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EX-31.2 - EXHIBIT 31.2 - MAJOR LEAGUE FOOTBALL INCd_ucmoct09qexh312z.htm
EX-32.2 - EXHIBIT 32.2 - MAJOR LEAGUE FOOTBALL INCf_ucmoct09qexh322z.htm
EX-32.1 - EXHIBIT 32.1 - MAJOR LEAGUE FOOTBALL INCe_ucmoct09qexh321z.htm
EX-31.1 - EXHIBIT 31.1 - MAJOR LEAGUE FOOTBALL INCc_ucmoct09qexh311z.htm
EX-10.1 - EXHIBIT 10.1 - MAJOR LEAGUE FOOTBALL INCb_ucmoct09qexh101z.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

(Mark One)

 

ý

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

 

For the quarterly period ended October 31, 2009

 

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                          to


Commission File Number 000-51132

Universal Capital Management, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-1568059

State or other jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

 

2601 Annand Drive

 

Suite 16

 

Wilmington, DE

______19808____

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code:  (302) 998-8824


Indicate by check mark whether the registrant (1) has filed all reports 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    ý 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  ý.    No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).

Large accelerated filer  ¨

Accelerated filer                      ¨

Non-accelerated filer    ý

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 ý

The number of shares of the registrant’s Common Stock outstanding as of December 21, 2009 was 6,412,426







TABLE OF CONTENTS

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and analysis of Financial Condition and
Results of Operations

1

 

 

 

Item 3.

Quantitative And Qualitative Disclosures About Market Risk

7

 

 

 

Item 4T.

Controls and Procedures

7

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 6.

Exhibits

9










PART I – FINANCIAL INFORMATION

Item 1

Financial Statements

See Appendix

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

 The following discussion contains forward-looking statements.  The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “could,” “may” and similar expressions are intending to identify forward-looking statements.  Such statements reflect our Company’s current views with respect to future events and financial performance and involve risks and uncertainties.  Should one or more risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, believed, expected, planned, intending, estimated, projected or otherwise indicated.  Readers should not place undue reliance on these forward-looking statements.

The following discussion is qualified by reference to, and should be read in conjunction with our Company’s unaudited financial statements and the notes thereto.

Our Company is a non-diversified, close-ended management investment company that has elected to be treated as a business development company (BDC) under the 1940 Act.  Our primary business objective is to generate both current income and capital appreciation primarily through equity and debt instruments by investing in emerging growth companies  Our Company assists these companies in strategic and financial planning, in market strategies and to assist them in trying to achieve prudent and profitable growth.  

Our Company’s primary investment objective is to increase its net assets by adding value to our portfolio companies and thus, increasing our stock value. In order to achieve this objective, we focus on investments in companies that are most likely to benefit from our management's expertise in finance, strategic planning, operations, and technology.

The income that our Company derives from investments in portfolio companies consists of management fees (which are generally non-cash), accounting fees, proceeds from the sale of these investments, interest income, and appreciation (net of depreciation) in the values of portfolio companies.

Our Company’s success depends on us investing in more companies that appreciate in value rather than companies that depreciate in value. We cannot assure you that our Company will be successful in doing so.

Pursuant to the requirements of the Investment Company Act of 1940, as amended (“1940 Act”), our Board of Directors, the majority of which are independent directors, is responsible for determining in good faith the fair value of the securities and assets held by our Company for which market quotations are not readily available. In making its determination, our Board of Directors may consider valuation appraisals provided by Company’s management and possibly independent financial experts.  Our Company expects to pay a professional fee each time such an independent valuation is provided.  With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value may be assigned a discount reflecting the particular nature of the investment.

Our Board of Directors bases its determination of value on, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, the type of securities, the nature of the business of the portfolio company, the marketability of the securities, the 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 of the portfolio company, sales and earnings growth of the portfolio company, operating revenues of the portfolio company, competitive conditions, and current and prospective conditions in the overall economy and the equity markets.



2






Without a readily recognized market value, the estimated value of some portfolio securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities.

Financial Condition

Our Company’s total assets, net assets, net asset value per share and unrealized appreciation are set forth in the following table:


 


At the Quarter Ending
October 31, 2009


At the Year Ending
April 30, 2009

TOTAL ASSETS

$4,613,126

$5,497,085

NET ASSETS

$3,500,248

$4,268,861

NET ASSET VALUE PER SHARE

$0.55

$0.67


NET UNREALIZED APPRECIATION ON INVESTMENTS



$725,426



 $1,559,620


The changes in total assets, net assets and net asset value per share for the six months ending October 31, 2009 were primarily attributable to:

·

Vystar Corporation (“VYSTAR”), average valuation on restricted and unrestricted shares was $2.00 per share at October 31, 2009.  During the six months ending October 31, 2009, the Company exercised a warrant to purchase 400,000 shares for $0.01 per share or $4,000. At April 30, 2009, these shares were included in the valuation of our warrants.   During the six months ending October 31, 2009, the Company issued promissory notes in the amount of $106,000 that were settled with 106,000 shares of Vystar Corporation common stock.  Our Company’s investment in Vystar common stock was $588,000 at October 31, 2009, with no unrealized appreciation or depreciation for the six months then ending.  Our Company’s investment in Vystar warrants were valued at $1,469,000 at October 31, 2009 compared to $2,268,000 at April 30, 2009.  This decrease is due to the exercise of warrants that cost $800,000 and a net unrealized appreciation of $1,000 for the six months ending October 31, 2009.

·

Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares increased from $0.42 to $1.90 per share during the six months ending October 31, 2009.  During the six months ending October 31, 2009, our Company sold 653,875 shares for a sales price of $425,594 with a cost of $458,475 for a realized loss of $32,881.  We bought 32,022 shares of LWLG common stock for a cost of $25,184 during the six months ending October 31, 2009.  Our Company’s investment in LWLG common stock was $240,183 at October 31, 2009 and had a net unrealized appreciation of $130,154 for the six months ending October 31, 2009.  Our Company’s investment in LWLG warrants were valued at $875,000 at October 31, 2009 compared to $209,000 at April 30, 2009, for a net unrealized appreciation of $666,000 for the six months ending October 31, 2009.

·

Our Company’s investment in iVolution Medical Systems (“IMS”) warrants were valued at $646,000 at October 31, 2009 and April 30, 2009.

·

Innovation Industries (“Innovation”) investments were valued at $10,000 at October 31, 2009.  During the six months ended October 31, 2009, the Company loaned Innovation $10,000 in exchange for a promissory note and profit sharing of future revenue.  The Company also entered into a two (2) year contract to provide management services to Innovation for $500,000.  In addition to the monthly fee, UCM will get a 5% profit share in the future revenue of the product Innovation is producing.



3






·

Our Company’s investment in MICCO Group (“MG”) warrants were valued at $4,600 at October 31, 2009 compared to $605,000 at April 30, 2009 for an unrealized depreciation of $600,400 for the six months ending October 31, 2009.

·

Our Company’s investment in Dominion Capital Management, Inc.  (“DCM”) warrants were valued at $3,600 at October 31, 2009 compared to $5,500 at April 30, 2009 for an unrealized depreciation of $1,900 for the six months ending October 31, 2009.

·

SIVOO Holdings, Inc. (“SIVOO”) average valuation on restricted and unrestricted shares decreased from $0.02 to $0.00 per share during the six months ending October 31, 2009.  In October 2009, the Company received a warrant to purchase 4% of the fully diluted outstanding common stock upon its exercise in exchange for management services relating to identifying and possibly implementing strategic alternatives.  Our Company’s investment in SIVOO common stock has a cumulative net unrealized depreciation as of October 31, 2009 of $319,725.  Our Company’s investment in SIVOO warrants were valued at $0 at October 31, 2009 compared to $10,800 at April 30, 2009 for a net unrealized depreciation of $10,800 for the six months ending October 31, 2009.  

·

Multi-View Technologies, Inc. (“MVT”) average valuation on restricted shares decrease from $0.50 to $0.00 during the six months ending October 31, 2009.  The company was dissolved in December 2009.  The cost of $21,000 of this investment was written off during the six months ending October 31, 2009, for a net realized loss of $21,000.

·

During the six months ending October 31, 2009, our Company sold 1,220 shares of other investments for a sales price of $795 with a cost of $1,086 for a realized loss of $291.

·

The decrease in cash of $3,902.

·

The decrease in accounts payable and accrued expenses of $91,998.

·

The increase in net deferred tax liability of $603,000.

·

The increase in current income taxes payable of $55,000.

·

The decrease in deferred revenue of $4,088, which consists mainly of revenue recognized on management contracts ($2,588 for iVolution, $250 for MVT and $250 for DCM) which was earned during the six months ending October 31, 2009.

·

The addition to Net Capital of $2,544 which consists of share-based compensation expense.

Our Company’s unrealized appreciation (depreciation) can change significantly from period to period as a result of the wide fluctuation in the value of our Company’s portfolio securities, the addition of new portfolio companies, and the acquisition and sale of shares during any given period.

Our Company had unrealized depreciation on investments of $1,088,187 and $834,194 for the three and six months ending October 31, 2009 compared to unrealized depreciation of $2,051,047 and $3,359,391 for the three and six months ending October 31, 2008 and unrealized depreciation of $323,709 for the year ending April 30, 2009.

  

Our Company’s financial condition is dependent on a number of factors including the ability of each portfolio company to achieve its respective strategies and goals with our Company’s help.  Our Company has invested a substantial portion of its time and assets in development stage or start-up companies.  Because these businesses are, unproven, small companies that may lack management depth, may be dependent on new or commercially unproven technologies, and may have no operating history, they are high risk investments, but could yield high returns.



4






At October 31, 2009, $3,838,308 or 83% of our Company's assets consisted of investments, of which net unrealized gains before the income tax effect were $834,194. A deferred tax liability on account of unrealized gains has been estimated at approximately $288,000.  At October 31, 2009, our Company’s holdings of Vystar Corporation and Lightwave Logic, Inc. were valued at $2,017,000 and $1,115,183, respectively, which represented in the aggregate approximately 82% of the total Company portfolio at that date. Vystar Corporation recently completed its registration with the Securities and Exchange Commission and FINRA and began trading in December 2009 under the symbol VYST.OB.  Vystar Corporation’s valuation was determined by an independent valuation firm.  Lightwave Logic, Inc. trades under the symbol LWLG.OB.

Our Company currently has several liquid investments that it could liquidate if necessary.  The remaining portfolio companies are at early stages of their business development, and do not have a market for the securities of these portfolio companies, our Company may find it difficult to liquidate any of these investments in the near future. See “Liquidity and Capital Resources” below.


Results of Operations

Our Company’s unaudited financial statements have been prepared in conformity with the United States generally accepted accounting principles.  On this basis, the principal measure of an investment company's financial performance during a time period is the net change in net assets during such period. Such change results from (i) income from operations, net of operating expenses, (ii) net realized gain or loss on investment, which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, and (iii) increase (decrease) in unrealized appreciation or depreciation on investments.

The Company recognizes it’s management revenue through a management service contract with a portfolio company to provide services in exchange for equity in that portfolio company.  These services are non-cash and are generally for a one-year term, but can be extended with both parties in agreement.  It is not uncommon for a contract to expire, but for the Company to continue to provide services until a goal is reached.  Each contract renewal is examined on an individual basis.

Company expenses include salaries and wages, professional fees, office expenses and supplies, rent, travel, and other normal business expenses. General and administrative costs include depreciation, investor relations and other overhead costs.

Three months ending October 31, 2009 compared to the three months ended October 31, 2008

For the three months ending October 31, 2009 our Company’s management contracts with its portfolio companies were expired, so there was no revenue for services compared to $318,456 for the three months ending October 31, 2008. During the three months ending October 31, 2009, our Company had 0% of revenue in the form of securities and approximately 96% of the Company’s revenue was in the form of securities for the three months ending October 31, 2008.  

Total operating expenses for the three months ending October 31, 2009 were $189,222, the principal components of which were professional fees of $43,074, consisting primarily of $16,628 for investor relations expense, $20,000 for consulting expense, $7,199 for accounting and auditing expense, payroll of $53,834 (which includes $1,272 of share based compensation expense), $33,514 of bad debt expense, $25,002 of insurance expense, $7,697 of interest expense and $25,626 of other general and administrative expense. By comparison, total operating expenses for the three months ending October 31, 2008 were $874,675, the principal components of which were professional fees of $121,436, payroll of $556,505, bad debt expense of $138,755, insurance of $24,130, interest of $4,432 and other general and administrative expenses of $28,942.

Our Company realized a gain from operations of $438,407 for the three months ending October 31, 2009 compared to a loss from operations of $4,615 for the three months ending October 31, 2008.



5






Six months ending October 31, 2009 compared to the six months ended October 31, 2008

For the six months ending October 31, 2009 our Company’s management contracts with its portfolio companies were expired, so there was only $4,088 in revenue for services compared to $566,956 for the six months ending October 31, 2008. During the six months ending October 31, 2009, approximately 50% of the Company’s revenue was in the form of securities and approximately 96% of the Company’s revenue was in the form of securities for the six months ending October 31, 2008.  

Total operating expenses for the six months ending October 31, 2009 were $381,437, the principal components of which were professional fees of $117,928, consisting primarily of $19,634 for investor relations expense, $20,000 for consulting expense, $51,199 for accounting and auditing expense and $21,183 in legal expense, payroll of $115,446 (which includes $2,544 of share based compensation expense), $33,514 of bad debt expense, $53,473 of insurance expense, $16,282 of interest expense and $43,844 of other general and administrative expense. By comparison, total operating expenses for the six months ending October 31, 2008 were $1,294,789, the principal components of which were professional fees of $334,070, payroll of $701,673, bad debt expense of $138,755, insurance of $48,488, interest of $9,441 and other general and administrative expenses of $61,412.

Our Company realized a gain from operations of $223,209 for the six months ending October 31, 2009 compared to a gain from operations of $366,349 for the six months ending October 31, 2008.


Liquidity and Capital Resources

From inception, our Company has relied upon the liquidation of our investments for liquidity, which is our business model, and relied upon equity capital raises or borrowed funds to invest in our portfolio companies  Our Company had $11,529 of cash at October 31, 2009.  In the future, payment of operating expenses and cash with which to make investments will similarly have to come from liquidating our investments, future revenue streams, equity capital to be raised from investors or from borrowed funds.  There is no assurance that our Company will be successful in liquidating our investments, raising such additional equity capital, generating revenue streams or additional borrowings or if it can, that it can do so at a price that management believes to be appropriate.  Any disposition of our investments may have to be made at inopportune times, which may have a material adverse affect on our overall revenue.  Under the Investment Company Act of 1940, as amended (“1940 Act”), our Company may not sell shares of common stock at less than its net asset value except in certain limited circumstances.

At October 31, 2009, $3,548,125 or 92% of our investments are illiquid securities that do not have a market or they are restricted and therefore cannot be traded or sold.  In December 2009, another of the Company’s portfolio companies began trading on the bulletin board and is now considered a liquid investment.


Contractual Obligations

Management Agreement - On October, 31, 2009, our Company entered into a management agreement with Innovation Industries for a fee of $500,000 over the next 24 months, which is a part of a net profit sharing of 5% of future revenue of its GetaGrip™ product.  We are assisting Innovation to bring the GetaGrip™ product .to the market.  Innovation has been raising capital through promissory notes at $100,000 increments for one point or one percent (1%) of net profits.  We anticipate the revenue generated from this agreement will be sufficient for payment of operating expenses, provide the company with cash to make additional investments and expand into new geographical areas.  Should this product not succeed, we would be entitled to the $500,000 base fee from Innovation.



6







Management Agreement - In October 2009, the Company entered into a letter of understanding with SIVOO Holdings, Inc. for 120 days for the general purpose of identifying and possibly implementing strategic alternative.  The compensation received was a warrant to purchase 4% of the fully-dilutive outstanding common shares at $0.001 per share of SIVOO at the time of the exercise.

Critical Accounting Estimates

Valuation

The 1940 Act requires periodic valuation of each investment in our Company’s portfolio to determine our Company’s net asset value. Under the 1940 Act, unrestricted securities with readily available market quotations are to be valued at the current market value; all other assets must be valued at “fair value” as determined in good faith by or under the direction of the Board of Directors, the majority of which are independent directors.

The Board of Directors is responsible for (1) determining overall valuation guidelines and (2) ensuring the valuation of investments within the prescribed guidelines.

Fair value is generally defined as the amount for which an investment could be sold in an orderly disposition over a reasonable time. Generally, to increase objectivity in valuing assets, external measures of value, such as public markets or third-party transactions, are used whenever possible. Valuation is not based on long-term work-out value, nor immediate liquidation value, nor incremental value for potential changes that may take place in the future.  The values assigned to Company investments are based on available information and do not necessarily represent amounts that might ultimately be realized, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated.

Our Company’s valuation policy and methodology with respect to its portfolio companies are as follows:

Cost: The cost method is based on our Company’s original cost. This method is generally used in the early stages of a portfolio company’s development until significant events occur subsequent to the date of the original investment that dictate a change to another valuation method. Some examples of these events are: (1) a major recapitalization; (2) a major refinancing; (3) a significant third-party transaction; (4) the development of a meaningful public market for such company’s common stock; and (5) significant changes in such company’s business.

Private Market: The private market method uses actual, executed, historical transactions in a company’s securities by responsible third parties as a basis for valuation. The private market method may also use, where applicable, unconditional firm offers by responsible third parties as a basis for valuation.

Public Market: The public market method is used when there is an established public market for the class of the portfolio company’s securities held by our Company and the shares held by our Company bear no legal or contractual restrictions. Securities for which market quotations are readily available are carried at market value as of the time of valuation. Market value for securities traded on securities exchanges is the last reported sales price on the day of valuation. For other securities traded in the over-the-counter market and listed securities for which no sale was reported on a day, market value is the last quoted bid price on such day.

Public Market/Restricted Securities: When our Company holds securities which are publicly traded but under significant legal or contractual restrictions, the Board of Directors starts with the public market value of the shares as set forth in the paragraph above and applies an appropriate discount based on the nature and remaining duration of the restrictions.



7







Analytical Method: The analytical method is generally used to value an investment position when there is no established public or private market in our Company’s securities or when the factual information available to our Company dictates that an investment should no longer be valued under either the cost or private market method. This valuation method is inherently imprecise and, ultimately, the result of reconciling the judgments of our directors based on the data available to them. The resulting valuation, although stated as a precise number, is necessarily within a range of values that vary depending upon the significance attributed to the various factors being considered. Some of the factors considered may include the financial condition and operating results of the portfolio company, the long-term potential of the business of our Company, the values of similar securities issued by companies in similar businesses, the proportion of the portfolio company’s securities owned by our Company and the nature of any rights to require the portfolio company to register restricted securities under applicable securities laws.

Item 3

Quantitative and Qualitative Disclosures About Market Risk

Our Company’s business activities contain elements of risk.  Neither our Company’s investments nor an investment in our Company is intended to constitute a balanced investment program.


A substantial portion of our assets is comprised of private development stage or start-up companies. These private businesses tend to be thinly capitalized, unproven, small companies that lack management depth and have not attained profitability or have no history of operations. Because of the speculative nature and the lack of a public market for these investments, there is significantly greater risk of loss than is the case with traditional investment securities. We expect that some of our investments will be a complete loss or will be unprofitable and that some will appear to be likely to become successful but never realize their potential. Even when our private equity investments become publicly traded, the market for the unseasoned publicly traded securities may be relatively illiquid.


Because there is typically no public market for our interests in the small privately held companies in which we invest, the valuation of the equity interests in that portion of our portfolio is determined in good faith by or under the direction of our Board of Directors, in accordance with our valuation procedures. In the absence of a readily ascertainable market value, the determined value of our portfolio of equity interests may differ significantly from the values that would be placed on the portfolio if a ready market for the equity interests existed. Any changes in valuation are recorded in our statements of operations as "Net increase (decrease) in unrealized appreciation on investments." Changes in valuation of any of our investments in privately held companies from one period to another may be volatile.


Item 4.T

Controls and Procedures.

As of the end on the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of our Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, our principal executive officer and our principal financial officer have determined that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.


No change in our Company’s internal control over financial reporting occurred during our Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our Company’s internal control over financial reporting.




8






PART II – OTHER INFORMATION


Item 6

Exhibits.

The following exhibits are included herein:

10.1

Innovation Industries Management Agreement

31.1

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.

31.2

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer of the Company.

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Financial Officer of the Company.





9






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.



Universal Capital Management, Inc.


December 21, 2009

By:  /s/ Michael D. Queen                    

Michael D. Queen, CEO

Principal Executive Officer




December 21, 2009

By:  /s/ Theresa Q. Hoffmann           

    

Theresa Q. Hoffmann, Vice President of Finance

Principal Financial Officer








10






[APPENDIX]

















UNIVERSAL CAPITAL MANAGEMENT, INC.


FINANCIAL STATEMENTS


OCTOBER 31, 2009 AND 2008


(UNAUDITED)


























UNIVERSAL CAPITAL MANAGEMENT, INC.















CONTENTS



 

PAGE

 

 

STATEMENTS OF ASSETS AND LIABILITIES

F-1

 

 

STATEMENTS OF OPERATIONS

F-2

 

 

STATEMENTS OF CASH FLOWS

F-3

 

 

STATEMENT OF CHANGES IN NET ASSETS

F-4

 

 

FINANCIAL HIGHLIGHTS

F-5

 

 

SCHEDULE OF INVESTMENTS AS OF OCTOBER 31, 2009

F-6

 

 

SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2009

F-7

 

 

NOTES TO FINANCIAL STATEMENTS

F-8 – F-20



















UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES





 

 

October 31, 2009

 

April 30, 2009

 

 

(Unaudited)

 

 

 ASSETS

 

 

 

 

 Investments, at fair value

 

 

 

 

     Non-affiliate investments (cost: $2,789,329 and $2,579,329)

3,833,083 

4,038,079 

     Affiliate investments (cost: $533,552 and $554,552)

 

5,225 

 

1,272,893 

 Total Investments

 

3,838,308 

 

5,310,972 

 

 

 

 

 

 Cash and cash equivalents

 

11,529 

 

15,431 

 Receivables

 

 

 

 

     Notes receivable - non-affiliates (net of allowance: $123,755 and $123,755)

 

 

     Note receivable - affiliates (net of allowance: $30,014 and $0)

 

 

29,005 

     Accounts receivable - non-affiliates (net of allowance: $15,000 and $15,000)

 

10,580 

 

7,385 

     Due from non-affiliates

 

1,069 

 

     Due from affiliates (net of allowance: $3,500 and $0)

 

172,123 

 

123,720 

 Total Receivables

 

183,772 

 

160,110 

 

 

 

 

 

 Prepaid expenses

 

4,887 

 

4,992 

 Property and equipment, net

 

3,530 

 

4,480 

 Deferred income tax

 

570,000 

 

 Rent deposit

 

1,100 

 

1,100 

 

 

 

 

 

 TOTAL ASSETS

4,613,126 

5,497,085 

 

 

 

 

 

 LIABILITIES

 

 

 

 

 LIABILITIES

 

 

 

 

     Accounts payable

345,174 

370,472 

     Accrued expenses

 

80,524 

 

147,224 

     Current income taxes payable

 

194,000 

 

139,000 

     Advances from shareholders

 

6,000 

 

6,000 

     Notes payable

 

 

24,177 

     Note payable, related parties

 

367,372 

 

375,372 

     Accrued interest

 

92,050 

 

116,087 

     Accrued interest, related parties

 

27,758 

 

12,804 

 

 

1,112,878 

 

1,191,136 

 Deferred revenue

 

 

 

 

     Non-affiliates

 

 

3,588 

     Affiliates

 

 

500 

 Total Deferred Revenue

 

 

4,088 

 

 

 

 

 

 Deferred income taxes

 

 

33,000 

 

 

 

 

 

 TOTAL LIABILITIES

 

1,112,878 

 

1,228,224 

 

 

 

 

 

 CONTINGENCIES (NOTE 11)

 

 

 

 

 

 

 

 

 

 NET ASSETS

3,500,248 

4,268,861 

 

 

 

 

 

 COMPOSITION OF NET ASSETS

 

 

 

 

 Common stock, $0.001 par value, 50,000,000 shares authorized;

 

 

 

 

     6,412,426 and 6,412,426 shares issued and outstanding at

 

 

 

 

     October 31, 2009 and April 30, 2009

6,412 

6,412 

 Additional paid-in capital

 

6,059,908 

 

6,057,364 

 Accumulated income

 

 

 

 

     Accumulated net operating income

 

1,841,626 

 

1,618,417 

     Dividends paid

 

(448,596)

 

(448,596)

     Net realized loss on investments

 

(5,028,452)

 

(4,868,280)

     Net realized gain on dividend of portfolio stock

 

343,924 

 

343,924 

     Net unrealized appreciation of investments

 

725,426 

 

1,559,620 

   

 

 

 

 

 Net Assets

3,500,248 

4,268,861 

 

 

 

 

 

 Equivalent per share value based on 6,412,426 shares of capital stock

 

 

 

 

     outstanding as of October 31, 2009 and April 30, 2009

0.55 

0.67 



See accompanying unaudited notes to these financial statements.


F-1



UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDING OCTOBER 31, 2009 AND 2008

(UNAUDITED)






 

 

 For the Three

 

 For the Three

 

 For the Six

 

 For the Six

 

 

 Months Ending

 

 Months Ending

 

 Months Ending

 

 Months Ending

 

 

October 31, 2009

 

October 31, 2008

 

October 31, 2009

 

October 31, 2008

 

 

 

 

 

 

 

 

 

INCOME

 

 

 

 

 

 

 

 

Management services

 

 

 

 

 

 

 

 

     Non-affililiates

$

$

297,956 

$

3,588 

$

541,456 

     Affiliates

 

 

20,500 

 

500 

 

25,500 

Total Management Services

 

 

318,456 

 

4,088 

 

566,956 

 

 

 

 

 

 

 

 

 

Interest income

 

504 

 

3,403 

 

1,008 

 

8,556 

Accounting services

 

 

 

 

 

 

 

 

     Non-affililiates

 

 

9,000 

 

 

18,000 

     Affiliates

 

 

 

3,000 

 

Total Accounting Services

 

 

9,000 

 

3,000 

 

18,000 

 

 

 

 

 

 

 

 

 

 

 

504 

 

330,859 

 

8,096 

 

593,512 

 

 

 

 

 

 

 

 

 

COST AND EXPENSE

 

 

 

 

 

 

 

 

     Bad debt

 

33,514 

 

138,755 

 

33,514 

 

138,755 

     Salaries and wages

 

53,834 

 

556,505 

 

115,446 

 

701,673 

     Professional fees

 

43,074 

 

121,436 

 

117,928 

 

334,070 

     Insurance

 

25,002 

 

24,130 

 

53,473 

 

48,488 

     Interest expense

 

7,697 

 

4,432 

 

16,282 

 

9,441 

     General and administrative

 

25,626 

 

28,942 

 

43,844 

 

61,412 

     Depreciation

 

475 

 

475 

 

950 

 

950 

 

 

189,222 

 

874,675 

 

381,437 

 

1,294,789 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and interest

 

(188,718)

 

(543,816)

 

(373,341)

 

(701,277)

 

 

 

 

 

 

 

 

 

     Income tax benefit (provision)

 

567,000 

 

632,000 

 

543,000 

 

1,167,000 

     Penalties and interest

 

66,700 

 

(86,224)

 

66,700 

 

(86,224)

     Interest expense

 

(6,575)

 

(6,575)

 

(13,150)

 

(13,150)

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) FROM OPERATIONS

 

438,407 

 

(4,615)

 

223,209 

 

366,349 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

     Gain (loss) on disposal of portfolio stock

 

(174,576)

 

(1,188,425)

 

(160,172)

 

(1,136,879)

     Unrealized appreciation (depreciation) on
       investments

 

(1,088,187)

 

(2,051,047)

 

(834,194)

 

(3,359,391)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS

 

 

 

 

 

 

 

 

     RESULTING FROM OPERATIONS

$

(824,356)

$

(3,244,087)

$

(771,157)

$

(4,129,921)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from operations per share:

 

 

 

 

 

 

 

 

     Basic

$

(0.13)

$

(0.55)

$

(0.12)

$

(0.70)

     Diluted

$

(0.13)

$

(0.55)

$

(0.12)

$

(0.70)

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

     Basic

 

6,412,426 

 

5,912,720 

 

6,412,426 

 

5,912,720 

     Diluted

 

6,412,426 

 

5,912,720 

 

6,412,426 

 

5,912,720 



See accompanying unaudited notes to these financial statements.


F-2




UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDING OCTOBER 31, 2009 AND 2008

(UNAUDITED)







 

 

For the Six

 

For the Six

 

 

Months Ending

 

Months Ending

 

 

October 31, 2009

 

October 31, 2008

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

     Net increase (decrease) in net assets resulting from operations

(771,157)

(4,129,921)

     Adjustments to reconcile net increase (decrease) in
        net assets resulting from operations to net cash used
          in operating activities:

 

 

 

 

               Purchase of investment securities

 

(50,091)

 

               Exercise of warrant to purchase common stock

 

(4,000)

 

(400)

               Loss on sale of portfolio stock

 

160,172 

 

1,136,879 

               Proceeds from sale of portfolio stock

 

348,389 

 

367,140 

               Investment securities received in exchange for
                  management services

 

(4,088)

 

(566,556)

               Depreciation expense

 

950 

 

950 

               Stock based compensation expense

 

2,544 

 

591,520 

               Bad debt expense

 

33,514 

 

138,755 

               Net unrealized (appreciation) depreciation on investments

 

834,194 

 

3,359,391 

               Deferred income taxes

 

(603,000)

 

(901,000)

              Current income taxes

 

55,000 

 

(266,000)

              (Increase) decrease in assets

 

 

 

 

                   Notes receivable -  non-affiliates

 

 

(7,547)

                   Notes receivable - affiliates

 

(1,009)

 

(1,009)

                   Accounts Receivable - non-affiliates

 

(3,195)

 

1,923 

                   Accounts Receivable - affiliates

 

(1,069)

 

                   Due from affiliates

 

(51,903)

 

(13,500)

                   Due from non-affiliates

 

 

200 

                   Prepaid expenses

 

105 

 

6,008 

              Increase (decrease) in liabilities

 

 

 

 

                   Accounts payable

 

(25,298)

 

83,753 

                   Accrued expenses

 

(66,700)

 

88,724 

                   Accrued interest

 

(24,037)

 

13,124 

                   Accrued interest, related party

 

14,954 

 

 

 

 

 

 

Net cash used in operating activities

 

(155,725)

 

(97,566)

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

     Proceeds from issuance of promissory notes

 

126,000 

 

     Proceeds from advance from related party

 

50,000 

 

     Repayment of debt

 

(24,177)

 

(70,000)

     Proceeds from issuance of common stock

 

 

157,500 

 

 

 

 

 

     Net cash provided by financing activities

 

151,823 

 

87,500 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

(3,902)

 

(10,066)

 

 

 

 

 

Cash and Cash Equivalents - Beginning of Period

15,431 

 

20,779 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

$

11,529 

$

10,713 

 

 

 

 

 

Supplemental Disclosure of Cash Flows

 

 

 

 

 

 

 

 

 

Cash Paid for Income Taxes

$

5,000 

$

10,000 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

Securities received in exchange for deferred revenue

$

$

332,000 

 

 

 

 

 

Settlement of promissory notes with portfolio stock

$

106,000 

$

 

 

 

 

 

Settlement of promissory note with portfolio stock, related party

$

78,000 

$



See accompanying unaudited notes to these financial statements.


F-3




UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE SIX MONTHS ENDING OCTOBER 31, 2009

 (UNAUDITED)






 

 

For the Six

 

 

Months Ending

 

 

October 31, 2009

 

 

 

Changes in Net Assets from Operations:

 

 

     Net income (loss) from operations

$

223,209 

     Loss on disposal of portfolio stock

 

(160,172)

     Change in unrealized appreciation (depreciation) of investments

(834,194)

          Net increase (decrease) in net assets from operations

 

(771,157)

 

 

 

Distributions to Stockholders:

 

 

     From net income (loss) from operations

 

 

 

 

Capital Stock Transactions:

 

 

     Issuance of common stock

 

     Share-based compensation expense

 

2,544 

          Net increase (decrease) in net assets from stock transactions

2,544 

 

 

 

Net Increase (Decrease) in Net Assets

 

(768,613)

 

 

 

Net Assets, Beginning of Period

 

4,268,861 

 

 

 

Net Assets, End of Period

$

3,500,248 



See accompanying unaudited notes to these financial statements.


F-4




UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL HIGHLIGHTS

FOR THE SIX MONTHS ENDING OCTOBER 31, 2009 AND 2008

(UNAUDITED)






 

 

October 31, 2009

 

October 31, 2008

 

 

   

 

   

PER SHARE INFORMATION

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

$

0.67 

$

0.98 

 

 

 

 

 

Net income (loss) from operations, net of taxes (1)

 

0.02 

 

0.04 

Net change in realized gains (losses) and unrealized appreciation (depreciation) on investments, net of taxes (2)

(0.08)

 

(0.05)

Net increase from stock transactions (1)

 

(0.02)

 

0.13 

Distribution to shareholders from net income (loss) from operations

 

 

 

(0.08)

 

0.13 

 

 

 

 

 

Net asset value, end of period

$

0.55 

$

0.38 

 

 

 

 

 

Per share market value, end of period

$

0.48 

$

0.96 

 

 

 

 

 

Investment return, based on net asset value at end of period

-17.91%

 

-14.29%

 

 

 

 

 

RATIO/SUPPLEMENTAL DATA

 

 

 

 

 

 

 

 

 

Net assets, end of period

$

3,500,248 

$

2,218,331 

 

 

 

 

 

Ratio of expenses to average net assets

 

15.98%

 

31.71%

Ratio of net income (loss) from operations to average net assets

0.34%

 

28.08%

 

 

 

 

 

Diluted weighted average number of shares outstanding during the period

6,412,426 

 

5,912,720 

 

 

 

 

 

 

 

 

 

 

(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 unaudited notes to these financial statements.


F-5




UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF OCTOBER 31, 2009

(UNAUDITED)






 

 

 

 

 

 

 

 

 

 

Method

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

of

 

 

 

 

 

 

 

 

 

 

Date of

 

% of

 

Units Held at

Valuation

 

 

Value at

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

October 31, 2009

(1)

Cost

 

October 31, 2009

Net Assets

Affiliate Investments (2)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIVOO Holdings, Inc. (4)(6)

 

High speed internet media

Dec-05 to
Nov-06

0.00

%

664,501 

(4)

(M)

 

$

319,725 

$

 

0.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants to purchase 805,000 shares of SIVOO Holdings, Inc.

High speed internet media

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000 warrants expiring April 11, 2011 (5)(6)

 

 

 

Apr-06

 

0.00

%

200,000 

(5)

(I)

 

 

 

0.00%

 

200,000 warrants expiring November 14, 2011 (5)(6)

 

 

Nov-06

 

0.00

%

200,000 

(5)

(I)

 

 

 

0.00%

 

405,000 warrants expiring February 28, 2013 (5)(6)

 

 

 

Feb-08

 

0.00

%

405,000 

(5)

(I)

 

206,202 

 

 

0.00%

 

4% of fully diluted common stock at time of exercise - TBD (5)(6)

 

Oct-09

 

0.00

%

TBD 

(5)

(I)

 

 

 

0.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of Dominion Capital Mgmt

SBA lending

 

Jul-08

 

0.09

%

1,000,000 

(5)

(I)

 

5,000 

 

3,600 

 

0.10%

 

(privately held) common stock, expiring July 2013 (5)(6)(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Dominion Capital Mgmt

SBA lending

 

Jul-08

 

0.00

%

500,000 

(5)

(I)

 

1,000 

 

 

0.00%

 

(privately held) common stock, expiring July 2013 (5)(6)(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc.(5)(6)(7)

 

Inactive company

 

Apr-05

 

0.04

%

100,000 

(5)

(M)

 

1,625 

 

1,625 

 

0.05%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Affiliates

 

0.13

%

 

 

 

 

533,552 

 

5,225 

 

0.15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Affiliate Investments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vystar Corporation (4)(6)

 

Natural rubber latex

 

May-09

 

15.32

%

294,000 

(5)

(M)

 

588,000 

 

588,000 

 

16.80%

 

 

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 600,000 shares of Vystar Corporation

Natural rubber latex

Apr-08

 

31.12

%

600,000 

(5)

(I)

 

1,195,000 

 

1,194,000 

 

34.11%

 

  common stock, expiring January 31, 2013 (5)(6)

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Vystar Corporation

Natural rubber latex

Jul-08

 

7.16

%

500,000 

(5)

(I)

 

193,000 

 

275,000 

 

7.86%

 

common stock, expiring April 30, 2013 (5)(6)

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightwave Logic, Inc. (4)(6)(7)

 

Plastics engineering

Feb-07 to
Jan-09

6.26

%

126,267 

(4)

(M)

 

110,029 

 

240,183 

 

6.86%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Lightwave Logic,

Plastics engineering

Feb-08

 

22.80

%

500,000 

(5)

(I)

 

348,000 

 

875,000 

 

25.00%

 

Inc. common stock, expiring February 2013 (5)(6)(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of iVolution Medical Systems,

Medical billing and medical

Jul-08

 

12.78

%

1,000,000 

(5)

(I)

 

112,000 

 

491,000 

 

14.03%

 

Inc. (privately held) common stock, expiring July 2013 (5)(6)

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of iVolution Medical Systems,

Medical billing & medical

Jul-08

 

4.04

%

500,000 

(5)

(I)

 

17,000 

 

155,000 

 

4.43%

 

Inc. (privately held) common stock, expiring July 2013 (5)(6)

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovation Industries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory note (6)(8)

 

Direct sales

 

Oct-09

 

0.26

%

 

(6)

(C)

 

10,000 

 

10,000 

 

0.29%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of MICCO Group

Software solutions provider

Jul-08

 

0.12

%

1,000,000 

(5)

(I)

 

6,000 

 

4,600 

 

0.13%

 

(privately held) common stock expiring July 2013 (5)(6)(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of MICCO Group (3)

Software solutions provider

Jul-08

 

0.00

%

500,000 

(5)

(I)

 

-

 

 

0.00%

 

(privately held) common stock expiring July 2013 (5)(6)(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (5)(6)(7)

 

Various

 

May-09

 

0.01

%

3,000 

(5)

(I)

 

300 

 

300 

 

0.01%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Non-Affiliates

99.87

%

 

 

 

 

2,579,329 

 

3,833,083 

 

95.80%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

100.00

%

 

 

 

 

$

3,112,881 

$

3,838,308 

 

109.66%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and other assets, less liabilities

 

 

 

 

 

 

 

(338,060)

 

-9.66%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at October 31, 2009

 

 

 

 

 

 

 

 

$

3,500,248 

 

100.00%


Notes to Schedule of Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Investments are valued by using either the (M) Market Approach, (I) Income Approach, which includes the Black-Scholes method or (C) Cost.

(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)

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.

(4)

Unrestricted securities - liquid securities

(5)

Restricted securities - illiquid securities; total illiquid securities of $3,548,125 make up 92.4% of total net assets as of October 31 2009

(6)

Represents a non-income producing security.  Equity investments that have not paid dividends within the last 12 months are considered to be non-income producing

(7)

These investments are development stage companies.  A development stage company is defined as a company that is devoting substantially all of its efforts to establishing a new business, and either it has not yet commenced its planned principal operations, or it has commenced such operations but has not realized significant revenue from them.

(8)

This represents a promissory note from Innovation Industries.  Terms of the promissory note include a profit sharing on net profits.  This promissory note is recorded at cost.




See accompanying unaudited notes to these financial statements.


F-6




UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF APRIL 30, 2009







 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Units Held

 

 

Value at

 

% of

 

 

 

 

 

Date of

 

% of

 

At April 30,

 

 

April 30,

 

Net

 

 

 

Business

 

Acquisition

 

Portfolio

2009

Cost

 

2009

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-View Technologies, Inc. (privately held)

3D graphics imaging

Jul-08

 

18.84%

 

2,000,000

(4)

$

20,000 

$

1,000,000 

 

23.43%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Multi-View Technologies,

3D graphics imaging

Jul-08

 

4.61%

 

500,000

(4)

1,000 

 

245,000 

 

5.74%

 

Inc. (privately held) common stock expiring July 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIVOO Holdings, Inc.

 

High speed internet media

Dec-05 to
Nov-06

0.19%

 

664,501

(3)

319,725 

 

9,968 

 

0.23%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants to purchase 805,000 shares of SIVOO Holdings, Inc.

High speed internet media

 

 

 

 

 

 

 

 

 

 

 

250,000 warrants expiring April 11, 2011

 

 

Apr-06

 

0.05%

 

250,000

(4)

 

2,700 

 

0.06%

 

150,000 warrants expiring November 14, 2011

 

Nov-06

 

0.03%

 

150,000

(4)

 

1,700 

 

0.04%

 

405,000 warrants expiring February 28, 2013

 

Feb-08

 

0.12%

 

405,000

(4)

206,202 

 

6,400 

 

0.15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of Dominion Capital

SBA lending

 

Jul-08

 

0.10%

 

1,000,000

(4)

5,000 

 

5,500 

 

0.13%

 

Management (privately held) common stock, expiring July 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Dominion Capital

SBA lending

 

Jul-08

 

0.00%

 

500,000

(4)

1,000 

 

 

0.00%

 

Management (privately held) common stock, expiring July 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc.

 

Inactive company

 

Apr-05

 

0.03%

 

100,000

(4)

1,625 

 

1,625 

 

0.04%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Affiliates

 

23.97%

 

 

 

554,552 

 

1,272,893 

 

29.82%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Affiliate Investments (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of Vystar Corporation (5)

Natural rubber latex

Apr-08

 

37.47%

 

1,000,000

(4)

 

1,991,000 

 

1,991,000 

 

46.63%

 

  common stock, expiring January 31, 2013

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Vystar Corporation (5)

Natural rubber latex

Jul-08

 

5.21%

 

500,000

(4)

193,000 

 

277,000 

 

6.49%

 

common stock, expiring April 30, 2013

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightwave Logic, Inc.

 

Plastics engineering

Feb-07

 

2.67%

 

338,005

(3)

196,313 

 

141,624 

 

3.32%

 

 

 

 

 

Jan-09

 

3.16%

 

400,000

(4)

332,400 

 

167,638 

 

3.93%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Lightwave Logic,

Plastics engineering

Feb-08

 

3.94%

 

500,000

(4)

348,000 

 

209,000 

 

4.90%

 

Inc. common stock, expiring February 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of iVolution Medical

Medical billing and medical

Jul-08

 

9.24%

 

1,000,000

(4)

112,000 

 

491,000 

 

11.50%

 

Systems, Inc. (3) common stock, expiring July 2013

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of iVolution Medical

Medical billing and medical

Jul-08

 

2.92%

 

500,000

(4)

17,000 

 

155,000 

 

3.63%

 

Systems, Inc. (3) common stock, expiring July 2013

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of MICCO Group (3)

Software solutions provider

Jul-08

 

9.25%

 

1,000,000

(4)

6,000 

 

491,000 

 

11.50%

 

common stock expiring July 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of MICCO Group (3)

Software solutions provider

Jul-08

 

2.15%

 

500,000

(4)

 

114,000 

 

2.67%

 

common stock expiring July 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Various

 

May-09

 

0.02%

 

 

 

1,086 

 

817 

 

0.02%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Non-Affiliates

 

 

76.03%

 

 

 

3,196,799 

 

4,038,079 

 

94.59%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

100.00%

 

 

$

3,751,351 

5,310,972 

 

124.41%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and other assets, less liabilities

 

 

 

 

 

(1,042,111)

 

-24.41%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at April 30, 2009

 

 

 

 

 

 

$

4,268,861 

 

100.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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 Pink Sheets, OTC Bulletin Board or listed on other similar markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

The above investments, are non-income producing.  Equity investments that have not paid dividends within the last twelve months are considered non-income producing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

The value of all securities for which there is no readily available market value is determined in good faith by the Board of Directors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1).

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

 

 

(2)

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.

 

 

(3)

Unrestricted shares - liquid securities

 

 

(4)

Restricted shares - illiquid securities; total illiquid securities of $5,159,380 make up 120.90% of total net assets as of April 30, 2009



See accompanying unaudited notes to these financial statements.


F-7




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


History and Nature of Business

Universal Capital Management, Inc. (the “Company”, “we”, “us”, “our”) is a business development company.  The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940.  The Company is primarily engaged in the business of furnishing capital and making available managerial assistance to companies that do not have ready access to capital through conventional channels.  The Company refers to companies in which it invests as “portfolio companies.”


Basis of Presentation

The accompanying interim period financial statements of the Company are unaudited pursuant to certain rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results of the periods indicated.  Such results, however, are not necessarily indicative of results that may be expected for the full year.  Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2009, as filed with the Securities and Exchange Commission.  The interim operating results for the three and six months ending October 31, 2009 are not necessarily indicative of operating results expected for the full year.


Investments

Investments in securities of unaffiliated issuers represent holdings of less than 5% of the issuer's voting common stock.  Investments in and advances to affiliates are presented as (i) majority-owned, if holdings, directly or indirectly, represent over 50% of the issuer's voting common stock, (ii) controlled companies if the holdings, directly or indirectly, represent over 25% and up to 50% of the issuer's voting common stock and (iii) other affiliates if the holdings, directly or indirectly, represent 5% to 25% of the issuer's voting common stock.  Investments - other than securities represent all investments other than in securities of the issuer.


Security Valuations

Investments in securities or other than securities of privately held entities are initially recorded at their original cost as of the date the Company obtained an enforceable right to demand the securities or other investment purchased and incurred an enforceable obligation to pay the investment price.


For financial statement purposes, investments are recorded at their fair value.  If at our reporting date, readily determinable fair values do not exist for our investments, such as restricted securities and other securities (small, privately-held companies), the fair value of these investments is determined in good faith by the Company's Board of Directors pursuant to a valuation policy and consistent valuation process.  Due to the inherent uncertainty of these valuations, the estimates may differ significantly from the values that would have been used had a ready market for the investments existed and the differences may be material.  Our valuation methodology includes the examination of among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation.


Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market (such as OTC BB, Pink Sheets, etc) and listed securities for which no sale was reported on that date are stated at the last quoted bid price.  


Investment securities are exposed to various risks, such as overall market volatility.  Due to the level of risk associated with the securities of certain portfolio companies, it is likely that changes in their values will occur in the near term and that such changes could materially affect the amounts reported in the statement of assets and liabilities at future dates.



F-8



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)




NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Security Valuations (Continued)

Realized gains (losses) from the sale of investments and unrealized gains (losses) from the valuation of investments are reflected in operations during the period incurred. 


Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from the estimates.


Cash Equivalents

For the purposes of the statement of cash flows, the Company considers all investment instruments purchased with maturity of three months or less to be cash and cash equivalents.


Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash.  At October 31, 2009 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage of $250,000.


Notes Receivable

Notes receivable consist of monies loaned to its portfolio companies evidenced by a note specifying a specific term, and interest rate and are reported at fair value.  Notes receivable are presented as due from affiliated and non-affiliated issuers.  Notes receivables from unaffiliated issuers represent notes from companies where we hold less than 5% of the issuer's voting common stock.  Notes receivables from affiliated issuers represent notes from companies where we hold 5% or more of the issuer’s voting common stock.  The Company provides an allowance for losses on notes receivable based on a review of the current status of existing receivables and management’s evaluation of periodic aging of accounts.  The Company charges off notes receivable against the allowance for losses when an account is deemed to be uncollectible.  The provision for doubtful accounts was approximately $123,755 as of October 31, 2009 and 2008, respectively.


Accounts Receivable

Accounts receivable consist of fees for services provided by the Company and are reported at fair value. Accounts receivable are presented as due from affiliated and non-affiliated issuers. Accounts receivable from unaffiliated issuers represent receivables from companies where we hold less than 5% of the issuer's voting common stock.  Accounts receivable from affiliated issuers represent receivables from companies where we hold 5% or more of the issuer’s voting common stock.  The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s 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 Company’s policy to accrue interest on past due receivables.  The provision for doubtful accounts was approximately $15,000 and $15,000 as of October 31, 2009 and 2008, respectively.


Due from Affiliates and Non-Affiliates

Due from affiliates and non-affiliates represent fees that the Company has paid on behalf of a portfolio company and is reported at fair value.    Due from non-affiliated issuers represent due from companies where we hold less than 5% of the issuer's voting common stock.  Due from affiliated issuers represent due from companies where we hold 5% or more of the issuer’s voting common stock.




F-9



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation.  For financial accounting purposes, depreciation is generally computed by the straight-line method over the following useful lives:


Furniture and fixtures

5 to 7 years

Computer and office equipment

3 to 7 years


Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, receivables, accounts payable and accrued expenses.  The carrying values of cash, receivables, accounts payable and accrued expenses approximate fair value because of their short maturities.


The carrying value of the notes payable approximates fair value since the interest rate associated with the debt approximates the current market interest rates.


Revenue Recognition


Management Services

The Company recognizes management services revenue for equity investments received in accordance with ASC 505-50-05, Accounting by a Grantee for an Equity Instrument to be Received in Conjunction with Providing Goods or Services.  The Company enters into a management service agreement with a portfolio company to provide services defined in a contract for equity instruments in the form of the portfolio company’s common stock or warrants to purchase common stock.  The fair value of the common stock is the portfolio company’s current fair market value and the fair value of the warrant is determined using the Black-Scholes method of valuation.  The fair value of the equity instruments is also the Company’s cost basis in the portfolio company’s securities and the income that is recognized for management services.  The Company recognizes management services revenue for which payment is to be received in cash as services are provided and in accordance with the revenue recognition criteria of the Securities and Exchange Commission.  Staff Accounting Bulletin 104 states that if persuasive evidence of an arrangement exists if services have been rendered, the price is fixed or determinable and collectability is reasonably assured, revenue can be recognized.  Revenue is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract.


Accounting Services

The Company provides accounting and other administrative services to its portfolio companies.  Upon entering into a contract with the portfolio company, the Company provides services as defined in the contract and revenue is recognized as incurred or as otherwise stated in the contract based on similar criteria as for management services discussed above.


Interest Income

The Company loans monies to its portfolio companies from time to time.  These loans, which are evidenced by a note, are subject to interest accrued on a monthly basis.  This interest income is recognized when accrued.


Income Taxes

Deferred tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Deferred income taxes arise principally from the recognition of unrealized gains or losses from appreciation or depreciation in investment value for financial statements purposes, while for income tax purposes, gains or losses are only recognized when realized (disposition).  When unrealized gains and losses result in a net unrealized loss, provision is made for a deferred tax asset.  When unrealized gains and losses result in a net unrealized gain, provision is made for a deferred tax liability.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable to refundable for the period plus or minus the change during the period in deferred tax assets or liabilities.



F-10



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)




NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Net Realized Gains or Losses and Net Changes in Unrealized Appreciation or 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 management services is equal to the amount of revenue we recognize upon receipt of such securities.  Net realized gains or losses are recognized as other income on the Company’s statement of operations for the period.


Net change in unrealized appreciation or depreciation of investments 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.  Net change in unrealized appreciation or depreciation are recognized as other income on the Company’s statement of operations for the period.


Recoverability of Long Lived Assets

The Company follows ASC 360-10-20, Property, Plan and Equipment - Overall.  This standard states that long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the excess of the asset’s carrying amount over the estimated fair market value.


Reclassifications

Certain reclassifications were made to the October 31, 2008 financial statements in order to conform to the October 31, 2009 financial statement presentation.


Recently Issued Pronouncements

The Company follows ASC 805, Business Combinations.  This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement is effective for the Company beginning May 1, 2009 and will change the accounting for business combinations on a prospective basis.


The Company follows ASC 820, Fair Value Measurements and Disclosures..  This position provides additional guidance for fair value measures under ASC 820 in determining if the market for an assets or liability is inactive and, accordingly, if quoted market prices may not be indicative of fair value.  The adoption of ASC 820 did not have a material impact on the Company’s financial statements.


ASC 825-10-65, Interim Disclosures About Fair Value of Financial Instruments, extends the existing disclosure requirements related to the fair value of financial instruments, which were previously only required in annual financial statements, to interim periods.  Given that ASC 825-10-65 provides for additional disclosures, its adoption did not have any impact on the Company’s financial statements.  The disclosure requirements under ASC 825-10-65 are included in Note 5 to the financial statements.


ASC 855, Subsequent Events, sets forth principles and requirements for subsequent events, specifically (1) the period during which management should evaluate events or transactions that may occur for potential recognition and disclosure, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and (3) the disclosures that an entity should make about events and transactions occurring after the balance sheet date.  ASC 855 is effective for interim reporting periods ending after June 15, 2009.  The Company has adopted ASC 855, and this adoption did not have a material impact on its financial statements.




F-11



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)




NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recently Issued Pronouncements (Continued)

In June 2009, the FASB issued ASC 105-10-65, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB No. 162, which will become the source of authoritative U.S. GAAP recognized by the FASB to be applied to non-governmental entities.  On its effective date, ASC 105-10-65 will supersede all then-existing, non-SEC accounting and reporting standards.  ASC 105-10-65 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company has adopted ASC 105-10-65, and this adoption did not have a material impact on its financial statements.



NOTE 2 – INVESTMENTS


As described in Note 1, the Company partially adopted ASC 820 on May 1, 2008.  ASC 820, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.  ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1   -   Observable inputs such as quoted prices in active markets;


Level 2   -   Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and


Level 3   -   Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


At October 31, 2009, our financial assets were categorized as follows in the fair value hierarchy for ASC 820:


 

 

 

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

Fair Value

 

Identical Assets

 

Inputs

 

Inputs

 

 

October 31, 2009

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Investments in securities

 

 

 

 

 

 

 

 

  Affiliated companies

$

5,225 

$

$

$

5,225 

  Non-affiliated companies

 

3,833,083 

 

240,483 

 

 

3,592,600 

 

 

 

 

 

 

 

 

 

Total Investments in securities

$

3,838,308 

$

240,483 

$

$

3,597,825 




F-12



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 2 – INVESTMENTS (CONTINUED)


The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ended October 31, 2009:


 

 

 

 Fair Value Measurement Using

 

 

 

 Significant Unobservable Inputs

 

 

 

(Level 3)

 

 

 

 

Beginning Balance, July 31, 2009

$

5,101,625 

 

 

 

 

Total realized losses included in change in net assets

 

(106,000)

Total unrealized gains/losses included in change in net assets

(1,386,800)

Promissory note received

 

10,000 

Write-offs

 

(21,000)

 

 

 

 

Ending Balance, October 31, 2009

$

3,597,825 

 

 

 

 

The amount of total gains or losses for the period included in changes

     in net assets attributable to the change in unrealized gains or losses

        relating to assets still held at the reporting date.

$

(803,300)


The following chart shows the components of change in the financial assets categorized as Level 3, for the six months ended October 31, 2009:


 

 

 

 Fair Value Measurement Using

 

 

 

 Significant Unobservable Inputs

 

 

 

(Level 3)

 

 

 

 

Beginning Balance, April 30, 2009

$

4,990,925 

 

 

 

 

Total realized losses included in change in net assets

 

(106,000)

Total unrealized gains included in change in net assets

 

(1,266,100)

Write-offs

 

(21,000)

 

 

 

 

Ending Balance, October 31, 2009

$

3,597,825 

 

 

 

 

The amount of total gains or losses for the period included in changes

     in net assets attributable to the change in unrealized gains or losses

       relating to assets still held at the reporting date.

$

(311,800)


NOTE 3 – INCOME TAXES


As an investment company organized as a corporation, the Company is taxable as a corporation.  As discussed in Note 1, the Company utilizes the assets and liability method of accounting for income taxes in accordance with ASC 740-10 and ASC 740-30, Accounting for Income Taxes..


Under the provisions of ASC 740-10, Accounting for Income Taxes, the unrecognized tax provisions consisting of interest and penalties at April 30, 2009 was $78,900.  The change in unrecognized tax provisions during the six months ending October 31, 2009 amounted to $13,150 and the accrual at October 31, 2009 amounted to $92,050.  The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and is included on the Company’s balance sheet in accrued interest.


Tax years from 2005 (initial tax year) through 2008 remain subject to examination by major tax jurisdictions.




F-13



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 3 – INCOME TAXES (CONTINUED)


The income tax benefit for the six months ending October 31, 2009 and 2008 have been included in the accompanying financial statements on the basis of an estimated annual effective rate of 34.0% and 8.75%.  The estimated annual effective rate differs from the U.S. Statutory rate primarily due to the changes in the valuation allowance.


 

 

October 31, 2009

 

April 30, 2009

 

 

 

 

 

Income taxes at U.S. Federal Income Tax rate

$

440,000 

$

1,145,000 

State income taxes, net of federal benefit (provision)

 

103,000 

 

153,000 

Non-deductible share based compensation

 

 

(373,000)

Exercise of warrant

 

 

 

 

24,000 

Change in valuation allowance

 

 

 

 

 

 

 

 

$

543,000 

$

949,000 



The components of deferred tax (assets) liabilities are as follows:


 

 

 

 

 

October 31, 2009

 

April 30, 2009

 

 

 

 

 

 

 

 

Deferred tax (asset) liability

 

 

 

 

Net operating loss

 

 

(114,000)

Unrealized gains

 

288,000 

 

620,000 

Capital loss carryforward

 

(1,528,000)

 

(1,467,000)

Stock-based compensation

 

(125,000)

 

(124,000)

Amortization of deferred revenue from warrants

939,000 

 

1,254,000 

Bad debt

 

(69,000)

 

(56,000)

Other

 

 

700 

 

 

 

 

 

Total deferred tax (asset) liability

$

(570,000)

$

33,000 


At April 30, 2009, the Company had a capital loss carryforward of approximately $4,224,000 which if not used will expire in 2014.


At October 31, 2009, there is an $80,524 accrual for estimated penalties and interest associated with the outstanding taxes payable for the year ended April 30, 2007.  In addition, the Company may be subjected to federal and state late filing penalties of up to approximately $180,000 due to filing extensions with no payment.


During October 2009, the Company entered into a payment agreement with the State of Delaware whereby they abated all interest and penalties for the year ended April 30, 2007 if the balance of taxes owed are paid by June 2010.





F-14



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 4 – NOTES RECEIVABLE


Notes receivable consists of the following:


 

 

October 31, 2009

 

April 30, 2009

 

 

 

 

 

Notes Receivable - non-affiliated companies

 

 

 

 

    Scientific Products and Systems, Inc. ("SPS") - Total principal of $110,778.  These

 

 

 

        notes bear interest at 8% per year up through August 31, 2007 at which time the

 

 

 

        Company demanded payment.  No payment was received and the notes then n

 

 

 

        began to bear interest at 10%.  The Company filed a lawsuit in August 2008 against

 

 

 

        SP&S demanding payment.  SP&S responded in September 2008 to the lawsuit

 

 

 

        And in October 2008, the Company requested for production of documents, which

 

 

 

        it has not received.  SP&S filed for bankruptcy in May 2009.

$

123,755 

$

123,755 

 

 

 

 

 

 

Allowance for bad debt

 

(123,755)

 

(123,755)

 

 

 

 

 

Notes Receivable- non-affiliated companies

$

$

 

 

 

 

 

 

 

 

 

 

Note Receivable - affiliated companies

 

 

 

 

    SIVOO Holdings, Inc. ("SIVOO") - Principal of $25,000.  This note bears interest at 8%

 

 

       per year beginning on May 1, 2007.  This note is payable upon demand.  

$

30,014 

$

29,005 

 

 

 

 

 

 

Allowance for bad debt

 

(30,014)

 

 

 

 

 

 

Notes Receivable- affiliated companies

$

$

29,005 



NOTE 5 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES


 

 

 

 

October 31, 2009

 

April 30, 2009

 

 

 

 

 

 

 

Due from Non-Affiliated Companies

 

 

 

 

 

 

Innovation Industries

 

 

$

1,069 

$

 

 

 

 

 

 

 

Due from Affiliated Companies

 

 

 

 

 

 

BF Acquisition Group V, Inc.

 

 

$

52,987 

$

52,987 

Dominion Capital Management Corporation

 

 

 

53,813 

 

53,813 

SIVOO Holdings

 

 

 

3,500 

 

3,500 

Multi-View Technologies

 

 

 

14,420 

 

13,420 

Incredible 3D, Inc.

 

 

 

26,391 

 

Mediavix

 

 

 

24,512 

 

 

 

 

 

 

 

 

Totals

 

 

 

175,623 

 

123,720 

 

 

 

 

 

 

 

Allowance for bad debt

 

 

 

(3,500)

 

 

 

 

 

 

 

 

Total Due from Affiliated Companies

 

 

$

172,123 

$

123,720 





F-15



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 6 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE


The deferred revenue represents unearned management fee income.  Income is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract.  In accordance with Generally Accepted Accounting Principles, since the shares received by the Company are non-refundable, the value of the contract is determined by the number of shares the Company receives at the closing market price on the day of the contract (commitment date).  Warrants are valued using the Black-Scholes method.  Deferred revenue consists of the following:


 

 

 

 

 

October 31, 2009

 

April 30, 2009

Non-Affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

iVolution Medical Systems, Inc. ("IMS")

$

$

3,588 

 

Received a warrant to purchase 500,000 shares of IMS

 

 

 

  common stock for payment of services per one year contract

 

 

 

  dated July 2008, valued at $17,000, fair value and amortized

 

 

 

  over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

Total Non-Affiliates

 

 

3,588 

 

 

 

 

 

 

 

 

Affiliates

 

 

 

 

 

 

Multi-View Technologies, Inc. ("MVT")

 

 

 

 

 

Received a warrant to purchase 500,000 shares of MVT

 $                       

$                  

250 

 

  common stock for payment of services per one year contract

 

 

 

  dated July 2008, valued at $1,000, fair value and amortized

 

 

 

  over the life of the contract

 

 

 

 

 

 

 

 

 

 

 

 

Dominion Capital Management Corporation ("DCMC")

 

250 

 

Received a warrant to purchase 1,000,000 shares of

 

 

 

  Dominion Capital Management Corporation common stock

 

 

 

  for payment of services per a three month contract dated

 

 

 

  April 30, 2008, valued at $5,000, fair value and amortized

 

 

 

  over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

Total Affiliates

 

 

500 

 

 

 

 

 

 

 

 

Total Deferred Revenue

$

$

4,088 



F-16



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 6 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE (CONTINUED)


Management service revenue recognized consists of:

 

 

For the Three

 

For the Three

 

For the Six

 

For the Six

 

 

Months Ending

 

Months Ending

 

Months Ending

 

Months Ending

 

 

October 31, 2009

 

October 31, 2008

 

October 31, 2009

 

October 31, 2008

Non-Affiliates

 

 

 

 

 

 

 

 

Vystar Corporation ("Vystar")

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 1,000,000 shares of Vystar

$

$

48,250 

$

$

96,500 

 

  Corporation common stock for payment of services per a three

 

 

 

 

 

 

 

 

 

  month contract dated January 31, 2008, valued at $1,991,000,

 

 

 

 

 

 

 

 

 

  fair value.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightwave Logic, Inc. ("LWLG")

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 400,000 shares of LWLG

 

 

82,998 

 

 

165,998 

 

  common stock for payment of services per one year contract

 

 

 

 

 

 

 

 

 

  dated February 28, 2008, valued at $332,000, fair value and

 

 

 

 

 

 

 

 

 

  amortized over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

iVolution Medical Systems ("iVolution")

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 1,000,000 shares of iVolution common

 

 

112,000 

 

 

112,000 

 

  stock for payment of services per a three month contract dated

 

 

 

 

 

 

 

 

 

  July 2008, valued at $112,000, fair value and amortized over the life

 

 

 

 

 

 

 

 

 

  of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of iVolution common

 

 

4,958 

 

3,588 

 

4,958 

 

  stock for payment of services per a one year contract dated

 

 

 

 

 

 

 

 

 

  July 2008, valued at $17,000, fair value and amortized over the life

 

 

 

 

 

 

 

 

 

  of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MICCO Group ("MICCO")

 

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 1,000,000 shares of MICCO common

 

 

6,000 

 

 

6,000 

 

  stock for payment of services per a three month contract dated

 

 

 

 

 

 

 

 

 

  July 2008, valued at $6,000, fair value and amortized over the life

 

 

 

 

 

 

 

 

 

  of the contract

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theater Xtreme Entertainment Group, Inc. ("TXEG")

 

 

 

 

 

 

 

 

 

Received 650,000 shares of TXEG common stock for payment

 

 

 

 

66,084 

 

  of services per one year contract dated July 2007, valued at

 

 

 

 

 

 

 

 

 

  $396,500, fair value and amortized over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of TXEG

 

 

 

 

46,166 

 

  common stock for payment of services per one year contract

 

 

 

 

 

 

 

 

 

  dated July 2007, valued at $277,000, fair value and amortized

 

 

 

 

 

 

 

 

 

  over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Received 2,500,000 shares of TXEG common stock for payment of

 

 

43,750 

 

 

43,750 

 

  services per a one year contract dated July 2008, valued at

 

 

 

 

 

 

 

 

 

  $175,000, fair value and amortized over the life of the contract.

 

 

 

 

 

 

 

 

Total Non-Affiliates

 

 

 

297,956 

 

3,588 

 

541,456 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates

 

 

 

 

 

 

 

 

Multi-View Technologies ("MVT")

 

 

 

 

 

 

 

 

 

Received 2,000,000 shares of MVT common stock for payment of

 

 

20,000 

 

 

20,000 

 

  services per three month contract dated July 2008, valued at $20,000,

 

 

 

 

 

 

 

 

 

  fair value and amortized over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of MVT common

 

 

250 

 

250 

 

250 

 

  stock for payment of services per a one year contract dated July

 

 

 

 

 

 

 

 

 

  2008, valued at $1,000, fair value and amortized over the life of the

 

 

 

 

 

 

 

 

 

  contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominion Capital Management ("DCMC")

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 1,000,000 shares of DCMC

 

 

 

 

5,000 

 

  common stock for payment of services per a three month contract

 

 

 

 

 

 

 

 

 

  dated April 2008, valued at $5,000, fair value and amortized over

 

 

 

 

 

 

 

 

 

  the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of DCMC common

 

 

250 

 

250 

 

250 

 

  stock for payment of services per a one year contract dated July

 

 

 

 

 

 

 

 

 

  2008, valued at $1,000, fair value and amortized over the life of the

 

 

 

 

 

 

 

 

 

  contract.

 

 

 

 

 

 

 

 

 

 

 

Total Affiliates

 

 

 

 

20,500 

 

500 

 

25,500 

 

 

 

 

 

 

 

 

 

 

 

 

Total Management Services Revenue

$

318,456 

$

4,088 

$

566,956 





F-17



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 7 – NOTES PAYABLE


Notes payable consists of the following:


 

 

October 31, 2009

 

April 30, 2009

Notes payable

 

 

 

 

  Notes payable.  Interest accrued at the prime rate of interest,

 

 

 

 

     6% at April 30, 2009.  Principal and interest are payable

 

 

 

 

     on demand. (NOTE 11)

$

$

24,177 

 

 

 

 

 

Notes payable, related party

 

 

 

 

  Notes payable, related party.  Interest accrued at 8.0%

 

 

 

 

    beginning on November 1, 2008.  Principal and interest

 

 

 

 

    payable on demand. (NOTE 10)

$

297,372 

$

375,372 

 

 

 

 

 

  Notes payable, related party.  Interest accrued at 8.0%

 

 

 

 

    beginning on October 19, 2009  Principal and interest

 

 

 

 

    payable on demand. (NOTE 10)

 

50,000 

 

 

 

 

 

 

  Promissory notes payable, related party.  Interest accrued at

 

 

 

 

     5.0% per annum.  Principal and interest due September 30,

 

 

 

 

    2010.  (NOTE 10)

 

20,000 

 

 

 

 

 

 

Notes payable, related party

$

367,372 

$

375,372 



NOTE 8 – ADVANCES FROM SHAREHOLDER


Amount represents advances from shareholder to cover operating expenses.  There are no stated interest rate or repayment terms.



NOTE 9 – STOCK BASED COMPENSATION


The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of options awarded during the six months ended October 31, 2009, with the following assumptions: no dividend yield, expected volatility of 126%, risk-free interest rate of 3.27% and expected option life of ten years.


As of October 31, 2009, there was approximately $10,178 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through May 2011.


The following tables summarize all stock option activity of the Company since April 30, 2009:


 

 

Stock Options Outstanding

 

 

 

 

 

 

Weighted Average

 

 

Number of Shares

 

Exercise Price

 

Exercise Price

 

 

 

 

 

 

 

Outstanding, April 30, 2009

750,000 

 

$  0.20  -  $  0.87

$

0.29 

 

 

 

 

 

 

Expired

(100,000)

 

$                     0.87

$

0.87 

 

 

 

 

 

 

 

Outstanding, October 31, 2009

650,000 

 

$                     0.20

$

0.20 

 

 

 

 

 

 

 

Exercisable, October 31, 2009

615,000 

 

$                     0.20

$

0.20 




F-18



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 9 – STOCK BASED COMPENSATION (CONTINUED)


Stock Options Outstanding

 

 

Number Outstanding

 

Weighted Average

 

Weighted Average

Range of

 

Currently Exercisable

 

Remaining

 

Exercise Price of Options

Exercise Prices

 

at October 31, 2009

 

Contractual Life

 

Currently Exercisable

 

 

 

 

 

 

 

$

0.20 

 

615,000

 

9.33 years

 

$

0.20



NOTE 10 – RELATED PARTY TRANSACTIONS


During the six months ended October 2009, an officer loaned the Company $50,000 for operating expenses and is evidenced by a promissory note at an interest rate of 8%, payable upon demand.


In February 2009 the Company’s brokerage accounts were seized (NOTE 11).  At that time, the Company’s operational activities were funded by the sale of its liquid portfolio company common stock in the open market.  In order to continue Company operations, an officer agreed to sell his personal shares of the portfolio company common stock to fund the Company’s operations until such time as the assets could be freed, with a stipulation that he would receive the same number of shares in return that he sold from the Company at the proper time.


In September 2009, 164,070 shares owed to the officer were returned to him in repayment for a total of $78,000 that he loaned to the Company, from February to April 2009, from the sale of his personal portfolio company stock.  


Through October 31, 2009, two officers loaned the Company $10,000 each evidenced through promissory notes with 5% per annum interest, payable on or before September 30, 2010.



NOTE 11 – CONTINGENCIES


McCrae Associates, LLC Lawsuit

In July 2006, McCrae Associates, LLC (“McCrae) filed a lawsuit against the Company and its directors and officers in the United States District Court for the District of Connecticut.  The lawsuit alleges that McCrae is the owner of 300,000 shares of the Company’s common stock and that the Company did not deliver to and is wrongfully withholding such shares from McCrae.  The lawsuit alleges that the directors and officers conspired with the Company to deprive McCrae of such shares, and that the directors and officers owed a fiduciary duty to McCrae that they violated by refusing to tender the shares to McCrae upon demand.  The lawsuit also alleges that all of the defendants violated the Connecticut Unfair Trade Practices Act.  McCrae seeks delivery of a stock certificate covering the shares, unspecified monetary damages, including treble damages, attorney fees and punitive damages.  The Company is vigorously defending the action and has filed a counter-claim against McCrae and a third-party claim against Stephen Funk seeking to rescind the issuance of shares to McCrae and to recover monetary damages on fraud and breach of contract theories.  The Company also filed similar claims in the Chancery Court in Wilmington, Delaware seeking to rescind the issuance of 200,000 shares of common stock to Liberator, LLC, a company it believes is controlled by Stephen Funk.  Recently, the parties agreed to the voluntary dismissal of the action in Delaware with the express understanding that Liberator would be bound by the decision of the Court in Connecticut with respect to the McCrae shares.  Recent efforts by the Company and McCrae to settle the litigation have been unsuccessful and the parties have commenced discovery.


The Company believes that McCrae’s claims lack merit and intends to defend against such claims vigorously.


Carlin and Wilson Lawsuit

During February 2008, Leo Carlin Jr. (“Carlin”) and Richard H. Wilson, III (“Wilson”) filed a lawsuit in New Castle County, Delaware, Superior Court.  Carlin and Wilson are the Plaintiffs and UCM is the Defendant.



F-19



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

OCTOBER 31, 2009

(UNAUDITED)



NOTE 11 – CONTINGENCIES (CONTINUED)


Carlin and Wilson Lawsuit

On or around June 2006, Carlin and Wilson loaned the Company a total of $175,000 which was evidenced by two promissory notes payable (“Notes”), due with interest, on or before October 15, 2006.  These funds were for short-term financing for the Company.  Carlin and Wilson sued demanding payment, claiming that three weeks after the Notes were executed and delivered, the Company failed to send the plaintiffs a subscription agreement for shares of the Company’s common stock at $2.50 per share in exchange for the cancellation of the notes.  


On or around March 2008, a judgment was placed on the Company for the amounts owed.


As of October 31, 2008, the outstanding notes payable balance was $155,000 and the accrued interest payable on those notes was $32,925.


In December 2008, the Company was served a notice to attend an additional discovery hearing on January 12, 2009.  At this discovery hearing additional documents were provided by the Company as requested.


In February 2009, the judgment was ordered into effect and the Company’s investment accounts were seized.  


In March 2009, the Plaintiffs and the Company agreed to settle the Notes over a four month payment.  The Company made a $100,000 payment in March 2009 and two additional payments of $30,823 in each April and May 2009.  The final payment of $30,823 was made in June 2009, which was a complete settlement of all interest and principle.



NOTE 12 – SUBSEQUENT EVENTS


In November 2009, the Company signed a three month management agreement with BF Acquisition Group V, Inc. (“BFAG V”) for 1,900,000 shares of its common stock.  


In December 2009, Vystar Corporation (VYST.OB) began trading.


In December 2009, the Company signed a one year management agreement with Mediavix, Inc. (“Mediavix”) for 1,000,000 shares of its common stock and a warrant to purchase 500,000 shares of common stock at $0.001 per share.  


Management evaluated all activity of the Company through December 21, 2009 and concluded that no additional subsequent events have occurred that would require recognition in the financial statements.




F-20