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.

Overview of Recent Developments

UTEK is a market-driven technology transfer business that assists companies in identifying and acquiring technologies. Technology transfer refers to the process by which new technologies, developed in universities, government research facilities, or similar research settings, are licensed to companies for potential commercial development and use. Our goal is to provide our client companies an opportunity to acquire and commercialize innovative technologies primarily developed by universities, medical centers and federal research laboratories.

Executive Summary

Our financial condition is dependent on a number of factors including our ability to effectuate technology transfers and the performance of the investments that we receive in connection with these transfers. Substantially all of our investments are in development stage and start-up private 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.

Our total assets were $49.2 million and our net assets were $47.8 million at June 30, 2007, compared to $53.0 million and $51.0 million at December 31, 2006, respectively. Net asset value per share was $5.30 at June 30, 2007 and $5.71 at December 31, 2006. At the end of the second quarter of 2007, we had no long-term debt outstanding and $7.7 million in cash and cash equivalents.

Income from operations for the six months ended June 30, 2007 totaled approximately $14.3 million, as compared to $34.9 million for the same period of 2006. Net income from operations for the six months ended June 30, 2007 totaled approximately $4.2 million as compared to $13.4 million for the same period of 2006. Net realized (losses) on investments, net of deferred tax effect, totaled approximately ($1.1) million for the six months ended June 30, 2007 as compared to net realized gains of $2.2 million in 2006. In this regard, we received gross proceeds of $821,000 for the six months ended June 30, 2007 and $6.1 million for the same period of 2006 in connection with the sale of the securities we received in connection with our strategic alliance agreements and technology transfer transactions. Net change in unrealized appreciation (depreciation) of investments, net of deferred tax benefit, was ($7.0) million for the six months ended June 30, 2007 as compared to $1.0 million for the same period of 2006.

On December 1, 2006, our Board of Directors approved a special dividend of $0.02 per share that was paid on January 31, 2007 to shareholders of record on January 12, 2007. Our Board of Directors will have sole discretion in determining whether to declare and pay cash dividends in the future. The declaration of cash dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by our Board of Directors. Our ability to pay cash dividends in the future could be limited or prohibited by regulatory requirements and the terms of financing agreements that we may enter into or by the terms of any preferred stock that we may authorize and issue.

Recently, we have taken steps to improve the efficiency of our technology transfer business model. Some of the improvements we have made include:

• Enhanced client company acceptance procedures including the hiring of a manager of due diligence to conduct background checks on principal officers of prospective client companies, and the approval by a Review Committee made up of the executive officers and the director of operations prior to accepting a new client company;

• Improved our technology search capabilities through our expanded proprietary technology database and internally developed search engine.

Technology Transfers and Strategic Alliances

In the six months ended June 30, 2007, we increased the number of our active strategic alliance agreements and decreased the number of completed technology transfers:

• During the six months ended 2007, we signed 41 new strategic alliance agreements, as compared to 24 new strategic alliances in the same period of 2006.

• During the six months ended 2007, we completed 11 technology transfers valued at approximately $11.9 million as compared to 16 technology transfers valued at approximately $31.8 million in the same period of 2006.

Portfolio Activity

The following is a list of significant changes in our portfolio during the six months ended June 30, 2007:

• The sale of some or all of our shares in Shumate Industries, Inc., Broadcast International, Inc., Xethanol Corporation, Manakoa Services Corporation and various other portfolio companies for approximately $821,000, which resulted in realized losses of $1.1 million (net of income tax);

• The completion of 11 technology transfers valued at approximately $11.9 million (one technology transfer was completed for $200,000 in cash); and

• A net unrealized loss of $7.0 million (net of income tax) in the fair value of our investments.

Our most significant portfolio investments at June 30, 2007 were in Material Technologies, Inc., UTEK Real Estate Holdings, Inc., Klegg Electronics, Inc., Advanced Refractive Technologies, Inc., World Energy Solutions, Inc., Cyberlux Corporation and Advanced Medical Isotope Corporation. These seven investments totaled $20.4 million in fair value and represented 60% of our investments and 43% of net assets at June 30, 2007.

The net unrealized depreciation for the three months ended June 30, 2007 was primarily due to the write down of the following six investments in our portfolio: DME Interactive Holdings, Inc., Klegg Electronics, Inc., Industrial Biotechnology Corp., Material Technologies, Inc., Advanced Refractive Technologies, Inc. and Avalon Oil & Gas, Inc.

The net unrealized depreciation for the six months ended June 30, 2007 was primarily due to the write down of the following five investments in our portfolio: Industrial Biotechnology Corp., DME Interactive Holdings, Inc., Fuel FX International, Inc., Manakoa Services Corporation and Klegg Electronics, Inc.

Large fluctuations in the fair value of our investments are not unexpected, given that substantially all of our investments are in development stage and start-up private companies and thinly traded public companies, and may occur in the future. The current portfolio is comprised of more than 60 holdings. Many of these positions are with 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 to obtain additional capital, inability to execute business model, termination of technology licenses, etc.) or as a result of general marketplace factors.

Results of Operations

Income from Operations (Revenue)



                                         Three months ended     Percentage        Six months ended     Percentage
                                              June 30,            Change              June 30,           Change
(in thousands, except percentages)        2007         2006                       2007        2006
Sale of Technology Rights              $    5,213    $ 21,624          (76 )%   $  11,915   $ 31,839          (63 )%
Consulting and Other Services               1,022       1,193          (14 )%       2,069      2,546          (19 )%
Other Income, net                             153         242          (37 )%         352        481          (27 )%

Income from Operations                 $    6,388    $ 23,059          (72 )%   $  14,336   $ 34,866          (59 )%

We completed eleven technology transfers during the six months ended June 30, 2007 as compared to sixteen during the six months ended June 30, 2006. The technology transfers had an average value of $1.1 million and $2.0 million for the six months ended June 30, 2007 and 2006, respectively. The lower average value of the technology transfer is a function of a decrease in the cost to acquire the technology rights partially offset by an increase in the average technology transfer multiple. The average technology transfer multiple for the six months ended June 30, 2007 was 5.1 as compared to 4.5 for the six months ended June 30, 2006. With the exception of $200,000 received in the first quarter of 2007, all income from the sale of technology rights for the six months ended June 30, 2007 and June 30, 2006 was received in the form of equity securities.

Income from strategic alliance agreements was approximately $470,000 and $736,000 for the three months ended June 30, 2007 and 2006, respectively. Income from strategic alliance agreements was approximately $1.0 million and $1.5 million for the six months ended June 30, 2007 and 2006, respectively. The decrease in income from strategic alliances in 2007 resulted primarily from a change in our pricing of the strategic alliance agreements. In January 2007, the Company reduced the price of its strategic alliance agreements and changed the payment terms to primarily cash. This was done to enhance client diversification and reduce the cost of handling small equity stakes. Of the forty-one most recent alliances, three agreements called for payment in stock and the remaining agreements called for monthly fees to be paid in cash.

Other consulting income for the three months ended June 30, 2007 included income of $243,000 from our Intellectual Capital Consulting division, as compared to $85,000 for the three months ended June 30, 2006. Our UTEK Information Services division comprised the balance of consulting fee and other services income for 2007. During the 3 months ended June 30, 2006, the Intellectual Capital Consulting division was transitioning their office from Massachusetts to the Florida location, therefore the sales for the quarter dropped significantly. Of the total consulting and other services income received during the three months ended June 30, 2007, 28% was paid in the form of equity securities in companies and the balance was paid in cash. Of such income received during the three months ended June 30, 2006, 46% was paid in the form of equity securities and the balance was paid in cash.

Other consulting income for the six months ended June 30, 2007 included income of $333,000 from our Intellectual Capital Consulting division, as compared to $358,000 for the six months ended June 30, 2006. Our UTEK Information Services division comprised the balance of consulting fee and other services income for 2007. Of the total consulting and other services income received during the six months ended June 30, 2007, 36% was paid in the form of equity securities in companies and the balance was paid in cash. Of such income received during the six months ended June 30, 2006, 37% was paid in the form of equity securities and the balance was paid in cash.

The increase in the number of our strategic alliances is primarily a result of an increase in the overall demand for our services as well as the new pricing of our agreements. We believe that we are growing our customer base as a result of increased sales and marketing efforts and better recognition in the business community regarding the value and availability of our services. Our new strategic alliances have increased the diversity of our customer makeup. Our current customer base has a larger average market capitalization than in previous years. One result of having customers with a larger market capitalization is an increase in the time needed to complete technology transfers. Although we have increased the number of strategic alliance customers, the number of technology transfers completed for the six months ended June 30, 2007 has decreased due to this factor. Future technology transfer transactions may be scaled to the amount of cash available to fund such transfers.

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

Expenses

Acquisition of Technology Rights



                                       Three months                               Six months
                                           ended            Percentage               ended            Percentage
                                         June 30,             Change               June 30,             Change
(In thousands, except
percentages)                         2007        2006                          2007        2006
Acquisition of technology rights    $ 1,030     $ 4,523            (77 )%     $ 2,333     $ 7,147            (67 )%
As a percent of sale of
technology rights                        20 %        21 %           (1 )ppt        20 %        22 %           (2 )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 2007 to 2006 was due to the reduced number of technology transfers completed and reduced costs per transaction in the three and six months ended June 30, 2007 as compared to the same periods in 2006. The average cost per technology transfer decreased approximately $109,000 or 24% during the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. The average cost per technology transfer decreased approximately $235,000 or 53% during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006.

The following table provides certain information relating to the acquisition of technology rights expenses we incurred in connection with our technology transfers during the three and six months ended June 30, 2007:

                                                                                Dollar
              Name of Company Acquiring the                                    Amount of
Date          Newly Formed Company            Newly Formed Company             Expenses
June 28                                       Non-Destructive Assessment
              Material Technologies, Inc.     Technologies, Inc.              $   280,000
May 30                                        Klegg Network Storage
              Klegg Electronics, Inc.         Technologies, Inc.                  450,000
April 30                                      Damage Assessment
              Material Technologies, Inc.     Technologies, Inc.                  300,000

                                               Total for three months ended
                                                              June 30, 2007     1,030,000

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

                                                 Total for six months ended
                                                              June 30, 2007   $ 2,333,279

The following table provides certain information relating to the acquisition of technology rights expenses we incurred in connection with our technology transfers during the three and six months ended June 30, 2006:

                                                                                Dollar
             Name of Company Acquiring the                                     Amount of
Date         Newly Formed Company             Newly Formed Company             Expenses
June 20                                       Smart Speaker Technologies,
             Klegg Electronics, Inc.          Inc.                            $   528,628
June 13                                       Advanced Biomass Gasification
             Xethanol Corporation             Technologies, Inc.                  450,000
June12                                        Advanced Biofuel
             Kwikpower International Plc      Technologies, Inc.                  375,000
June 1                                        Advanced Powder Coating
             Trio Industries Group, Inc.      Technologies, Inc.                  550,000
May 12                                        Advanced BioEnergy
             Kwikpower International Plc      Technologies, Inc.                  380,000
May 12                                        Hydrocarbon Synthesis
             Kwikpower International Plc      Technologies, Inc.                  407,500
May 1        Industrial Biotechnology         Bio-Repellant Technologies,
             Corporation                      Inc.                                375,000
April 5                                       Intellitouch Technologies,
             UBA Technology, Inc.             Inc.                                502,000
April 4      Advanced Refractive              Advanced Glaucoma
             Technologies, Inc.               Technologies, Inc.                  399,999
April 3                                       Natural Adhesive
             Trio Industries Group, Inc.      Technologies, Inc.                  555,000

                                               Total for three months ended
                                                              June 30, 2006     4,523,127

March 16     Advanced Refractive
             Technologies, Inc.               Ocular Therapeutics, Inc.           400,000
March 15     American Soil Technologies,      Advanced Fertilizer
             Inc.                             Technologies, Inc.                  500,000
March 6                                       Ultra Fine Coating Systems,
             Trio Industries Group, Inc.      Inc.                                534,000
January 30                                    Strategic Wireless Solutions,
             WebSky, Inc.                     Inc.                                265,000
January 27                                    Video Processing
             Broadcast International, Inc.    Technologies, Inc.                  625,000
January 20                                    Emissions Detection
             Fuel FX International, Inc.      Technologies, Inc.                  300,000

                                                 Total for six months ended
                                                              June 30, 2006   $ 7,147,127

Salaries and Wages



                                          Three months                            Six months
                                              ended           Percentage             ended            Percentage
                                            June 30,            Change             June 30,             Change
(In thousands, except percentages)       2007       2006                       2007        2006
Salaries and wages                      $   805     $ 957            (16 )%   $ 1,774     $ 1,703              4 %
As a percent of revenue                      13 %       4 %         9ppt           12 %         5 %         7ppt

Salaries and wages include non-sales employee and officer salaries and related benefits including bonuses. Salaries and wages decreased $152,000 during the three months ended June 30, 2007, due primarily to the fact that there were officers' bonuses paid in second quarter of 2006 that were not paid in 2007. There were also modest administrative and online services staff reductions during this period.

Salaries and wages increased $71,000 during the six months ended June 30, 2007 due primarily to the increase in stock compensation expense of $54,000.

Professional Fees



                                            Three months                          Six months
                                                ended           Percentage           ended          Percentage
                                              June 30,            Change           June 30,           Change
(In thousands, except percentages)         2007       2006                      2007      2006
Professional fees                         $   292     $ 302             (3 )%   $ 614     $ 583              5 %
As a percent of revenue                         5 %       1 %         4ppt          4 %       2 %         2ppt

Professional fees include accounting fees, legal fees and valuation expenses for our investments. The increase in professional fees for the six months ended June 30, 2007 relates to a modest increase in legal fees related to various projects during the six months ended June 30, 2007.

Sales and Marketing



                                          Three months                            Six months
                                              ended           Percentage             ended            Percentage
                                            June 30,            Change             June 30,             Change
(In thousands, except percentages)       2007       2006                       2007        2006
Sales and marketing                     $   458     $ 936            (51 )%   $ 1,090     $ 1,764            (38 )%
As a percent of revenue                       7 %       4 %         3ppt            8 %         5 %         3ppt

Sales and marketing expenses include advertising, marketing, salaries, wages and commissions paid to sales personnel, commissions paid to outside service providers, travel and other selling expenses. Commissions decreased $101,000 and $154,000 for the three and six months ended June 30, 2007, respectively, as a result of using less outside service providers for the purpose of selling strategic alliance agreements. Salaries, wages and commissions paid to sales related employees decreased $264,000 and $604,000 for the three and six months ended June 30, 2007, respectively, due to lower commissions related to lower technology transfer income.

General and Administrative



                                          Three months                            Six months
                                              ended           Percentage             ended            Percentage
                                            June 30,            Change             June 30,             Change
(In thousands, except percentages)       2007       2006                       2007        2006
General and administrative              $   608     $ 768            (21 )%   $ 1,440     $ 2,072            (31 )%
As a percent of revenue                      10 %       3 %         7ppt           10 %         6 %         4ppt

The decrease in general and administrative costs for the three months ended June 30, 2007 is primarily attributable to a decrease in employee related costs due to the reduction in commissions and salaries and certain outside services that were not utilized in 2007.

The decrease in general and administrative costs for the six months ended June 30, 2007 is primarily attributable to a decrease in contributions expense of $663,000. During the three months ended March 31, 2006, the Company made a gift of 5.1 million shares of Hydroflo, Inc. common stock to certain not-for-profit institutions. The stock was fair valued at $663,000 at the time . . .