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EX-31.1 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INCucmt_ex31z1.htm
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350 - MAJOR LEAGUE FOOTBALL INCucmt_ex32z1.htm
EX-31.2 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INCucmt_ex31z2.htm
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350 - MAJOR LEAGUE FOOTBALL INCucmt_ex32z2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q/A

(Amendment No. 1)


(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, 2010

OR

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

For the transition period from _______ to _______

Commission File Number 000-51132

Universal Capital Management, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

Incorporation or Organization)

2601 Annand Drive

Suite 16

Wilmington, DE

(Address of principal executive offices)

20-1568059

(I.R.S. Employer

Identification No.)


______19808____

(Zip Code)

 

Registrant’s telephone number, including area code: (302) 998-8824

 

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

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

Large accelerated filer ¨ Accelerated filer ¨  Non-accelerated filer ý  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 ý

The number of shares of the registrant’s Common Stock issued as of June 6, 2013 was 43,187,426. Of this amount, 28,187,426 were outstanding and 15,000,000 were contingently returnable in accordance with specified conditions to be met in the future per a joint venture agreement. 

  

     




Universal Capital Management, Inc. (the “Company,” “our” or “we”) filed a Quarterly Report on Form 10-Q for the period ended July 31, 2010 (the “Original Report”) with the Securities and Exchange Commission (“SEC”) on September 14, 2010.  The Financial Statements contained in the Original Report were not reviewed by the Company’s independent registered public accounting firm and a note to that effect was inserted at the beginning of the Original Report.  We are filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A (the “Amended Report”) to remove the note that the unaudited Financial Statements were not reviewed by the Company’s independent registered public accounting firm and to amend the Original Report as follows:


1.

The note inserted at the beginning of the Original Report stating that the Financial Statements contained in the Original Report were not reviewed by the Company’s independent registered public accounting firm is deleted.  There were several adjustments to the Company’s July 31, 2010 Financial Statements included in the Original Report including the following principal items:


a)

$1,121,000 income tax provision as the result of a valuation allowance against deferred tax assets.  

b)

$284,500 bad debt expense related to affiliate investments.

c)

$338,325 loss on impairment of portfolio stock.

d)

$1,885,975 for net unrealized depreciation on investments.


The resulting effect of the restatement of the Financial Statements for the period ended July 31, 2010 is: (1) a reduction of total assets of $3,628,800 from $4,857,022 to $1,228.222 at July 31, 2010, (2) a decrease in net assets of $3,628,800 from a net asset amount of $3,688,672 to a net asset amount of $59,872 at July 31, 2010, (3) a net decrease of net assets resulting from operations of $3,628,799 from a net decrease of ($486,916) to a net decrease of ($4,115,715) for the three months ended July 31, 2010 and (4) a net decrease in net assets from operations per share of ($0.56) from ($0.08) to ($0.64) per share for the three months ended July 31, 2010. Certain applicable portions of Notes 1, 3, 4, 6, 10, 11, 12 and 13 have also been revised accordingly.


2.

The Financial Statements contained in Part I. Item 1 of the Original Report are deleted in their entirety and replaced with the Financial Statement contained in Part I. Item 1 of this Amended Report.

3.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part I. Item 2 of the Original Report is deleted in its entirety and replaced with the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II. Item 2 of this Amended Report.

4.

The information contained in Part II. Item 6 Exhibits of the Original Report is revised only to reflect the filing of currently dated certifications of our principal executive officer and our principal financial officer, which are attached to this Amended Report.


Except as described above, this Amended Report does not modify or update any other disclosures in, or exhibits to, the Original Report and this Amended Report continues to speak as of the date of the Original Report. Accordingly, this Amended Report should be read in conjunction with the Original Report and all of our filings made with the SEC subsequent to the filing of the Original Report, as information in such filings may update or supersede certain information contained in this Amended Report and the Original 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

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 6.

Exhibits

5




PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

See Appendix

Item 2.

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

Introduction

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

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

During the period covered by this report, our Company was a non-diversified, close-ended management investment company that had elected to be treated as a business development company (BDC) under the 1940 Act.  We assisted early stage development companies in all aspects of the planning process from inception to entering the public marketplace.  This included assisting with the preparation of financial statements, capitalization tables, valuations, business plans and coordinating public/investor relations efforts.  Our niche was to assist young companies prepare themselves for introduction to a diversified group of accredited investors in order to assist them with obtaining private debt and/or equity financing.  Since we had differing clients in varied industries, our overall portfolio is extremely diversified, which we believed enabled us to offer investors who invest in us a potentially higher return with less risk.  For our management services we received a block of common stock which could result in a financial windfall for us and our shareholders.

On November 1, 2011, the Company filed Form N-54C notification of withdrawal of election to be regulated as a BDC. The withdrawal was effective upon receipt of the Form N-54C notification by the SEC, and our Company is no longer subject to regulation as a BDC as of November 1, 2011.  However, during the period covered by this amended quarterly report on Form 10-Q/A, July 31, 2010, the Company is reporting as a BDC.


Subsequent to November 1, 2011, we have no intention to invest in securities or meet the definition of an investment company, as described in Section 3 of the 1940 Act. Our Company will be managed so it will not be deemed to be an investment company as defined in the 1940 Act and will maintain its registration under the 1934 Act and continue to be obligated to file regular reports as required thereunder.


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



1



products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products.  As of the date of this Form 10-Q/A, we have generated limited revenues and do not rely on any principal products. While the Company has received limited revenues from management fees generated from the sales of several products, none of these fees have generated material revenues. We currently do not sell any internally developed or Company owned products.


We are currently positioning our Company to expand its business and become a diversified holding company that is engaged in different businesses through the operation of consolidated subsidiaries. We plan to accomplish this expansion through acquisition, merger or the formation of newly created subsidiaries. We are currently in various stages of talks with several target companies that could further the company's goal to become a diversified holding company, but no agreements have been reached to date.


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.

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 July 31, 2010

At April 30, 2010

TOTAL ASSETS

$

1,228,222 

$

5,375,880

NET ASSETS

$

59,872 

$

4,174,316

NET ASSET VALUE PER SHARE

$

0.01 

$

0.65


NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS

($1,432,518)

$

1,341,128


The changes in total assets, net assets and net asset value per share for the three months ending July 31, 2010 were primarily attributable to:

·

$2,435,321 net unrealized depreciation on investments.



2



·

$864,000 income tax provision as the result of a valuation allowance against deferred tax assets.  

·

$284,500 bad debt expense related to affiliate investments.

·

$338,325 loss on impairment of portfolio stock.

At July 31, 2010 and April 30, 2010, $1,203,487 or approximately 2,000% and $4,179,222 or approximately 100% of our net assets, respectively, consisted of investments, of which cumulative net unrealized depreciation was $1,432,518 at July 31, 2010 and cumulative net unrealized appreciation was $1,341,128 at April 30, 2010.

 

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.

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, 2010 compared to the three months ended July 31, 2009

For the three months ending July 31, 2010 our Company had revenue for services in the amount of $8,111 compared to $7,592 for the three months ending July 31, 2009. During the three months ending July 31, 2010, 6% of our Company’s revenue for services was received in the form of equity securities compared to 54% for the three months ending July 31, 2009.

Total operating expenses for the three months ending July 31, 2010 were $429,835, the principal components of which were bad debt expense of $284,050, salaries and wages of $66,065, professional fees of $30,010 and insurance of $24,379.  The bad debt expense related to an allowance recorded for due from affiliate receivables.  By comparison, total operating expenses for the three months ending July 31, 2009 were $192,215, the principal components of which were professional fees of $74,854, payroll of $61,612, insurance of $28,471, interest of $8,585 and other general and administrative expenses of $18,693.



3



Our Company realized a loss from operations of $1,285,724 for the three months ending July 31, 2010 compared to a loss from operations of $215,198 for the three months ending July 31, 2009.  The increase in the loss was attributable to an $864,000 income tax provision related to a valuation allowance against deferred tax assets.

Liquidity and Capital Resources

From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity. Our Company had $2,384 of cash at July 31, 2010. 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. 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 July 31, 2010, $1,068,400 or 89% 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.



4



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 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.


PART II – OTHER INFORMATION

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.



5



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.

 

 

 

June 7, 2013

By:

/s/ Michael D. Queen

 

Michael D. Queen, Principal Executive Officer and Principal Financial Officer




6








UNIVERSAL CAPITAL MANAGEMENT, INC.


FINANCIAL STATEMENTS


JULY 31, 2010


(UNAUDITED)
















UNIVERSAL CAPITAL MANAGEMENT, INC.





CONTENTS



 

PAGE

 

 

STATEMENTS OF ASSETS AND LIABILITIES

F-2

 

 

STATEMENTS OF OPERATIONS (UNAUDITED)

F-3

 

 

STATEMENTS OF CASH FLOWS (UNAUDITED)

F-4

 

 

STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)

F-5

 

 

FINANCIAL HIGHLIGHTS (UNAUDITED)

F-6

 

 

SCHEDULE OF INVESTMENTS AS OF JULY 31, 2010 (UNAUDITED)

F-7

 

 

SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2010

F-9

 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

F-11 – F-25











F-1





UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES


 

 

July 31, 2010

(As Restated –

Note 14)

 

 

April 30, 2010

 

 

 

(Unaudited)

 

 

 

 

ASSETS

  

                          

  

  

                          

  

Investments, at fair value

 

 

 

 

 

 

Non-affiliate investments (cost: $509,861 and $525,951)

 

$

692,878

 

 

$

1,052,042

 

Affiliate investments (cost: $2,126,143 and $2,312,143)

 

 

510,609

 

 

 

3,127,180

 

Total Investments

 

 

1,203,487

 

 

 

4,179,222

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

2,384

 

 

 

6,567

 

Receivables:

 

 

 

 

 

 

 

 

Due from non-affiliates

 

 

-

 

 

 

11,601

 

Due from affiliates (net of allowance: $284,500 and $3,500)

 

 

-

 

 

 

228,678

 

Total Receivables

 

 

-

 

 

 

240,279

 

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

19,145

 

 

 

26,131

 

Property and equipment, net

 

 

2,106

 

 

 

2,581

 

Deferred income tax

 

 

-

 

 

 

920,000

 

Rent deposit

 

 

1,100

 

 

 

1,100

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,228,222

 

 

$

5,375,880

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

316,676

 

 

$

320,785

 

Accounts payable, related parties

 

 

7,213

 

 

 

7,213

 

Accrued expenses

 

 

201,899

 

 

 

193,802

 

Income taxes payable

 

 

73,000

 

 

 

132,000

 

Advances from shareholders

 

 

22,000

 

 

 

22,000

 

Notes payable

 

 

14,097

 

 

 

23,154

 

Notes payable, related parties

 

 

391,372

 

 

 

367,372

 

Accrued interest

 

 

92,050

 

 

 

92,050

 

Deferred revenue - affiliates

 

 

958

 

 

 

1,458

 

Accrued interest, related parties

 

 

49,085

 

 

 

41,730

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

1,168,350

 

 

 

1,201,564

 

 

 

 

 

 

 

 

 

 

CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSETS

 

$

59,872

 

 

$

4,174,316

 

 

 

 

 

 

 

 

 

 

COMPOSITION OF NET ASSETS

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 60,000,000 shares authorized;6,412,426 shares issued and outstanding at July 31, 2010 and April 30, 2010

 

$

6,412

 

 

$

6,412

 

Additional paid-in capital

 

 

6,215,474

 

 

 

6,214,202

 

Accumulated income:

 

 

 

 

 

 

 

 

Accumulated net operating income

 

 

453,079

 

 

 

1,738,803

 

Dividends paid

 

 

(448,596

)

 

 

(448,596

)

Net realized loss on investments

 

 

(5,077,903

)

 

 

(5,021,557

)

Net realized gain on dividend of portfolio stock

 

 

343,924

 

 

 

343,924

 

Net unrealized appreciation (depreciation) of investments

 

 

(1,432,518

)

 

 

1,341,128

 

 

 

 

 

 

 

 

 

 

Net Assets

 

$

59,872

 

 

$

4,174,316

 

 

 

 

 

 

 

 

 

 

Equivalent per share value based on 6,412,426 shares of capital stock outstanding as of July 31, 2010 and April 30, 2010

 

$

0.01

 

 

$

0.65

 




See accompanying unaudited notes to these unaudited financial statements.


F-2





UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS


 

 

For the Three

 

 

 

 

 

 

Months Ending

 

 

 

 

 

 

July 31, 2010

 

 

For the Three

 

 

 

(As Restated –

 

 

Months Ending

 

 

 

Note 14)

 

 

July 31, 2009

 

 

 

(Unaudited)

 

 

(Unaudited)

 

INCOME

  

                          

  

  

                          

  

Management services

 

 

 

 

 

 

Non-affiliates

 

$

-

 

 

$

3,588

 

Affiliates

 

 

500

 

 

 

500

 

Total Management Services

 

 

500

 

 

 

4,088

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

-

 

 

 

504

 

Accounting services

 

 

 

 

 

 

 

 

Affiliates

 

 

7,200

 

 

 

3,000

 

Total Accounting Services

 

 

7,200

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

Other Income

 

 

 

 

 

 

 

 

Affiliates

 

 

411

 

 

 

-

 

 

 

 

 

 

 

 

 

 

TOTAL INCOME

 

 

8,111

 

 

 

7,592

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSE

 

 

 

 

 

 

 

 

Bad debt

 

 

284,500

 

 

 

-

 

Salaries and wages

 

 

66,065

 

 

 

61,612

 

Professional fees

 

 

30,010

 

 

 

74,854

 

Insurance

 

 

24,379

 

 

 

28,471

 

Interest expense

 

 

7,958

 

 

 

8,585

 

General and administrative

 

 

16,448

 

 

 

18,218

 

Depreciation

 

 

475

 

 

 

475

 

TOTAL OPERATING EXPENSE

 

 

429,835

 

 

 

192,215

 

 

 

 

 

 

 

 

 

 

Loss before income taxes and related interest

 

 

(421,724

)

 

 

(184,623

)

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

(864,000

)

 

 

(24,000

)

Interest expense

 

 

-

 

 

 

(6,575

)

 

 

 

 

 

 

 

 

 

NET LOSS FROM OPERATIONS

 

 

(1,285,724

)

 

 

(215,198

)

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Gain (loss) on disposal of portfolio stock

 

 

(56,346

)

 

 

14,404

 

Loss on impairment of portfolio stock

 

 

(338,325

)

 

 

-

 

Unrealized appreciation (depreciation) on investments

 

 

(2,435,321

)

 

 

253,993

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(4,115,715

)

 

$

53,199

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from operations per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.64

)

 

$

0.01

 

Diluted

 

$

(0.64

)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

6,412,426

 

 

 

6,412,426

 

Diluted

 

 

6,412,426

 

 

 

6,412,426

 




See accompanying unaudited notes to these unaudited financial statements.


F-3





UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS


 

 

For the Three

 

 

 

 

 

 

Months Ending

 

 

 

 

 

 

July 31, 2010

 

 

For the Three

 

 

 

(As Restated –

Note 14)

 

 

Months Ending

July 31, 2009

 

 

 

(Unaudited)

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES

  

                          

  

  

                          

  

Net increase (decrease) in net assets resulting from operations

 

$

(4,115,715

)

 

$

53,199

 

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:

 

 

 

 

 

 

 

 

Purchase of investment securities

 

 

-

 

 

 

(25,484

)

Exercise of warrants

 

 

-

 

 

 

(4,000

)

Proceeds from sale of stock

 

 

145,743

 

 

 

185,280

 

Gain (loss) on sale of portfolio stock

 

 

56,346

 

 

 

(14,404

)

Investment securities received in exchange for management services

 

 

(500

)

 

 

(4,088

)

Depreciation expense

 

 

475

 

 

 

475

 

Bad debt expense

 

 

284,500

 

 

 

-

 

Stock based compensation expense

 

 

1,271

 

 

 

1,272

 

Net unrealized (appreciation) depreciation and impairment on investments

 

 

2,773,646

 

 

 

(253,993

)

Deferred income taxes

 

 

920,000

 

 

 

(212,000

)

Current income taxes

 

 

(59,000

)

 

 

236,000

 

(Increase) decrease in assets:

 

 

 

 

 

 

 

 

Notes receivable affiliates

 

 

-

 

 

 

(505

)

Receivables non-affiliates

 

 

-

 

 

 

(3,195

)

Due from affiliates

 

 

(55,822

)

 

 

(1,058

)

Due from non-affiliates

 

 

11,601

 

 

 

-

 

Prepaid expenses

 

 

6,986

 

 

 

416

 

Increase (decrease) in liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(4,135

)

 

 

(31,905

)

Accrued expenses

 

 

8,123

 

 

 

(3,000

)

Accrued interest

 

 

-

 

 

 

(30,612

)

Accrued interest, related parties

 

 

7,356

 

 

 

7,673

 

Net cash used in operating activities

 

 

(19,126

)

 

 

(99,929

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from issuance of promissory note

 

 

-

 

 

 

116,000

 

Repayment of debt

 

 

(9,057

)

 

 

(24,177

)

Proceeds from promissory note - related parties

 

 

24,000

 

 

 

-

 

Net cash provided by financing activities

 

 

14,943

 

 

 

91,823

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(4,183

)

 

 

(8,106

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

6,567

 

 

 

15,431

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

2,384

 

 

$

7,325

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

 

 

 

 

 

 

 

 

CASH PAID FOR INCOME TAXES

 

$

3,000

 

 

$

-

 

CASH PAID FOR INTEREST

 

$

-

 

 

$

-

 





See accompanying unaudited notes to these unaudited financial statements.


F-4





UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CHANGES IN NET ASSETS


 

 

For the Three

 

 

 

 

 

 

Months Ending

 

 

 

 

 

 

July 31, 2010

 

 

For the Three

 

 

 

(As Restated –

 

 

Months Ending

 

 

 

Note 14)

 

 

July 31, 2009

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

  

                          

  

  

                          

  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(4,115,715

)

 

$

53,199

 

 

 

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

1,271

 

 

 

1,272

 

 

 

 

 

 

 

 

 

 

NET CAPITAL SHARE TRANSACTIONS

 

 

1,271

 

 

 

1,272

 

 

 

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE)

 

 

(4,114,444

)

 

 

54,471

 

 

 

 

 

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

 

4,174,316

 

 

 

4,268,861

 

 

 

 

 

 

 

 

 

 

NET ASSETS, END OF PERIOD

 

$

59,872

 

 

$

4,323,332

 





See accompanying unaudited notes to these unaudited financial statements.


F-5






UNIVERSAL CAPITAL MANAGEMENT, INC.

FINANCIAL HIGHLIGHTS

(UNAUDITED)


 

 

July 31, 2010

(As Restated –

Note 14)

 

 

July 31, 2009

 

 

  

                          

  

  

                          

  

PER SHARE INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

0.65

 

 

$

0.67

 

 

 

 

 

 

 

 

 

 

Net income (loss) from operations, net of taxes (1)

 

 

(0.20

)

 

 

(0.02

)

Net realized loss on investments, net of taxes (1)

 

 

(0.06

)

 

 

0.02

 

Net unrealized appreciation (depreciation) on investments, net of taxes (2)

 

 

(0.38

)

 

 

-

 

 

 

 

(0.64

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

0.01

 

 

$

0.67

 

 

 

 

 

 

 

 

 

 

Per share market value, end of period

 

$

0.20

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

Investment return, based on net asset value at end of period

 

 

-98.74

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

RATIO/SUPPLEMENTAL DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period

 

$

59,872

 

 

$

4,323,332

 

 

 

 

 

 

 

 

 

 

Ratio of expenses to average net assets

 

 

81.21

%

 

 

17.90

%

Ratio of Income (loss) from operations to average net assets

 

 

-242.92

%

 

 

-20.04

%

 

 

 

 

 

 

 

 

 

Diluted weighted average number of shares outstanding during the period

 

 

6,412,426

 

 

 

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 gains and losses for the period because the difference in the net asset value at the beginning and end of period does not inherently equal the per share changes of the line items disclosed



See accompanying unaudited notes to these unaudited financial statements.


F-6





UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF JULY 31, 2010

(UNAUDITED)


 

 

 

 

Date of

 

% of

 

 

Units Held

 

Method of

 

 

Value at

 

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

 

 

at July 31, 2010

 

Valuation (1)

 

Cost

 

 

July 31, 2010

 

 

Net Assets

 

Affiliate Investments (2)

    

 

    

                    

    

                    

 

  

                    

 

 

 

    

                    

    

                    

  

  

                    

  

  

                    

 

PR Specialists, Inc./Mediavix, Inc. (5)(6)(7)

 

Brand relationship management

 

Dec-09

 

 

0.00

%

 

 

2,500,000

 

 

 

  

(M)

 

$

2,500

 

 

$

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc./Incredible 3D, Inc.(5)(6)(7)

 

3D content production

 

April-05; Nov-09

 

 

0.00

%

 

 

100,000

 

 

 

 

(M)

 

 

1,625

 

 

 

-

 

 

 

0.00

%

 

 

 

 

Nov-09

 

 

0.00

%

 

 

1,900,000

 

 

 

 

(M)

 

 

1,900

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vystar Corporation (4)(6)

 

Natural rubber latex

 

May-09

 

 

7.33

%

 

 

100,238

 

 

 

 

 

(M)

 

 

190,191

 

 

 

88,209

 

 

 

147.33

%

 

 

products

 

Mar-10

 

 

35.10

%

 

 

600,000

 

 

 

(5)

 

(M)

 

 

1,201,000

 

 

 

422,400

 

 

 

705.51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Vystar Corporation common stock, expiring April 30, 2013 (5)(6)

 

Natural rubber latex products

 

Jul-08

 

 

0.00

%

 

 

500,000

 

 

 

 

 

(I)

 

 

193,000

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovation Industries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory note (6)(8)

 

Direct sales

 

Oct-09

 

 

0.00

%

 

 

 

 

 

 

 

 

(C)

 

 

10,000

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 805,000 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

 

 

 

 

42.43

%

 

 

 

 

 

 

 

 

 

 

 

2,126,143

 

 

 

510,609

 

 

 

852.84

%




See accompanying unaudited notes to these unaudited financial statements.


F-7





UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS (CONTINUED)

AS OF JULY 31, 2010

(UNAUDITED)


 

 

 

 

Date of

 

% of

 

 

Units Held

 

Method of

 

 

 

 

Value at

 

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

 

 

at July 31, 2010

 

Valuation (1)

 

Cost

 

 

July 31, 2010

 

 

Net Assets

 

Non-Affiliate Investments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightwave Logic, Inc. (4)(6)(7)

 

Plastics engineering

 

Feb-07 to Jan-09

 

 

3.90

%

 

 

31,462

 

 

 

 

 

(M)

 

 

32,561

 

 

 

46,878

 

 

 

78.32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Lightwave Logic,Inc. common stock, expiring February 2013 (5)(6)(7)

 

Plastics engineering

 

Feb-08

 

 

53.67

%

 

 

500,000

 

 

 

 

 

(I)

 

 

348,000

 

 

 

646,000

 

 

 

1078.97

%

Warrant to purchase 1,000,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring July 2013 (5)(6)

 

Medical billing and medical records software

 

Jul-08

 

 

0.00

%

 

 

1,000,000

 

 

 

 

 

(I)

 

 

112,000

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring July 2013 (5)(6)

 

Medical billing and medical records software

 

Jul-08

 

 

0.00

%

 

 

500,000

 

 

 

 

 

(I)

 

 

17,000

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (5)(6)(7)

 

Various

 

May-09

 

 

0.00

%

 

 

3,000

 

 

 

 

 

(C)

 

 

300

 

 

 

-

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Non-Affiliates

 

 

 

 

57.57

%

 

 

 

 

 

 

 

 

 

 

 

509,861

 

 

 

692,878

 

 

 

1157.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

$

2,636,004

 

 

$

1,203,487

 

 

 

2010.13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and other assets, less liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,143,615

)

 

 

-1910.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at July 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

59,872

 

 

 

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 $1,068,400 represents 89% of total investments as of July 31, 2010.

(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.




See accompanying unaudited notes to these unaudited financial statements.


F-8





UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

AS OF APRIL 30, 2010


 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

% of

 

 

Units Held

 

Method of

 

 

 

 

Value at

 

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

 

 

at April 30, 2010

 

Valuation (1)

 

Cost

 

 

April 30, 2010

 

 

Net Assets

 

Affiliate Investments (2)

    

 

    

                    

    

                    

 

  

                    

 

 

 

    

                    

    

                    

  

  

                    

  

  

                    

 

PR Specialists, Inc./Mediavix, Inc. (5)(6)(7)

 

Brand relationship management

 

Dec-09

 

 

29.91

%

 

 

2,500,000

 

 

 

 

(M)

 

$

2,500

 

 

$

1,250,000

 

 

 

29.95

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc./Incredible 3D, Inc.(5)(6)(7)

 

3D content production

 

April-05; Nov-09

 

 

0.77

%

 

 

100,000

 

 

 

 

(M)

 

 

1,625

 

 

 

32,000

 

 

 

0.77

%

 

 

 

 

Nov-09

 

 

14.55

%

 

 

1,900,000

 

 

 

 

(M)

 

 

1,900

 

 

 

608,000

 

 

 

14.57

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vystar Corporation (4)(6)

 

Natural rubber latex products

 

May-09

 

 

7.41

%

 

 

193,238

 

 

 

 

(M)

 

 

376,191

 

 

 

309,180

 

 

 

7.41

%

 

 

 

 

Mar-10

 

 

18.38

%

 

 

600,000

 

 

 

(5)

 

(M)

 

 

1,201,000

 

 

 

768,000

 

 

 

18.40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Vystar Corporation common stock, expiring April 30, 2013 (5)(6)

 

Natural rubber latex products

 

Jul-08

 

 

3.59

%

 

 

500,000

 

 

 

 

 

(I)

 

 

193,000

 

 

 

150,000

 

 

 

3.59

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovation Industries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory note (6)(8)

 

Direct sales

 

Oct-09

 

 

0.24

%

 

 

 

 

 

 

 

 

(C)

 

 

10,000

 

 

 

10,000

 

 

 

0.24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 805,000 shares of SIVOO Holdings, Inc.

 

High speed internet media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000 warrants expiring April 11, 2011 (5)(6)

 

 

 

Apr-06

 

 

0.00

%

 

 

200,000

 

 

 

 

 

(I)

 

 

-

 

 

 

-

 

 

 

0.00

%

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

 

 

 

 

74.85

%

 

 

 

 

 

 

 

 

 

 

 

2,312,143

 

 

 

3,127,180

 

 

 

74.93

%



See accompanying unaudited notes to these unaudited financial statements.


F-9





UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS (CONTINUED)

AS OF APRIL 30, 2010


 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

% of

 

 

Units Held

 

Method of

 

 

 

 

Value at

 

 

% of

 

 

 

Business

 

Acquisition

 

Portfolio

 

 

at April 30, 2010

 

Valuation (1)

 

Cost

 

 

April 30, 2010

 

 

Net Assets

 

Non-Affiliate Investments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightwave Logic, Inc. (4)(6)(7)

 

Plastics engineering

 

Feb-07 to Jan-09

 

 

1.91

%

 

 

52,462

 

 

 

 

 

(M)

 

 

48,651

 

 

 

79,742

 

 

 

1.91

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of Lightwave Logic, Inc. common stock, expiring February 2013 (5)(6)(7)

 

Plastics engineering

 

Feb-08

 

 

16.26

%

 

 

500,000

 

 

 

 

 

(I)

 

 

348,000

 

 

 

679,000

 

 

 

16.27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 1,000,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring July 2013 (5)(6)

 

Medical billing and medical records software

 

Jul-08

 

 

5.76

%

 

 

1,000,000

 

 

 

 

 

(I)

 

 

112,000

 

 

 

241,000

 

 

 

5.77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase 500,000 shares of iVolution Medical Systems, Inc. (privately held) common stock, expiring July 2013 (5)(6)

 

Medical billing and medical records software

 

Jul-08

 

 

1.21

%

 

 

500,000

 

 

 

 

 

(I)

 

 

17,000

 

 

 

52,000

 

 

 

1.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (5)(6)(7)

 

Various

 

May-09

 

 

0.01

%

 

 

3,000

 

 

 

 

 

(C)

 

 

300

 

 

 

300

 

 

 

0.01

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Non-Affiliates

 

 

 

 

25.15

%

 

 

 

 

 

 

 

 

 

 

 

525,951

 

 

 

1,052,042

 

 

 

25.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

$

2,838,094

 

 

$

4,179,222

 

 

 

100.14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and other assets, less liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,906

)

 

 

-0.14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at April 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,174,316

 

 

 

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 $3,780,300 make up 90.5% of total net assets as of April 30, 2010.

(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.




See accompanying unaudited notes to these unaudited financial statements.


F-10



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



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


History and Nature of Business and Going Concern

“During the period covered by these financial statements, Universal Capital Management, Inc. (the “Company”, “we”, “us”, “our”) was a business development company (“BDC”). During this period, the Company was a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the Investment Company Act of 1940. We assist 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.” See Subsequent Events Note 14.


The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern. For the period ended July 31, 2010, the Company has had a net decrease in net assets from operations and net cash used in operating activities of $4,115,715 and $19,126, respectively, and as of July 31, 2010, has net assets of $59,872. In view of these matters, recoverability of any asset amounts shown in the accompanying unaudited financial statements is dependent upon the Company’s ability to achieve a level of profitability. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Since inception, the Company has financed its activities from the sale of equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities, until such time that funds provided by operations, if ever, are sufficient to fund working capital requirements. The unaudited financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.


Basis of Presentation

The accompanying unaudited 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, 2010, as filed with the Securities and Exchange Commission. The interim operating results for the three months ending July 31, 2010 are not necessarily indicative of operating results expected for the full year.


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.



F-11



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 investment 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. 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.


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, 2010 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage.


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 receivables from unaffiliated issuers represent notes from companies where we hold less than 5% of the issuer's voting common stock. Notes receivables from affiliated issuers represent notes from companies where we hold 5% or more of the issuer’s voting




F-12



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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. There was no provision for doubtful accounts as of July 31, 2010 and April 30, 2010, respectively.


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 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. During the three months ended July 31, 2010, the Company charged a direct write-off of $284,500 to bad debt expense.


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. The provision for doubtful receivables was $284,500 for the three months ended July 31, 2010.



Property and Equipment

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


Furniture and fixtures

5 to 7 years

Computer and office equipment

3 to 7 years


Fair Value of Financial Instruments

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


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


Revenue Recognition


Management Services

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



F-13



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Management Services (Continued)


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 505 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.


Accounting Services

The Company provides accounting and other administrative services to its portfolio companies. Upon entering into a contact with the portfolio 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

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.


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,



F-14



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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, 2009 financial statements in order to conform to the July 31, 2010 financial statement presentation.


Recently Issued Pronouncements

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


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


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


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



F-15



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 2 – BUSINESS RISKS AND UNCERTAINTIES (CONTINUED)


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.


NOTE 3 – INVESTMENTS


As described in Note 1, the Company partially 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 820-10 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 did not have a material affect on its financial statements.


At July 31, 2010, 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, 2010

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Investments

  

                           

  

  

                               

  

  

                             

  

  

                         

  

Affiliate investments

 

$

510,609

 

 

$

510,609

 

 

$

-

 

 

$

-

 

Non-affiliate investments

 

 

692,878

 

 

 

46,878

 

 

 

-

 

 

 

646,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in securities

 

$

1,203,487

 

 

$

557,487

 

 

$

-

 

 

$

646,000

 




F-16



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 3 – INVESTMENTS (CONTINUED)


The following chart shows the components of change in the financial assets categorized as Level 3, for the three months ending July 31, 2010:


 

 

Fair Value

Measurement

Using

 

 

 

 

Significant

Unobservable

Inputs

 

 

 

 

(Level 3)

 

 

 

  

                           

  

  

Beginning Balance, April 30, 2010

 

$

1,122,300

 

 

 

 

 

 

 

 

Transfers into Level 3

 

 

1,890,000

 

(1)

Total unrealized losses included in change in net assets

 

 

(2,366,300

)

 

 

 

 

 

 

 

Ending Balance, July 31, 2010

 

$

646,000

 

 

 

 

 

 

 

 

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.

 

$

(2,435,321

)

 


(1) Transfer in of $640,000 for BF Acquisition Group, $1,250,000 for PR Specialists.



NOTE 4 – NOTES RECEIVABLE


Notes receivable consists of the following:


 

 

July 31,

2010

 

 

April 30,

2010

 

 

  

                      

  

  

                      

  

Notes 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

 

$

-

 

 

$

-

 






F-17



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 5 – DUE FROM AFFILIATED COMPANIES


 

 

July 31,

2010

 

 

April 30,

2010

 

Due from Non-Affiliated Companies

  

                      

  

  

                      

  

MedicaView

 

$

-

 

 

$

11,601

 

 

 

 

 

 

 

 

 

 

Total Due from Non-Affiliated Companies

 

$

-

 

 

$

11,601

 

 

 

 

 

 

 

 

 

 

Due from Affiliated Companies

 

 

 

 

 

 

 

 

BF Acquisition Group V, Inc.

 

$

-

 

 

$

53,962

 

Incredible 3D, Inc.

 

 

-

 

 

 

89,248

 

SIVOO Holdings

 

 

-

 

 

 

3,500

 

PR Specialists

 

 

-

 

 

 

81,736

 

Innovation Industries

 

 

-

 

 

 

3,732

 

 

 

 

 

 

 

 

 

 

Totals

 

 

-

 

 

 

232,178

 

 

 

 

 

 

 

 

 

 

Allowance for bad debt

 

 

-

 

 

 

(3,500

)

 

 

 

 

 

 

 

 

 

Total Due from Affiliated Companies

 

$

-

 

 

$

228,678

 


During the three months ended July 31, 2010, the Company determined that all due from non-affiliated and affiliated companies were probably uncollectible and as a result, recorded a direct write off as a bad debt expense of $284,500 in the accompanying unaudited financial statements and a wrote off the previous allowance against a $3,500 receivable.


NOTE 6 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE


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


 

 

July 31,

2010

 

 

April 30,

2010

 

 

  

                      

  

  

                      

  

Affiliates

 

 

 

 

 

 

PR Specialists, Inc./Mediavix, Inc. (“PR”)

 

 

 

 

 

 

Received 2,500,000 shares of PR common stock for payment of services per a one year contract dated December 2009,valued at $2,500, fair value and amortized over the life of the contract.

 

$

958

 

 

$

1,458

 

 

 

 

 

 

 

 

 

 

Total Affiliates

 

 

958

 

 

 

1,458

 

 

 

 

 

 

 

 

 

 

Total Deferred Revenue

 

$

958

 

 

$

1,458

 






F-18



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 6 – DEFERRED REVENUE AND MANAGEMENT SERVICE REVENUE (CONTINUED)


Management service revenue recognized consists of:


 

 

For the

 

 

For the

 

 

 

Three Months

 

 

Three Months

 

 

 

Ending

 

 

Ending

 

 

 

July 31,

2010

 

 

July 31,

2009

 

Non-Affiliates

  

                        

  

  

                        

  

iVolution Medical Systems ("iVolution")

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of iVolution common stock for payment of services per a one year contract dated July 2008, valued at $17,000, fair value and amortized over the life

 

$

-

 

 

$

3,588

 

 

 

 

 

 

 

 

 

 

Total Non-Affiliates

 

$

-

 

 

$

3,588

 

 

 

 

 

 

 

 

 

 

Affiliates

 

 

 

 

 

 

 

 

PR Specialists, Inc./Mediavix, Inc. (“PR”)

 

 

 

 

 

 

 

 

Received 2,500,000 shares of PR common stock for payment of services per a one year contract dated December 2009, valued at $2,500, fair value and amortized over the life of the contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-View Technologies ("MVT")

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of MVT common stock for payment of services per a one year contract dated July 2008, valued at $1,000, fair value and amortized over the life of the contract.

 

 

-

 

 

 

250

 

 

 

 

 

 

 

 

 

 

Dominion Capital Management (“DCMC”)

 

 

 

 

 

 

 

 

Received a warrant to purchase 500,000 shares of DCMC common stock for payment of services per a one year contract dated July 2008, valued at $1,000, fair value and amortized over the life of the contract.

 

 

-

 

 

 

250

 

 

 

 

 

 

 

 

 

 

Total Affiliates

 

$

500

 

 

$

500

 

 

 

 

 

 

 

 

 

 

Total Management Services Revenue

 

$

500

 

 

$

4,088

 






F-19



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 7 – NOTES PAYABLE


Notes payable consists of the following:


 

 

July 31,

2010

 

 

April 30,

2010

 

 

  

                      

  

  

                      

  

Notes payable

 

 

 

 

 

 

Notes payable, D&O Insurance Premium. Interest accrued at 9.2% for a period of ten months. Payable in ten monthly installments of $2,414 per month.

 

$

14,097

 

 

$

23,154

 

 

 

 

 

 

 

 

 

 

Notes payable

 

$

14,097

 

 

$

23,154

 

 

 

 

 

 

 

 

 

 

Notes payable, related parties

 

 

 

 

 

 

 

 

Notes payable, related party. Interest accrued at 8.0%beginning on November 1, 2008. Principal and interest payable on demand. (NOTE 12)

 

$

321,372

 

 

$

297,372

 

 

 

 

 

 

 

 

 

 

Notes payable, related party. Interest accrued at 8.0%beginning on October 19, 2009 Principal and interest payable on demand. (NOTE 12)

 

 

50,000

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Promissory notes payable, related parties. Interest accrued at 5.0% per annum. Principal and interest due September 30, 2010. (NOTE 12)

 

 

20,000

 

 

 

20,000

 

 

 

 

 

 

 

 

 

 

Notes payable, related parties

 

$

391,372

 

 

$

367,372

 


NOTE 8 – 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, 2010 and April 30, 2010, these advances totaled $22,000.


NOTE 9 – 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, 2010, 1,000,000 are available for issuance.


The Plan has a term of 10 years and no Option shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the Award Agreement. If for any reason other than death or disability, an Optionee of the Plan who at time of the grant of an Option under the Plan was an Employee ceases to be an Employee (such event being called a “Termination”), Options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination; provided, however, that if such exercise of the Option would result in liability for the Optionee under Section 16(b) of the Securities Exchange Act of 1934, then such three-month period automatically shall be extended until the tenth day following the last date upon which Optionee has any liability under Section 16(b) (but in no event after the expiration date of such Option).




F-20



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 9 – STOCK BASED COMPENSATION (CONTINUED)


During the three months ending July 31, 2010 and 2009, the Company’s net income was approximately $1,272 and $1,272 lower as a result of stock-based compensation expense. As of July 31, 2010, there was approximately $6,362 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through April 2011.


The following tables summarize all stock option activity of the Company since April 30, 2010:


 

 

Stock Options Outstanding

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Life (Years)

 

 

Value

 

 

  

                      

  

  

                      

  

  

                      

  

  

                      

  

Outstanding, April 30, 2010

 

 

650,000

 

 

$

0.20

 

 

 

8.82

 

 

$

130,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, July 31, 2010

 

 

625,000

 

 

$

0.20

 

 

 

8.57

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, July 31, 2010

 

 

625,000

 

 

$

0.20

 

 

 

8.57

 

 

$

130,000

 


NOTE 10 – CAPITAL SHARE TRANSACTIONS


During the three months ending July 31, 2010, the Company recognized $1,271 of share-based compensation expense.


NOTE 11 – RELATED PARTY TRANSACTIONS


Notes payable, related parties were $391,372 and $367,372 at July 31, 2010 and April 30, 2010, respectively (See Note 8 – Advances from Shareholders).


The total of expenses owed to the officers are $7,213 at July 31, 2010 and April 30, 2010, and are recorded as an accounts payable, related parties.


NOTE 12 – CONTINGENCIES


McCrae Associates, LLC Lawsuit


In July 2006, McCrae Associates, LLC (“McCrae) filed a lawsuit against the Company and its directors and officers in the United States District Court for the District of Connecticut. The lawsuit alleges that McCrae is the owner of 300,000 shares of the Company’s common stock and that the Company did not deliver to and is wrongfully withholding such shares from McCrae. The lawsuit alleges that the directors and officers conspired with the Company to deprive McCrae of such shares, and that the directors and officers owed a fiduciary duty to McCrae that they violated by refusing to tender the shares to McCrae upon demand. The lawsuit also alleges that all of the defendants violated the Connecticut Unfair Trade Practices Act. McCrae seeks delivery of a stock certificate covering the shares, unspecified monetary damages, including treble damages, attorney fees and punitive damages. The Company is vigorously defending the action and has filed a counter-claim against McCrae and a third-party claim against Stephen Funk seeking to rescind the issuance of shares to McCrae and to recover monetary damages on fraud and breach of contract theories. The Company also filed similar claims in the Chancery Court in Wilmington, Delaware seeking to rescind the issuance of 200,000 shares of common stock to Liberator,




F-21



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 12 – CONTINGENCIES (CONTINUED)


LLC, a company it believes is controlled by Stephen Funk. Recently, the parties agreed to the voluntary dismissal of the action in Delaware with the express understanding that Liberator would be bound by the decision of the Court in Connecticut with respect to the McCrae shares. Recent efforts by the Company and McCrae to settle the litigation have been unsuccessful and the parties have commenced discovery. See Subsequent Events Note 13.


Carlin and Wilson Lawsuit


During February 2008, Leo Carlin Jr. (“Carlin”) and Richard H. Wilson, III (“Wilson”) filed a lawsuit in New Castle County, Delaware, Superior Court. Carlin and Wilson are the Plaintiffs and UCM is the Defendant.


On or around June 2006, Carlin and Wilson loaned the Company a total of $175,000 which was evidenced by two promissory notes payable (“Notes”), due with interest, on or before October 15, 2006. These funds were for short-term financing for the Company. Carlin and Wilson sued demanding payment, claiming that three weeks after the Notes were executed and delivered, the Company failed to send the plaintiffs a subscription agreement for shares of the Company’s common stock at $2.50 per share in exchange for the cancellation of the notes.


On or around March 2008, a judgment was placed on the Company for the amounts owed.


As of October 31, 2008, the outstanding notes payable balance was $155,000 and the accrued interest payable on those notes was $32,925.


In December 2008, the Company was served a notice to attend an additional discovery hearing on January 12, 2009. At this discovery hearing, additional documents were provided by the Company as requested.


In February 2009, the judgment was ordered into effect and the Company’s investment accounts were seized.


In March 2009, the Plaintiffs and the Company agreed to settle the Notes over a four month payment. The Company made a $100,000 payment in March 2009 and two additional payments of $30,823 in each April and May 2009. The final payment of $30,823 was made in June 2009, which was a complete settlement of all interest and principle. The investment trading accounts have since been released.


Stradley Ronon Stevens & Young, LLP


On May 9, 2009 the law firm of Stradley, Ronon Stevens & Young, LLP filed a lawsuit against the Company in the U.S. District Court for the District of Delaware for failure of the Company to pay legal fees owed in the amount of $166,129. On April 2, 2009, in order to avoid the cost of litigation, the Company agreed to a Consent of Judgment against it in the amount of $166,129 and the Company has recorded this amount as accounts payable as of July 31, 2010.


MICCO 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.




F-22



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 12 – CONTINGENCIES (CONTINUED)


The Company was 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 and in June 2011, the courts denied this motion to dismiss. See Note 13 – Subsequent Events.


Unpaid Taxes and Penalties


At July 31, 2010, 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 $172,066. The interest and penalties are included as accrued expenses in the accompanying financial statements at July 31, 2010. The Company has agreements with both agencies to pay a minimum per month to avoid any collections or additional liens.


NOTE 13 – SUBSEQUENT EVENTS


On November 1, 2011, the Company filed Form N-54C notification of withdrawal of election to be regulated as a Business Development Company (“BDC”). The withdrawal was effective upon receipt of the Form N-54C notification by the SEC, and our Company is no longer subject to regulation as a BDC.


We have no intention to invest in securities or meet the definition of an investment company, as described in Section 3 of the 1940 Act. Our Company will be managed so it will not be deemed to be an investment company as defined in the 1940 Act. Our company will maintain its registration under the 1934 Act and we will continue to be obligated to file regular reports as required thereunder.


On March 16, 2012, pursuant to a private offering, the registrant issued 7,375,000 shares of its restricted common stock, in exchange for officer and director services performed by the registrant’s current and former directors and officers, and professional services provided by the registrant’s service providers. The shares were valued at the quoted trade price on the grant date of $0.27 per share for a total expense of $1,991,250.


On August 12, 2012, the Company privately issued 1,500,000 shares of its restricted common stock, in exchange for services performed by two consultants for the Company. The shares were valued at the quoted trade price of $0.14 per share on the grant date resulting in an expense of $210,000.


On August 21, 2012, the Company privately issued 2,200,000 shares of its restricted common stock, in exchange for services performed by the Company’s current and former employees and professional service providers. The shares were valued at the quoted trade price of $0.07 per share on the grant date resulting in an expense of $154,000.


On August 22, 2012, the Company entered into a memorandum of understanding (“MOU”) with New Bastion Development, Inc., a Florida corporation (“New Bastion”) to document the business terms of a deal to enter into a joint development relationship for the construction of a nitrogen fertilizer plant capable of producing approximately 4,000 MT of granulated urea on a daily basis. This project will be completed by New Bastion Regeneration, Inc. (“NBR”), which is a New Bastion subsidiary company that was formed by New Bastion for the sole purpose of completing the project. Pursuant to the terms of the MOU: (i) the Company agreed to purchase from New Bastion 100,000 issued and outstanding shares of NBR held by New Bastion, representing approximately 12.7% of the outstanding shares of NBR in exchange for 5,000,000 newly issued restricted shares of Universal issued upon the execution of the MOU and



F-23



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 13 – SUBSEQUENT EVENTS (CONTINUED)


$500,000 pursuant to the following schedule: $100,000 within 15 days of execution of the memorandum of understanding; and $400,000 within 60 days of execution of the Agreement.


The Company also received an option to purchase up to 240,000 additional shares of NBR currently owned by New Bastion, which will represent a total ownership including the previous 12.7% ownership purchased of approximately 43% of NBR owned by the Company for an additional $4.8 million cash and 15,000,000 of common stock of the Company under terms to be mutually negotiated, assuming no additional shares of NBR are issued. These shares of common stock were issued and are being held by the Company in accordance with the option discussed previously to acquire additional ownership in NBR for an additional $4.8 million. As a result, the 15,000,000 shares of common stock are contingently returnable and not considered outstanding as of May 24, 2013.


The 5,000,000 shares specified in the MOU were valued at $0.07 per share (closing bid price of Universal on August 21, 2012) or a total of $350,000. Additionally, the $100,000 of cash consideration was not paid within the 15 day period specified, nor was the $400,000 paid within the 60 day requirement.


On October 1, 2012, New Bastion provided a revised framework to Universal within the existing MOU. The revised framework included: $500,000 of cash consideration to be paid pursuant to the following schedule: a) $25,000 on or before October 31, 2012; b) $75,000 on or before December 15, 2012; and c) $400,000 on or before January 15, 2013. The revised framework provided that the dates for the cash consideration may be adjusted by mutual agreement and that New Bastion, at its sole discretion, may elect to accept additional shares of Universal common stock for all or part of the final $400,000 payment.


As of January 31, 2013, the Company fully paid the first scheduled payment of $25,000, the second scheduled payment of $75,000 and $10,000 of third scheduled payment of $400,000 to New Bastion. Additionally, 1) in February 2013, the Company paid New Bastion $140,000, net of $3,500 of expenses paid, 2) in March 2013, the Company paid New Bastion $15,000, 3) in April 2013, the Company paid New Bastion $20,000, and 4) in May 2013, the Company paid New Bastion $20,000, net of $3,500 of expenses paid, all of these in accordance with the August 22, 2012 MOU. As a result of the payments, the original $500,000 balance owed to New Bastion has been reduced to $195,000 as of May 24, 2013.


Effective September 10, 2012, the Company commenced a private offering of up to 7,500,000 shares of common stock contained within seventy-five (75) Units. Each Unit consists of 100,000 shares of common stock at an offering price of $10,000 per Unit or $0.10 per share. The total proposed proceeds from the private offering to the Company are $750,000. From November 19, 2012 through May 24, 2013, the Company received subscriptions of 6,200,000 shares of common stock for $620,000 of gross proceeds. The securities in the private offering were offered and sold only to (i) accredited Investors and (ii) persons who are not “U.S. Persons,” The securities offered and sold are intended to be exempt from securities law registration pursuant to the Securities Act of 1933, Regulation D, Regulation S and other regulatory exemptions, including the state securities laws and regulations where the securities are being offered.


In relation to the MICCO World, Inc. lawsuit (See Note 12 – Contingencies), on June 25, 2012, the Company dismissed the suit against the defendants with prejudice.


On May 3, 2013, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Department of State of Delaware increasing the total number of shares of stock that the Company shall have authority to issue from Twenty Million (20,000,000) shares of Common Stock, one-tenth of one cent ($0.001) par value per share to Sixty Million (60,000,000) shares of Common Stock, one-tenth of one cent ($0.001) par value per share. As a result, these financial statements have been retroactively restated for this change in capital structure.




F-24



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2010



NOTE 14 – RESTATEMENT


The Company’s Financial Statements included in an Quarterly Report on Form 10-Q for the period ended July 31, 2010 (the “Original Report”) with the Securities and Exchange Commission (“SEC”) on September 14, 2010 were not reviewed by the Company’s Independent Registered Public Accounting Firm and a note to that effect was inserted at the beginning of the Original Report. This Amendment No. 1 to Annual Report on Form 10-Q/A (the “Amended Report”) deletes the note inserted at the beginning of the Original Report stating that the Financial Statements contained in the Original Report were not reviewed by the Company’s Independent Registered Public Accounting Firm.


There were several adjustments to the Company’s July 31, 2010 Financial Statements included in the Original Report including the following principal items:


 

e)

$1,121,000 income tax provision as the result of a valuation allowance against deferred tax assets.

 

f)

$284,500 bad debt expense related to affiliate investments.

 

g)

$338,325 loss on impairment of portfolio stock.

 

h)

$1,885,975 for net unrealized depreciation on investments.


The resulting effect of the restatement of the Financial Statements for the period ended July 31, 2010 is: (1) a reduction of total assets of $3,628,800 from $4,857,022 to $1,228.222 at July 31, 2010, (2) a decrease in net assets of $3,628,800 from a net asset amount of $3,688,672 to a net asset amount of $59,872 at July 31, 2010, (3) a net decrease of net assets resulting from operations of $3,628,799 from a net decrease of ($486,916) to a net decrease of ($4,115,715) for the three months ended July 31, 2010 and (4) a net decrease in net assets from operations per share of ($0.56) from ($0.08) to ($0.64) per share for the three months ended July 31, 2010. Certain applicable portions of Notes 1, 3, 4, 6, 10, 11, 12 and 13 have also been revised accordingly.







F-25