SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2004

COMMISSION FILE NUMBER: 001-15941

UTEK CORPORATION

DELAWARE
(State or Jurisdiction of
Incorporation or Organization)

59-3603677
(IRS Employer
Identification No.)

202 S. Wheeler Street
Plant City, FL 33563
(Address of Principal Executive Offices)

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). YES o NO x

On May 2, 2004, there were 5,429,251 shares outstanding of the
Registrant’s common stock, $0.01 par value.

Page 1 of 33

UTEK CORPORATION

FORM 10-Q TABLE OF CONTENTS

Page 2 of 33

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UTEK Corporation
Consolidated Balance Sheets

See accompanying notes

Page 3 of 33

UTEK Corporation
Consolidated Statements of Operations
(Unaudited)

See accompanying notes

Page 4 of 33

UTEK Corporation
Consolidated Statements of Cash Flows
(Unaudited)

See accompanying notes

Page 5 of 33

UTEK Corporation
Consolidated Statements of Changes in Net Assets
(Unaudited)

See accompanying notes

Page 6 of 33

UTEK Corporation
Financial Highlights
(Unaudited)

See accompanying notes

Page 7 of 33

UTEK CORPORATION
Schedule of Investments
March 31, 2004

Page 8 of 33

Notes to Schedule of Investments:

	•		The above investments with the exception of Rosbon, LLC are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.
	•		The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Notes 1 and 2 to the consolidated financial statements).
	•		As of March 31, 2004, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited.
	•		We own more than 10% of the outstanding common stock of Image Analysis, Inc., Nubar, Inc., Clean Water Technologies, Inc., Rosbon LLC, Stealth MediaLabs, Inc., Circle Group Holdings, Inc., and Primapharm Funding Corporation.

See accompanying notes

Page 9 of 33

UTEK CORPORATION
Schedule of Investments
December 31, 2003

Page 10 of 33

Notes to Schedule of Investments:

	•		The above investments with the exception of Rosbon, LLC are non-income producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.
	•		The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Notes 1 and 2 to the consolidated financial statements).
	•		As of December 31, 2003, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer the securities we hold in our portfolio is limited.
	•		We own more than 10% of the outstanding common stock of Image Analysis, Inc., Nubar, Inc., Clean Water Technologies, Inc., Rosbon LLC, Stealth MediaLabs, Inc., Circle Group Holdings, Inc., GloTech Industries, Inc. and Primapharm Funding Corporation.

See accompanying notes

Page 11 of 33

UTEK Corporation
Notes to Consolidated Financial Statements
(Information as of March 31, 2004 and 2003 and for each of the three months periods
then ended is unaudited)

1. Nature of Business and Significant Accounting Policies

Interim Financial Information

     The financial information for UTEK Corporation (the “Company”) as of March 31, 2004 and 2003 and for three month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals) which, in the opinion of management are necessary in order to make the financial statements not misleading at such dates and for those periods. These financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. These consolidated financial statements should be read in conjunction with the consolidated audited financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the entire year.

The Company

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

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

In September 2001, UTEK Corporation acquired 100% of the outstanding common stock of PAX Technology Transfer Ltd., a United Kingdom corporation, in a stock for stock transaction. In May 2002, UTEK Corporation acquired 100% of the outstanding common stock of TechEx Acquisition Corporation (“TechEx”) in a stock for stock transaction. TechEx owned the TechEx.com website. The TechEx.com website, founded at Yale University, is used by many technology transfer and research professionals to efficiently exchange biomedical licensing opportunities and innovations available for partnering. The financial position and results of operation of PAX Technology Transfer Ltd. and Techex Acquisition Corporation have been consolidated into the financial position and results of operation of the Company, since the dates of their respective acquisition.

In November 2003, UTEK Corporation acquired the UVentures.com website and certain other intellectual property assets from UVentures, Inc., an innovative Internet-based exchange primarily used for the marketing of physical science technologies developed at universities and research organizations.

As a BDC, we must be primarily engaged in the business of furnishing capital and making available managerial assistance to companies that generally do not have ready access to capital through conventional financial channels. Such companies are termed “portfolio” companies.

The Company invests in portfolio companies that management believes are positioned to benefit from the acquisition of new technology. The Company’s investments in portfolio companies generally are used by the portfolio companies to acquire the license rights to new technologies developed at universities and/or government research facilities. The Company offers to provide portfolio companies with managerial assistance primarily related to technology transfer. Technology transfer is the process by which technologies developed by universities or research laboratories are licensed to companies for commercial use. The Company also may make additional investments to fund continued research and development of the acquired technologies, but has not done so to date.

Usually we have executed or will execute our investments in portfolio companies through the creation and capitalization of a wholly owned subsidiary company of UTEK, which we refer to as an intellectual property acquisition company, to acquire a new technology. We will then seek to sell such intellectual property acquisition company to a company in a non-taxable exchange of shares. In connection with such transaction, we receive shares of common stock in the company (which company then becomes a portfolio company) in exchange for the securities of our intellectual property acquisition company. In addition to holding a license to a new technology, our intellectual property acquisition company may also hold cash and other assets. The companies which we engage in such transactions frequently have little or no prior operating history.

Page 12 of 33

     To establish on-going consulting engagements with its clients, the Company has also developed a strategic alliance arrangement. UTEK’s strategic alliances are designed to help technology companies rapidly enhance their new product pipeline through the acquisition of proprietary intellectual capital from universities and federal laboratories. Some of our strategic alliance clients engage us to license their existing proprietary technologies.

Investments

     Pursuant to the requirements of the Investment Company Act of 1940 (the “1940 Act”), our Board of Directors is responsible for determining, in good faith, the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. With respect to equity securities in privately-owned companies, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on resale are generally valued at a discount from the market value of the securities as quoted on a national securities exchange or national securities association. In addition restricted and unrestricted publicly traded stocks may also be valued at further discounts due to the size of our investment or market liquidity concerns.

     The Board of Directors bases its determination upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.

     Without a readily available market value, the value of our portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities. All equity securities owned at March 31, 2004 and December 31, 2003, (92.0% and 69.5% of net assets, respectively) are stated at fair value as determined by the Board of Directors, in the absence of readily available fair values. The Company uses the first-in, first-out (FIFO) method of accounting for sales of its investments.

Revenue Recognition

Sale Of Technology Rights

     The Company recognizes revenue from the sale of technology rights upon the exchange of the shares of our intellectual property acquisition companies with other companies (which companies then become our portfolio companies). The Company records revenue, based on the fair value as determined by the Board of Directors, of the consideration received. In most cases, the consideration received for the rights is unregistered shares of common stock of the portfolio company. The common stock received is recorded as an investment at fair value as determined by the Board of Directors.

Consulting and Other Services

     In addition to technology transfer transactions, we offer the strategic alliance consulting services. A method of technology transfer already being used by PAX Technology Transfer Ltd., strategic alliance services are performed pursuant to service agreements (usually one year in length) in which UTEK provides consulting services by identifying and evaluating technology acquisition opportunities in exchange for unregistered shares of the company, or cash. These agreements are cancelable at any time.

     Revenues from strategic alliance agreements in which unregistered shares of common stock are received before they are earned are deferred and recognized over the term of each agreement. For strategic alliance agreements in which the stock is received ratably over the agreement, revenue is recognized as earned. The common stock received as payment is recorded as an investment at fair value as determined by the Board of Directors. In some cases the Company is paid a fee in connection with a technology transfer transaction. In these instances, revenue is recognized upon consummation of the transaction.

     The Company’s consolidated subsidiary, PAX Technology Transfer, Ltd., derives its revenue primarily from consulting contracts with third parties. Revenue from consulting contracts is recognized ratably over the term of the contract, typically ninety days. These contracts are generally paid in the form of cash.

     Revenue from the sale of subscriptions to the TechEx.com and UVentures.com websites generally is received in the form of cash and initially is deferred and subsequently recognized ratably over the term of the subscription.

Page 13 of 33

Foreign currency translation

     The Company translates the assets and liabilities of its non-U.S. functional currency subsidiary into dollars at the current rates of exchange in effect at the end of each reporting period. Revenues and expenses are translated using rates that approximate those in effect during the period. Translation adjustments are included in the Consolidated Balance Sheets under the caption “Foreign currency translation adjustment.”

Stock-Based Compensation

At March 31, 2004, the Company had the following two stock-based equity compensation plans: The UTEK Corporation Stock Option Plan and 2000 Non-Qualified Stock Option Plan of UTEK Corporation. The Company accounts for these plans and related grants thereunder using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees”. No stock-based employee compensation cost is reflected in net increase (decrease) in net assets from operations, as all of the options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect of the net increase (decrease) in net assets from operations and the net increase (decrease) in net assets from operations per share if the Company had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-based Compensation” to the stock-based employee awards.

The pro forma net increase (decrease) in net assets from operations and basic and diluted earnings per share for the quarters ended March 31, 2004 and 2003 would have been as follows:

During the quarter ended March 31, 2004, there were no options granted.

2. Investments

     Equity securities at March 31, 2004 and December 31, 2003 (92.0 % and 69.5% of net assets, respectively) were valued at fair value as determined by the Board of Directors, with the assistance of appraisals provided by an independent valuation service provider, in the absence of readily available market values.

     The values assigned to these securities are based upon available information and may not reflect amounts that could be realized if the Company found it necessary to immediately sell such securities, or amounts that ultimately may be realized. Accordingly, the fair values included in the accompanying schedule of investments may differ from the values that would have been used had a ready market existed for these securities and such differences could be significant.

     As of March 31, 2004 and 2003, the Company had established three and four intellectual property acquisition companies, respectively, which had $-0- net assets.

Page 14 of 33

     On March 4, 2003, Peak Entertainment Holdings, Inc. (formerly Palladium Communications, Inc.) completed a 100 for 1 reverse split, which reduced the number of shares the Company holds to 4,000 from 400,000 shares.

     On March 18, 2003, the Company received 160,000 unregistered shares of common stock from Sequiam Corporation in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 125,778 shares.

     On March 26, 2003, the Company received 35,294 unregistered shares of common stock from Graphco Technologies, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 26,953 shares.

     On March 26, 2003, the Company received 821,429 unregistered shares of common stock from Circle Group Holdings, Inc. in connection with an assignment of a technology license.

     On April 11, 2003, the Company received 68,571 unregistered shares of common stock from GloTech Industries, Inc., (now known as Intra-Asia Entertainment Corp.) in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 49,141 shares.

     On June 17, 2003, the Company received 34,000 unregistered shares of common stock from E Med Future, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 18,228 shares.

     On June 23, 2003, the Company sold its Advanced Illumination Technologies, Inc. intellectual property acquisition company to GloTech Industries, Inc., (now known as Intra-Asia Entertainment Corp.) for 1,000,000 unregistered shares of GloTech Industries, Inc.’s common stock in a non-taxable exchange.

     On July 23, 2003, the Company received 130,208 unregistered shares of common stock from Circle Group Holdings, Inc. in connection with an assignment of a technology license.

     On August 28, 2003, the Company sold its Sports Technologies, Inc. intellectual property acquisition company to GloTech Industries, Inc., (now known as Intra-Asia Entertainment Corp.) for 2,130,000 unregistered shares of GloTech Industries, Inc.’s common stock in a non-taxable exchange.

     On September 10, 2003, the Company sold its Fingerprint Detection Technologies, Inc. intellectual property acquisition company to Sequiam Corporation for 485,000 unregistered shares of Sequiam Corporation’s common stock in a non-taxable exchange.

     On December 3, 2003, the Company received 545,000 unregistered shares of common stock from Magic Media Networks, Inc. in a six-month strategic alliance agreement. The Company has recognized consulting fees to date relating to 82,043 shares.

     On December 10, 2003, the Company received 240,000 unregistered shares of common stock from AssureTec Holdings, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 13,548 shares

     On December 30, 2003, the Company sold its Medical Safety Technologies, Inc. intellectual property acquisition company to E Med Future, Inc. for 1,250,000 unregistered shares of E Med Future, Inc.’s common stock in a non-taxable exchange.

     On January 26, 2004, the Company received 30,000 unregistered shares of common stock from GeneThera, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 6,694 shares.

     On February 18, 2004, the Company received 38,585 unregistered shares of common stock from Telkonet, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 4,545 shares.

     On February 17, 2004, the Company received 705,882 unregistered shares of common stock from ZKid Network Company in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 105,476 shares.

     On March 12, 2004, the Company received 100,000 unregistered shares of common stock from Health Sciences Group, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 8,333 shares.

     On March 29, 2004, the Company received 200,000 unregistered shares of common stock from Swiss Medica, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 3,836 shares.

Page 15 of 33

     On March 30, 2004, the Company received 244,897 unregistered shares of common stock from eFoodSafety.com, Inc. in a strategic alliance agreement. The Company has recognized consulting fees to date relating to 7,037 shares.

3. Commitments and Contingencies

     From time to time, some of the Company’s portfolio companies may receive correspondence or other notices of alleged breach of the license agreement. Some of these correspondences and notices provide for a period of time in which to cure the alleged breach. The failure of the portfolio companies to cure the alleged breach may have a material adverse impact on the Company’s results of operations and financial position.

     Effective September 1, 1999, the Company entered into a five year employment agreement with its CEO providing for an annual base salary of $150,000 for his services.

4. Valuations

     The Board of Directors bases its determination of fair value upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.

5. Subsequent Events

     In April 2004, the Company completed a private placement transaction with accredited investors of 100,000 shares of its common stock at $10.00 per share. The purchasers of the shares of common stock agreed not to sell or otherwise transfer the shares for a period of one-year after the completion of the private placement transaction. The net proceeds after investment banking fees of $100,000 was $900,000.

Page 16 of 33

ITEM 2. 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-Q. This Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that these projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

Critical Accounting Policies and Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our most critical accounting policy relates to the valuation of our investments.

     Pursuant to the requirements of the Investment Company Act of 1940 (the “1940 Act”), our Board of Directors is responsible for determining in good faith the fair value of our investments for which market quotations are not readily available. Although the securities of many of our portfolio companies are quoted on the OTC Bulletin Board or listed on the American Stock Exchange, our Board of Directors is required to determine the fair value of such securities if the validity of the market quotations appears to be questionable, or if the number of quotations is such as to indicate that there is a thin or illiquid market in the security.

     We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Our valuation policy considers the fact that no ready market exists for substantially all of the securities in which we invest. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where realization of an equity security is doubtful. We will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value.

     Our equity interests in portfolio companies for which there is no liquid public market are valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our valuation. The determined values are generally discounted to account for restrictions on resale and minority ownership positions.

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

General

     Our primary investment objective is to increase our net assets by exchanging stock in new companies that we form to acquire intellectual property, which we refer to as an “intellectual property acquisition company”, for cash and other assets upon the completion of technology transfer transactions. We seek to achieve our investment objective by creating intellectual property acquisition companies to identify, license and market new technologies invented primarily by employees of universities and federal research laboratories. We intend to sell our intellectual property acquisition companies principally to privately owned and publicly traded companies (which we refer to as “portfolio companies” or our “investments”) in tax-free stock for stock

Page 17 of 33

exchanges. It is our plan that shares of those privately owned and publicly traded companies received in those exchanges will, in the course of our business, be sold for cash or other assets to permit us to acquire additional technologies and to fund our operations. We seek to sell our intellectual property acquisition companies into publicly traded portfolio companies whenever possible, as this provides us with the potential for added liquidity.

     To facilitate establishing on-going consulting engagements with our clients, we have developed a strategic alliance process. Our strategic alliances are designed to help technology companies enhance their new product pipeline through the acquisition of proprietary intellectual capital primarily from universities and federal laboratories. We normally receive unregistered shares of common stock from our clients as payment for the services we render under our strategic alliance consulting engagements. Whenever possible, we will seek to receive cash payments as compensation for our services.

     Our expenses include salaries and wages, professional fees, sales and marketing costs as well as general and administrative costs. Sales and marketing costs include license and sponsored research fees, as well as advertising, commissions, travel and other expenses that vary with revenues. General and administrative costs include rent, depreciation, office, investor relations and other overhead costs.

Financial Condition

     The Company’s total assets were $28,379,296 and its net assets were $22,644,535 at March 31, 2004, compared to $12,549,448 and $11,152,370 at December 31, 2003, respectively.

     Net asset value per share (“NAV”) was $4.25 at March 31, 2004 and $2.33 at December 31, 2003. Net assets increased by $11,492,165 for the three months ended March 31, 2004 and decreased by $3,810,014 for the three months ended March 31, 2003.

     The net increase in our total assets, net assets and net asset value during the three months ended March 31, 2004 was primarily attributable to:

•

An unrealized appreciation on investments of approximately $7.8 million.

•

Cash generated from the sale of our investments of approximately $1.5 million.

•

The use of approximately $655,000 in cash to fund our operations.

•

Cash generated from the issuance of common stock in private placement transactions and upon the exercise of stock options of approximately $2.2 million.

     The net decrease in our total assets, net assets and net asset value during the three months ended March 31, 2003 was primarily attributable to:

•

Completion of one technology transfer transaction valued at approximately $263,000 and nine strategic alliance agreements and other consulting agreements with earned revenue of approximately $240,000.

•

An unrealized depreciation of approximately $3 million in the value of the Company’s investments.

•

A loss on sale of approximately $169,000 as a result of sales of the Company’s investments of $224,000

•

The use of approximately $371,000 in cash to fund the Company’s operations.

     The Company’s common shares outstanding as of March 31, 2004 were 5,329,251, compared to 4,790,550 at December 31, 2003. The number of our outstanding common shares increased as a result of the completion of private placement transactions as well as the issuance of common shares upon the exercise of employee stock options that were exercised during the quarter ended March 31, 2004.

     The Company’s financial condition is dependent on a number of factors including the ability to effectuate technology transfer transactions and the performance of the equity 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 March 31, 2004, $20,751,258 or 99.5% of our investments consisted of equity securities at fair value in companies whose securities were listed on the American Stock Exchange or quoted on the OTC Bulletin Board and $87,386 or ..5% of our investments consisted of equity securities at fair value in private companies.

Page 18 of 33

     At December 31, 2003, $7,661,264 or 99% of our investments consisted of equity securities at fair value in companies whose securities were quoted on the OTC Bulletin Board and $84,090 or 1% of our investments consisted of equity securities at fair value in private companies.

     The net increase in the value of publicly traded securities from $7,745,354 to $20,838,914 in the three months ended March 31, 2004 is primarily due to the following events:

•

The Company exercised warrants to purchased 500,000 shares of common stock of Circle Group Holdings, Inc. for $180,000 with a fair value of $2,125,000.

•

The Company entered into three new strategic alliance agreements that generated $443,000 in value.

•

The Company sold 245,892 of its shares in Circle Group Holdings, Inc. for $1,496,051 with a fair value of $346,707.

•

The Company experienced an overall increase in the value of its public company securities. This increase is primarily attributable to an increase in the value of Circle Group Holdings, Inc. of approximately $11,300,000. The Company’s other investments experienced an additional net increase in their fair value of approximately $134,000. The Company’s investments can decrease due to factors that are specific to these investments (inability to obtain additional capital, inability to execute their business model, termination of their technology licenses, etc.) or to general marketplace factors.

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

Results of Operations

     The principal measure of our financial performance is the “Net increase in net assets from operations” which is the sum of three elements. The first element is “Net income from operations,” which is the difference between our income from technology transfer transactions, consulting fees, interest income, dividends, fees and other income and our operating expenses, net of applicable income tax provision. The second element is “Net realized gain (loss) on investments,” which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, net of applicable income tax provision. The third element, “Increase (decrease) in unrealized appreciation on investments,” is the net change in the fair value of our investment portfolio, net of increase (decrease) in deferred income taxes that would become payable if the unrealized appreciation were realized through the sale or other disposition of the investment portfolio.

Three months ended March 31, 2004 compared to the three months ended March 31, 2003.

     Income from operations. Income from operations decreased 19% to $410,099 for the three months ended March 31, 2004 from $504,271 for the three months ended March 31, 2003. Approximately 36 % and 59% of our income from operations (revenue) was received in the form of equity securities for the three months ended March 31, 2004. The decrease in income from operations resulted from not completing a technology transfer transaction during the period ended March 31, 2004, as compared to one technology transfer transaction completed during the quarter ended March 31, 2003. In the three months ended March 31, 2004, we rendered services in connection with eleven strategic alliance agreements (six of which began in the three months ended March 31, 2004) valued at $146,889, as compared to seven strategic alliance agreements (three of which began during the quarter ended March 31, 2003) in the three months ended March 31, 2003. Other services including income from Pax Technology Transfer, Ltd. and subscription income from the two websites owned by UTEK comprise the balance of consulting fees. Our Board of Directors determines the fair value of the shares we receive in the absence of readily determinable market values. In making its determination, the Board of Directors has considered valuation appraisals provided by an independent valuation service provider.

     Expenses. Total operating expenses for the three months ended March 31, 2004 were $850,268, consisting of salaries and wages of $177,058, professional fees of $88,149, sales and marketing expenses of $226,957, and general and administrative expenses of $358,104. These expenses compared to the $815,348 reported for the three months ended March 31, 2003, consisting of salaries and wages of $177,312, professional fees of $260,861, sales and marketing expenses of $91,464, and general and

Page 19 of 33

administrative expenses of $285,711. The 4% increase in total operating expenses was due to the increased costs of marketing our business, an increase in the number of our sales personnel and investor relations services provided by a third party vendor. The 148% increase in sales and marketing expenses was due to an increase in the number of our sales personnel, commissions to outside salesman and an extended marketing effort at various conferences in order to increase the number of potential strategic alliance customers. The 66% decrease in professional fees is largely due to the costs associated with a specific project in the first quarter of 2003. The 25% increase in general and administrative costs is largely due to an interest expense on our loan and an increase in the number of temporary staff. We repaid the loan in January 2004.

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

Net Realized Gains (Losses)

     Net realized gains on investments net of income tax effect amounted to $914,683 for the three months ended March 31, 2004 and were related to sales as follows:

     Net realized losses on investments net of income tax effect amounted to $168,511 for the three months ended March 31, 2003 and were related to sales as follows:

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

Changes in Unrealized Appreciation or Depreciation.

     We determine the value of each investment in our portfolio on a quarterly basis, and changes in value result in unrealized appreciation or depreciation being recognized. At March 31, 2004, approximately 91.8% of our net assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Although many of the securities we hold in our portfolio are quoted on the OTC Bulletin Board or listed on the American Stock Exchange, our Board of Directors is required to fair value price such securities if the validity of the market quotations appears to be questionable, or if the number of quotations is such as to indicate that there is a thin market in the security. Since there is typically no readily determinable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the Board of Directors. In making its determination, our Board of Directors may consider valuation appraisals provided by independent valuation service providers. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

     There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where realization of an equity security is doubtful. Conversely, we

Page 20 of 33

will record unrealized appreciation if we have an indication that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value, where appropriate.

     Our equity interests in portfolio companies for which their is no liquid public market are valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate our private equity valuation. The determined values are generally discounted to account for restrictions on resale and minority ownership positions.

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

     The Board of Directors bases its determination upon, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly-traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock market.

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

     The net unrealized appreciation on our investments, net of taxes, increased by $7,790,713 for the three months ended March 31, 2004, compared to net unrealized depreciation of $3,019,455 on our investments for the three months ended March 31, 2003. The net unrealized appreciation and depreciation consisted of fluctuations in fair value resulting from the Board of Directors’ valuation of the Company’s assets for the three months ended March 31, 2004 and 2003, respectively. There was an increase in value in the three months ended March 31, 2004 in our investments in Clean Water Technologies, Inc., Circle Group Holdings, Inc., FullCircle Registry, Inc., Duraswitch Industries, Inc., Sequiam Corporation, Intra-Asia Entertainment Corp. (formerly Glo-Tech Industries, Inc.) and AssureTec Holdings. Inc. However, this was offset slightly by a decline in value related to our investments in Rosbon, Inc., Peak Entertainment Holdings, Inc., E Med Future, Inc. and Magic Media Networks, Inc.

     The Company’s most significant portfolio investment is in Circle Group Holdings, Inc., which represented a substantial amount of the increase in unrealized appreciation in the quarter ended March 31, 2004. The following is a simplified summary of the methodology that we used to determine the fair value of this investment.

     At March 31, 2004, the fair value of our investment in Circle Group was approximately $18.7 million. The value of our investment in Circle Group increased by approximately $11.3 million for the quarter ended March 31, 2004. Approximately 19% of the increase in the fair value of our investment in Circle Group resulted from warrants to purchase 500,000 shares of common stock of Circle Group for $.36 per share. The remaining increase in the value of our investment in Circle Group resulted from our Board of Directors determination that our investment in Circle Group had appreciated by 209% because of a significant increase in the market price of shares of common stock of Circle Group. The Board of Directors determined that market quotations for shares of common stock of Circle Group on the American Stock Exchange are readily available. As a result, the Board of Directors took the closing market price for a share of common stock of Circle Group on the American Stock Exchange as of the balance sheet date and then discounted such market price to take in account that the shares of common stock of Circle Group that the Company holds are subject to legal restrictions on resale.

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

Liquidity and Capital Resources

     Net assets increased 103% to $22,644,535 at March 31, 2004 from $11,152,370 at December 31, 2003. This increase was primarily attributable to a the completion of private placement transactions totaling $2.2 million during the three months as well as net realized gains of approximately $915,000, and the $7.8 million increase in the net unrealized appreciation in the value of our non-controlled affiliate investments.

     Our primary source of liquidity and capital for the three months ended March 31, 2004 was from the sales of our investments totaling approximately $1.5 million as well as cash received from private placement transactions totaling $2.2 million.

Page 21 of 33

     On March 31, 2004 and December 31, 2003, we had $3,215,878 and $3,704,327, respectively, in cash and cash equivalents.

     In March  2004, we completed the private placement of 107,986 shares of our common stock at $7.00 per share. The purchasers of the shares of common stock agreed not to sell or otherwise transfer the shares for a period of one-year after the completion of the private placement transaction. The total net proceeds received inclusive of the December receipts of $388,412 was $680,312, net of investment banking fees of $75,590.

     In March  2004, we completed an additional private placement of 300,000 shares of our common stock at $7.00 per share. The purchasers of the shares of common stock agreed not to sell or otherwise transfer the shares for a period of one-year after the completion of the private placement transaction. The net proceeds after investment banking fees of $210,000 was $1,890,000.

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

Risk Factors

     Investing in the Company involves a number of significant risks relating to its business and investment objective. As a result, there can be no assurance that the Company will achieve its investment objective. In addition to the risk factors described below, other factors that could cause actual results to differ materially include:

•

changes in the economy;

•

risk associated with possible disruption in the Company’s operations due to terrorism;

•

future regulatory actions and conditions in the Company’s operating areas; and

•

other risks and uncertainties as may be detailed from time to time in the Company’s public announcements and SEC filings.

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

Our financial results are largely dependent upon the performance of Circle Group Holdings, Inc. As of March 31, 2004 the value of our investment in Circle Group Holdings, Inc. was approximately $18.7 million or 82% of our net assets.

Our quarterly and annual results could fluctuate significantly.

Our quarterly and annual operating results could fluctuate significantly due to a number of factors. These factors include the small number and range of values of the transactions that are completed each quarter, fluctuations in the values of our investments, the timing of the recognition of unrealized gains and losses, the degree to which we encounter competition in our markets, the volatility of the stock market and its impact on our unrealized gains and losses, as well as other general economic conditions. As a result of these factors, quarterly and annual results are not necessarily indicative of our performance in future quarters and years.

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

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

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.

Page 22 of 33

We invest in development stage companies that our management believes can benefit from our expertise in technology transfer. Development stage companies are subject to all of the risks associated with new businesses. In addition, our portfolio companies are also subject to the risks associated with research and development of new technologies. These risks include the risk that new technologies cannot be identified, developed or commercialized, may not work, or become obsolete. Our portfolio companies must successfully acquire licenses to new technologies, and in some cases further develop new technologies. We cannot assure you that any of our investments in our portfolio companies will be successful. Our portfolio companies will be competing with larger, established companies, with greater access to, and resources for, further development of these new technologies. We may lose our entire investment in any or all of our portfolio companies.

Our portfolio companies depend upon the research and development activities of universities and research laboratories, over which neither our portfolio companies nor we have any control.

Our portfolio companies depend upon the research activities of universities and government research facilities. Neither we, nor our portfolio companies, have any control over the research activities of universities and research laboratories. As neither we, nor our portfolio companies provide supervision of any university or laboratory research, we cannot warrant that the research will be done properly and that the results, which we may license will be reproducible. In addition, we have no control over what types of research are presented to us by universities and government research facilities for evaluation and commercial development. Further, the licenses to technologies that our portfolio companies obtain may be non-exclusive. In the event that we make an investment in a portfolio company, and we are unable to locate a new technology to be acquired by the portfolio company, we could lose our entire investment.

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

Neither our portfolio companies nor we have any control over the pace of technology development. There is a significant risk that a portfolio company could acquire the rights to a technology that is currently or is subsequently made obsolete by other technological developments. We cannot assure you that any of our portfolio companies will successfully acquire, develop and transfer any new technology.

The patents on the technologies that our portfolio companies license may infringe upon the rights of others and patent applications that the universities have submitted may not be granted.

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

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

Technologies developed with funds provided by the United States government have restrictions regarding where they may be sold and have limits on exclusivity. A portfolio company that acquires a technology developed with federal funding may be limited as to where it can sell the technology. The technology may only be allowed to be sold or manufactured within the United States. In addition, the U.S. government has the right to use technologies that it has funded regardless of whether the technology has been licensed to a third party. Such regulations may limit the marketability of a technology and therefore reduce the value of the technology to our portfolio companies.

We may need to make additional cash investments in our portfolio companies to provide them with capital to further develop licensed technologies.

We may have to make additional cash investments in our portfolio companies to protect our overall investment value in the particular company. We retain the discretion to make any additional investments as our management determines. The failure to make such additional investments may jeopardize the continued viability of a portfolio, and our initial (and subsequent) investments. Moreover, additional investments may limit the number of companies in which we can make initial investments. We have no established criteria in determining whether to make an additional investment except that our management will

Page 23 of 33

exercise its business judgment and apply criteria similar to those used when making the initial investment. We cannot assure you that we will have sufficient funds to make any necessary additional investments, which could adversely affect our success and result in the loss of a substantial portion or all of our investment in a portfolio company.

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

Our agreement with third-party investors restricts the size of our investment in any single portfolio company and, as a result, could prohibit an additional investment in a portfolio company in the event that our initial investment represented 10% or more of our assets. Even if we are able to make an additional investment in a portfolio company within the prescribed limits, we may elect not to make an additional investment in a portfolio company in order to limit the size of our investment, which is at risk. It is also our policy not to make loans to our portfolio companies that in the aggregate exceed 25% of our net assets. Therefore, if a portfolio company requires additional funds to continue operating, and we cannot or choose not to make an additional investment, our investment in the portfolio company may decline in value. In addition, to the extent that a portfolio company seeks additional financing from third parties, our ownership interest and control of the portfolio company may be diluted.

The securities we hold in our portfolio companies are subject to restriction on resale and we may not be able to sell the securities we hold for amounts equal to their recorded value, if at all.

Our portfolio companies are mainly private entities or thinly traded public companies and we acquire securities in our portfolio company in private transactions. As a result, all of the securities we hold in our portfolio companies are subject to legal restrictions on resale. Furthermore, our ability to sell the securities in our portfolio may be limited by, and subject to, the lack of or limited nature of a trading market for such securities. Therefore, we cannot assure you that we will be able to sell our portfolio company securities for amounts equal to the values that we have ascribed to them or at the time we desire to sell.

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

We do not anticipate selling any of our intellectual property acquisition companies, except in connection with these type transactions. We anticipate that most, if not all, of such merger transactions will be structured as tax-free exchanges under Section 368 of the Internal Revenue Code. If Section 368 were to be amended so that we were no longer able to structure our merger transactions as tax-free exchanges, we may not be able to sell our intellectual property acquisition companies on commercially reasonable terms. If we are unable to successfully sell our intellectual property acquisition companies in a merger transaction, we may lose our investment.

The agreements we have with universities do not guarantee that the universities will grant licenses to us our intellectual property acquisition companies.

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

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

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

We are dependent upon and have little or no control over the efforts of portfolio companies to successfully commercialize the acquired technologies or to retain the license to the technology.

Page 24 of 33

We receive common stock from the portfolio company based upon the mutually agreed upon values of the intellectual property acquisition company, its licensed technology and the portfolio company. We then intend to sell the securities that we acquire in exchange for intellectual property acquisition companies at some time in the future. Therefore, our ability to profit from an investment is ultimately dependent upon the price we receive for the shares of the portfolio company. In most cases, the companies that acquire our intellectual property acquisition companies will be dependent upon successfully commercializing the technologies they acquire. We do not have control over the portfolio companies that acquire our intellectual property acquisition companies. These portfolio companies may face intense competition, including competition from companies with greater financial resources, more extensive research and development, manufacturing, marketing and service capabilities and a greater number of qualified and experienced managerial and technical personnel. They may need additional financing which they are unable to secure and we are unable or unwilling to provide or they may be subject to adverse developments unrelated to the technologies they acquire. They may lose the rights granted to them for the technology for failure to comply with the license agreement. We cannot assure you that any of the portfolio companies will be successful or that we will be able to sell the securities we receive at a profit or for sufficient amounts to even recover our initial investment in the portfolio companies or that our portfolio companies will not take actions that could be detrimental to us.

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

Our investments in our portfolio companies may be concentrated in one or more industries. This concentration will mean that our investments will be particularly dependent on the development and performance of those industries. Accordingly, our investments may not benefit from any advantages, which might be obtained with greater diversification of the industries in which our portfolio companies operate. If those industries should decline or fail to develop as expected, our investments in our portfolio companies in those industries will be subject to loss.

All of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty regarding the value of our portfolio investments.

At March 31, 2004 and December 31, 2003, respectively, investments amounting to $20,838,914 or 92.0% of net assets and $7,745,354 or 69.5% of net assets, have been valued at fair value as determined by our Board of Directors. Pursuant to the requirements of the 1940 Act, the Board of Directors is responsible for determining in good faith the fair value of our investments for which market quotations are not readily available. Since there is typically no readily available market value for the investments in our portfolio, our Board of Directors determines in good faith the fair value of these investments pursuant to a valuation policy and a consistently applied valuation process. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to sell any of such investments, there is no assurance that the fair value, as determined by the Board of Directors, would be obtained. If we were unable to obtain fair value for such investments, there would be an adverse effect on our net asset value and on the price of our common stock.

We adjust quarterly the valuation of our portfolio to reflect the Board of Directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as “Change in unrealized appreciation (depreciation) of non-controlled affiliate investments.”

Our business depends on key personnel.

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

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

The 1940 Act restricts transactions between us and any of our affiliates, including our officers, directors or employees and principal stockholders. In many cases, the 1940 Act prohibits transactions between such persons and ourselves unless we first apply for and obtain an exemptive order from the SEC. Delays and costs in obtaining necessary approvals may decrease or even eliminate any profitability of such transactions or make it impracticable or impossible to consummate such transactions. These

Page 25 of 33

affiliations could cause circumstances that would require the SEC’s approval in advance of proposed transactions by us in portfolio companies. Further, depending upon the extent of our management’s influence and control with respect to such portfolio companies, the selection of the affiliates of management to perform such services may not be a disinterested decision, and the terms and conditions for the performance of such services and the amount and terms of such compensation may not be determined at arm’s-length negotiations.

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

Based on the amount of our existing available funds, it is unlikely that we will be able to commit our funds to investments in, and the acquisition of, securities of a large number of companies. We intend to continue to operate as a non-diversified investment company within the meaning of the 1940 Act. Prospective investors should understand that our current investments are not, and in the future may not be, substantially diversified. We will not be able to achieve the same level of diversification as larger entities engaged in similar venture capital activities. Therefore, our assets may be subject to greater risk of loss than if they were more widely diversified, because the failure of one or more of our limited number of investments would have a material adverse effect on our financial condition and the price of our common stock.

If our portfolio companies fail to comply with the requirements of the forum in which their securities are quoted or the trading market on which their securities are listed, the liquidity and prices of our investments would be materially adversely affected.

At March 31, 2004, $20,838,914 or 92.0% of our total assets consisted of investments at fair value in companies whose securities are quoted on the OTC Bulletin Board or listing on the American Stock Exchange. In order for the securities of our portfolio companies to be eligible for continued quotation on the OTC Bulletin Board or the American Stock Exchange, our portfolio companies must remain in compliance with certain listing standards. Among other things, these standards require that our portfolio companies remain current in their filings with the SEC and comply with certain of the provisions of the Sarbanes-Oxley Act of 2002. If our portfolio companies are no longer in compliance with these requirements, there would be no forum or market for the quotation or listing of the securities of our portfolio companies. Without such a forum or market, the liquidity and prices of our investments would be materially adversely affected. We cannot give any assurance that our portfolio companies will remain in compliance with the requirements to be quoted on the OTC Bulletin Board or listed on the American Stock Exchange.

We are subject to government regulations because of our status as a business development company.

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

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

Clifford M. Gross, our Chief Executive Officer and Chairman, beneficially owns approximately 37% of our common stock as of March 31, 2004. Therefore Dr. Gross may be able to exert influence over our management and policies. Dr. Gross may acquire additional equity in the future. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common stock as part of the sale of our company and might ultimately affect the market price of our common stock.

ITEM 3. Qualitative and Quantitative Disclosures About Market Risks

     There has been no material change in the qualitative and quantitative disclosures about market risk since December 31, 2003.

ITEM 4. CONTROLS AND PROCEDURES

		Disclosure Controls and Procedures
		As of the end of the period covered by this quarterly report on Form 10-Q, the Company’s principal executive officer and principal financial officer conducted an evaluation of the effectiveness of the design and operations of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of

Page 26 of 33

		1934, Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, that is required to be disclosed in the reports it files or submits under the Securities Exchange Act of 1934.
		Internal control over financial reporting
		There have been no significant changes in our internal control over financial reporting (as defined in Rule13a-15f of the Securities Exchange Act of 1934) that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

     Although the Company may from time to time be involved in litigation and claims arising out of its operations in the normal course of our business, as of March 31, 2004, the Company was not a party to any material pending legal proceedings.

Item 2. Changes in Securities and Use of Proceeds

     On March 3, 2004, the Company issued 125,715 shares of our common stock in repayment of a loan in the amount of $833,890 pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) of the Securities Act.

     On March 5, 2004, the Company issued 407,986 shares of our common stock for an aggregate offering pricing of $2,570,312 to accredited investors pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. GunnAllen Financial, Inc. acted as the placement agent in connection with the offering of such shares and received an aggregate commission of $285,590 for its services in connection therewith.

Item 3. Defaults upon Senior Securities

     Not Applicable

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

     Not Applicable

Item 5. Other Information

     Not Applicable

Item 6. Exhibits and Reports on Form 8-K

     (a) List of exhibits.

Page 27 of 33

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.

(b) Reports on Form 8-K.

     On March 23, 2004, the Company furnished a Form 8-K pursuant to Item 12 reporting the issuance of a press release announcing the Company’s financial results for the quarter and year ended December 31, 2003.

Page 28 of 33

SIGNATURES

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