UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended January 31, 2011

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 [  ]  No [X]

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 [X].  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 [X]  Smaller Reporting Company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]  No [X]

The number of shares of the registrant’s Common Stock outstanding as of March 22, 2011 was 6,412,426

 

 

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Universal Capital Management, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2011 with the Securities and Exchange Commission without review by the Company’s principal auditors.  As a result, the financial statements contained in this Quarterly Report may be subject to future adjustment.  The Company intends to file an amendment to this Quarterly Report upon the Company’s principal auditor’s review of the Company’s financial statements and this Quarterly Report.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	6
Item 4.	Controls and Procedures	6
	PART II - OTHER INFORMATION
Item 6.	Exhibits	7

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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 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 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 independent financial experts. Our Company expects to pay a professional fee each time such a 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.

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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, 2011	At the Year Ending April 30, 2010
TOTAL ASSETS	$ 3,616,920	$ 5,375,880
NET ASSETS	$ 2,332,625	$ 4,174,316
NET ASSET VALUE PER SHARE	$ 0.36	$ 0.65
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS	($2,052,168)	$ 218,492

The changes in total assets, net assets and net asset value per share for the nine months ending January 31, 2011 were primarily attributable to:

·

Vystar Corporation’s (“Vystar”) average valuation on restricted and unrestricted shares and warrants decreased from $0.95 to $0.85 per share during the nine months ending January 31, 2011 for a net unrealized depreciation of $547,500.  Our Company’s total investment in Vystar was $596,500 at January 31, 2011 compared to $1,227,180 at April 30, 2010.

·

Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares and warrants decreased from $1.37 to $1.24 per share during the nine months ending January 31, 2011 for a net unrealized depreciation of $202,388.   Our total investment in LWLG at January 31, 2011 was $590,039 compared to $758,742 at April 30, 2010.

·

BFAG V, Inc. (“BFAG”), average valuation on restricted and unrestricted shares decreased from $0.32 to $0.0018 per share during the nine months ending January 31, 2011 for a net unrealized depreciation of $636,475.  Our total investment in BFAG at January 31, 2011 was $3,525 compared to $640,000 at April 30, 2010.

·

PR Specialists, Inc. (“PR”), average valuation on restricted and unrestricted shares decreased from $0.50 to $0.001 per share during the nine months ending January 31, 2011  Our total investment in PR at January 31, 2011 was $1,900 compared to $1,250,000 at April 30, 2010

·

Our Company’s investment in iVolution Medical Systems (“IMS”) warrants were valued at $289,000 at January 31, 2011 compared to $293,000 at April 30, 2010 for an unrealized depreciation of $4,000 for the nine months ending January 31, 2011.

·

The decrease in cash of $4,878.

·

The increase in accounts payable and accrued expenses of $51,115.

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·

The increase in net deferred tax asset of $831,000.

·

The decrease in current income taxes payable of $193,000

·

The decrease in deferred revenue and increase in revenue of approximately $1,458, which was earned during the nine months ending January 31, 201 for Mediavix.  This contract ended in December 2010.

·

The addition to Net Capital of $7,634 which consists of share-based compensation expense.

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

Our Company had a cumulative unrealized depreciation on investments of $711,040 at January 31, 2011 compared to cumulative unrealized appreciation of $1,556,018 at January 31, 2010 and cumulative unrealized appreciation of $1,341,128 at April 30, 2010.

 

Our Company’s financial condition is dependent on a number of factors including the ability of each portfolio company to effectuate its respective strategies with our Company’s help. Our Company has invested a substantial portion of its assets in development stage or start-up companies. These businesses are frequently thinly capitalized, unproven, small companies that may lack management depth, and may be dependent on new or commercially unproven technologies, and may have no operating history.

At January 31, 2011, $1,491,864 or 51% of our Company's assets consisted of investments, of which net unrealized gains before the income tax effect were $711,039. A deferred tax liability on account of unrealized gains has been estimated at approximately $283,000. At January 31, 2011, our Company’s holdings of Lightwave and Vystar were valued at $590.039 and $596,500, respectively, which represented in the aggregate approximately 80% of the total Company portfolio at that date.

Because the portfolio companies tend to be at early stages of their business development, and because there are no markets for the securities of some portfolio companies, our Company may find it difficult to liquidate any of its investments in the near future. See “Liquidity and Capital Resources” below.

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Results of Operations

Our Company’s 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.

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

Three months ending January 31, 2011 compared to the three months ended January 31, 2010

For the three months ending January 31, 2011 our Company had revenue for services in the amount of $1,006 compared to $9,588 for the three months ending January 31, 2010. During the three months ending January 31, 2011, 46% of our Company’s revenue for services was received in the form of equity securities compared to 22% for the three months ending January 31, 2010.

Total operating expenses for the three months ending January 31, 2011 were $175,981 the principal components of which were professional fees of $19,575, consisting primarily of $11,096 for legal fees, $3,038 for consulting expense and $3,000 for accounting fees, payroll of $115,580 (which includes $7,634 of share based compensation expense), $21,133 of insurance expense, $8,271 of interest expense and $10,947 of other general and administrative expense. By comparison, total operating expenses for the three months ending January 31, 2010 were $134,679, the principal components of which were professional fees of $20,212, payroll of $62,972 insurance of $22,399, interest of $7,346 and other general and administrative expenses of $21,275.

Our Company realized a gain from operations of $197,525 for the three months ending January 31, 2011, compared to a loss from operations of $74,091 for the three months ending January 31, 2010.  Included in these gains were a net tax benefit of $372,500 and $51,000 for the three months ending January 31, 2011 and 2010, respectively.

Nine months ending January 31, 2011 compared to the six months ended January 31, 2010

For the nine months ending January 31, 2011 our Company had revenue for services in the amount of $15,856 compared to $17,684 for the nine months ending January 31, 2010. During the nine months ending January 31, 2011, 9% of our Company’s revenue for services was received in the form of equity securities compared to 35% for the nine months ending January 31, 2010.

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Total operating expenses for the nine months ending January 31, 2011 were $486,802, the principal components of which were professional fees of $81,521, consisting primarily of $49,561 for accounting and auditing expense, $17,284 for legal fees, payroll of $267,873 (which includes $7,634 of share based compensation expense), $69,983 of insurance expense, $23,975 of interest expense and $42,025 of other general and administrative expense. By comparison, total operating expenses for the nine months ending January 31, 2010 were $516,116, the principal components of which were bad debt of $33,514, professional fees of $138,140 payroll of $178,418, insurance of $75,872, interest of $23,627 and other general and administrative expenses of $65,120.

Our Company realized a gain from operations of $534,420 for the nine months ending January 31, 2011, compared to a gain from operations of $149,118 for the nine months ending January 31, 2010.  Included in these gains were a net tax benefit of $1,018,500 and $594,000 for the nine months ending January 31, 2011 and 2010, respectively.

Liquidity and Capital Resources

From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity. Our Company had $1,689 of cash at January 31, 2011. Consequently, payment of operating expenses will have to come from equity capital to be raised from investors, from borrowed funds or from an operating company that the Company is looking to acquire. There is no assurance that our Company will be successful in raising such additional equity capital or additional borrowings or if it can, that it can do so at a price that management believes to be appropriate. 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, 2011, $1,099,125 or 74% of our investments are illiquid securities that do not have a market or they are restricted and therefore cannot be traded or sold.

Our Company may be forced to dispose of a portion of its current portfolio securities if it ever becomes short of cash. Any such dispositions may have to be made at inopportune times, which may have a material adverse effect on our overall revenue.

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

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

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

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

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

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

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

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

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and, ultimately, the result of reconciling the judgments of our directors based on the data available to them. The resulting valuation, although stated as a precise number, is necessarily within a range of values that vary depending upon the significance attributed to the various factors being considered. Some of the factors considered may include the financial condition and operating results of the portfolio company, the long-term potential of the business of our Company, the values of similar securities issued by companies in similar businesses, the proportion of the portfolio company’s securities owned by our Company and the nature of any rights to require the portfolio company to register restricted securities under applicable securities laws.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

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

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

Item 4.

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.

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PART II – OTHER INFORMATION

Item 6

Exhibits.

The following exhibits are included herein:

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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Universal Capital Management, Inc.
March 22, 2011	By:	/s/ Michael D. Queen
	Michael D. Queen, CEO
	Principal Executive Officer
March 22, 2011	By:	/s/ Theresa Q. Hoffmann
	Theresa Q. Hoffmann, Vice President of Finance
	Principal Financial Officer

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UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL STATEMENTS

JANUARY 31, 2011 AND 2010

(UNAUDITED)

F-1

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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, 2011	F-6
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2010	F-7
NOTES TO FINANCIAL STATEMENTS	F-8 – F-21

F-2

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES

		January 31, 2011		April 30, 2010
		(Unaudited)
ASSETS
Investments, at fair value
Non-affiliate investments (cost: $516,951 and $525,951)		$ 879,339		$ 1,052,042
Affiliate investments (cost: $1,685,982 and $2,312,143)		612,525		3,127,180
Total Investments		1,491,864		4,179,222
Cash and cash equivalents		1,689		6,567
Receivables
Note receivable - affiliates (net of allowance: $30,014 and $30,014)		-		-
Due from non-affiliates		-		11,601
Due from affiliates (net of allowance: $3,500 and $3,500)		302,356		228,678
Total Receivables		302,356		240,279
Prepaid expenses		6,754		26,131
Property and equipment, net		1,157		2,581
Current income taxes		61,000		-
Deferred income tax		1,751,000		920,000
Rent deposit		1,100		1,100
TOTAL ASSETS		$ 3,616,920		$ 5,375,880
LIABILITIES
LIABILITIES
Accounts payable		$ 349,660		$ 320,785
Accounts payable, related parties		7,213		7,213
Accrued expenses		355,493		193,802
Current income taxes payable		-		132,000
Advances from shareholders		19,000		22,000
Notes payable		-		23,154
Note payable, related parties		396,869		367,372
Accrued interest		92,050		92,050
Accrued interest, related parties		64,010		41,730
		1,284,295		1,200,106
Deferred revenue
Affiliates		-		1,458
Total Deferred Revenue		-		1,458
Deferred income taxes		-		-
TOTAL LIABILITIES		1,284,295		1,201,564
CONTINGENCIES (NOTE 13)
NET ASSETS		$ 2,332,625		$ 4,174,316
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, 2011 and April 30, 2010		$ 6,412		$ 6,412
Additional paid-in capital		6,221,836		6,214,202
Accumulated income
Accumulated net operating income		2,273,223		1,738,803
Dividends paid		(448,596)		(448,596)
Net realized loss on investments		(5,353,134)		(5,021,557)
Net realized gain on dividend of portfolio stock		343,924		343,924
Net unrealized appreciation of investments		(711,040)		1,341,128
Net Assets		$ 2,332,625		$ 4,174,316
Equivalent per share value based on 6,412,426 shares of capital stock
outstanding as of January 31, 2011 and April 30, 2010		$ 0.36		$ 0.65

See accompanying unaudited notes to these financial statements.

F-3

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

		For the Three		For the Three		For the Nine		For the Nine
		Months Ending		Months Ending		Months Ending		Months Ending
		January 31, 2011		January 31, 2010		January 31, 2011		January 31, 2010
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
INCOME
Management services
Non-affililiates		$ -		$ -		$ -		$ 3,588
Affiliates		458		2,088		1,458		2,588
Total Management Services		458		2,088		1,458		6,176
Interest income		-		-		-		1,008
Accounting services
Affiliates		-		7,500		13,200		10,500
Total Accounting Services		-		7,500		13,200		10,500
Other Income
Affiliates		548		-		1,198		-
TOTAL INCOME		1,006		9,588		15,856		17,684
COST AND EXPENSE
Bad debt		-		-		-		33,514
Salaries and wages		115,580		62,972		267,873		178,418
Professional fees		19,575		20,212		81,521		138,140
Insurance		21,133		22,399		69,983		75,872
Interest expense		8,271		7,346		23,975		23,627
General and administrative		10,947		21,275		42,025		65,120
Depreciation		475		475		1,425		1,425
TOTAL COST AND EXPENSE		175,981		134,679		486,802		516,116
Loss before income taxes and related interest		(174,975)		(125,091)		(470,946)		(498,432)
Income tax benefit (provision)		372,500		51,000		1,018,500		594,000
Fines and penalties		-		-		(13,134)		66,700
Interest expense		-		-		-		(13,150)
NET INCOME (LOSS) FROM OPERATIONS		197,525		(74,091)		534,420		149,118
Net realized and unrealized gains (losses)
Gain (loss) on disposal of portfolio stock		(162,027)		41,366		(331,577)		(118,806)
Unrealized appreciation (depreciation) on investments		(464,504)		72,290		(2,052,168)		(751,904)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS		$ (429,006)		$ 39,565		$ (1,849,325)		$ (721,592)
Net increase (decrease) in net assets from operations per share:
Basic		$ (0.07)		$ 0.01		$ (0.29)		$ (0.11)
Diluted		$ (0.07)		$ 0.01		$ (0.29)		$ (0.11)
Weighted average shares:
Basic		6,412,426		6,412,426		6,412,426		6,412,426
Diluted		6,412,426		6,412,426		6,412,426		6,412,426

See accompanying unaudited notes to these financial statements.

F-4

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

		For the Nine		For the Nine
		Months Ending		Months Ending
		January 31, 2011		January 31, 2010
		(Unaudited)		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations		$ (1,849,325)		$ (721,592)
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)
Exercise of warrants		(25,000)		(4,000)
Proceeds from sale of stock		328,613		492,034
Loss on sale of portfolio stock		331,577		118,806
Investment securities received in exchange for management services		(1,458)		(6,176)
Depreciation expense		1,424		1,424
Stock based compensation expense		7,634		3,816
Bad debt expense		-		33,514
Net unrealized (appreciation) depreciation on investments		2,052,168		751,904
Deferred income taxes		(831,000)		(554,000)
Current income taxes		(193,000)		(45,500)
(Increase) decrease in assets:
Notes receivable affiliates		-		(353)
Receivables non-affiliates		-		5,805
Due from affiliates		(73,678)		(96,700)
Due from non-affiliates		11,601		-
Prepaid expenses		19,377		465
Increase (decrease) in liabilities:
Accounts payable		36,088		(19,807)
Accounts payable, related parties		(7,213)		-
Accrued expenses		161,691		(52,976)
Accrued interest		-		(24,037)
Accrued interest, related parties		22,280		22,056
Net cash used in operating activities		(8,221)		(156,124)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of promissory note		-		126,000
Proceeds (Repayment) of debt		(3,000)		(14,177)
Proceeds from promissory note - related parties		6,343		50,000
Net cash provided by financing activities		3,343		161,823
NET DECREASE IN CASH AND CASH EQUIVALENTS		(4,878)		5,699
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		6,567		15,431
CASH AND CASH EQUIVALENTS - END OF YEAR		$ 1,689		$ 21,130
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
CASH PAID FOR INCOME TAXES		$ 6,500		$ 5,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Securities received in exchange for deferred revenue		$ -		$ 1,500
Settlement of promissory notes 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-5

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CHANGES IN NET ASSETS

		For the Nine		For the Nine
		Months Ending		Months Ending
		January 31, 2011		January 31, 2010
		(Unaudited)		(Unaudited)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$ (1,849,325)		$ (721,592)
CAPITAL SHARE TRANSACTIONS
Share-based compensation expense		7,634		3,816
NET CAPITAL SHARE TRANSACTIONS		7,634		3,816
TOTAL INCREASE (DECREASE)		(1,841,691)		(717,776)
NET ASSETS, BEGINNING OF PERIOD		4,174,316		4,268,861
NET ASSETS, END OF PERIOD		$ 2,332,625		$ 3,551,085

See accompanying unaudited notes to these financial statements.

F-6

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UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL HIGHLIGHTS

	January 31, 2011		January 31, 2010
PER SHARE INFORMATION
Net asset value, beginning of period	$ 0.65		$ 0.67
Net income (loss) from operations, net of taxes (1)	0.05		(0.04)
Net realized loss on investments, net of taxes (1)	(0.03)		(0.07)
Net unrealized appreciation (depreciation) on investments, net of taxes (2)	(0.31)		(0.01)
Net increase from stock transactions (1)	-		-
	(0.29)		(0.12)
Net asset value, end of period	$ 0.36		$ 0.55
Per share market value, end of period	$ 0.06		$ 0.40
Investment return, based on net asset value at end of period	-44.62%		-17.91%
RATIO/SUPPLEMENTAL DATA
Net assets, end of period	$ 2,332,625		$ 3,551,085
Ratio of expenses to average net assets	14.96%		17.60%
Ratio of net income (loss) from operations to average net assets	0.01%		60.00%
Diluted weighted average number of shares outstanding during the period	6,412,426		6,412,426

(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-7

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UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF JANUARY 31, 2011

									Number of
					Date of		% of		Units Held		Method of				Value at		% of
			Business		Acquisition		Portfolio		at January 31, 2011		Valuation (1)		Cost		January 31, 2011		Net Assets
Affiliate Investments (2)
	PR Specialists, Inc./Mediavix, Inc. (5)(6)(7)		Brand relationship management		Dec-09		0.17%		2,500,000		(M)		$ 2,500		$ 2,500		0.11%
	Vystar Corporation (4)(5)(6)		Natural rubber latex		May-09		25.65%		450,000		(M)		951,000		382,500		16.40%
	Warrant to purchase 500,000 shares of Vystar Corporation		Natural rubber latex
	500,000 warrants expiring April 30, 2013(5)(6)		products		Jul-08		9.92%		500,000		(I)		193,000		148,000		6.34%
	50,000 warrants expiring April 30, 2012(5)(6)				Oct-10		2.21%		50,000		(I)		-		33,000		1.41%
	50,000 warrants expiring May 31, 2012(5)(6)				Nov-11		2.21%		50,000		(I)		-		33,000		1.41%
	BF Acquisition Group V, Inc./Incredible 3D, Inc.(5)(6)(7)		3D content production		April-05; Nov-09		0.11%		100,000		(M)		1,625		1,625		0.07%
					Nov-09		0.13%		1,900,000		(M)		1,900		1,900		0.08%
	Innovation Industries
	Promissory note (6)(8)		Direct sales		Oct-09		0.67%				(C )		10,000		10,000		0.43%
	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%
			Total Investments in Affiliates				41.07%						1,685,952		612,525		26.25%
Non-Affiliate Investments (3)
	Lightwave Logic, Inc. (4)(6)(7)		Plastics engineering		Feb-07 to Jan-09		0.72%		7,262		(M)		14,651		10,239		0.46%
					Dec-10		7.56%		100,000	(5)	(M)		95,000		112,800		4.86%
	Warrant to purchase 400,000 shares of Lightwave Logic,		Plastics engineering		Feb-08		31.30%		400,000		(I)		278,000		467,000		20.02%
	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		16.14%		1,000,000		(I)		112,000		241,000		10.33%
	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		3.19%		500,000		(I)		17,000		48,000		2.06%
	Inc. (privately held) common stock, expiring July 2013 (5)(6)		records software
	Other (5)(6)(7)		Various		May-09		0.02%		3,000		(C )		300		300		0.01%
			Total Investments in Non-Affiliates				58.93%						516,951		879,339		37.74%
			Total Investments				100.00%						$ 2,202,903		$ 1,491,864		63.99%
			Cash and other assets, less liabilities												840,761		36.01%
			Net assets at January 31, 2011												$ 2,332,625		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 $1,099,125 make up 47% of total net assets as of January 31, 2011.
(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-8

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UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF APRIL 30, 2010

												Number of
						Date of			% of			Units Held				Method of							Value at			% of
			Business			Acquisition			Portfolio			at April 30, 2010				Valuation (1)			Cost				April 30, 2010			Net Assets
Affiliate Investments (2)
PR Specialists, Inc./Mediavix, Inc. (5)(6)(7)			Brand relationship management			Dec-09			29.91%			2,500,000				(M)			$ 2,500				$ 1,250,000			29.95%
BF Acquisition Group V, Inc./Incredible 3D, Inc.(5)(6)(7)			3D content production			April-05; Nov-09			0.77%			100,000				(M)			1,625				32,000			0.77%
						Nov-09			14.55%			1,900,000				(M)			1,900				608,000			14.57%
Vystar Corporation (4)(6)			Natural rubber latex			May-09			7.41%			193,238				(M)			376,191				309,180			7.41%
			products			Mar-10			18.38%			600,000		(5)		(M)			1,201,000				768,000			18.40%
Warrant to purchase 500,000 shares of Vystar Corporation			Natural rubber latex			Jul-08			3.59%			500,000				(I)			193,000				150,000			3.59%
common stock, expiring April 30, 2013 (5)(6)			products
Innovation Industries
Promissory note (6)(8)			Direct sales			Oct-09			0.24%							(C)			10,000				10,000			0.24%
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						Oct-09			0.00%			TBD				(I)			-				-			0.00%
- TBD (5)(6)
			Total Investments in Affiliates						74.85%										2,312,143				3,127,180			74.93%
Non-Affiliate Investments (3)
Lightwave Logic, Inc. (4)(6)(7)			Plastics engineering			Feb-07 to Jan-09			1.91%			52,462				(M)			48,651				79,742			1.91%
Warrant to purchase 500,000 shares of Lightwave Logic,			Plastics engineering			Feb-08			16.26%			500,000				(I)			348,000				679,000			16.27%
Inc. common stock, expiring February 2013 (5)(6)(7)
Warrant to purchase 1,000,000 shares of iVolution Medical			Medical billing and medical			Jul-08			5.76%			1,000,000				(I)			112,000				241,000			5.77%
Systems, Inc. (privately held) common stock, expiring			records software
July 2013 (5)(6)
Warrant to purchase 500,000 shares of iVolution Medical			Medical billing and medical			Jul-08			1.21%			500,000				(I)			17,000				52,000			1.25%
Systems, Inc. (privately held) common stock, expiring			records software
July 2013 (5)(6)
Other (5)(6)(7)			Various			May-09			0.01%			3,000				(C)			300				300			0.01%
			Total Investments in Non-Affiliates						25.15%										525,951				1,052,042			25.21%
			Total Investments						100.00%										$ 2,838,094				$ 4,179,222			100.14%
			Cash and other assets, less liabilities																				(4,906)			-0.14%
			Net assets at April 30, 2010																				$ 4,174,316			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 $3,780,300 make up 90.5% of total net assets as of April 30, 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-9

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(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 preparing 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 or warrants to purchase 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 Universal Capital Management, Inc. (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, 2010, as filed with the Securities and Exchange Commission.  The interim operating results for the three and nine months ending January 31, 2011 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 investments 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-10

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(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, 2011 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 receivable from non-affiliated issuers represent notes from companies where we hold less than 5% of the issuer's voting common stock.  Notes receivable 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 $30,014 as of January 31, 2011 and April 30, 2010.

F-11

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(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.  

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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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-12

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(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, 2010 financial statements in order to conform to the January 31, 2011 financial statement presentation.

F-13

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(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 which the Company adopted on February 1, 2010.  The adoption of this amendment did not have a material impact on the Company’s financial statements.

ASC 825-10-65, Interim Disclosures About Fair Value of Financial Instruments, extends the existing disclosure requirements related to the fair value of financial instruments, which were previously only required in annual financial statements, to interim periods.  Given that ASC 825-10-65 provides for additional disclosures, its adoption did not have any impact on the Company’s financial statements. The disclosure requirements under ASC 825-10-65 are included in Note 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 was effective for interim reporting periods ending after June 15, 2009.  This standard was amended in February 2010, Amendments to Certain Recognition and Disclosure Requirements.  The Company has adopted ASC 855 and it’s amendment, 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 – BUSINESS RISKS AND UNCERTAINTIES

A substantial portion of our assets are in privately held companies whose securities are inherently illiquid.  These privately held companies tend to lack management depth, to have limited or no history of operations and to not have attained profitability.  Because of the speculative nature and the lack of a public market for these investments, there is greater risk of loss than is the case with traditional investment securities.

F-14

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 2 – BUSINESS RISKS AND UNCERTAINTIES (CONTINUED)

Because there is typically no public market for our interest in these small privately held companies, the valuation of the equity in that portion of our portfolio is determined in good faith by our Valuation Committee, comprised of all the members of the Board of Directors, in accordance with our Valuation Procedures and is subject to significant estimates and judgments.  In the absence of a readily ascertainable market value, the determined value of our portfolio equity interest 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 Statement of Operations as “Unrealized appreciation (depreciation) on investments.”  Changes in valuation of any of our investments in privately held companies from one period to another may be volatile.

NOTE 3– INVESTMENTS

As described in Note 1, the Company 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:

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 is effective for interim reporting periods beginning after December 15, 2009.  The Company adopted this amendment on February 1, 2010 and it does not have a material affect on its financial statements.

At January 31, 2011, our financial assets were categorized as follows in the fair value hierarchy for ASC 820-10:

			Fair Value Measurement at Reporting Date Using:
					Quoted Prices in		Significant Other		Significant
					Active Markets for		Observable		Unobservable
			Fair Value		Identical Assets		Inputs		Inputs
			January 31, 2011		(Level 1)		(Level 2)		(Level 3)
Investments
Affiliate investments			$ 612,525		$ 382,500		$ -		$ 230,025
Non-affiliate investments			879,339		123,039		-		756,300
Total Investments in securities			$ 1,491,864		$ 505,539		$ -		$ 986,325

F-15

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 3– INVESTMENTS (CONTINUED)

The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending January 31, 2011:

			Fair Value Measurement Using
			Significant Unobservable Inputs
			(Level 3)
Beginning Balance, October 31, 2010			$ 3,292,700
Transfers into Level 3			-
Transfers out of Level 3			(70,000)
Total realized losses included in change in net assets			(113,204)
Total unrealized losses included in change in net assets			(2,123,171)
Ending Balance, January 31, 2011			$ 986,325
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.			$ (832,500)

The following chart shows the components of change in the financial assets categorized as Level 3, for the nine months ending January 31, 2011:

			Fair Value Measurement Using
			Significant Unobservable Inputs
			(Level 3)
Beginning Balance, April 30, 2010			$ 3,790,300
Transfers into Level 3			-
Transfers out of Level 3			(70,000)
Total unrealized losses included in change in net assets			(169,550)
Total realized losses included in change in net assets			(2,564,425)
Ending Balance, January 31, 2011			$ 986,325
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.			$ (147,600)

NOTE 4 – 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 January 31, 2011 was $183,700.  The accrual of unrecognized tax provisions at January 31, 2011 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.

F-16

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 4 – INCOME TAXES (CONTINUED)

Tax years from 2005 (initial tax year) through 2010 remain subject to examination by major tax jurisdictions.

The income tax benefit for the nine months ending January 31, 2011 and 2010 have been included in the accompanying financial statements on the basis of an estimated annual federal and state effective rate of 34.0% and 8.7%, respectively, resulting in a blended effective rate of 39.75%. The Company’s income tax expense differs from the “expected” income tax expense for federal income tax purposes as follows:

					For the Nine		For the Nine
					Months Ending		Months Ending
					January 31, 2011		January 31, 2010
Income taxes at U.S. Federal Income Tax rate					$ 844,500		$ 485,000
State income taxes, net of federal benefit					291,000		110,000
Non-deductible share based compensation					(3,000)		(1,000)
Realized losses					(114,000)		-
Change in valuation allowance					-		-
					$ 1,018,500		$ 594,000

The income tax (provision) benefit consists of the following:

					For the Nine		For the Nine
					Months Ending		Months Ending
					January 31, 2011		January 31, 2010
Current:
Federal					$ 148,000		$ (57,000)
State					41,000		(16,000)
Total Current					$ 189,000		$ (73,000)
Deferred:
Federal					$ 648,500		$ 521,000
State					181,000		146,000
Total Deferred					$ 829,500		$ 667,000
Total Income Tax Benefit					$ 1,018,500		$ 594,000

F-17

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 4 – INCOME TAXES (CONTINUED)

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

					January 31, 2011		April 30, 2010
Deferred tax (asset) liability
Deferred charges					$ (68,000)		$ (73,000)
Net operating loss					(87,000)		(88,000)
Unrealized gains					(283,000)		533,000
Capital loss carryforward					(1,436,000)		(1,418,000)
Stock-based compensation					(129,000)		(126,000)
Amortization of deferred revenue from warrants					347,000		347,000
Bad debt					(95,000)		(95,000)
Other					-		-
Total deferred tax asset					$ (1,751,000)		$ (920,000)

At April 30, 2010, the Company had a capital loss carryforward of approximately $4,224,000 which if not used will expire in 2015.

In November 2010, the Delaware Division of Revenue issued a tax lien against the Company for outstanding taxes and penalties owed for the year ended April 30, 2007 of approximately $214,000. The Company has an agreement with the Delaware Division of Revenue to pay them a minimum of $500 per month, with the understanding that if the Company has a liquidity event, they will be paid in full (NOTE 14).  

At January 31, 2011 there is a $182,700 accrual included in accrued expenses for estimated penalties and interest associated with the outstanding taxes payable for the year ended April 30, 2007.

At January 31, 2011 the IRS has a lien against the Company for outstanding taxes and liabilities for the year ended April 30, 2007.  Currently, the Company has an agreement with the IRS to pay them a minimum of $500 per month, with the understanding that if the Company has a liquidity event, they will be paid in full.

NOTE 5 – NOTES RECEIVABLE

Notes receivable consists of the following:

						January 31, 2011		April 30, 2010
Note Receivable - affiliated companies
SIVOO Holdings, Inc. ("SIVOO") - Principal of $25,000.  This note bears interest
at 8% per year beginning on May 1, 2007.  This note is payable upon demand.						$ 30,014		$ 30,014
	Allowance for bad debt					(30,014)		(30,014)
Notes Receivable- affiliated companies						$ -		$ -

F-18

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 6 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES

`				January 31, 2011		April 30, 2010
Due from Affiliated Companies
BF Acquisition Group V, Inc.				$ 52,587		$ 53,962
SIVOO Holdings				3,500		3,500
Incredible 3D, Inc.				94,497		89,248
Mediavix				112,378		81,736
Innovation Industries				(6,327)		3,732
Medicaview International				49,221		11,601
Totals				305,856		243,779
Allowance for bad debt				(3,500)		-
Total Due from Affiliated Companies				$ 302,356		$ 243,779

NOTE 7 – 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, 2011		April 30, 2010
Affiliates
PR Specialists, Inc./Mediavix, Inc.("PR")
	Received 2,500,000 shares of PR common stock for payment				$ -		$ 1,458
	of services per a one year contract dated December 2009,
	valued at $2,500, fair value and amortized over the life of
	the contract.
Total Affiliates					-		1,458
Total Deferred Revenue					$ -		$ 1,458

F-19

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 7 – 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, 2011		January 31, 2010		January 31, 2011		January 31, 2010
Non-Affiliates
	Received a warrant to purchase 500,000 shares of iVolution common				$ -		$ -		$ -		$ 3,588
	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.
Total Non-Affiliates					-		-		-		3,588
Affiliates
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.
PR Specialists, Inc./Mediavix, Inc.("PR")
	Received 2,500,000 shares of PR common stock for payment				458		188		1,458		188
	of services per a one year contract dated December 2009,
	valued at $2,500, fair value and amortized over the life of
	the contract.
Multi-View Technologies ("MVT")
	Received a warrant to purchase 500,000 shares of MVT common				-		-		-		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 500,000 shares of DCMC common				-		-		-		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					458		2,088		1,458		2,588
Total Management Services Revenue					$ 458		$ 2,088		$ 1,458		$ 6,176

F-20

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following:

				January 31, 2011		April 30, 2010
Notes payable
Notes payable, D&O Insurance Premium. Interest accrued at 9.2%
for a period of ten months.  Payable in ten monthly installments of
$2,414 per month.				$ -		$ 23,154
Notes payable				$ -		$ 23,154
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 12)				$ 332,068		$ 297,372
Notes payable, related party.  Interest accrued at 8.0%
beginning on October 19, 2009  Principal and interest
payable on demand. (NOTE 12)				50,000		50,000
Promissory notes payable, related party.  Interest accrued at
5.0% per annum.  Principal and interest due September 30,
2010.  (NOTE 12)				14,801		20,000
Notes payable, related party				$ 396,869		$ 367,372

NOTE 9 – ADVANCES FROM SHAREHOLDERS

Amount represents advances from shareholders to cover operating expenses.  There are no stated interest rate or repayment terms.  As of January 31, 2011 and April 30, 2010 these advances totaled $19,000 and $22,000, respectively.

NOTE 10 – STOCK BASED COMPENSATION

In May 8, 2006, our Company’s stockholders approved the 2006 Equity Incentive Plan for the benefit of our directors, officers, employees and consultants, and which reserved 2,000,000 shares of our common stock for such persons pursuant to that plan.  As of January 31, 2011 , 1,000,000 are available for issuance.

During the nine months ending January 31, 2011 the Company’s net income was approximately $7,634 and $3,816 lower as a result of stock-based compensation expense.  As of January 31, 2111, there was $0 in unrecognized compensation.

F-21

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 10 – STOCK BASED COMPENSATION (CONTINUED)

The following tables summarize all stock option activity of the Company since April 30, 2010:

		Stock Options Outstanding
				Weighted		Weighted Average
				Average		Remaining Contractual		Aggregate
		Number of Shares		Exercise Price		Life (Years)		Intristic Value
Outstanding, April 30, 2010		650,000		$ 0.20		8.07		$ -
Forfeited		(50,000)		$ 0.20		8.07		$ -
Outstanding, January 31, 2011		600,000		$ 0.20		8.07		$ -
Exercisable, January 31, 2011		600,000		$ 0.20		8.07		$ -

NOTE 11 – CAPITAL SHARE TRANSACTIONS

During the nine months ended January 31,2011, the Company recognized $7,634 of share-based compensation expense.

NOTE 12 – RELATED PARTY TRANSACTIONS

Notes payable, related parties were $396,869 and $367,372 at January 31, 2011 and April 30, 2010, respectively (NOTE 8).

The total of expenses owed to the officers are $7,213 at January 31, 2011 and April 30, 2010, and are recorded as an accounts payable, related parties.

NOTE 13 – 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.

F-22

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 2011

(UNAUDITED)

NOTE 13 – CONTINGENCIES (CONTINUED)

McCrae Associates, LLC Lawsuit (Continued)

Recently, the courts decided that McCrae’s request to be reimbursed for his attorney’s fees were unreasonable and were threw out of the lawsuit.  Also, the Universal Capital Management directors were also removed as defendants from the case by the courts.

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

Carlin and Wilson Lawsuit

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

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 and all liens on the investment accounts were released at this time.

MICCO Lawsuit

In July 2010, the Company filed a lawsuit against MICCO World, Inc. (formerly known as Constellation Group, Inc.) and its officers, Phil Lundquist, Steven Brisker and Tom Ridenour (collectively known as the “Defendants”).  This lawsuit was filed in Superior Court of Delaware in New Castle County and was filed in response to various activities by the Defendants that include, misleading investors, making disparaging remarks about the Company, misrepresentation of capital structure, and misappropriation of funds.

NOTE 14 – SUBSEQUENT EVENTS

In February 2011, the Company agreed to a settlement regarding the McCrae Associates, LLC lawsuit.  In exchange for settlement of the lawsuit, the Company is exchanging 42,500 warrants of Lightwave Logic, Inc. (LWLG) for the Company’s shares that McCrae holds.  As of the date of this filing, the settlement agreement has not been executed.

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

F-23