UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2011

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)	20-1568059 (I.R.S. Employer Identification No.)
2601 Annand Drive Suite 16 Wilmington, DE (Address of principal executive offices)	______19808____ (Zip Code)
Registrant’s telephone number, including area code: (302) 998-8824

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [  ]  No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X].  No [  ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).

Large accelerated filer [  ] Accelerated filer [  ]  Non-accelerated filer [X]  Smaller Reporting Company [  ]

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

The number of shares of the registrant’s Common Stock outstanding as of September 19, 2011 was 5,912,426

 

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Universal Capital Management, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2011 with the Securities and Exchange Commission without review by the Company’s principal auditors.  As a result, the financial statements contained in this Quarterly Report may be subject to future adjustment.  The Company intends to file an amendment to this Quarterly Report upon the Company’s principal auditor’s review of the Company’s financial statements and this Quarterly Report.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	5
Item 4.	Controls and Procedures	5
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	6
Item 6.	Exhibits	6

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PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

See Appendix

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction

Introduction

The following discussion contains forward-looking statements.  The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “could,” “may” and similar expressions are intended to identify forward-looking statements.  Such statements reflect our Company’s current views with respect to future events and financial performance and involve risks and uncertainties.  Should one or more risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, believed, expected, planned, intended, estimated, projected or otherwise indicated.  Readers should not place undue reliance on these forward-looking statements.

The following discussion is qualified by reference to, and should be read in conjunction with our Company’s financial statements and the notes thereto.

Until December 2010, our Company was primarily a publicly traded business development company in which our primary business was to invest in emerging growth companies.  Our Company assisted companies in strategic and financial planning, in market strategies and in trying to achieve prudent and profitable growth.  Management had devoted most of its efforts to general business planning, raising capital, and seeking appropriate investments.

In December 2010, our Company’s primary business structure began to evolve due to economic factors and new opportunities and we now also assist and enable entrepreneurs to introduce products to the consumer market. This new business model employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets.

Entrepreneurs can leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submit products or business concepts for our input and advice. We generate revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products. To date, we have received nominal revenues from management fees generated from the sales of several products, none of which may be considered to be material. We currently do not sell any internally developed or Company owned products.

Our Company derives its income from investments, consisting of management fees, interest income, and appreciation (net of depreciation) in the values of our Company holdings, and revenue from the management and marketing of our direct response products.   

Consequently, our Company’s success or failure will depend upon our ability to properly manage our investments and direct response marketing business and successfully market our direct response products.  We cannot assure you that we will be able to do so.

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Pursuant to the requirements of the Investment Company Act of 1940, as amended, 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.  We expect 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.

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 and unrealized appreciation are set forth in the following table:

	At the Quarter Ending July 31, 2011	At the Year Ending April 30, 2011
TOTAL ASSETS	$ 2,864,105	$ 3,072,008
NET ASSETS	$ 1,581,022	$ 1,769,636
NET ASSET VALUE PER SHARE	$ 0.27	$ 0.30
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS	$124,590	$ (2,302,698)

The changes in total assets, net assets and net asset value per share for the three months ending July 31, 2011 were primarily attributable to:

·

Lightwave Logic, Inc. (“LWLG”), average valuation on restricted and unrestricted shares and warrants decreased from $1.11 to $0.97 per share during the three months ending July 31, 2011 for a net unrealized appreciation of $9,455.   Our total investment in LWLG at July 31, 2011 was $355,000 compared to $398,707 at April 30, 2011.

·

The increase in cash of $46.

·

The decrease in accounts payable and accrued expenses of $5,378.

·

The decrease in net deferred tax asset of $105,000.

·

The increase in current income taxes payable of $16,000

At July 31, 2011, $867,247 or 30% of our Company's assets consisted of investments, of which net unrealized losses before the income tax effect were $842,973. A deferred tax asset on account of unrealized losses has been estimated at approximately $335,000. At July 31, 2011,

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our Company’s holdings of Lightwave and Vystar were valued at $355,000 and $222,500, respectively, which represented in the aggregate approximately 67% 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, our Company may find it difficult to liquidate any of its investments in the near future. See “Liquidity and Capital Resources” below.

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 ending July 31, 2011 compared to the three months ended July 31, 2010

For the three months ending July 31, 2011 our Company has revenue for services of $21,700 compared to $8,111 for the three months ending July 31, 2010. During the three months ending July 31, 2011 100% of our Company’s revenue for services were received as cash from management services compared to 6% of our Company’s revenue for services was received in the form of equity securities for the three months ending July 31, 2010.

Total operating expenses for the three months ending July 31, 2010 were $60,565, the principal components of which were professional fees of $3,927, consisting primarily of other professional fees, payroll of $7,928, $19,878 of insurance expense, $9,389 of interest expense and $18,968 of other general and administrative expense. By comparison, total operating expenses for the three months ending July 31, 2010 were $145,335, the principal components of which were professional fees of $30,010, payroll of $66,065, insurance of $24,379, interest of $7,958 and other general and administrative expenses of $16,923.

Our Company realized a loss from operations of $127,865 for the three months ending July 31, 2011 compared to a gain from operations of $118,776 for the three months ending July 31, 2010.

Liquidity and Capital Resources

From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity. Our Company had $16,612 of cash at July 31, 2011. Consequently, payment of operating expenses will have to come from equity capital to be raised from investors, from borrowed funds or from an operating company that the Company is looking to acquire. 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.

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At July 31, 2011, $647,747 or 75% of our investments are illiquid securities that do not have a market or they are restricted and therefore cannot be traded or sold.

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

Critical Accounting 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 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, 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.

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, the Board of Directors starts with the

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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 intended 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 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.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.  As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, our principal executive officer and our principal financial officer have determined that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report Form 10-Q.

Changes in Internal Control Over Financial Reporting.  No change in our Company’s internal control over financial reporting occurred during our Company’s last fiscal quarter that has

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materially affected, or is reasonably likely to materially affect, our Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

MICCO World, Inc. Lawsuit

In July 2010, our Company filed a lawsuit against MICCO World, Inc. (formerly known as Constellation Group, Inc.) and its officers, Phil Lundquist, Steven Brisker and Tom Ridenour (collectively known as the “Defendants”).  This lawsuit was filed in the Superior Court of Delaware in New Castle County.  This lawsuit was filed in response to various activities by the Defendants that include misleading investors, making disparaging remarks about our Company, misrepresentation of capital structure, and misappropriation of funds.

We are seeking judgment in the amount of $611,000 plus costs, legal fees, pre- and post-judgment interest, plus other amounts and relief to be determined.

In March 2011 the Defendants filed a motion to dismiss, which was denied in June 2011. 

Item 6.

Exhibits.

The following exhibits are included herein:

31.1

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.

31.2

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer of the Company.

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Financial Officer of the Company.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Universal Capital Management, Inc.
September 19, 2011	By:	/s/ Michael D. Queen
	Michael D. Queen, CEO
	Principal Executive Officer
September 19, 2011	By:	/s/ Theresa Q. Hoffmann
	Theresa Q. Hoffmann, Vice President of Finance
	Principal Financial Officer

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UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

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CONTENTS

	PAGE
STATEMENTS OF ASSETS AND LIABILITIES	F-2
STATEMENTS OF OPERATIONS	F-3
STATEMENTS OF CASH FLOWS	F-4
STATEMENT OF CHANGES IN NET ASSETS	F-5
FINANCIAL HIGHLIGHTS	F-6
SCHEDULE OF INVESTMENTS AS OF JULY 31, 2011	F-7
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2011	F-8
NOTES TO FINANCIAL STATEMENTS	F-9 – F-19

F-1

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES

		July 31, 2011		April 30, 2011
ASSETS
Investments, at fair value
Non-affiliate investments (cost: $475,267 and $475,228)		$ 628,722		$ 675,007
Affiliate investments (cost: $1,234,952 and $1,473,552)		238,525		306,210
Total Investments		867,247		981,217
Cash and cash equivalents		16,612		16,566
Receivables
Note receivable - affiliates (net of allowance: $30,014 and $30,014)		-		-
Due from non-affiliates		49,221		49,221
Due from affiliates (net of allowance: $3,500 and $3,500)		259,787		259,787
Total Receivables		309,008		309,008
Prepaid expenses		24,931		26,131
Property and equipment, net		207		681
Current income tax asset		76,000		60,000
Deferred income tax		1,569,000		1,674,000
Rent deposit		1,100		1,100
TOTAL ASSETS		$ 2,864,105		$ 3,072,008
LIABILITIES
LIABILITIES
Accounts payable		$ 366,182		$ 366,650
Accounts payable, related parties		7,213		7,213
Accrued expenses		319,606		324,516
Advances from shareholders		19,000		19,000
Notes payable		19,811		24,610
Note payable, related parties		378,870		396,870
Accrued interest		92,050		92,050
Accrued interest, related parties		80,351		71,463
TOTAL LIABILITIES		1,283,083		1,302,372
CONTINGENCIES (NOTE 13)
NET ASSETS		$ 1,581,022		$ 1,769,636
COMPOSITION OF NET ASSETS
Common stock, $0.001 par value, 50,000,000 shares authorized;
5,912,426 shares issued and outstanding at
July 31, 2011 and April 30, 2011		$ 5,912		$ 5,912
Additional paid-in capital		6,194,586		6,194,586
Accumulated income
Accumulated net operating income		2,039,642		2,167,507
Dividends paid		(448,596)		(448,596)
Net realized loss on investments		(5,711,472)		(5,526,133)
Net realized gain on dividend of portfolio stock		343,924		343,924
Net unrealized appreciation of investments		(842,974)		(967,564)
Net Assets		$ 1,581,022		$ 1,769,636
Equivalent per share value based on 5,912,426 shares of  common stock
outstanding as of July 31, 2011 and April 30, 2011		$ 0.27		$ 0.30

See accompanying notes to these unaudited financial statements.

F-2

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

	For the Three Months Ending July 31, 2011			For the Three Months Ending July 31, 2010
INCOME
Management services
Non-affiliates	$ -			$ -
Affiliates	21,700			911
Total Management Services	21,700			911
Accounting services
Affiliates	-			7,200
Total Accounting Services	-			7,200
TOTAL INCOME	21,700			8,111
COST AND EXPENSE
Salaries and wages	7,928			66,065
Professional fees	3,927			30,010
Insurance	19,878			104,133
Interest expense	9,389			24,379
General and administrative	18,968			7,958
Depreciation	475			475
TOTAL COST AND EXPENSE	60,565			145,335
Loss before income taxes and related interest	(38,865)			(137,224)
Income tax provision (benefit)	(89,000)			256,000
NET INCOME (LOSS) FROM OPERATIONS	(127,865)			118,776
Net realized and unrealized gains (losses)
Loss on disposal of portfolio stock	(185,339)			(56,346)
Unrealized appreciation (depreciation) on investments	124,590			(549,346)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS	$ (188,614)			$ (486,916)
Net decrease in net assets from operations per share:
Basic	$ (0.03)			$ (0.08)
Diluted	$ (0.03)			$ (0.08)
Weighted average shares:
Basic	5,912,426			6,412,426
Diluted	5,912,426			6,412,426

See accompanying notes to these unaudited financial statements.

F-3

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

		For the Three Months Ending		For the Three Months Ending
		July 31, 2011		July 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations		$ (188,614)		$ (486,916)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash used in operating activities:
(Sale) Purchase of investment securities		53,221		145,743
Loss on sale/disposal of portfolio stock		185,339		56,346
Investment securities received in exchange for management services		-		(500)
Depreciation expense		474		475
Stock based compensation expense		-		1,272
Net unrealized (appreciation) depreciation on investments		(124,590)		549,346
Deferred income taxes		105,000		(200,000)
Current income taxes		(16,000)		(59,000)
(Increase) decrease in assets
Notes receivable affiliates		-		(55,822)
Receivables non-affiliates		-		5,805
Due from affiliates		-		11,601
Due from non-affiliates		-		-
Prepaid expenses		4,505		6,986
Increase (decrease) in liabilities
Accounts payable		(468)		(4,109)
Accrued expenses		(4,910)		8,097
Accrued Interest, related parties		8,888		7,355
Net cash provided by (used in) operating activities		22,845		(19,126)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (Repayment) of debt		(4,799)		(9,057)
Proceeds from issuance of promissory note - related parties		-		24,000
Repayments of promissory notes – related parties		(18,000)		-
Net cash provided by (used in) financing activities		(22,799)		14,943
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		46		(4,183)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		16,566		6,567
CASH AND CASH EQUIVALENTS - END OF YEAR		$ 16,612		$ 2,384
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
CASH PAID FOR INCOME TAXES		$ 2,000		$ 3,000

See accompanying notes to these unaudited financial statements.

F-4

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UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CHANGES IN NET ASSETS

		For the Three		For the Three
		Months Ending		Months Ending
		July 31, 2011		July 31, 2010
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS		$ (188,614)		$ (486,916)
CAPITAL SHARE TRANSACTIONS
Share-based compensation expense		-		1,272
NET CAPITAL SHARE TRANSACTIONS		(188,614)		1,272
TOTAL DECREASE		(188,614)		(485,644)
NET ASSETS, BEGINNING OF YEAR		1,769,636		4,174,316
NET ASSETS, END OF YEAR		$ 1,581,022		$ 3,688,672

See accompanying notes to these unaudited financial statements.

F-5

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UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL HIGHLIGHTS

		For the Three Months Ending July 31, 2011		For the Three Months Ending July 31, 2010
PER SHARE INFORMATION
Net asset value, beginning of period		$ 0.30		$ 0.65
Net income (loss) from operations, net of taxes (1)		-		(0.01)
Net realized loss on investments, net of taxes (1)		0.01		(0.01)
Net unrealized appreciation (depreciation) on investments, net of taxes (2)		(0.04)		(0.05)
Net increase from stock transactions (1)		-		-
		(0.03)		(0.07)
Net asset value, end of period		$ 0.27		$ 0.58
Per share market value, end of period		$ 0.05		$ 0.15
Investment return, based on net asset value at end of period		-10.00%		-10.77%
RATIO/SUPPLEMENTAL DATA
Net assets, end of period		$ 1,581,022		$ 3,688,672
Ratio of expenses to average net assets		14.46%		14.78%
Ratio of net income (loss) from operations to average net assets		5.18%		0.83%
Diluted weighted average number of shares outstanding during the period		5,912,426		6,412,426

(1)	Calculated based on diluted weighted average number of shares outstanding during the period
(2)	Calculated as a balancing amount necessary to reconcile the change in net assets value per share with the other per share information presented.  This amount may not agree with the aggregate losses for the period because the difference in the net asset value at the beginning and end of period gains and does not inherently equal the per share changes of the line items disclosed.

See accompanying notes to these unaudited financial statements.

F-6

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UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS AS OF

JULY 31, 2011

								Number of		Method of
				Date of		% of		Units Held		Valuation				Value at		% of
		Business		Acquisition		Portfolio		at July 31, 2011		(1)		Cost		July 31, 2011		Net Assets
Affiliate Investments (2)
PR Specialists, Inc. (5)(6)(7)		Public shell		Dec-09		0.29%		2,500,000		(M)		$ 2,500		$ 2,500		0.16%
BF Acquisition Group V, Inc.(5)(6)(7)		Public shell		April-05; Nov-09		0.19%		100,000		(M)		1,625		1,625		0.10%
				Nov-09		0.22%		1,900,000		(M)		1,900		1,900		0.12%
Vystar Corporation (4)(6)		Natural rubber latex		Mar-10		12.97%		250,000		(M)		500,000		112,500		7.12%
		products
Warrant to purchase 600,000 shares of Vystar Corporation		Natural rubber latex
500,000 shares common stock, expiring April 30, 2013 (5)(6)		products		Jul-08		9.11%		500,000	(I)			193,000		79,000		5.00%
50,000 shares common stock, expiring April 30, 2012 (5)(6)				Oct-10		1.73%		50,000	(i)		-	-		15,000		0.95%
50,000 shares common stock, expiring May 31, 2012 (5)(6)				Nov-10		1.84%		50,000	(i)			-		16,000		1.01%
Innovation Industries
Promissory note (6)(8)		Direct sales		Oct-09		1.15%				(C )		10,000		10,000		0.63%
SIVOO Holdings, Inc. (4)(6)		High speed internet media		Dec-05 to Nov-06		0.00%		664,501		(M)		319,725		-		0.00%
Warrants to purchase 605,000 shares of SIVOO Holdings, Inc.		High speed internet media
200,000 warrants expiring November 14, 2011 (5)(6)				Nov-06		0.00%		200,000		(I)		-		-		0.00%
405,000 warrants expiring February 28, 2013 (5)(6)				Feb-08		0.00%		405,000		(I)		206,202		-		0.00%
4% of fully diluted common stock at time of exercise - TBD (5)(6)				Oct-09		0.00%		TBD		(I)		-		-		0.00%
		Total Investments in Affiliates				27.50%						1,234,952		238,525		15.09%
Non-Affiliate Investments (3)
Lightwave Logic, Inc. (4)(6)(7)		Plastics engineering		Dec-10		11.19%		100,000		(M)		95,295		97,000		6.12%
Warrant to purchase 357,500 shares of Lightwave Logic,		Plastics engineering		Feb-08		29.75%		357,500		(I)		250,250		258,000		16.32%
Inc. common stock, expiring February 2012 (5)(6)(7)
Warrant to purchase 1,000,000 shares of iVolution Medical		Medical billing and medical		Jul-08		27.67%		1,000,000		(I)		112,000		240,000		15.18%
Systems, Inc. (privately held) common stock, expiring
July 2013 (5)(6)		records software
Warrant to purchase 500,000 shares of iVolution Medical		Medical billing and medical		Jul-08		3.81%		500,000		(I)		17,000		33,000		2.09%
Systems, Inc. (privately held) common stock		records software
expiring July 2013 (5)(6)
Other (5)(6)(7)		Various		May-09		0.08%		3,500		(C )		722		722		0.05%
		Total Investments in Non-Affiliates				72.50%						475,267		628,722		39.76%
		Total Investments				100.00%						$ 1,710,219		$ 867,247		54.85%
		Cash and other assets, less liabilities												713,775		45.15%
		Net assets at July 31, 2011												$ 1,581,022		100.00%

Notes to Schedule of Investments

(1)     Investments are valued using the (M) Market Approach, (I) Income Approach, which includes the Black-Scholes Method, or (C ) Cost.

(2)     Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting securities.

(3)     Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities.

(4)     Unrestricted securities – liquid securities.

(5)     Restricted securities - illiquid securities; total illiquid securities of $647,747 make up 39% of total net assets as of July 31, 2011.

(6)     Represents a non-income producing security.  Equity investments that have not paid dividends within the last 12 months are considered to be non-income producing.

(7)     These investments are development stage companies.  A development stage company is defined as a company that is devoting substantially all of its efforts to establishing a new business, and          either it has not yet commenced its planned principal operations, or it has commenced such operations but has not realized significant revenue from them.

(8)     This represents a promissory note from Innovation Industries.  Terms of the promissory note include a profit sharing on net profits.  The promissory note is recorded at cost.

F-7

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UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS AS OF

APRIL 30, 2011

								Number of		Method of
				Date of		% of		Units Held		Valuation				Value at		% of
		Business		Acquisition		Portfolio		at July 31, 2011		(1)		Cost		July 31, 2011		Net Assets
Affiliate Investments (2)
PR Specialists, Inc. (5)(6)(7)		Public shell		Dec-09		0.25%		2,500,000		(M)		$ 2,500		$ 2,500		0.14%
BF Acquisition Group V, Inc.(5)(6)(7)		Public shell		April-05; Nov-09		0.17%		100,000		(M)		1,625		1,625		0.09%
				Nov-09		0.19%		1,900,000		(M)		1,900		1,900		0.11%
Vystar Corporation (4)(6)		Natural rubber latex		Mar-10		16.94%		369,300		(M)		738,600		166,185		9.39%
		products
Warrant to purchase 600,000 shares of Vystar Corporation		Natural rubber latex
500,000 shares common stock, expiring April 30, 2013 (5)(6)		products		Jul-08		9.17%		500,000	(I)			193,000		90,000		5.09%
50,000 shares common stock, expiring April 30, 2012 (5)(6)				Oct-10		1.73%		50,000	(i)		-	-		17,000		0.96%
50,000 shares common stock, expiring May 31, 2012 (5)(6)				Nov-10		1.73%		50,000	(i)			-		17,000		0.96%
Innovation Industries
Promissory note (6)(8)		Direct sales		Oct-09		1.02%				(C )		10,000		10,000		0.57%
SIVOO Holdings, Inc. (4)(6)		High speed internet media		Dec-05 to Nov-06		0.00%		664,501		(M)		319,725		-		0.00%
Warrants to purchase 605,000 shares of SIVOO Holdings, Inc.		High speed internet media
200,000 warrants expiring November 14, 2011 (5)(6)				Nov-06		0.00%		200,000		(I)		-		-		0.00%
405,000 warrants expiring February 28, 2013 (5)(6)				Feb-08		0.00%		405,000		(I)		206,202		-		0.00%
4% of fully diluted common stock at time of exercise - TBD (5)(6)				Oct-09		0.00%		TBD		(I)		-		-		0.00%
		Total Investments in Affiliates				31.20%						1,473,552		306,210		17,31%
Non-Affiliate Investments (3)
Lightwave Logic, Inc. (4)(6)(7)		Plastics engineering		Feb-07 to Jan-09		0.10%		817		(M)		678		907		0.05%
				Dec-10		9.05%		100,000	(5)	(M)		95,000		88,800		5.02%
Warrant to purchase 357,500 shares of Lightwave Logic,		Plastics engineering		Feb-08		31.49%		357,500		(I)		250,250		309,000		17.46%
Inc. common stock, expiring February 2012 (5)(6)(7)
Warrant to purchase 1,000,000 shares of iVolution Medical         Systems, Inc. (privately held) common stock, expiring		Medical billing and medical		Jul-08		24.56%		1,000,000		(I)		112,000		241,000		13.62%
July 2013 (5)(6)		records software
Warrant to purchase 500,000 shares of iVolution Medical Systems,		Medical billing and medical		Jul-08		3.57%		500,000		(I)		17,000		35,000		1.98%
Inc. (privately held) common stock, expiring July 2013 (5)(6)		records software
Other (5)(6)(7)		Various		May-09		0.00%		3,000		(C )		300		300		0.02%
		Total Investments in Non-Affiliates				68.80%						475,228		675,007		38.15%
		Total Investments				100.00%						$ 1,948,780		$ 981,217		55.46%
		Cash and other assets, less liabilities												788,419		44.54%
		Net assets at April 30, 2011												$ 1,769,636		100.00%

Notes to Schedule of Investments (1)     Investments are valued using the (M) Market Approach, (I) Income Approach, which includes the Black-Scholes Method, or (C ) Cost. (2)     Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns at least 5% but not more than 25% of the voting securities. (3)     Non-affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which the Company owns less than 5% of the voting securities. (4)     Unrestricted securities – liquid securities. (5)     Restricted securities - illiquid securities; total illiquid securities of $814,250 make up 46% of total net assets as of April 30, 2011. (6)     Represents a non-income producing security.  Equity investments that have not paid dividends within the last 12 months are considered to be non-income producing. (7)     These investments are development stage companies.  A development stage company is defined as a company that is devoting substantially all of its efforts to establishing a new business, and          either it has not yet commenced its planned principal operations, or it has commenced such operations but has not realized significant revenue from them. (8)     This represents a promissory note from Innovation Industries.  Terms of the promissory note include a profit sharing on net profits.  The promissory note is recorded at cost.

F-8

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

History and Nature of Business

Universal Capital Management, Inc. (the “Company”, “we”, “us”, “our”) 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.  We are a diversified, aggressive investment tool that assists early stage development companies in all aspects of the planning process from inception to entering the public marketplace.  This includes assisting with the preparation of financial statements, capitalization tables, valuations, business plans and coordinating public/investor relations efforts.  Our niche is to assist young companies preparing themselves for introduction to a diversified group of accredited investors in order to assist them with obtaining private debt and/or equity financing.  Since we have differing clients in varied industries, our overall portfolio is extremely diversified, which we believe enables us to offer investors who invest in us a potentially higher return with less risk.  For our management services we receive a block of common stock or warrants to purchase common stock which could result in a financial windfall for us and our shareholders.  The Company refers to companies in which it invests as “portfolio companies.”

During the three months ending July 31, 2011, we changed our business plan.  Our Company identifies, advises in development and markets consumer products. Our strategy employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets. We seek to assist and enable entrepreneurs to introduce products to the consumer market. Entrepreneurs can leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submit products or business concepts for our input and advice. We generate revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products. As of the date of this filing we have generated limited revenues and do not rely on any principal products. While the Company has received nominal revenues from management fees generated from the sales of several products, none of these fees have generated material revenues. We currently do not sell any internally developed or Company owned products.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments

Investments in securities of unaffiliated issuers represent holdings of less than 5% of the issuer's voting common stock.  Investments in and advances to affiliates are presented as (i) majority-owned, if holdings, directly or indirectly, represent over 50% of the issuer's voting common stock, (ii) controlled companies if the holdings, directly or indirectly, represent over 25% and up to 50% of the issuer's voting common stock and (iii) other affiliates if the holdings, directly or indirectly, represent 5% to 25% of the issuer's voting common stock.  Investments - other than securities represent all investments other than in securities of the issuer.

Security Valuations

Investments in securities or other than securities of privately held entities are initially recorded at their original cost as of the date the Company obtained an enforceable right to demand the securities or other investments purchased and incurred an enforceable obligation to pay the investment price.

For financial statement purposes, investments are recorded at their fair value.  If at our reporting date, readily determinable fair values do not exist for our investments, such as restricted securities and other securities (small, privately-held companies), the fair value of these investments is determined in good faith by the Company's Board of Directors pursuant to a valuation policy and consistent valuation process.  Due to the inherent uncertainty of these valuations, the estimates may differ significantly from the values that would have been used had a ready market for the investments existed and the differences may be material. 

F-9

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

Our valuation methodology includes the examination of among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation.

Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market (such as OTC BB, Pink Sheets, etc) and listed securities for which no sale was reported on that date are stated at the last quoted bid price.  

Investment securities are exposed to various risks, such as overall market volatility.  Due to the level of risk associated with the securities of certain portfolio companies, it is likely that changes in their values will occur in the near term and that such changes could materially affect the amounts reported in the statement of assets and liabilities at future dates.

Realized gains (losses) from the sale of investments and unrealized gains (losses) from the valuation of investments are reflected in operations during the period incurred. 

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from the estimates. Significant estimates in the accompanying financial statements include the allowance for receivables, estimates of depreciable lives, valuation of property and equipment, valuation of securities, valuation of equity based instruments issued for other than cash, and the valuation allowance on deferred tax assets.

Cash Equivalents

For the purposes of the statement of cash flows, the Company considers all investment instruments purchased with maturity of three months or less to be cash and cash equivalents.

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash.  At July 31, 2011 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage of $250,000.

Notes Receivable

Notes receivable consist of monies loaned to its portfolio companies evidenced by a note specifying a specific term, and interest rate and are reported at fair value.  Notes receivable are presented as due from affiliated and non-affiliated issuers.  Notes receivable from non-affiliated issuers represent notes from companies where we hold less than 5% of the issuer's voting common stock.  Notes receivable from affiliated issuers represent notes from companies where we hold 5% or more of the issuer’s voting common stock.  The Company provides an allowance for losses on notes receivable based on a review of the current status of existing receivables and management’s evaluation of periodic aging of accounts.  The Company charges off notes receivable against the allowance for losses when an account is deemed to be uncollectible.  The provision for doubtful accounts was approximately $30,014 and $30,014 as of July 31, 2011 and April 30, 2011.

Accounts Receivable

Accounts receivable consist of fees for services provided by the Company and are reported at fair value. Accounts receivable are presented as due from affiliated and non-affiliated issuers. Accounts receivable from unaffiliated issuers represent receivables from companies where we hold less than 5% of the issuer's voting common stock.  Accounts receivable from affiliated issuers represent receivables from companies where we hold 5% or more of the issuer’s voting common stock.  The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s evaluation of periodic aging of accounts.  The Company charges off accounts receivable

F-10

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

against the allowance for losses when an account is deemed to be uncollectible.  It is not the Company’s policy to accrue interest on past due receivables.  

Due from Affiliates and Non-Affiliates

Due from affiliates and non-affiliates represent fees that the Company has paid on behalf of a portfolio company and is reported at fair value. Due from non-affiliated issuers represent due from companies where we hold less than 5% of the issuer's voting common stock.  Due from affiliated issuers represent due from companies where we hold 5% or more of the issuer’s voting common stock.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation.  For financial accounting purposes, depreciation is generally computed by the straight-line method over the following useful lives:

Furniture and fixtures		5 to 7 years
Computer and office equipment		3 to 7 years

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, receivables, accounts payable and accrued expenses.  The carrying values of cash, receivables, accounts payable and accrued expenses approximate fair value because of their short maturities.

The carrying value of the notes payable approximates fair value since the interest rate associated with the debt approximates the current market interest rates.

Revenue Recognition

Product revenue

We recognize revenue from product sales in accordance with ASC 605 — Revenue Recognition. Following agreements or orders from customers, we ship product to our customers often through a third party facilitator. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Typically, these criteria are met when our customers order is received by them and we receive acknowledgment of receipt by a third party shipper.

We also offer our customers services consisting of managing, marketing and accounting to aid in the Direct Response marketing of their product or service. In these instances, revenue is recognized when the contracted services have been provided and accepted by the customer. Deposits, if any, on these services are recognized as deferred revenue until earned.

Management Services for equity investments

The Company recognizes management services revenue for equity investments received as payment in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 505-50-05, Accounting by a Grantee for an Equity Instrument to be Received in Conjunction with Providing Goods or Services.  The Company enters into a management service agreement with a portfolio company to provide services defined in a contract for equity instruments in the form of the portfolio company’s common stock or warrants to purchase common stock.  The fair value of the common stock is the portfolio company’s current fair market value and the fair value of the warrant is determined using the Black-Scholes method of valuation.  The fair value of the equity instruments is also the Company’s cost basis in the portfolio company’s securities and the income that is recognized for management services.  The Company recognizes management services revenue for which payment is to be received in cash as services are provided and in accordance with the revenue recognition criteria of the Securities and Exchange Commission. ASC 605 states if persuasive evidence of an arrangement exists, if services have been rendered, the price is fixed or determinable and collectability is reasonably assured, revenue is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract.

F-11

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

Accounting Services

The Company provides accounting and other administrative services to its companies.  Upon entering into a contract with the company, the Company provides services as defined in the contract and revenue is recognized as incurred or as otherwise stated in the contract based on similar criteria as for management services discussed above.

Interest Income

The Company loans monies to its portfolio companies from time to time.  These loans, which are evidenced by a note, are subject to interest accrued on a monthly basis.  This interest income is recognized when accrued.

Income Taxes

We account for income taxes in accordance with FASB ASC 740 — Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FASB ASC 740 — Income Taxes.

FASB ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Deferred tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Deferred income taxes arise principally from the recognition of unrealized gains or losses from appreciation or depreciation in investment value for financial statements purposes, while for income tax purposes, gains or losses are only recognized when realized (disposition).  When unrealized gains and losses result in a net unrealized loss, provision is made for a deferred tax asset.  When unrealized gains and losses result in a net unrealized gain, provision is made for a deferred tax liability.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable to refundable for the period plus or minus the change during the period in deferred tax assets or liabilities.

Net Realized Gains or Losses and Net Changes in Unrealized Appreciation or Depreciation

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the original cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized.  The original cost basis of the securities we receive in connection with our management services is equal to the amount of revenue we recognize upon receipt of such securities.  Net realized gains or losses are recognized as other income on the Company’s statement of operations for the period.

Net change in unrealized appreciation or depreciation of investments reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.  Net change in unrealized appreciation or depreciation are recognized as other income on the Company’s statement of operations for the period.

F-12

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

Recoverability of Long Lived Assets

The Company follows ASC-360-10-20, Property, Plant and Equipment – Overall.  This standard states that long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the excess of the asset’s carrying amount over the estimated fair market value.

Reclassifications

Certain reclassifications were made to the July 31, 2010 financial statements in order to conform to the July 31, 2011 financial statement presentation.

Recently Issued Pronouncements

The Company follows ASC 805, Business Combinations.  This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement is effective for the Company beginning May 1, 2009 and will change the accounting for business combinations on a prospective basis.

The Company follows ASC 820-10, Fair Value Measurements and Disclosure, that was adopted on May 1, 2008.  This position provides additional guidance for fair value measures under ASC 820-10 in determining if the market for an assets or liability is inactive and, accordingly, if quoted market prices may not be indicative of fair value.  In January 2010, there was an amendment to ASC 820-10 which the Company adopted on February 1, 2010.  The adoption of this amendment did not have a material impact on the Company’s financial statements.

ASC 825-10-65, Interim Disclosures About Fair Value of Financial Instruments, extends the existing disclosure requirements related to the fair value of financial instruments, which were previously only required in annual financial statements, to interim periods.  Given that ASC 825-10-65 provides for additional disclosures, its adoption did not have any impact on the Company’s financial statements. The disclosure requirements under ASC 825-10-65 are included in Note 3 to the financial statements.

ASC 855, Subsequent Events, sets forth principles and requirements for subsequent events, specifically (1) the period during which management should evaluate events or transactions that may occur for potential recognition and disclosure, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and (3) the disclosures that an entity should make about events and transactions occurring after the balance sheet date.  ASC 855 was effective for interim reporting periods ending after June 15, 2009.  This standard was amended in February 2010, Amendments to Certain Recognition and Disclosure Requirements.  The Company has adopted ASC 855 and it’s amendment, and this adoption did not have a material impact on its financial statements.

In June 2009, the FASB issued ASC 105-10-65, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB No. 162, which will become the source of authoritative U.S. GAAP recognized by the FASB to be applied to non-governmental entities.  On its effective date, ASC 105-10-65 will supersede all then-existing, non-SEC accounting and reporting standards.  ASC 105-10-65 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company has adopted ASC 105-10-65, and this adoption did not have a material impact on its financial statements.

NOTE 2 – BUSINESS RISKS AND UNCERTAINTIES

A substantial portion of our assets are in privately held companies whose securities are inherently illiquid.  These privately held companies tend to lack management depth, to have limited or no history of operations

F-13

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

and to not have attained profitability.  Because of the speculative nature and the lack of a public market for these investments, there is greater risk of loss than is the case with traditional investment securities.

Because there is typically no public market for our interest in these small privately held companies, the valuation of the equity in that portion of our portfolio is determined in good faith by our Valuation Committee, comprised of all the members of the Board of Directors, in accordance with our Valuation Procedures and is subject to significant estimates and judgments.  In the absence of a readily ascertainable market value, the determined value of our portfolio equity interest may differ significantly from the values that would be placed on the portfolio if a ready market for the equity interests existed.  Any changes in valuation are recorded in our Statement of Operations as “Unrealized appreciation (depreciation) on investments.”  Changes in valuation of any of our investments in privately held companies from one period to another may be volatile.

During the three months ending July 31, 2011, we do not manufacture any of our products. As of the date of this filing we have generated limited revenues and do not rely on any principal products. While the Company has received nominal revenues from management fees generated from the sales of several products, none of these fees have generated material revenues. We currently do not sell any internally developed or Company owned products.  

NOTE 3– INVESTMENTS

As described in Note 1, the Company adopted ASC 820-10 on May 1, 2008.  ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.  ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 -

Observable inputs such as quoted prices in active markets;

Level 2 -

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 -

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.As described in Note 1, an amendment to ASC 820-10 was issued in January 2010.  This amendment is effective for interim reporting periods beginning after December 15, 2009.  The Company adopted this amendment on February 1, 2010 and it does not have a material affect on its financial statements.

At July 31, 2011, our financial assets were categorized as follows in the fair value hierarchy for ASC 820-10:

			Fair Value Measurement at Reporting Date Using:
					Quoted Prices in		Significant Other		Significant
					Active Markets for		Observable		Unobservable
			Fair Value		Identical Assets		Inputs		Inputs
			July 31, 2011		(Level 1)		(Level 2)		(Level 3)
Investments
Affiliate investments			$ 238,525		$ 122,500		$ -		$ 116,025
Non-affiliate investments			628,722		97,722		-		531,000
Total Investments in securities			$ 867,247		$ 220,222		$ -		$ 647,025

F-14

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending July 31, 2011:

		Fair Value Measurement Using
		Significant Unobservable Inputs
		(Level 3)
Beginning Balance, April 30, 2011		$ 715,025
Total unrealized losses included in change in net assets		(68,000)
Ending Balance, July 31, 2011		$ 647,025
The amount of total gains or losses for the period included in changes
in net assets attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date.		$ (60,707)

NOTE 4 – INCOME TAXES

As an investment company organized as a corporation, the Company is taxable as a corporation.  As discussed in Note 1, the Company utilizes the assets and liability method of accounting for income taxes in accordance with ASC 740-10 and ASC 740-30, Accounting for Income Taxes.

Under the provisions of ASC 740-10, Accounting for Income Taxes, the unrecognized tax provisions consisting of interest and penalties at July 31, 2011 and April 30, 2011 was $92,050.  The change in unrecognized tax provisions during the three months ending July 31, 2011 amounted to $0 and the accrual at July 31, 2011 amounted to $92,050.  The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and is included on the Company’s balance sheet in accrued interest.

Tax years from 2005 (initial tax year) through 2011 remain subject to examination by major tax jurisdictions.

The income tax benefit for the three months ending July 31, 2011 and 2010 have been included in the accompanying financial statements on the basis of an estimated annual federal and state effective rate of 34.0% and 8.7%, respectively, resulting in a blended effective rate of 39.75%.  The Company’s income tax benefit differs from the “expected” income tax benefit for federal income tax purposes as follows:

	For the Three Months Ending July 31, 2011		For the Three Months Ending July 31, 2010
Income taxes at U.S. Federal Income Tax rate	$ (27,000)		$ 218,000
State income taxes, net of federal benefit	(9,000)		76,000
Realized losses	(53,000)		(38,000)
Change in valuation allowance	-		-
	$ (89,000)		$ 256,000

F-15

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

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

		For the Three Months Ending July 31, 2011		For the Three Months Ending July 31, 2010
Current:
Federal		$ 14,000		$ 44,000
State		4,000		12,000
Total Current		$ 18,000		$ 56,000
Deferred:
Federal		$ (84,000)		$ 156,000
State		(23,000)		44,000
Total Deferred		$ (107,000)		$ 200,000
Total Income Tax (Provision) Benefit		$ (89,000)		$ 256,000

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

			July 31, 2011		April 30, 2011
Deferred tax (asset) liability
Deferred charges			$ (66,000)		$ (66,000)
Net operating loss			(87,000)		(87,000)
Unrealized gains			(335,000)		(385,000)
Capital loss carryforward			(1,176,000)		(1,231,000)
Stock-based compensation			(129,000)		(129,000)
Amortization of deferred revenue from warrants			319,000		319,000
Bad debt			(95,000)		(95,000)
Other			-		-
Total deferred tax (asset) liability, net			$ (1,569,000)		$ (1,674,000)

At July 31, 2011, the Company had a capital loss carryforward of approximately $3,098,563 which if not used will expire in 2015.

At July 31, 2011 there is a $179,700 accrual included in accrued expenses for estimated penalties and interest associated with the outstanding taxes payable for the year ended April 30, 2007.

Currently, the Company owes the IRS and the State of Delaware for taxes, penalties and interest from the tax year ending April 30, 2007 of approximately $300,000.  The Company has agreements with both agencies to pay a minimum per month to avoid any collections or additional liens.

F-16

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

NOTE 5 – NOTES RECEIVABLE

Notes receivable consists of the following:

		July 31, 2011		April 30, 2011
Note Receivable - affiliated companies
SIVOO Holdings, Inc. ("SIVOO") - Principal of $25,000.  This note bears interest
at 8%  per year beginning on May 1, 2007.  This note is payable upon demand.		$ 30,014		$ 30,014
Allowance for bad debt		(30,014)		(30,014)
Notes Receivable- affiliated companies		$ -		$ -

NOTE 6 – DUE FROM NON-AFFILIATED AND AFFILIATED COMPANIES

		July 31, 2011		April 30, 2011
Due from Non-Affiliated Companies
MedicaView		$ 49,221		$ 49,221
Total Due from Non-Affiliated Companies		$ 49,221		$ 49,221
Due from Affiliated Companies
BF Acquisition Group V, Inc.		$ 147,013		$ 147,013
SIVOO Holdings		3,500		3,500
PR Specialists		112,774		112,774
Innovation Industries		-		-
Totals		263,287		263,287
Allowance for bad debt		(3,500)		(3,500)
Total Due from Affiliated Companies		$ 259,787		$ 259,787

F-17

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

NOTE 7 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE

The deferred revenue represents unearned management fee income.  Income is amortized and recognized evenly over the life of the contract unless otherwise stated in the contract.  In accordance with ASC Subtopic 505-50, since the shares received by the Company are non-refundable, the value of the contract is determined by the number of shares the Company receives at the closing market price on the day of the contract (commitment date).  Warrants are valued using the Black-Scholes method.  Management service revenue recognized consists of:

					For the Three Months Ending July 31, 2011		For the Three Months Ending July 31, 2010
Affiliates
PR Specialists, Inc.("PR")
	Received 2,500,000 shares of PR common stock for payment				$ -		$ 500
	of services per a one year contract dated December 2009,
	valued at $2,500, fair value and amortized over the life of
	the contract.
Total Affiliates					-		500
Total Management Services Revenue					$ -		$ 500

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following:

		July 31, 2011		April 30, 2011
Notes payable
Notes payable.  D&O Insurance Premium.  Interest accrued at
9.2% for a period of ten (10) months.  Payable in ten monthly
Installments of $2,414 per month.		$ 19,811		$ 24,610
Notes payable		$ 19,811		$ 24,160
Notes payable, related party
Notes payable, related party.  Interest accrued at 8.0%
beginning on November 1, 2008.  Principal and interest
payable on demand. (NOTE 11)		$ 318,068		$ 322,068
Notes payable, related party.  Interest accrued at 8.0%
beginning on October 19, 2009  Principal and interest
payable on demand. (NOTE 11)		50,000		50,000
Promissory notes payable, related party.  Interest accrued at
5.0% per annum.  Principal and interest due September 30,
2010.  (NOTE 11)		10,802		14,802
Notes payable, related party		$ 378,870		$ 396,870

F-18

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UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 2011

NOTE 9 – ADVANCES FROM SHAREHOLDERS

Amount represents advances from shareholders to cover operating expenses.  There are no stated interest rate or repayment terms. As of July 31, 2011 and April 30, 2011, these advances totaled $19,000.

NOTE 10 – STOCK BASED COMPENSATION

In May 8, 2006, our Company’s stockholders approved the 2006 Equity Incentive Plan for the benefit of our directors, officers, employees and consultants, and which reserved 2,000,000 shares of our common stock for such persons pursuant to that plan.  As of July 31, 2011, 1,000,000 are available for issuance.

There were no employee stock options issued by the Company prior to May 1, 2006.

The following tables summarize all stock option activity of the Company since April 30, 2007:

		Stock Options Outstanding
				Weighted		Weighted Average
				Average		Remaining Contractual		Aggregate
		Number of Shares		Exercise Price		Life (Years)		Intrinsic Value
Outstanding, April 30, 2011		600,000		$ 0.20		7.82		$ -
No activity		-						$ -
Outstanding and Exercisable,     July 31, 2011		600,000		$ 0.20		7.57		$ -

NOTE 11 – RELATED PARTY TRANSACTIONS

Notes payable, related parties were $378,870 and $396,870 at July 31, 2011 and April 30, 2011, respectively (NOTE 8).  The Company repaid $16,000 and $0 during the three months ending July 31, 2011 and 2010, respectively.

At July 31, 2011 and April 30, 2011, accounts payable, related parties were $7,213.

NOTE 12 – CONTINGENCIES

MICCO World, Inc. Lawsuit

In July 2010, the Company filed a lawsuit against MICCO World, Inc. (formerly known as Constellation Group, Inc.) and its officers, Phil Lundquist, Steven Brisker and Tom Ridenour (collectively known as the “Defendants”).  This lawsuit was filed in the Superior Court of Delaware in New Castle County.  This lawsuit was filed in response to various activities by the Defendants that include misleading investors, making disparaging remarks about the Company, misrepresentation of capital structure, and misappropriation of funds.

The Company is seeking judgment in the amount of $611,000 plus costs, legal fees, pre- and post-judgment interest, plus other amounts and relief to be determined.

In March 2011, MICCO filed a motion to dismiss.  In June 2011, the courts denied this motion to dismiss. 

F-19