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, 2012

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 [  ]  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 [ ] Smaller Reporting Company [X]

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 15, 2012 was 5,912,426

 

 

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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, 2012 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 4.	Controls and Procedures	4
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	4
Item 6.	Exhibits	4

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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.

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

1

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in the best interest of the Company and its stockholders.  On September 19, 2011, pursuant to a written consent, a majority of the 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.

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 January 31, 2012 reflects our operations during the first quarterly period that we are not required to be regulated as a BDC.

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 Form 10-Q, 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.

Results of Operations

Three months ending January 31, 2012 compared to the three months ended January 31, 2011

For the three months ending January 31, 2012 our Company had revenue for services in the amount of $0 compared to $458 for the three months ending January 31, 2011.

Total operating expenses for the three months ending January 31, 2012 were $56,032 the principal components of which were professional fees of $8,337, payroll of $14,046, $18,175 of insurance expense, $6,289 of interest expense and $9,105 of other general and administrative expense. By comparison, total operating expenses for the three months ending January 31, 2011 were $175,523 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. During the three months ending January 31, 2012, our company credited a client’s account in the amount of $10,827.  

Our Company realized a loss from operations of $56,032 for the three months ending January 31, 2012, compared to a loss from operations of $175,523 for the three months ending

2

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January 31, 2011. Included in the calculation of the Company’s Net Income (Loss) were a net tax provision of $242,000 and net tax benefit of $372,500 for the three months ending January 31, 2012 and 2011, respectively.

 

Nine months ending January 31, 2012 compared to the nine months ended January 31, 2011

For the nine months ending January 31, 2012 our Company had revenue for services in the amount of $56,677 compared to $14,658 for the nine months ending January 31, 2011.

Total operating expenses for the nine months ending January 31, 2012 were $165,543, the principal components of which were professional fees of $20,963, payroll of $32,207, insurance expense of $51,233, interest expense of $20,482 and other general and administrative expense of $39,977. By comparison, total operating expenses for the nine months ending January 31, 2011 were $486,802, 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.

Our Company realized a loss from operations of $108,866 for the nine months ending January 31, 2012, compared to a loss from operations of $472,144 for the nine months ending January 31, 2011.  Included in the calculation of the Company’s Net Loss were a net tax provision of $356,000 and net tax benefit of $1,018,500 for the nine months ending January 31, 2012 and 2011, 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 $2,113 of cash at January 31, 2012. Consequently, payment of operating expenses will have to come from management fees, from sale of inventory, from borrowed funds, sale of investment securities or from the sale of our capital stock. There is no assurance that our Company will be successful in raising such additional funds or additional borrowings or if it can, that it can do so at a price that management believes to be appropriate.

At January 31, 2012, $955,460 or 84% 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 Policies

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Financial Statements. 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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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.

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 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 15, 2012	By:	/s/ Michael D. Queen
	Michael D. Queen, CEO
	Principal Executive Officer
March 15, 2012	By:	/s/ Michael D. Queen
	Michael D. Queen
	Principal Financial Officer

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UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL STATEMENTS

JANUARY 31, 2012 AND 2011

(UNAUDITED)

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UNIVERSAL CAPITAL MANAGEMENT, INC.

CONTENTS

	PAGE
BALANCE SHEET	F-1
STATEMENTS OF OPERATIONS	F-2
STATEMENTS OF CASH FLOWS	F-3
NOTES TO FINANCIAL STATEMENTS	F-4 – F-16

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UNIVERSAL CAPITAL MANAGEMENT, INC.

BALANCE SHEET

(UNAUDITED)

		January 31, 2012		April 30, 2011
		(Unaudited)		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$ 2,113		$ 16,565
Accounts receivable, net		2,461		-
Prepaid expenses		2,825		29,436
Current income tax asset		86,000		60,000
Total Current Assets		93,399		106,001
Long Term Assets
Property and equipment, net		-		682
Investments, net		1,135,359		981,217
Deferred income tax		1,292,000		1,674,000
Long term loans		309,008		309,008
Other long term assets		1,100		1,100
Total Long Term Assets		2,737,467		2,966,007
TOTAL ASSETS		$ 2,830,866		$ 3,072,008
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable		$ 374,364		$ 366,650
Accounts payable, related parties		10,802		7,213
Notes payable		2,500		24,610
Total Current Liabilities		387,666		398,473
Long Term Liabilities
Accrued expenses		313,606		324,516
Advances from shareholders		19,000		19,000
Note payable, related parties		313,568		396,870
Accrued interest		92,050		92,050
Accrued interest, related parties		91,861		71,463
Total Long Term Liabilities		830,085		903,899
TOTAL LIABILITIES		1,217,750		1,302,372
CONTINGENCIES (NOTE 13)
STOCKHOLDERS’ EQUITY (DEFICIENCY)
Common stock, $0.001 par value, 50,000,000 shares authorized;
5,912,426 shares issued and outstanding at
January 31, 2012 and April 30, 2011		$ 5,912		$ 5,912
Additional paid-in capital		6,194,586		6,194,586
Accumulated Deficiency
Beg. retained earnings		1,757,572		2,167,507
Dividends paid		(448,596)		(448,596)
Net realized loss on investments		(5,971,806)		(5,526,133)
Net realized gain on dividend of portfolio stock		343,924		343,924
Net unrealized appreciation of investments		(268,476)		(967,564)
End. accumulated deficiency		(4,587,382)		(4,430,862)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIENCY)		1,613,116		1,769,636
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)		$ 2,830,866		$ 3,072,008
Equivalent per share value based on 5,912,426 shares of capital stock
outstanding as of January 31, 2012 and April 30, 2011		$ 0.27		$ 0.30

See accompanying unaudited notes to these financial statements.

F-1

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF OPERATIONS

(UNAUDITED)

		For the Three		For the Three		For the Nine		For the Nine
		Months Ending		Months Ending		Months Ending		Months Ending
		January 31, 2012		January 31, 2011		January 31, 2012		January 31, 2011
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
REVENUES
Management services		-		458		56,677		1,458
Accounting services		-		-		-		13,200
TOTAL REVENUES		-		458		56,677		14,658
OPERATING EXPENSES
Salaries and wages		14,046		115,580		32,207		267,873
Professional fees		8,337		19,575		20,963		81,521
Insurance		18,175		21,133		51,233		69,983
Interest expense		6,289		8,271		20,482		23,975
General and administrative		9,105		10,947		39,977		42,025
Depreciation expense		82		475		682		1,425
TOTAL OPERATING EXPENSES		56,032		175,981		165,543		486,802
INCOME (LOSS) FROM OPERATIONS		(56,032)		(175,523)		(108,866)		(472,144)
OTHER INCOME/(LOSS)
Refunds		(10,827)		-		-		-
Realized Gain (loss) on disposal of investments		(65,130)		(162,027)		(445,469)		(331,577)
Unrealized appreciation (depreciation) on investments		662,627		(464,504)		699,088		(2,052,168)
Other Income		5,548		548		54,932		1,198
TOTAL OTHER INCOME/(LOSS)		592,218		(625,983)		308,551		(2,382,547)
Income (Loss) before income taxes and related interest		536,186		(801,506)		199,685		(2,854,691)
Income tax benefit (provision)		(242,000)		372,500		(356,000)		1,018,500
Penalties and interest		-		-		-		(13,134)
Interest expense		-		-		-		-
NET INCOME (LOSS)		$ 294,186		$ (429,006)		$ (156,315)		$ (1,849,325)
Income/(loss) per common share:
Basic		$ 0.05		$ (0.07)		$ (0.03)		$ (0.29)
Diluted		$ 0.05		$ (0.07)		$ (0.03)		$ (0.29)
Weighted-average number of common 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 unaudited notes to these financial statements.

F-2

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

		For the Nine		For the Nine
		Months Ending		Months Ending
		January 31, 2012		January 31, 2011
		(Unaudited)		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations		$ (156,315)		$ (1,849,325)
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash used in operating activities:
Sale (Purchase) of investment securities		99,477		328,613
Loss on sale of investments		445,469		331,577
Acquisition of warrants for sale of stock		-		(25,000)
Investment securities received in exchange for management services		-		(1,458)
Depreciation expense		681		1,424
Stock based compensation expense		-		7,634
Net unrealized (appreciation) depreciation on investments		(699,293)		2,052,168
Deferred income taxes		382,000		(831,000)
Current income taxes		(26,000)		(193,000)
(Increase) decrease in assets:
Due from affiliates		(2,461)		(73,678)
Due from non-affiliates		-		11,601
Prepaid expenses		26,611		19,377
Increase (decrease) in liabilities:
Accounts payable		11,303		28,875
Accrued expenses		(10,910)		161,691
Accrued interest, related parties		20,398		22,280
Net cash used in operating activities		90,959		(8,221)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (Repayment) of debt		(22,110)		(3,000)
Proceeds from issuance of promissory note - related parties		-		-
Proceeds from promissory note - related parties		(83,302)		6,343
Net cash provided by financing activities		(105,412)		3,343
NET DECREASE IN CASH AND CASH EQUIVALENTS		(14,453)		(4,878)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		16,566		6,567
CASH AND CASH EQUIVALENTS - END OF YEAR		$ 2,113		$ 1,689
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
CASH PAID FOR INCOME TAXES		$ 8,000		$ 6,500

See accompanying unaudited notes to these financial statements.

F-3

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(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”) was initially formed as a business development company.  The Company had its beginning as a closed-end, non-diversified management investment company that had elected to be treated as a business development company under the Investment Company Act of 1940.  We were a diversified, aggressive investment tool that assisted early stage development companies in all aspects of the planning process from inception to entering the public marketplace.  This included assisting with the preparation of financial statements, capitalization tables, valuations, business plans and coordinating public/investor relations efforts.  Our niche was 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 had differing clients in varied industries, our overall portfolio was extremely diversified, which we believe enabled us to offer investors who invest in us a potentially higher return with less risk.  For our management services we received 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 referred to companies in which it invested as “portfolio companies.”

During the nine months ending January 31, 2012, 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-4

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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. 

 Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reported periods. Our management believes the estimates utilized in preparing our financial statements are reasonable. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents are recorded in the balance sheet at cost, which approximates fair value. 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, 2012 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 former 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 January 31, 2012 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-5

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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.

The Company has a return policy whereby the customer can return any product within 60 days of receipt for a full refund excluding shipping and handling. However, historically the Company has accepted returns past 60 days of receipt. The Company provides an allowance for returns based upon past experience and industry knowledge.

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

F-6

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

as incurred or as otherwise stated in the contract based on similar criteria as for management services discussed above.

Interest Income

The Company loaned monies to its former portfolio companies in the past.  These loans, which are evidenced by notes, 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.

F-7

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Reclassifications

Certain reclassifications were made to the January 31, 2011 financial statements in order to conform to the January 31, 2012 financial statement presentation.

Recently Issued Pronouncements

The Company follows ASC 805, Business Combinations.  This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination.

This statement is effective for the Company beginning May 1, 2009 and will change the accounting for business combinations on a prospective basis.

The Company follows ASC 820-10, 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.

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU No. 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU No. 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The provisions of ASU No. 2011-04 will become effective for us on April 1, 2012 and are to be applied prospectively. We do not expect the adoption of the provisions of ASU No. 2011-04 to have a material effect on our financial position, results of operations or cash flows and we do not expect to materially modify or expand our financial statement footnote disclosures.

F-8

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. The presentation requirements will become effective for us on April 1, 2012. As ASU No. 2011-05 applies to financial statement presentation matters, the adoption of ASU No. 2011-05 will not affect our financial position, results of operations or cash flows and we believe our current presentation of comprehensive income complies with the new presentation requirements.

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 nine months ending January 31, 2012, 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.  

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.

F-9

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3– INVESTMENTS (CONTINUED)

At January 31, 2012, 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, 2012		(Level 1)		(Level 2)		(Level 3)
Investments
Affiliate investments			$ 204,709		$ 37,767		$ -		$ 166,942
Non-affiliate investments			930,650		179,899		-		750,751
Total Investments in securities			$ 1,135,359		$ 217,666		$ -		$ 917,693

The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending January 31, 2012:

			Fair Value Measurement Using
			Significant Unobservable Inputs
			(Level 3)
Beginning Balance, October 31, 2011			$ 444,725
Total unrealized gains/(losses) included in change in net assets			472,968
Ending Balance, January 31, 2012			$ 917,751
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.			$ 614,751

The following chart shows the components of change in the financial assets categorized as Level 3, for the nine months ending January 31, 2012:

			Fair Value Measurement Using
			Significant Unobservable Inputs
			(Level 3)
Beginning Balance, April 30, 2011			$ 715,025
Total unrealized gain/(losses)included in change in net assets			202,668
Ending Balance, January 31, 2012			$ 917,693
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.			$ 614,751

F-10

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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, 2012 was $384,000.  The accrual of unrecognized tax provisions at January 31, 2012 amounted to $356,000.  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 2010 remain subject to examination by major tax jurisdictions.

The income tax benefit for the nine months ending January 31, 2012 and 2011 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, 2012		January 31, 2011
Income taxes at U.S. Federal Income Tax rate					$ (217,000)		$ 844,500
State income taxes, net of federal benefit					(75,000)		291,000
Non-deductible share based compensation					-		(3,000)
Realized losses					(103,000)		(114,000)
Change in valuation allowance					-		-
					$ (395,000)		$ 1,018,500

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

					For the Nine		For the Nine
					Months Ending		Months Ending
					January 31, 2012		January 31, 2011
Current:
Federal					$ 22,000		$ 148,000
State					6,000		41,000
Total Current					$ 28,000		$ 189,000
Deferred:
Federal					$ (300,000)		$ 648,500
State					(84,000)		181,000
Total Deferred					$ (384,000)		$ 829,500
Total Income Tax Benefit					$ (356,000)		$ 1,018,500

F-11

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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

					January 31, 2012		April 30, 2011
Deferred tax (asset) liability
Deferred charges					$ (63,800)		$ (66,000)
Net operating loss					(87,000)		(87,000)
Unrealized gains					(107,000)		(385,000)
Capital loss carryforward					(1,129,000)		(1,231,000)
Stock-based compensation					(129,000)		(129,000)
Amortization of deferred revenue from warrants					319,000		319,000
Bad debt					(95,200)		(95,000)
Other					-		-
Total deferred tax asset					$ (1,292,000)		$ (1,674,000)

At April 30, 2010, the Company had a capital loss carryforward of approximately $3,654,716 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, 2012 there is a $173,700 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, 2012 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, 2012		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						$ -		$ -

F-12

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES

		January 31, 2012		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.  Deferred revenue consists of the following:

For the Nine Months Ending January 31, 2012

For the Nine Months Ending January 31, 2011

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-13

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following:

				January 31, 2012		April 30, 2011
Notes payable
Notes payable, D&O Insurance Premium.				$ 2,500		$ 24,610
Notes payable				$ 2,500		$ 24,610
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)				$ 263,567		$ 332,068
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)				10,802		14,802
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, 2012 and January 31, 2011 these advances totaled $19,000 on both dates 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, 2012, 300,000 Stock Options expired.

F-14

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10 – STOCK BASED COMPENSATION (CONTINUED)

The following tables summarize all stock option activity of the Company since April 30, 2011:

		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		$ -
Options Expired		(300,000)		$ 0.20		-		$ -
Outstanding and Exercisable, October 31, 2011		300,000		$ 0.20		7.08		$ -

NOTE 11 – CAPITAL SHARE TRANSACTIONS

During the nine months ended January 31, 2012, the Company recognized $0 of share-based compensation expense, compared to the nine months ended January 31, 2011, in which the Company recognized $7,634 of share-based compensation expense,

NOTE 12 – RELATED PARTY TRANSACTIONS

Notes payable, related parties were $313,568 and $396,869 at January 31, 2011 and April 30, 2011, respectively (NOTE 8).

The total of expenses owed to the officers is $10,802 at January 31, 2012 and $7,213 at April 30, 2011, and are recorded as an accounts payable, related parties.

NOTE 13 – CONTINGENCIES

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. 

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.

F-15

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 14 – SUBSEQUENT EVENTS

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-16