Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

(Mark One)

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

For the quarterly period ended October 31, 2007

OR

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

For the transition period from _____________ to _____________



| |                                                    | 
| | -------------------------------------------------- | 
| | Universal Capital Management, Inc.                 | 
| | (Exact name of registrant as specified in charter) | 



|                                               |  |                          |  |                                  
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|Delaware                                       |  | 000-51132                |  | 20-1568059                       
|(State or other jurisdiction
of incorporation) |  | (Commission File Number) |  | (IRS Employer
Identification No.)



| |                                                 | 
| | ----------------------------------------------- | 
| | 2601 Annand Drive Suite 16 Wilmington, DE 19808 | 
| | (Address of principal executive offices)        | 



| |                                                      | 
| | ---------------------------------------------------- | 
| | (302) 998-8824                                       | 
| | (Registrants Telephone Number, including Area Code) | 



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 ý No  ̈

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

Large accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated filer ý

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

The number of shares of the registrants Common Stock outstanding as of December 18, 2007 was 5,438,274













---

Table of Contents





|                               |  |                                                                                      |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------ |  | --
|TABLE OF CONTENTS             
|                              
|PART I  FINANCIAL INFORMATION
|                              
|Item 1                         |  | Financial Statements                                                                 |  | 1 
|Item 2                         |  | Managements Discussion and Analysis of Financial Condition and Results of Operation |  | 14
|Item 3                         |  | Quantitative and Qualitative Disclosures about Market Risk                           |  | 18
|Item 4                         |  | Controls and Procedures                                                              |  | 18
|                               |  |                                                                                      |  |   
|PART II  OTHER INFORMATION   
|                              
|Item 6                         |  | Exhibits                                                                             |  | 19





i



---

Table of Contents



PART I  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF ASSETS AND LIABILITIES



|                                                                                                                                                                                 |                  |           |                |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | --------- | -------------- | - | --------- | 
|                                                                                                                                                                                 | October 31,
2007 |           | April 30,
2007 |  
|                                                                                                                                                                                 | (Unaudited)      |           | (Audited)      |  
|ASSETS                                                                                                                                                                           |                  |           |                |   |           | 
|Investments in securities                                                                                                                                                        |                  |           |                |   |           | 
|Non-affiliates (cost: $1,746,945 and $1,937,203)                                                                                                                                 | $                | 1,375,285 |                | $ | 1,618,296 | 
|Affiliates (cost: $3,284,112 and $3,341,612)                                                                                                                                     |                  | 3,857,266 |                |   | 4,393,586 | 
|Total Investments in Securities                                                                                                                                                  |                  | 5,232,551 |                |   | 6,011,882 | 
|Cash and cash equivalents                                                                                                                                                        |                  | 2,426     |                |   | 110,739   | 
|Receivables                                                                                                                                                                      |                  |           |                |   |           | 
|Notes receivable - non-affiliates                                                                                                                                                |                  | 111,672   |                |   | 107,272   | 
|Notes receivable - affiliates                                                                                                                                                    |                  | 25,850    |                |   | -         | 
|Due from non-affiliates                                                                                                                                                          |                  | 19,132    |                |   | 17,895    | 
|Miscellaneous receivables                                                                                                                                                        |                  | 9,975     |                |   | 14,774    | 
|Due from affiliates                                                                                                                                                              |                  | 48,259    |                |   | 40,239    | 
|Total Receivables                                                                                                                                                                |                  | 214,888   |                |   | 180,180   | 
|Prepaid expenses                                                                                                                                                                 |                  | 22,852    |                |   | 41,166    | 
|Property and equipment, net                                                                                                                                                      |                  | 7,329     |                |   | 8,279     | 
|Rent deposit                                                                                                                                                                     |                  | 1,100     |                |   | 1,100     | 
|Deferred tax asset                                                                                                                                                               |                  | 272,000   |                |   | -         | 
|TOTAL ASSETS                                                                                                                                                                     | $                | 5,753,146 |                | $ | 6,353,346 | 
|LIABILITIES                                                                                                                                                                      |                  |           |                |   |           | 
|LIABILITIES                                                                                                                                                                      |                  |           |                |   |           | 
|Accounts payable                                                                                                                                                                 | $                | 327,142   |                | $ | 314,432   | 
|Accrued expenses                                                                                                                                                                 |                  | 204,190   |                |   | 37,862    | 
|Current income taxes payable                                                                                                                                                     |                  | 217,000   |                |   | 316,000   | 
|Advances from shareholder                                                                                                                                                        |                  | 290,000   |                |   | 150,000   | 
|Notes payable                                                                                                                                                                    |                  | 425,000   |                |   | 425,000   | 
|Deferred revenue                                                                                                                                                                 |                  | 457,667   |                |   | 680,588   | 
|Accrued interest                                                                                                                                                                 |                  | 39,450    |                |   | -         | 
|Deferred income taxes                                                                                                                                                            |                  | -         |                |   | 50,000    | 
|Noncurrent income taxes payable                                                                                                                                                  |                  | 272,000   |                |   | -         | 
|TOTAL LIABILITIES                                                                                                                                                                |                  | 2,232,449 |                |   | 1,973,882 | 
|NET ASSETS                                                                                                                                                                       | $                | 3,520,697 |                | $ | 4,379,464 | 
|ANALYSIS OF NET ASSETS                                                                                                                                                           |                  |           |                |   |           | 
|Net capital paid in on shares of capital stock                                                                                                                                   | $                | 3,973,170 |                | $ | 3,943,802 | 
|Distributable earnings (loss)                                                                                                                                                    |                  | (452,473  | )              |   | 435,662   | 
|NET ASSETS                                                                                                                                                                       | $                | 3,520,697 |                | $ | 4,379,464 | 
|Equivalent per share value based on 5,438,274 shares of capital stock 
outstanding as of October 31, 2007 and 5,438,274 shares of
capital stock outstanding as of April 30, 2007 | $                | 0.65      |                | $ | 0.81      | 



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



1



---

Table of Contents



UNIVERSAL CAPITAL MANAGEMENT, INC.

SCHEDULE OF INVESTMENTS

OCTOBER 31, 2007

(UNAUDITED)



|                                                                                                    |  |                                               |  |                |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------------- |  | -------------- |  | ----------------------------------------- | ---- | ---- | --------- | ------------------------- | - | ------------------------ |  | - | -------- | -
|                                                                                                    |  | Business                                      |  | % of
Portfolio |  | Number of
Shares
Held at
October 31,
2007 |      | Cost |           | Value at
October 31, 2007 |   | Unrealized
Gain / (Loss) | 
|Affiliated Securities*                                                                              |  |                                               |  |                |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|Extreme Visual Technologies, Inc. ***                                                               |  | Develops unique graphics imaging technologies |  | 38.22%         |  | 2,000,000                                 | **   | $    | 1,813,887 |                           | $ | 2,000,000                |  | $ | 186,113  |  
|SIVOO, Inc.                                                                                         |  | High speed internet media                     |  | 7.34%          |  | 800,000                                   | **   |      | 385,000   |                           |   | 384,000                  |  |   | (1,000   | )
|                                                                                                    |  |                                               |  | 4.18%          |  | 364,401                                   | **** |      | 83,600    |                           |   | 218,641                  |  |   | 135,041  |  
|Warrants to purchase 400,000 shares of SIVOO, Inc.                                                  |  | High speed internet media                     |  |                |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|250,000 warrants expiring April 11, 2011                                                            |  |                                               |  | 3.00%          |  | 250,000                                   |      |      | -         |                           |   | 157,000                  |  |   | 157,000  |  
|150,000 warrants expiring November 14, 2011                                                         |  |                                               |  | 1.83%          |  | 150,000                                   |      |      | -         |                           |   | 96,000                   |  |   | 96,000   |  
|Creative Energy Solutions, Inc. ***                                                                 |  | Develops alternative energy technologies      |  | 19.11%         |  | 2,000,000                                 | **   |      | 1,000,000 |                           |   | 1,000,000                |  |   | -        |  
|BF Acquisition Group V, Inc.                                                                        |  | Inactive company                              |  | 0.03%          |  | 100,000                                   | **   |      | 1,625     |                           |   | 1,625                    |  |   | -        |  
|Total Affiliated Securities                                                                         |  |                                               |  | 73.72%         |  |                                           |      |      | 3,284,112 |                           |   | 3,857,266                |  |   | 573,154  |  
|Non-affiliated Securities                                                                           |  |                                               |  |                |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|Third-Order Nanotechnologies, Inc.                                                                  |  | Plastics engineering                          |  | 13.00%         |  | 1,000,000                                 | **   |      | 580,000   |                           |   | 680,000                  |  |   | 100,000  |  
|                                                                                                    |  |                                               |  | 1.90%          |  | 116,963                                   | **** |      | 341,532   |                           |   | 99,419                   |  |   | (242,113 | )
|Warrants to purchase 500,000 shares of Third-Order Nanotechnologies, Inc. expiring March 1, 2012    |  | Plastics engineering                          |  | 7.20%          |  | 500,000                                   |      |      | -         |                           |   | 377,000                  |  |   | 377,000  |  
|Theater Xtreme Entertainment Group, Inc.                                                            |  | Home theater sales and installation           |  | 1.74%          |  | 650,000                                   | **   |      | 396,500   |                           |   | 91,000                   |  |   | (305,500 | )
|                                                                                                    |  |                                               |  | 0.26%          |  | 75,844                                    | **** |      | 52,288    |                           |   | 13,652                   |  |   | (38,636  | )
|Warrants to purchase 500,000 shares of Theater Xtreme Entertainment Group, Inc. expiring July, 2012 |  | Home theater sales and installation           |  | 1.59%          |  | 500,000                                   |      |      | -         |                           |   | 83,000                   |  |   | 83,000   |  
|Neptune Industries, Inc.                                                                            |  | Seafood production                            |  | 0.30%          |  | 47,619                                    | **** |      | 20,000    |                           |   | 15,714                   |  |   | (4,286   | )
|Gelstat Corporation                                                                                 |  | Consumer health care company                  |  | 0.30%          |  | 221,429                                   | **** |      | 350,000   |                           |   | 15,500                   |  |   | (334,500 | )
|IPI Fundraising, Inc.                                                                               |  | Inactive company                              |  | 0.00%          |  | 575,000                                   |      |      | 6,625     |                           |   | -                        |  |   | (6,625   | )
|Total Non-Affiliated Securities                                                                     |  |                                               |  | 26.28%         |  |                                           |      |      | 1,746,945 |                           |   | 1,375,285                |  |   | (371,660 | )
|Total Securities                                                                                    |  |                                               |  | 100.00%        |  |                                           |      | $    | 5,031,057 |                           | $ | 5,232,551                |  | $ | 201,494  |  



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

**Restricted shares - illiquid securities; total illiquid securities of $4,156,625 make up 118.10% of total net assets as of October 31, 2007

***Private company - valued by the Board of Directors

****Unrestricted shares - liquid securities

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



2



---

Table of Contents



UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDING OCTOBER 31, 2007 AND 2006

(UNAUDITED)



|                                                                |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|--------------------------------------------------------------- | -------------------------------------------- | -------- | -------------------------------------------- | - | ------------------------------------------ | - | ------------------------------------------ | -------- | - | - | --------- | -
|                                                                | For the Three
Months Ending
October 31,
2007 |          | For the Three
Months Ending
October 31,
2006 |   | For the Six
Months Ending
October 31,
2007 |   | For the Six
Months Ending
October 31,
2006 |         
|INCOME                                                          |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|Management services                                             |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|Non-affililiates                                                | $                                            | 244,125  |                                              | $ | 637,000                                    |   | $                                          | 422,166  |   | $ | 656,100   |  
|Affiliates                                                      |                                              | -        |                                              |   | 252,055                                    |   |                                            | 197,255  |   |   | 806,855   |  
|Total Management Services                                       |                                              | 244,125  |                                              |   | 889,055                                    |   |                                            | 619,421  |   |   | 1,462,955 |  
|Interest income                                                 |                                              | 3,095    |                                              |   | 11,814                                     |   |                                            | 5,249    |   |   | 18,335    |  
|Accounting services                                             |                                              | 11,000   |                                              |   | 18,000                                     |   |                                            | 32,400   |   |   | 30,000    |  
|                                                                |                                              | 258,220  |                                              |   | 918,869                                    |   |                                            | 657,070  |   |   | 1,511,290 |  
|COST AND EXPENSE                                                |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|Bad debt                                                        |                                              | -        |                                              |   | 543                                        |   |                                            | 6,000    |   |   | 543       |  
|Depreciation                                                    |                                              | 475      |                                              |   | 475                                        |   |                                            | 950      |   |   | 949       |  
|Dues and subscriptions                                          |                                              | 1,337    |                                              |   | -                                          |   |                                            | 1,377    |   |   | -         |  
|Fees and commissions                                            |                                              | 2,399    |                                              |   | 2,725                                      |   |                                            | 3,220    |   |   | 4,362     |  
|Insurance                                                       |                                              | 17,120   |                                              |   | 18,313                                     |   |                                            | 40,376   |   |   | 37,513    |  
|Interest expense                                                |                                              | 9,525    |                                              |   | 7,316                                      |   |                                            | 20,352   |   |   | 9,036     |  
|Miscellaneous general and administrative                        |                                              | 1,630    |                                              |   | 7,767                                      |   |                                            | 2,813    |   |   | 8,147     |  
|Office expenses and supplies                                    |                                              | 1,164    |                                              |   | 135                                        |   |                                            | 2,648    |   |   | 312       |  
|Payroll and payroll taxes                                       |                                              | 116,249  |                                              |   | 148,750                                    |   |                                            | 213,508  |   |   | 456,720   |  
|Postage, delivery and shipping                                  |                                              | 917      |                                              |   | 1,099                                      |   |                                            | 2,177    |   |   | 1,855     |  
|Professional fees                                               |                                              | 166,226  |                                              |   | 187,075                                    |   |                                            | 586,494  |   |   | 712,410   |  
|Rent                                                            |                                              | 4,200    |                                              |   | 4,200                                      |   |                                            | 8,400    |   |   | 8,400     |  
|Taxes - Other                                                   |                                              | -        |                                              |   | 3,401                                      |   |                                            | 34       |   |   | 4,857     |  
|Telephone                                                       |                                              | 1,336    |                                              |   | 1,357                                      |   |                                            | 2,632    |   |   | 2,164     |  
|Travel and entertainment                                        |                                              | 8,121    |                                              |   | 7,963                                      |   |                                            | 9,149    |   |   | 30,053    |  
|Utilities                                                       |                                              | 613      |                                              |   | 849                                        |   |                                            | 1,213    |   |   | 1,336     |  
|                                                                |                                              | 331,312  |                                              |   | 391,968                                    |   |                                            | 901,343  |   |   | 1,278,657 |  
|                                                                |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|INCOME (LOSS) FROM OPERATIONS                                   |                                              | (73,092  | )                                            |   | 526,901                                    |   |                                            | (244,273 | ) |   | 232,633   |  
|                                                                |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|OTHER INCOME (EXPENSE)                                          |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|Net realized gain on dividend of portfolio stock                |                                              | -        |                                              |   | -                                          |   |                                            | -        |   |   | 343,924   |  
|Interest expense                                                |                                              | (6,575   | )                                            |   | -                                          |   |                                            | (13,150  | ) |   | -         |  
|Loss on sale of portfolio stock                                 |                                              | (170,349 | )                                            |   | -                                          |   |                                            | (190,639 | ) |   | -         |  
|Unrealized appreciation (depreciation) on investments           |                                              | 657,389  |                                              |   | 840,067                                    |   |                                            | (539,073 | ) |   | 395,844   |  
|Income tax (benefit) provision                                  |                                              | 30,000   |                                              |   | (469,400                                   | ) |                                            | 99,000   |   |   | (312,600  | )
|                                                                |                                              |          |                                              |   |                                            |   |                                            |          |   |   |           |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $                                            | 437,373  |                                              | $ | 897,568                                    |   | $                                          | (888,135 | ) | $ | 659,801   |  



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



3



---

Table of Contents



UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE SIX MONTHS ENDING OCTOBER 31, 2007

(UNAUDITED)



|                                                     |                                            |           |  
|---------------------------------------------------- | ------------------------------------------ | --------- | -
|                                                     | For the Six
Months Ending
October 31,
2007 |          
|NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $                                          | (888,135  | )
|CAPITAL SHARE TRANSACTIONS                           |                                            |           |  
|Share-based compensation expense                     |                                            | 4,668     |  
|TOTAL DECREASE                                       |                                            | (883,467  | )
|NET ASSETS, BEGINNING OF PERIOD                      |                                            | 4,379,464 |  
|ADJUSTMENT FOR FIN 48                                |                                            | 24,700    |  
|NET ASSETS, BEGINNING OF PERIOD  ADJUSTED           |                                            | 4,404,164 |  
|NET ASSETS, END OF PERIOD                            | $                                          | 3,520,697 |  



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



4



---

Table of Contents



UNIVERSAL CAPITAL MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDING OCTOBER 31, 2007 AND 2006

(UNAUDITED)



|                                                                                                                        |                                            |          |                                            |   |            |  
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ------------------------------------------ | - | ---------- | -
|                                                                                                                        | For the Six
Months Ending
October 31,
2007 |          | For the Six
Months Ending
October 31,
2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                    |                                            |          |                                            |   |            |  
|Net increase (decrease) in net assets resulting from operations                                                         | $                                          | (888,135 | )                                          | $ | 659,801    |  
|Adjustments to reconcile net decrease in net assets
resulting from operations to net cash used in operating activities: |                                            |          |                                            |   |            |  
|Gain on dividend of portfolio stock                                                                                     |                                            | -        |                                            |   | (343,924   | )
|Stock received for interest                                                                                             |                                            | -        |                                            |   | (13,888    | )
|Loss on sale of portfolio stock                                                                                         |                                            | 190,639  |                                            |   | -          |  
|Investment securities received in exchange for management svcs                                                          |                                            | (172,303 | )                                          |   | (1,462,955 | )
|Depreciation expense                                                                                                    |                                            | 950      |                                            |   | 949        |  
|Stock based compensation expense                                                                                        |                                            | 4,668    |                                            |   | 183,278    |  
|Stock options granted for operating expense                                                                             |                                            | -        |                                            |   | 447,000    |  
|Net unrealized (appreciation) depreciation on investments                                                               |                                            | 539,073  |                                            |   | (395,844   | )
|Income taxes                                                                                                            |                                            | (99,000  | )                                          |   | 312,600    |  
|(Increase) decrease in assets                                                                                           |                                            |          |                                            |   |            |  
|Notes receivable                                                                                                        |                                            | (5,250   | )                                          |   | -          |  
|Due from portfolio companies                                                                                            |                                            | (1,237   | )                                          |   | (27,847    | )
|Miscellaneous receivables                                                                                               |                                            | 4,799    |                                            |   | (5,773     | )
|Due from affiliates                                                                                                     |                                            | (8,020   | )                                          |   | (10,500    | )
|Prepaid expenses                                                                                                        |                                            | 18,314   |                                            |   | (18        | )
|Increase (decrease) in liabilities                                                                                      |                                            |          |                                            |   |            |  
|Accounts payable                                                                                                        |                                            | 12,710   |                                            |   | -          |  
|Accrued interest                                                                                                        |                                            | 13,150   |                                            |   | -          |  
|Accrued expenses                                                                                                        |                                            | 166,329  |                                            |   | 350,529    |  
|Net cash used in operating activities                                                                                   |                                            | (223,313 | )                                          |   | (306,592   | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                    |                                            |          |                                            |   |            |  
|Loan for notes receivable                                                                                               |                                            | (25,000  | )                                          |   | (55,000    | )
|Net cash used in investing activities                                                                                   |                                            | (25,000  | )                                          |   | (55,000    | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                    |                                            |          |                                            |   |            |  
|Proceeds from advance from shareholder                                                                                  |                                            | 140,000  |                                            |   | -          |  
|Proceeds from issuance of debt                                                                                          |                                            | -        |                                            |   | 175,000    |  
|Repayment of subscription payable                                                                                       |                                            | -        |                                            |   | (100,000   | )
|Proceeds of issuance from common stock                                                                                  |                                            | -        |                                            |   | 241,280    |  
|Net cash provided by financing activities                                                                               |                                            | 140,000  |                                            |   | 316,280    |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                               |                                            | (108,313 | )                                          |   | (45,312    | )
|CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                                                         |                                            | 110,739  |                                            |   | 84,272     |  
|CASH AND CASH EQUIVALENTS - END OF PERIOD                                                                               |                                            | 2,426    |                                            |   | 38,960     |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES                                                                             |                                            |          |                                            |   |            |  
|Note receivable for issuance of stock options                                                                           | $                                          | -        |                                            | $ | 800,000    |  
|                                                                                                                        |                                            |          |                                            |   |            |  



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



5



---

Table of Contents



UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim period financial statements of Universal Capital Management, Inc. (the Company) are unaudited pursuant to certain rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results of the periods indicated. Such results, however, are not necessarily indicative of results that may be expected for the full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended April 30, 2007, as filed with the Securities and Exchange Commission. The interim operating results for the six months ended October 31, 2007 are not necessarily indicative of operating results expected for the full year.

History and Nature of Business

Universal Capital Management, Inc. (the Company) is a public venture capital company. The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. The Company is primarily engaged in the business of furnishing capital and making available managerial assistance to companies that do not have ready access to capital through conventional channels. The Company refers to companies in which it invests as portfolio companies.

Security Valuations

Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market (such as OTC BB, Pink Sheets, etc) and listed securities for which no sale was reported on that date are stated at the last quoted bid price. Restricted securities and other securities (small, privately-held companies) for which quotations are not readily available are valued at fair value as determined by the board of directors.

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

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on managements best knowledge of current events and actions the Company may undertake in the future, actual results could differ from the estimates.

Cash Equivalents

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

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. The Company places its temporary cash investments with high credit quality financial institutions to limit its credit exposure.



6



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

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



|                              |  |             
|----------------------------- |  | ------------
|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

In accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler received goods, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured. The Company records a deferred revenue liability for management contracts that are paid in full on the commencement date of the contract. The company recognizes fees from management contracts over the life of the contracts as the services are performed beginning on the date of the contract. Management fees can be paid to the Company in the form of common stock. The valuation of the common stock received as payment is based on the fair value on the measurement date. The measurement date is determined in accordance with Emergence Issue Task Force (EITF) No. 96-18, Accounting For Equity Instruments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services.

Income Taxes

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

Recoverability of Long Lived Assets

The Company follows SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144). Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the excess of the assets carrying amount.



7



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007 and will become effective beginning with the first quarter of fiscal 2009. The Company has not yet determined the impact of the adoption of SFAS No. 157 on its financial statements and footnote disclosures.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for the Company beginning with the first quarter of fiscal 2008. The Company has not yet determined the impact of the adoption of SFAS No. 159 on its financial statements and footnote disclosures.



8



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 2  INVESTMENTS

Portfolio Companies consist of the following at October 31, 2007:



|                                                                                                     |  |                                               |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|---------------------------------------------------------------------------------------------------- |  | --------------------------------------------- |  | ----------------------------------------- | ---- | ---- | --------- | ------------------------- | - | ------------------------ |  | - | -------- | -
|                                                                                                     |  | Business                                      |  | Number of
Shares
Held at
October 31,
2007 |      | Cost |           | Value at
October 31, 2007 |   | Unrealized
Gain / (Loss) | 
|Affiliated Securities*                                                                               |  |                                               |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|Extreme Visual Technologies, Inc. ***                                                                |  | Develops unique graphics imaging technologies |  | 2,000,000                                 | **   | $    | 1,813,887 |                           | $ | 2,000,000                |  | $ | 186,113  |  
|SIVOO, Inc.                                                                                          |  | High speed internet media                     |  | 800,000                                   | **   |      | 385,000   |                           |   | 384,000                  |  |   | (1,000   | )
|                                                                                                     |  |                                               |  | 364,401                                   | **** |      | 83,600    |                           |   | 218,641                  |  |   | 135,041  |  
|Warrants to purchase 400,000 shares of SIVOO, Inc.                                                   |  | High speed internet media                     |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|250,000 warrants expiring April 11, 2011                                                             |  |                                               |  | 250,000                                   |      |      | -         |                           |   | 157,000                  |  |   | 157,000  |  
|150,000 warrants expiring November 14, 2011                                                          |  |                                               |  | 150,000                                   |      |      | -         |                           |   | 96,000                   |  |   | 96,000   |  
|Creative Energy Solutions, Inc. ***                                                                  |  | Develops alternative energy technologies      |  | 2,000,000                                 | **   |      | 1,000,000 |                           |   | 1,000,000                |  |   | -        |  
|BF Acquisition Group V, Inc.                                                                         |  | Inactive company                              |  | 100,000                                   | **   |      | 1,625     |                           |   | 1,625                    |  |   | -        |  
|Total Affiliated Securities                                                                          |  |                                               |  |                                           |      |      | 3,284,112 |                           |   | 3,857,266                |  |   | 573,154  |  
|Non-affiliated Securities                                                                            |  |                                               |  |                                           |      |      |           |                           |   |                          |  |   |          |  
|Third-Order Nanotechnologies, Inc.                                                                   |  | Plastics engineering                          |  | 1,000,000                                 | **   |      | 580,000   |                           |   | 680,000                  |  |   | 100,000  |  
|                                                                                                     |  |                                               |  | 116,963                                   | **** |      | 341,532   |                           |   | 99,419                   |  |   | (242,113 | )
|Warrants to purchase 500,000 shares of Third-Order Nanotechnologies, Inc. expiring March 1, 2012     |  | Plastics engineering                          |  | 500,000                                   |      |      | -         |                           |   | 377,000                  |  |   | 377,000  |  
|Theater Xtreme Entertainment Group, Inc.                                                             |  | Home theater sales and installation           |  | 650,000                                   | **   |      | 396,500   |                           |   | 91,000                   |  |   | (305,500 | )
|                                                                                                     |  |                                               |  | 75,844                                    | **** |      | 52,288    |                           |   | 13,652                   |  |   | (38,636  | )
|Warrants to purchase 500,000 shares of Theater Xtreme Entertainment Group, Inc. 
expiring July, 2012 |  | Home theater sales and installation           |  | 500,000                                   |      |      | -         |                           |   | 83,000                   |  |   | 83,000   |  
|Neptune Industries, Inc.                                                                             |  | Seafood production                            |  | 47,619                                    |      |      | 20,000    |                           |   | 15,714                   |  |   | (4,286   | )
|Gelstat Corporation                                                                                  |  | Consumer health care company                  |  | 221,429                                   |      |      | 350,000   |                           |   | 15,500                   |  |   | (334,500 | )
|IPI Fundraising, Inc.                                                                                |  | Inactive company                              |  | 575,000                                   |      |      | 6,625     |                           |   | -                        |  |   | (6,625   | )
|Total Non-Affiliated Securities                                                                      |  |                                               |  |                                           |      |      | 1,746,945 |                           |   | 1,375,285                |  |   | (371,660 | )
|Total Securities                                                                                     |  |                                               |  |                                           |      | $    | 5,031,057 |                           | $ | 5,232,551                |  | $ | 201,494  |  



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

**Restricted shares - illiquid securities; total illiquid securities of $4,156,625 make up 118.10% of total net assets as of October 31, 2007

***Private company - valued by the Board of Directors

****Unrestricted shares - liquid securities





9



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 3  INCOME TAXES

As an investment company organized as a corporation, the Company is taxable as a corporation. As discussed in Note 1, the Company utilizes the assets and liability method of accounting for income taxes in accordance with SFAS 109.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on May 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $24,700 addition to the May 1, 2007 balance of net assets. At May 1, 2007, the balance of unrecognized tax benefits is $272,000, which are taxable temporary differences and if recognized would not affect the effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier year. It is not possible to reasonably estimate any possible change in the unrecognized tax benefits within the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense. The Company had $39,450 accrued at October 31, 2007 for the payment of any such interest and penalties.

Tax years from 2005 (initial tax year) through 2007 remain subject to examination by major tax jurisdictions.

The income tax expense (benefit) for the six months ended October 31, 2007 and 2006 have been included in the accompanying financial statements on the basis of an estimated annual effective rate. The estimated annual effective rate differs from the U.S. Statutory rate primarily due to the change in the valuation allowance to unrealized losses.

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





|                                     |  |                  |          |  
|------------------------------------ |  | ---------------- | -------- | -
|                                     |  | October 31, 2007 |         
|Deferred tax (asset) liability       |  |                  |          |  
|Deferred charges                     |  | $                | (92,000  | )
|Net operating loss                   |  |                  | -        |  
|Unrealized gain on investments       |  |                  | 77,000   |  
|Capital loss carryforward            |  |                  | (195,000 | )
|Stock-based compensation             |  |                  | (77,000  | )
|Unrecognized tax benefits            |  |                  | (272,000 | )
|Other                                |  |                  | (2,000   | )
|Total                                |  |                  | (561,000 | )
|Less: Valuation allowance            |  |                  | 289,000  |  
|Total deferred tax (asset) liability |  | $                | (272,000 | )



At October 31, 2007, the Company had a capital loss carryforward of approximately $491,000 which if not used will expire in 2012.

NOTE 4  PREPAID EXPENSES`

In April 2007, the Company entered into various contracts for investor relation fees and insurance. The fees are amortized over the life of each contract, through March 2008. The remaining balance at October 31, 2007 is $15,475.

NOTE 5  DUE FROM AFFILIATES

Due from affiliates consist of the following:



|                                     |  |                  |        | 
|------------------------------------ |  | ---------------- | ------ | 
|                                     |  | October 31, 2007 |       
|Due from BF Acquisition Group V, Inc |  |                  | 48,259 | 
|Total                                |  | $                | 48,259 | 



10



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 6  DEFERRED REVENUE

The deferred revenue amount represents unearned management fee income. Income is amortized and recognized evenly over the life of the contract. In accordance with EITF 96-18, 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). At October 31, 2007, the Company has two open contracts that run through July 2008. Deferred revenue consists of the following:



|                                                                                                                                                                                                                                                                                   |  |                  |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | 
|                                                                                                                                                                                                                                                                                   |  | October 31,
2007 |        
|Third-Order Nanotechnologies, Inc. ("TDON") - One year contract
beginning February 28, 2007, received 1,000,000 shares of
TDON common stock as payment for the entire contract,
valued at $580,000 and amortized over the life of the contract
as the services are being provided. |  | $                | 193,333 | 
|Theater Xtreme Entertainment Group, Inc. ("TXEG") - One year
contract beginning July 1, 2007, received 650,000 shares of
TXEG common stock as payment for the entire contract, valued
at $396,500 and amortized over the life of the contract.                                     |  |                  | 264,334 | 
|                                                                                                                                                                                                                                                                                   |  | $                | 457,667 | 



The deferred revenue recognized for the six months ending October 31, 2007 and 2006 was $619,421 and $1,462,955.

NOTE 7  NOTE PAYABLE

Notes payable consists of the following:



|                                                                                         |  |                  |         | 
|---------------------------------------------------------------------------------------- |  | ---------------- | ------- | 
|                                                                                         |  | October 31, 2007 |        
|Note payable. Interest accrued at the
prime rate of interest, 8.25% at October 31, 2007. |  |                  |         | 
|Principal and interest are payable on demand                                             |  | $                | 425,000 | 



NOTE 8  ADVANCES FROM SHAREHOLDER

Amount represents advances from shareholder to cover operating expenses. There are no stated interest rate or repayment terms.

NOTE 9  STOCK BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.

On May 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method as permitted under SFAS 123(R). Under this transition method, compensation cost recognized in the first quarter of 2006 includes compensation cost for all share-based payments granted prior to but not yet vested as of April 30, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123. In accordance with the modified prospective method of adoption, the Companys results of operations and financial position for prior periods have not been restated.

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions: no dividend yield, expected volatility of 34%, risk-free interest rate between 3.8% and 5.1% and expected option life of two and ten years.



11



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 9  STOCK BASED COMPENSATION (CONTINUED)

During the six months ending October 31, 2007, the Companys net income was approximately $4,668 lower as a result of stock-based compensation expense as a result of the adoption of SFAS 123(R). As of October 31, 2007, there was approximately $14,386 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through May 2009.

Prior to May 1, 2006, the Company followed the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The provisions of SFAS No. 123 allowed companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), but disclose the pro forma effects on net income had the fair value of the options been expensed. The Company elected to apply APB 25 in accounting for its stock option incentive plans.

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

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



|                              |                           |          |                |  |                                 |         |  |  |  |         | 
|----------------------------- | ------------------------- | -------- | -------------- |  | ------------------------------- | ------- |  |  |  | ------- | 
|                              | Stock Options Outstanding
|                              | Number of Shares          |          | Exercise Price |  | Weighted Average
Exercise Price
|Outstanding, April 30, 2007   |                           | 185,000  |                |  |                                 | $2.00   |  |  |  | $2.00   | 
|Expired                       |                           | (60,000) |                |  |                                 | $      |  |  |  | $      | 
|Outstanding, October 31, 2007 |                           | 125,000  |                |  |                                 | $2.00   |  |  |  | $2.00   | 
|Exercisable, October 31, 2007 |                           | 113,110  |                |  |                                 | $2.00   |  |  |  | $2.00   | 



|                          |  |                                                              |  |                                             |  |                                                                 
|------------------------- |  | ------------------------------------------------------------ |  | ------------------------------------------- |  | ----------------------------------------------------------------
|Stock Options Outstanding
|Range of
Exercise Prices  |  | Number Outstanding
Currently Exercisable
at October 31, 2007 |  | Weighted Average
Remaining
Contractual Life |  | Weighted Average
Exercise Price of Options
Currently Exercisable
|$2.00                     |  | 113,110                                                      |  | 1.58 years                                  |  | $2.00                                                           



NOTE 10  CONTINGENCY

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, 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.

The Company believes that McCraes claims lack merit and intends to defend against such claims vigorously.



12



---

Table of Contents

UNIVERSAL CAPITAL MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS





NOTE 10  CONTINGENCY (CONTINUED)

Ronald R. Genova Lawsuit

During July 2007, Ronald R. Genova filed a lawsuit in Philadelphia County, Court of Common Pleas. Ronald R. Genova is the Plaintiff. Third-Order Nanotechnologies, Inc. (TDON), PSI-TEC Holdings, Inc (PSI-TEC) and Universal Capital Management (UCM) are each a Defendant.

Ronald R. Genova (Genova) served as a consultant and then as the interim chief executive officer of TDON. TDON terminated Genova effective February 28, 2007. On March 26, 2007 TDON paid Genova $9,806, which TDON determined was the full amount TDON owed Genova. Genova sued, claiming he was owed an additional $84,650 plus interest for unpaid consulting fees in the amount of $32,516, a performance bonus in the amount of $50,000, and an expense reimbursement in the amount of $2,135. Pursuant to the complaint, Genova is alleging breach of contract, fraud and promissory estoppel in an amount in excess of $180,000, in addition to the right to exercise his options, that expired on May 30, 2007, until February 13, 2016 or a judgment in an additional amount equal to the monetary value of such options plus punitive damages, interest and costs.

Genova included the UCM as a co-defendant because he believes that the UCM is a venture partner of TDON and PSI-TEC, provides management advisory services to TDON and PSI-TEC and exercises control over financial decisions made by TDON and PSI-TEC. UCM does provide management advisory services to TDON, but is neither a venture partner nor exercises control over financial decisions to either TDON or PSI-TEC.

The Company has filed a motion to dismiss the charges and is waiting for a response from the courts.

NOTE 11  FINANCIAL HIGHLIGHTS



|                                                    |  |                  |        |  
|--------------------------------------------------- |  | ---------------- | ------ | -
|                                                    |  | October 31, 2007 |       
|Per Share Operating Performance                     |  |                  |        |  
|Net asset value, beginning of period                |  | $                | 0.81   |  
|Income from operations, net of taxes                |  |                  | (0.03  | )
|Unrealized depreciation on investment, net of taxes |  |                  | (0.11) |  
|Gain on property dividend, net of taxes             |  |                  | -      |  
|Loss on sale of stock                               |  |                  | (0.02  | )
|                                                    |  |                  | 0.65   |  
|Add capital share transactions                      |  |                  | -      |  
|Net asset value, end of period                      |  | $                | 0.65   |  
|Total Return                                        |  |                  | -34.07 | %
|Average Net Assets as a percentage of:              |  |                  |        |  
|Expenses                                            |  |                  | 45.64  | %
|Management income                                   |  |                  | 33.00  | %





13



---

Table of Contents



ITEM 2

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

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

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

The Company is a public venture capital company. Its primary business is to invest in emerging growth companies. The Company intends to assist these companies in strategic and financial planning, in market strategies and to assist them in trying to achieve prudent and profitable growth. Management is devoting most of its efforts to general business planning, raising capital, and seeking appropriate investments.

The Companys primary investment objective is to increase its net assets by adding value to the portfolio companies and thus, increasing stockholder value. Management believes that the Company will be able to achieve these objectives by concentrating on investments in companies which are most likely to benefit from management's expertise in finance, strategic planning, operations, and technology.

The income that the Company derives from investments in portfolio companies consists of management fees, interest income, and appreciation (net of depreciation) in the values of portfolio companies. At the time of disposition, the disposition proceeds of these portfolio securities will most likely make up most of the Companys cash revenues.

Consequently, the Companys success or failure will depend on investing in companies which appreciate in value more than other companies in which the Company invests depreciate in value. There is no assurance that the Company will be able to do so.

Pursuant to the requirements of the Investment Company Act of 1940, as amended (1940 Act), the Board of Directors is responsible for determining in good faith the fair value of the securities and assets held by the Company for which market quotations are not readily available. In making its determination, the Board of Directors may consider valuation appraisals provided by independent financial experts. The 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.

The 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.



14



---

Table of Contents



Financial Condition

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



|                                                           |                                        |           |                                   |   |           |  
|---------------------------------------------------------- | -------------------------------------- | --------- | --------------------------------- | - | --------- | -
|                                                           | At the 
Quarter Ended
October 31,
2007 |           | At the 
Year Ended
April 30,
2007 |  
|TOTAL ASSETS                                               | $                                      | 5,770,146 |                                   | $ | 6,353,346 |  
|NET ASSETS                                                 | $                                      | 3,520,697 |                                   | $ | 4,379,464 |  
|NET ASSET VALUE PER SHARE                                  | $                                      | 0.65      |                                   | $ | 0.81      |  
|NET UNREALIZED APPRECIATION/(DEPRECIATION) 
ON INVESTMENTS | $                                      | (539,073  | )                                 | $ | (58,953   | )



The changes in total assets, net assets and net asset value per share for the six months ended October 31, 2007 were primarily attributable to:

·

SIVOO Holdings, Inc. (SIVOO) average valuation on restricted and unrestricted shares decreased from $0.79 per share to $0.52 per share during the six months ended October 31, 2007. The Company sold 200,000 shares of SIVOO for a sales price of $58,000 with a cost of $50,000 for a realized gain of $8,000. The Companys investment in SIVOO common stock had a net unrealized appreciation of $134,041 for the six months ended October 31, 2007. The Companys investment in SIVOO warrants were valued at $253,000 at October 31, 2007 compared to $308,000 at April 30, 2007 for a net unrealized depreciation of $55,000 for the six months ended October 31, 2007.

·

Theater Xtreme Entertainment Group, Inc. (TXEG) average valuation on restricted and unrestricted shares decreased from $0.61 per share to $0.14 per share during the six months ended October 31, 2007. During the six months ended October 31, 2007, the Company sold 500,000 shares a sales price of $324,000 with a cost of $344,290 resulting in a realized loss of $20,290. A warrant was received in July 2007 and had a value of $83,000 at October 31, 2007. During July 2007, 650,000 shares of common stock were acquired for a services valued at $396,500. The Companys investment in TXEG common stock had a net unrealized depreciation of $344,136 for the six months ended October 31, 2007.

·

Third-Order Nanotechnologies, Inc. (TDON) average valuation on restricted and unrestricted shares increased from $0.68 per share to $0.71 per share during the six months ended October 31, 2007. During the six months ended October 31, 2007, The Company sold 83,037 shares for a sales price of $64,119 with a cost of $242,468 for a realized loss of $178,349. The Companys investment in TDON common stock had a net unrealized depreciation of $142,113 for the six months ended October 31, 2007. The Companys investment in TDON warrants were valued at $377,000 at October 31, 2007 compared to $415,000 at April 30, 2007, for a net unrealized depreciation of $38,000 for the six months ended October 31, 2007.

·

The decrease in cash of $108,313.

·

The increase in accounts payable and accrued expenses of $180,039.

·

The decrease in deferred taxes of $50,000.

·

The advances from shareholder of $140,000.

·

The decrease in deferred revenue of approximately ($222,921), which is due mainly to a decrease in deferred revenue of approximately $618,921 ($131,667 for Theater Xtreme Entertainment Group, Inc., $197,254 for Extreme Visual Technologies, Inc. and $290,000 for Third-Order Nanotechnologies, Inc.) which was earned, offset by an increase of deferred revenue for Theater Xtreme Entertainment Group, Inc. of $396,000 which the Company is to earn over a twelve month period beginning July 1, 2007.

·

The decrease in current income taxes payable of approximately $99,000.

·

The addition to Net Capital of $4,668 which consists solely of share-based compensation expense.



15



---

Table of Contents



The Companys unrealized appreciation (depreciation) varies significantly from period to period as a result of the wide fluctuation in the value of the Companys portfolio securities, as well as the acquisition and sale of shares during the period. For example, the Company suffered an unrealized loss of ($481,320) on its common stock holdings of SIVOO Holdings, Inc. for the six months ended October 31, 2007 as a result of a decline in the value of the portfolio shares from $0.79 to $0.52 per share during such time period and the sale of 200,000 shares of common stock.  By contrast the Company enjoyed an unrealized gain of $557,861 on its holdings of SIVOO Holdings, Inc. for the year ended April 30, 2007 due to an increase in the value of the portfolio shares from $0.51 to $0.79 per share during such time period.

The Company had unrealized appreciation (depreciation) of ($539,073) at October 31, 2007 compared to unrealized appreciation (depreciation) of $395,844 at October 31, 2006 and unrealized appreciation (depreciation) of ($58,953) at April 30, 2007.



The Companys financial condition is dependent on a number of factors including the ability of each portfolio company to effectuate its respective strategies with the Companys help. The Company has invested a substantial portion of its assets in development stage or start-up companies. These businesses are frequently thinly capitalized, unproven, small companies that may lack management depth, and may be dependent on new or commercially unproven technologies, and may have no operating history.

At October 31, 2007, $5,232,551 or 91% of the Company's assets consisted of investments, of which net unrealized losses before the income tax effect were ($539,073). A deferred tax asset on account of unrealized gains has been estimated at approximately $77,000. At October 31, 2007, the Companys holdings of Extreme Visual Technologies, Inc., Creative Energy Solutions, Inc., and Third-Order Nanotechnologies, Inc. were valued at $2,000,000, $1,000,000 and $1,156,419 respectively, which represented in the aggregate approximately 79% of the total Company portfolio at that date.



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

Results of Operations

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

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

Three months ended October 31, 2007 compared to the three months ended October 31, 2006

For the three months ended October 31, 2007 the Company had revenue for services in the amount of $244,125 compared to $889,055 for the three months ended October 31, 2006. During the three months ended October 31, 2007 94.5% of the Companys revenue for services was received in the form of equity securities compared to 96.8% for the three months ended October 31, 2006.

Total operating expenses for the three months ended October 31, 2007 were $331,312, the principal components of which were professional fees of $166,226, consisting primarily of $73,650 investor relations expense, approximately $51,800 legal expense and approximately $27,000 audit fees, payroll of $116,249 (which includes $2,334 of share based compensation expense), $17,120 of insurance expense and $9,525 of interest expense. By comparison, total operating expenses for the three months ended October 31, 2006 were $391,968, the principal components of which were payroll of $148,750, professional fees of $187,075, insurance of $18,313 and travel and entertainment of $7,963.



16



---

Table of Contents



The Company realized a loss from operations of ($73,092) for the three months ended October 31, 2007 compared to a gain from operations of $526,901 for the three months ended October 31, 2006.

Six months ended October 31, 2007 compared to the six months ended October 31, 2006

For the six months ended October 31, 2007 the Company had revenue for services in the amount of $619,421 compared to $1,462,955 for the six months ended October 31, 2006. During the six months ended October 31, 2007 94.3% of the Companys revenue for services was received in the form of equity securities compared to 96.8% for the six months ended October 31, 2006.

Total operating expenses for the six months ended October 31, 2007 were $901,343, the principal components of which were professional fees of $568,494, consisting primarily of $449,686 investor relations expense, approximately $91,988 legal expense and approximately $27,000 audit fees, payroll of $213,508 (which includes $4,668 of share based compensation expense), $40,376 of insurance expense and $20,352 of interest expense. By comparison, total operating expenses for the six months ended October 31, 2006 were $1,278,657, the principal components of which were payroll of $456,720, professional fees of $712,410, insurance of $37,513 and travel and entertainment of $30,053.

The Company realized a loss from operations of ($244,273) for the six months ended October 31, 2007 compared to a gain from operations of $232,633 for the six months ended October 31, 2006.

Liquidity and Capital Resources

From inception, the Company has relied for liquidity on the infusion of capital through capital share transactions. The Company only had about $2,400 of cash at October 31, 2007. Consequently, payment of operating expenses and cash with which to make investments will have to come similarly from equity capital to be raised from investors or from borrowed funds. The Company has borrowed $425,000, on a short term basis, and has received $290,000 in advances from a shareholder. There is no assurance that the 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), the Company may not sell shares of common stock at less than its net asset value except in certain limited circumstances.

On October 31, 2007, we authorized a $487,500 private offering of our common stock. Pursuant to the terms of this private offering, a total of 650,000 shares of common stock are being offered at $0.75 per share.

The 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 the proceeds received from such dispositions.

Critical Accounting Estimates

Valuation

The 1940 Act requires periodic valuation of each investment in the Companys portfolio to determine the 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.

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



17



---

Table of Contents



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

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

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

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Companys quantitative and qualitative disclosures about market risk since the Companys Annual Report on Form 10-K filed for the fiscal year ended April 30, 2007.

ITEM 4

CONTROLS AND PROCEDURES

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

There were no changes that occurred during the fiscal quarter ended October 31, 2007 that materially affected, or are reasonably likely to material affect, the Companys internal control over financial reporting.



18



---

Table of Contents



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.



19



---

Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
|                  |  |                                    |                                        
|                  |  |                                    |                                        
|December 18, 2007 |  | By:                                | /s/ Michael D. Queen                   
|                  |  |                                    | Michael D. Queen                       
|                  |  |                                    | President                              
|                  |  |                                    |                                        
|December 18, 2007 |  | By:                                | /s/ Joseph T. Drennan                  
|                  |  |                                    | Joseph T. Drennan                      
|                  |  |                                    | Treasurer (Principal Financial Officer)





20