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EX-31.1 - EXHIBIT 31.1 - MAJOR LEAGUE FOOTBALL INCucmdec09q_ex31z1.htm
EX-31.2 - EXHIBIT 31.2 - MAJOR LEAGUE FOOTBALL INCucmdec09q_ex31z2.htm
EX-32.2 - EXHIBIT 32.2 - MAJOR LEAGUE FOOTBALL INCucmdec09q_ex32z2.htm
EX-32.1 - EXHIBIT 32.1 - MAJOR LEAGUE FOOTBALL INCucmdec09q_ex32z1.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 ending January 31, 2010

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

(State or other jurisdiction of

Incorporation or Organization)


2601 Annand Drive

Suite 16

Wilmington, DE

(Address of principal executive offices)

20-1568059

(I.R.S. Employer

Identification No.)



______19808____

(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 March 16, 2010 was 6,412,426






TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION


 

 

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 4.T

Controls and Procedures

8

 

 

 

 

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 intended 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, intended, 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.  We are a diversified, aggressive investment tool that assists early stage development companies in all aspects of the planning process from inception to entering the public marketplace.  This includes assisting with the preparation of financial statements, capitalization tables, valuations, business plans and coordinating public/investor relations efforts.  Our niche is to assist young companies prepare themselves for introduction to a diversified group of accredited investors in order to assist them with obtaining private debt and/or equity financing.  Since we have differing clients in varied industries, our overall portfolio is extremely diversified, which we believe enables us to offer investors who invest in us a potentially higher return with less risk.  For our management services we receive a block of common stock which could result in a financial windfall for us and our shareholders.

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.



1





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.

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
January 31, 2010


At the Year Ending
April 30, 2009

TOTAL ASSETS

$4,601,092 

$5,497,085 

NET ASSETS

$3,551,085 

$4,268,861 

NET ASSET VALUE PER SHARE

$0.55 

$0.67 

NET UNREALIZED APPRECIATION ON INVESTMENTS

$807,716 

$1,559,620 


The changes in total assets, net assets and net asset value per share for the nine months ending January 31, 2010 were primarily attributable to:

·

Vystar Corporation (“VYSTAR”), average valuation on restricted and unrestricted shares decreased from $2.00 to $1.65 per share during the nine months ending January 31, 2010.  In May 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 nine months ending January 31, 2010, the Company issued promissory notes in the amount of $106,000 that were settled with 106,000 shares of Vystar Corporation common stock.  During the nine months ending, our Company sold 27,505 shares for a sales price of $48,177 with a cost of $55,010 for a realized loss of $6,833.  Our Company’s investment in Vystar common stock was $457,042 at January 31, 2010, with a net unrealized appreciation of $457,042 for the nine months then ending.  This increase is due to the exercise of warrants in May 2010.  Our Company’s investment in Vystar warrants were valued at $1,145,000 at January 31, 2010 compared to $2,268,000 at April 30, 2009, for a net unrealized depreciation of $1,123,000.  This decrease is due to the exercise of warrants that cost $800,000 and a net unrealized depreciation of $4,000 for the nine months ending January 31, 2010.

·

Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares increased from $0.42 to $1.50 per share during the nine months ending January 31, 2010.  During the nine months ending January 31, 2010, our Company sold 710,825 shares for a sales price of $521,062 with a cost of $505,743 for a realized gain of $15,319.  We bought 32,022 shares of LWLG common stock for a cost of $25,184 during the nine months ending January 31, 2010.  Our Company’s investment in LWLG common stock was $104,193 at January 31, 2010 and had a net unrealized appreciation of $130,154 for the nine months ending January 31, 2010.  Our Company’s investment in LWLG warrants were valued at $677,000 at January 31, 2010, compared to $209,000 at April 30, 2009, for a net unrealized appreciation of $468,000 for the nine months ending January 31, 2010.



2






·

Our Company’s investment in iVolution Medical Systems (“IMS”) warrants was valued at $645,000 and $646,000 at January 31, 2010 and April 30, 2009.

·

Innovation Industries (“Innovation”) investment was valued at $10,000 at January 31, 2010.  During the nine months ending January 31, 2010, 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 receive a 5% profit share in the future revenue of the product Innovation is producing.

·

BFAG V, Inc. /Incredible 3D, Inc. (“I3D”) average valuation on restricted and unrestricted shares increased from $0.001 to $0.32 per share during the nine months ending January 31, 2010.  The Company’s total investment at January 31, 2010 is valued at $32,000 for a net unrealized appreciation of $30,375 for the nine months ending January 31, 2010.

·

Mediavix, Inc. /PR Specialists, Inc. (“Mediavix”) average valuation on restricted and unrestricted shares increased from $0.00 to $0.50 per share during the nine months ending January 31, 2010.  In December 2009 the Company received 1,000,000 shares of PR Specialists, Inc. common stock in exchange for management services over a one year period for a cost of $1,000 and a warrant to purchase 500,000 shares of the company’s common stock at an exercise price of $0.001 for a cost of $500.  The Company’s total investment at January 31, 2010 is valued at $750,000 for a net unrealized appreciation of $748,500 for the nine months ending January 31, 2010.

·

SIVOO Holdings, Inc. (“SIVOO”) average valuation on restricted and unrestricted shares decreased from $0.02 to $0.00 per share during the nine months ending January 31, 2010.  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 January 31, 2010 of $319,725.  Our Company’s investment in SIVOO warrants were valued at $0 at January 31, 2010 compared to $10,800 at April 30, 2009 for a net unrealized depreciation of $10,800 for the nine months ending January 31, 2010.  

·

Our Company’s investment in Dominion Capital Management, Inc. (“DCM”) warrants were valued at $5,500 at January 31, 2010 and April 30, 2009.

·

During the nine months ending January 31, 2010, 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.

·

Multi-View Technologies, Inc. (“MVT”) average valuation on restricted shares decrease from $0.50 to $0.00 during the nine months ending January 31, 2010.  The company was dissolved in December 2009.  The cost of $21,000 of this investment was written off during the nine months ending January 31, 2010, for a net realized loss of $21,000.

·

The increase in cash of $5,699.

·

The decrease in accounts payable and accrued expenses of $72,783.

·

The decrease in net deferred tax liability of $554,000.

·

The decrease in net current income taxes payable of $45,500.



3





·

The decrease in deferred revenue of $2,776 which consists mainly of revenue recognized on management contracts ($188 for Mediavix, $1,900 for Incredible 3D, $2,588 for iVolution, $250 for MVT and $250 for DCM) which was earned during the nine months ending January 31, 2010.

·

The addition to Net Capital of $3,816 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 appreciation (depreciation) on investments of $72,290 and ($751,904) for the three and nine months ending January 31, 2010 compared to unrealized appreciation (depreciation) of $927,587 and ($2,431,803) for the three and nine months ending January 31, 2009 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.

At January 31, 2010, $3,830,535 or 83% of our Company's assets consisted of investments, of which net unrealized gains before the income tax effect were $807,716. A deferred tax liability on account of unrealized gains has been estimated at approximately $321,000.  At January 31, 2010, our Company’s holdings of Vystar Corporation, Lightwave Logic, Inc., Mediavix and iVolution were valued at $1,602,042, $781,193, $750,000 and $645,000 respectively, which represented in the aggregate approximately 98.6% of the total Company portfolio at that date. Vystar Corporation’s trades under the symbol VYST.OB.  Lightwave Logic, Inc. trades under the symbol LWLG.OB.  Mediavix, Incredible 3D and iVolution are in the process of raising capital through the private offering of its securities.

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 presently have a market for the securities of these portfolio companies.  Therefore, 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 its management revenue through a management service contract with its portfolio company to provide services in exchange for equity in that portfolio company.  These services are typically 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.



4





Three months ending January 31, 2010 compared to the three months ending January 31, 2009

For the three months ending January 31, 2010 our Company’s revenues for services were $9,588 compared to $276,753 for the three months ending January 31, 2009. During the three months ending January 31, 2010, our Company had 22% of revenue in the form of securities and approximately 97% of the Company’s revenue was in the form of securities for the three months ending January 31, 2009.

Total operating expenses for the three months ending January 31, 2010 were $134,679, the principal components of which were salaries and wages of $62,972 (which includes $1,272 of share based compensation expense), insurance expense of $22,399, professional fees of $20,212, consisting primarily of $6,957 for investor relations expense, $8,664 for accounting and auditing expense and $3,580 for transfer agent fees, $7,346 of interest expense and $21,275 of other general and administrative expense. By comparison, total operating expenses for the three months ending January 31, 2009 were $151,594, the principal components of which were professional fees of $38,200, payroll of $62,054, insurance of $23,141, interest of $8,059 and other general and administrative expenses of $19,665.

Our Company realized a loss from operations of $74,091 for the three months ending January 31, 2010 compared to a gain from operations of $94,584 for the three months ending January 31, 2009.


Nine months ending January 31, 2010 compared to the nine months ending January 31, 2009

For the nine months ending January 31, 2010 our Company’s revenues for services were $17,684 compared to $870,263 for the nine months ending January 31, 2009. During the nine months ending January 31, 2010, approximately 35% 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 nine months ending January 31, 2009.  

Total operating expenses for the nine months ending January 31, 2010 were $516,116, the principal components of which were salaries and wages of $178,418 (which includes $3,816 of share based compensation expense) professional fees of $138,140, consisting primarily of $26,591 for investor relations expense, $20,000 for consulting expense, $58,362 for accounting and auditing expense and $21,183 in legal expense, $33,514 of bad debt expense, $75,872 of insurance expense, $23,627 of interest expense and $65,120 of other general and administrative expense. By comparison, total operating expenses for the nine months ending January 31, 2009 were $1,446,383, the principal components of which were professional fees of $372,270, payroll of $763,758, bad debt expense of $138,755, insurance of $71,629, interest of $18,648 and other general and administrative expenses of $79,898.

Our Company realized a loss from operations of $149,118 for the nine months ending January 31, 2010 compared to a gain from operations of $460,931 for the nine months ending January 31, 2009.


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 $21,130 of cash at January 31, 2010.  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 January 31, 2010, $3,269,300 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.



5






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, and 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.

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 alternatives.  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.

Management Agreement – In November 2009, the Company entered into a management agreement with Incredible 3D, Inc. /BF Acquisition Group V, Inc. for three months to provide management services in exchange for 1,900,000 shares of BFAG V, Inc. common stock at par value, $0.001.  The Company also entered into an accounting services agreement with Incredible 3D to provide accounting services for $1,200 per month.

Management Agreement – In December 2009, the Company entered into a management agreement with Mediavix, Inc./PR Specialists, Inc. for twelve months to provide management services in exchange for 1,000,000 shares of PR Specialists, Inc. common stock and a warrant to purchase 500,000 shares of common stock at $0.001.  The Company also entered into an accounting services agreement with Mediavix to provide accounting services at $1,200 per month.


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.




6





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 reasonable third parties as a basis for valuation. The private market method may also use, where applicable, unconditional firm offers by reasonable 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.

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.




7






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.

Evaluation of Disclosure Controls and Procedures.  As of the end of 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 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 Quarterly Report Form 10-Q.


Changes in Internal Control Over Financial Reporting.  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.


March 16, 2010

By:  /s/ Michael D. Queen                    

Michael D. Queen, CEO

Principal Executive Officer




March 16, 2010

By:  /s/ Theresa Q. Hoffmann           

    

Theresa Q. Hoffmann, Vice President of Finance

Principal Financial Officer





10






















UNIVERSAL CAPITAL MANAGEMENT, INC.


FINANCIAL STATEMENTS


JANUARY 31, 2010 AND 2009


(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 JANUARY 31, 2010

F-6

 

 

SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2009

F-7

 

 

NOTES TO FINANCIAL STATEMENTS

F-8 – F-22










UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES





 

 

January 31, 2010

 

April 30, 2009

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 Investments, at fair value

 

 

 

 

   Non-affiliate investments (cost: $2,487,766 and $2,579,329)

$

3,043,035 

$

4,038,079 

   Affiliate investments (cost: $535,052 and $554,552)

 

787,500 

 

1,272,893 

 Total Investments

 

3,830,535 

 

5,310,972 

 

 

 

 

 

 Cash and cash equivalents

 

21,130 

 

15,431 

 Receivables

 

 

 

 

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

 

 

29,005 

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

 

1,580 

 

7,385 

   Portfolio company stock receivable

 

1,900 

 

   Due from non-affiliates, net

 

(656)

 

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

 

216,920 

 

123,720 

 Total Receivables

 

219,744 

 

160,110 

 

 

 

 

 

 Prepaid expenses

 

4,527 

 

4,992 

 Property and equipment, net

 

3,056 

 

4,480 

 Deferred income tax

 

521,000 

 

 Rent deposit

 

1,100 

 

1,100 

 

 

 

 

 

 TOTAL ASSETS

$

4,601,092 

$

5,497,085 

 

 

 

 

 

LIABILITIES

 

 

 

 

 LIABILITIES

 

 

 

 

   Accounts payable

$

350,665 

$

370,472 

   Accrued expenses

 

94,248 

 

147,224 

  Current income taxes payable

 

93,500 

 

139,000 

  Advances from shareholders

 

16,000 

 

6,000 

   Notes payable

 

 

24,177 

   Note payable, related parties

 

367,372 

 

375,372 

   Accrued interest

 

92,050 

 

116,087 

   Accrued interest, related parties

 

34,860 

 

12,804 

 

 

1,048,695 

 

1,191,136 

 Deferred revenue

 

 

 

 

   Non-affiliates

 

 

3,588 

   Affiliates

 

1,312 

 

500 

 Total Deferred Revenue

 

1,312 

 

4,088 

 

 

 

 

 

 Deferred income taxes

 

 

33,000 

 

 

 

 

 

 TOTAL LIABILITIES

 

1,050,007 

 

1,228,224 

 

 

 

 

 

 CONTINGENCIES (NOTE 11)

 

 

 

 

 

 

 

 

 

 NET ASSETS

$

3,551,085 

$

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

 

 

 

 

     January 31, 2010 and April 30, 2009

$

6,412 

$

6,412 

 Additional paid-in capital

 

6,061,180 

 

6,057,364 

     Accumulated income

 

 

 

 

     Accumulated net operating income

 

1,767,535 

 

1,618,417 

     Dividends paid

 

(448,596)

 

(448,596)

     Net realized loss on investments

 

(4,987,086)

 

(4,868,280)

     Net realized gain on dividend of portfolio stock

 

343,924 

 

343,924 

     Net unrealized appreciation of investments

 

807,716 

 

1,559,620 

   

 

 

 

 

 Net Assets

$

3,551,085 

$

4,268,861 

 

 

 

 

 

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

 

 

 

 

     outstanding as of January 31, 2010 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 NINE MONTHS ENDING JANUARY 31, 2010 AND 2009

(UNAUDITED)





 

 

 For the Three

 

 For the Three

 

 For the Nine

 

 For the Nine

 

 

 Months Ending

 

 Months Ending

 

 Months Ending

 

 Months Ending

 

 

January 31, 2010

 

January 31, 2009

 

January 31, 2010

 

January 31, 2009

INCOME

 

 

 

 

 

 

 

 

Management services

 

 

 

 

 

 

 

 

Non-affililiates

$

$

266,749 

$

3,588 

$

808,203 

Affiliates

 

2,088 

 

500 

 

2,588 

 

26,000 

Total Management Services

 

2,088 

 

267,249 

 

6,176 

 

834,203 

 

 

 

 

 

 

 

 

 

Interest income

 

 

504 

 

1,008 

 

9,060 

Accounting services

 

 

 

 

 

 

 

 

Non-affililiates

 

 

9,000 

 

 

27,000 

Affiliates

 

7,500 

 

 

10,500 

 

Total Accounting Services

 

7,500 

 

9,000 

 

10,500 

 

27,000 

 

 

 

 

 

 

 

 

 

 

 

9,588 

 

276,753 

 

17,684 

 

870,263 

 

 

 

 

 

 

 

 

 

COST AND EXPENSE

 

 

 

 

 

 

 

 

Bad debt

 

 

 

33,514 

 

138,755 

Salaries and wages

 

62,972 

 

62,054 

 

178,418 

 

763,758 

Professional fees

 

20,212 

 

38,200 

 

138,140 

 

372,270 

Insurance

 

22,399 

 

23,141 

 

75,872 

 

71,629 

Interest expense

 

7,346 

 

8,059 

 

23,627 

 

18,648 

General and administrative

 

21,275 

 

19,665 

 

65,120 

 

79,898 

Depreciation

 

475 

 

475 

 

1,425 

 

1,425 

 

 

134,679 

 

151,594 

 

516,116 

 

1,446,383 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and interest

 

(125,091)

 

125,159 

 

(498,432)

 

(576,120)

 

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

51,000 

 

(24,000)

 

594,000 

 

1,143,000 

Penalties and interest

 

 

 

66,700 

 

(86,224)

Interest expense

 

 

(6,575)

 

(13,150)

 

(19,725)

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) FROM OPERATIONS

 

(74,091)

 

94,584 

 

149,118 

 

460,931 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Gain (loss) on disposal of portfolio stock

 

41,366 

 

(5,425)

 

(118,806)

 

(1,142,304)

Unrealized appreciation (depreciation) on investments

 

72,290 

 

927,587 

 

(751,904)

 

(2,431,803)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS

 

 

 

 

 

 

 

 

RESULTING FROM OPERATIONS

$

39,565 

$

1,016,746 

$

(721,592)

$

(3,113,176)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Basic

$

0.01 

$

0.17 

$

(0.11)

$

(0.52)

Diluted

$

0.01 

$

0.17 

$

(0.11)

$

(0.52)

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

6,412,426 

 

6,023,722 

 

6,412,426 

 

5,933,496 

Diluted

 

6,412,426 

 

6,023,722 

 

6,412,426 

 

5,933,496 



See accompanying unaudited notes to these financial statements.


F-2




UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDING JANUARY 31, 2010 AND 2009

(UNAUDITED)





 

 

For the Nine

 

For the Nine

 

 

Months Ending

 

Months Ending

 

 

January 31, 2010

 

January 31, 2009

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

  Net increase (decrease) in net assets resulting from operations

$

(721,592)

$

(3,113,176)

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

 

 

 

 

    Purchase of investment securities

 

(60,807)

 

(400)

    Exercise of warrant to purchase common stock

 

(4,000)

 

400 

    Loss on sale of portfolio stock

 

118,806 

 

1,142,304 

    Investment securities received in exchange for management services

(6,176)

 

(834,203)

    Depreciation expense

 

1,424 

 

1,425 

    Stock based compensation expense

 

3,816 

 

592,009 

    Bad debt expense

 

33,514 

 

138,755 

    Net unrealized (appreciation) depreciation on investments

751,904 

 

2,431,803 

    Deferred income taxes

 

(554,000)

 

(893,000)

    Current income taxes

 

(45,500)

 

(250,000)

    (Increase) decrease in assets

 

 

 

 

      Notes receivable -  non-affiliates

 

 

(7,547)

      Notes receivable - affiliates

 

(1,009)

 

(1,513)

      Accounts Receivable - non-affiliates

 

5,805 

 

(146)

      Accounts Receivable - affiliates

 

656 

 

      Due from affiliates

 

(96,700)

 

(56,882)

      Due from non-affiliates

 

 

200 

      Prepaid expenses

 

465 

 

8,501 

    Increase (decrease) in liabilities

 

 

 

 

      Accounts payable

 

(19,807)

 

77,939 

      Accrued expenses

 

(52,976)

 

76,224 

      Accrued interest

 

(24,037)

 

19,725 

      Accrued interest, related party

 

22,056 

 

8,467 

 

 

 

 

 

    Net cash used in operating activities

 

(648,158)

 

(659,115)

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

      Proceeds from sale of securities

 

492,034 

 

448,529 

 

 

 

 

 

Net cash provided by in investing activities

 

492,034 

 

448,529 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

    Proceeds from issuance of promissory notes

 

126,000 

 

    Proceeds from advance from related party

 

60,000 

 

3,372 

    Repayment of debt

 

(24,177)

 

(70,000)

    Proceeds from issuance of common stock

 

 

263,500 

 

 

 

 

 

Net cash provided by financing activities

 

161,823 

 

196,872 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

5,699 

 

(13,714)

 

 

 

 

 

Cash and Cash Equivalents - Beginning of Period

 

15,431 

 

20,779 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

$

21,130 

$

7,065 

 

 

 

 

 

Supplemental Disclosure of Cash Flows

 

 

 

 

 

 

 

 

 

Cash Paid for Income Taxes

$

5,500 

$

10,000 

 

 

 

 

 

Cash Paid for Interest

$

$

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Securities received in exchange for deferred revenue

$

3,400 

$

332,000 

 

 

 

 

 

Settlement of promissory note with portfolio stock

$

106,000 

$

 

 

 

 

 

Settlement of promissory note with portfolio stock, related party

$

78,000 

$

 

 

 

 

 

Portfolio stock receivable in exchange for revenue

$

1,900 

$



See accompanying unaudited notes to these financial statements.


F-3




UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CHANGES IN NET ASSETS

FOR THE NINE MONTHS ENDING JANUARY 31, 2010

 (UNAUDITED)





 

 

 For the Nine

 

 

 Months Ending

 

 

January 31, 2010

 

 

 

Changes in Net Assets from Operations:

 

 

  Net income (loss) from operations

$

149,118 

  Loss on disposal of portfolio stock

 

(118,806)

  Change in unrealized appreciation (depreciation) of investments

 

(751,904)

    Net increase (decrease) in net assets from operations

 

(721,592)

 

 

 

Distributions to Stockholders:

 

 

  From net income (loss) from operations

 

 

 

 

Capital Stock Transactions:

 

 

  Issuance of common stock

 

  Share-based compensation expense

 

3,816 

 

 

    Net increase (decrease) in net assets from stock transactions

 

3,816 

 

 

 

Net Increase (Decrease) in Net Assets

 

(717,776)

 

 

 

Net Assets, Beginning of Period

 

4,268,861 

 

 

 

Net Assets, End of Period

$

3,551,085 





See accompanying unaudited notes to these financial statements.


F-4




UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL HIGHLIGHTS

FOR THE NINE MONTHS ENDING JANUARY 31, 2010 AND 2009

(UNAUDITED)





 

 

January 31, 2010

 

January 31, 2009

 

 

   

 

   

PER SHARE INFORMATION

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

$

0.67 

$

0.98 

 

 

 

 

 

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

 

(0.04)

 

(0.06)

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

(0.07)

 

(0.24)

Net increase from stock transactions (1)

 

(0.01)

 

0.03 

Distribution to shareholders from net income (loss) from operations

 

 

 

(0.12)

 

(0.27)

 

 

 

 

 

Net asset value, end of period

$

0.55 

$

0.55 

 

 

 

 

 

Per share market value, end of period

$

0.40 

$

0.28 

 

 

 

 

 

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

 

-17.91%

 

-43.87%

 

 

 

 

 

RATIO/SUPPLEMENTAL DATA

 

 

 

 

 

 

 

 

 

Net assets, end of period

$

3,551,085 

$

3,341,565 

 

 

 

 

 

Ratio of expenses to average net assets

 

17.60%

 

43.14%

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

0.60%

 

25.96%

 

 

 

 

 

Diluted weighted average number of shares outstanding during the period

6,412,426 

 

5,933,496 


 

 

 

(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 JANUARY 31, 2010

(UNAUDITED)







 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

% of

 

Units Held

 Method of

 

Value at

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

at January 31, 2010

Valuation (1)

Cost

 

January 31, 2010

Net Assets

Affiliate Investments (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIVOO Holdings, Inc. (4)(6)

 

High speed internet media

Dec-05 to Nov-06

0.00%

 

664,501 

 

(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 

 

(I)

 

 

 

0.00%

 

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

 

 

Nov-06

 

0.00%

 

200,000 

 

(I)

 

 

 

0.00%

 

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

 

 

Feb-08

 

0.00%

 

405,000 

 

(I)

 

206,202 

 

 

0.00%

 

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

 

Oct-09

 

0.00%

 

TBD 

 

(I)

 

 

 

0.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

SBA lending

 

Jul-08

 

0.12%

 

1,000,000 

 

(I)

 

5,000 

 

5,500 

 

0..15%

 

  (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 

 

(I)

 

1,000 

 

 

0.00%

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc./Incredible 3D, Inc.(5)(6)(7)

3D content production

April-05; Nov-09

0.84%

 

2,000,000 

 

(M)

 

1,625 

 

32,000 

 

0.90%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PR Specialists, Inc./Mediavix, Inc. (5)(6)(7)

 

Brand relationship management

Dec-09

 

13.05%

 

1,000,000 

 

(M)

 

1,000 

 

500,000 

 

14.08%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of PR Specialists, Inc/Mediavix,
  Inc. common stock, expiring December 2014 (5)(6)(7)

Brand relationship management

Dec-09

 

6.53%

 

500,000 

 

(I)

 

500 

 

250,000 

 

7.04%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Affiliates

 

20.56%

 

 

 

 

 

535,052 

 

787,500 

 

22.17%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Affiliate Investments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vystar Corporation (4)(6)

 

Natural rubber latex

 

May-09

 

11.91%

 

276,995 

 

(M)

 

543,705 

 

457,042 

 

12.87%

 

 

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 600,000 shares of Vystar Corporation

Natural rubber latex

 

Apr-08

 

25.71%

 

600,000 

 

(I)

 

1,195,000 

 

984,000 

 

27.71%

 

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

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Vystar Corporation

Natural rubber latex

 

Jul-08

 

4.20%

 

500,000 

 

(I)

 

193,000 

 

161,000 

 

4.53%

 

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

 

products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Plastics engineering

 

Feb-07 to Jan-09

2.72%

 

69,462 

 

(M)

 

62,761 

 

104,193 

 

2.93%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Lightwave Logic,

Plastics engineering

 

Feb-08

 

17.68%

 

500,000 

 

(I)

 

348,000 

 

677,000 

 

19.06%

 

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

 

12.81%

 

1,000,000 

 

(I)

 

112,000 

 

491,000 

 

13.83%

 

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

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Medical billing and medical

Jul-08

 

4.02%

 

500,000 

 

(I)

 

17,000 

 

154,000 

 

4.34%

 

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

records software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovation Industries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory note (6)(8)

 

Direct sales

 

Oct-09

 

0.26%

 

 

 

(C )

 

10,000 

 

10,000 

 

0.28%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Software solutions provider

Jul-08

 

0.12%

 

1,000,000 

 

(I)

 

6,000 

 

4,500 

 

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 

 

(I)

 

 

 

0.00%

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (5)(6)(7)

 

Various

 

May-09

 

0.01%

 

3,000 

 

(C )

 

300 

 

300 

 

0.01%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Non-Affiliates

 

79.44%

 

 

 

 

 

2,487,766 

 

3,043,035 

 

85.69%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

100.00%

 

 

 

 

$

3,022,818 

$

3,830,535 

 

107.86%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and other assets, less liabilities

 

 

 

 

 

 

 

 

(279,450)

 

-7.86%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at January 31, 2010

 

 

 

 

 

 

 

 

$

3,551,085 

 

100.00%


 

 

 

Notes to Schedule of Investments

 

 

 

(1)     Investments are valued using 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 $3,269,300 make up 92.1% of total net assets as of January 31, 2010.

 

 

 

(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.  The 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

 

 

 

 

 

 

 

 

 

 

Date of

 

% of

 

Units Held

 

 

 

Value at

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

at April 30, 2009

 

Cost

 

April 30, 2009

 

Net 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

JANUARY 31, 2010

(UNAUDITED)



NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND 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.  We are a diversified, aggressive investment tool that assists early stage development companies in all aspects of the planning process from inception to entering the public marketplace.  This includes assisting with the preparation of financial statements, capitalization tables, valuations, business plans and coordinating public/investor relations efforts.  Our niche is to assist young companies prepare themselves for introduction to a diversified group of accredited investors in order to assist them with obtaining private debt and/or equity financing.  Since we have differing clients in varied industries, our overall portfolio is extremely diversified, which we believe enables us to offer investors who invest in us a potentially higher return with less risk.  For our management services we receive a block of common stock which could result in a financial windfall for us and our shareholders.  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 nine months ending January 31, 2010 are not necessarily indicative of operating results expected for the full year.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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.




F-8




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Security Valuations (Continued)

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.


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 January 31, 2010 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 $153,769 and $123,755 as of January 31, 2010 and 2009, respectively.




F-9




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 January 31, 2010 and 2009, 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.


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 as payment 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 if persuasive evidence of an arrangement exists if services have been rendered, the price is fixed or determinable and collectability is reasonably assured, revenue is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract.




F-10




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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.


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, Plant 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 January 31, 2009 financial statements in order to conform to the January 31, 2010 financial statement presentation.




F-11




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 820-10, Fair Value Measurements and Disclosure, that was adopted on May 1, 2008.  This position provides additional guidance for fair value measures under ASC 820-10 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.  In January 2010, there was an amendment to ASC 820-10 that will take effect for the interim reporting periods beginning after December 15, 2009.  The Company does not expect this amendment to 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 2 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.


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 820-10 on May 1, 2008.  ASC 820-10, 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 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:




F-12




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 2 – INVESTMENTS (CONTINUED)


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.


As described in Note 1, an amendment to ASC 820-10 was issued in January 2010.  This amendment will be effective for interim reporting periods beginning after December 15, 2009.  The Company is currently reviewing this amendment and does not believe it will have a material impact on the financial statements.



At January 31, 2010, our financial assets were categorized as follows in the fair value hierarchy for ASC 820-10:


 

 

 

 

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Fair Value

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

January 31, 2010

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

Investments in securities

 

 

 

 

 

 

 

 

 

  Affiliate investments

 

$

787,500 

$

$

$

787,500 

  Non-affiliate investments

 

 

3,043,035 

 

561,535 

 

 

2,481,500 

 

 

 

 

 

 

 

 

 

 

Total Investments in securities

$

3,830,535 

$

561,535 

$

$

3,269,000 



The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ended January 31, 2010:


 

 

 

 Fair Value Measurement Using

 

 

 

 Significant Unobservable Inputs

 

 

 

(Level 3)

 

 

 

 

Beginning Balance, October 31, 2009

 

$

3,597,825 

 

 

 

 

Total realized gains included in change in net assets

 

 

41,366 

Total unrealized gains/losses included in change in net assets

 

 

(370,191)

Promissory note received

 

 

Write-offs

 

 

 

 

 

 

Ending Balance, January 31, 2010

 

$

3,269,000 

 

 

 

 

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.

 

$

259,175 





F-13




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 2 – INVESTMENTS (CONTINUED)


The following chart shows the components of change in the financial assets categorized as Level 3, for the nine months ended January 31, 2010


 

 

 

 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

 

 

(118,806)

Total unrealized gains included in change in net assets

 

 

(1,582,119)

Write-offs

 

 

(21,000)

 

 

 

 

Ending Balance, January 31, 2010

 

$

3,269,000 

 

 

 

 

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.

 

$

(447,442)


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 nine months ending January 31, 2010 amounted to $13,150 and the accrual at January 31, 2010 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 2009 remain subject to examination by major tax jurisdictions.


The income tax benefit for the nine months ending January 31, 2010 and 2009 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.


 

 

 

 

 

January 31, 2010

 

January 31, 2009

 

 

 

 

 

 

 

 

Income taxes at U.S. Federal Income Tax rate

$

483,000 

$

1,448,000 

State income taxes, net of federal benefit (provision)

111,000 

 

204,000 

Non-deductible share based compensation

 

 

Exercise of warrant

 

 

 

 

25,000 

Change in valuation allowance

 

 

(534,000)

 

 

 

 

 

 

 

 

 

 

 

 

$

594,000 

$

1,143,000 




F-14




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 3 – INCOME TAXES (CONTINUED)


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


 

 

 

 

 

January 31, 2010

 

April 30, 2009

Deferred tax (asset) liability

 

 

 

 

 

Deferred charges

 

 

$

(75,000)

$

(80,700)

Net operating loss

 

 

 

 

(114,000)

Unrealized gains

 

 

 

321,000 

 

620,000 

Capital loss carryforward

 

 

(1,512,000)

 

(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

$

(521,000)

$

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 January 31, 2010 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.


NOTE 4 – NOTES RECEIVABLE


Notes receivable consists of the following:


 

 

 

 

 

 

January 31, 2010

 

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

 

 

 

 

        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

 

 

 

 

         t 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 





F-15




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 5 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES


`

 

January 31, 2010

 

April 30, 2009

 

 

 

 

 

Due from Non-Affiliated Companies

 

 

 

 

Mitia, Inc.

$

133 

$

Innovation Industries

 

(789)

 

 

 

 

 

 

Total Due from Non-Affiliated Companies

$

(656)

$

 

 

 

 

 

 

 

 

 

 

Due from Affiliated Companies

 

 

 

 

BF Acquisition Group V, Inc.

$

53,962 

$

52,987 

Dominion Capital Management Corporation

 

53,813 

 

53,813 

SIVOO Holdings

 

3,500 

 

3,500 

Multi-View Technologies

 

 

13,420 

Incredible 3D, Inc.

 

71,245 

 

Mediavix

 

37,900 

 

 

 

 

 

 

Totals

 

220,420 

 

123,720 

 

 

 

 

 

Allowance for bad debt

 

(3,500)

 

 

 

 

 

 

Total Due from Affiliated Companies

$

216,920 

$

123,720 





F-16




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(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 ASC Subtopic 505-50, 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:


 

 

 

 

 

January 31, 2010

 

April 30, 2009

 

 

 

 

 

   

 

   

Non-Affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

iVolution Medical Systmens, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PR Specialists, Inc./Mediavix, Inc.("PR")

 

 

 

 

 

Received 1,000,000 shares of PR common stock for payment

$

875 

$

 

  of services per a one year contract dated December 2009,

 

 

 

 

 

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

 

 

 

 

 

  the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

437 

 

 

  stock for payment of services per one year contract dated

 

 

 

 

 

  December 2009, valued at $500, fair value and amortized

 

 

 

 

 

  over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

1,312 

 

500 

 

 

 

 

 

 

 

 

Total Deferred Revenue

 

$

1,312 

$

4,088 





F-17




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



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


Management service revenue recognized consists of:


 

 

 

 

 

For the Three

 

For the Three

 

For the Nine

 

For the Nine

 

 

 

 

 

Months Ending

 

Months Ending

 

Months Ending

 

Months Ending

 

 

 

 

 

January 31, 2010

 

January 31, 2009

 

January 31, 2010

 

January 31, 2009

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

 

 

112,000 

 

 

112,000 

 

  common 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

 

 

4,958 

 

3,588 

 

4,958 

 

  common 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

 

 

6,000 

 

 

6,000 

 

  common 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

 

 

 

 

66,084 

 

  payment 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

 

 

43,750 

 

 

43,750 

 

  payment of 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 




F-18




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



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


 

 

 

 

 

For the Three

 

For the Three

 

For the Nine

 

For the Nine

 

 

 

 

 

Months Ending

 

Months Ending

 

Months Ending

 

Months Ending

 

 

 

 

 

January 31, 2010

 

January 31, 2009

 

January 31, 2010

 

January 31, 2009

Affiliates

 

 

 

 

 

 

 

 

PR Specialists, Inc./Mediavix, Inc.("PR")

 

 

 

 

 

 

 

 

 

Received 1,000,000 shares of PR common stock for payment

125 

125 

 

  of services per a one year contract dated December 2009,

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

  the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

63 

 

 

63 

 

 

  stock for payment of services per one year contract dated

 

 

 

 

 

 

 

 

 

  December 2009, valued at $500, fair value and amortized

 

 

 

 

 

 

 

 

 

  over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BFAG V, Inc./Incredible 3D, Inc. ("I3D")

 

 

 

 

 

 

 

 

 

Received 1,900,000 shares of I3D common stock for payment

 

1,900 

 

 

1,900 

 

 

  of services per a three month contract dated November 2009

 

 

 

 

 

 

 

 

 

  valued at $1,900, fair value and amortized over the life of

 

 

 

 

 

 

 

 

 

  the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,088 

 

20,500 

 

2,588 

 

25,500 

 

 

 

 

 

 

 

 

 

 

 

 

Total Management Services Revenue

2,088 

318,456 

6,176 

566,956 





F-19




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 7 – NOTES PAYABLE


Notes payable consists of the following:


 

 

January 31, 2010

 

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 7)

$

$

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 nine months ended January 31, 2010, 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 January 31, 2010, there was approximately $8,906 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, January 31, 2010

650,000 

 

$            0.20

$

0.20 

 

 

 

 

 

 

 

Exercisable, January 31, 2010

625,000 

 

$              0.20

$

0.20 




F-20




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(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 January 31, 2010

 

Contractual Life

 

Currently Exercisable

 

 

 

 

 

 

 

$                0.20

 

625,000

 

9.08 Years

$

0.20 



NOTE 10 – RELATED PARTY TRANSACTIONS


During the nine months ended January 31, 2010, 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 January 31, 2010, 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.




F-21




UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JANUARY 31, 2010

(UNAUDITED)



NOTE 11 – CONTINGENCIES (CONTINUED)


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.


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


Management evaluated all activity of the Company through March 16, 2010 and concluded that no additional subsequent events have occurred that would require recognition in the financial statements.



 






F-22