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EX-32.1 - CERTIFICATION - MAJOR LEAGUE FOOTBALL INCucmt_ex32z1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 31, 2013

OR

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

For the transition period from _______ to _______

Commission File Number 000-51132

Universal Capital Management, Inc.

(Exact name of registrant as specified in its charter)


Delaware

(State or other jurisdiction of

Incorporation or Organization)

20-1568059

(I.R.S. Employer

Identification No.)

 

 

2601 Annand Drive, Suite 16

Wilmington, DE

(Address of principal executive offices)

19808

(Zip Code)

 

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


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

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 þ

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 ¨   Smaller Reporting Company þ

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

The number of shares of the registrant’s Common Stock outstanding as of March 10, 2014 was 30,312,426.

 

 




 


TABLE OF CONTENTS

                  

 

                  

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

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

1

 

 

 

Item 4.

Controls and Procedures

3

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4

 

 

 

Item 6.

Exhibits

4

 

 

 






 


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.


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. Since November 1, 2011, we have had no intention to invest in securities or meet the definition of an investment company, as described in Section 3 of the 1940 Act. Also, our Company is 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. The Company determined that the one day of operations as a BDC (November 1, 2011) was not material and is utilizing that date as the commencement of operations as an operating company.


Our Company identifies, advises in development and markets consumer products. Our strategy employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets. We seek to assist and enable entrepreneurs to introduce products to the consumer market. Entrepreneurs can leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submit products or business concepts for our input and advice. We generate revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products. As of the date of this 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 companies that could further the company's goal to become a diversified holding company, but no agreements have been reached to date.


Financial Condition


As reflected in the accompanying unaudited financial statements, the Company had minimal revenues, and a net loss and net cash used in operating activities of $517,308 and $79,032 respectively, for the three months ended July 31, 2013. Additionally, at July 31, 2013, the Company has minimal cash and has a working capital deficit of $1,176,723, an accumulated deficiency of $10,628,962 and a stockholders’ deficiency of $1,175,623, which could have a material impact on the Company’s financial condition and operations. As a result of the significant working capital deficit at July 31, 2013, the Company does not have sufficient cash resources or current assets to pay its obligations.




1



 


The Company has been selling certain available-for-sale marketable equity securities to meet current obligations. Additionally, the Company is in the process of discussing financing scenarios with several groups relating to assisting with the financial requirements to implement the business strategy and business plan.


Results of Operations


Three months ending July 31, 2013, compared to the three months ended July 31, 2012


For the three months ended July 31, 2013, we had revenue in the amount of $25,000 as compared to revenue of $40,627 for the three months ended July 31, 2012. For the three months ended July 31, 2013 and 2012, respectively, all of our revenue was comprised of management services.


Total operating expenses for the three months ended July 31, 2013 were $474,517 as compared to total operating expenses for the three months ended July 31, 2012 of $33,900. The increase from 2012 to 2013 was primarily from an increase in professional fees related to $403,750 of share based compensation expense for common stock issued to consultants.


Other expense for the three months ended July 31, 2013 was $67,791 as compared to $5,193 of expense for the three months ended July 31, 2012. The 2013 amount consisted primarily of $22,966 for the loss on the sale of available-for-sale marketable equity securities and a $23,500 loss on impairment of non-marketable securities with no comparable amount in 2012.


We had a net loss of $517,308 and a net income of $1,534 for the three months ended July 31, 2013 and 2012, respectively. As discussed previously, the 2013 loss was primarily from an increase in professional fees for $403,750 of share based compensation expense for common stock issued to consultants along with $22,966 for the loss on the sale of available-for-sale marketable equity securities and a $23,500 loss on impairment of non-marketable securities with no comparable amount in 2012.


For the three months ended July 31, 2013, we had a $4,251 unrealized loss on available-for-sale marketable equity securities resulting in a total comprehensive loss of $521,599. For the three months ended July 31, 2012, we had an $85,625 unrealized loss on available-for-sale marketable equity securities resulting in a total comprehensive loss of $84,091.


Liquidity and Capital Resources


From inception, our Company has relied upon the infusion of capital through capital share transactions for liquidity and we had $30,316 of cash at July 31, 2013. Consequently, payment of operating expenses will have to come similarly from equity capital to be raised from investors, from borrowed funds or from the success of our direct response products we are managing. There is no assurance that we will be successful in raising such additional equity capital or additional borrowings or if we can, that we can do so at a price that management believes to be appropriate.


Recently, it was necessary for us to dispose of some of our available-for-sale marketable equity securities to meet our operational needs. In the future, we may be forced to continue to dispose of these securities if we ever become short of cash. Any such dispositions may have to be made at inopportune times.


Critical Accounting Estimates


Our Company's accounting policies are more fully described in Note 1 of Notes to Financial Statements. As disclosed in Note 1 of Notes to Financial Statements, 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 our management’s best knowledge of current events and actions our Company may undertake in the future, actual results could differ from the estimates.




















2



 



Item 4

Controls and Procedures.


Evaluation of Disclosure Controls and Procedures


As of the end of the period covered by this report, our Company evaluated the effectiveness and design and operation of its disclosure controls and procedures. Our Company’s disclosure controls and procedures are the controls and other procedures that we designed to ensure that our Company records, processes, summarizes, and reports in a timely manner the information that it must disclose in reports that our Company files with or submits to the Securities and Exchange Commission. Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2013 and concluded that the disclosure controls and procedures were not effective, because our Company did not have a full time Accounting Controller or Chief Financial Officer and utilized a part time consultant to perform these critical responsibilities. The absence of a full time accounting staff resulted in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal controls. The material weakness identified resulted in several adjustments to the Company’s July 31, 2013 Financial Statements primarily related to stock issued for consulting services and accruals.


The Company plans to hire a full time Controller or Chief Financial Officer in the future when sufficient cash funds are available from either the sale of Company securities or through cash flow generated through its business plan.


Changes in Internal Control Over Financial Reporting. No change in our Company’s internal control over financial reporting occurred during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



3



 


PART II – OTHER INFORMATION


Item 2

Unregistered Sales of Equity Securities and Use of Proceeds.


During the period covered by this report, we sold the following unregistered securities:


Securities issued pursuant to private offering


Date

 

Security

May 2013

 

Common stock – 500,000 shares in exchange for $50,000.


The securities were offered and sold only to persons who are not “U.S. Persons.” No underwriters were utilized and we relied on Regulation S of the Securities Act of 1933, as amended.


Securities issued for consulting services


Date

 

Security

June 1, 2013

 

Common stock – 2,125,000 shares valued at $0.19 per share.


No underwriters were utilized and no commissions or fees were paid with respect to any of these transactions. We relied on Section 4(2) of the Securities Act of 1933, as amended, since the transactions did not involve any public offering.


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.

101

The following unaudited financial information from Universal Capital Management, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets; (ii) Statements Of Operations And Comprehensive Income (Loss); (iii) Statements Of Cash Flows; and (iv) Notes to Financial Statements.




 



4



 


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.

 

 

 

March 11, 2014

By:

/s/ Michael D. Queen

 

 

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

 

 

 

 





















5



 


UNIVERSAL CAPITAL MANAGEMENT, INC.


FINANCIAL STATEMENTS


JULY 31, 2013


(UNAUDITED)



CONTENTS


 

PAGE

 

 

BALANCE SHEETS

F-2

 

 

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

F-3

 

 

STATEMENTS OF CASH FLOWS (Unaudited)

F-4

 

 

NOTES TO FINANCIAL STATEMENTS (Unaudited)

F-5 – F-16




F-1



 


UNIVERSAL CAPITAL MANAGEMENT, INC.

BALANCE SHEETS


 

 

July 31,

2013

 

 

April 30,

2013

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,316

 

 

$

14,853

 

Available-for-sale marketable equity securities

 

 

80,550

 

 

 

203,339

 

Prepaid expenses

 

 

829

 

 

 

1,076

 

TOTAL CURRENT ASSETS

 

 

111,695

 

 

 

219,268

 

 

 

 

 

 

 

 

 

 

LONG-TERM ASSETS

 

 

 

 

 

 

 

 

Rent deposit

 

 

1,100

 

 

 

1,100

 

TOTAL LONG-TERM ASSETS

 

 

1,100

 

 

 

1,100

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

112,795

 

 

$

220,368

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

400,817

 

 

$

415,991

 

Accrued expenses

 

 

219,066

 

 

 

214,096

 

State income taxes payable

 

 

114,154

 

 

 

115,654

 

Notes payable

 

 

70,100

 

 

 

70,100

 

Notes payable, related parties

 

 

140,802

 

 

 

168,379

 

Accrued payroll and payroll taxes

 

 

130,927

 

 

 

135,013

 

Accrued interest

 

 

109,095

 

 

 

107,883

 

Accrued interest, related parties

 

 

103,457

 

 

 

101,066

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

1,288,418

 

 

 

1,328,182

 

 

 

 

 

 

 

 

 

 

CONTINGENCIES (NOTE 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS DEFICIENCY

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 60,000,000 shares authorized; 25,312,426 and 15,487,426 issued and outstanding at July 31, 2013 and April 30, 2013, respectively

 

 

25,312

 

 

 

15,487

 

Common stock issuable, zero and 7,200,000 shares at July 31, 2013 and April 30, 2013, respectively

 

 

 

 

 

7,200

 

Additional paid-in capital

 

 

9,398,936

 

 

 

8,947,811

 

Accumulated deficiency

 

 

(10,628,962

)

 

 

(10,111,654

)

Accumulated other comprehensive income

 

 

29,091

 

 

 

33,342

 

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS DEFICIENCY

 

 

(1,175,623

)

 

 

(1,107,814

)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY

 

$

112,795

 

 

$

220,368

 


See accompanying unaudited notes to these financial statements.




F-2



 


UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)


 

 

For the

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

Management services

 

$

25,000

 

 

$

40,627

 

Total Revenue

 

 

25,000

 

 

 

40,627

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Salaries and wages

 

 

12,746

 

 

 

12,525

 

Professional fees

 

 

425,960

 

 

 

5,976

 

Insurance

 

 

6,000

 

 

 

6,709

 

General and administrative

 

 

29,811

 

 

 

8,690

 

Total Operating Expenses

 

 

474,517

 

 

 

33,900

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

(449,517

)

 

 

6,727

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

Interest Expense

 

 

(3,604

)

 

 

(5,193

)

Miscellaneous expense

 

 

(11,251

)

 

 

 

Tax penalties and interest

 

 

(6,470

)

 

 

 

Loss on impairment of non-marketable securities

 

 

(23,500

)

 

 

 

Loss on sale of available-for-sale marketable equity securities

 

 

(22,966

)

 

 

 

Total Other Income (Expense)

 

 

(67,791

)

 

 

(5,193

)

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

(517,308

)

 

 

1,534

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale marketable equity securities

 

 

(4,251

)

 

 

(85,625

)

 

 

 

 

 

 

 

 

 

Total Comprehensive Loss

 

$

(521,559

)

 

$

(84,091

)

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Income (Loss) Per Share

 

$

(0.02

)

 

$

0.00

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares - Basic and Diluted

 

 

24,540,959

 

 

 

13,287,426

 


See accompanying unaudited notes to these financial statements.




F-3



 


UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)


 

 

For the

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2013

 

 

2012

 

 

  

                         

  

  

                         

  

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$

(517,308

)

 

$

1,534

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Loss on sale of available-for-sale marketable equity securities

 

 

22,966

 

 

 

 

Loss on impairment of non-marketable equity securities

 

 

23,500

 

 

 

 

Share based compensation expense

 

 

403,750

 

 

 

 

(Increase) decrease in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

247

 

 

 

(732

)

Accounts payable

 

 

(15,174

)

 

 

3,492

 

Accrued expenses

 

 

4,970

 

 

 

(2,000

)

Current income taxes - state

 

 

(1,500

)

 

 

 

Accrued payroll and payroll taxes

 

 

(4,086

)

 

 

 

Accrued interest

 

 

1,212

 

 

 

5,194

 

Accrued interest, related parties

 

 

2,391

 

 

 

 

Net cash provided by (used in) operating activities

 

 

(79,032

)

 

 

7,488

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from sale of available-for-sale marketable equity securities

 

 

95,572

 

 

 

 

Purchase of non-marketable securities

 

 

(23,500

)

 

 

 

Net cash provided by investing activities

 

 

72,072

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of advances from shareholder

 

 

 

 

 

 

Repayment of debt

 

 

 

 

 

 

Issuance of common stock for cash from private placement, net of fees

 

 

50,000

 

 

 

 

Repayment of promissory note - related parties

 

 

(27,577

)

 

 

(7,500

)

Net cash provided by (used in) financing activities

 

 

22,423

 

 

 

(7,500

)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

15,463

 

 

 

(12

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

14,853

 

 

 

9,435

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

30,316

 

 

$

9,423

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

3,000

 

 

$

2,000

 

Cash paid for interest

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale marketable equity securities

 

$

(4,251

)

 

$

(85,625

)


See accompanying unaudited notes to these financial statements.




F-4



 


UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013


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


Universal Capital Management, Inc. (the “Company”, “we”, “us”, “our”) identifies, advises in development and markets consumer products. Our strategy employs three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets. We seek to assist and enable entrepreneurs to introduce products to the consumer market. Entrepreneurs can leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submit products or business concepts for our input and advice. We generate revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we receive a share of net profits of consumer products sold. We do not manufacture any of our products. As of the date of this filing we have generated limited revenues, do not rely on any principal products and do not sell any internally developed or Company owned products.


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.


The accompanying unaudited financial statements have been prepared assuming the Company will continue as a going concern. As reflected in the accompanying unaudited financial statements, the Company had minimal revenues, and a net loss and net cash used in operating activities of $517,308 and $79,032 respectively, for the three months ended July 31, 2013. Additionally, at July 31, 2013, the Company has minimal cash and has a working capital deficit of $1,176,723, an accumulated deficiency of $10,628,962 and a stockholders’ deficiency of $1,175,623, which could have a material impact on the Company’s financial condition and operations. As a result of the significant working capital deficit at July 31, 2013, the Company does not have sufficient cash resources or current assets to pay its obligations.


The Company has been selling certain available-for-sale marketable equity securities to meet current obligations. Additionally, the Company is in the process of discussing financing scenarios with several groups relating to assisting with the financial requirements to implement the business strategy and business plan.


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 and from loans. The Company intends on financing its future development activities and its working capital needs largely from the sale of certain available-for-sale marketable equity securities, until such time that funds provided by operations, if ever, are sufficient to fund working capital requirements. The accompanying 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.


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 equity method investees. 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.




F-5



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


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


Accounting Changes

The withdrawal of the Company's election to be regulated as a BDC resulted in a change in reporting entity and a change in accounting principle. BDC financial statement presentation and accounting use the “fair value” method of accounting, which requires BDCs to value certain of their investments at market value as opposed to historical cost and to recognize all unrealized gains or losses in operations. As an operating company, the Company will use either the fair-value or historical-cost method (Accounting Standards Codification “ASC” 320 – “Investments – Debt and Equity Securities”) of accounting for financial statement presentation and accounting for securities held, depending on how the investment is classified and how long the Company intends to hold the investment and will recognize unrealized gains or losses as a component of stockholders’ equity (deficiency). Also certain financial statements or schedules which are required to be presented for a BDC are not required for an operating company and the presentation and classification of items in the balance sheets, statements of operations and statements of cash flows will differ from that in a BDC. In accordance with ASC 250 “Accounting Changes and Error Corrections”, the change from a BDC to an operating company has been retrospectively applied to all periods presented in the accompanying unaudited financial statements.


As a BDC, the balance sheet was unclassified and presented with investment securities as the primary asset, a composition of net assets and an equivalent net asset value per share. As an operating company, assets and liabilities are classified as current and long-term, stockholders’ equity (deficiency) is presented instead of net assets and unrealized gains (losses) on securities is included as a component of accumulated other comprehensive income (loss). As a BDC, the statement of operations included unrealized appreciation (depreciation) on investments, and presented net increase (decrease) in net assets resulting from operations and as a per share amount. As an operating company, unrealized gains and losses on investments is excluded from net income and classified as a component of comprehensive income (loss). Additionally, net loss and net loss per share are reported.


Basis of Presentation

The accompanying unaudited interim period financial statements of 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 accompanying unaudited 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, 2013, as filed with the Securities and Exchange Commission on March 10, 2014. The interim operating results for the three months ending July 31, 2013 are not necessarily indicative of operating results expected for the full year.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Investments

The Company invests in various marketable equity instruments and accounts for such investments in accordance with ASC 320 “Investments – Debt and Equity Securities”.


Certain securities that the Company may invest in may be determined to be non-marketable. Non-marketable securities where the fair market value is not readily determinable and the Company owns less than 20% of the investee are accounted for at cost pursuant to ASC topic 325-20 “Cost Method Investments”. Non-marketable securities where the Company owns greater than 20% of the investee are accounted for pursuant to ASC topic 323-10 “Investments - Equity Method and Joint Ventures”. Non-marketable securities for investments in joint ventures are accounted for pursuant to ASC topic 323-30 “Partnerships, Joint Ventures, Limited Liability Entities”



F-6



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities that the Company may hold are treated in accordance with ASC 320 with any unrealized gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Investments classified as held-to-maturity are carried at amortized cost. In determining realized gains and losses, which are included in earnings in the period of disposal, the cost of the securities sold is based on the specific identification method.


The Company periodically reviews its investments in marketable and non-marketable securities and impairs any securities whose value is considered non-recoverable. The Company's determination of whether a security is other than temporarily impaired incorporates both quantitative and qualitative information. Generally Accepted Accounting Principles ("GAAP") requires the exercise of judgment in making this assessment for qualitative information, rather than the application of fixed mathematical criteria. The Company considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, the reason for the decline in fair value, changes in fair value subsequent to the balance sheet date, and other factors specific to the individual investment. The Company's assessment involves a high degree of judgment and accordingly, actual results may differ materially from the Company's estimates and judgments. The Company recorded $23,500 and zero impairment charges for securities during the three months ended July 31, 2013 and 2012, respectively.


Investments in securities of affiliates represent holdings of more than 5% of the issuer's voting common stock.


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, 2013 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage.


Innovation Industries accounted for greater than 90% of our revenue for the three months ended July 31, 2013 and 2012, respectively.


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




F-7



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Fair Value of Financial Instruments

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


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


Revenue Recognition


Product revenue

We recognize revenue from product sales in accordance with ASC 605 — Revenue Recognition. Following agreements or orders from customers, we ship product to our customers often through a third party facilitator. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Typically, these criteria are met when our customers order is received by them and we receive acknowledgment of receipt by a third party shipper. We had no product revenue for the three months ended July 31, 2013 and 2012, respectively.


Service revenue

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


Management Services for Equity Investments

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


Accounting Services

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


Stock Based Compensation

The Company accounts for stock based compensation in accordance with FASB ASC 718, Compensation – Share Based Compensation. This statement requires the recognition of compensation expense measured at fair value when the Company obtains employee services in stock-based payment transactions. For stock based compensation to non-employees, the Company follows the measurement and recognition criteria of ASC 505-50, Equity Payments to Non-Employees.




F-8



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Income Taxes

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


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


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


Recoverability of Long Lived Assets

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


Recently Issued Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists (a consensus of the FASB Emerging Issues Task Force). U.S. GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward, except as follows. To the extent a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.



F-9



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this update is not expected to have a significant effect on the Company’s financial position or results of operations.


The FASB issued ASU No. 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04, applies to disclosures of certain quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for investments held by certain employee benefit plans.


The deferral applies specifically to employee benefit plans, other than those plans that are subject to SEC filing requirements, which hold investments in their plan sponsors’ own nonpublic entity equity securities, including equity securities of their nonpublic affiliated entities. The deferral is effective immediately for all financial statements that have not yet been issued. The adoption of this update is not expected to have a significant effect on the Company’s financial position or results of operations.


The FASB has issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:


·

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.

·

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.


The amendments apply to all public companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual).


The amendments are effective for reporting periods beginning after December 15, 2012, for public companies and early adoption is permitted.


The adoption of this update is not expected to have a significant effect on the Company’s financial position or results of operations.


Other new pronouncements issued but not yet effective until after July 31, 2013 are not expected to have a significant effect on the Company’s financial position or results of operations.



F-10



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 2 – BUSINESS RISKS AND UNCERTAINTIES


Since November 1, 2011, we have entered into a new business model where we identify, advise and market consumer 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 companies that could further the company's goal to become a diversified holding company, but no agreements have been reached to date. We do not manufacture any of our products and as of the date of this filing we have generated limited revenues, do not rely on any principal products and do not sell any internally developed or Company owned products.


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.


Available-for-sale marketable equity securities consisted of the following at July 31, 2013:


 

 

July 31, 2013

 

 

 

 

 

 

Gains in

 

 

Losses in

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Other

 

 

Other

 

 

Estimated

 

 

 

Amortized

 

 

Comprehensive

 

 

Comprehensive

 

 

Fair

 

 

 

Cost

 

 

Loss

 

 

Loss

 

 

Value

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

143,709

 

 

$

22,466

 

 

$

85,625

 

 

$

80,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current securities

 

$

143,709

 

 

$

22,466

 

 

$

85,625

 

 

$

80,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

143,709

 

 

$

22,466

 

 

$

85,625

 

 

$

80,550

 




F-11



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 3 – INVESTMENTS (CONTINUED)


Available-for-sale marketable equity securities consisted of the following at April 30, 2013:


 

 

April 30, 2013

 

 

 

 

 

 

Gains in

 

 

Losses in

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Other

 

 

Other

 

 

Estimated

 

 

 

Amortized

 

 

Comprehensive

 

 

Comprehensive

 

 

Fair

 

 

 

Cost

 

 

Loss

 

 

Loss

 

 

Value

 

Current:

  

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

169,997

 

 

$

118,967

 

 

$

85,625

 

 

$

203,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current securities

 

$

169,997

 

 

$

118,967

 

 

$

85,625

 

 

$

203,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

169,997

 

 

$

118,967

 

 

$

85,625

 

 

$

203,339

 


For the three months ended July 31, 2013 and 2012, proceeds from the sales of available-for-sale marketable equity securities were $95,572 and zero, gross realized losses on those sales were $22,966 and zero and there were no gross realized gains. At July 31, 2013, there is a $29,091 net unrealized holding gain on available-for-sale marketable equity securities as compared to a $33,342 net unrealized holding gain on available-for-sale marketable equity securities at April 30, 2013. For purpose of determining gross realized gains and losses, the cost of securities sold is based on average cost.


For the three months ended July 31, 2013 and 2012, the Company recognized $23,500 and zero for the impairment of non-marketable equity securities, respectively.


At July 31, 2013, 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, 2013

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Investments

  

 

  

  

 

 

 

 

  

  

 

  

Available-for-sale marketable equity securities

 

$

80,550

 

 

$

80,550

 

 

$

 

 

$

 

Non-marketable equity securities, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in securities

 

$

80,550

 

 

$

80,550

 

 

$

 

 

$

 




F-12



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 4 – NOTES PAYABLE


Notes payable consists of the following:


 

 

July 31,

2013

 

 

April 30,

2013

 

 

 

 

 

 

 

 

Notes payable

 

 

 

 

 

 

Promissory notes payable. Principal due payable on demand.

 

$

8,000

 

 

$

8,000

 

 

 

 

 

 

 

 

 

 

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

 

 

50,000

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Promissory notes payable, related party. Interest accrued at 5.0% per annum. Principal and interest due September 30, 2010

 

 

10,000

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

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.

 

 

2,100

 

 

 

2,100

 

 

 

 

 

 

 

 

 

 

Total Notes payable

 

$

70,100

 

 

$

70,100

 

 

 

 

 

 

 

 

 

 

Notes payable, related party

 

 

 

 

 

 

 

 

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

 

$

140,802

 

 

$

168,379

 

 

 

 

 

 

 

 

 

 

Total Notes payable, related party

 

$

140,802

 

 

$

168,379

 


NOTE 5 – 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 January 31, 2013, 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).


During the three months ending July 31. 2013 and 2012, there was no share-based compensation expense and as of July 31, 2013, there was no unrecognized compensation expense related to non-vested market-based share awards.




F-13



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)


The following tables summarize all stock option activity of the Company since April 30, 2013:


 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Life (Years)

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Outstanding, April 30, 2013

 

 

200,000

 

 

$

0.20

 

 

 

5.57

 

 

$

-0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No activity for this period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, July 31, 2013

 

 

200,000

 

 

$

0.20

 

 

 

5.57

 

 

$

-0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, July 31, 2013

 

 

200,000

 

 

$

0.20

 

 

 

5.57

 

 

$

-0-

 


NOTE 6 – CAPITAL SHARE TRANSACTIONS


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 $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 were 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 were considered contingently returnable and not considered outstanding as of January 31, 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 the third scheduled payment of $400,000 to New Bastion.



F-14



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 6 – CAPITAL SHARE TRANSACTIONS (CONTINUED)


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 had been reduced to $195,000 as of July 22, 2013.


On July 23, 2013, the Company and New Bastion agreed to renegotiate and modify the revised framework and finalize the business transaction as follows: 1) no further cash consideration will be paid by the Company to New Bastion, 2) the $305,000 of cash consideration previously paid by the Company ($312,000 less $7,000 of expenses) will be exchanged for 50,000 shares of New Bastion common stock, representing approximately 6.35% of the outstanding shares of NBR common stock and 3) the previously 5,000,000 shares and the 15,000,000 contingently returnable shares to New Bastion will be cancelled and returned to the Company.


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 July 23, 2013, the offering’s termination date, the Company received subscriptions of 6,200,000 shares of common stock for $502,000 of proceeds, net of $118,000 of selling expenses and commissions. This amount included 500,000 shares of common stock for $50,000 of gross proceeds received during the three months ended July 31, 2013. 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.


On June 1, 2013, the Company privately issued 2,125,000 shares of its restricted common stock, in exchange for services performed by ten consultants for the Company. The shares were valued at the quoted trade price of $0.19 per share on the grant date resulting in an expense of $403,750.


NOTE 7 – RELATED PARTY TRANSACTIONS


Notes payable, related parties were $140,802 and $168,379 at July 31, 2013 and April 30, 2013, respectively (See Note 5 – Notes Payable).


NOTE 8 – CONTINGENCIES


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, 2013.


Unpaid Taxes and Penalties


At July 31, 2013, the Company owed the State of Delaware approximately $114,000 for unpaid state income taxes from the tax year ended April 30, 2007. The unpaid state income taxes are included as state income taxes payable in accompanying unaudited financial statements. Additionally, the Company owes the IRS and the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of approximately $219,000. The interest and penalties are included as accrued expenses in the accompanying unaudited financial statements at July 31, 2013. The Company has agreements with both agencies to pay a minimum per month to avoid any collections or additional liens.



F-15



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

AS OF JULY 31, 2013

 


NOTE 9 – SUBSEQUENT EVENTS


On September 9, 2013, the Company privately issued 3,000,000 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 $0.07 per share on the grant date resulting in an expense of $210,000.


On September 10, 2013, the Company privately issued 2,000,000 shares of its restricted common stock, in exchange for services performed by three consultants for the Company. The shares were valued at the quoted trade price of $0.07 per share on the grant date resulting in an expense of $140,000.


NOTE 10 – COMPREHENSIVE INCOME (LOSS)


The following reflects the changes in Accumulated Other Comprehensive Income (Loss) for the three months ended July 31, 2013 and 2012, respectively:


Three Months Ended July 31, 2013


 

 

Unrealized

 

 

 

Gains and

 

 

 

Losses on

 

 

 

Available-For

 

 

 

Sale

 

 

 

Securities

 

Balance at April 30, 2013

 

$

33,342

 

 

 

 

 

 

Other comprehensive loss before reclassifications

 

 

(4,251

)

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

 

 

 

Net current period other comprehensive income

 

 

(4,251

)

 

 

 

 

 

Balance at July 31, 2013

 

$

29,091

 


Three Months Ended July 31, 2012


 

 

Unrealized

 

 

 

Gains and

 

 

 

Losses on

 

 

 

Available-For

 

 

 

Sale

 

 

 

Securities

 

Balance at April 30, 2012

 

$

51,150

 

 

 

 

 

 

Other comprehensive loss before reclassifications

 

 

(85,625

)

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

 

 

 

Net current period other comprehensive loss

 

 

(85,625

)

 

 

 

 

 

Balance at July 31, 2012

 

$

(34,475

)



 



F-16