Attached files
| file | filename |
|---|---|
| EX-31 - EXHIBIT 31.1 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INC | ucm103111q_ex31z1.htm |
| EX-32 - EXHIBIT 32.2 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INC | ucm103111q_ex32z2.htm |
| EX-31 - EXHIBIT 31.2 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INC | ucm103111q_ex31z2.htm |
| EX-32 - EXHIBIT 32.1 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INC | ucm103111q_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 ended October 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)
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Delaware (State or other jurisdiction of Incorporation or Organization) | 20-1568059 (I.R.S. Employer Identification No.) |
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2601 Annand Drive Suite 16 Wilmington, DE (Address of principal executive offices) | ______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 [ ]. No [X].
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 December 20, 2011 was 5,912,426.
Universal Capital Management, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarterly period ended October 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
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| PART I – FINANCIAL INFORMATION |
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Item 1. | Financial Statements | 1 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
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Item 3. | Quantitative And Qualitative Disclosures About Market Risk | 6 |
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Item 4. | Controls and Procedures | 6 |
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| PART II - OTHER INFORMATION |
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Item 1. | Legal Proceedings | 7 |
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Item 5. | Other Information | 7 |
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Item 6. | Exhibits | 7 |
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
See Appendix A
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction
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.
On February 18, 2005, our Company filed an election to become subject to the 1940 Act, such that it could commence conducting business as a business development company (“BDC”). The Company elected BDC status intending to primarily engage in the business of furnishing capital and making available managerial assistance to companies that do not have ready access to capital through conventional financial channels. Commensurate with those goals, the Company commenced its operations.
During 2010 our revenues began to decline and our cash position weakened. As a BDC, we are required to ensure that a majority of our directors are persons who are not “interested persons,” as that term is defined in section 56 of the 1940 Act. Since April 2010, we have not maintained a majority of directors who are not “interested persons”. During the quarterly period ending July 30, 2010 to the date hereof, we have been unable to pay our auditors to review our quarterly and annual reports that we file with the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934 (the “1934 Act”); in violation of both the 1934 Act and the 1940 Act. Consequently, for over twelve months, our Company has been non-compliant with certain of the rules and regulations governing the financial reporting items required of BDCs and reporting companies in general. Our Company's violations of the 1934 Act and the 1940 Act may cause our Company to incur certain liabilities, which our management cannot estimate as of this time. However, if these liabilities are incurred, they could have a significant impact on our Company's ability to continue as a going concern.
Our board conducted a review of our non-compliance issues and determined that the Company's significant compliance and remediation costs, in terms of both time and dollars, to continue to operate as a BDC have operated and will continue to operate as an encumbrance on the Company's limited resources. Additionally, another factor that the board considered was that since December 2010, we effectively ceased our operations as a business development company when the last of our management contracts expired and since that time, we have had no active portfolio companies in our portfolio. Since then, our Company’s business structure began to evolve due to economic factors and new opportunities and we now assist and enable entrepreneurs to introduce products to the consumer market.
Accordingly, after careful consideration of the 1940 Act requirements applicable to BDCs, an evaluation of the Company's ability to operate as a going concern in an investment company regulatory environment, the cost of 1940 Act compliance needs and a thorough assessment of potential alternative business models, our board determined that continuation as a BDC was not in the best interest of the Company and its stockholders. On September 19, 2011, pursuant to a written consent, a majority of the
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voting power of our Company's outstanding common stock voted to approve the recommendation of our board that our Company withdraw its election to be registered as a BDC.
On November 1, 2011, our Company filed Form N-54C notification of withdrawal of election to be regulated as a BDC. The withdrawal was effective upon receipt of the Form N-54C notification by the SEC, and our Company is no longer subject to regulation as a BDC.
Our Company intends to continue to pursue its business model whereby it serves as a direct response management and marketing company that provides management, accounting and marketing services to its outside clients (the “New Business Model”). Specifically, our Company will assist and enable entrepreneurs to introduce products to the consumer market. This New Business Model employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets.
We have no intention to invest in securities or meet the definition of an investment company, as described in Section 3 of the 1940 Act. Our Company will be managed so it will not be deemed to be an investment company as defined in the 1940 Act. Our company will maintain its registration under the 1934 Act and we will continue to be obligated to file regular reports as required thereunder.
Since we made our election to file Form N-54C notification of withdrawal of election to be regulated as a BDC on November 1, 2011, this Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2011 reflects our operations during that quarterly period where we were then required to be regulated as a BDC.
Pursuant to the requirements of the Investment Company Act of 1940, as amended, 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. We expect 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.
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.
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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 | At the Year Ending |
TOTAL ASSETS | $ 2,579,593 | $ 3,072,008 |
NET ASSETS | $ 1,319,093 | $ 1,769,636 |
NET ASSET VALUE PER SHARE | $ 0.22 | $ 0.30 |
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS | $ (88,095) | $ (2,302,698) |
The changes in total assets, net assets and net asset value per share for the six months ending October 31, 2011 were primarily attributable to:
·
Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares and warrants decreased from $1.11 to $0.63 per share during the six months ending October 31, 2011 for a net unrealized depreciation of $201,597. Our total investment in LWLG at October 31, 2011 was $197,110 compared to $398,707 at April 30, 2011.
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Vystar Corporation’s (“Vystar”) average valuation on restricted and unrestricted shares and warrants decreased from $0.45 to $0.25 per share during the six months ending October 31, 2011 for a net unrealized depreciation of $222,518. Our Company’s total investment in Vystar was $67,667 at October 31, 2011 compared to $290,185 at April 30, 2011.
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Our Company’s investment in iVolution Medical Systems (“IMS”) warrants were valued at $269,000 at October 31, 2011 compared to $276,000 at April 30, 2011 for an unrealized depreciation of $7,000 for the six months ending October 31, 2011.
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Our Company’s investment in New Bastion Development, Inc. (“NWBA”) unrestricted shares decreased from $0.58 to $0.51 per share during the six months ending October 31, 2011 for a net unrealized appreciation of $9,935. Our Company’s total investment in NWBA was $10,235 at October 31, 2011 compared to $300 at April 30, 2011.
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The decrease in cash of $1,183.
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The decrease in liabilities of $41,872.
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The decrease in net deferred tax asset of $119,000.
At October 31, 2011, $560,037 or 21% of our Company's assets consisted of investments, of which net unrealized losses before the income tax effect were $931,069. A deferred tax asset on account of unrealized losses has been estimated at approximately $335,000. At October 31, 2011, our Company’s holdings of LWLG and Vystar were valued at $197,110 and $67,667, respectively, which represented in the aggregate approximately 47% 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 October 31, 2011 compared to the three months ended October 31, 2010
For the three months ending October 31, 2011 our Company had revenue for services in the amount of $95,152 compared to $6,739 for the three months ending October 31, 2010. During the three months ending October 31, 2011 and October 31, 2010, 100% of our Company’s revenue for services was received in the form of cash.
Total operating expenses for the three months ending October 31, 2011 were $49,024, the principal components of which were professional fees of $8,699, salaries and wages of $10,233, $13,180 of insurance expense, $4,804 of interest expense and $11,983 of other general and administrative expense. By comparison, total operating expenses for the three months ending October 31, 2010 were $165,370, of which the principal components were professional fees of $31,936, consisting primarily of $25,353 for accounting and auditing expense, $4,190 for legal fees and $2,393 for other professional fees, payroll of $86,204 (which includes $2,544 of share based compensation expense), $24,472 of insurance expense, $7,629 of interest expense and $14,654 of other general and administrative expense.
Our Company realized a gain from operations of $46,128 for the three months ending October 31, 2011, compared to a loss from operations of $158,631 for the three months ending October 31, 2011. Included in these gains were $25,000 in net tax provision and $389,000 in net tax benefit for the three months ending October 31, 2011 and October 31, 2010, respectively.
Six months ending October 31, 2011 compared to the six months ended October 31, 2010
For the six months ending October 31, 2011 our Company had revenue for services in the amount of $116,852 compared to $14,850 for the six months ending October 31, 2010. During the six months ending October 31, 2011 and the six months ending October 31, 2010, 100% of our Company’s revenue for services was received in the form of cash.
Total operating expenses for the six months ending October 31, 2011 were $109,509, the principal components of which were professional fees of $12,626, salaries and wages of $18,161, $33,058 of insurance expense, $14,193 of interest expense and $30,871 of other general and administrative expense. By comparison, the total operating expenses for the six months ending October 31, 2010 were $310,704, the principal components of which were professional fees of $61,946, consisting primarily of $49,561 for accounting and auditing expense, $6,188 for legal fees and $6,197 for other professional fees, payroll of $152,293 (which includes $2,544 of share based compensation expense), $48,851 of insurance expense, $15,587 of interest expense and $31,080 of other general and administrative expense.
Our Company realized a loss from operations of $106,657 for the six months ending October 31, 2011, compared to a gain from operations of $337,012 for the six months ending October 31, 2010. Included in these gains were $114,000 in net tax provision and $646,000 in net tax benefit for the six months ending October 31, 2011 and October 31, 2010, respectively.
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Liquidity and Capital Resources
From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity. Our Company had $15,383 of cash at October 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 October 31, 2011, $444,725 or 35% 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.
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.
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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.
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,
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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.
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings.
MICCO World, Inc. Lawsuit
In July 2010, our 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 the Superior Court of Delaware in New Castle County. This lawsuit was filed in response to various activities by the Defendants that include misleading investors, making disparaging remarks about our Company, misrepresentation of capital structure, and misappropriation of funds.
We are seeking judgment in the amount of $611,000 plus costs, legal fees, pre- and post-judgment interest, plus other amounts and relief to be determined.
In March 2011 the Defendants filed a motion to dismiss, which was denied in June 2011.
Item 5.
Other Information.
On December 19, 2011, Theresa Q. Hoffmann resigned as our Vice President of Finance, Secretary and Treasurer in order to pursue other business opportunities unrelated to our Company. Until we replace Ms. Hoffmann, Michael Queen, our chief executive officer, will serve as our principal financial officer. Jeffrey Muchow, Robert Oberosler and Steven Pruitt resigned as directors of the company on December 19, 2011.
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.
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UNIVERSAL CAPITAL MANAGEMENT, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 2011 AND 2010
(UNAUDITED)
CONTENTS
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STATEMENTS OF ASSETS AND LIABILITIES | F-2 |
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STATEMENTS OF OPERATIONS | F-3 |
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STATEMENTS OF CASH FLOWS | F-4 |
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STATEMENT OF CHANGES IN NET ASSETS | F-5 |
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FINANCIAL HIGHLIGHTS | F-6 |
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SCHEDULE OF INVESTMENTS AS OF OCTOBER 31, 2011 | F-7 |
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SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2011 | F-8 |
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NOTES TO FINANCIAL STATEMENTS | F-9 – F-20 |
F-1
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENTS OF ASSETS AND LIABILITIES
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| October 31, 2011 |
| April 30, 2011 |
ASSETS |
| (Unaudited) |
| (Unaudited) |
Investments, at fair value |
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Non-affiliate investments (cost: $485,502 and $475,228) |
| $ 476,345 |
| $ 675,007 |
Affiliate investments (cost: $1,005,602 and $1,473,552) |
| 83,692 |
| 306,210 |
Total Investments |
| 560,037 |
| 981,217 |
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Cash and cash equivalents |
| 15,383 |
| 16,566 |
Receivables |
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Note receivable - affiliates (net of allowance: $30,014 and $30,014) |
| - |
| - |
Accounts Receivable |
| 49,296 |
| - |
Due from non-affiliates |
| 49,221 |
| 49,221 |
Due from affiliates (net of allowance: $3,500 and $3,500) |
| 259,787 |
| 259,787 |
Total Receivables |
| 358,304 |
| 309,008 |
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Prepaid expenses |
| 24,687 |
| 26,131 |
Property and equipment, net |
| 82 |
| 681 |
Current income tax asset |
| 65,000 |
| 60,000 |
Deferred income tax |
| 1,555,000 |
| 1,674,000 |
Rent deposit |
| 1,100 |
| 1,100 |
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TOTAL ASSETS |
| $ 2,579,593 |
| $ 3,072,008 |
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LIABILITIES |
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LIABILITIES |
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Accounts payable |
| $ 366,378 |
| $ 366,650 |
Accounts payable, related parties |
| 7,213 |
| 7,213 |
Accrued expenses |
| 316,606 |
| 324,516 |
Advances from shareholders |
| 19,000 |
| 19,000 |
Notes payable |
| 19,811 |
| 24,610 |
Note payable, related parties |
| 353,870 |
| 396,870 |
Accrued interest |
| 92,050 |
| 92,050 |
Accrued interest, related parties |
| 85,572 |
| 71,463 |
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TOTAL LIABILITIES |
| 1,260,500 |
| 1,302,372 |
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CONTINGENCIES (NOTE 13) |
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NET ASSETS |
| $ 1,319,093 |
| $ 1,769,636 |
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COMPOSITION OF NET ASSETS |
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Common stock, $0.001 par value, 50,000,000 shares authorized; |
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5,912,426 shares issued and outstanding at |
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October 31, 2011 and April 30, 2011 |
| $ 5,912 |
| $ 5,912 |
Additional paid-in capital |
| 6,194,586 |
| 6,194,586 |
Accumulated income |
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Accumulated net operating income |
| 2,060,850 |
| 2,167,507 |
Dividends paid |
| (448,596) |
| (448,596) |
Net realized loss on investments |
| (5,906,514) |
| (5,526,133) |
Net realized gain on dividend of portfolio stock |
| 343,924 |
| 343,924 |
Net unrealized appreciation of investments |
| (931,069) |
| (967,564) |
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Net Assets |
| $ 1,319,093 |
| $ 1,769,636 |
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Equivalent per share value based on 5,912,426 shares of common stock |
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outstanding as of October 31, 2011 and April 30, 2011 |
| $ 0.22 |
| $ 0.30 |
See accompanying notes to these unaudited financial statements.
F-2
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
| For the Three |
| For the Three Months Ending October 31, 2010 |
| For the Six Months Ending October 31, 2011 |
| For the Six | ||||
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INCOME |
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Management services |
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Non-affiliates | $ - |
| $ -- |
| $ - |
| $ - | ||||
Affiliates | 45,804 |
| 500 |
| 67,504 |
| 1,000 | ||||
Total Management Services | 45,804 |
| 500 |
| 67,504 |
| 1,000 | ||||
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|
|
|
|
|
|
| ||||
Accounting services |
|
|
|
|
|
|
| ||||
Affiliates | - |
| 6,000 |
| - |
| 13,200 | ||||
Total Accounting Services | - |
| 6,000 |
| - |
| 13,200 | ||||
|
|
|
|
|
|
|
| ||||
Other Income |
|
|
|
|
|
|
| ||||
Affiliates | 49,348 |
| 239 |
| 49,348 |
| 650 | ||||
|
|
|
|
|
|
|
| ||||
TOTAL INCOME | 95,152 |
| 6,739 |
| 116,852 |
| 14,850 | ||||
|
|
|
|
|
|
|
| ||||
COST AND EXPENSE |
|
|
|
|
|
|
| ||||
Salaries and wages | 10,233 |
| 86,204 |
| 18,161 |
| 152,293 | ||||
Professional fees | 8,699 |
| 31,936 |
| 12,626 |
| 61,946 | ||||
Insurance | 13,180 |
| 24,472 |
| 33,058 |
| 48,851 | ||||
Interest expense | 4,804 |
| 7,629 |
| 14,193 |
| 15,587 | ||||
General and administrative | 11,983 |
| 14,654 |
| 30,871 |
| 31,080 | ||||
Depreciation | 125 |
| 475 |
| 600 |
| 947 | ||||
TOTAL COST AND EXPENSE | 49,024 |
| 165,370 |
| 109,509 |
| 310,704 | ||||
|
|
|
|
|
|
|
| ||||
Loss before income taxes and related interest | 46,128 |
| (158,631) |
| 7,343 |
| (295,854) | ||||
|
|
|
|
|
|
|
| ||||
Penalties and Interests | - |
| (13,134) |
| - |
| (13,134) | ||||
Income tax provision (benefit) | (25,000) |
| 389,000 |
| (114,000) |
| 646,000 | ||||
NET INCOME (LOSS) FROM OPERATIONS | 21,128 |
| 217,235 |
| (106,657) |
| 337,012 | ||||
|
|
|
|
|
|
|
| ||||
Net realized and unrealized losses |
|
|
|
|
|
|
| ||||
Loss on disposal of portfolio stock | (195,000) |
| (113,204) |
| (380,339) |
| (169,550) | ||||
Unrealized appreciation (depreciation) on investments | (88,095) |
| (1,038,318) |
| 36,495 |
| (1,587,664) | ||||
|
|
|
|
|
|
|
| ||||
NET DECREASE IN NET ASSETS |
|
|
|
|
|
|
| ||||
RESULTING FROM OPERATIONS | $ (261,967) |
| $ (934,287) |
| $ (450,501) |
| $ (1,420,202) | ||||
|
|
|
|
|
|
|
| ||||
|
|
| Net increase (decrease) in net assets from operations per share: |
|
| ||||||
Basic | $ (0.04) |
| $ (0.15) |
| $ (0.08) |
| $ (0.22) | ||||
Diluted | $ (0.04) |
| $ (0.15) |
| $ (0.08) |
| $ (0.22) | ||||
|
|
|
|
|
|
|
| ||||
Weighted average shares: |
|
|
|
|
|
|
| ||||
Basic | 5,912,426 |
| 6,412,426 |
| 5,912,426 |
| 6,412,426 | ||||
Diluted | 5,912,426 |
| 6,412,426 |
| 5,912,426 |
| 6,412,426 | ||||
See accompanying notes to these unaudited financial statements.
F-3
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
|
| For the Six |
| For the Six |
|
| October 31, 2011 |
| October 31, 2010 |
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net decrease in net assets resulting from operations |
| $ (450,501) |
| $ (1,420,202) |
Adjustments to reconcile net decrease in net assets |
|
|
|
|
resulting from operations to net cash used in operating activities: |
|
|
|
|
(Sale) Purchase of investment securities |
| 77,336 |
| 274,212 |
Loss on sale/disposal of portfolio stock |
| 380,339 |
| 169,550 |
Acquisition of warrants for sale of stock |
| - |
| (25,800) |
Investment securities received in exchange for management services |
| - |
| (1,000) |
Depreciation expense |
| 599 |
| 950 |
Stock based compensation expense |
| - |
| 2,544 |
Net unrealized (appreciation) depreciation on investments |
| (36,537) |
| 1,587,664 |
Deferred income taxes |
| 119,000 |
| (621,000) |
Current income taxes |
| (5,000) |
| (29,500) |
(Increase) decrease in assets: |
|
|
|
|
Accounts receivable |
| (49,296) |
| - |
Notes receivable affiliates |
| - |
| (72,944) |
Receivables non-affiliates |
| - |
| 11,601 |
Prepaid expenses |
| 4,749 |
| 14,466 |
Increase (decrease) in liabilities |
|
|
|
|
Accounts payable |
| (272) |
| 17,030 |
Accrued expenses |
| (7,910) |
| 55,945 |
Accrued Interest, related parties |
| 14,109 |
| 14,574 |
|
|
|
|
|
Net cash provided by (used) in operating activities |
| 46,616 |
| (21,910) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Proceeds (Repayment) of debt |
| (4,799) |
| (16,035) |
Proceeds from issuance of promissory note - related parties |
| - |
| 34,696 |
Repayments of promissory notes – related parties |
| (43,000) |
| - |
|
|
|
|
|
Net cash provided by financing activities |
| (47,799) |
| 18,661 |
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| (1,183) |
| (3,249) |
|
|
|
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |
| 16,566 |
| 6,567 |
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF YEAR |
| $ 15,383 |
| $ 3,318 |
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS |
|
|
|
|
CASH PAID FOR INCOME TAXES |
| $ 5,000 |
| $ 4,500 |
See accompanying notes to these unaudited financial statements.
F-4
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
|
| For the Six |
| For the Six |
|
| Months Ending |
| Months Ending |
|
| October 31, 2011 |
| October 31, 2010 |
|
|
|
|
|
NET DECREASE IN NET ASSETS RESULTING |
| $ (450,501) |
| $ (1,420,202) |
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
|
Share-based compensation expense |
| - |
| 2,544 |
|
|
|
|
|
NET CAPITAL SHARE TRANSACTIONS |
| - |
| 2,544 |
|
|
|
|
|
TOTAL DECREASE |
| (450,501) |
| (1,417,658) |
|
|
|
|
|
NET ASSETS, BEGINNING OF YEAR |
| 1,769,594 |
| 4,174,316 |
|
|
|
|
|
NET ASSETS, END OF YEAR |
| $ 1,319,093 |
| $ 2,756,658 |
See accompanying notes to these unaudited financial statements.
F-5
UNIVERSAL CAPITAL MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
|
| For the Six |
| For the Six |
|
|
|
|
|
PER SHARE INFORMATION |
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
| $ 0.30 |
| $ 0.65 |
|
|
|
|
|
Net income (loss) from operations, net of taxes (1) |
| - |
| 0.03 |
Net realized loss on investments, net of taxes (1) |
| (0.04) |
| (0.02) |
Net unrealized appreciation (depreciation) on investments, net of taxes (2) |
| 0.01 |
| (0.23) |
Net increase from stock transactions (1) |
| - |
| - |
|
| (0.03) |
| (0.22) |
|
|
|
|
|
Net asset value, end of period |
| $ 0.27 |
| $ 0.43 |
|
|
|
|
|
Per share market value, end of period |
| $ 0.09 |
| $ 0.20 |
|
|
|
|
|
Investment return, based on net asset value at end of period |
| -10.00% |
| -33,85% |
|
|
|
|
|
RATIO/SUPPLEMENTAL DATA |
|
|
|
|
|
|
|
|
|
Net assets, end of period |
| $ 1,319,093 |
| $ 2,756,658 |
|
|
|
|
|
Ratio of expenses to average net assets |
| 14.18% |
| 17.93% |
Ratio of net income (loss) from operations to average net assets |
| 15.13% |
| 0.01% |
|
|
|
|
|
Diluted weighted average number of shares outstanding during the period | 5,912,426 |
| 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 losses for the period because the difference in the net asset value at the beginning and end of period gains and does not inherently equal the per share changes of the line items disclosed. | ||||||
See accompanying notes to these unaudited financial statements.
F-6
UNIVERSAL CAPITAL MANAGEMENT, INC.
SCHEDULE OF INVESTMENTS AS OF
OCTOBER 31, 2011
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
| ||
|
|
|
| Date of |
| % of |
| Units Held |
| Method of |
|
|
| Value at |
| % of | ||
|
| Business |
| Acquisition |
| Portfolio |
| at October 31, 2011 |
| Valuation (1) |
| Cost |
| October 31, 2011 |
| Net Assets | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Affiliate Investments (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
PR Specialists, Inc. (5)(6)(7) |
| Public shell |
| Dec-09 |
| 0.45% |
| 2,500,000 |
| (M) |
| $ 2,500 |
| $ 2,500 |
| 0.19% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
BF Acquisition Group V, Inc.(5)(6)(7) |
| Public shell |
| April-05; Nov-09 |
| 0.29% |
| 100,000 |
| (M) |
| 1,625 |
| 1,625 |
| 0.12% | ||
|
|
|
| Nov-09 |
| 0.34% |
| 1,900,000 |
| (M) |
| 1,900 |
| 1,900 |
| 0.14% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vystar Corporation (4)(6) |
| Natural rubber latex |
| Mar-10 |
| 6.07% |
| 135,325 |
| (M) |
| 270,650 |
| 33,967 |
| 2.58% | ||
|
| products |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 600,000 shares of Vystar Corporation |
| Natural rubber latex |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
500,000 shares common stock, expiring April 30, 2013 (5)(6) |
| products |
| Jul-08 |
| 4.29% |
| 500,000 |
| (I) |
| 193,000 |
| 24,000 |
| 1.82% | ||
50,000 shares common stock, expiring April 30, 2012 (5)(6) |
|
|
| Oct-10 |
| 0.84% |
| 50,000 |
| (I) |
| - |
| 4,700 |
| 0.36% | ||
50,000 shares common stock, expiring May 31, 2012 (5)(6) |
|
|
| Nov-10 |
| 0.89% |
| 50,000 |
| (I) |
| - |
| 5,000 |
| 0.38% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Innovation Industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Promissory note (6)(8) |
| Direct sales |
| Oct-09 |
| 1.79% |
|
|
| (C ) |
| 10,000 |
| 10,000 |
| 0.76% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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 605,000 shares of SIVOO Holdings, Inc. |
| High speed internet media |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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 |
|
|
| 14.96% |
|
|
|
|
| 1,005,602 |
| 83,692 |
| 6.35% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-Affiliate Investments (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Lightwave Logic, Inc. (4)(6)(7) |
| Plastics engineering |
| Dec-10 |
| 10.92% |
| 97,000 |
| (M) |
| 93,075 |
| 61,110 |
| 4.61% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 357,500 shares of Lightwave Logic, |
| Plastics engineering |
| Feb-08 |
| 24.28% |
| 357,500 |
| (I) |
| 250,250 |
| 136,000 |
| 10.31% | ||
Inc. common stock, expiring February 2012 (5)(6)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 1,000,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring |
| Medical billing and medical |
| Jul-08 |
| 42.85% |
| 1,000,000 |
| (I) |
| 112,000 |
| 240,000 |
| 18.19% | ||
July 2013 (5)(6) |
| records software |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 500,000 shares of iVolution Medical Systems, |
| Medical billing and medical |
| Jul-08 |
| 5.18% |
| 500,000 |
| (I) |
| 17,000 |
| 29,000 |
| 2.20% | ||
Inc. (privately held) common stock, expiring July 2013 (5)(6) |
| records software |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
New Bastion Development, Inc. (6)(7) |
| Commercial Real Estate |
| May-09 to Oct-11 |
| 1.83% |
| 12,794 |
| (M ) |
| 13,177 |
| 10,235 |
| 0.78% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Investments in Non-Affiliates |
|
|
| 85.04% |
|
|
|
|
| 485,502 |
| 476,345 |
| 36.09% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Investments |
|
|
| 100.00% |
|
|
|
|
| $ 1,491,104 |
| $ 560,037 |
| 42.44% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Cash and other assets, less liabilities |
|
|
|
|
|
|
|
|
|
|
| 759,056 |
| 57.54% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Net assets at October 31, 2011 |
|
|
|
|
|
|
|
|
|
|
| $ 1,319,093 |
| 100.00% | ||
F-7
UNIVERSAL CAPITAL MANAGEMENT, INC.
SCHEDULE OF INVESTMENTS AS OF
APRIL 30, 2011
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
| ||
|
|
|
| Date of |
| % of |
| Units Held |
| Method of |
|
|
| Value at |
| % of | ||
|
| Business |
| Acquisition |
| Portfolio |
| at April 30, 2011 |
| Valuation (1) |
| Cost |
| April 30, 2011 |
| Net Assets | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Affiliate Investments (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
PR Specialists, Inc. (5)(6)(7) |
| Public shell |
| Dec-09 |
| 0.25% |
| 2,500,000 |
| (M) |
| $ 2,500 |
| $ 2,500 |
| 0.14% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
BF Acquisition Group V, Inc.(5)(6)(7) |
| Public shell |
| April-05; Nov-09 |
| 0.17% |
| 100,000 |
| (M) |
| 1,625 |
| 1,625 |
| 0.09% | ||
|
|
|
| Nov-09 |
| 0.19% |
| 1,900,000 |
| (M) |
| 1,900 |
| 1,900 |
| 0.11% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vystar Corporation (4)(6) |
| Natural rubber latex |
| Mar-10 |
| 16.94% |
| 369,300 |
| (M) |
| 738,600 |
| 166,185 |
| 9.39% | ||
|
| products |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 600,000 shares of Vystar Corporation |
| Natural rubber latex |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
500,000 shares common stock, expiring April 30, 2013 (5)(6) |
| products |
| Jul-08 |
| 9.17% |
| 500,000 | (I) |
|
| 193,000 |
| 90,000 |
| 5.09% | ||
50,000 shares common stock, expiring April 30, 2012 (5)(6) |
|
|
| Oct-10 |
| 1.73% |
| 50,000 | (i) |
| - | - |
| 17,000 |
| 0.96% | ||
50,000 shares common stock, expiring May 31, 2012 (5)(6) |
|
|
| Nov-10 |
| 1.73% |
| 50,000 | (i) |
|
| - |
| 17,000 |
| 0.96% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Innovation Industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Promissory note (6)(8) |
| Direct sales |
| Oct-09 |
| 1.02% |
|
|
| (C ) |
| 10,000 |
| 10,000 |
| 0.57% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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 605,000 shares of SIVOO Holdings, Inc. |
| High speed internet media |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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% | ||
|
|
|
|
|
|
|
|
|
|
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|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Investments in Affiliates |
|
|
| 31.20% |
|
|
|
|
| 1,473,552 |
| 306,210 |
| 17,31% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-Affiliate Investments (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Lightwave Logic, Inc. (4)(6)(7) |
| Plastics engineering |
| Feb-07 to Jan-09 |
| 0.10% |
| 817 |
| (M) |
| 678 |
| 907 |
| 0.05% | ||
|
|
|
| Dec-10 |
| 9.05% |
| 100,000 | (5) | (M) |
| 95,000 |
| 88,800 |
| 5.02% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 357,500 shares of Lightwave Logic, |
| Plastics engineering |
| Feb-08 |
| 31.49% |
| 357,500 |
| (I) |
| 250,250 |
| 309,000 |
| 17.46% | ||
Inc. common stock, expiring February 2012 (5)(6)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 1,000,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring |
| Medical billing and medical |
| Jul-08 |
| 24.56% |
| 1,000,000 |
| (I) |
| 112,000 |
| 241,000 |
| 13.62% | ||
July 2013 (5)(6) |
| records software |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant to purchase 500,000 shares of iVolution Medical Systems, |
| Medical billing and medical |
| Jul-08 |
| 3.57% |
| 500,000 |
| (I) |
| 17,000 |
| 35,000 |
| 1.98% | ||
Inc. (privately held) common stock, expiring July 2013 (5)(6) |
| records software |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other (5)(6)(7) |
| Various |
| May-09 |
| 0.00% |
| 3,000 |
| (C ) |
| 300 |
| 300 |
| 0.02% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Investments in Non-Affiliates |
|
|
| 68.80% |
|
|
|
|
| 475,228 |
| 675,007 |
| 38.15% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Investments |
|
|
| 100.00% |
|
|
|
|
| $ 1,948,780 |
| $ 981,217 |
| 55.46% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Cash and other assets, less liabilities |
|
|
|
|
|
|
|
|
|
|
| 788,419 |
| 44.54% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Net assets at April 30, 2011 |
|
|
|
|
|
|
|
|
|
|
| $ 1,769,636 |
| 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 $814,250 make up 46% of total net assets as of April 30, 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. |
F-8
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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.”
During the six months ending October 31, 2011, we changed our business plan. Our Company identifies, advises in development and markets consumer products. Our strategy employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets. We seek to assist and enable entrepreneurs to introduce products to the consumer market. Entrepreneurs can leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submit products or business concepts for our input and advice. We generate revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products. As of the date of this filing we have generated limited revenues and do not rely on any principal products. While the Company has received nominal revenues from management fees generated from the sales of several products, none of these fees have generated material revenues. We currently do not sell any internally developed or Company owned products.
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-9
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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. Significant estimates in the accompanying financial statements include the allowance for receivables, estimates of depreciable lives, valuation of property and equipment, valuation of securities, valuation of equity based instruments issued for other than cash, and the valuation allowance on deferred tax assets.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all investment instruments purchased with maturity of three months or less to be cash and cash equivalents.
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. At October 31, 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 and $30,014 as of October 31, 2011 and April 30, 2011.
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.
F-10
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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
Product revenue
We recognize revenue from product sales in accordance with ASC 605 — Revenue Recognition. Following agreements or orders from customers, we ship product to our customers often through a third party facilitator. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Typically, these criteria are met when our customers order is received by them and we receive acknowledgment of receipt by a third party shipper.
We also offer our customers services consisting of managing, marketing and accounting to aid in the Direct Response marketing of their product or service. In these instances, revenue is recognized when the contracted services have been provided and accepted by the customer. Deposits, if any, on these services are recognized as deferred revenue until earned.
Management Services for equity investments
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. ASC 605 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.
Accounting Services
The Company provides accounting and other administrative services to its companies. Upon entering into a contract with the 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.
F-11
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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
We account for income taxes in accordance with FASB ASC 740 — Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FASB ASC 740 — Income Taxes.
FASB ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
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 October 31, 2010 financial statements in order to conform to the October 31, 2011 financial statement presentation.
Recently Issued Pronouncements
The Company follows ASC 805, Business Combinations. This standard establishes principles and requirements for
F-12
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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 3 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.
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.
During the six months ending October 31, 2011, we do not manufacture any of our products. As of the date of this filing we have generated limited revenues and do not rely on any principal products. While the Company has received nominal revenues from management fees generated from the sales of several products, none of these fees have generated material revenues. We currently do not sell any internally developed or Company owned products.
F-13
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
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 effect on its financial statements.
At October 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 |
|
|
| October 31, 2011 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
Affiliate investments |
|
| $ 83,692 |
| $ 43,967 |
| $ - |
| $ 39,725 |
Non-affiliate investments |
|
| 476,345 |
| 71,345 |
| - |
| 405,000 |
|
|
|
|
|
|
|
|
|
|
Total Investments in securities |
| $ 560,037 |
| $ 115,312 |
| $ - |
| $ 444,725 | |
The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending October 31, 2011:
|
| Fair Value Measurement Using |
|
| Significant Unobservable Inputs |
|
| (Level 3) |
|
|
|
Beginning Balance, July 31, 2011 |
| $ 647,025 |
|
|
|
Total unrealized losses included in change in net assets |
| (202,300) |
|
|
|
Ending Balance, October 31, 2011 |
| $ 444,725 |
|
|
|
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. |
| $ (126,000) |
F-14
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
The following chart shows the components of change in the financial assets categorized as Level 3, for the six months ending October 31, 2011:
|
| Fair Value Measurement Using |
|
| Significant Unobservable Inputs |
|
| (Level 3) |
|
|
|
Beginning Balance, April 30, 2011 |
| $ 715,025 |
|
|
|
Total unrealized losses included in change in net assets |
| (270,300) |
|
|
|
Ending Balance, October 31, 2011 |
| $ 444,725 |
|
|
|
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. |
| $ (126,000) |
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 October 31, 2011 and April 30, 2011 was $92,050. The change in unrecognized tax provisions during the six months ending October 31, 2011 amounted to $0 and the accrual at October 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.
Tax years from 2005 (initial tax year) through 2011 remain subject to examination by major tax jurisdictions.
The income tax benefit for the six months ending October 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 benefit differs from the “expected” income tax benefit for federal income tax purposes as follows:
| For the Six |
| For the Six |
|
|
|
|
Income taxes at U.S. Federal Income Tax rate | $ (8,000) |
| $ 552,000 |
State income taxes, net of federal benefit | (3,000) |
| 190,000 |
Realized losses | (103,000) |
| (75,000) |
Change in valuation allowance | - |
| - |
|
|
|
|
| $ (114,000) |
| $ 667,000 |
F-15
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
The income tax (provision) benefit consists of the following:
|
| For the Six |
| For the Six |
|
|
|
|
|
Current: |
|
|
|
|
Federal |
| $ 6,000 |
| $ 19,000 |
State |
| (1,000) |
| 5,000 |
|
|
|
|
|
Total Current |
| $ 5,000 |
| $ 24,000 |
|
|
|
|
|
Deferred: |
|
|
|
|
Federal |
| $ (93,000) |
| $ 486,000 |
State |
| (26,000) |
| 136,000 |
|
|
|
|
|
Total Deferred |
| $ (119,000) |
| $ 622,000 |
|
|
|
|
|
Total Income Tax (Provision) Benefit |
| $ (114,000) |
| $ 646,000 |
The components of deferred tax (assets) liabilities are as follows:
|
| October 31, 2011 |
| April 30, 2011 | |||
|
|
|
|
| |||
Deferred tax (asset) liability |
|
|
|
|
| ||
Deferred charges |
|
| $ (52,000) |
| $ (66,000) | ||
Net operating loss |
|
| (87,000) |
| (87,000) | ||
Unrealized gains |
|
| (335,000) |
| (385,000) | ||
Capital loss carryforward |
|
| (1,176,000) |
| (1,231,000) | ||
Stock-based compensation |
|
| (129,000) |
| (129,000) | ||
Amortization of deferred revenue from warrants |
| 319,000 |
| 319,000 | |||
Bad debt |
|
| (95,000) |
| (95,000) | ||
Other |
|
| - |
| - | ||
|
|
|
|
|
|
|
|
Total deferred tax (asset) liability, net |
| $ (1,555,000) |
| $ (1,674,000) | |||
At October 31, 2011, the Company had a capital loss carryforward of approximately $3,098,563 which if not used will expire in 2015.
At October 31, 2011 there is a $176,700 accrual included in accrued expenses for estimated penalties and interest associated with the outstanding taxes payable for the year ended April 30, 2007.
Currently, the Company owes the IRS and the State of Delaware for taxes, penalties and interest from the tax year ending April 30, 2007 of approximately $300,000. The Company has agreements with both agencies to pay a minimum per month to avoid any collections or additional liens.
F-16
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
NOTE 5 – NOTES RECEIVABLE
Notes receivable consists of the following:
|
| October 31, 2011 |
| April 30, 2011 |
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 | $ - |
| $ - | |
NOTE 6 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES
|
| October 31, 2011 |
| April 30, 2011 |
Due from Non-Affiliated Companies |
|
|
|
|
MedicaView |
| $ 49,221 |
| $ 49,221 |
|
|
|
|
|
Total Due from Non-Affiliated Companies |
| $ 49,221 |
| $ 49,221 |
|
|
|
|
|
Due from Affiliated Companies |
|
|
|
|
BF Acquisition Group V, Inc. |
| $ 147,013 |
| $ 147,013 |
SIVOO Holdings |
| 3,500 |
| 3,500 |
PR Specialists |
| 112,774 |
| 112,774 |
Innovation Industries |
| - |
| - |
|
|
|
|
|
Totals |
| 263,287 |
| 263,287 |
|
|
|
|
|
Allowance for bad debt |
| (3,500) |
| (3,500) |
|
|
|
|
|
Total Due from Affiliated Companies |
| $ 259,787 |
| $ 259,787 |
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. Management service revenue recognized consists of:
|
| For the Six |
| For the Six | |||
|
|
|
|
| |||
Affiliates |
|
|
|
| |||
PR Specialists, Inc.("PR") |
|
|
|
| |||
| Received 2,500,000 shares of PR common stock for payment |
| $ - |
| $ 500 | ||
| 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 |
|
| - |
| 500 | ||
|
|
|
|
|
|
|
|
Total Management Services Revenue |
| $ - |
| $ 500 | |||
F-17
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
NOTE 8 – NOTES PAYABLE
Notes payable consists of the following:
|
| October 31, 2011 |
| April 30, 2011 |
|
|
|
|
|
Notes payable |
|
|
|
|
Notes payable. D&O Insurance Premium. Interest accrued at |
|
|
|
|
9.2% for a period of ten (10) months. Payable in ten monthly |
|
|
|
|
Installments of $2,414 per month. |
| $ 19,811 |
| $ 24,610 |
|
|
|
|
|
Notes payable |
| $ 19,811 |
| $ 24,160 |
|
|
|
|
|
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 11) |
| $ 293,068 |
| $ 322,068 |
|
|
|
|
|
Notes payable, related party. Interest accrued at 8.0% |
|
|
|
|
beginning on October 19, 2009 Principal and interest |
|
|
|
|
payable on demand. (NOTE 11) |
| 50,000 |
| 50,000 |
|
|
|
|
|
Promissory notes payable, related party. Interest accrued at |
|
|
|
|
5.0% per annum. Principal and interest due September 30, |
|
|
|
|
| 10,802 |
| 14,802 | |
|
|
|
|
|
Notes payable, related party |
| $ 353,870 |
| $ 396,870 |
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 October 31, 2011 and April 30, 2011, these advances totaled $19,000.
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 October 31, 2011, 1,000,000 are available for issuance.
There were no employee stock options issued by the Company prior to May 1, 2006.
F-18
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2011
The following tables summarize all stock option activity of the Company since April 30, 2007:
|
| Stock Options Outstanding | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Weighted Average |
|
|
|
|
|
| Average |
| Remaining Contractual |
| Aggregate |
|
| Number of Shares |
| Exercise Price |
| Life (Years) |
| Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2011 | 600,000 |
| $ 0.20 |
| 7.82 |
| $ - | |
|
|
|
|
|
|
|
| |
No activity |
| - |
| $ |
|
| $ - | |
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable, October 31, 2011 | 600,000 |
| $ 0.20 |
| 7.32 |
| $ - | |
NOTE 11 – RELATED PARTY TRANSACTIONS
Notes payable, related parties were $353,870 and $396,870 at October 31, 2011 and April 30, 2011, respectively (NOTE 8). The Company repaid $43,000 and $0 during the six months ending October 31, 2011 and 2010, respectively.
At October 31, 2011 and April 30, 2011, accounts payable, related parties were $7,213.
NOTE 12 – CONTINGENCIES
MICCO World, Inc. 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 the Superior Court of Delaware in New Castle County. This lawsuit 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.
The Company is seeking judgment in the amount of $611,000 plus costs, legal fees, pre- and post-judgment interest, plus other amounts and relief to be determined.
In March 2011, MICCO filed a motion to dismiss. In June 2011, the courts denied this motion to dismiss.
F-19