MAJOR LEAGUE FOOTBALL INC - Quarter Report: 2009 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

For the transition period from                          to

Commission File Number 000-51132

Universal Capital Management, Inc.

(Exact name of registrant as specified in its charter)

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 ý

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).

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

The number of shares of the registrant’s Common Stock outstanding as of March 13, 2009 was 6,412,426.

EXPLANATORY NOTE

Universal Capital Management, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarterly period ending January 31, 2009 with the Securities and Exchange Commission without review by the Company’s principal auditors.  As a result, the financial statements contained in this Quarterly Report may be subject to future adjustment.  The Company intends to file an amendment to this Quarterly Report upon the Company’s principal auditor’s review of the Company’s financial statements and this Quarterly Report.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

F-1

PART I – FINANCIAL INFORMATION

Item 1

Financial Statements

See F-1 to F-19

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 intending 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, intending, 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.

Our Company is a public venture capital company whose primary business is to invest in emerging growth companies.  Our Company assists these companies in strategic and financial planning, in market strategies and to assist them in trying to achieve prudent and profitable growth.  

Our Company’s primary investment objective is to increase its net assets by adding value to our portfolio companies and thus, increasing our stock value. In order to achieve this objective, we focus on investments in companies that are most likely to benefit from our management's expertise in finance, strategic planning, operations, and technology.

The income that our 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 portfolio securities will most likely make up most of our Company’s cash revenues.

Consequently, our Company’s success depends on us investing in more companies that appreciate in value rather than companies that depreciate in value. We cannot assure you that our Company will be successful in doing so.

Pursuant to the requirements of the Investment Company Act of 1940, as amended (“1940 Act”), our Board of Directors is responsible for determining in good faith the fair value of the securities and assets held by our Company for which market quotations are not readily available. In making its determination, our Board of Directors may consider valuation appraisals provided by independent financial experts.  Our Company expects to pay a professional fee each time such a valuation is provided.  With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value may be assigned a discount reflecting the particular nature of the investment.

-1-

Our Board of Directors bases its determination of value on, among other things, applicable quantitative and qualitative factors. These factors may include, but are not limited to, the type of securities, the nature of the business of the portfolio company, the marketability of the securities, the market price of unrestricted securities of the same issue (if any), comparative valuation of securities of publicly traded companies in the same or similar industries, current financial conditions and operating results of the portfolio company, sales and earnings growth of the portfolio company, operating revenues of the portfolio company, competitive conditions, and current and prospective conditions in the overall economy and the equity markets.

Without a readily recognized market value, the estimated value of some portfolio securities may differ significantly from the values that would be placed on the portfolio if there existed a ready market for such equity securities.

Financial Condition

Our Company’s total assets, net assets, net asset value per share, unrealized appreciation or depreciation are set forth in the following table:

The changes in total assets, net assets and net asset value per share for the nine months ended January 31, 2009 were primarily attributable to:

·

Our Company’s investment in Vystar warrants were valued at $2,597,000 at January 31, 2009 compared to $1,854,000 at April 30, 2008 for a net unrealized appreciation of $743,000 for the nine months ended January 31, 2009.  

·

During the nine months ended January 31, 2009, our Company signed a management services agreement with a new portfolio company, iVolution Medical Systems (“IMS”).  Our Company received a warrant to purchase 1,000,000 shares of IMS common stock valued at $112,000 and a warrant to purchase 500,000 shares of IMS common stock, valued at $17,000.  At January 31, 2009, the combined value of these warrants was $707,000 for an unrealized appreciation of $578,000 for the nine months ended January 31, 2009.

·

During the nine months ended January 31, 2009, our Company signed a management services agreement with a new portfolio company, Micco Group (“MG”).  Our Company received a warrant to purchase 1,000,000 shares of MG common stock valued at $6,000 and a warrant to purchase 500,000 shares of MG common stock, valued at $0 upon issuance.  At January 31, 2009, the combined value of these warrants was $695,000 for an unrealized appreciation of $689,000 for the nine months ended January 31, 2009.

-2-

·

Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares decreased from $2.55 to $0.52 per share during the nine months ended January 31, 2009.  During the nine months ended January 31, 2009, our Company sold 365,552 shares for a sales price of $342,696 with a cost of $212,020 for a realized gain of $130,676.  Our Company’s investment in LWLG common stock had a net unrealized depreciation of $1,797,377 for the nine months ended January 31, 2009.  Our Company’s investment in LWLG warrants were valued at $240,000 at January 31, 2009 compared to $2,208,000 at April 30, 2008, for a net unrealized depreciation of $1,968,000 for the nine months ended January 31, 2009.  Our Company exercised a warrant to purchase 400,000 shares of LWLG stock in January 2009 at $0.001 per share or $400.

·

During the nine months ended January 31, 2009, our Company signed a management services agreement with a new portfolio company, Multi-View Technologies (“MVT”).  Our Company received 2,000,000 shares of MVT common stock valued at $20,000.  Our Company also received a warrant to purchase 500,000 shares of MVT common stock, valued at $1,000.  At January 31, 2009, the warrants were valued at $1,000 and the common stock was valued at $20,000.

·

During the nine months ended January 31, 2009, our Company signed a management services agreement with Dominion Capital Management Corporation (“DCMC”) for a warrant to purchase 500,000 shares of DCMC common stock valued at $1,000.  In addition to this warrant, the Company has a warrant to purchase 1,000,000 shares of DCMC common stock that was valued at $5,000 at April 30, 2008.  At January 31, 2009, the combined value of these warrants was $500 for an unrealized depreciation of $5,500 for the nine months ended January 31, 2009.  

·

SIVOO Holdings, Inc. (“SIVOO”) average valuation on restricted and unrestricted shares decreased from $0.21 to $0.039 per share during the nine months ended January 31, 2009.  During the nine months ending January 31, 2009, our Company sold 310,000 shares of SIVOO for a sales price of $96,329 with a cost of $101,400 for a realized loss of $5,071.  Our Company’s investment in SIVOO common stock had a net unrealized depreciation of $290,202 for the nine months ended January 31, 2009.  Our Company’s investment in SIVOO warrants were valued at $28,000 at January 31, 2009 compared to $241,000 at April 30, 2008, for a net unrealized depreciation of $213,000 for the nine months ending January 31, 2009.  

·

Theater Xtreme Entertainment Group, Inc. (“TXEG”) average valuation on restricted and unrestricted shares decreased from $0.15 to $0.00 per share during the nine months ended January 31, 2009.  During July 2008, our Company received 2,500,000 shares pursuant to one year management services contract with a cost of $175,000. Our Company’s investment in TXEG common stock had a net unrealized depreciation of $108,877 for the nine months ended January 31, 2009.  Our Company’s investment in TXEG warrants were valued at $-0- at January 31, 2009 compared to $75,000 at April 30, 2008, for a net unrealized depreciation of $75,000 for the nine months ended January 31, 2009.

·

During the nine months ended January 31, 2009, Creative Energy Solutions, Inc. (“CES”) average valuation on restricted and unrestricted shares decreased from $0.50 to $0.00 per share.  Our Company’s investment in CES common stock had a net unrealized depreciation of $1,000,000 for the nine months ended January 31, 2009.

·

During the nine months ended January 31, 2009, our Company sold 221,429 shares of Gelstat Corp. for a sales price of $10, with a cost of $350,000, for a realized loss of $349,990.

·

During the nine months ended January 31, 2009, our Company sold 47,619 shares of Neptune Industries for a sales price of $9,493 with a cost of $20,000 for a realized loss of $10,507.

-4-

·

During the nine months ended January 31, 2009, our Company wrote off its investment in IPI Fundraising, Inc. for a realized loss of $6,625.  IPI has been out of business since December 2005 and is no longer a valid portfolio company.

·

The decrease in cash of $13,714.

·

The increase in accounts payable and accrued expenses of $30,131.

·

The decrease in deferred tax liability of $186,000.

·

The decrease in deferred revenue of approximately $502,000, which is due mainly to an increase in deferred revenue of $332,000 ($175,000 for TXEG, which our Company is to earn over a twelve month period beginning July 2008, $1,000 for DCMC, which our Company is to earn over a twelve month period beginning July 2008, $6,000 for CG, which is to be earned over a twelve month period beginning July 2008, $112,000 for IMS, which is to be earned over a three month period beginning July 2008, $17,000 for IMS, which is to be earned over a twelve month period beginning July 2008, $20,000 for MVT, which is to be earned over a three month period beginning July 2008 and $1,000 for MVT, which is to be earned over a twelve month period beginning July 2008) offset by $834,000 ($249,000 for LWLG, $287,250 for TXEG, $121,000 for iVolution, $144,750 for Vystar, $20,500 for Multi-View, $6,000 for Micco Group and $5,500 for DCMC) which was earned during the nine months ended January 31, 2009.

·

The decrease in current income taxes payable of approximately $422,000.

·

The addition to Net Capital of $855,509 which consists of the issuance of 334,706 shares of common stock per a private placement memorandum of $263,500 and share-based compensation expense of $592,009.

Our Company’s unrealized appreciation (depreciation) varies significantly from period to period as a result of the wide fluctuation in the value of our Company’s portfolio securities, as well as the acquisition and sale of shares during the period.

Our Company had unrealized depreciation on investments of $2,846,091 at January 31, 2009 compared to unrealized depreciation on investments of $1,073,305 at January 31, 2008 and unrealized appreciation on investments of $1,498,262 at April 30, 2008.

Our Company’s financial condition is dependent on a number of factors including the ability of each portfolio company to effectuate its respective strategies with our Company’s help.  Our 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 January 31, 2009, $4,802,045 or 93% of our Company's assets consisted of investments, of which net unrealized losses before the income tax effect were $962,761.  A deferred tax asset on account of unrealized losses has been estimated at approximately $449,000.  At January 31, 2009, our Company’s holdings of Vystar Corporation, iVolution Medical Systems, MICCO Group and Lightwave Logic, Inc. were valued at $2,597,000, $707,000, $695,000 and $724,873, respectively, which represented in the aggregate approximately 98% of the total Company portfolio at that date.  Vystar Corporation is a privately held company that is currently going through the registration process with the Securities and Exchange Commission.  Vystar, iVolution and MICCO’s valuations were based on their ability to raise capital funds through recent private placement memorandums.

Because the portfolio companies tend to be at early stages of their business development, and because there are no markets for the securities of some portfolio companies, our Company may find it difficult to liquidate any of its investments in the near future. See “Liquidity and Capital Resources” below.

-4-

Results of Operations

Our Company’s financial statements have been prepared in conformity with the United States generally accepted accounting principles.  On this basis, the principal measure of an investment company's financial performance during a time period is the net change in net assets during such period. Such change results from (i) income from operations, net of operating expenses, (ii) net realized gain or loss on investment, which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost, and (iii) increase (decrease) in unrealized appreciation or depreciation on investments.

Company expenses include salaries and wages, professional fees, office expenses and supplies, rent, travel, and other normal business expenses. General and administrative costs include depreciation, investor relations and other overhead costs.

Three months ended January 31, 2009 compared to the three months ended January 31, 2008

For the three months ended January 31, 2009 the Company had revenue for services in the amount of $279,652 compared to $412,305 for the three months ending January 31, 2008. During the three months ended January 31, 2009, 96% of our Company’s revenue for services was received in the form of equity securities compared to 97% for the three months ended January 31, 2009.  

Total operating expenses for the three months ended January 31, 2009 were $151,594, the principal components of which were professional fees of $38,200, consisting primarily of $19,922 of legal expense and $12,500 of audit fees, payroll of $62,054 (which includes $489 of share based compensation expense), $23,141 of insurance expense and $9,207 of interest expense. By comparison, total operating expenses for the three months ended January 31, 2008 were $210,539, the principal components of which were professional fees of $132,625, payroll of $28,416, insurance of $16,104 and interest of $8,059.

Our Company realized a gain from operations of $128,058 for the three months ended January 31, 2009 compared to a gain from operations of $201,766 for the three months ended January 31, 2008.

Nine months ended January 31, 2009 compared to the nine months ended January 31, 2008

For the nine months ended January 31, 2009 our Company had revenue for services in the amount of $873,162 compared to $1,355,709 for the nine months ended January 31, 2008. During the nine months ended January 31, 2009, 96% of our Company’s revenue for services was received in the form of equity securities compared to 96% for the nine months ended January 31, 2008.  

Total operating expenses for the nine months ended January 31, 2009 were $1,307,628, the principal components of which were professional fees of $372,270, consisting primarily of $184,071 of investor relations expense, approximately $127,290 of legal expense and approximately $44,000 of audit fees, payroll of $763,758 (which includes $592,009 of share based compensation expense), $71,629 of insurance expense and $18,648 of interest expense. By comparison, total operating expenses for the nine months ended January 31, 2008 were $957,910, the principal components of which were professional fees of $726,618, payroll of $80,450, insurance of $56,480 and interest of $28,411.

Our Company realized a loss from operations of $434,466 for the nine months ended January 31, 2009 compared to a gain from operations of $377,799 for the nine months ended January 31, 2008.

-5-

Liquidity and Capital Resources

From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity.  Our Company had approximately $7,065 of cash at January 31, 2009.  Consequently, payment of operating expenses and cash with which to make investments will similarly have to come from equity capital to be raised from investors or from borrowed funds. During the nine months ended January 31, 2009, our Company issued 334,706 shares of its common stock for proceeds of $263,500.  There is no assurance that our Company will be successful in raising such additional equity capital or additional borrowings or if it can, that it can do so at a price that management believes to be appropriate. Under the Investment Company Act of 1940, as amended (“1940 Act”), our Company may not sell shares of common stock at less than its net asset value except in certain limited circumstances.

At January 31, 2009, $4,612,647 or 96% of our investments are illiquid securities that do not have a market or they are restricted and therefore cannot be traded or sold.  

Our Company may be forced to dispose of a portion of its current portfolio securities if it ever becomes short of cash. Any such dispositions may have to be made at inopportune times, which may have a material adverse effect on our overall revenue.

On October 31, 2008, the Company entered into a Letter of Intent to acquire Dominion Capital Management Corporation, who is currently seeking funding.

.Critical Accounting Estimates

Valuation

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

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

Fair value is generally defined as the amount for which an investment could be sold in an orderly disposition over a reasonable time. Generally, to increase objectivity in valuing assets, external measures of value, such as public markets or third-party transactions, are used whenever possible. Valuation is not based on long-term work-out value, nor immediate liquidation value, nor incremental value for potential changes that may take place in the future.  The values assigned to Company investments are based on available information and do not necessarily represent amounts that might ultimately be realized, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated.

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

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

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

-6-

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

Public Market/Restricted Securities: When our Company holds securities which are publicly traded but under significant legal or contractual restrictions, our Board of Directors starts with the public market value of the shares as set forth in the paragraph above and applies an appropriate discount based on the nature and remaining duration of the restrictions.

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

Item 3

Quantitative and Qualitative Disclosures About Market Risk

Our Company’s business activities contain elements of risk.  Neither our Company’s investments nor an investment in our Company is intending to constitute a balanced investment program.

A substantial portion of our assets is comprised of private development stage or start-up companies. These private businesses tend to be thinly capitalized, unproven, small companies that lack management depth and have not attained profitability or have no history of operations. Because of the speculative nature and the lack of a public market for these investments, there is significantly greater risk of loss than is the case with traditional investment securities. We expect that some of our investments will be a complete loss or will be unprofitable and that some will appear to be likely to become successful but never realize their potential. Even when our private equity investments become publicly traded, the market for the unseasoned publicly traded securities may be relatively illiquid.

Because there is typically no public market for our interests in the small privately held companies in which we invest, the valuation of the equity interests in that portion of our portfolio is determined in good faith by or under the direction of our Board of Directors, in accordance with our valuation procedures. In the absence of a readily ascertainable market value, the determined value of our portfolio of equity interests may differ significantly from the values that would be placed on the portfolio if a ready market for the equity interests existed. Any changes in valuation are recorded in our consolidated statements of operations as "Net increase (decrease) in unrealized appreciation on investments." Changes in valuation of any of our investments in privately held companies from one period to another may be volatile.

-7-

Item 4

Controls and Procedures.

Effectiveness of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company's principal executive officers and financial officers of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The evaluation revealed to the Company's principal executive officer and financial officer that the design and operation of the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.  

The determination that the design and operation of the Company's disclosure controls and procedures are ineffective is primarily due to our Company’s limited cash on hand and its resulting inability to pay its independent auditing firm to review our quarterly financial statements as is required pursuant to Securities Exchange Act of 1934 reporting obligations. Our management is actively working to obtain additional capital to pay our auditors to review our quarterly financial statements as required pursuant to its Exchange Act reporting obligations and make effective the design and operation of the Company's disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

Our management, with the participation of the Company's principal executive officer and financial officer, evaluated whether there were any changes in the effectiveness of our internal control over financial reporting as of the end of our last fiscal quarter. In making this assessment, our management considered our Company’s limited cash on hand and its resulting inability to pay its independent auditing firm.  Based on this evaluation, our management, with the participation of the Company's principal executive officers and financial officers, concluded that the Company's internal controls have changed and that there is an inherent weakness which may increase the risks of errors in financial reporting under current operations.

-8-

UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL STATEMENTS

JANUARY 31, 2009 AND 2008

(UNAUDITED)

UNIVERSAL CAPITAL MANAGEMENT, INC.

CONTENTS

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES

See accompanying notes to these financial statements.

F-1

UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

JANUARY 31, 2009

(UNAUDITED)

See accompanying notes to these financial statements.

F-2

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS

 ENDED JANUARY 31, 2009 AND 2008

(UNAUDITED)

See accompanying notes to these financial statements.

F-3

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE NINE MONTHS ENDED JANUARY 31, 2009

 (UNAUDITED)

See accompanying notes to these financial statements.

F-4

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 31, 2009 AND 2008

(UNAUDITED)

See accompanying notes to these financial statements.

F-5

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 of 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, 2008, as filed with the Securities and Exchange Commission.  The interim operating results for the three and nine months ended January 31, 2009 are not necessarily indicative of operating results expected for the full year.

History and Nature of Business

Universal Capital Management, Inc. (the “Company”) is a business development company.  The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940.  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.

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.

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.

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.  The Company places its temporary cash investments with high credit quality financial institutions to limit its credit exposure.

F-6

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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:

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.

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 to refundable for the period plus or minus the change during the period in deferred tax assets or liabilities.

Recoverability of Long Lived Assets

The Company follows SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“Statement 144”).  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.

Reclassifications

Certain reclassifications were made to the April 30, 2008 financial statements in order to conform to the January 31, 2009 financial statement presentation.

F-7

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements

During September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which is effective for fiscal years beginning after November 15, 2007 with earlier adoption encouraged. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009.   The Company adopted SFAS 157 on May 1, 2008 for all financial assets and liabilities, but the implementation did not require additional disclosures or have a significant impact on the Company's financial statements.  The Company has not yet determined the impact the implementation of SFAS 157 will have on the Company’s non-financial assets and liabilities which are not recognized or disclosed on a recurring basis.  However, the Company does not anticipate that the full adoption of SFAS 157 will significantly impact their consolidated financial statements.

During February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company has adopted SFAS 159 on May 1, 2008 and has elected not to measure any additional financial assets, liabilities or other items at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R 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.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning May 1, 2009. This statement is not currently applicable since there are no subsidiaries.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which is effective May 1, 2009. SFAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows. Among other things, SFAS 161 requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular formant. SFAS 161 is not currently applicable to the Company since the Company does not have derivative instruments or hedging activity.

F-8

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements (Continued)

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162"). This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. The Standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. FAS 162 is not expected to have an impact on the financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this FSP is not expected to have a significant impact on the financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company does not currently have any share-based awards that would qualify as participating securities. Therefore, application of this FSP is not expected to have an effect on the Company's financial reporting.

In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP 14-1"). FSP 14-1 will be effective for financial statements issued for fiscal years beginning after December 15, 2008. The FSP includes guidance that convertible debt instruments that may be settled in cash upon conversion should be separated between the liability and equity components, with each component being accounted for in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP 14-1 is not currently applicable to the Company since the Company does not have convertible debt.

In October 2008, the FASB issued FAS Staff Position (FSP) 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active." This is effective upon issuance, including prior periods for which financial statements have not been issued. This FSP applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with Statement 157. This FSP clarifies the application of Statement 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157–3 did not have an impact on the company’s financial statements.

F-9

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 2 – INVESTMENTS

Portfolio companies consist of the following at January 31, 2009: