MAJOR LEAGUE FOOTBALL INC - Quarter Report: 2006 July (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2006

o 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	20-1568059
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2601 Annand Drive
Suite 16
Wilmington, DE	19808
(Address of principal executive offices)	(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 x No o

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 32b-2 of the Exchange Act. (Check one). Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

The number of shares of the registrant’s Common Stock outstanding as of September 15, 2006 was 5,438,274.

Table of Contents

Page

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17

PART II.	OTHER INFORMATION	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 6.	Exhibits.	18

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF ASSETS AND LIABILITIES

	July 31, 2006			April 30, 2006
	(Unaudited)			(Audited)
ASSETS
Investment in Securities, at fair value (cost: $3,884,928 and $2,539,600)	$	4,232,726		$	3,331,620
Cash and Cash Equivalents		169,854			84,272
Miscellaneous Receivables		203,450			86,873
Due from Affiliates		40,093			24,646
Prepaid Expenses		7,535			7,648
Property and Equipment, net		9,703			10,178
Rent Deposit		1,100			1,100
Deferred Income Taxes		88,800			-
TOTAL ASSETS	$	4,753,261		$	3,546,337

LIABILITIES
Accounts Payable and Accrued Expenses		323,076			195,114
Notes Payable		350,000			100,000
Deferred Revenue		1,653,533			939,433
Deferred Income Taxes		-			68,000
TOTAL LIABILITIES	$	2,326,609		$	1,302,547

NET ASSETS	$	2,426,652		$	2,243,790

ANALYSIS OF NET ASSETS:
Net Capital Paid in on Shares of Capital Stock		2,561,269			2,140,640
Distributable Earnings/(deficit)		(134,617	)		103,150
NET ASSETS	$	2,426,652		$	2,243,790

Equivalent per share value based on 5,438,274 shares
of capital stock outstanding as of July 31, 2006
and 4,917,634 shares of capital stock outstanding
as of April 30, 2006	$	0.45		$	0.46

(The accompanying notes are an integral part of these financial statements.)

UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

July 31, 2006

(UNAUDITED)

Common Stocks & Other Investments - United States - 100%	Business	Portfolio			Shares		Fair Value

BF Acquisition Group V, Inc.*	Inactive company		0.03	%		100,000	$	1,625

Accelapure Corporation*	Pharmaceutical purification service company		23.63	%		1,000,000		1,000,000


BroadRelay Holdings, Inc.*	High speed internet media		16.25	%		1,264,401		687,834


Warrants to purchase 200,000 shares of BroadRelay	High speed internet media		1.61	%				68,000
Holdings, Inc.* at an exercise price of $1.00 per share

Warrants to purchase 150,000 shares of BroadRelay	High speed internet media		2.67	%				113,000
Holdings, Inc.* at an exercise price of $0.65 per share

Subtotal affiliated companies*			44.19	%				1,870,459

IPI Fundraising, Inc.	Sales and distribution of fundraising products		0.00	%		575,000		0


Gelstat Corporation	Consumer health care		0.26	%		221,429		11,071
Company

Neptune Industries, Inc.	Seafood production		0.39	%		47,619		16,667

PSI - TEC Corporation	Plastics engineering		13.25	%		787,500		560,625

Extreme Visual Technologies, Inc..	Visual Communications		23.63	%		1,000,000		1,000,000

Theatre Xtreme Entertainment Group, Inc.	Home theater sales and Installation		18.28	%		575,936		773,904

Total (aggregate cost $3,884,928)			100.00	%			$	4,232,726

*Each portfolio company in which the Company owns 5% or more of the outstanding voting securities is deemed an “affiliated company.”

(The accompanying notes are an integral part of these financial statements.)

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JULY 31, 2006 AND 2005

(Unaudited)

	Three months ended July 31, 2006			Three months ended July 31, 2005
Income
Management Services	$	585,900		$	-
Interest Income		6,522			-
		592,422

Expenses
Bad Debt		-			-
Depreciation		475			831
Dues and Subscriptions		-			135
Fees and Commissions		3,582			4,203
Interest Expense		1,720			463
Insurance		19,199			16,147
Marketing		3,424			400
Office Expenses and Supplies		703			2,399
Payroll		118,385			107,308
Payroll Taxes		8,685			7,587
Postage, Delivery and Shipping		756			996
Professional Fees		519,648			94,854
Rent		4,200			3,900
Share Based Compensation Expense		180,944			-
Taxes - Franchise		1,413			-
Telephone		806			1,133
Travel and Entertainment		22,090			13,780
Utilities		661			805
		886,691			254,941

Loss from Operations		(294,269	)		(254,941	)

Net Realized Gain on Dividend of Portfolio Stock		343,924			-

Unrealized Depreciation on Investments		(444,222	)		(667,375	)

Income Tax Benefit		156,800			366,600

Net Decrease in Net Assets Resulting from Operations	$	(237,767	)	$	(555,716	)

(The accompanying notes are an integral part of these financial statements.)

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CHANGES IN NET ASSETS

FOR THE THREE MONTHS ENDED JULY 31, 2006

(Unaudited)

INCREASE IN NET ASSETS FROM OPERATIONS
Loss from operations	$	(294,269	)
Unrealized depreciation on investments, net of taxes		(287,422	)
Net realized Gain on Dividend of Portfolio Stock		343,924

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS		(237,767	)

CAPITAL SHARE TRANSACTIONS
Issuance of Common Stock		1,041,280
Receivable from common Stock		(800,000	)
Share-based Compensation Expense		180,944
Stock Options Granted for Operating Expenses		447,000
Dividend of Portfolio Stock		(448,595	)

NET CAPITAL SHARE TRANSACTIONS		420,629

TOTAL INCREASE		182,862

NET ASSETS, BEGINNING OF YEAR		2,243,290

NET ASSETS, END OF PERIOD	$	2,426,652

(The accompanying notes are an integral part of these financial statements.)

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 31, 2006 AND JULY 31, 2005

(Unaudited)

	Three Months Ended July 31
	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations	$	(237,767	)	$	(555,716	)
Adjustments to reconcile net decrease in net assets from
operations to net cash used in operating activities:
Gain on dividend of portfolio stock		(343,924	)		-
Investment securities received in exchange for management services		(585,900	)		-
Depreciation expense		475			831
Share based Compensation Expense		180,944			-
Stock options granted for operating expenses		447,000			-
Net unrealized depreciation on investments		444,222			667,375
Deferred Income Taxes		(156,800	)		(366,600	)
Net changes in miscellaneous receivables		(6,522	)		(300	)
Net changes in due from affiliates		(9,059	)		300
Prepaid expenses		113			567
Net changes in accounts payable and accrued expenses		126,520			19,618
Net cash used in operating activities		(140,698	)		(233,925	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Notes Receivable		(115,000	)		-
Net cash used in investing activities		(115,000	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Debt		200,000			-
Repayment of Debt		(100,000	)
Proceeds from issuance of common stock		241,280			180,800
Net cash provided by financing activities		341,280			180,800

NET INCREASE (DECREASE) IN CASH		85,582			(53,125	)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		84,272			158,453

CASH AND CASH EQUIVALENTS, END OF PERIOD		169,854		$	105,328

NON-CASH INVESTING AND FINANCING ACTIVITIES

In July, 2006 the Company executed a promissory note payable to BroadRelay Holdings, Inc. in the amount of $150,000 in payment for securities purchased.

In July, 2006 common stock was issued upon exercise of stock options. The stock was issued in exchange for a note receivable in the face amount of $800,000.

(The accompanying notes are an integral part of these financial statements.)

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim period financial statements of Universal Capital Management, Inc. (the “Company”) are unaudited pursuant to certain rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results for the periods indicated. Such results, however, are not necessarily indicative of results that may be expected for the full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2006 as filed with the Securities and Exchange Commission.

Nature of Business

The Company is a recently 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 as determined by the board of directors. Derivatives, such as Warrants, are valued at fair value through the use of pricing models.

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. Values can also be affected by changes in estimates and assumptions.

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.

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

Cash and Equivalents

For purposes of the Statement of Cash Flows, the Company considers all investment instruments purchased with a maturity of three months or less to be cash and cash equivalents.

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 statement purposes, while for income tax purposes, gains or losses are only recognized when realized (i.e., on 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.

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”). SFAS 123(R) supersedes APB Opinion No. 25 (“APB 25), Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS (R) requires share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. SFAS 123(R) is effective at the beginning of the next fiscal year that begins after December 15, 2005 for a small business issuer. The Company adopted SFAS 123 (R) effective May 1, 2006.

Prior to May 1, 2006, the Company followed the provisions of SFAS 123, which allowed companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in APB 25, but disclose the pro forma effects on net income had the fair value of the options been expensed. The Company elected to apply APB 25 in accounting for its stock option incentive plans and grants of stock options. There were no employee stock options granted prior to May 1, 2006

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - INVESTMENTS

Portfolio Companies consist of the following:

	Number of Shares held at July 31, 2006		Cost		Value at July 31, 2006		Unrealized Gain/(Loss)

Affiliated Securities*
BF Acquisition Group V, Inc.		100,000	$	1,625	$	1,625	$	0
AccelaPure Corporation		1,000,000		1,000,000		1,000,000		0
BroadRelay Holdings, Inc.common stock		1,264,401		491,100		687,834		196,734
BroadRelay Holdings, Inc. warrants expiring December 15, 2006		200,000		¾		68,000		68,000
BroadRelay Holdings, Inc. warrants expiring July 15, 2011		150,000		¾		113,000		113,000

Total Affiliated Securities				1,492,725		1,870,459		377,734

Non-affiliated Securities
IPI Fundraising. Inc.		575,000		6,625		0		(6,625	)
Gelstat Corporation		221,429		350,000		11,071		(338,929	)
Neptune Industries, Inc.		47,619		20,000		16,667		(3,333	)
PSI - TEC Corporation		787,500		619,000		560,625		(58,375	)
Theater Xtreme Entertainment Group, Inc.		575,936		396,578		773,904		377,326
Extreme Visual Technologies, Inc.		1,000,000		1,000,000		1,000,000		0

Total Non-Affiliated Securities				2,392,203		2,362,267		(29,936	)


Total Securities			$	3,884,928	$	4,232,726	$	347,798

*Each portfolio company in which the Company owns 5% or more of the outstanding voting securities is deemed an “affiliated company.”

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

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	$	122,400
State		34,400

Total Deferred	$	156,800

The effective tax rate differs from the U.S. statutory federal income tax rate of 34% as described below:

Income tax at statutory rate	$	134,200
State income taxes, net of federal taxes		22,600

	$	156,800

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	$	227,000
Net operating loss		(138,200	)

Total	$	88,800

At July 31, 2006, the Company had a net operating loss carryforward of approximately $782,000 which, if not used, will expire in 2026.

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 4 - DUE FROM AFFILIATES

Due from affiliates consist of the following:

Due from BF Acquisition Group V, Inc.	$	35,148
Due from Stockholder		4,945

Total	$	40,093

NOTE 5 - SUBSCRIPTION AGREEMENT

On July 17, 2006, the Company entered into a subscription agreement for common stock and warrants with BroadRelay Holdings, Inc. In the agreement the Company subscribed for 300,000 shares of common stock of BroadRelay Holdings, Inc. and warrants to purchase an additional 150,000 shares of common stock exercisable at $0.65 per share. The warrants expire on July 15, 2011.

To pay for the securities subscribed, the Company signed a promissory note payable to BroadRelay Holdings, Inc. in the amount of $150,000. Interest shall accrue at the prime rate of interest. Principal and accrued interest on the note are payable on or before October 15, 2006. The prime rate of interest was 7.50% at July 17, 2006.

NOTE 6 - NOTES PAYABLE

During the month of July, 2006 the Company issued notes payable totaling $200,000. Interest shall accrue at the prime rate of interest. Principal and accrued interest are payable on or before October 15, 2006. The prime rate of interest was 8.25% at July 31, 2006. In May, 2006 the Company repaid a $100,000 note.

NOTE 7 - EMPLOYEE STOCK OPTIONS

On May 8, 2006, the Company’s Stockholders approved the 2006 Equity Incentive Plan and authorized the issuance of 2,000,000 shares of common stock of the Company pursuant to such plan.

In May, 2006 the Company granted to an officer of the Company options to purchase 50,000 shares of the Company’s common stock at an exercise price of $2.00 per share, which vest immediately and expire in ten years.

In May, 2006 the Company granted to two employees and one shareholder of the Company options to purchase 135,000 shares of the Company’s common stock at an exercise price of $2.00 per share, of which 110,000 shares vest immediately and 25,000 shares vest over three years. All of the options expire in ten years.

As of July 31, 2006, there was $26,056 of total stock option compensation expense related to unvested awards not yet recognized, which is expected to be recognized over a period of three years.

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions: no dividend yield, expected volatility of 34%, risk-free interest rate of 5.10% and expected option life of ten years.

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 8 - CAPITAL SHARE TRANSACTIONS

During the three months ended July 31, 2006, the Company issued 120,640 shares of common stock for cash proceeds of $241,280.

In May, 2006 the Company granted to a shareholder of the Company options to purchase 400,000 shares of the Company’s common stock at an exercise price of $2.00 per share. On June 15, 2006 this shareholder exercised the option in full and paid for the shares with a promissory note in the face amount of $800,000. This receivable is presented in the balance sheet as a deduction to capital since the note has not yet been repaid. The promissory note calls for monthly payments of principal and interest over 12 months and is secured by a pledge of the purchased shares.

On July 20, 2006 the Board of Directors of the Company declared a dividend to shareholders of record on July 31, 2006 in the form of .055 shares of the common stock of Theater Xtreme Entertainment Group, Inc., which is a Company portfolio company. This dividend in kind was distributed in August 2006 but for accounting purposes was recorded as of July 31, 2006. The total number of shares of Theater Xtreme distributed was 299,064 for a total value of $448,595.

NOTE 9 - FINANCIAL HIGHLIGHTS

Per Share Operating Performance
Net asset value, beginning of period	$	0.46

Loss from operations, net of tax benefit		(0.03	)
Unrealized depreciation on investment, net of taxes		(0.05	)
Realized gain on dividend of Portfolio Stock		0.03
		(0.05	)

Add capital share transactions		0.04

Net asset value, end of period	$	0.45


Total Return		(12.6	%)

Average Net Assets as a percentage of:
Expenses (annualized)		152.0	%
Management income (annualized)		100.0	%

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 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, 2006 included in the Company’s Annual Report on Form 10-K.

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 and appreciation (net of depreciation) in the values of portfolio companies. The Company also generates some interest income on its cash and cash equivalents. 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 $4,753,261 and its net assets were $2,426,652 at July 31, 2006, compared to $3,546,337 and $2,243,790, respectively, at April 30, 2006. Net assets increased by $182,862 for the three months ended July 31, 2006, and net asset value per share was $0.45 per share at July 31, 2006 and $0.46 per share at April 30, 2006.

The changes in total assets and net assets during the three months ended July 31, 2006 were primarily attributable to:

Net unrealized depreciation on investments of $444,222 mainly due to a decrease in the value of the shares of PSI-TEC Holdings, Inc. and Gelstat Corporation, offset in part by an increase in the value of shares of Theater Xtreme Entertainment Group, Inc., BroadRelay Holdings, Inc. and an increase in the value of 200,000 BroadRelay Holdings, Inc. warrants that expire in December of 2006.

·	The increase of 300,000 shares and 150,000 warrants in the Company’s investment in BroadRelay Holdings, Inc.

·	The increase of 300,000 shares in the Company’s investment in Theater Xtreme Entertainment Group, Inc.

·	The Company’s investment in 1,000,000 shares of Extreme Visual Technologies, Inc.

·	The increase in receivables of approximately $117,000 which is mainly due to cash advances, plus accrued interest, to portfolio companies.

·	The increase in accounts payable and accrued expenses of approximately $128,000.

·	The increase in notes payable of $250,000.

The increase in deferred revenue of approximately $714,000 which is mainly due to an increase in deferred revenue of approximately $945,200 for Extreme Visual Technologies, Inc. which the Company will earn over the twelve month period beginning July 12, 2006 offset in part by a decrease in deferred revenue of $231,000 ($125,000 for Accelapure Corporation and $106,100 for PSI-TEC Holdings, Inc.) which was earned during the period.

·	The decrease in deferred taxes of approximately $157,000.

·	The sale of 120,640 of the Company’s shares for proceeds of $241,280.

·	The declaration of a dividend paid in the form of 299,064 shares of the common stock of Theater Xtreme Entertainment Group, Inc., a portfolio company, for a total value of $448,595.

·	The Net realized gain of $343,924 on the dividend of shares of common stock of Theater Xtreme Entertainment Group, Inc.

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 $643,250 on its holdings of PSI-TEC Holdings, Inc. in the three months ended July 31, 2006 as a result of a decline in the value of the portfolio shares from $1,203,875 to $560,625 during such time period. By contrast, the Company incurred an unrealized gain as a result of the listing of the shares of Theater Xtreme Entertainment Group, Inc. for trading on the OTC Bulletin Board and the increase in the value of the portfolio shares to $773,904 on July 31, 2006 from $575,000 at April 30, 2006.

The Company had unrealized depreciation of ($287,422), net of taxes, for the three months ended July 31, 2006 compared to unrealized depreciation of ($300,775), net of taxes, for the three months ended July 31, 2005 and unrealized depreciation of ($791,456), net of taxes for the year ended April 30, 2006.

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 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 July 31, 2006, $4,232,726 or 89.1% of the Company’s assets consisted of investments, of which net unrealized gains over the cost before the income tax effect was $347,798. Deferred taxes on account of unrealized gains have been estimated at approximately $227,000. At July 31, 2006, the Company’s holdings of BroadRelay Holdings, Inc., AccelaPure Corporation and Extreme Visual Technologies, Inc. were valued at $867,834, $1,000,000 and $1,000,000 respectively, which represented in the aggregate approximately 67.8% 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.

In May, 2006 the Company granted to a stockholder of the Company options to purchase 400,000 shares of the Company’s common stock at an exercise price of $2.00 per share. On June 15, 2006 this stockholder exercised the option in full and paid for the shares with a promissory note in the face amount of $800,000. The promissory note bears interest at 4.8% per annum, calls for monthly payments of principal and interest over 12 months, and is secured by a pledge of the purchased shares. If any installment of principal or interest is not paid within fifteen (15) days of the date when due, the Company may declare all remaining installments of principal immediately due and payable and proceed to collect the same at once. Under accounting rules applicable to the Company the face amount of this receivable is not included in the July 31, 2006 balance sheet because the note has not been paid.

If, at a future date, the $800,000 note is paid, the net asset value of the Company will increase by the amount of the payment, and the net asset value per share will increase by the amount of the payment divided by the number of shares then outstanding. If the note is not paid and the shares that have been pledged as security for the note are cancelled by the Company, the net asset value per share of the Company will increase as a result of the reduction in the number of outstanding shares.

Results of Operations

The Company’s financial statements have been prepared in conformity with the U.S. 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 July 31, 2006 compared to the three months ended July 31, 2005.

The Company generated revenue of $592,422 for the three months ended July 31, 2006 compared to $0.00 for the three months ended July 31, 2005. For the three months ended July 31, 2006, 98.9% of the Company’s revenues were generated for services and 1.1% was in the form of interest. !00% of the Company’s revenue for services was received in the form of equity securities.

Total operating expenses for the three months ended July 31, 2006 were $886,691, the principal components of which were payroll of $118,385, professional fees of $519,648, of which $447,000 represents options expense, and $180,994 of share-based compensation expense. By comparison, expenses for the three months ended July 31, 2005 were $254,941, the principal components of which were payroll of $107,308, professional fees of $94,854, travel and entertainment of $13,780, and insurance of $16,147.

The Company had a loss from operations of ($294,269) for the three months ended July 31, 2006 compared to a loss from operations of ($254,941) for the three months ended July 31, 2005.

In addition, as a result of the distribution of 299,064 shares of common stock of the Company’s portfolio company, Theater Xtreme Entertainment, Inc., the Company realized a net gain of $343,924 computed as follows: The value per share at the record date minus the original cost per share multiplied by the number of shares distributed ($1.50 - $0.35 = $1.15 x 299,064 = $343,924)

Liquidity and Capital Resources

From inception, the Company has relied for liquidity on the infusion of capital through capital share transactions.

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, 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 $80,000 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 companies’ securities to raise cash to pay operating expenses, it will need to sell at least $80,000 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 for cash unless it succeeds in raising cash in excess of the amounts needed for ongoing operations. At July 31, 2006 the Company had approximately $170,000 in cash and liquid assets.

Critical Accounting Estimates

Valuation

The Investment Company Act of 1940 requires periodic valuation of each investment in the Company’s portfolio to determine the Company’s net asset value. Under the Investment Company Act of 1940, unrestricted securities with readily available market quotations are to be valued at the current market value; all other assets must be valued at “fair value” as determined in good faith by or under the direction of the Board of Directors.

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

Fair value is generally defined as the amount for which an investment could be sold in an orderly disposition over a reasonable time. Generally, to increase objectivity in valuing assets, external measures of value, such as public markets or third-party transactions, are used whenever possible. Valuation is not based on long-term work-out value, or immediate liquidation value, or incremental value for potential changes that may take place in the future. The values assigned to Company investments are based on available information and do not necessarily represent amounts that might ultimately be realized, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated.

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

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

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

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

Analytical Method: The analytical method is generally used to value an investment position when there is no established public or private market in the portfolio company’s securities or when the factual information available to the Company dictates that an investment should no longer be valued under either the cost or private market method. This valuation method is inherently imprecise and ultimately, the result of reconciling the judgments of our directors based on the data available to them. The resulting valuation, although stated as a precise number, is necessarily within a range of values that vary depending upon the significance attributed to the various factors being considered. Some of the factors considered may include the financial condition and operating results of the portfolio company, the long-term potential of the business of such company, the values of similar securities issued by companies in similar businesses, the proportion of the portfolio company’s securities owned by the Company and the nature of any rights to require the portfolio company to register restricted securities under applicable securities laws.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company’s quantitative and qualitative disclosure about market risk since the Company’s Annual Report on Form 10-K filed for the fiscal year ended April 30, 2006.

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.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended July 31, 2006, the Company sold the number of shares of its common stock set forth on the first line of the table below pursuant to Rule 601 to Rule 609 of Regulation E promulgated under the Securities Act of 1933. No underwriters were involved and all securities were sold for cash. The sale set forth on the second line of the table below is the option exercise described in Part I, Item 1.

DATE OF SALE	PURCHASERS	NUMBER OF SHARES SOLD	CONSIDERATION PAID PER SHARE	SECURITIES ACT EXEMPTION CLAIMED
May 1, 2006 through May 31, 2006	45 Investors	120,640	$2.00	§ 3(b)
June 15, 2006	1 Investor	400,000	$2.00	§ 4(2)
TOTALS	46 Investors	520,640

Item 3. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the three months ended July 31, 2006.

Item 6. Exhibits.

The following exhibits are included herein:

10.1

Form of Stock Option Award Agreement.^*

10.2

Stock Option Award Agreement between the Company and David M. Bovi dated May 18, 2006.* *

10.3

Promissory Note dated June 15, 2006 made by David M. Bovi payable to the order of the Company.^* ^**

10.4

Security Agreement dated June 15, 2006 between the Company and David M. Bovi.^***

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 Financial 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.

^*	Incorporated by reference to the Current Report on Form 8-K filed May 15, 2006.

^**	Incorporated by reference to the Current Report on Form 8-K filed May 19, 2006.

^***	Incorporated by reference to the Current Report on Form 8-K filed June 30, 2006.

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 thereunder duly authorized.

	Universal Capital Management, Inc.

Date: September 15, 2006	By: /s/ Michael D. Queen Michael D. Queen, President

Date: September 15, 2006	By: /s/ Joseph T. Drennan Joseph T. Drennan, Treasurer