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MAJOR LEAGUE FOOTBALL INC - Quarter Report: 2005 October (Form 10-Q)

Universal Capital Management 10Q


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, 2005
 
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)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ Noý
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ Noý
 
The number of shares of the registrant’s Common Stock outstanding as of December 14, 2005 was 5,112,468.
 
 

 


PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements
 
UNIVERSAL CAPITAL MANAGEMENT, INC.
(A BUSINESS DEVELOPMENT COMPANY)
STATEMENT OF ASSETS AND LIABILITIES

           
   
October 31, 2005
  
April 30, 2005
  
   
(Unaudited)
  
(Audited)
  
           
ASSETS
          
Investment in Securities, at fair value (cost: $1,339,600 and 614,500)
    
2,777,967
   
2,782,976
 
Cash and Cash Equivalents
    
100,601
   
158,453
 
Miscellaneous Receivables
    
46,145
   
27,095
 
Due from Affiliates
    
10,425
   
19,820
 
Prepaid Expenses
    
7,775
   
9,371
 
Property and Equipment, net
    
11,127
   
12,077
 
Rent Deposit
    
1,100
   
1,100
 
TOTAL ASSETS
  
$
2,955,140
  
$
3,010,892
  
               
LIABILITIES
              
Accounts Payable and Accrued Expenses
    
39,422
   
61,854
 
Deferred Revenue
    
481,800
   
-
 
Deferred Income Taxes
    
269,500
   
653,000
 
TOTAL LIABILITIES
 
$
790,722
  
$
714,854
  
               
NET ASSETS
  
$
2,164,418
  
$
2,296,038
  
               
ANALYSIS OF NET ASSETS:
              
Net Capital Paid in on Shares of Capital Stock
    
1,758,975
   
1,305,375
 
Distributable Earnings
    
405,443
   
990,663
 
Net Assets
  
$
2,164,418
  
$
2,296,038
  
               
Equivalent per share value based on 5,076,800 shares
              
of capital stock outstanding as of October 31, 2005
              
and 4,808,200 shares of capital stock outstanding
              
as of April 30, 2005
  
$
0.43
  
$
0.48
  

 





UNIVERSAL CAPITAL MANAGEMENT, INC.
(A BUSINESS DEVELOPMENT COMPANY)
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2005
(Unaudited)
 
       
% of
  
Number of
    
Common Stocks - United States - 100%
  
Business
  
Portfolio
  
Shares
  
Fair Value
                 
BF Acquisition Group V, Inc.
  
Inactive company
  
0.06%
  
100,000
 
$1,625
                 
IPI Fundraising, Inc.
  
Sales and distribution of
  
0.36%
  
575,000
 
9,958
   
fundraising products
            
                 
Gelstat Corporation
  
Consumer health care
  
1.99%
  
221,429
 
55,357
   
Company
            
                 
Neptune Industries, Inc.
  
Seafood production
  
0.29%
  
47,619
 
8,095
                 
PSI - TEC Holdings, Inc.
  
Plastics engineering
  
45.36%
  
787,500
 
1,260,000
                 
Theatre Xtreme Entertainment Group, Inc.
  
Home theater sales and
  
7.24%
  
575,000
 
201,250
   
Installation
            
                 
BroadRelay Holdings, Inc.
  
High speed internet media
  
44.70%
  
564,401
 
1,241,682
                 
                 
Total (aggregate cost $1,339,600)
      
100.00%
      
$2,777,967
 
 

 




UNIVERSAL CAPITAL MANAGEMENT, INC.
(A BUSINESS DEVELOPMENT COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 2005 AND FOR THE PERIOD AUGUST 16, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004
(Unaudited)

   
Three months ended
  
Six months ended
  
 
      
August 16, 2004
      
       
(Inception) to
      
   
October 31, 2005
  
October 31, 2004
  
October 31, 2005
  
               
Income
              
Management Services
  
$
243,300
  
$
10,000
  
$
243,300
  
                     
Expenses
                    
Depreciation
    
119
   
350
   
950
 
Dues and Subscriptions
    
285
   
250
   
420
 
Fees and Commissions
    
5,358
   
19
   
9,561
 
Interest Expense
    
466
   
-
   
929
 
Insurance
    
15,943
   
-
   
32,090
 
Marketing
    
-
   
-
   
400
 
Office Expenses and Supplies
    
(760
)
  
8,579
   
1,639
 
Payroll
    
125,192
   
-
   
232,500
 
Payroll Taxes
    
5,339
   
-
   
12,927
 
Postage, Delivery and Shipping
    
711
   
236
   
1,706
 
Professional Fees
    
60,409
   
13,905
   
155,263
 
Rent
    
4,300
   
5,020
   
8,200
 
Telephone
    
741
   
1,157
   
1,874
 
Travel and Entertainment
    
8,275
   
2,001
   
22,055
 
Utilities
    
593
   
622
   
1,397
 
     
226,971
   
32,139
   
481,911
 
                     
Income (Loss) from Operations
    
16,329
   
(22,139
)
  
(238,611
)
                     
Unrealized Appreciation (Depreciation) on Investments
    
(62,734
)
  
1,204,196
   
(730,109
)
                     
Income Tax Benefit (Deferred)
    
16,900
   
(470,000
)
 
383,500
 
                     
Net Increase (Decrease) in Net Assets Resulting from Operations
  
$
(29,505
)
$
712,057
  
$
(585,220
)

 

 

UNIVERSAL CAPITAL MANAGEMENT, INC.
(A BUSINESS DEVELOPMENT COMPANY)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2005
(Unaudited)
 
INCREASE IN NET ASSETS FROM OPERATIONS
      
Loss from operations
  
$
(238,611
)
Unrealized depreciation on investments, net of taxes
    
(346,609
)
         
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
(585,220
)
         
CAPITAL SHARE TRANSACTIONS
    
453,600
 
         
TOTAL DECREASE
    
(131,620
)
         
NET ASSETS, BEGINNING OF PERIOD
    
2,296,038
 
         
NET ASSETS, END OF PERIOD
  
$
2,164,418
  

 


UNIVERSAL CAPITAL MANAGEMENT, INC.
(A BUSINESS DEVELOPMENT COMPANY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2005 AND FOR THE PERIOD AUGUST 16, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004
(Unaudited)
 
       
August 16, 2004 (Inception)
  
   
October 31, 2005
  
to October 31, 2004
  
           
CASH FLOWS FROM OPERATING ACTIVITIES
          
Net increase (decrease) in net assets resulting from operations
  
$
(585,220
)
$
712,057
  
Adjustments to reconcile net decrease in net assets from
              
operations to net cash used in operating activities:
              
Purchase of investment securities
    
-
   
(300,000
)
Investment securities received in exchange for management services
    
(243,300
)
  
(10,000
)
Depreciation expense
    
950
   
350
 
Net unrealized (appreciation) depreciation on investments
    
730,109
   
(1,204,196
)
Deferred Income Taxes
    
(383,500
)
  
470,000
 
Net changes in miscellaneous receivables
    
(19,050
)
  
-
 
Net changes in due from affiliates
    
9,395
   
(47,829
)
               
Prepaid expenses
    
1,596
   
-
 
Net changes in accounts payable and accrued expenses
    
(22,432
)
  
10,487
 
Net cash used in operating activities
    
(511,452
)
  
(369,131
)
               
CASH FLOWS FROM INVESTING ACTIVITIES
              
Purchase of property and equipment
    
-
    
(9,801
)
Lease deposit
    
-
    
(1,100
)
Net cash used in investing activities
    
-
   
(10,901
)
               
CASH FLOWS FROM FINANCING ACTIVITIES
              
Proceeds from issuance of common stock
    
453,600
   
419,600
 
               
NET DECREASE IN CASH
    
(57,852
)
  
39,568
 
               
CASH, BEGINNING OF YEAR
    
158,453
   
-
 
               
CASH, END OF PERIOD
  
$
100,601
  
$
39,568
  



UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim period financials statements of Universal Capital Management, Inc. (the “Company”) are unaudited, pursuant to certain rules and regulations of the Securities and Exchange Commission, and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results for the period indicated. Such results, however, are not necessarily indicative of results that may be expected for the full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the financial statements and noted thereto included in the Company’s annual report on Form 10-K and amendments thereto as filed with the Securities and Exchange Commission.

Nature of Business

The Company is a newly organized (inception date of August 16, 2004), closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. The Company is primarily engaged in the business of furnishing capital and making available managerial assistance to companies that do not have ready access to capital through conventional channels. The Company refers to companies in which it invests as “portfolio companies.”

Security Valuations

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. Restricted securities and other securities (small, privately-held companies) for which quotations are not readily available are valued at fair value determined by the board of directors.

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.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure on contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Cash and Equivalents

For 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 equivalent.


UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Income Taxes

Deferred tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred income taxes arise principally from the recognition of unrealized gains or losses from appreciation 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 or refundable for the period plus or minus the change during the period in deferred tax assets or liabilities.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. At times, the Company’s balances with financial institutions may exceed the insured amount provided by the Federal Deposit Insurance Corporation.

Recently Issued Accounting Pronouncements

In December 2004, the FASB revised SFAS 123, “Accounting for Stock-Based Compensation” to require all companies to expense the fair value of employee stock options. SFAS 123R is effective at the beginning of the next fiscal year that begins after December 15, 2005 for a small business issuer.

 
UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
                   
                   
                   
NOTE 2 - INVESTMENTS
              
                   
 
Portfolio Companies consist of the following:
              
                   
 
   
Number of
Shares Held
at October 31, 2005
  
Cost
  
Value at
October 31, 2005
  
Unrealized
Gain / (Loss)
  
                   
Affiliated Securities*
                          
 BF Acquisition Group V, Inc.
    
100,000
 
$
1,625
  
$
1,625
  
$
-
  
                           
Total Affiliated Securities
          
1,625
   
1,625
   
-
  
                           
                           
Non-affiliated Securities
                          
 IPI Fundraising, Inc.***
    
575,000
   
6,625
    
9,958
    
3,333
  
 Gelstat Corporation
    
221,429
   
350,000
    
55,357
    
(294,643
)
 Neptune Industries, Inc.**
    
47,619
   
20,000
   
8,095
    
(11,905
)
 PSI - TEC Holdings, Inc.
    
787,500
   
619,000
   
1,260,000
    
641,000
  
 Theater Xtreme Entertainment Group, Inc.
    
575,000
   
201,250
   
201,250
    
0
  
 BroadRelay Holdings, Inc.
    
564,401
   
141,100
   
1,241,682
    
1,100,582
  
                           
Total Non-Affiliated Securities
          
1,337,975
   
2,776,342
    
1,438,367
  
                           
                           
                           
Total Securities
        
$
1,339,600
  
$
2,777,967
  
$
1,438,367
  
                           
                           
                           
                           
 * Investments in portfolio companies in which the Company owns 5% or more of the outstanding voting securities are deemed an "affiliated person."
      
   ** On June 9, 2005, there was a six for one reverse split on Neptune Industries, Inc. shares.
      
*** BF Acquisition Group III, Inc. and FundraisingDirect.com merged into IPI Fundraising Inc. in October 2005.
      


UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 3 - INCOME TAXES
                
                     
 
As an investment company organized as a corporation, the Company is taxable as a corporation. As discussed
 
in Note 1, the Company utilizes the assets and liability method of accounting for income taxes in accordance
 
with Statement of Financial Accounting Standards No. 109 (SFAS 109).
          
                     
 
The deferred income tax benefit consists of the following:
            
 
 Deferred:
        
 Federal
  
$
(301,300
)
 State
    
(82,200
)
         
 Total Deferred
  
$
(383,500
)
         
 
The effective tax rate differs from the U.S. statutory federal income tax rate of 34% as described below:
  
                     
 
 Income tax at statutory rate
  
$
(329,800
)
 State income taxes, net of federal taxes
    
(53,700
)
         
   
$
(383,500
)
         
 
Deferred income taxes reflect the net effect of unrealized gains on investments and an operating loss carryforward.
There are no other significant temporary differences between the carrying amount of assets and liabilities for
 
financial reporting purposes and the amount used for income tax purposes.
          
                     
The components of the deferred assets (liabilities) are as follows:
          
 
 Unrealized gains
  
$
(574,500
)
 Net operating loss
    
305,000
 
         
 Total
  
$
(269,500
)
         
 
At October 31, 2005, the Company had a net operating loss carryforward of approximately $763,671, which if not
  
used will expire in 2025.
                



UNIVERSAL CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

 
                   
                   
                   
NOTE 4 - DUE FROM AFFILIATES
              
                   
Due from affiliates consist of the following:
            
                   
 
Due from BF Acquisition Group V, Inc
  
$
10,425
  
         
Total
  
$
10,425
  
 
NOTE 5 - CAPITAL SHARE TRANSACTIONS
            
                   
 
During the six months ended October 31, 2005, 268,600 shares were issued for proceeds of $453,600.
                   
                   
NOTE 6 - FINANCIAL HIGHLIGHTS
              
                   
 
Per Share Operating Performance
        
Net asset value, beginning of period
  
$
0.48
  
         
Income from operations, net of tax benefit
    
(0.03
)
Unrealized depreciation on investment, net of taxes
    
(0.11
)
     
(0.14
)
Add capital share transactions
    
0.09
 
         
Net asset value, end of period
  
$
0.43
  
         
         
         
Total Return
    
-9.9
%
         
Average Net Assets as a percentage of :
        
Expenses (annualized)
    
39.8
%
Management income (annualized)
    
20.1
%

 
 
 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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 the 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 the Company’s financial statements and the notes thereto, and the Management’s Discussion and Analysis section for the fiscal year ended April 30, 2005, included in the Company’s Annual Report on Form 10-K.
 
Business Overview
 
The Company’s primary business is to invest in emerging growth companies. The Company intends to assist these companies in strategic and financial planning, in market strategies and to assist them in trying to achieve prudent and profitable growth. Management is devoting most of its efforts to general business planning, raising capital, and seeking appropriate investments.
 
The Company’s primary investment objective is to increase its net assets by adding value to the portfolio companies and thus, to shareholder value. Management believes that the Company will be able to achieve these objectives by concentrating on investments in companies which are most likely to benefit from management’s expertise in finance, strategic planning, operations, and technology.
 
The income that the Company derives from investments in portfolio companies consists of management fees, interest income, and appreciation (net of depreciation) in the values of portfolio companies. At the time of disposition, the disposition proceeds of these securities of portfolio companies will most likely make up most of the Company’s revenues. Consequently, the Company’s success or failure will depend on investing in portfolio companies the securities of which appreciate in value more than the sum of Company operating expenses and the amount by which portfolio company securities depreciate in value. There is no assurance that the Company will be able to do so.
 
Pursuant to the requirements of the Investment Company Act of 1940, as amended, the Board of Directors is responsible for determining in good faith the fair value of the securities and assets held by the Company for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts although doing so does not relieve the Board of its obligations to determine fair value. With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value may be assigned a discount reflecting the particular nature of the investment.
 
The Board of Directors bases its determination on, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, the type of securities, the nature of the business of the portfolio company, the marketability of the valuation of securities of publicly traded companies in the same or similar industries, current financial conditions and operating results of the portfolio company, sales and earnings growth of the portfolio company, operating revenues of the portfolio company, competitive conditions, and current and prospective conditions in the overall stock market.
 
Without a readily recognized market value, the estimated value of some portfolio securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities.
 
The Company may retain a professional valuation consulting firm to provide it with valuations of the securities of portfolio companies. The Company expects to pay a professional fee each time such a valuation is provided.
 
Financial Condition
 
The Company’s total assets were $2,955,140 and its net assets were $2,164,418 at October 31, 2005, compared to $3,010,892 and $2,296,038, respectively, at April 30, 2005. Net assets decreased by $131,620 for the six months ended October 31, 2005, and net asset value per share decreased to $0.43 per share at October 31, 2005 from $0.48 per share at April 30, 2005.
 
The changes in total assets, net assets and net asset value per share during the six months ended October 31, 2005 were primarily attributable to:
 
·  
The reduction of unrealized appreciation on investments of approximately $730,000 mainly due to a decrease in value of shares of PSI-TEC Holdings, Inc., Gelstat Corporation, and Neptune Industries, Inc. offset in part by an unrealized gain on the recently acquired shares of BroadRelay Holdings, Inc.
 
·  
The increase by 200,000 shares in the Company’s investment in PSI-TEC Holdings, Inc.
 
·  
The Company’s investment in 564,401 shares of BroadRelay Holdings, Inc.
 
·  
The increase in deferred revenue of $481,800.
 
·  
The reduction in deferred taxes of $383,500.
 
·  
The sale of 268,600 of the Company’s common shares for proceeds of $453,600.
 
The Company’s unrealized appreciation (depreciation) varies significantly from period to period as a result of the wide fluctuations in value of the Company’s portfolio securities. For example, the Company suffered an unrealized loss of $473,125 on its holdings of PSI-TEC Holdings, Inc. in the three months ended October 31, 2005 as a result of a decline in the value of the portfolio shares from $1,733,125 to $1,260,000 during the time period. By contrast, the Company incurred an unrealized gain as a result of the listing of the shares of BroadRelay Holdings, Inc. for trading on the Pink Sheets and the increase in the price of the portfolio shares to $1,241,682 on October 31, 2005.
 
The Company’s financial condition is dependent on a number of factors including the ability of each portfolio company to effectuate its respective strategies with the Company’s help. The Company has invested a substantial portion of its assets in development stage or start-up companies. These private businesses are frequently thinly capitalized, unproven, small companies that may lack management depth, and may be dependent on new or commercially unproven technologies, and may have no operating history.
 
At October 31, 2005, $2,777,967 or 94.0% of the Company’s assets consisted of investments, of which net unrealized gains before the income tax effect was $1,438,367. Deferred taxes on account of unrealized gains have been estimated at approximately $574,500. At October 31, 2005, the Company’s holdings of PSI-TEC Holdings, Inc. and BroadRelay Holdings, Inc. were valued at $1,260,000 and $1,241,682 respectively, which combined represented more than 90% of the total Company portfolio at that date.
 
Because the portfolio companies tend to be at early stages of their business development, and because there are no markets for the securities of some portfolio companies, the Company does not expect to liquidate any of its investments in the near future.
 
Results of Operations 
 
The Company’s financial statements have been prepared in conformity with the United States generally accepted accounting principles. On this basis, the principal measure of an investment company’s financial performance during a time period is the net change in net assets during such period. Such change results from (i) income from operations, net of operating expenses, (ii) net realized gain or loss on investment, which is the difference between the proceeds received from dispositions of portfolio securities and their cost, and (iii) increase (decrease) in unrealized appreciation on investments.
 
Company expenses include salaries and wages, professional fees, office expenses and supplies, rent, travel, and other normal business expenses. General and administrative costs include rent, depreciation, office, investor relations and other overhead costs.
 
Three months ended October 31, 2005 compared to the period August 16, 2004 (Date of Inception) to October 31, 2004.
 
The Company generated revenue for services of $243,300 for the three months ended October 31, 2005 compared to $10,000 for the period August 16, 2004 (Date of Inception) to October 31, 2004. 100% of the Company’s revenue for services was received in the form of equity securities for the three months ended October 31, 2005 and for the period ended October 31, 2004.
 
Total operating expenses for the three months ended October 31, 2005 were $226,791, the principal components of which were payroll of $125,192, professional fees of $60,409 and insurance of $15,943. These expenses compared to $32,139 for the period ended October 31, 2004, the principal components of which were professional fees of $13,905 and office expenses and rent of $13,599.
 
The Company realized income from operations of $16,329 for the three months ended October 31, 2005 compared to a loss from operations of ($22,139) for the period ended October 31, 2004.
 
The Company had unrealized appreciation of $863,867, net of taxes, at October 31, 2005 compared to unrealized appreciation of $725,196, net of taxes, at October 31, 2004.
 
Six months ended October 31, 2005
 
On October 31, 2004 the Company had been in existence only since August 16, 2004 (Date of Inception) which precludes a meaningful comparison with the six months ended October 31, 2005.
 
The Company generated revenue for services of $243,300 for the six months ended October 31, 2005. 100% of the Company’s revenue for services was received in the form of equity securities for the six months ended October 31, 2005.
 
Total operating expenses for the six months ended October 31, 2005 were $481,911, the principal components of which were payroll of $232,500, professional fees of $155,263 and insurance of $32,090.
 
The Company realized a loss from operations of ($238,611) for the six months ended October 31, 2005.
 
On October 31, 2005, the Company had a net operating loss carry-forward of approximately $763,671 which if not used, will expire in 2025.
 
Liquidity and Capital Resources
 
From inception, the Company has relied for liquidity on the infusion of capital through capital share transactions. At October 31, 2005 the Company had approximately $100,000 in cash and liquid assets.
 
The Company does not plan to dispose of any of its current portfolio securities to meet operational needs. However, despite its plans, the Company may be forced to dispose of a portion of these securities if it ever becomes short of cash. Any such dispositions may have to be made at inopportune times and there is no assurance that, in light of the lack of liquidity in such shares, that they could be sold at all, or if sold, could bring values approximating the estimates of fair value set forth in the Company financial statements.
 
The Company’s cash expenses approximate $75,000 per month. Because Company revenues, when received, tend to be in the form of portfolio securities, such revenues are not of a type capable of being used to satisfy the Company’s ongoing monthly expenses. Consequently, for the Company to be able to avoid having to defer expenses or sell portfolio securities to raise cash to pay operating expenses, it will need to sell at least $75,000 per month of common stock. There is no assurance that the Company will be able to do so. The Company will be unable to make any new investments unless it succeeds in raising cash in excess of the amounts needed for ongoing operations.
 
The Company is currently offering to sell, on a best efforts basis, up to $4,000,000 of its common stock, $.001 par value per share at a price of not less than $2.00 per share pursuant to Regulation E promulgated under the Securities Act of 1933. The offering is open only to appropriate investors in states where the Company has complied with the appropriate Blue Sky laws. Potential investors have been referred to the Company by current shareholders and acquaintances of its Board of Directors and Board of Advisors.
 
The Company provides its prospective investors with its Offering Circular dated October 1, 2005 and a Subscription Agreement governed by the laws of the State of Delaware. At the following dates the Company had sold the respective number of shares indicated pursuant to the offering:
 
 
November 30, 2005
 
October 31, 2005
 
April 30, 2005
 
Number of shares
 
346,460
 
328,800
 
142,700
 
Proceeds of sale
 
$692,920
 
$655,600
 
$285,400
 

 
Management believes that the Company will continue to be successful in its fundraising efforts and in attracting new portfolio companies because of expressions of interest received by the Company from attractive development stage companies seeking funding and because of the Company’s success in raising funds thus far.
 
Critical Accounting Estimates
 
There were no material critical accounting estimates or assumptions for this reporting period.
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
There have been no material changes in our quantitative and qualitative disclosure about market risk since the Company’s Annual Report on Form 10-K filed on July 28, 2005.
 
Item 4
Controls and Procedures
 
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
 
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
Item 6.
Exhibits.
 
The following exhibits are included herein:
 
 
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.
 
 
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.
 
 
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.
 
 
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.
 



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.
     
Date: December 15, 2005
By:
/s/ Michael D. Queen
   
Michael D. Queen, President
     
     
Date: December 15, 2005
By:
/s/ Joseph T. Drennan
   
Joseph T. Drennan, Treasurer