Add
UTK to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| UTK > SEC Filings for UTK > Form 10-Q on 8-Aug-2008 | All Recent SEC Filings |
8-Aug-2008
Quarterly Report
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
Recent Developments
In 2008, the Company continued to enhance its ability to provide a comprehensive innovation consulting service for clients. To enhance our ability to provide these services, the Company has acquired three companies since January 2008 and has launched the TekScout division. We believe that collectively, these efforts have increased the Company's ability to service its clients. In subsequent periods it is our intention to pursue additional strategic acquisitions to further enhance our innovation capabilities, the number of clients we can service and our geographic representation.
In January 2008, the Company acquired Pharmalicensing.com, a biopharmaceutical open innovation resource designed for professionals involved with partnering, licensing, and business development worldwide. In April 2008, the Company acquired the operating division of Strategos, Inc., a strategic innovation consulting firm that provides consulting services, primarily to large companies. In July 2008, the Company acquired Innovaro Limited, a European innovation consulting and insight firm.
Executive Summary
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.
Our total assets were $50.6 million and our net assets were $45.6 million at June 30, 2008, compared to $45.2 million and $43.7 million at December 31, 2007, respectively. Net asset value per share was $4.64 at June 30, 2008 and $4.85 at December 31, 2007. At June 30, 2008, we had no long-term debt outstanding, $3.5 million in cash and cash equivalents and investments in U.S. treasuries and certificates of deposit of $4.0 million.
Income from operations for the six months ended June 30, 2008 totaled approximately $8.6 million, as compared to $14.3 million for the six months ended June 30, 2007. Net income (loss) from operations for the six months ended June 30, 2008 totaled approximately ($919,000) as compared to $4.2 million for the same period of 2007. Net realized losses on investments, net of deferred tax effect, totaled approximately ($3.5 million) for the six months ended June 30, 2008 as compared to ($1.1 million) for the same period of 2007. In this regard, we received gross proceeds of $1.7 million for the six months ended June 30, 2008 and $821,000 for the same period of 2007 in connection with the sale of the securities we received in connection with our technology acquisition alliance agreements and technology transfers. Net change in unrealized depreciation of investments, net of deferred tax benefit, was ($4.0 million) for the six months ended June 30, 2008 as compared to ($7.0 million) for the same period of 2007.
Technology Transfers and Technology Acquisition Alliances
For the six months ended June 30, 2008, we had a slight increase in the number and diversity of active technology acquisition alliance clients, but due to the longer time required to close technology transfers with our expanding client base of larger client companies, the number of completed technology transfers decreased:
• As of June 30, 2008, we had 58 active technology acquisition alliance agreements as compared to 56 active technology acquisition alliances at June 30, 2007; and
Portfolio Activity
The following is a list of significant changes in our portfolio during the six months ended June 30, 2008:
• The sale of some or all of our shares in Broadcast International, Inc., Material Technologies, Inc., Cyberlux Corporation, Avalon Oil and Gas, Inc., American Soil Technologies, Inc. and various other portfolio companies for approximately $1.7 million, which resulted in realized losses of $3.5 million (net of income tax effect);
• The completion of 6 technology transfers for stock valued at approximately $3.8 million and $125,000 in cash; and
• Net unrealized depreciation of $4.0 million (net of income tax effect) in the fair value of our investments.
Our most significant portfolio investments at June 30, 2008 were in UTEK Real Estate Holdings, Inc., Advanced Medical Isotope Corporation, World Energy Solutions, Inc., MiMedx Group, Inc. and Cyberlux Corporation. These five investments totaled $10.6 million in fair value and represented 50% of our investments and 23% of net assets at June 30, 2008.
Our capital investments made in our newly formed companies during the six months ended June 30, 2008 totaled $1.5 million. Of the total capital invested in our newly formed companies during the six months ended June 30, 2008, $280,000 was expended on license and consulting fees and $1.2 million was to assist our clients in commercializing their new technology. All of these items are reflected in the accompanying consolidated statement of operations as acquisition of technology rights.
The net unrealized depreciation for the six months ended June 30, 2008 was primarily due to a reduction in value of the following investments in our portfolio: Material Technologies, Inc., Emission & Power Solutions, Inc., Manakoa Services Corp., Pathway One PLC, RIM Semiconductor Company and World Energy Solutions, Inc.; partially offset by the appreciation of MiMedx Group, Inc., Oxygen Biotherapeutic, Inc., EcoSystem Corporation (GS Energy Corporation) and Industrial Biotechnology Corporation.
While these unrealized losses were significant, failures among small cap companies are not unexpected and may occur in the future. The current portfolio is comprised of 51 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 to obtain additional capital, inability to execute business model, termination of technology licenses, etc.) or to general marketplace factors.
Results of Operations
Income from Operations (Revenue)
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(in thousands, except percentages) 2008 2007 2008 2007
Sale of Technology Rights $ 1,222 $ 5,213 (77 )% $ 3,935 $ 11,915 (67 )%
Consulting and Other Services 3,673 1,022 259 % 4,541 2,069 120 %
Other Income, net 35 153 (77 )% 119 352 (66 )%
Income from Operations $ 4,930 $ 6,388 (23 )% $ 8,595 $ 14,336 (40 )%
|
Sale of Technology Rights
Sale of technology rights revenue for the three months ended June 30, 2008 decreased as a result of our having completed two technology transfers during the three months ended June 30, 2008 as compared to three during the three months ended June 30, 2007. Sale of technology rights revenue decreased for the six months ended June 30, 2008 as a result of having completed six technology transfers in 2008 versus eleven in 2007. In addition, the average revenue per technology transfer decreased 65% and 39%, respectively, for the three and six months ended June 30, 2008 versus 2007. Overall equity market conditions have generally forced micro-capitalization stock prices down, making it more difficult for some of our clients to issue stock with sufficient value in exchange for these technologies. To mitigate risk, the Company is pursuing technology transfers on a more selective basis.
Consulting and Other Services
Three Months Ended June 30,
(in thousands) 2008 2007
Innovation consulting $ 2,761 $ - New acquisition
UTEK existing 256 471 Change in TAA pricing structure
ICC intellectual capital consulting 116 243 Management changes
Subscriptions (IS) 540 308 Purchase of Pharmalicensing
Total 3,673 1,022
|
Six Months Ended June 30,
(in thousands) 2008 2007
Innovation consulting $ 2,761 $ - New acquisition
UTEK existing 566 1,001 Change in TAA pricing structure
ICC intellectual capital consulting 146 441 Management changes
Subscriptions (IS) 1,068 627 Purchase of Pharmalicensing
Total 4,541 2,069
|
As a result of our focus on innovation consulting services, our consulting and other services revenue was $3.7 million for the three months ended June 30, 2008 versus $1.0 million for the three months ended June 30, 2007. Similarly, our consulting and other services revenue was $4.5 million for the six months ended June 30, 2008 versus $2.1 million for the six months ended June 30, 2007. The increase is attributable to the acquisition of Strategos. In subsequent periods it is our intention to pursue additional strategic acquisitions which will continue to increase the consulting and other services revenue and enhance our ability to better service the innovation needs of our clients.
Investment Income, net
Investment income decreased in 2008 compared to 2007 due to lower cash and cash equivalent balances and lower interest rates. Interest income is expected to continue to decline as a result of these factors.
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:
Acquisition of Technology Rights
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(In thousands, except percentages) 2008 2007 2008 2007
Acquisition of technology rights $ 296 $ 1,030 (71 )% $ 1,480 $ 2,333 (37 )%
As a percent of sale of technology rights 24 % 20 % 4 ppt 38 % 20 % 18 Ppt
|
* The abbreviation "ppt" denotes percentage points.
Acquisition of technology rights costs consist of the direct costs associated with our technology transfers, which include cash to further accelerate commercialization efforts, license fees to acquire new technologies, consulting fees with the inventor of the technologies, and sponsored research fees with the university or research facility transferring the technologies. The acquisition of technology rights costs as a percentage of sale of technology rights revenue increased by 4 and 18 percentage points, respectively for the three and six months ended June 30, 2008 versus 2007. Overall equity market conditions have had a significant impact on our revenue to cost ratio. Stock prices for our micro-capitalization clients have decreased, making it more difficult for some of our clients to issue stock with sufficient value in exchange for technologies. Consequently, the costs we have incurred on technology transfers have been a higher percentage of the related revenue earned.
Acquisition of technology rights costs are directly related to sale of technology rights revenue. In an effort to curb costs associated with technology transfers, as a result of cash constraints, our plan is to focus for the remainder of 2008 on technology transfers for cash remuneration and equity transfers which do not require significant amounts of upfront cash costs.
The following tables provide certain information 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, 2008:
Dollar
Name of Company Acquiring Amount of
Date the Newly Formed Company Newly Formed Company Expenses
June 26 Carbon Capture Technologies,
CSMG Technologies, Inc. Inc. $ 60,000
June 10 Advanced Alternative Energy,
World Energy Solutions, Inc. Inc. 236,000
Total for three months ended
June 30, 2008 296,000
March 31 Enhanced Oil Recovery
Platina Energy Group Inc. Technologies, Inc. 360,500
March 24 Multi-Carrier Communications,
RIM Semiconductor Company Inc. 383,500
January 28 Broadband Distance Systems,
RIM Semiconductor Company Inc. 440,000
Total for six months ended
June 30, 2008 $ 1,480,000
|
The following tables provide 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 Amount of
Date the 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 Technologies,
CytoDyn, Inc. 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
|
Salaries and Wages
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(In thousands, except percentages) 2008 2007 2008 2007
Salaries and wages $ 1,159 $ 805 44 % $ 2,365 $ 1,774 33 %
As a percent of revenue 24 % 13 % 11 ppt 28 % 12 % 16 Ppt
|
Salaries and wages include non-sales employees and officer salaries and related benefits including bonuses and stock-based compensation. Salaries and wages increased $354,000 during the three months ended June 30, 2008 primarily due to the addition of Pharmalicensing employees to the payroll as a result of the completion of the acquisition and increased CEO salary taken in the form of a bonus and additional salaries related to our new TekScout online exchange.
Salaries and wages increased $591,000 during the six months ended June 30, 2008 primarily due to the addition of Pharmalicensing employees to the payroll as a result of the completion of the acquisition, additional salaries related to our new TekScout online exchange, increased officer salaries and an increase in stock-based compensation expense resulting from additional option grants.
We expect salaries and wages to continue to increase significantly during the remainder of 2008 as a result of acquisitions, an increase in officer salaries, and the creation of the new online exchange.
Professional Fees
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(In thousands, except percentages) 2008 2007 2008 2007
Professional fees $ 250 $ 292 (14 )% $ 558 $ 614 (9 )%
As a percent of revenue 5 % 5 % -0 -ppt 6 % 4 % 2 Ppt
|
Professional fees include accounting fees, legal fees and valuation expenses for our investments. The decrease in professional fees for the three and six months ended June 30, 2008 relates to a decrease in accounting and legal fees, partially offset by modest increases in valuation expenses fees.
Sales and Marketing
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(In thousands, except percentages) 2008 2007 2008 2007
Sales and marketing $ 2,819 $ 458 515 % $ 3,467 $ 1,090 218 %
As a percent of revenue 57 % 7 % 50 ppt 40 % 8 % 32 Ppt
|
Sales and marketing expenses include advertising, marketing, salaries and commissions paid to sales personnel and innovation consultants, commissions paid to outside service providers, travel and other costs of sales and selling expenses. Sales and marketing increased $2.4 million for each of the three and six months ended June 30, 2008, respectively. The increase was primarily a result of the Strategos consulting costs to fulfill their consulting contracts. Also, the business development and technology licensing sales divisions each added sales managers in 2008. This increase was offset by a slight decrease in commissions earned due to the decrease in revenue for the quarter and six months ended June 30, 2008.
We expect sales and marketing costs to continue to increase significantly during the remainder of 2008 as a result of acquisitions and the creation of new sales management positions to strengthen the senior management team and enhance the potential for Company development.
General and Administrative
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
(In thousands, except percentages) 2008 2007 2008 2007
General and administrative $ 1,164 $ 608 92 % $ 1,989 $ 1,440 38 %
As a percent of revenue 24 % 10 % 14 ppt 23 % 10 % 13 Ppt
|
General and administrative costs increased $556,000 and $549,000 for the three and six months ended June 30, 2008, respectively. The following cost increases were primarily related to the Strategos acquisition: the amortization of the intangible assets acquired, employee costs including benefits and taxes and rent. Other expenses items also increased insignificantly as a result of the acquisition.
We expect to have an increase in general and administrative expenses for the year ended December 31, 2008 as a result of planned growth for the Company, including acquisitions.
Goodwill Impairment
Management conducts an annual impairment analysis at the end of each year. In connection with the 2006 impairment analysis, we determined there was an impairment of the goodwill related to the Pharma Transfer, Ltd. acquisition due to a decrease in the annual revenue. We subsequently recorded a partial impairment of the goodwill in the first quarter of 2007. These write-downs resulted in an impairment charge of approximately $33,030 for the United States segment during 2007. There were no impairment charges during the first two quarters of 2008.
Net Realized Gains (Losses) on Investments
Three months Six months
ended Percentage ended Percentage
June 30, Change June 30, Change
|
Net realized losses on investments, net of income tax effect, amounted to $3,350,772 for the three months ended June 30, 2008 and were related to sales as follows:
Number of Realized
Company Name Shares Gain (Loss)
aeroTelesis, Inc. 384,000 (20,512 )
American Soil Technologies, Inc. 169,702 (19,472 )
Avalon Oil and Gas, Inc. 157,500 (148,628 )
Broadcast International, Inc. 36,700 51,658
Cargo Connection Logistics Holdings, Inc. 11,078,103 (35,934 )
Cyberlux Corporation 719,000 796
Ecosphere Technologies Inc 56,000 (1,809 )
EcoSystem Corporation 872,502 (1,515,229 )
Industrial Biotechnology Corporation 1,991 (1,442,993 )
Material Technologies, Inc. 1,051,002 (174,925 )
Magnitude Information Systems, Inc 697,860 (8,971 )
. . .
|
|
|