategic alliances are designed to help technology companies rapidly enhance their new product pipeline through the acquisition of proprietary intellectual capital from universities and federal laboratories.
Expenses. Total operating expenses for the twelve months ended December 31, 2001 were $2,611,970 consisting of salaries and wages of $616,796, professional fees of $372,029, sales and marketing expenses of $904,141, and general and administrative expenses of $719,004. These expenses compared to the $1,883,868 reported for the twelve months ended December 31, 2000, consisting of salaries and wages of $376,053, professional fees of $309,619, sales and marketing expenses of $780,670, and general and administrative expenses of $417,516. The 39% increase in total operating expenses was due to additional expenses incurred in operating as a public company for a full year in 2001 as compared to less than three months in 2000, the increased number of employees and outside services used to grow the business and our ongoing effort to develop the UTEK U2B® brand. The 16% increase in sales and marketing expenses was largely due to increased efforts to reach a broader market for technology transfers, the cost of additional sales staff, as well as additional research and development programs funded to consummate those transfers. The 64% increase in salaries and wages reflects increased salary costs from the addition of a full-time CFO, an additional part-time employee, as well as a bonus for our CEO. The 20% increase in professional fees is largely due to the cost associated with operating as a public company, reporting requirements of a public company, preparing the corporate and subsidiary tax returns, as well as additional attorneys’ fees for work related to intellectual property and complying with BDC regulatory requirements. The 72% increase in general and administrative costs is largely due to the increased services required and expenses related to the requirements of being a public company such as investor relations costs, printing and mailing costs, and other related costs.
Net Realized and Unrealized Gains (Losses) and Income Taxes. Net realized losses on investments amounted to $86,578 for the twelve months ended December 31, 2001 and were substantially related to sales of 924,973 shares of Lexon, Inc. common stock for $162,480 and 51,000 shares of Advanced Recycling Sciences, Inc. for $33,135 during the reporting period. The Company also sold various other short-term investments with net proceeds of $524,728 resulting in a realized gain of $2,873. Net realized gains on investments amounted to $23,715 for the twelve months ended December 31, 2000 and were substantially related to sales of 75,027 shares of Lexon, Inc. common stock for $62,037 in cash during the reporting period.
The net unrealized appreciation (depreciation) of investments, net of taxes, increased by $177,119 for the twelve months ended December 31, 2001, a 69% decrease from the decrease in unrealized appreciation of $575,627 for the twelve months ended December 31, 2000. The net unrealized losses consisted of fluctuations
in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the twelve months ended December 31, 2001. There were declines in value related to our investments in Lexon, Inc., Nubar, Inc., NuElectric Corporation, Rosbon, Inc., Torvec, Inc. and Prime Pharmaceutical Corporation, Inc. However the decline in value was offset by an increase in value in our investments in Image Analysis, Inc., Centrex, Inc., Advanced Recycling Sciences, Inc., Bitzmart, Inc. and Sense Holdings, Inc. Centrex, Inc. became a publicly traded company with a value increase of $1,552,320 for the year ended December 31, 2001.
The Company’s net realized and unrealized gains (losses) can vary substantially, due to a variety of factors, therefore, current results may or may not be indicative of the Company’s future performance.
Our effective tax rate was a provision of 37.9% and 37.8% for the twelve months ended December 31, 2001 and December 31, 2000, respectively.
Year Ended December 31, 2000 Compared To The Year Ended December 31, 1999.
Income from operations. Income from operations increased 248% to $4,576,814 for the twelve months ended December 31, 2000 from $1,315,373 for the twelve months ended December 31, 1999. The increase in income from operations resulted from completing five technology transfers. As described below, in the twelve months ended December 31, 2000, we sold one portfolio company for $200,000 and completed four tax free mergers in which we received securities valued at $4,301,584, compared to five tax free mergers valued at $1,098,212 for the twelve months ended December 31, 1999. Our Board of Directors determines the fair value of the shares we receive in the absence of readily ascertainable market values. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. In our transactions with:
•
Graphco Technologies, Inc. 	We received 100,799 shares of common 	stock of Graphco Technologies, Inc. that were valued at the time 	of sale at $9.45 per share in connection with a technology 	transfer. 	
•
Lexon, Inc. We sold 	one of our portfolio companies for $200,000. Under the terms of 	the agreement, we received $50,000 on the date of the 	transaction and a $150,000 promissory note in connection with a 	technology transfer. 	
•
The Quantum Group, Inc. 	We received 931,000 shares of common 	stock of The Quantum Group, Inc. that were valued at the time of 	sale at $.81 per share in connection with a technology transfer. 	
•
NuElectric Corporation. 	We received an additional 546,000 	shares of common stock of NuElectric Corporation that were 	valued at the time of sale at $.82 per share in connection with 	a technology transfer. 	
•
Torvec, Inc. We 	received 1,068,354 shares of common stock of Torvec, Inc. that 	were valued at the time of the sale at $2.01 per share in 	connection with a technology transfer. 	
Consulting fees decreased to $-0- from $165,000 as of the years ended December 31, 2000 and 1999, respectively. The decrease is the result of the Company not engaging in any consulting service agreements during 2000.
Expenses. Total operating expenses for the twelve months ended December 31, 2000 were $1,883,868 consisting of salaries and wages of $376,053, professional fees of $309,619, sales and marketing expenses of $780,670, and general and administrative expenses of $417,526. These expenses compared to the $728,322 reported for the twelve months ended December 31,1999, consisting of salaries and wages of $197,125, professional fees of $184,697, sales and marketing expenses of $79,544, and general and administrative expenses of $266,956. The 159% increase in total operating expenses was due to additional expenses incurred in operating as a public company, the increased number of employees and outside services used to grow the business and our ongoing effort to develop the UTEK U2B(SM) brand. The 881% increase in sales and marketing expenses was largely due to increased efforts to reach a broader market for technology transfers and the cost of research and development programs funded to consummate those transfers. The 91% increase in salaries and wages reflects increased salary costs from the addition of two full-time Managers of Technology Alliances, an additional full-time Executive Assistant, as well as a full year of our President’s salary. The 68%
increase in professional fees is largely due to the cost associated with operating as a public company, reporting requirements of a public company, preparing the corporate and subsidiary tax returns, as well as additional attorneys’ fees for work related to intellectual property and complying with BDC regulatory requirements. The 56% increase in general and administrative costs is largely due to the increased services required and expenses related to the requirements of being a public company such as investor relations costs, printing and mailing costs, and other related costs.
Net Realized and Unrealized Gains and Income Taxes. Net realized gains on investments amounted to $23,715 for the twelve months ended December 31, 2000 and were generated from the sale of 75,027 shares of Lexon, Inc. common stock for $62,037 in cash. There were no realized gains (losses) for the twelve months ended December 31, 1999.
The net unrealized appreciation of investments decreased by $575,627 for the twelve months ended December 31, 2000, a 568% decrease from the increase in unrealized appreciation of $122,919 for the twelve months ended December 31, 1999. The net unrealized losses consisted of declines in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the twelve months ended December 31, 2000 related to our investments in Lexon, Inc., NuElectric Corporation., The Quantum Group, Inc., Centrex, Inc. and Nubar, Inc. Our investments in Lexon, Inc., NuElectric Corporation. and The Quantum Group, Inc., all publicly traded securities, lost value due to the existing volatile market. Torvec, Inc., however, offset some of the decline with an increase in value in the last quarter of 2000. Most of the decline in value occurred in the last two quarters, as the overall market started to decline. Centrex, Inc. and Nubar, Inc. are private companies whose net worth warranted a reduction in the Company’s carrying value.
The Company’s net realized and unrealized gains can vary substantially, due to a variety of factors, therefore, current results may or may not be indicative of the Company’s future performance.
Our effective tax rate was a provision of 37.8% for the twelve months ended December 31, 2000 compared with a provision of 51.3% for the twelve months ended December 31, 1999. Prior to October 16, 1999, the Company’s business was structured as a limited liability company (“LLC”). The LLC elected to be treated as a partnership under the provisions of Subchapter K of the Internal Revenue Code. Under those provisions, the LLC did not pay corporate income taxes on its taxable income. Instead, the owners of the LLC were individually liable for income taxes on the LLC’s taxable income. As of October 16, 1999, the Company is taxable as a C corporation. Therefore the provision for income taxes for the twelve months ended December 31, 2000 is not comparable to the provision for income taxes for the twelve months ended December 31, 1999.
Liquidity and Capital Resources
Net assets increased 17% to $9,909,440 at December 31, 2001 from $8,455,002 at December 31, 2000, attributable to income from operations, realized losses, the unrealized depreciation of non-controlled affiliate investments, the completion of a private placement, and the acquisition of PAX Technology Transfer, Ltd.
Our primary source of liquidity and capital through December 31, 2001 was from the issuance of common stock rather than income from operations. Our income from operations consists primarily of the sale of technology rights for equity securities rather than cash. Since inception, we have completed four private placement transactions resulting in proceeds of $375,617 in 2001, $1,305,807 in 1999 and $530,453 in 1998. We also received $162,480 in cash in 2001 for sales of our investments in non-controlled affiliates. In 2000, we completed the Company’s IPO with net proceeds of $4,047,849.
On December 31, 2001 we had $1,432,473 in cash and cash equivalents. We anticipate needing to raise additional equity to fund our operations and anticipated growth in our investment portfolio.
On September 10, 2001, the Company secured a $500,000 revolving line of credit with a local financial institution. Advances under the line of credit bear interest at the financial institution’s prime rate less .25%. The line of credit is due on demand and is secured by a pledge of a portion of our investments in non-controlled affiliates. At December 31, 2001, we had no borrowings outstanding under the line of credit. The balance due was $-0-.
Impact of New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually, or more frequently if impairment indicators arise. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The non-amortization provisions of SFAS 142 apply to goodwill and indefinite lived intangible assets acquired in a business combination after June 30, 2001. As a result, the goodwill recorded in connection with the Company’s acquisition of Pax Technology Transfer Ltd. will not be amortized. See Note 8 to the Consolidated Financial Statements under Item 8. The Company will apply the remaining provisions of SFAS 142 in the first quarter of 2002 and does not anticipate that application of those provisions will have a material impact on the Company’s financial position or its results of operations.
Item 	7A.
Item 	7A. Quantitative and Qualitative 	Disclosure About Market Risk
The Company’s business activities contain elements of risk. The Company considers a principal type of market risk to be valuation risk. Investments are stated at “fair value” as defined in the 1940 Act and in the applicable regulations of the SEC. All assets are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors. See “Investments” in the notes to Consolidated Financial Statements.
Neither the Company’s investments nor an investment in the Company is intended to constitute a balanced investment program. The Company has exposure to public-market price fluctuations to the extent of its publicly traded portfolio.
The Company has invested a substantial portion of its assets in private development stage or start-up companies. These private businesses tend to be thinly capitalized, unproven, small companies that lack management depth and have not attained profitability or have no history of operations. Because of the speculative nature and the lack of public market for these investments, there is significantly greater risk of loss than is the case with traditional investment securities. The Company expects that some of its investments will be a complete loss or will be unprofitable and that some will appear to be likely to become successful but never realize their potential.
Because there is typically no public market for the equity interests of the small companies in which the Company invests, the valuation of the equity interests in the Company’s portfolio is subject to the estimate of the Company’s Board of Directors in accordance with the Company’s Asset Valuation Policy Guidelines. In the absence of a readily ascertainable market value, the estimated value of the Company’s portfolio of equity interests may differ significantly from the values that would be placed on the portfolio if a ready market for the equity interests existed. Any changes in valuation are recorded in the Company’s consolidated statements of operations as “Net increase (decrease) in unrealized appreciation of non-controlled affiliate investments” in the period of change.
Item 8.
Item 8. Financial Statements and Supplementary Data
UTEK CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
UTEK Corporation
We have audited the accompanying consolidated balance sheets of UTEK Corporation, including the schedules of investments, as of December 31, 2001 and 2000, and the related consolidated statements of operations, cash flows, and changes in net assets for each of the three years in the period ended December 31, 2001, and selected per share data and ratios for each of the five years in the period ended December 31, 2001. These consolidated financial statements and selected per share data and ratios are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and selected per share data and ratios based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per share data and ratios are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included the physical inspection of securities owned as of December 31, 2001 and 2000. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and selected per share data and ratios referred to above present fairly, in all material respects, the consolidated financial position of UTEK Corporation at December 31, 2001 and 2000, and the consolidated results of its operations, its cash flows and changes in its net assets for each of the three years in the period ended December 31, 2001, and the selected per share data and ratios for each of the five years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP 	
Tampa, Florida
March 15, 2002
UTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
See accompanying notes
UTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes
UTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes
UTEK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
See accompanying notes
UTEK CORPORATION
Schedule of Investments
December 31, 2001
Notes to Schedule of Investments:
•
The above investments are non-income producing. 	Equity investments that have not paid dividends within the last 	twelve months are considered non-income producing. 	
•
The value of all restricted securities is 	determined in good faith by the Board of Directors. In making 	its determination, the Board of Directors may consider valuation 	appraisals provided by independent financial experts. (Notes 1 	and 2). 	
•
As of December 31, 2001, all of the 	securities that we have received in exchange for our portfolio 	companies are “restricted securities,” as that term is 	defined under Rule 144. These securities may not be sold in 	the absence of registration under the 1933 Act or an exemption 	therefrom. As a result, our ability to sell or otherwise 	transfer the securities we hold in our portfolio is limited. 	
•
The Company owns more than 10% of the outstanding 	common stock of each of the above investments with the exception 	of Graphco Technologies, Inc., Torvec, Inc., Lexon, Inc. and 	Prime Pharmaceutical Corporation. As such, the Company is deemed 	to be an affiliate of the above companies, as defined under 	Rule 144, except for those specifically noted. 	
See accompanying notes.
UTEK CORPORATION
Schedule of Investments
December 31, 2000
Notes to Schedule of Investments:
•
The above investments are non-income producing. 	Equity investments that have not paid dividends within the last 	twelve months are considered non-income producing. 	
•
The value of all restricted securities is 	determined in good faith by the Board of Directors. In making 	its determination, the Board of Directors may consider valuation 	appraisals provided by independent financial experts. (Notes 1 	and 2). 	
•
As of December 31, 2000, all of the 	securities that we have received in exchange for our portfolio 	companies are “restricted securities,” as that term is 	defined under Rule 144. These securities may not be sold in 	the absence of registration under the 1933 Act or an exemption 	there from. As a result, our ability to sell or otherwise 	transfer the securities we hold in our portfolio will be limited. 	
•
The Company owns more than 10% of the outstanding 	common stock of each of the above investments with the exception 	of Graphco Technologies, Inc., Torvec, Inc. and The Quantum 	Group, Inc. As such, the Company is deemed to be an affiliate of 	the above companies, as defined under Rule 144. 	
See accompanying notes
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business and significant accounting policies
The Company
We are a non-diversified, closed-end management investment company that has elected to be treated as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”).
We commenced operations in 1997 as UTEK Corporation (“UTEK Florida”), which was incorporated under the laws of the State of Florida in August 1996. UTEK Florida was engaged in the business of technology transfer. On December 31, 1998, we formed UTEK, LLC, a limited liability company organized under the laws of the State of Florida. Subsequent thereto, the shareholders of UTEK Florida exchanged their shares of common stock for membership units in UTEK, LLC. In July 1999, we formed UTEK Corporation under the laws of the State of Delaware and in October 1999, UTEK LLC was merged into UTEK Corporation. In September 2001, UTEK Corporation acquired 100% of PAX Technology Transfer Ltd., a United Kingdom corporation, in a stock for stock transaction. See Note 8.
As a BDC, we must be primarily engaged in the business of furnishing capital and managerial assistance to companies that do not have ready access to capital through conventional financial channels. Such companies are termed “portfolio” companies.
The Company invests in portfolio companies that management believes are positioned to benefit from the acquisition of new technology. The Company’s investments in portfolio companies generally are used by the portfolio companies to acquire the license rights to new technologies developed at universities and/or government research facilities. The Company provides portfolio companies with managerial assistance in technology transfer. Technology transfer is the process by which technologies developed by universities or research laboratories are licensed to companies for commercial use. The Company also may make additional investments to fund continued research and development of the acquired technologies.
The Company seeks “merger partners” for portfolio companies, whereby the Company receives common stock in the merger partner in a non-taxable exchange for shares of the portfolio company. The Company generally seeks merger partners that are in the early stages of development. The merger partners normally have little or no prior operating history.
To facilitate establishing on-going consulting engagements with its clients, the Company has developed a strategic alliance process. UTEK’s strategic alliances are designed to help technology companies rapidly enhance their new product pipeline through the acquisition of proprietary intellectual capital from universities and federal laboratories.
Principles of Consolidation
The consolidated financial statements include the accounts of UTEK Corporation and its wholly owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation. Portfolio companies are consolidated with the Company prior to the exchange of their shares with a merger partner.
Impairment of Long-lived Assets
The Company reviews long-lived assets, including goodwill, for impairment. Such assets are written down to fair value when events or changes in circumstances indicate that the carrying value may not be recoverable.
Intangible Assets
Intangible assets consist primarily of the excess cost over the fair value of net identifiable assets acquired (goodwill) relating to the September 28, 2001 acquisition of Pax Technology Transfer, Ltd. The Company applied the non-amortization provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets and as a result, the related goodwill in not being amortized.
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Nature of business and significant accounting policies - (Continued)
Segment Disclosures
Management considers the Company as operating in only one segment, the transfer of new technologies through the sale of portfolio companies. A subsidiary of UTEK Corporation has assets in the United Kingdom, however, the assets and operations are not significant.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Investments
Pursuant to the requirements of the 1940 Act, our Board of Directors is responsible for determining, in good faith, the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on sale are generally valued at a discount from the public market value of the securities.
The Board of Directors bases its determination upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.
Without a readily ascertainable market value, the estimated value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. Equity securities at December 31, 2001 and 2000 (100.8% and 70.4% of net assets, respectively) are stated at fair value as determined by the Board of Directors, in the absence of readily ascertainable fair values.
Cash and Cash Equivalents
The Company considers all highly liquid fixed income investments with maturities of three months or less to be cash equivalents.
Short-term Investments
The Company has a cash management program which provides for the investment of excess cash balances primarily in short-term commercial paper, treasury bills and mutual funds. The Company classifies all of its short-term investments as available-for-sale securities. Such short-term investments consist of a mutual fund which is stated at market value, with unrealized gains and losses on such securities reflected, net of tax, in net assets. Realized gains and losses on short-term investments are included in earnings and are derived using the specific identification method for determining the cost of securities.
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Nature of business and significant accounting policies - (Continued)
Income Taxes
The Company does not qualify as a Regulated Investment Company for income tax purposes. Therefore, the Company is taxed as a regular corporation for federal and state income tax purposes.
Revenue Recognition
Effective January 1, 2000, the Company adopted the provisions of SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (“SAB 101”). SAB 101 provides guidance on the recognition, presentation and disclosures of revenue in financial statements. The adoption of SAB 101 had no material impact on the Company’s financial statements.
The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of portfolio companies with unrelated merger partners. The Company records revenue based on the value of the consideration received. In most cases, the consideration received for the rights is the common stock of the purchaser. The common stock received is recorded as an investment at value. Revenue derived from consulting services is recognized as earned, over the life of the underlying consulting agreements. In some cases, the Company is paid a fee for negotiating a successful technology transfer. In these instances, revenue is recognized upon consummation of the transaction.
Revenue from strategic alliance agreements are deferred and recognized over the term of each agreement, typically twelve months. These agreements are cancelable at any time.
The Company’s consolidated subsidiary derives its revenue primarily from consulting contracts with third parties. Revenue from consulting contracts are deferred and recognized ratably over the term of the contract, typically ninety days.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets (generally two to five years). Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.
Stock Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its qualified and nonqualified stock options and has adopted the disclosure-only option under Statements of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123).
Concentrations of Credit Risk
Cash and cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. The estimated fair value of financial instruments approximates the carrying value based on available market information. The Company invests its excess available funds primarily in U.S. Government backed securities. The Company’s customers are typically located in the United States.
Research and Development
Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at discovery of new knowledge that will be useful in developing new products or processes. The Company expenses all research and development costs as they are incurred. For the year December 31, 1999, the Company incurred no such costs. For the years ended December 31, 2001 and 2000, the Company
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Nature of business and significant accounting policies - (Continued)
incurred $356,000 and $375,000, respectively, in such costs, which is classified as sales and marketing expense in the consolidated statements of operations.
Foreign currency translation
The Company translates the assets and liabilities of its non-U.S. functional currency subsidiary into dollars at the current rates of exchange in effect at the end of each reporting period. Revenues and expenses are translated using rates that approximate those in effect during the period. Translation adjustments are included in net assets under the caption “Foreign currency translation adjustment.”
Reclassifications
Certain amounts for 1999 and 2000 in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation.
Impact of New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually, or more frequently if impairment indicators arise. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The non-amortization provisions of SFAS 142 apply to goodwill and indefinite lived intangible assets acquired in a business combination after June 30, 2001. As a result, the goodwill recorded in connection with the Company’s acquisition of Pax Technology Transfer Ltd. will not be amortized. See Note 8 to the Consolidated Financial Statements under Item 8. The Company will apply the remaining provisions of SFAS 142 in the first quarter of 2002 and does not anticipate that application of those provisions will have a material impact on the Company’s financial position or its results of operations.
2. Investments
Equity securities at December 31, 2001 and December 31, 2000, (100.8% and 70.4% of net assets) respectively were valued at fair value as determined by the Board of Directors, in the absence of readily ascertainable market values.
The values assigned to these securities are based upon available information and do not reflect amounts that could be realized upon immediate sale, nor amounts that ultimately may be realized. Accordingly, the fair values included in the schedule of investments may differ from the values that would have been used had a ready market existed for these securities and such differences could be significant.
As of December 31, 2001 and December 31, 2000, the Company had established four and eight portfolio companies, respectively, with net assets of $0 and $740, respectively, which are included in other assets.
On January 28, 2000, the Company sold its Cancer Diagnostic, Inc. portfolio company to Lexon, Inc. for $200,000. The Company received $170,000 in cash and 236,000 shares were issued in March 2001 for the remaining balance and accrued interest on the note.
On March 21, 2000, the Company sold its Digital Personnel, Inc. portfolio company to a subsidiary of Graphco Technologies, Inc. (“GTC”) for 100,799 shares of GTC common stock in a non-taxable exchange.
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Investments - (Continued)
On June 24, 2000, the Company sold its Advanced Recycling Sciences, Inc. portfolio company to The Quantum Group, Inc. for 931,000 unregistered shares of The Quantum Group, Inc. common stock in a non-taxable exchange.
On September 21, 2000, the Company sold its Zorax, Inc. portfolio company to NuElectric Corporation for 546,000 unregistered shares of NuElectric Corporation common stock in a non-taxable exchange.
On November 29, 2000, the Company sold its Ice Surface Development, Inc. portfolio company to Torvec, Inc. for 1,068,354 unregistered shares of Torvec, Inc. common stock in a non-taxable exchange.
On February 19, 2001, the Company sold its Technology Development, Inc. portfolio company to Advanced Recycling Sciences, Inc., (formerly known as The Quantum Group, Inc.) for 1,446,153 unregistered shares of Advanced Recycling Sciences, Inc. common stock in a non-taxable exchange.
On April 20, 2001, the Company sold its Watermark Technologies, Inc. portfolio company to Bitzmart, Inc. for 450,000 unregistered shares of Bitzmart, Inc. common stock in a non-taxable exchange.
On May 31, 2001, the Company sold its Micro Sensor Technologies, Inc. portfolio company to Sense Holdings, Inc. for 1,850,000 unregistered shares of Sense Holdings, Inc. common stock in a non-taxable exchange.
On September 28, 2001, the Company sold its Advanced Microsphere Technology, Inc. portfolio company to Prime Pharmaceutical Corporation for 560,000 shares of Prime Pharmaceutical Corporation common stock in a non-taxable exchange.
On August 14, 2001, the Company acquired 41,667 unregistered shares from Bitzmart, Inc. at $3.00 per share for $125,000.
On September 27, 2001, the Company acquired 250,000 unregistered shares from Prime Pharmaceutical Corporation at $.60 per share for $150,000.
On September 14, 2001, the Company received 100,000 unregistered shares from Bitzmart, Inc. at $2.31 per share in a strategic alliance agreement.
On October 29, 2001, the Company received 1,000,000 unregistered shares of Primapharm Funding Corporation in a strategic alliance agreement. For the period ended December 31, 2001, the Company recognized consulting fees relating to 42,743 shares at the valuation price of $.14.
On November 1, 2001, the Company received 50,000 unregistered shares of Bitzmart, Inc. at $2.91 per share in a strategic alliance agreement, all of which was recognized as consulting fees for the period ended December 31, 2001.
On November 28, 2001, the Company received 400,000 unregistered shares of USAOnestar.net, Inc. in a strategic alliance agreement. For the period ended December 31, 2001, the Company recognized consulting fees relating to 145,206 shares at the valuation price of $.49.
3. Fixed Assets
Fixed assets consist of the following:
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Income Taxes
Prior to October 14, 1999, the Company’s business was structured as a limited liability company (“LLC”). The LLC elected to be treated as a partnership under the provisions of Subchapter K of the Internal Revenue Code. Under those provisions, the LLC did not pay corporate income taxes on its taxable income. Instead, the owners of the LLC were individually liable for income taxes on the LLC’s taxable income. The LLC’s subsidiaries, including UTEK Holdings and UTEK Corporation, were all taxed as C corporations.
On October 14, 1999, the Company restructured its business, whereby the members of the LLC contributed their membership interests to the Company, a newly created corporation. As a result, all of the LLC’s assets, including the stock of its subsidiaries, were transferred to the Company and the LLC was dissolved. In addition, UTEK Holdings and UTEK Corporation were liquidated into the Company. As of October 14, 1999, the Company is taxable as a C corporation.
The Company accounts for income taxes under FASB No. 109, “Accounting for Income Taxes” (SFAS No. 109). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The components of the income tax provision on operations, excluding income tax expense (benefit) on realized gains (losses) and unrealized appreciation (depreciation) of investments are as follows:
A reconciliation of the differences between the effective income tax rate and the statutory federal tax rate follows:
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Income Taxes - (Continued)
Significant components of the Company’s deferred tax assets and liabilities are as follows:
SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance was not necessary as of December 31, 2001 and 2000.
At December 31, 2001, the Company has available U.S. net operating loss carryforwards of approximately $2,315,000, which expire in years 2012, 2018, 2019, 2020 and 2021, and UK net operating loss carryforwards of $8,000 which carryforward indefinitely. At December 31, 2001 the Company has a capital loss carryforward of approximately $139,000, which will expire in 2006.
On a pro forma basis, if the Company were a taxable entity for all periods, the Company would have recognized the benefit of additional taxable losses in 1999 of approximately $209,000. The unaudited 1999 pro forma tax provision on operations, presented as if the Company were a taxable entity for all periods presented and calculated in accordance with SFAS No. 109, is as follows:
A reconciliation of the differences between the 1999 pro forma effective income tax rate and the pro forma statutory federal tax rate follows:
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5.
Stockholder’s Equity
Transactions in common stock for the three years ended December 31, 2001 were as follows:
Pursuant to the IPO agreement, the Company issued 100,000 warrants on October 25, 2000 at $.0003 to the underwriter, to purchase an equal number of shares of the Company’s common stock. These warrants are exercisable over the next four years at $9.90 per share. The warrants expire on October 25, 2005.
6. Stock Compensation, Employment Agreements and Stock Options
The Company accounts for stock grants to employees in exchange for services in accordance with APB No 25, “Accounting for Stock Issued to Employees”. Stock grants to non-employees in exchange for services are accounted for in accordance with FAS 123, “Accounting for Stock-Based Compensation”. Expenses related to stock grants to employees and non-employees during fiscal 2001, 2000, and 1999 amounted to $0, $0, and $204,000, respectively.
Effective September 1, 1999, the Company entered into five year employment agreements with its CEO and President providing for an annual base salary of $150,000, and $100,000, respectively, for their services. Effective February 20, 2001, the Company entered into a one year employment agreement with its CFO providing for an annual base salary of $90,000 for his services. Effective March 31, 2002 the CFO resigned.
In the year ended December 31, 1999, the Company reserved 750,000 shares of common stock for issuance in connection with the stock option plans. The Company adopted an incentive stock option plan in September 1999 (the “1999 Plan”) and a non-qualified stock option plan in February 2000 (the “2000 Plan”). Under the terms of the 1999 Plan, the Company is authorized to issue options to purchase up to 500,000 shares of the Company’s common stock. The options are intended to be incentive stock options within the meaning of Section 422 of the Internal Revenue Code (the “Code”), however, options may be issued under the 1999 Plan that do not qualify for incentive treatment under the Code. Under the terms of the 2000 Plan, the Company is authorized to issue options to purchase up to 250,000 shares of the Company’s common stock. Under the 2000 Plan, the Company may only issue options that do not qualify for incentive treatment under Section 422 of the Code. The per share exercise price of each stock option granted under the 1999 Plan and the 2000 Plan must be equal to the quoted fair market value of the stock on the date of grant, except in the case of a more than 10% shareholder for which grants are exercisable at 110% of fair market value of the stock on the date of grant. At December 31, 2001, 448,000 options from the 1999 Plan had been granted and 50,000 options from the 2000 Plan had been granted.
Pursuant to SFAS No. 123 “Accounting for Stock-Based Compensation,” the Company has elected to account for its stock option plan under APB Opinion 25, “Accounting for Stock Issued to Employees,” and
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Stock Compensation, Employment Agreements and Stock Options - (Continued)
adopt the disclosure-only provisions of SFAS No. 123. Under APB 25, no compensation costs were recognized relating to the option grants because the exercise price of the options awarded was equal to the fair market price of the common stock on the dates of grant. Under SFAS No. 123, the net increase in net assets from operations would have decreased by $197,692, or $0.05 per share, for the year ended December 31, 2001.
The fair value of each option granted in 2001 was estimated using the Black-Scholes option-pricing model with the following assumptions:
A summary of the Company’s stock option activity, and related information follows:
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Stock Compensation, Employment Agreements and Stock Options - (Continued)
Approximately 205,750 options were exercisable at December 31, 2001. The exercise price range of outstanding options at December 31, 2001 follows:
The weighted-average remaining contractual life of the outstanding options is approximately four years, and the initial term for options is generally five years.
7. Commitments and Contingencies
On September 10, 2001, the Company obtained a revolving line of credit with a local financial institution. This line of credit allows the Company to borrow up to $500,000, with a rate of interest at .25 percentage points under prime. The line of credit is due on demand and is secured by a pledge of a portion of the Company’s investments in non-controlled affiliates. At December 31, 2001 the balance due was $-0-.
On September 13, 2000, the Company obtained a revolving line of credit with a local financial institution. This line of credit in allows the Company to borrow up to $150,000, with a rate of interest at the institution’s prime rate (9.5% at December 31, 2000). The line of credit is due on demand and is secured by a pledge of a portion of the Company’s investments in non-controlled affiliates and the personal guarantees of the chief executive officer, a director, and a shareholder. The amount due to the bank at December 31, 2000 was $39,975. The Company paid this line of credit in full and cancelled the line in March 2001.
The Company has operating leases for its corporate offices in the United States and the United Kingdom. During fiscal year 2001, 2000, and 1999, rental expense related to these leases was $20,275, $18,993, and $16,937, respectively.
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Commitments and Contingencies - (Continued)
At December 31, 2001, future minimum payments under the operating lease is as follows:
8. Acquisition
On September 28, 2001, the Company acquired the stock of PAX Technology Transfer Ltd., a United Kingdom corporation. This acquisition was made with the issuance of 59,460 shares of unregistered common stock valued at $7.40 per share. This acquisition has been accounted for under the purchase method of accounting applying the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations and accordingly, the operating results have been included in the Company’s consolidated results of operations from the date of acquisition. The excess of the consideration given over the fair value of net identifiable assets acquired was approximately $431,000 and was recorded as goodwill. None of the goodwill will be deductible for income tax purposes.
9. Related Party Transactions
Carl Nisser, one of the Company’s directors was also associated with the Company’s former counsel, Gersten, Savage & Kaplowitz, LLP, with whom he served in an of counsel capacity. In addition in connection with the October 2000 initial public offering, Mr. Nisser received approximately 30% of the fees payable to Gersten, Savage & Kaplowitz, LLP, (approximately $47,000).
Sam Reiber, the Company’s General Counsel and a director of the Company is also a partner with the law firm Linsky & Reiber in Tampa, Florida. Linsky & Reiber has received approximately $33,000 and $67,000 in December 31, 2001 and 2000, respectively, in compensation during the past fiscal year for services performed for the Company and holds 6,100 shares of the Company stock.
10. Interim Financial Information (Unaudited)
UTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Subsequent Events (unaudited)
Charles Pope resigned as our Chief Financial Officer effective March 31, 2002.
On March 25, 2002, our shares of common stock commenced trading on the American Stock Exchange (AMEX) under the symbol “UTK”. In conjunction with our move to AMEX, our common stock no longer trades on the Nasdaq Small Cap Market.
SELECTED PER SHARE DATA AND RATIOS
(1)
Calculated based on diluted weighted average 	number of shares outstanding during the year. 	
(2)
Not applicable - Prior to public offering of 	shares. 	
(3)
Excluding income taxes. 	
Item 9.
Item 9.
Changes in and Disagreements with 	Accountants on Accounting and Financial 	Disclosures
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption “ELECTION OF DIRECTORS,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days from the fiscal year end, is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information set forth under the caption “COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS,” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days from the fiscal year end, is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS,” in the Company’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days from the fiscal year end, is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption “CERTAIN TRANSACTIONS” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days from the fiscal year end, is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
	1. Financial Statements - The 	following financial statements of the Company are contained in 	Item 8 of this Form 10-K: 	
•
Consolidated Balance Sheets - At 	December 31, 2001 and 2000 	
•
Consolidated Statements of Operations - 	For the fiscal years ended December 31, 2001, 2000 and 1999 	
•
Consolidated Statements of Cash Flows - 	For the fiscal years ended December 31, 2001, 2000 and 1999 	
•
Consolidated Statements of Changes in Net 	Assets - For the fiscal years ended December 31, 	2001, 2000 and 1999 	
•
Schedule of Investments - For the 	fiscal years ended December 31, 2001 and 2000 	
•
Notes to the Financial Statements 	
•
Selected Per Share Data and Ratios for the years 	ended December 31, 2001, 2000, 1999, 1998, and 1997 	
•
Report of Independent Certified Public Accountants 	
	2. Financial Statement Schedules were 	omitted as they are not required or are not applicable, or the 	required information is included in the Financial Statements. 	
	3. Exhibits 	
a. The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the Securities Exchange Act of 1934.
*
Filed Herewith. 	
(1)
Incorporated by reference to Exhibit 3.1 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(2)
Incorporated by reference to Exhibit 3.2 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(3)
Incorporated by reference to Exhibit 3.3 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(4)
Incorporated by reference to Exhibit 4.1 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(5)
Incorporated by reference to Exhibit 4.2 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(6)
Incorporated by reference to Exhibit 4.3 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(7)
Incorporated by reference to Exhibit 10.1 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(8)
Incorporated by reference to Exhibit 10.2 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(9)
Incorporated by reference to Exhibit 10.3 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(10)
Incorporated by reference to Exhibit 10.4 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(11)
Incorporated by reference to Exhibit 10.5 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(12)
Incorporated by reference to Exhibit 10.6 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(13)
Incorporated by reference to Exhibit 10.7 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(14)
Incorporated by reference to Exhibit 10.8 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(15)
Incorporated by reference to Exhibit 10.9 to 	the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(16)
Incorporated by reference to Exhibit 10.10 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(17)
Incorporated by reference to Exhibit 10.11 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(18)
Incorporated by reference to Exhibit 10.12 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(19)
Incorporated by reference to Exhibit 10.13 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(20)
Incorporated by reference to Exhibit 10.14 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(21)
Incorporated by reference to Exhibit 10.15 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(22)
Incorporated by reference to Exhibit 10.16 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(23)
Incorporated by reference to Exhibit 10.17 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(24)
Incorporated by reference to Exhibit 10.18 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(25)
Incorporated by reference to Exhibit 10.19 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(26)
Incorporated by reference to Exhibit 10.20 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(27)
Incorporated by reference to Exhibit 10.21 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(28)
Incorporated by reference to Exhibit 10.22 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(29)
Incorporated by reference to Exhibit 10.23 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(30)
Incorporated by reference to Exhibit 10.24 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(31)
Incorporated by reference to Exhibit 10.25 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(32)
Incorporated by reference to Exhibit 10.26 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(33)
Incorporated by reference to Exhibit 10.27 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(34)
Incorporated by reference to Exhibit 10.28 	to the Company’s registration statement on Form N-2A 	filed with the Commission on October 2, 2000 (File 	No. 333-93913). 	
(35)
Incorporated by reference to Exhibit 10.1 to 	the Company’s report on Form 10-Q for the quarter 	ended September 30, 2000. 	
(36)
Incorporated by reference to Exhibit 10.30 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(37)
Incorporated by reference to Exhibit 10.31 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(38)
Incorporated by reference to Exhibit 10.32 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(39)
Incorporated by reference to Exhibit 10.33 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(40)
Incorporated by reference to Exhibit 2 to 	the Company’s report on Form 8-K filed on 	March 6, 2001. 	
(41)
Incorporated by reference to Exhibit 10.35 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(42)
Incorporated by reference to Exhibit 10.36 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(43)
Incorporated by reference to Exhibit 10.37 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(44)
Incorporated by reference to Exhibit 10.38 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(45)
Incorporated by reference to Exhibit 10.39 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(46)
Incorporated by reference to Exhibit 10.40 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(47)
Incorporated by reference to Exhibit 10.41 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(48)
Incorporated by reference to Exhibit 10.42 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(49)
Incorporated by reference to Exhibit 10.43 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(50)
Incorporated by reference to Exhibit 10.44 	to the Company’s report on Form 10-K for the year 	ended December 31, 2000. 	
(51)
Incorporated by reference to Exhibit 10.45 	to the Company’s report on Form 10-K for the year 	ended September 30, 2001. 	
(52)
Incorporated by reference to Exhibit 10.46 	to the Company’s report on Form 10-K for the year 	ended September 30, 2001. 	
(53)
Incorporated by reference to Exhibit 99 to 	the Company’s report on Form 10-K for the year ended 	December 31, 2000. 	
b.
No reports on Form 8-K were filed by the 	Company during the quarter ended December 31, 2001. 	
c.
Financial Statement Schedules were omitted, as 	they are not required or not applicable, or the required 	information is included in the consolidated financial statements 	and/ or related notes. 	
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 29, 2002.
UTEK CORPORATION 	
By:
/s/ CLIFFORD M. GROSS 	
Clifford M. Gross 	
Chief Executive Officer 	
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
EXHIBIT INDEX
The following exhibits are filed with this report in accordance with Rule 12b-32 under the Securities Exchange Act of 1934.