10-Q
1
d10q.htm
FORM 10-Q
Form 10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 814-00203
UTEK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
59-3603677
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2109 Palm Avenue
Tampa, FL 33605
(Address of principal executive offices)
(813) 754-4330
(Registrants
telephone number)
(Former name, former address and former
fiscal year, if changed since last report)
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
On May 4, 2009, there were 11,071,632 shares outstanding of registrants common stock, $0.01 par value.
Table of Contents
UTEK CORPORATION
FORM 10-Q TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
3
ITEM 1. Financial Statements
3
Consolidated Statements of Assets and Liabilities as of March 31, 2009 (unaudited) and December 31, 2008
3
Consolidated Statements of Operations For the Three Months ended March 31, 2009 and 2008
(unaudited)
4
Consolidated Statements of Cash Flows For the Three Months ended March 31, 2009 and 2008
(unaudited)
5
Consolidated Statements of Changes in Net Assets For the Three Months ended March 31, 2009 and 2008 (unaudited)
7
Financial Highlights For the Three Months ended March 31, 2009 and 2008 (unaudited)
8
Consolidated Schedule of Investments as of March 31, 2009 (unaudited) and December 31,
2008
9
Notes to Consolidated Financial Statements (unaudited)
16
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
26
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
36
ITEM 4. Controls and Procedures
36
PART II. OTHER INFORMATION
36
ITEM 1.
Legal Proceedings
36
ITEM 1A.
Risk Factors
37
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
37
ITEM 3.
Defaults Upon Senior Securities
37
ITEM 4.
Submission of Matters to a Vote of Security Holders
37
ITEM 5.
Other Information
37
ITEM 6.
Exhibits
37
Signatures
38
Exhibits
Page 2 of 42
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1.
Financial Statements
UTEK Corporation
Consolidated Statements of Assets and Liabilities
March 31,
2009
(Unaudited)
December 31,
2008
(Restated)
ASSETS
Investments:
Non-affiliate investments (cost: 2009 - $16,379,928; 2008 - $36,994,463)
$
3,645,948
$
5,603,440
Affiliate investments (cost: 2009 - $12,468,076; 2008 - $38,559,629)
1,963,251
3,477,200
Control investments (cost: 2009 - $5,831,574; 2008 - $10,637,748)
4,636,000
2,987,500
U.S. Treasuries and certificates of deposit (cost: 2009 - $686,546; 2008 - $291,581)
686,546
291,581
Total investments
10,931,745
12,359,721
Cash and cash equivalents
3,611,743
3,922,297
Accounts receivable, net of allowance for bad debt
1,416,133
2,290,363
Prepaid expenses and other assets
678,892
750,502
Fixed assets, net
590,089
653,208
Goodwill
15,629,050
15,246,143
Intangible assets, net
10,249,129
10,663,975
TOTAL ASSETS
43,106,781
45,886,209
LIABILITIES
Accounts payable
454,705
575,988
Accrued expenses
1,002,833
995,652
Accrued severance payable
1,794,885
1,651,814
Notes payable and other debt
1,501,491
839,765
Deferred revenue
2,618,950
2,849,270
Deferred tax liability
1,757,003
1,773,441
TOTAL LIABILITIES
9,129,867
8,685,930
NET ASSETS
$
33,976,914
$
37,200,279
Commitments and Contingencies
Composition of net assets:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding
Common stock, $.01 par value, 29,000,000 shares authorized; 12,287,077 and 12,134,959 shares issued; 11,071,632 and 10,879,900 shares
outstanding at March 31, 2009 and December 31, 2008, respectively
$
110,717
$
108,800
Additional paid-in capital
76,967,312
75,067,857
Accumulated income
Accumulated net operating income
21,388,475
23,463,295
Net realized loss on investments, net of related income taxes
(44,762,871
)
(7,744,736
)
Net unrealized depreciation of investments, net of related deferred income taxes
(17,825,930
)
(51,921,150
)
Foreign currency translation adjustment
(1,900,789
)
(1,773,787
)
Net assets
$
33,976,914
$
37,200,279
Net asset value per share
$
3.07
$
3.42
See accompanying notes
Page 3 of 42
Table of Contents
UTEK Corporation
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31
2009
2008
(Restated)
Income from operations:
Innovation consulting services
$
1,919,298
$
Sale of technology rights
2,712,380
Subscription and other services
813,759
868,739
Investment income, net
30,664
84,447
2,763,721
3,665,566
Expenses:
Direct costs of innovation consulting services
1,987,450
Acquisition of technology rights
1,184,000
Salaries and wages
984,089
2,857,708
Professional fees
222,920
308,195
Sales and marketing
458,408
648,032
General and administrative
795,441
739,655
Amortization and depreciation
406,678
85,539
4,854,986
5,823,129
Loss before income taxes
(2,091,265
)
(2,157,563
)
Provision for income tax (benefit) expense
(16,445
)
(503,650
)
Net loss from operations
(2,074,820
)
(1,653,913
)
Net realized and unrealized gains (losses):
Net realized loss on investments, net of related income tax benefit
(37,018,135
)
(126,102
)
Net change in unrealized appreciation (depreciation) of investments, net of related deferred tax benefit
34,095,220
(4,550,776
)
Net decrease in net assets from operations
$
(4,997,735
)
$
(6,330,791
)
Net decrease in net assets from operations per share:
Basic
$
(0.45
)
$
(0.69
)
Diluted
$
(0.45
)
$
(0.69
)
Weighted average shares:
Basic
10,987,743
9,161,046
Diluted
10,987,743
9,161,046
Dividend declared per share:
See accompanying notes
Page 4 of 42
Table of Contents
UTEK Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended March 31
2009
2008
(Restated)
Operating Activities:
Net decrease in net assets from operations
$
(4,997,735
)
$
(6,330,791
)
Adjustments to reconcile net decrease in net assets from operations to net cash flows from operating activities:
Change in net unrealized (appreciation) depreciation of investments
(34,095,226
)
7,296,418
Loss on sale of investments
37,018,135
202,184
Net proceeds from sale (purchases) of short-term investments
(394,966
)
(586
)
Proceeds received on sale of equity investments
400,033
1,472,639
Net repayment from (investment in) UTEK Real Estate Holdings, Inc.
45,322
Depreciation and amortization
406,678
85,539
Loss on disposal of fixed assets
15,044
3,603
Bad debt expense
34,360
Stock-based compensation
244,849
172,328
Deferred income taxes
(16,445
)
(3,325,374
)
Investment securities received in connection with the sale of technology rights
(2,587,380
)
Consulting and other services rendered in exchange for investment securities
(35,400
)
Changes in operating assets and liabilities:
Accounts receivable
924,870
110,837
Prepaid expenses and other assets
71,610
(42,534
)
Deferred revenue
(308,232
)
(229,515
)
Accounts payable and accrued expenses
(263,129
)
1,780,406
Net cash flows from operating activities
(960,154
)
(1,382,304
)
Investing Activities:
Purchases of fixed assets
(2,539
)
(13,496
)
Net cash flows from investing activities
(2,539
)
(13,496
)
Financing Activities:
Proceeds from borrowings on bank line of credit
750,000
Payments on notes payable and other debt
(88,274
)
Proceeds from exercise of stock options
112,800
Net cash flows from financing activities
661,726
112,800
Foreign currency translation adjustment
(9,587
)
29,701
Decrease in cash and cash equivalents
(310,554
)
(1,253,299
)
Cash and cash equivalents at beginning of period
3,922,297
5,254,576
Cash and cash equivalents at end of period
$
3,611,743
$
4,001,277
See accompanying notes
Page 5 of 42
Table of Contents
UTEK Corporation
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Three months ended March 31
2009
2008
Supplemental Disclosures of Non-Cash Investing and Financing Activities
The Company issued 153,967 shares of common stock to purchase Pharmalicensing Limited. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired
$
2,534,197
Fair value of common stock issued
2,150,000
Liabilities assumed
$
384,197
The Company received a note in connection with the sale of certain investments
$
1,500,000
The Company issued stock in connection with an investment in UTEK Real Estate Holdings, Inc. as follows:
176,470 shares of UTEK common stock
$
1,500,000
240,964 shares of NeoStem, Inc common stock
200,000
$
1,700,000
The Company issued 15,262 shares of common stock in connection with certain acquisition earnout contingencies
$
156,371
Three months ended March 31
2009
2008
Cash paid for taxes
$
$
Cash paid for interest
$
17,500
$
See accompanying notes
Page 6 of 42
Table of Contents
UTEK Corporation
Consolidated Statements of Changes in Net Assets
(Unaudited)
Three months ended March 31
2009
2008
(Restated)
Changes in net assets from operations:
Net loss from operations
$
(2,074,820
)
$
(1,653,913
)
Net realized loss on sale of investments, net of related income taxes
(37,018,135
)
(126,102
)
Change in net unrealized appreciation (depreciation) of investments, net of related deferred taxes
34,095,220
(4,550,776
)
Net decrease in net assets from operations
(4,997,735
)
(6,330,791
)
Distributions to stockholders:
From net income from operations
Capital stock transactions:
Proceeds from the exercise of stock options
112,800
Stock-based compensation
244,849
172,328
Acquisition of Pharmalicensing Ltd.
2,150,000
Investment in UTEK Real Estate Holdings
1,500,000
Escrow shares earnout
156,523
Net increase in net assets from stock transactions
1,901,372
2,435,128
Foreign currency translation adjustment
(127,002
)
29,701
Net decrease in net assets
(3,223,365
)
(3,865,962
)
Net assets at beginning of period
37,200,279
43,674,548
Net assets at end of period
$
33,976,914
$
39,808,586
See accompanying notes
Page 7 of 42
Table of Contents
UTEK Corporation
Financial Highlights
(Unaudited)
Three Months Ended March 31
2009
2008
(Restated)
PER SHARE INFORMATION
Net asset value, beginning of period
$
3.42
$
4.85
Net loss from operations (1)
(0.19
)
(0.18
)
Net change in realized gains (losses) and unrealized appreciation (depreciation) on investments, (after taxes) (2)
(0.32
)
(0.61
)
Foreign currency translation adjustment (1)
(0.01
)
0.00
Net increase from stock transactions (1)
0.17
0.27
Distribution to shareholders from net income from operations
0.00
0.00
Net asset value, end of period
$
3.07
$
4.33
Per share market value, end of period
$
6.25
$
10.05
Investment return, based on market price at end of period
(29
)%
(24
)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
$
33,976,914
$
39,808,586
Ratio of expenses to average net assets
14
%
14
%
Ratio of net income from operations to average net assets
(6
)%
(4
)%
Diluted weighted average number of shares outstanding during the period
10,987,743
9,161,046
(1)
Calculated based on diluted weighted average number of shares outstanding during the period.
(2)
Calculated as a balancing amount necessary to reconcile the change in net assets value per share with the other per share information presented. This amount may not agree with the
aggregate gains and losses for the period because the difference in the net asset value at the beginning and end of period does not inherently equal the per share changes of the line items disclosed.
See accompanying notes
Page 8 of 42
Table of Contents
UTEK CORPORATION
Consolidated Schedule of Investments
March 31, 2009
Shares
Dates
of
Acquisition
Original
Cost
Basis
Value
Percentage
of Net
Assets
Non-Affiliate Investments (1)
(7
)
1/09
Greenwood Hudson Portfolio, LLC (privately held) (note receivable due on Dec 31, 2012, interest at 7%)
$
1,500,000
$
1,500,000
4.4
%
Cyberlux Corporation
LED lighting solutions
148,000
11/06-1/07
Series C Convertible Preferred Stock
2,181,640
971,500
2.9
MATECH Corporation (Material Technologies, Inc.)
Metal fatigue detection
47,500
1/07
Series E Convertible Preferred Stock
694,640
463,100
1.4
CytoDyn, Inc.
Novel therapeutic agents
100,000
1/07
Series A Convertible Preferred Stock
845,000
325,000
1.0
MiMedx Group, Inc.
560,003
1/07
Connective tissue technology
179,200
0.5
Oxygen Biotherapeutics, Inc.(Synthetic Blood Intnl, Inc)
(6
)
4/07
Biotechnology products
120,000
133,000
0.4
Bacterin International, Inc. (privately held)
40,000
7/06
Bioactive coatings for medical devices
120,000
40,000
0.1
Platina Energy Group Inc.
Oil and gas exploration and production
92,000
3/08
Series F Convertible Preferred Stock
794,880
13,248
<0.1
NeoStem, Inc.
12,000
9/07
Stem cell banking services
61,440
10,500
<0.1
Metamorphix Global, Inc. (privately held)
60,000
12/05
Design and manufacture of countertops
120,000
9,000
<0.1
Island Gas Resources Plc. (KP Renewables Plc) (5)
Renewable energy
5/06
Convertible Debenture, due 5/10/07
4,433,403
0.0
9/05
Convertible Debenture, due 9/30/06
1,884,920
0.0
2,500
3/05
Common Stock
94,500
900
<0.1
In Veritas Medical Diagnostics, Inc.
1,250,010
5/06
Medical devices designs and testing
74,400
500
<0.1
The Renewable Corp. (Industrial Biotechnology Corp.)
2,971
12/05-8/06
Provider of renewable resources
3,455,105
0.0
Total Investments in Non-Affiliates
$
16,379,928
$
3,645,948
10.7
%
Affiliate Investments (2)
EClips Energy Technologies, Inc. (World Energy Solutions, Inc.)
Energy saving technologies
100,000
6/08
Series B Convertible Preferred Stock
$
875,000
$
750,000
2.2
%
100,000
9/08
Series C Convertible Preferred Stock
750,000
700,000
2.1
9,605,249
9/05-6/08
Common Stock
2,083,449
322,100
0.9
MachineTalker, Inc.
29,782,530
7/07
Intelligent wireless security networks
598,651
148,900
0.4
Klegg Electronics, Inc.
10,839,972
11/06-5/07
Manufacturer/distributor for retail electronic products
3,178,278
27,100
0.1
Emission & Power Solutions, Inc. (Fuel FX International, Inc .) (privately held)
15,150,717
4/05-6/08
Reductional environmental emissions
4,080,142
15,151
<0.1
Page 9 of 42
Table of Contents
Pathway One Plc (5)
3,000,000
7/07
Sales and development licenses
426,150
0.0
WebSky, Inc.
17,890,000
1/06
Broadband wireless
476,406
0.0
Total Investments in Affiliates
$
12,468,076
$
1,963,251
5.8
%
Control Investments (3)
UTEK Real Estate Holdings, Inc. (privately held)
1,000
11/99-1/09
Real estate development
$
5,831,574
$
4,636,000
13.6
%
Total Investments in Control Investments
$
5,831,574
$
4,636,000
13.6
%
U.S. Treasuries and Certificates of Deposit (4)
Certificates of Deposit:
100,000
10/08
Doral BK Catano P R CD, maturity 6/29/09, interest rate @ 3.55%
$
100,000
$
100,000
0.3
%
245,000
2/09
Bank of America CD, maturity 11/19/09, interest rate @ 1.2%
245,000
245,000
0.7
245,000
2/09
Minnwest Bank CD, maturity 11/19/09, interest rate @ 1.2%
245,000
245,000
0.7
95,000
8/08
SunTrust Bank CD, maturity 9/12/09, interest rate @ 4.21%
96,546
96,546
0.3
Total Certificates of Deposit
$
686,546
$
686,546
2.0
%
Total Investments in U.S. Treasuries and CDs
$
686,546
$
686,546
2.0
%
TOTAL INVESTMENTS
$
35,366,124
$
10,931,745
32.2
%
Cash and other assets, less liabilities
23,045,169
67.8
%
Net assets at March 31, 2009
$
33,976,914
100
%
Notes to Schedule of Investments:
Except where otherwise noted, all of our investments listed above are in common stock of companies that are publicly quoted on the OTC Bulletin Board or listed on
the NYSE Amex or other similar markets.
The above investments, with the exception of the U.S. Treasuries and certificates of deposits and a note receivable issued by a third-party, are non-income
producing. Equity investments that have not paid dividends within the last twelve months are considered non-income producing.
The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination,
the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Note 4 to the Notes to the Consolidated Financial Statements.)
As of March 31, 2009, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer the
securities we hold in our portfolio is limited.
(1)
Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities.
(2)
Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting
securities.
(3)
Control investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns more than 25% of the voting securities or
where the Company holds one or more seats on the companys
Page 10 of 42
Table of Contents
Board of Directors. We own 100% of UTEK Real Estate Holdings, Inc. (UREHI), which holds five investments: Rosbon LLC, ABM of Tampa Bay, Inc., 22
nd Street of Ybor City, Inc., Ybor City Group, Inc. and Cortez 114, LLC. UREHI holds 150 membership interests of the total membership interests
outstanding of Rosbon LLC and all of the outstanding shares of capital stock of ABM of Tampa Bay, Inc., 22 nd Street of Ybor City, Inc., Ybor City
Group, Inc and Cortez 114, LLC.
(4)
The Company invests excess cash in a number of U.S. Treasury Bills and certificates of deposit. These short-term investments normally have three month to one year maturities and do
not qualify as cash or cash equivalents.
(5)
Non-U.S. company or the companys principal place of business is outside the U.S.
(6)
Investment consists of warrants to purchase 1,500,000 shares of Oxygen Biotherapeutics, Inc., formerly Synthetic Blood International, Inc., common stock.
(7)
Investment consists of a loan receivable with Greenwood Hudson Portfolio, LLC, a company that purchased certain of our investments.
See accompanying notes
Page 11 of 42
Table of Contents
UTEK CORPORATION
Consolidated Schedule of Investments
December 31, 2008
(Restated)
Shares
Dates
of
Acquisition
Original
Cost
Basis
Value
Percentage
of Net
Assets
Non-Affiliate Investments (1)
560,003
1/07
MiMedx Group, Inc. (MiMedx, Inc.)
$
$
1,971,200
5.3
%
Connective tissue technology
Advanced Medical Isotope Corporation (8)
Medical isotope processes
95,000
9/06
Series A Convertible Preferred Stock
1,803,417
1,750,400
4.7
Cyberlux Corporation
LED lighting solutions
148,000
11/06-1/07
Series C Convertible Preferred Stock
2,181,640
1,133,400
3.0
25,931,484
1/07
Common Stock
502,558
33,100
0.1
Advanced Refractive Technologies, Inc.
Ophthalmic technologies
100,000
4/06
Series D Convertible Preferred Stock
1,996,176
140,000
0.4
97,000
3/06
Series C Convertible Preferred Stock
2,066,063
135,800
0.4
97,000
12/05
Series B Convertible Preferred Stock
1,032,675
70,600
0.2
4,000,000
5/06
Common Stock
76,368
140
<0.1
(6
)
4/07
Oxygen Biotherapeutics, Inc.(Synthetic Blood Intnl, Inc)
120,000
151,000
0.4
Biotechnology products
321,020
6/08
CSMG Technologies, Inc.
300,300
81,900
0.2
Environmental and medical technologies
Platina Energy Group Inc.
Oil and gas exploration and production
92,000
3/08
Series F Convertible Preferred Stock
794,880
66,200
0.2
40,000
7/06
Bacterin International, Inc. (privately held)
120,000
40,000
0.1
Bioactive coatings for medical devices
60,000
12/05
Metamorphix Global, Inc. (privately held)
120,000
18,000
0.1
Design and manufacture of countertops
109,091
7/06
Turbine Truck Engines, Inc.
72,000
7,800
<0.1
Heavy-duty highway truck engines
6,706
5/06-6/06
Codima, Inc.(KKS Venture Management/ Rheologics)
86,100
2,200
<0.1
Study of blood viscosity
Island Gas Resources Plc. (KP Renewables Plc) (5)
Renewable energy
5/06
Convertible Debenture, due 5/10/07
4,433,403
0.0
9/05
Convertible Debenture, due 9/30/06
1,884,920
0.0
2,500
3/05
Common Stock
94,500
700
<0.1
1,250,010
5/06
In Veritas Medical Diagnostics, Inc.
74,400
600
<0.1
Medical devices designs and testing
940,000
10/06
Laserlock Technologies, Inc.
18,900
400
<0.1
Security solutions for the gaming industry
2,971
12/05-8/06
The Renewable Corp. (Industrial Biotechnology Corp.)
3,455,105
0.0
Provider of renewable resources
387,097
6/06
Tradequest International, Inc.
76,092
0.0
Provider of voice over internet protocol
1,886
9/05-6/08
Applied Wellness Corporation (New Life Scientific, Inc.)
81,816
0.0
Pharmaceutical biotechnologies
232,211
5/05
EFuel EFN Corp. (Preservation Sciences, Inc.)
0.0
Internet sites host
UBA Technology, Inc .
Software development
2,430,740
2/06-6/06
Common Stock
1,652,900
0.0
Page 12 of 42
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95,000
4/06
Series A Convertible Preferred Stock
1,619,849
0.0
7,787,565
6/05-6/06
Trio Industries Group, Inc.
12,330,401
0.0
Protective powder coating
Total Investments in Non-Affiliates
$
36,994,463
$
5,603,440
15.1
%
Affiliate Investments (2)
World Energy Solutions, Inc. (7)
Energy saving technologies
100,000
6/08
Series B Convertible Preferred Stock
$
875,000
$
750,000
2.0
%
100,000
9/08
Series C Convertible Preferred Stock
750,000
700,000
1.9
18,042,749
9/05-6/08
Common Stock
4,715,949
322,100
0.9
MATECH Corporation (Material Technologies, Inc.)
Metal fatigue detection
17,823
12/06-6/07
Common Stock
4,170,070
58,400
0.2
47,500
1/07
Series E Convertible Preferred Stock
694,640
463,100
1.2
CytoDyn, Inc.
Novel therapeutic agents
2,040,000
4/06-7/06
Common Stock
3,640,772
171,400
0.5
100,000
1/07
Series A Convertible Preferred Stock
845,000
260,000
0.7
15,150,717
4/05-6/08
Emission & Power Solutions, Inc. (Fuel FX International, Inc .) (privately held)
4,080,142
287,900
0.8
Reductional environmental emissions
412,000
9/07
NeoStem, Inc.
761,440
164,600
0.4
Stem cell banking services
49,500,000
7/07
MachineTalker, Inc.
993,000
133,700
0.4
Intelligent wireless security networks
3,373,107
7/06-9/07
Avalon Oil and Gas, Inc.
2,448,681
67,500
0.2
Oil and gas producers
1,426,754
9/07
USTelematics, Inc. (9)
59,900
0.1
Broadband telecommunication for moving vehicles
6,498,845
6/07
American Soil Technologies , Inc.
1,528,289
27,300
0.1
Fertilizer innovation
153,417,714
12/06-4/07
Cargo Connection Logistics Holdings, Inc.
959,972
10,700
<0.1
World trade logistics
5,724,500
5/06-8/06
NetFabric Holdings, Inc.
489,132
600
<0.1
Information technology services
4,426,136
7/06
DME Interactive Holdings, Inc.
752,443
0.0
Multi-media entertainment
3,000,000
7/07
Pathway One Plc (5)
426,150
0.0
Sales and development licenses
Tesla Vision Corporation (Manakoa Services Corp.) (8)
Compliance analysis and monitoring
95,000
1/07
Series B Convertible Preferred Stock
2,280,000
0.0
1,559,903
8/04-4/07
Common Stock
2,122,641
0.0
33,730,000
4/05-1/06
WebSky, Inc.
897,750
0.0
Broadband wireless
4,221,165
4/01-12/02
Stealth MediaLabs, Inc. (9)
1,708,000
0.0
Software products
NutriPure Beverages, Inc. (Liberty Diversified Holdings, Inc.)
Printing and packaging
5,346
7/06-9/06
Common Stock
1,245,258
0.0
63,981
2/07
Series D Convertible Preferred Stock
382,800
0.0
210,000,000
1/08
RIM Semiconductor Company (7)
1,792,500
0.0
Data transmission technology
Total Investments in Affiliates
$
38,559,629
$
3,477,200
9.3
%
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Table of Contents
Control Investments (3)
1,000
11/99-11/06
UTEK Real Estate Holdings, Inc. (privately held)
$
4,131,574
$
2,980,000
8.0
%
Real estate development
15,009,402
3/06-5/07
Klegg Electronics, Inc.
6,506,174
7,500
<0.1
Manufacturer/distributor for retail electronic products
Total Investments in Control Investments
$
10,637,748
$
2,987,500
8.0
%
U.S. Treasuries and Certificates of Deposit (4)
Certificates of Deposit:
95,000
8/08
Sun Amern BK Boca Raton FL CD, maturity 1/29/09, interest rate @ 2.60%
$
95,035
$
95,035
0.3
%
100,000
10/08
Doral BK Catano P R CD, maturity 6/29/09, interest rate @ 3.55%
100,000
100,000
0.3
95,000
8/08
SunTrust Bank CD, maturity 9/12/09, interest rate @ 4.21%
96,546
96,546
0.3
Total Certificates of Deposit
$
291,581
$
291,581
0.8
%
Total Investments in U.S. Treasuries and CDs
$
291,581
$
291,581
0.8
%
TOTAL INVESTMENTS
$
86,483,421
$
12,359,721
33.2
%
Cash and other assets, less liabilities
24,840,558
66.8
%
Net assets at December 31, 2008 (Restated)
$
37,200,279
100
%
Notes to Schedule of Investments:
Except where otherwise noted, all of our investments listed above are in common stock of companies that are publicly quoted on the OTC Bulletin Board or listed on
the NYSE Amex or other similar markets.
The above investments, with the exception of the U.S. Treasuries and certificates of deposits, are non-income producing. Equity investments that have not paid
dividends within the last twelve months are considered non-income producing.
The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors. In making its determination,
the Board of Directors has considered valuation appraisals provided by an independent valuation service provider. (See Note 4 to the Notes to the Consolidated Financial Statements.)
As of December 31, 2008, all of the securities that we own are subject to legal restrictions on resale. As a result, our ability to sell or otherwise transfer
the securities we hold in our portfolio is limited.
(1)
Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities.
(2)
Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting
securities.
(3)
Control investments are generally defined under the Investment Company Act of 1940 as companies in which the Company
owns more than 25% of the voting securities or where the Company holds one or more seats on the companys Board of Directors. We own 100% of UTEK Real Estate Holdings, Inc. (UREHI), which holds four investments: Rosbon LLC, ABM of
Tampa Bay, Inc., 22 nd Street of Ybor City, Inc. and Ybor City Group, Inc. UREHI holds 150 membership interests of the total membership interests
outstanding of Rosbon LLC and all of the outstanding shares of capital stock of ABM of Tampa Bay, Inc., 22 nd Street of Ybor City, Inc. and Ybor City
Group, Inc.
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(4)
The Company invests excess cash in a number of U.S. Treasury Bills and certificates of deposit. These short-term investments normally have three month to one year maturities and do
not qualify as cash or cash equivalents.
(5)
Non-U.S. company or the companys principal place of business is outside the U.S.
(6)
Investment consists of warrants to purchase 1,500,000 shares of Oxygen Biotherapeutics, Inc., formerly Synthetic Blood International, Inc., common stock.
(7)
During the period ended December 31, 2008, the Company reclassified this investment from Control investments to Affiliate investments based on the criteria in notes
(2) and (3).
(8)
Advanced Medical Isotope Corporation and Tesla Vision Corporation are related through common management.
(9)
Stealth MediaLabs, Inc. and USTelematics, Inc. are related through common management.
See accompanying notes
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UTEK Corporation
Notes to Consolidated Financial Statements
Three months ended March 31,
2009 and 2008
(Unaudited)
1.
Nature of Business and Significant Accounting Policies
Interim
Financial Information
The financial information for UTEK Corporation (the Company, we, us or UTEK) as
of March 31, 2009 and 2008 and for the 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 consolidated
financial statements not misleading at such dates and for those periods. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and, therefore, do not include all information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These consolidated financial statements should
be read in conjunction with the consolidated audited financial statements and related notes included in the Companys Form 10-K/A for the year ended December 31, 2008. Operating results for the three months ended March 31, 2009 are
not necessarily indicative of the results that may be expected for the entire year.
The Company
The Company provides services that help clients become stronger innovators, develop compelling strategies to drive growth, rapidly source externally developed
technologies, create value from their intellectual property and gain foresight into marketplace and technology developments that affect their business. These services are primarily provided throughout the United States and the United Kingdom.
The Company is a non-diversified, closed-end management investment company that has elected to be treated as a business development company
(BDC) under the Investment Company Act of 1940 (1940 Act).
Innovation Consulting
The Company provides strategic innovation consulting services to clients to help them become more efficient by finding new avenues for growth, fighting commoditization,
improving return on investment, transforming the organization, and removing barriers to innovation. The process involves our clients working with a handful of seasoned and experienced professionals capable of unlocking an organizations
capacity for strategy and innovation.
In addition, the Company provides services to clients that build the capacity for foresight, including monitoring
trends, researching topics of interest, forecasting alternative scenarios, developing technology roadmaps, creating growth platforms and embedding forward thinking within an organization. The Company also offers innovative futures programs that
provide clients with up-to-the-minute knowledge, expert insight, high-level learning experiences, and opportunities to network with experts and peers.
Sale of Technology Rights
To effectuate a technology transfer, we have historically created a newly formed company to acquire a new
technology from a university, medical center, corporation or federal research laboratory and then sell this newly formed company to our client for securities or cash. It is our plan that any shares we receive in these exchanges will, in the course
of our business, be sold for cash or other assets. A benefit of effectuating technology transfers in exchange for shares is that such transactions do not result in a current taxable event for us for income tax purposes. We have not acquired, and do
not currently intend to acquire a new technology from a university, medical center, corporation and federal research laboratory in connection with our technology transfer process without the prior agreement of our client to subsequently acquire such
new technology from us.
Subscription and Other Services
Global Technology Licensing
The Companys global technology licensing division is designed to help our clients enhance their new product
pipeline through the acquisition of proprietary technologies primarily from universities, medical centers, corporations and federal research laboratories. The Company may receive cash or unregistered shares of common stock from companies as payment
for the services we provide. Technology transfers are completed according to the terms set forth in these agreements with our client companies.
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Patent Analytic Services
The Companys patent analytic services division uses a team of on-call scientists and industry experts to provide technical and business knowledge to help our clients identify, assess, protect and leverage their intellectual property
assets (IP). This division helps clients identify the strengths and weaknesses of corporate IP and competitors IP. This division also identifies gaps in competitors IP portfolios that reveal opportunities to pursue for our
clients.
Information Services Website Subscriptions
The Companys subscription-based website services include the following:
Pharmalicensing is a biopharmaceutical innovation resource designed for life science professionals involved with partnering, licensing and business
development worldwide. Pharmalicensing affords clients the ability to in-license and out-license intellectual property and also provides partnering services, business development reports, industry news and a jobs source for candidates and employers.
Pharma Transfer provides a source of research and business development opportunities for the international pharmaceutical market encompassing all areas of
pipeline development, from early-stage discovery, through pre-clinical and clinical trials, to registered products that are all available for co-development or licensing.
TechEx is an online searchable database for life and physical science discoveries.
Knowledge Express is a searchable database of information for licensing professionals, which provides our clients with comprehensive coverage of licensing
agreements, corporate profiles, clinical trials, deals, drug pipelines, drug sales, licensable technologies, patents and royalty rates.
TekScout enables companies to outsource unfinished research and development (R&D) projects to scientists from around the world. TekScout
provides a platform for companies to supplement internal R&D and resources to accelerate product development.
Principles of
Consolidation
UTEK Corporation commenced operations in 1997, originally incorporated under the laws of the State of Florida and subsequently under the
laws of the State of Delaware in July 1999. The consolidated financial statements include the accounts of UTEK Corporation and its wholly owned subsidiaries; UTEK-Europe, Ltd. (Europe) and UTEKip, Ltd. (Israel). UTEKip was closed down in 2008 and
all operations of that subsidiary are currently being serviced by UTEK, although the legal entity has not yet been dissolved. In addition, the legal entities for Innovaro, Ltd., Pharmalicensing, Ltd., Carmi, Inc. (Strategos), and Social
Technologies, Group, Inc. still exist, but their operations have been assimilated by UTEK and UTEK-Europe. All intercompany transactions and balances are eliminated in consolidation.
Portfolio investments are held for the purpose of deriving investment income and future capital gains. The financial results of the Companys portfolio companies are not consolidated in the Companys
financial statements.
Reclassifications
Certain
reclassifications have been made to the three months ended March 31, 2008 balances to conform to the three months ended March 31, 2009 financial statement presentation.
Business Combinations
For acquisitions prior to 2009, we determine and allocate the purchase price of an acquired
company to the tangible and intangible assets acquired and liabilities assumed as of the business combination date in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations . The purchase
price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date.
While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently
uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the
corresponding offset to goodwill. In addition, there are contingencies based on earnings included in some of our purchase agreements. The earnout is recorded as it is earned over the contingency period, which is generally one to three years from the
business combination date. With the
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exception of unresolved income tax matters or the earnout of contingent consideration, subsequent to the purchase price allocation period any adjustment to
assets acquired or liabilities assumed is included in our operating results in the period in which the adjustment is determined.
In January 2009, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations , which replaces SFAS No. 141. The statement retains the fundamental requirements in SFAS No. 141 that the
acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized as a result of
business combinations. SFAS No. 141(R) requires that more assets and liabilities assumed will be measured at fair value as of the acquisition date and that liabilities related to contingent consideration will be remeasured at fair value in each
subsequent reporting period. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. The impact of the adoption of SFAS No. 141(R) will depend
on the nature of acquisitions completed after the date of adoption.
Cash and Cash Equivalents
The Company considers all highly liquid, fixed income investments with maturities of three months or less at the time of acquisition to be cash equivalents.
Accounts Receivable
The Company provides an allowance for losses
on trade receivables based on a review of the current status of existing receivables and managements evaluation of periodic aging of accounts. The Company charges off accounts receivable against the allowance for losses when an account is
deemed to be uncollectible. It is not the Companys policy to accrue interest on past due receivables. The provision for doubtful accounts and notes was approximately $84,000 and $120,000 as of March 31, 2009 and 2008, respectively.
Goodwill and Intangible Assets
Goodwill represents
the excess of the purchase price over the fair value of the assets acquired in connection with the Companys acquisitions. Intangible assets represent the cost of trade marks, trade names, websites, customer lists, non-compete agreements, and
proprietary processes and software obtained in connection with certain of the Companys acquisitions. The Company adheres to the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Accordingly,
goodwill is not being amortized but is subject to annual impairment tests. Intangible assets with finite lives are amortized over their estimated useful lives.
Revenue Recognition
Innovation Consulting Services
Related to the Companys acquisition of Strategos in 2008, the Company recognizes certain strategic consulting revenues in accordance with Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts . Accordingly, revenues on fixed fee contracts are recognized under the percentage-of-completion methods of accounting, whereby contract revenues are recognized on a pro rata basis based
upon costs incurred to date compared to total estimated contract costs. In cases where losses are estimated to be incurred upon completion of contracts, the full provision for such losses is charged to operations when they become known. In addition,
some of the Companys contracts provide for substantial contingent fees if future performance milestones are successfully met. Contingent fees are recorded based on the Companys estimate of the likelihood of reaching future performance
milestones.
Related to the Companys acquisition of Social Technologies Group, Inc. in 2008, the Company has certain other consulting revenue that is
derived from the sale of services in technology foresight, forecasting, scenario playing, vision, creativity and leadership, as well as the sale of services to provide for the design, development and implementation of custom software applications.
Consulting services revenue is recognized when all the deliverables associated with the consulting contract have been provided to the customer. Vendor specific objective evidence is not available to allocate among the respective deliverables.
Accordingly, the Company recognizes revenue at the point when all the deliverables have been provided to the customer.
Before the Company recognizes
revenue, the following criteria must be met:
1.
Evidence of a financial arrangement or agreement must exist between the Company and its customer. Purchase orders, signed contracts, or electronic confirmations are three
examples of items accepted by the Company to meet this criterion.
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2.
Delivery of the products or services must have occurred. The Company treats either physical or electronic delivery as having met this requirement. The Company offers a
60-day free trial on beginning a subscription engagement and revenue is not recognized during this time. After the free trial ends, the Company recognizes revenue ratably over the subscription period.
3.
The price of the products or services is fixed and measurable.
4.
Collectability of the sale is reasonably assured and receipt is probable. Collectability of a sale is determined on a customer-by-customer basis. Typically the Company sells to
large corporations which have demonstrated an ability to pay.
Innovation consulting membership services consist of Futures Consortium,
Futures Observatory and Futures Interactive management products that allow clients access to information, research, databases and workshops that provide information on trends in different technologies and industries. Revenues are recognized on a
contractual basis, generally on an annual basis. These fees are generally collected in advance of the membership period and the revenue is recognized ratably over the respective months, as services are provided.
Certain other consulting revenues are billed on an hourly basis and recognized as incurred.
Sale of Technology Rights
The Company recognizes revenue from the sale of technology rights upon the exchange of the
securities of our newly formed companies for securities in the portfolio company that acquires such newly formed company and the technology held by such newly formed company. The Company records revenue based on the fair value of the consideration
received. In most cases, the consideration received for the rights is unregistered shares of common or preferred stock of the portfolio company.
Subscription and Other Services
Revenue from the sale of subscriptions to the Companys websites generally is received in the form of
cash and initially is deferred and subsequently recognized ratably over the term of the subscription, which is typically one year.
Technology acquisition
alliance services are performed pursuant to service agreements in which UTEK provides consulting services by identifying and evaluating technology acquisition opportunities in exchange for unregistered shares of the portfolio company or cash. These
agreements are typically cancelable with thirty days notice.
Revenue from technology acquisition alliance agreements in which unregistered shares of
common stock are received before they are earned are deferred and recognized over the term of each agreement. For technology acquisition alliance agreements in which the stock is received ratably over the agreement, revenue is recognized as earned.
The common stock received as payment is recorded as income based on the fair value of the consideration received. At March 31, 2009, the Company did not have any technology acquisition alliance agreements for which payment was to be received in
stock.
Income Taxes
Net realized losses on
investments in the accompanying consolidated statements of operations are net of income tax expense (benefit) of $-0- and $(76,000) for the three months ended March 31, 2009 and 2008, respectively. Change in unrealized appreciation
(depreciation) of investments in the accompanying consolidated statements of operations is net of deferred tax expense (benefit) of $-0- and $(2.7 million) for the three months ended March 31, 2009 and 2008, respectively. The Company did not
have any income tax benefit or deferred income tax benefit in 2009 because of a 100% valuation allowance.
Earnings per Share (EPS)
Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is
computed on the basis of the weighted-average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. The Companys dilutive potential
common shares consist of outstanding stock options.
Components of basic and diluted earnings per share are as follows:
Three months ended March 31
2009
2008
Weighted average outstanding shares of common stock
10,987,743
9,161,046
Dilutive effect of stock options
Common stock and common stock equivalents
10,987,743
9,161,046
Shares excluded from calculation of diluted EPS (1)
885,400
640,025
(1) These shares attributable to outstanding stock options were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, primarily as a result of
the net decrease in net assets from operations during the period.
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Financial Instruments and Concentrations of Credit Risk
The Companys financial instruments consist of investments, U.S. Treasuries and certificates of deposit, cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses. The fair value of trade accounts receivable and payable and certain accrued expenses approximate their carrying amounts in the financial statements due to the short maturity of such instruments. The fair value of
certificates of deposit is recorded based upon their market value. The fair value of all other investments is determined by the Board of Directors as further discussed in Note 4.
Financial instruments with significant credit risk include investments and cash and cash equivalents. The Company invests its cash and cash equivalents and certificates of deposit with high credit quality financial
institutions. Certain cash and cash equivalents were in excess of FDIC insurance limits at March 31, 2009. The Company has not experienced any losses on such accounts.
The Company had two major customers during the three months ended March 31, 2009 and two major customers during the three months ended March 31, 2008. Major customers, those generating greater than 10% of
total income from operations, accounted for approximately 27% and 71% of the Companys revenue during the three months ended March 31, 2009 and 2008, respectively.
The Companys most significant portfolio investments at March 31, 2009 were in UTEK Real Estate Holdings, Inc., Eclips Energy Technologies, Inc., Greenwood Hudson Portfolio, LLC and Cyberlux Corporation.
These four investments totaled $8.9 million in fair value and represented 87% of our investments, excluding our investments in U.S. Treasuries and certificates of deposits, and 21% of total assets at March 31, 2009.
Use of Estimates
The preparation of the Companys consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates relate to the fair value of the investments and the purchase price
allocation process for business combinations. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP
157-3). FSP 157-3 provides an illustrative example of how to determine the fair value of a financial asset in an inactive market. The FSP does not change the fair value measurement principles set forth in SFAS 157. Since adopting SFAS 157 in
January 2008, UTEKs practices for determining the fair value of its investment portfolio have been, and continue to be, consistent with the guidance provided in the example in FSP 157-3. Therefore, UTEKs adoption of FSP 157-3 did not
affect its practices for determining the fair value of its investment portfolio and does not have a material effect on its financial position or results of operations.
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP 157-4) and FSP No. FAS 107-1 and APB 28-1, Interim Disclosures About Fair Value of Financial Instruments (FSP 107-1) . Both FSPs are effective for reporting periods ending on or after
June 15, 2009, although early adoption will be permitted under some conditions and can be applied for periods ending on or after March 15, 2009. Since adopting SFAS 157 in January 2008, UTEKs practices for determining fair value and
for disclosures about the fair value of its investment portfolio have been, and continue to be, consistent with the guidance provided in FSP 157-4 and FSP 107-1. Therefore, UTEKs adoption of both FSP 157-4 and FSP 107-1 will not have a
material effect on its financial position or results of operations.
In April 2009, the FASB issued FSP FAS 141(R)-1 which amends SFAS No. 141(R) by
establishing a model to account for certain pre-acquisition contingencies. Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the
acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5,
Accounting for Contingencies , and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss an interpretation of FASB Statement No. 5 . SFAS No. 141(R) and FSP FAS 141(R)-1 were effective for the
Company beginning January 1, 2009, and will apply prospectively to business combinations completed subsequent to that date. The impact of the adoption of FSP FAS 141(R)-1 will depend on the nature of acquisitions completed after the date of
adoption.
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2.
Restatement of Prior Financial Information
The financial
statements as of December 31, 2008 and March 31, 2008, and for the three months ended March 31, 2008, have been restated to correct the accounting treatment previously accorded the following transaction.
The Company determined that pursuant to Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, we should have accrued and
reported as a liability in our 2008 financial statements a payment obligation which arose in connection with our entry into an employment agreement on March 1, 2008 with our then chief executive officer, Clifford M. Gross, Ph.D. Pursuant to the
terms of the employment agreement, Dr. Gross was entitled to receive a payment, at the end of the term of the agreement or if Dr. Gross was terminated for any reason, equal to the number of years Dr. Gross had worked
for us times $100,000 per year, grossed-up to cover any tax liability. At the time of our entry into the employment agreement, Dr. Gross had been employed by us for 10.5 years. Given that the payment obligation was certain
to be paid at some point in the future (i.e., when the employment agreement was not renewed at some future date) and the amount of the payment obligation was determinable at the time of entry into the employment agreement, we should have accrued and
reported such payment obligation as a liability in our financial statements for the quarter ended March 31, 2008 as well as in our subsequent interim and annual financial statements for 2008.
As previously disclosed in our Form 10-K for the year ended December 31, 2008, Dr. Gross retired from his position as our chief executive officer on
March 1, 2009, following the conclusion of the term of the employment agreement, including a subsequent extension to the term thereof. Moreover, as disclosed in a Form 8-K filed with the SEC on April 13, 2009, we entered into a separation
agreement with Dr. Gross that modified the payment terms, but not the monetary obligation amount that Dr. Gross was entitled to receive pursuant to the employment agreement.
The following schedule illustrates the effects on the account classifications resulting from the above restatements:
As of
December 31, 2008 and March 31, 2008:
Dec 31, 2008
Mar 31, 2008
Net assets, as previously reported
$
38,852,093
$
41,084,100
Adjustment to accrue severance liability, net of tax at Mar 31, 2008
(1,651,814
)
(1,275,514
)
Net assets, as restated
$
37,200,279
$
39,808,586
Net asset value per share, as previously reported
$
3.57
$
4.47
Net asset value per share, as restated
$
3.42
$
4.33
For the three months ended March 31, 2008:
Net decrease in net assets from operations, as previously reported
$
(5,055,277
)
Adjustment to accrue severance liability, net of tax
(1,275,514
)
Net decrease in net assets from operations, as restated
$
(6,330,791
)
Net decrease in net assets from operations per share, as previously reported
$
(0.55
)
Net decrease in net assets from operations per share, as restated
$
(0.69
)
3.
Stock-Based Compensation
The Company had two stock-based equity
compensation plans at March 31, 2009. See Note 11 of our consolidated financial statements included in the Companys Form 10-K/A for the year ended December 31, 2008.
Options under both plans are granted at the fair market value of the stock on the date of grant, except in the case of a more than 10% stockholder, for which grants are exercisable at 110% of fair market value of the
stock on the date of grant. Options generally become fully vested three to four years from the date of grant and expire five to seven years from the date of grant. During the three months ended March 31, 2009 and 2008, respectively, we granted
-0- and 27,000 options to purchase shares of common stock. At March 31, 2009, there were 2,300,000 shares authorized for issuance and the Company had 1,384,813 shares available for future stock option grants under existing plans.
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The Company accounts for stock option grants in accordance with the provisions of SFAS No. 123(R), Share-Based
Payment . Under the modified prospective approach of SFAS 123(R), compensation cost recognized during the three months ended March 31, 2009 and 2008 includes compensation cost for all share-based payments granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date
fair value estimated in accordance with the provisions of SFAS 123(R). The Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company estimates forfeitures, both at the grant date as well as
throughout the requisite service period, based on the Companys historical experience and future expectations.
The Company recorded approximately
$245,000 and $172,000 for the three months ended March 31, 2009 and 2008, respectively, in compensation expense related to share-based payments pursuant to SFAS 123(R). Stock-based compensation expense is included in salaries and wages in the
accompanying consolidated statements of operations.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based
awards on the date of grant. The assumptions employed in the calculation of the fair value of stock-based compensation expense for the three months ended March 31, 2009 and 2008 were determined as follows:
Expected dividend yield based on the Companys historical dividend yield.
Expected volatility based on the Companys historical market price at consistent points in a period equal to the expected life of the options.
Risk-free interest rate based on the U.S. Treasury yield curve in effect at the time of grant.
Expected life of options based on the Companys historical life of options exercised.
The weighted-average input assumptions used and resulting fair values were as follows during the three months ended March 31, 2008. There were no option issuances
during the three months ended March 31, 2009.
2008
Expected dividend yield
0
%
Expected volatility
37.81
%
Risk-free interest rate
1.180
%
Expected life
4.00 years
Grant date fair value
$
3.38
Net cash proceeds from the exercise of stock options were approximately $0 and $113,000 for the three months ended
March 31, 2009 and 2008, respectively. At March 31, 2009, there was approximately $2,180,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted-average period of 2.8 years.
The following table represents stock option activity as of and for the three months ended March 31, 2009:
Number
of Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
Options Outstanding January 1, 2009
988,400
$
12.09
Granted
Exercised
Forfeited/expired/cancelled
(103,000
)
$
11.30
Options Outstanding March 31, 2009
885,400
$
12.18
4.37 years
$
Outstanding Exercisable March 31, 2009
292,400
$
14.89
1.75 years
$
The total grant date fair value of options vested during the three months ended March 31, 2009 and 2008 was
$183,000 and $178,000, respectively.
4.
Investments
Pursuant to the requirements of the 1940 Act, our
Board of Directors is responsible for determining, in good faith, the fair value of our securities and assets for which market quotations are not readily available. In making its determination, the Board of Directors has utilized valuation
appraisals provided by an independent valuation service provider for each equity stake in our
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portfolio. With respect to equity securities in privatelyowned companies, each investment is valued using industry valuation benchmarks, and then the
value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing
indicated by the external event is used to corroborate our private equity valuation. Equity securities in public companies that carry certain restrictions on resale are generally valued at a discount from the market value of the securities as quoted
on the national securities exchange or the OTC Bulletin Board.
The Board of Directors bases its determination upon, among other things, applicable
quantitative and qualitative factors. These factors may include, but are not limited to, type of securities, nature of business, marketability, market price of unrestricted securities of the same issue (if any), comparative valuation of securities
of publicly traded companies in the same or similar industries, current financial conditions and operating results, sales and earnings growth, operating revenues, competitive conditions and current and prospective conditions in the overall stock
market.
Without a readily available market value, the value of our portfolio of securities may differ significantly from the values that would be placed
on the portfolio if there existed a ready market for such securities, and the differences could be material. Substantially all of the Companys investments owned at March 31, 2009 and December 31, 2008 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.
Shares of stock received by portfolio companies in exchange for both strategic alliance services and technology transfer transactions are recorded at fair value on the day that the transactions are executed. The fair
value of such shares is recorded as revenue in our statements of operations and as the cost of such shares in our statements of assets and liabilities. The certificates are received subsequent to the transaction date.
The Company values substantially all of its investments at fair value as determined in good faith by the Board of Directors in accordance with the Companys
valuation policy and the provisions of the Investment Company Act of 1940 and SFAS No. 157. SFAS No. 157 establishes a fair value hierarchy that encourages and is based on the use of observable inputs, but allows for unobservable inputs
when observable inputs do not exist. Inputs are classified into one of three categories:
Level 1Quoted prices (unadjusted) in active markets for identical assets
Level 2Inputs other than quoted prices that are observable to the market participant for the asset or quoted prices in a market that is not active
Level 3Unobservable inputs
When there are
multiple inputs for determining the fair value of an investment, the Company classifies the investment in total based on the lowest level input that is significant to the fair value measurement.
Assets measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2009, were as follows:
Fair Value Measurements at Reporting Date Using
Description
Fair Value at
3/31/09
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Investments
$
10,931,745
$
$
10,931,745
$
Technology acquisition alliances:
During the three months ended March 31, 2009, the Company entered into 2 technology acquisition alliance agreements. The income recognized from all technology acquisition alliance agreements for the three months
ended March 31, 2009 was approximately $274,000. At March 31, 2009, the Company had 24 active technology acquisition alliance clients.
Technology Transfers
All of our technology transfers are generally completed as set forth in our technology acquisition alliance service
agreements with our clients. The Company did not complete any technology transfers during the three months ended March 31, 2009.
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During the three months ended March 31, 2008, the Company completed the following four technology transfers:
Date
Name of Company Acquiring
the Newly Formed Company
Newly Formed Company
Consideration
Unregistered Shares
or Cash*
Price per
Share (1)
January 28
RIM Semiconductor Company
Broadband Distance Systems, Inc.
60,000,000
$
0.015
February 25
Artilium Plc
$
125,000 cash
(2)
March 24
RIM Semiconductor Company
Multi-Carrier Communications, Inc.
150,000,000
0.006
March 31
Platina Energy Group Inc.
Enhanced Oil Recovery Technologies, Inc.
92,000 preferred
(3)
8.640
*
Unless otherwise noted, the Company received unregistered shares of common stock of the company acquiring the Companys newly formed company.
(1)
Represents the valuation price per share at the date of acquisition.
(2)
Represents a technology transfer assistance fee we received for assisting Artilium Plc with an acquisition.
(3)
Preferred F shares convertible into common shares based on a value of $1,324,800.
5.
Notes Payable and Other Debt
The Company had the following notes
payable and other debt at March 31, 2009:
$1,000,000 bank line of credit, due in monthly installments of interest at 4.00% at March 31, 2009; with principle due on
demand
$
750,000
$600,000 note payable, bank, due in monthly installments of $14,420 including principal and interest at 7.09% through November
2012
558,567
Capital leases on computer equipment, due in monthly installments of $6,053 expiring through July 2010, imputed interest rates of between 7.0%
and 13.0%
83,784
$75,000 bank credit card financing, due in monthly installments of interest at 11.99%
35,238
$50,000 bank credit card financing, due in monthly installments of interest at 7.74%
48,902
$25,000 bank credit card financing, due in monthly installments of interest at 7.0%
25,000
$
1,501,491
The above debt has no covenants or guarantees and is collateralized by certain of the Companys assets
including commercial real estate owned by UTEK Real Estate Holdings, Inc., one of the Companys portfolio companies.
Payments required for the next
five years on the notes payable and other debt balance as of March 31, 2009 are as follows:
For the years ending March 31,
2010
$
1,056,990
2011
177,142
2012
163,578
2013
112,314
1,510,024
Less imputed interest on capital lease obligations
(8,533
)
$
1,501,491
6.
Commitments and Contingencies
Bonus Plans
In connection with the acquisition of Strategos, the Company implemented the Strategos Bonus Plan for qualifying Strategos division employees. The award pool is
determined from eligible earnings and aggregate revenues and is limited to the extent
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required to permit Strategos to maintain sufficient operating cash. Awards are to be paid out by December 15 th of each year and are accrued on a quarterly basis. Approximately 85% to 90% of Strategos net income will be paid out in connection with this bonus plan. There was no bonus accrual
in connection with the Strategos Bonus Plan for the three months ended March 31, 2009.
In
connection with the acquisition of Innovaro, the Company implemented the Innovaro Bonus Plan for qualifying Innovaro division employees. The award pool is determined from eligible earnings and aggregate revenues and is limited to the extent required
to permit Innovaro to maintain sufficient operating cash. Awards are to be paid out by June 30 th of each year and are accrued on a quarterly
basis. Approximately 75% to 85% of Innovaro net income will be paid out in connection with this bonus plan. There was no bonus accrual in connection with the Innovaro Bonus Plan for the three months ended March 31, 2009.
Other
From time to time, some of the Companys portfolio
companies may receive correspondence or other notices of alleged breach of a license agreement. Some of these correspondences and notices provide for a period of time in which to cure the alleged breach. The failure of the Companys portfolio
companies to cure the alleged breach may have a material adverse impact on the Companys results of operations and financial position.
7.
Segment Reporting
The Companys principal areas of activity
are providing technology transfer services and supporting innovation consulting services. The Company previously had three reportable geographic operating segments: United Kingdom, Israel and the United States. The United Kingdom segment includes
our wholly owned subsidiary UTEK-Europe, Ltd., the Israel segment includes our wholly owned subsidiary UTEK ip , Ltd., and the United States segment includes UTEK Corporation. UTEK ip was closed down in the second quarter of 2008 and all
operations of that segment are currently being serviced by the U.S. segment.
A summary of income from operations and other financial information by
reportable geographic operating segment is shown below:
United
Kingdom
United States
Total
Long-lived assets March 31, 2009
$
5,456,435
$
21,011,833
$
26,468,268
Total assets March 31, 2009
5,905,375
37,201,406
43,106,781
Long-lived assets December 31, 2008
5,659,892
20,903,434
26,563,326
Total assets December 31, 2008
6,304,527
39,581,682
45,886,209
For the Three Months Ended March 31, 2009
United
Kingdom
Israel
United States
Total
Income from operations
$
445,216
$
$
2,318,505
$
2,763,721
Loss before income taxes
(92,064
)
(1,999,201
)
(2,091,265
)
Depreciation and amortization
98,412
308,266
406,678
For the Three Months Ended March 31, 2008 (Restated)
United
Kingdom
Israel
United States
Total
Income from operations
$
244,486
$
12,303
$
3,408,777
$
3,665,566
Loss before income taxes
(35,248
)
(116,485
)
(2,005,830
)
(2,157,563
)
Depreciation and amortization
36,185
668
48,686
85,539
The Company has recently changed the way it classifies and records its revenues and certain expenses to provide
additional information for management. This change was as a result of the Companys new products and services from the addition of the acquisitions of Pharmalicensing, Strategos, Social Technologies and Innovaro. Consequently, the Company has
new product segments for which certain information can be reported. These new product segments include: technology transfer business; innovation consulting comprised of the consulting portion of Social Technologies, Strategos and Innovaro
businesses; subscription services comprised of the Companys information services business; and all other services comprised of patent analytics and technology alliance services. The administrative and other column represents miscellaneous and
other income items and general and administrative type expenses that are not allocated amongst the different businesses. Management does not analyze assets for decision making purposes as it relates to the segments below. Accordingly, information is
not available for long-lived assets or total assets.
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A summary of income from operations and other financial information by product segment is shown below:
For the Three Months Ended March 31, 2009
Sale of
Technology
Rights
Innovation
Consulting
Subscription
Services
All Other
Consulting
Administrative
and Other
Total
Income from operations
$
$
1,919,298
$
539,652
$
274,107
$
30,664
$
2,763,721
Income (loss) before income taxes
$
(322,947
)
$
75,105
$
(92,258
)
$
(1,751,165
)
$
(2,091,265
)
8.
Employee Benefit Plan
On February 1, 2009, the Company
adopted the UTEK Corporation 401k Plan (the Plan) for employees of the Company and its subsidiaries. The Plan allows employees who satisfy the service requirements of the Plan, which include being 21 years of age and having three months
of service, to contribute pre-tax wages to the Plan, subject to legal limits. The Company matches 100% of the first 3%, and 50% of the second 2%, of compensation contributed by employees. The Companys contributions vest immediately and were
approximately $27,000 during the three months ended March 31, 2009.
9.
Related Party Transactions
The Company paid rent of approximately
$88,000 and $69,000 to Ybor City Group, Inc., a subsidiary of UTEK Real Estate Holdings, Inc., during the three months ended March 31, 2009 and 2008, respectively.
ITEM 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. These forward-looking statements
may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words may, will, should,
expect, anticipate, estimate, believe, intend or project or the negative of these words or other variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by
the forward-looking statements as a result of various factors.
Restatement
On April 22, 2009, the Audit Committee and Board of Directors of UTEK Corporation concluded that the Companys previously issued financial statements for the fiscal year 2008 contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2008 and the financial statements for the periods ended March 31, 2008, June 30, 2008 and September 30, 2008 contained in its Quarterly Reports on Form 10-Q should
be restated. The Company has restated such financial statements and certain financial information as contained in the Companys Form 10-K/A and Forms 10-Q/A for the aforementioned periods as filed on May 7, 2009.
The Company determined that pursuant to Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, we should have accrued and
reported as a liability in our 2008 financial statements a payment obligation which arose in connection with our entry into an employment agreement on March 1, 2008 with our then chief executive officer, Clifford M. Gross, Ph.D. Pursuant to the
terms of the employment agreement, Dr. Gross was entitled to receive a payment, at the end of the term of the agreement or if Dr. Gross is terminated for any reason, equal to the number of years Dr. Gross had worked
for us times $100,000 per year, grossed-up to cover any tax liability. At the time of our entry into the employment agreement, Dr. Gross had been employed by us for 10.5 years. Given that the payment obligation was certain
to be paid at some point in the future (i.e., when the employment agreement was not renewed at some future date) and the amount of the payment obligation was determinable at the time of entry into the employment agreement, we should have accrued and
reported such payment obligation as a liability in our financial statements for the quarter ended March 31, 2008 as well as in our subsequent interim and annual financial statements for 2008.
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As previously disclosed in our Form 10-K for the year ended December 31, 2008, Dr. Gross retired from his
position as our chief executive officer on March 1, 2009, following the conclusion of the term of the employment agreement, including a subsequent extension to the term thereof. Moreover, as disclosed in a Form 8-K filed with the SEC on
April 13, 2009, we entered into a separation agreement with Dr. Gross that modified the payment terms, but not the monetary obligation amount that Dr. Gross was entitled to receive pursuant to the employment agreement.
See Note 2 Restatement of Prior Financial Information of the Notes to the Financial Statements included in this Form 10-Q for a detailed discussion of the
effect of this restatement.
Overview
Recent
Business Developments
During the first quarter of 2009, the Company has been focusing on the continued integration of the four businesses that it
acquired in 2008. However, the revenues from certain of the Companys divisions have decreased in the current period as a result of the current economic conditions. In response to these conditions, the Company has made significant efforts to
reduce its overhead costs, which included a reduction in the number of employees throughout the Company.
As previously disclosed in our Definitive Proxy
Statement filed with the SEC on April 30, 2009, the Board of Directors is recommending that stockholders vote in favor of a proposal to authorize the Board of Directors to withdraw the Companys election to be treated as a business development
company (BDC) under the 1940 Act. We would not consider de-election of the BDC until the Company divests itself of its significant equity interests in the portfolio companies in which it holds a more than 20% ownership. Because we have
significant equity interests in these portfolio companies, we would be required to use the equity method of accounting to consolidate the financial accounts of these portfolio companies with those of the Company after we withdraw our election to be
regulated as a BDC. However, because the Company does not control these portfolio companies, the Company will not be able to dictate the timing of their provision of financial information to the Company for inclusion in its financial statements,
which may result in the late filing of the Companys annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC. Therefore, the Company began liquidating a portion of its investment portfolio during the first quarter of 2009.
We sold some or all of our shares in a significant number of our portfolio companies for $2.1 million in cash and other assets, which resulted in realized losses of $37.0 million and unrealized appreciation of $35.9 million in the fair value of our
investments during the period.
As previously disclosed in our Form 10-K for the year ended December 31, 2008, the Companys chief executive
officer retired from his position upon the conclusion of the term of his employment agreement on March 1, 2009. In connection therewith, the Company accrued an additional $143,000 in severance liability in the first quarter of 2009.
Executive Summary
We help clients become stronger
innovators, develop compelling strategies to drive growth, rapidly source externally developed technologies, create value from their intellectual property and gain foresight into marketplace and technology developments that affect their business.
During 2008, the Company acquired four companies to enhance our ability to provide end-to-end innovation services. We will continue to seek to acquire
additional innovation services companies that enhance our capabilities or expand the territories in which we operate.
Our total assets were $43.1 million
and our net assets were $34.0 million at March 31, 2009, compared to $45.9 million and $37.2 million at December 31, 2008, respectively. Net asset value per share was $3.07 at March 31, 2009 and $3.42 at December 31, 2008. At
March 31, 2009, we had $1.5 million in debt outstanding, $3.6 million in cash and cash equivalents and $687,000 of investments in U.S. Treasuries and certificates of deposit.
Income from operations for the three months ended March 31, 2009 totaled approximately $2.8 million, as compared to $3.7 million for the three months ended March 31, 2008. Net loss from operations for the
three months ended March 31, 2009 totaled approximately $2.1 million as compared to $1.7 million for the same period of 2008. Net realized losses on investments totaled approximately $37.0 million for the three months ended March 31, 2009
as compared to $126,000, net of deferred tax effect, for the same period of 2008. In this regard, we received gross proceeds of cash and other assets of $2.1 million for the three months ended March 31, 2009 and $1.5 million in cash for the
same period of 2008 in connection with the sale of the securities we received in connection with our technology acquisition alliance agreements and technology transfers. Proceeds received in connection with the sale of our investments for the three
months ended March 31, 2009 included $400,000 in cash, $200,000 in an additional investment in UTEK Real Estate Holdings, Inc., and $1.5 million in a note receivable from a company to which we sold certain of our investments. Net change in
unrealized appreciation (depreciation) of investments was $34.1 million for the three months ended March 31, 2009 as compared to $(4.6 million), net of deferred tax benefit, for the same period of 2008. The net change in unrealized appreciation
of $34.1 million for the three months ended March 31, 2009 was primarily related to the reversal of previously recorded unrealized depreciation upon the sale of investments for a realized loss.
Our financial condition is dependent on a number of factors including our ability to effectuate technology transfers and the performance of the equity investments that
we receive in connection with these transfers. Substantially all of our investments are in development stage and start-up companies and thinly traded public companies. These businesses are thinly capitalized, unproven, small companies that lack
management depth, are dependent on new, commercially unproven technologies and have no or a limited history of operations.
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Current Market Conditions
Since mid-2007, global credit and other financial markets have suffered substantial stress, volatility, illiquidity and disruption. These forces reached unprecedented levels in late 2008, resulting in the bankruptcy
or acquisition of, or government assistance to, several major domestic and international financial institutions. These events have significantly diminished overall confidence in the financial markets and caused increasing global economic
uncertainty. This reduced confidence and uncertainty could further exacerbate the overall market disruptions and risks to businesses in need of capital, including us and our portfolio companies. Moreover, the deterioration in the equity markets has
had a significant impact on the valuations of our investments and the cash proceeds that we have been able to obtain upon the sale of our investments. A further worsening of this situation or a prolonged period without improvement from the levels at
the end of the third quarter of 2008 could adversely affect our financial position.
Portfolio Activity
The following is a list of significant changes in our portfolio during the three months ended March 31, 2009:
The sale of some or all of our shares in a significant number of our portfolio companies for approximately $2.1 million in cash and other assets, which resulted in
realized losses of $37.0 million, and
Net unrealized appreciation of $34.1 million in the fair value of our investments.
Our most significant portfolio investments at March 31, 2009 were in UTEK Real Estate Holdings, Inc., EClips Energy Technologies, Inc., Greenwood Hudson Portfolio, LLC and Cyberlux Corporation. These four
investments totaled $8.9 million at fair value and represented 87% of our investments, excluding our investments in U.S. Treasuries and certificates of deposits, and 21% of total assets at March 31, 2009.
The net unrealized appreciation of $34.1 million for the three months ended March 31, 2009 was primarily due to the reversal of unrealized depreciation on various
investments upon their sale during the period of approximately $35.9 million; partially offset by a reduction in value of the investment in Mimedx Group, Inc. of $1.8 million.
While the realized and unrealized losses can be significant, failures among small cap companies are not unexpected and may occur in the future. The current portfolio is comprised of 19 holdings. Many of these
positions are in small capitalization companies, which over time may have high failure rates due to a variety of factors. For clients that fail, UTEK may lose the entire amount of its capital spent acquiring and transferring the technology to them.
The value of our investments can fluctuate due to factors that are specific to each investment (e.g., inability of these companies to obtain additional
capital, to execute their business model, or termination or obsolescence of their technology licenses, etc.) or to general marketplace factors. Moreover, in the event that the United States economy remains in a prolonged recession, it is possible
that these companies could be negatively impacted, which could ultimately lead to greater difficulty in our ability to sell our equity investments in such companies at acceptable levels, or at all.
Results of Operations
Income from Operations (Revenue)
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Innovation consulting services
$
1,919
$
0
%
Sale of technology rights
2,712
(100
)%
Subscription and other services
814
869
(6
)%
Investment income, net
31
85
(64
)%
Income from Operations
$
2,764
$
3,666
(25
)%
Innovation Consulting Services
Our innovation consulting revenue increased $1.9 million for the three months ended March 31, 2009 in comparison to same period in 2008 as a result of our acquisitions of innovation consulting services companies
in 2008. Our consulting revenues for the first quarter of 2009 have been adversely affected by the current economic conditions. Based on current activity, we expect these revenues to increase beginning in the third or fourth quarter of 2009.
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In subsequent periods, it is our intention to pursue additional strategic acquisitions which if successful will continue
to increase the innovation consulting services revenue and enhance our ability to better service the innovation needs of our clients.
Sale of
Technology Rights
Sale of technology rights revenue decreased as a result of our not completing any technology transfers during the three months ended
March 31, 2009 as compared to having completed four technology transfers during the three months ended March 31, 2008.
To mitigate the risk of
declining stock prices with respect to the stock consideration we receive in connection with our technology transfers, we believe that going forward most technology transfers will be completed for cash as opposed to stock. As a result, management
continues to expect that our 2009 revenues from the sale of technology rights will decrease from our 2008 revenues from such transactions.
Subscription
and Other Services
Our subscription and other services revenue was $814,000 for the three months ended March 31, 2009 versus $869,000 for the
three months ended March 31, 2008. Included in this income category are our global technologies licensing income from our technology acquisition alliance fees, our information services website subscription income, our patent analytic fees and
various other services.
Our global technologies licensing income was approximately $274,000 for the three months ended March 31, 2009 as compared to
$260,000 for the three months ended March 31, 2008. The number of new agreements added in the first three months of 2009 was two as compared to fourteen new agreements added in the first three months of 2008.
Our information services division had website subscription income of approximately $540,000 for the three months ended March 31, 2009 as compared to $529,000 for
the three months ended March 31, 2008. The increase is attributable to a new product sold through Pharmalicensing called Partnering Search through which we use our partnering experts to search for partners on behalf of the customers as
well as provide a fully qualified list of target companies, instructions on how to contact target companies, make introductions and coordinate initial contact/conference calls.
Our other services including patent analytics generated $-0- for the three months ended March 31, 2009 as compared to $80,000 for the three months ended March 31, 2008.
It is our intention to grow our subscription and other services revenue internally as well as with additional strategic acquisitions during 2009.
Investment Income, net
Investment income decreased by $54,000 for
the three months ended March 31, 2009, as compared to the same period of 2008, as a result of a decrease in the cash and cash equivalents balances, as well as lower interest rates during the first quarter of 2009.
Our income from operations can vary substantially on a quarterly basis due to a variety of factors. Therefore, quarterly income from operations should not be annualized
to predict expected annual results and may not be indicative of future performance.
Expenses
Direct Costs of Innovation Consulting Services
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Direct costs of innovation consulting services
$
1,987
$
100
%
As a percent of innovation consulting services
104
%
0
%
104ppt
*
* The abbreviation ppt denotes percentage points.
Direct costs of innovation consulting services are comprised of salaries and related taxes, bonuses, certain
outside services and other direct project costs related to innovation consulting services revenue. This expense line item was created in the second quarter of 2008 as a result of the acquisitions of Strategos, and subsequently Innovaro and Social
Technologies Group; therefore
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there is no innovation consulting services expense in the first quarter of 2008 as compared to $2.0 million in the first quarter of 2009. During the first
quarter of 2009, the innovations consulting income was adversely affected by the downturn in the economy. We have taken steps to reduce costs, including reductions in staff, as well as reduced hours for certain remaining staff. We expect these cost
reductions to increase the margins for our consulting services division during the remainder of 2009.
Acquisition of Technology Rights
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Acquisition of technology rights
$
$
1,184
(100
)%
As a percent of sale of technology rights
0
%
44
%
(44
)ppt
Acquisition of technology rights costs consist of the direct costs associated with our technology transfers, which
include cash to further accelerate commercialization efforts, license fees to acquire new technologies, consulting fees with the inventor of the technologies, and sponsored research fees with the university or research facility transferring the
technologies. The overall decrease in acquisition of technology rights from the three months ended March 31, 2008 to the three months ended March 31, 2009 was due to the Company not completing any technology transfers in the first quarter
of 2009 compared to having completed four technology transfers in the first quarter of 2008.
Acquisition of technology rights costs are directly related
to sale of technology rights revenue. We expect that the acquisition of technology rights costs will continue to decrease in 2009 in conjunction with a decrease in this revenue. In addition, we plan to focus on technology transfers for cash
remuneration or equity transfers that do not require significant amounts of upfront cash costs.
Salaries and Wages
Three months ended March 31,
(in thousands, except percentages)
2009
2008
(Restated)
Percentage
Change
Salaries and wages
$
984
$
2,858
(66
)%
As a percent of income from operations
36
%
78
%
(42
)ppt
Salaries and wages include non-sales employees and officer salaries and related benefits including bonuses and
stock-based compensation. Salaries and wages decreased by $1.9 million primarily due to the accrual of our CEOs severance liability of $1.65 million during the three months ended March 31, 2008. The remaining decrease relates to a
significant reduction in employees and the retirement of our CEO during the three months ended March 31, 2009. We expect that salaries and wages for 2009 will continue to decrease or remain flat in comparison to 2008.
Professional Fees
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Professional fees
$
223
$
308
(28
)%
As a percent of income from operations
8
%
8
%
0ppt
Professional fees include accounting fees, legal fees and valuation expenses for our investments. The decrease in
professional fees for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 relates to a $63,000 decrease in legal fees related to an acquisition made in the first quarter of 2008, which was not repeated in
2009, as well as a $15,000 decrease in valuation expenses due to the reduced number of investment holdings in 2009.
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Sales and Marketing
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Sales and marketing
$
458
$
648
(29
)%
As a percent of income from operations
17
%
18
%
(1
)ppt
Sales and marketing expenses include advertising, marketing, salaries and commissions paid to sales personnel,
commissions paid to outside service providers, travel and other selling expenses. The decrease in sales and marketing expenses relates primarily to a reduction in sales salaries of $167,000 for the three months ended March 31, 2009 as compared
to the same period of 2008. This reduction is a result of downsizing the number of employees in all areas of the company including sales staff.
General and Administrative
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
General and administrative
$
795
$
740
8
%
As a percent of income from operations
29
%
20
%
9ppt
The increase in general and administrative costs for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008 is a direct result of the acquisitions made in 2008. During the first quarter of 2009, there were increases in insurance of $53,000 and in rent of $50,000 which relates directly to the additional offices of the
acquisition companies. These increases were partially offset by an overall company plan to reduce all aspects of overhead.
We expect that general and
administrative expenses for the remainder of 2009 will remain consistent with the first quarter of 2009.
Depreciation and Amortization
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Depreciation and amortization
$
407
$
86
375
%
As a percent of income from operations
15
%
2
%
13ppt
The increase in amortization and depreciation expense for the three months ended March 31, 2009 compared to
the same period of 2008 was a direct result of the four business acquisitions made during 2008. We acquired $12.4 million in intangible assets and $350,000 in fixed assets during 2008 in connection with these acquisitions, which will significantly
increase our quarterly amortization and depreciation expense throughout 2009 and in subsequent years.
Net Realized Gains (Losses) on Investments
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Realized gains/ (losses)
$
(37,018
)
$
(126
)
29,256
%
Net realized losses on investments, net of income tax effect, amounted to $37,018,135 for the three months ended
March 31, 2009 and were related to sales as follows:
Portfolio Company
Number of
Shares
Realized
Gain (Loss)
Advanced Medical Isotope Corporation preferred shares
95,000
$
(1,387,427
)
Advanced Refractive Technologies, Inc. preferred shares
294,000
(3,293,316
)
American Soil technologies, Inc.
6,498,845
(1,010,579
)
Avalon Oil and Gas, Inc.
3,373,107
(1,595,566
)
Cytodyn, Inc.
2,040,000
(2,422,968
)
EClips Energy Technologies, Inc.
8,437,500
(1,553,583
)
Tesla Vision Corporation preferred shares
1,559,903
(1,054,032
)
Tesla Vision Corporation common shares
95,000
(2,020,721
)
Stealth MediaLabs, Inc.
4,221,165
(1,192,848
)
Klegg Electronics, Inc.
4,169,430
(2,322,709
)
Rim Semiconductor
210,000,000
(1,251,861
)
MATECH Corporation
17,823
(2,872,617
)
Nutripure Beverages, Inc. common shares
5,346
(1,137,017
)
Trio Industries, Inc.
7,787,565
(8,611,419
)
UBA Technology, Inc. preferred shares
95,000
(745,453
)
UBA Technology, Inc. common shares
2,430,740
(1,540,196
)
All other investments sold
(3,005,823
)
Total
$
(37,018,135
)
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Net realized losses on investments, net of income tax effect, amounted to $126,102 for the three months ended
March 31, 2008 and were related to sales as follows:
Company Name
Number of
Shares
Realized
Gain (Loss)
American Soil Technologies, Inc.
60,000
$
(5,697
)
Material Technologies, Inc.
369,000
72,635
Broadcast International, Inc.
441,862
427,788
Industrial Biotechnology Corporation
500
(362,377
)
Cyberlux Corporation
1,331,000
2,640
SolarBrook Water and Power Corp.
808,529
(75,956
)
TenthGate, Inc.
10,000
15
5G Wireless Communications, Inc.
122,449
(49,160
)
Modern Technology Corporation
37,500
(51,193
)
EcoSystem Corporation
49,944
1,626
Avalon Oil and Gas, Inc.
89,700
(86,423
)
Total
$
(126,102
)
Net realized gains and losses can vary substantially due to a variety of factors and may not be indicative of
future performance. As a result of the uncertainty surrounding the future values of our investments, we are unable to make any projections or estimates regarding realized gains or losses expected in 2009.
Net Change in Unrealized Appreciation or Depreciation on Investments
We estimate the value of each investment in our portfolio on a quarterly basis and changes in value result in unrealized appreciation or depreciation being recognized. Value, as defined in Section 2(a)(41) of the 1940 Act, is
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. Although many of the securities
we hold in our portfolio are quoted on the OTC Bulletin Board or listed on the NYSE Amex, our Board of Directors is required to determine the fair value of such securities if the validity of the market quotations appears to be questionable, or if
the number of quotations is such as to indicate that there is a thin market in the security. The fair value of these securities is frequently less than the market quotations for such securities. Because there is typically no readily available market
value for the investments in our portfolio (other than U.S. Treasuries and certificates of deposit), we value substantially all of our investments at fair value as determined in good faith by the Board of Directors. In making its determination, our
Board of Directors may consider valuation appraisals provided by independent valuation service providers. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair
value of our investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
Three months ended March 31,
Percentage
(in thousands, except percentages)
2009
2008
Change
Unrealized appreciation/ (depreciation)
$
34,095
$
(4,551
)
(849
)%
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Net change in unrealized appreciation on investments amounted to $34,095,220 for the three months ended March 31,
2009 and was related to our investments as follows:
Portfolio Company
Net Unrealized
Appreciation
(Depreciation)
Advanced Refractive Technologies, Inc. preferred shares
$
3,369,544
American Soil technologies, Inc.
1,048,273
Avalon Oil and Gas, Inc.
1,662,990
Cargo Connection Logistics Holdings, Inc
662,961
Cytodyn, Inc.
2,487,968
DME Interactive Holdings, Inc.
525,498
EClips Energy Technologies, Inc.
1,884,315
Tesla Vision Corporation
3,074,753
MiMedx Group, Inc.
(1,792,000
)
Stealth MediaLabs, Inc.
1,192,828
Klegg Electronics, Inc.
2,344,392
Rim Semiconductor
1,251,861
MATECH Corporation
2,872,617
Nutripure Beverages, Inc. common shares
1,137,017
Trio Industries, Inc.
8,611,409
UBA Technology, Inc.
2,285,649
All other investments
1,475,145
Total
34,095,220
Net change in unrealized depreciation on investments, net of income tax effect, amounted to $4,550,776 for the
three months ended March 31, 2008 and was related to our investments as follows:
Portfolio Company
Net Unrealized
Appreciation
(Depreciation)
Avalon Oil & Gas, Inc.
$
(288,332
)
Broadcast International, Inc.
(659,155
)
Emission & Power Solutions, Inc.
(248,357
)
Industrial Biotechnology Corporation
363,474
MachineTalker, Inc.
347,276
Manakoa Services Corporation
(254,033
)
Material Technologies, Inc.
(2,530,371
)
Pathway One Plc
(319,647
)
RIM Semiconductor Company
(436,902
)
Synthetic Blood International, Inc.
521,600
World Energy Solutions
(361,933
)
All other investments
(684,396
)
Total
$
(4,550,776
)
The net unrealized appreciation of $34.1 million for the three months ended March 31, 2009 was primarily due
to the reversal of unrealized depreciation on various investments upon their sale during the period of approximately $35.9 million; partially offset by a reduction in value of the investment in Mimedx Group, Inc. of $1.8 million.
Overall negative equity market conditions and a weakening U.S. economy have resulted in significant decreases in market prices for some of our portfolio companies. This
has resulted in significant unrealized depreciation on many of our investments during the past year.
Liquidity and Capital Resources
At March 31, 2009, we had cash and cash equivalents of $3.6 million. We also had investments in certificates of deposit (CDs) of $687,000. We typically invest our
excess cash in U.S. Treasuries and CDs, which normally have three-month to one-year maturities. These investments do not qualify as cash equivalents.
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In prior years, we had financed substantially all of our operations through the issuance of equity securities and, to a
lesser extent, sales of investments, cash received in connection with the provision of innovation services and the use of funds from our investments in U.S. Treasuries and certificates of deposit. Our primary sources of liquidity and capital for the
three months ended March 31, 2009 were $3.4 million received in connection with operations, $400,000 in cash proceeds generated from the sale of shares of our portfolio companies and $750,000 in financing received from a bank credit line with
The Bank of Tampa.
A portion of our income from operations in prior periods consisted of the sale of technology rights and income from technology
acquisition alliances in exchange for equity securities rather than cash. In the three months ended March 31, 2009, no part of our income from operations was paid in the form of equity securities. During the three months ended March 31,
2009, we used approximately $1.0 million for operating expenses.
In May 2008, we obtained a $1,000,000 line of credit with the Bank of Tampa. The advances
on the line of credit accrue interest (payable monthly) at prime or a floor of 4.0% (4.0% as of March 31, 2009). The principal and any unpaid interest are due upon demand. This line is collateralized with commercial real estate owned by UTEK
Real Estate Holdings, Inc. We drew down $750,000 on the credit line during the three months ended March 31, 2009.
We currently intend to fund our
capital expenditures and liquidity needs with existing cash and cash equivalent balances, our investments in certificates of deposit, as well as with cash generated by operations and the sales of our investments. We believe that these sources will
be sufficient to meet working capital needs, capital requirements, and current commitments for the next twelve months. We have already made significant progress in reducing our overhead expenses for the company. In addition, we may seek to raise
additional funds through public or private debt or equity financing for long-term liquidity. However, additional funds may not be available on favorable terms to us, if at all.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Critical accounting estimates are those that are both important to the
presentation of our financial condition and results of operations and require managements most difficult, complex, or subjective judgments. We consider the following accounting policies and related estimates to be critical:
Valuation Methodology
Currently, we primarily receive cash in
connection with our technology acquisition alliance agreements and illiquid securities in connection with our technology transfers. Historically, we primarily received illiquid securities in connection with both our technology acquisition alliance
agreements and technology transfers. The securities received are generally subject to restrictions on resale and generally are thinly traded or have no established market.
We 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 process is intended to provide a consistent basis for determining the fair value of our portfolio investments. We record unrealized depreciation on investments when we believe that an investment has become impaired, including where
realization of an equity security is doubtful. We record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value. Upon the sale of our
investments, the values that are ultimately realized may be different from the presently determined fair values of such securities. This difference could be material.
We adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157) on a prospective basis in the first quarter of 2008. SFAS 157 requires us to assume that the
portfolio investment is to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in
the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with SFAS 157, we have considered our principal market, or the market in which we exit our portfolio investments with the
greatest volume and level of activity.
Our equity interests in portfolio companies for which there is no liquid public market are valued using industry
valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent
equity sale occurs, the pricing indicated by the external event is used to corroborate our valuation. The determined values are generally discounted to account for restrictions on resale and minority ownership positions. The value of our equity
interests in public companies for which market quotations are readily available is based on the public market price on the balance sheet date. Securities that carry certain restrictions on resale are typically valued at a discount from the public
market value of the security.
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The fair value of our investments at March 31, 2009 and December 31, 2008 was determined by our Board of
Directors. At March 31, 2009 and December 31, 2008, we received valuation assistance from our independent valuation firm, Klaris, Thomson & Schroeder, Inc., on our entire portfolio of investments for which market quotations were
not available.
Net Realized Gains/Losses and Net Change in Unrealized Appreciation/Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the original cost basis of the investment without regard
to unrealized appreciation or depreciation previously recognized. The original cost basis of the securities we receive in connection with our technology acquisition alliance agreements and technology transfers is equal to the amount of revenue we
recognized upon the receipt of such securities.
Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values
during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Stock-Based Compensation
We account for stock option grants in accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based Payment. Under the modified prospective approach of SFAS 123(R), compensation cost recognized during the three months ended March 31, 2009 and 2008 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).
We use the
Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant, using assumptions for volatility, expected term, risk-free interest rate and dividend yield. We have used one grouping for the assumptions as
our option grants are primarily basic with similar characteristics. The expected term of options granted is based upon our historical term of options exercised. Historical data was used to estimate option exercises and employee terminations.
Estimated volatility is based upon our historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and the
dividend yield is based on the historical dividend yield.
Purchase Price Allocation Process for Business Combinations
For acquisitions prior to 2009, we determine and allocate the purchase price of an acquired company to the tangible and intangible assets acquired and liabilities assumed
as of the business combination date in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations. The purchase price allocation process requires us to use significant estimates and assumptions,
including fair value estimates, as of the business combination date.
While we use our best estimates and assumptions as a part of the purchase price
allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation
period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, there are contingencies based on earnings included
in some of our purchase agreements. The earnout is recorded as it is earned over the contingency period, which is generally one to three years from the business combination date. With the exception of unresolved income tax matters or the earnout of
contingent consideration, subsequent to the purchase price allocation period any adjustment to assets acquired or liabilities assumed is included in our operating results in the period in which the adjustment is determined.
In January 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations , which replaces SFAS
No. 141. The statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are recognized as a result of business combinations. SFAS No. 141(R) requires that more assets and liabilities assumed will be measured at fair value as of the acquisition
date and that liabilities related to contingent consideration will be remeasured at fair value in each subsequent reporting period. It also requires the capitalization of in-process research and development at fair value and requires the expensing
of acquisition-related costs as incurred. The impact of the adoption of SFAS No. 141(R) will depend on the nature of acquisitions completed after the date of adoption.
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Recently Issued Accounting Pronouncements
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP 157-3). FSP 157-3 provides an illustrative
example of how to determine the fair value of a financial asset in an inactive market. The FSP does not change the fair value measurement principles set forth in SFAS 157. Since adopting SFAS 157 in January 2008, UTEKs practices for
determining the fair value of its investment portfolio have been, and continues to be, consistent with the guidance provided in the example in FSP 157-3. Therefore, UTEKs adoption of FSP 157-3 did not affect its practices for determining the
fair value of its investment portfolio and does not have a material effect on its financial position or results of operations.
In April 2009, the FASB
issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4) and FSP No. FAS 107-1 and
APB 28-1, Interim Disclosures About Fair Value of Financial Instruments (FSP 107-1) . Both FSPs are effective for reporting periods ending on or after June 15, 2009, although early adoption will be permitted under some
conditions and can be applied for periods ending on or after March 15, 2009. Since adopting SFAS 157 in January 2008, UTEKs practices for determining fair value and for disclosures about the fair value of its investment portfolio have
been, and continue to be, consistent with the guidance provided in FSP 157-4 and FSP 107-1. Therefore, UTEKs adoption of both FSP 157-4 and FSP 107-1 will not have a material effect on its financial position or results of operations.
In April 2009, the FASB issued FSP FAS 141(R)-1 which amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition
contingencies. Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies , and FASB Interpretation No. 14,
Reasonable Estimation of the Amount of a Loss an interpretation of FASB Statement No. 5 . SFAS No. 141(R) and FSP FAS 141(R)-1 were effective for the Company beginning January 1, 2009, and will apply prospectively to business
combinations completed subsequent to that date. The impact of the adoption of FSP FAS 141(R)-1 will depend on the nature of acquisitions completed after the date of adoption.
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risks
There
has been no material change in the quantitative and qualitative disclosures about market risk since December 31, 2008.
ITEM 4.
Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer conducted an
evaluation of the effectiveness of the design and operations of the Companys disclosure controls and procedures, (as is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and such that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of
1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
There have been no changes
in our internal control over financial reporting (as defined in Rule13a-15(f) of the Securities Exchange Act of 1934) that occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
Although we may from time to time be involved in
litigation and claims arising out of our operations in the normal course of our business, as of March 31, 2009, we were not a party to any material pending legal proceedings.
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ITEM 1A.
Risk Factors
There have been no material changes to the risk
factors previously disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2008.
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Not
Applicable
ITEM 3.
Defaults Upon Senior Securities
Not Applicable
ITEM 4.
Submission of Matters to a Vote of Security Holders
Not Applicable
ITEM 5.
Other Information
Not Applicable
ITEM 6.
Exhibits
The following exhibits are filed with this report on Form
10-Q:
31.1
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UTEK CORPORATION
(Registrant)
Date: May 8, 2009
/s/ Douglas Schaedler
Douglas Schaedler
President and Director
Date: May 8, 2009
/s/ Carole R. Wright
Carole R. Wright, CPA
Chief Financial Officer
Page 38 of 42
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.