Attached files
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, 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 issued as of December 14, 2012 was 37,927,426. Of this amount, 22,927,426 were outstanding and 15,000,000 were contingently returnable in accordance with specified conditions to be met in the future per an agreement.
Universal Capital Management, Inc. (the “we,” “us ,” “our ,” “it ,” or the “Company”) is filing this report on Form 10-Q for the quarterly period ended October 31, 2012 with the United States Securities and Exchange Commission (“SEC”) without review by the Company’s Independent Registered Public Accounting Firm. As a result, the unaudited financial statements contained in this quarterly report on Form 10-Q may be subject to future adjustment. The Company intends to file an amendment to this quarterly report on Form 10-Q upon the Independent Registered Public Accounting Firm’s review of the unaudited financial statements contained in this quarterly report on Form 10-Q.
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 4. | Controls and Procedures | 4 |
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| PART II - OTHER INFORMATION |
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Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 5 |
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Item 6. | Exhibits | 5 |
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
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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 October 31, 2012 reflects our operations during the fourth 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.
We are currently positioning our Company to expand its business and become a diversified holding company that is engaged in different businesses through the operation of consolidated subsidiaries. We plan to accomplish this expansion through acquisition, merger or the formation of newly created subsidiaries. We are currently in various stages of talks with several target companies that could further the company's goal to become a diversified holding company, but no agreements have been reached to date.
On August 22, 2012 we entered into a memorandum of understanding (“MOU”) with New Bastion Development, Inc., a Florida corporation (“New Bastion”) to document the business terms of a deal to enter into a joint development relationship for the construction of a nitrogen fertilizer plant capable of producing approximately 4,000 MT of granulated urea on a daily basis. This project will be completed by New Bastion Regeneration, Inc. (“NBR”), which is a New Bastion subsidiary company that was formed by New Bastion for the sole purpose of completing the project. Pursuant to the terms of the MOU: (i) the Company agreed to purchase from New Bastion 100,000 issued and outstanding shares of NBR held by New Bastion, representing approximately 12.7% of the outstanding shares of NBR in exchange for 5,000,000 newly issued restricted shares of Universal issued upon the execution of the MOU and $500,000 pursuant to the following schedule: $100,000 within 15 days of execution of the memorandum of understanding; and $400,000 within 60 days of execution of the Agreement. We also received an option to purchase up to 240,000 additional shares of NBR currently owned by New Bastion, which will represent a total ownership of approximately 43% of NBR owned by Universal for an
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additional $4.8 million under terms to be mutually negotiated, assuming no additional shares of NBR are issued. Per the MOU, the Company also issued 15,000,000 shares of common stock to New Bastion on the execution date of the MOU. However, these shares of common stock are being held by the Company in accordance with the option discussed previously to acquire additional ownership in NBR for an additional $4.8 million. As a result, these shares of common stock are contingently returnable and not considered outstanding as of October 31, 2012.
The 5,000,000 shares specified in the MOU were issued to New Bastion and valued at $0.07 per share (closing bid price of Universal on August 21, 2012) or a total of $350,000. However, the $100,000 of cash consideration was not paid within the 15 day period specified.
On October 1, 2012, New Bastion provided a revised framework to Universal within the existing MOU. The revised framework included: $500,000 of cash consideration to be paid pursuant to the following schedule: a) $25,000 on or before October 31, 2012; b) $75,000 on or before December 15, 2012; and c) $400,000 on or before January 15, 2013. The revised framework provided that the dates for the cash consideration may be adjusted by mutual agreement and that New Bastion, at its sole discretion, may elect to accept additional shares of Universal common stock for all or part of the final $400,000 payment.
As of October 31, 2012, the Company had paid New Bastion $15,000 of the $25,000 scheduled payment and the Company recorded the difference of $485,000 as an accrued liability in the accompanying unaudited financial statements. In November 2012, the Company paid New Bastion the additional $10,000 specified per the revised framework.
Results of Operations
Three months ending October 31, 2012 compared to the three months ended October 31, 2011
For the three months ending October 31, 2012, the Company had revenue for services in the amount of $2,382 as compared to $45,804 for the three months ending October 31, 2011.
Total operating expenses for the three months ending October 31, 2012 were $359,029, consisting primarily of professional fees of $271,215, $7,176 of insurance expense, $15,710 of interest expense, $56,387 of bad debt expense and $8,541 of other general and administrative expense. By comparison, total operating expenses for the three months ending October 31, 2011 were $49,024, consisting primarily of professional fees of $8,699, payroll of $10,233, $13,180 of insurance expense, $4,804 of interest expense and $11,983 of other general and administrative expense.
The Company had a net loss of $204,614 for the three months ending October 31, 2012, compared to a net loss of $261,917 for the three months ending October 31, 2011. Included in the calculation of the net loss was a net tax benefit of $120,000 and net tax provision of $25,000 for the three months ending October 31, 2012 and 2011, respectively.
Six months ending October 31, 2012 compared to the six months ended October 31, 2011
For the six months ending October 31, 2012 the Company had revenue for services in the amount of $43,010 compared to $67,504 for the six months ending October 31, 2011.
Total operating expenses for the six months ending October 31, 2012 were $398,445, consisting primarily of professional fees of $277,191, payroll of $12,502, insurance expense of $13,885, interest expense of $20,704, bad debt expense of $56,387, and other general and administrative expense of $17,776. By comparison, total operating expenses for the six months ending October 31, 2012 were $109,509, consisting primarily of $12,626 in professional fees, payroll of $18,161, $33,058 of insurance expense, $14,193 of interest expense and $30,871 of other general and administrative expense.
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The Company realized a net loss of $231,937 for the six months ending October 31, 2012, compared to a net loss of $450,501 for the six months ending October 31, 2011. Included in the calculation of the Company’s net loss were a net tax benefit of $224,000 and net tax provision of $114,000 for the six months ending October 31, 2012 and 2011, respectively. Additionally, the net loss included a loss on disposal of investments of $3,593 and $380,339 for the six months ended October 31, 2012 and 2011 respectively.
Liquidity and Capital Resources
From inception, the Company has relied upon the infusion of capital through capital share transactions for liquidity. The Company had $17,487 of cash at October 31, 2012 as compared to $9,435 at April 30, 2012. Consequently, payment of operating expenses beyond revenue from management fees will have to come from either the disposition of investment securities, borrowed funds, or from the sale of our capital stock. There is no assurance that the 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 October 31, 2012, $901,221 or approximately 71% of our investments are illiquid securities that do not have a market or they are restricted and therefore cannot be traded or sold.
The Company may be forced to dispose all or a portion of its current investment securities if cash liquidity 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
The Company’s critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Unaudited 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.
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 the Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of the 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 the Company’s internal control over financial reporting occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
During the period covered by this report, we sold the following unregistered securities:
Securities issued for services
Date |
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October 12, 2012 |
| Common stock – 1,000,000 shares of common stock. The common stock was valued at $0.7 per share. |
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No underwriters were utilized and no commissions or fees were paid with respect to any of the above transactions. We relied on Section 4(2) of the Securities Act of 1933, as amended, since the transactions did not involve any public offering.
Item 6.
Exhibits.
The following exhibits are included herein:
10.1
Memorandum of Understanding dated August 22, 2012 (incorporated by reference to the Company’s Form 8-K filed on August 28, 2012).
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, 2012 AND 2011
(UNAUDITED)
UNIVERSAL CAPITAL MANAGEMENT, INC.
CONTENTS
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BALANCE SHEET | F-1 |
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STATEMENTS OF OPERATIONS | F-2 |
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STATEMENTS OF CASH FLOWS | F-3 |
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STATEMENT OF CHANGES IN NET ASSETS | F-4 |
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FINANCIAL HIGHLIGHTS | F-5 |
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NOTES TO UNAUDITED FINANCIAL STATEMENTS | F-6 – F-18 |
UNIVERSAL CAPITAL MANAGEMENT, INC.
BALANCE SHEET
(UNAUDITED)
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| October 31, 2012 |
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| April 30, 2012 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
| $ | 17,487 |
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| $ | 9,435 |
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Prepaid expenses |
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| 1,004 |
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| 2,181 |
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Total Current Assets |
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| 18,491 |
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| 11,616 |
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Long Term Assets |
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Investments, net |
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| 1,274,820 |
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| 548,008 |
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Deferred income tax |
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| 1,752,000 |
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| 1,528,000 |
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Notes receivable, net |
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| 97,283 |
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| 153,670 |
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Other long term assets |
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| 1,100 |
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| 1,100 |
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Total Long Term Assets |
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| 3,125,203 |
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| 2,230,778 |
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TOTAL ASSETS |
| $ | 3,143,694 |
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| $ | 2,242,394 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
| $ | 336,261 |
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| $ | 327,583 |
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Accounts payable, related parties |
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| 10,000 |
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| 10,802 |
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Notes payable |
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| 25,100 |
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| 10,100 |
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Accrued liability – joint venture |
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| 485,000 |
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| - |
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Total Current Liabilities |
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| 856,361 |
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| 348,485 |
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Long Term Liabilities |
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Accrued expenses |
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| 203,171 |
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| 195,097 |
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Note payable, related parties |
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| 282,903 |
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| 294,696 |
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Accrued interest |
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| 92,050 |
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| 92,050 |
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Accrued interest, related parties |
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| 107,596 |
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| 97,316 |
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Total Long Term Liabilities |
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| 685,720 |
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| 679,159 |
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TOTAL LIABILITIES |
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| 1,542,081 |
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| 1,027,644 |
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CONTINGENCIES (NOTE 13) |
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STOCKHOLDERS’ EQUITY |
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Common stock, $0.001 par value, 50,000,000 shares authorized;22,127,426 and 13,287,430 shares issued and outstanding at October 31, 2012 and April 30, 2012 |
| $ | 22,127 |
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| $ | 13,287 |
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Additional paid-in capital |
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| 8,686,202 |
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| 8,076,242 |
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Beg. Retained Earnings |
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| (6,874,779 | ) |
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| (4,431,332 | ) |
Net Income (Loss) |
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| (231,937 | ) |
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| (2,443,447 | ) |
End. Retained Earnings |
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| (7,106,716 | ) |
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| (6,874,779 | ) |
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TOTAL STOCKHOLDERS’ EQUITY |
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| 1,601,613 |
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| 1,214,750 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 3,143,694 |
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| $ | 2,242,394 |
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Equivalent per share value based on 22,127,426 and 13,287,430 shares of capital stock outstanding as of October 31, 2012 and April 30, 2012 |
| $ | 0.07 |
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| $ | 0.09 |
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See accompanying unaudited notes to these unaudited financial statements.
F-1
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
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| For the Three |
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| For the Six |
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| Months Ending |
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| Months Ending |
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| Months Ending |
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| October 31, 2012 |
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| October 31, 2011 |
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| October 31, 2012 |
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| October 31, 2011 |
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REVENUES |
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Management services |
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| 2,382 |
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| 45,804 |
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| 43,010 |
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| 67,504 |
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Accounting services |
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| - |
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| - |
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| - |
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| - |
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TOTAL REVENUES |
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| 2,382 |
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| 45,804 |
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| 43,010 |
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| 67,504 |
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OPERATING EXPENSES |
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Salaries and wages |
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| - |
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| 10,233 |
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| 12,502 |
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| 18,161 |
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Professional fees |
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| 271,215 |
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| 8,699 |
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| 277,191 |
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| 12,626 |
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Insurance |
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| 7,176 |
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| 13,180 |
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| 13,885 |
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| 33,058 |
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Interest expense |
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| 15,710 |
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| 4,804 |
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| 20,704 |
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| 14,193 |
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General and administrative |
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| 8,541 |
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| 11,983 |
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| 17,776 |
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| 30,871 |
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Bad Debt Expense |
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| 56,387 |
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| - |
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| 56,387 |
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Depreciation expense |
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| - |
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| 125 |
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| - |
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| 600 |
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TOTAL OPERATING EXPENSES |
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| 359,029 |
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| 49,024 |
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| 398,445 |
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| 109,509 |
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LOSS FROM OPERATIONS |
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| (356,647 | ) |
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| (3,220 | ) |
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| (355,435 | ) |
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| (42,005 | ) |
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OTHER INCOME/(LOSS) |
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Refunds |
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| - |
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| - |
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| - |
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| - |
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Realized loss on disposal of investments |
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| (3,593 | ) |
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| (195,000 | ) |
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| (3,593 | ) |
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| (380,339 | ) |
Unrealized appreciation (depreciation) on investments |
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| 27,824 |
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| (88,095 | ) |
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| (104,711 | ) |
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| 36,495 |
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Other Income |
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| 7,802 |
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| 49,348 |
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| 7,802 |
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| 49,348 |
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TOTAL OTHER INCOME/(LOSS) |
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| 32,033 |
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| (233,747 | ) |
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| (100,502 | ) |
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| (294,496 | ) |
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Loss before income taxes and related interest |
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| (324,614 | ) |
|
| (236,967 | ) |
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| (455,937 | ) |
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| (336,501 | ) |
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|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
| 120,000 |
|
|
| (25,000 | ) |
|
| 224,000 |
|
|
| (114,000 | ) |
Penalties and interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
| $ | (204,614 | ) |
| $ | (261,967 | ) |
| $ | (231,937 | ) |
| $ | (450,501 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | (0.02 | ) |
| $ | (0.08 | ) |
Diluted |
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | (0.02 | ) |
| $ | (0.08 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 15,012,781 |
|
|
| 5,912,426 |
|
|
| 15,012,781 |
|
|
| 5,912,426 |
|
Diluted |
|
| 15,012,781 |
|
|
| 5,912,426 |
|
|
| 15,012,781 |
|
|
| 5,912,426 |
|
See accompanying notes to these unaudited financial statements.
F-2
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
| For the Six |
|
| For the Six |
| ||
|
| Months Ending |
|
| Months Ending |
| ||
|
| October 31, 2012 |
|
| October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net increase (decrease) in net assets resulting from operations |
| $ | (231,937 | ) |
| $ | (450,501 | ) |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Sale (Purchase) of investment securities |
|
| (342,930 | ) |
|
| 77,336 |
|
Loss on sale of investments |
|
| (3,593 | ) |
|
| 380,339 |
|
Acquisition of warrants for sale of stock |
|
| - |
|
|
| - |
|
Investment securities received in exchange for management services |
|
| - |
|
|
| - |
|
Depreciation expense |
|
| - |
|
|
| 599 |
|
Stock based compensation expense |
|
| - |
|
|
| - |
|
Net unrealized (appreciation) depreciation on investments |
|
| 104,711 |
|
|
| (36,537 | ) |
Deferred income taxes |
|
| (224,000 | ) |
|
| 119,000 |
|
Current income taxes |
|
| - |
|
|
| (5,000 | ) |
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 56,387 |
|
|
| (49,296 | ) |
Notes receivable affiliates |
|
| - |
|
|
| - |
|
Receivable – non affiliates |
|
| - |
|
|
| - |
|
Prepaid Expenses |
|
| 1,177 |
|
|
| 4,749 |
|
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 7,876 |
|
|
| (272 | ) |
Accrued expenses |
|
| 8,074 |
|
|
| (7,910 | ) |
Accrued interest, related parties |
|
| 10,280 |
|
|
| 14,109 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
| (613,955 | ) |
|
| 46,616 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds (Repayment) of debt |
|
| 15,000 |
|
|
| (4,799 | ) |
Issuance of Common Stock |
|
| 618,800 |
|
|
|
|
|
Proceeds from issuance of promissory note - related parties |
|
| - |
|
|
| - |
|
Proceeds from promissory note - related parties |
|
| (11,793 | ) |
|
| (43,000 | ) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
| 622,007 |
|
|
| (47,799 | ) |
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 8,052 |
|
|
| (1,183 | ) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |
|
| 9,435 |
|
|
| 16,566 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF YEAR |
| $ | 17,487 |
|
| $ | 15,383 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 2,000 |
|
| $ | 5,000 |
|
Accrued liability for joint venture obligations |
| $ | 485,000 |
|
| $ | - |
|
See accompanying notes to these unaudited financial statements.
F-3
UNIVERSAL CAPITAL MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
|
| For the Six |
|
| For the Six |
| ||
|
| Months Ending |
|
| Months Ending |
| ||
|
| October 31, 2012 |
|
| October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | (231,937 | ) |
| $ | (450,501 | ) |
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
|
|
|
|
|
Issuance of Common Stock |
|
| 618,800 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
NET CAPITAL SHARE TRANSACTIONS |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
TOTAL DECREASE |
|
| 386,863 |
|
|
| (450,501 | ) |
|
|
|
|
|
|
|
|
|
NET ASSETS, BEGINNING OF YEAR |
|
| 1,214,750 |
|
|
| 1,769,594 |
|
|
|
|
|
|
|
|
|
|
NET ASSETS, END OF YEAR |
| $ | 1,601,613 |
|
| $ | 1,319,093 |
|
See accompanying notes to these unaudited financial statements.
F-4
UNIVERSAL CAPITAL MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
|
| For the Six Months Ending October 31, 2012 |
|
| For the Six Months Ending October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
PER SHARE INFORMATION |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Net asset value, beginning of period |
| $ | 0.09 |
|
| $ | 0.30 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations, net of taxes (1) |
|
| (0.01 | ) |
|
| - |
|
Net realized loss on investments, net of taxes (1) |
|
| - |
|
|
| (0.04 | ) |
Net unrealized appreciation (depreciation) on investments, net of taxes (2) |
|
| - |
|
|
| 0.01 |
|
Net increase from stock transactions (1) |
|
| (0.01 | ) |
|
| - |
|
|
|
| (0.02 | ) |
|
| (0.03 | ) |
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
| $ | 0.07 |
|
| $ | 0.27 |
|
|
|
|
|
|
|
|
|
|
Per share market value, end of period |
| $ | 0.27 |
|
| $ | 0.09 |
|
|
|
|
|
|
|
|
|
|
Investment return, based on net asset value at end of period |
|
| -3.57 | % |
|
| -10.00 | % |
|
|
|
|
|
|
|
|
|
RATIO/SUPPLEMENTAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period |
| $ | 1,601,603 |
|
| $ | 1,319,093 |
|
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets |
|
| 56.59 | % |
|
| 14.18 | % |
Ratio of net income (loss) from operations to average net assets |
|
| 6.11 | % |
|
| 15.13 | % |
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding during the period |
|
| 15,012,781 |
|
|
| 5,912,426 |
|
————————————
(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 unaudited notes to these financial statements.
F-5
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,” “it”, “us,” “our”) was initially formed as a business development company (“BDC”). 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 believed 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.”
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 Business Development Company (“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 October 31, 2012 reflects our operations during the fourth 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.
We are currently positioning our Company to expand its business and become a diversified holding company that is engaged in different businesses through the operation of consolidated subsidiaries. We plan to accomplish this expansion through acquisition, merger or the formation of newly created subsidiaries. We are currently in various stages of talks with several target companies that could further the company's goal to become a diversified holding company, but no agreements have been reached to date.
F-6
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and 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, 2012 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage of $250,000.
Accounts Receivable
Accounts receivable consist of fees for services provided by the Company and are reported at fair value. 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.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. For financial accounting purposes, depreciation is generally computed by the straight-line method over the following useful lives:
Furniture and fixtures |
| 5 to 7 years |
Computer and office equipment |
| 3 to 7 years |
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, accounts payable and accrued expenses. The carrying values of cash, receivables, accounts payable and accrued expenses approximate fair value because of their short maturities.
The carrying value of the notes payable approximates fair value since the interest rate associated with the debt approximates the current market interest rates.
Revenue Recognition
Management services
We 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.
Accounting Services
The Company provides accounting and other administrative services to its clients. 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-7
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Product Sales
We also 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.
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.
F-8
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
Stock-Based Compensation
The Company uses ASC 718, Compensation – Share Based Compensation to recognize compensation expense measured at fair value when the Company obtains employee services in stock-based payment transactions.
Net Income (loss) per Common Share
The Company computes earnings (loss) per share in accordance with ASC 260-10, Earnings Per Share. ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported. Accordingly, we did not include any potentially dilutive securities at October 31, 2012, and 2011, respectively.
The Company had issued 15,000,000 shares of common stock as of October 31, 2012 in accordance with a Memorandum of Understanding with a third party – see Note 3 – Investments. These shares are considered to be contingently returnable (that is, subject to recall) because of certain future conditions that must be met by the Company. As of October 31, 2012, these shares have been excluded from the weighted average shares outstanding.
Reclassifications
Certain reclassifications were made to the October 31, 2011 financial statements in order to conform to the October 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 non-controlling 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.
F-9
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 its 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.
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.
F-10
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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, 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.
At October 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 |
| ||||
|
| Fair Value |
|
| Active Markets for |
|
| Observable |
|
| Unobservable |
| ||||
|
| October 31, |
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
| ||||
|
| 2012 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investments |
| $ | 1,274,820 |
|
| $ | 373,599 |
|
| $ | - |
|
| $ | 901,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments in securities |
| $ | 1,274,820 |
|
| $ | 373,599 |
|
| $ | - |
|
| $ | 901,221 |
|
F-11
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending October 31, 2012:
|
| Fair Value Measurement Using |
| |
|
| Significant Unobservable Inputs |
| |
|
| (Level 3) |
| |
|
|
|
| |
Beginning Balance, July 31, 2012 |
| $ | 415,473 |
|
|
|
|
|
|
Transfers into Level 3 |
| $ | 548,600 |
|
|
|
|
|
|
Total unrealized gains/(losses) included in change in net assets |
| $ | (62,852 | ) |
|
|
|
|
|
Ending Balance, October 31, 2012 |
| $ | 901,221 |
|
|
|
|
|
|
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. |
| $ | (62,852 | ) |
The following chart shows the components of change in the financial assets categorized as Level 3, for the nine months ending October 31, 2012:
|
| Fair Value Measurement Using |
| |
|
| Significant Unobservable Inputs |
| |
|
| (Level 3) |
| |
|
|
|
| |
Beginning Balance, April 30, 2012 |
| $ | 548,008 |
|
|
|
|
|
|
Transfers into Level 3 |
| $ | 548,600 |
|
|
|
|
|
|
Total unrealized gain/(losses)included in change in net assets |
|
| (195,387 | ) |
|
|
|
|
|
Ending Balance, October 31, 2012 |
| $ | 901,221 |
|
|
|
|
|
|
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. |
| $ | (195,387 | ) |
F-12
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
On August 22, 2012 we entered into a memorandum of understanding (“MOU”) with New Bastion Development, Inc., a Florida corporation (“New Bastion”) to document the business terms of a deal to enter into a joint development relationship for the construction of a nitrogen fertilizer plant capable of producing approximately 4,000 MT of granulated urea on a daily basis. This project will be completed by New Bastion Regeneration, Inc. (“NBR”), which is a New Bastion subsidiary company that was formed by New Bastion for the sole purpose of completing the project. Pursuant to the terms of the MOU: (i) the Company agreed to purchase from New Bastion 100,000 issued and outstanding shares of NBR held by New Bastion, representing approximately 12.7% of the outstanding shares of NBR in exchange for 5,000,000 newly issued restricted shares of Universal issued upon the execution of the MOU and $500,000 pursuant to the following schedule: $100,000 within 15 days of execution of the memorandum of understanding; and $400,000 within 60 days of execution of the Agreement. We also received an option to purchase up to 240,000 additional shares of NBR currently owned by New Bastion, which will represent a total ownership of approximately 43% of NBR owned by Universal for an additional $4.8 million under terms to be mutually negotiated, assuming no additional shares of NBR are issued. Per the MOU, the Company also issued 15,000,000 shares of common stock to New Bastion on the execution date of the MOU. However, these shares of common stock are being held by the Company in accordance with the option discussed previously to acquire additional ownership in NBR for an additional $4.8 million. As a result, these shares of common stock are contingently returnable and not considered outstanding as of October 31, 2012.
The 5,000,000 shares specified in the MOU were issued to New Bastion and valued at $0.07 per share (closing bid price of Universal on August 21, 2012) or a total of $350,000. However, the $100,000 of cash consideration was not paid within the 15 day period specified.
On October 1, 2012, New Bastion provided a revised framework to Universal within the existing MOU. The revised framework included: $500,000 of cash consideration to be paid pursuant to the following schedule: a) $25,000 on or before October 31, 2012; b) $75,000 on or before December 15, 2012; and c) $400,000 on or before January 15, 2013. The revised framework provided that the dates for the cash consideration may be adjusted by mutual agreement and that New Bastion, at its sole discretion, may elect to accept additional shares of Universal common stock for all or part of the final $400,000 payment.
As of October 31, 2012, the Company had paid New Bastion $15,000 of the $25,000 scheduled payment and the Company recorded the difference of $485,000 as an accrued liability in the accompanying unaudited financial statements. In November 2012, the Company paid New Bastion the additional $10,000 specified per the revised framework.
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, 2012 was $203,171. The accrual of unrecognized tax provisions at October 31, 2012 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.
F-13
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The income tax benefit for the six months ending October 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 Six |
|
| For the Six |
| ||
|
| Months Ending |
|
| Months Ending |
| ||
|
| October 31, 2012 |
|
| October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
Income taxes at U.S. Federal Income Tax rate |
| $ | 191,000 |
|
| $ | (8,000 | ) |
State income taxes, net of federal benefit |
|
| (29,400 |
|
|
| (3,000 | ) |
Non-deductible share based compensation |
|
| - |
|
|
| - |
|
Realized losses |
|
| 3,600 |
|
|
| (103,000 | ) |
Change in valuation allowance |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| $ | 224,000 |
|
| $ | (114,000 | ) |
The income tax (provision) benefit consists of the following:
|
| For the Six |
|
| For the Six |
| ||
|
| Months Ending |
|
| Months Ending |
| ||
|
| October 31, 2012 |
|
| October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
Current: |
|
|
|
|
|
| ||
Federal |
| $ | 226,000 |
|
| $ | 6,000 |
|
State |
|
| 64,000 |
|
|
| (1,000 | ) |
|
|
|
|
|
|
|
|
|
Total Current |
| $ | 290,000 |
|
| $ | 5,000 |
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
| $ | (52,000 | ) |
| $ | (93,000 | ) |
State |
|
| (14,000 | ) |
|
| (26,000 | ) |
|
|
|
|
|
|
|
|
|
Total Deferred |
| $ | (66,000 | ) |
| $ | (119,000 | ) |
|
|
|
|
|
|
|
|
|
Total Income Tax Benefit (Provision) |
| $ | 224,000 |
|
| $ | (114,000 | ) |
The components of deferred tax (assets) liabilities are as follows:
|
| October 31, 2012 |
|
| April 30, 2012 |
| ||
|
|
|
|
|
|
| ||
Deferred tax (asset) liability |
|
|
|
|
|
| ||
Deferred charges |
| $ | (229,000 | ) |
| $ | (66,000 | ) |
Net operating loss |
|
| (115,000 | ) |
|
| (87,000 | ) |
Unrealized gains |
|
| (385,000 | ) |
|
| (385,000 | ) |
Capital loss carryforward |
|
| (1,118,000 | ) |
|
| (1,118,000 | ) |
Stock-based compensation |
|
| (129,000 | ) |
|
| (129,000 | ) |
Amortization of deferred revenue from warrants |
|
| 319,000 |
|
|
| 319,000 |
|
Bad debt |
|
| (95,000 | ) |
|
| (95,000 | ) |
|
|
|
|
|
|
|
|
|
Total deferred tax asset |
| $ | (1,752,000 | ) |
| $ | (1,561,000 | ) |
F-14
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
At October 31, 2012, the Company had a capital loss carryforward of approximately $3,691,726 which if not used will expire in 2015.
At October 31, 2012 there is a $203,171 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 $295,221. The Company has agreements with both agencies to pay a minimum per month to avoid any collections or additional liens, with the understanding that if the Company has a liquidity event, they will be paid in full.
NOTE 5 – NOTES RECEIVABLE
|
| October 31, 2012 |
|
| April 30, 2012 |
| ||
|
|
|
|
|
|
| ||
Notes Receivable |
|
|
|
|
|
|
|
|
MedicaView |
| $ | 49,221 |
|
| $ | 49,221 |
|
BF Acquisition Group V, Inc. |
|
| 48,062 |
|
|
| 48,062 |
|
PR Specialists/Mediavix |
|
| - |
|
|
| 56,387 |
|
|
|
|
|
|
|
|
|
|
Total Notes Receivable |
| $ | 97,283 |
|
| $ | 153,670 |
|
NOTE 6 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE
The deferred revenue represents unearned management fee income. Income is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract. In accordance with ASC Subtopic 505-50, since the shares received by the Company are non-refundable, the value of the contract is determined by the number of shares the Company receives at the closing market price on the day of the contract (commitment date). Warrants are valued using the Black-Scholes method. Deferred revenue consists of the following:
|
| For the Six Months Ending October 31, 2012 |
|
| For the Six Months Ending October 31, 2011 |
| ||
|
|
|
|
|
|
| ||
Innovation Industries |
|
|
|
|
|
| ||
Received cash payments for Management Services |
| $ | 43,010 |
|
| $ | 67,504 |
|
|
|
|
|
|
|
|
|
|
Total Management Services Revenue |
| $ | 40,010 |
|
| $ | 67,504 |
|
F-15
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – NOTES PAYABLE
Notes payable consists of the following:
|
| October 31, 2012 |
|
| April 30, 2012 |
| ||
Notes payable |
|
|
|
|
|
| ||
Notes payable, D&O Insurance Premium. |
| $ | 2,100 |
|
| $ | 2,100 |
|
|
|
|
|
|
|
|
|
|
Notes Payable, related party – No interests accrued |
| $ | 8,000 |
|
| $ | 8,000 |
|
|
|
|
|
|
|
|
|
|
Notes Payable. Interest accrued at 3% per month beginning on October 17, 2012. Principal and Interest payable in November 2012 (NOTE 10) |
| $ | 10,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Notes Payable. Interest accrued at 2.5% per month beginning on October 1, 2012. Principal and Interest payable in December 2012 (NOTE 10) |
| $ | 5,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Accrued Liability – Joint Venture – per MOU dated August 2012 and amended in October 2012 |
| $ | 485,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Total Notes payable |
| $ | 510,000 |
|
| $ | 10,100 |
|
|
|
|
|
|
|
|
|
|
Notes payable, related party |
|
|
|
|
|
|
|
|
Notes payable, related party. Interest accrued at 8.0% beginning on November 1, 2008. Principal and interest payable on demand. (NOTE 10) |
| $ | 232,903 |
|
| $ | 237,696 |
|
|
|
|
|
|
|
|
|
|
Notes payable, related party. Interest accrued at 8.0% beginning on October 19, 2009 Principal and interest payable on demand. (NOTE 10) |
| $ | 50,000 |
|
| $ | 50,000 |
|
|
|
|
|
|
|
|
|
|
Promissory notes payable, related party. Interest accrued at 5.0% per annum. Principal and interest payable on demand. (NOTE 10) |
| $ | 10,000 |
|
| $ | 10,802 |
|
|
|
|
|
|
|
|
|
|
Total Notes payable, related party |
| $ | 292,903 |
|
| $ | 298,498 |
|
F-16
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – 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, 2012, 1,000,000 are available for issuance.
The following tables summarize all stock option activity of the Company since April 30, 2012:
|
| Stock Options Outstanding |
| |||||||||||||
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
| ||||
|
| Number |
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||
|
| of Shares |
|
| Exercise Price |
|
| Life (Years) |
|
| Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding, April 30, 2012 |
|
| 600,000 |
|
| $ | 0.20 |
|
|
| 6.33 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No activity |
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable, October 31, 2012 |
|
| 600,000 |
|
| $ | 0.20 |
|
|
| 6.33 |
|
| $ | - |
|
NOTE 9 – CAPITAL SHARE TRANSACTIONS
During the six months ended October 31, 2012, the Company recognized no share-based compensation expense as compared to the six months ended October 31, 2011, in which the Company recognized $7,634 of share-based compensation expense.
On August 21, 2012, the Company privately issued 2,840,000 shares of its restricted common stock, in exchange for $142,000 in services performed by the Company’s current and former employees and professional service providers. Three purchasers were accredited investors, six purchasers were non-accredited investors. The Company relied on Section 4(2) of the Securities Act of 1933 as amended, since the transaction did not involve any public offering. No underwriters were utilized and no commissions or fees were paid with respect to the transaction.
On October 12, 2012, the Company privately issued 1,000,000 shares of its restricted common stock, in exchange for $70,000 in services performed by a consultant for the Company. The purchaser was an accredited investor. The registrant relied on Section 4(2) of the Securities Act of 1933 as amended, since the transaction did not involve any public offering. No underwriters were utilized and no commissions or fees were paid with respect to the transaction.
NOTE 10 – RELATED PARTY TRANSACTIONS
Notes payable, related parties were $292,903 and $298,498 at October 31, 2012 and April 30, 2012, respectively (NOTE 7).
Notes payable were $510,000 and $10,100 at October 31, 2012 and April 30, 2012, respectively (NOTE 7).
F-17
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 – 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 sought 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. On June 25, 2012, the Company dismissed the suit against the defendants with prejudice.
On May 9, 2009 the law firm of Stradley Ronon filed a lawsuit against the Company in the U.S. District Court for the District of Delaware for failure of the Company to pay legal fees owed in the amount of $166,129. On April 2, 2009, in order to avoid the cost of litigation, the Company agreed to accept a consent of judgment against it in the amount of $166,129.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to October 31, 2012 and through the issue date of the unaudited financial statements, the Company received $80,000 of cash proceeds from the sale of 800,000 shares of common stock at $0.10 per share. These shares were sold through a Regulation S offering.
Management evaluated all activity of the Company through the issue date of the unaudited financial statements and concluded that no additional subsequent events other than above have occurred that would require recognition in the unaudited financial statements.
F-18