UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 814-00710
REGAL ONE CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 95-4158065
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
11300 West Olympic Blvd, Suite 800,
Los Angeles, CA 90064
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (310) 312-6888
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on
Which Registered
Common Stock OTCBB
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [] No [X]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required 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 [X] No []
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. []
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Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of accelerated filer, large accelerated filer and smaller reporting
company in rule 12b-2 of the Exchange Act. (Check one.)
Large accelerated filer [] Accelerated filer []
Non Accelerated filer [X] Smaller Reporting Company []
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of its common stock on the OTCBB on
March 19, 2009) was approximately $439,600.
As of March 19, 2009, there were: 3,633,067 shares of common stock, $.001 par
value, issued and outstanding; and 100,000 shares of Series B convertible
preferred stock outstanding. The outstanding Series B convertible preferred
stock is convertible into an aggregate of 10,000,000 shares of common stock.
Subsequent Event
Disclosure with regard to election of new Directors or certain officers
On February 20, 2009, the Registrant filed form Schedule 14C to provide an
information statement about the election of two new Directors and Management's
Discussion and Analysis of Financial Condition and Results of Operations for
the Fiscal Year ended December 31, 2007 that was mailed to security holders on
record as of February 18, 2008.
Disclosure with regard to the resignation of Directors
Two persons who were Directors in 2008 elected not to be reappointed to the
Board. One new board member elected on February 16, 2009 has subsequently
resigned effective as of March 31, 2009 as reported on Form 8-K filed on April
1, 2009. Currently Regal has three directors.
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TABLE OF CONTENTS
Page
PART I
ITEM 1. Business 4
Item 1A. Risk Factors 9
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 17
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 21
Item 7A. Quantitative an Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 24
Item 9A. Controls and Procedures 24
Item 9B. Other Information 25
PART III
Item 10. Directors, Executive Officers and Corporate Governance 26
Item 11. Executive and Director Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 30
Item 13. Certain Relationships and Related Transactions, and Director
Independence 31
Item 14. Principal Accountant Fees and Services 32
PART IV
Item 15. Exhibits and Financial Statement Schedules 33
Signatures 34
PART I
FORWARD LOOKING STATEMENTS
This annual report contains statements, referred to as "forward-looking
statements", "within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to use and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe are appropriate in the circumstances.
You can generally identify forward looking statements through words and phrases
such as "believe", "expect", "seek", "estimate", "anticipate", "intend",
"plan", "budget", "project", "may likely result", "may be", "may continue" and
other similar expressions. When reading any forward-looking statement you
should remain mindful that actual results or developments may vary
substantially from those expected as expressed in or implied by that statement
for a number of reasons or factors, including but not limited to:
The type and character of our future investments
Future sources of revenue and/or income
Increases in operating expenses
Future trends with regard to net investment losses
How long cash on hand can sustain our operations as well as other
statements regarding our future operations, financial condition and prospects
and business strategies.
These forward-looking statements are subject to certain risks and uncertainties
that could cause our actual results to differ materially from those reflected
in the forward-looking statements. We undertake no obligation to revise or
publicly release the results of any revision to these forward-looking
statements. Given these risks and uncertainties, investors, prospective
investors, and readers are cautioned not to place undue reliance on such
forward-looking statements. See Item 1A - Risk Factors.
DESCRIPTION OF BUSINESS
Overview
Regal One Corporation is a financial services company which coaches and assists
biomedical companies, through our network of professionals, in listing their
securities on the over-the-counter bulletin board (OTCBB) market.
We were initially incorporated in 1959 as Electro-Mechanical Services Inc., in
the state of Florida. Since inception we have been involved in a number of
industries. In 1998 we changed our name to Regal One Corporation. On March 7,
2005, our Board of Directors determined that it was in our shareholders best
interest to change the focus of the company's operation to providing financial
services through our network of advisors and professionals.
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Typically these services are provided to early stage biomedical companies who
can benefit from our managerial skills, network of professional consultants and
other partners.
During our clients' early stage of development, they typically have limited
resources and compensate us for our services in capital stock. Accordingly,
although our primary business is to provide consulting services and not to be
engaged, directly or through wholly-owned subsidiaries, in the business of
investing, reinvesting, owning, holding or trading in securities, we may
nonetheless be considered an investment company as that term is defined in the
Investment Company Act of 1940 (1940 Act). In order to lessen the regulatory
restrictions associated with the requirements of the 1940 Act, on June 16, 2005
we elected to be treated as a Business Development Company (BDC) in accordance
with sections 55 through 65 of the 1940 Act.
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Board of Directors is responsible for determining in good faith the fair
value of the securities and assets held by the Company. The Investment
Committee of the Board of Directors bases its determination 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 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 stock market. 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 should
there be a ready market for such equity securities currently in existence.
Where the stock market has established a trading history and sufficient volume
to provide a fair market value price for the securities held by our Company as
saleable current assets, we will value those securities at the closing price
per share as of the last day of the fiscal period being reported.
Strategy
We intend to focus our efforts on assisting private biomedical companies with
distinctive IP and well-defined, near-term applications that address
significant and quantifiable markets and that can benefit from our network of
business professionals. Our Investment Committee has adopted a charter wherein
these criteria will be weighed against other criteria including:
Strategic fit,
Management ability, and
Incremental value that we can bring to the potential client
The potential client must also be willing to comply with the Company's
requirement as a BDC to offer significant managerial oversight and guidance,
including the right of the Company to a seat on the client's board of
directors.
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To date we have secured our clients through word of mouth or industry referrals
from lawyers, accountants and other professionals. In looking at prospective
clients, we do not focus on any particular geographic region and would consider
clients globally.
Portfolio Investments
During the twelve months ended December 31, 2008, we did not add any companies
to our portfolio. Our investment in American Stem Cell (ASC) was removed from
our books as management decided it has no current market value. Our portfolio
is as follows:
Name of Company Investment Value of Investment as of
Dec. 31, 2008
Neuralstem, Inc. (OTCBB: CUR) Common Stock $ 967,613
Neuralstem, Inc. Warrant 50,000
LMP Money Market Trust Money Market Fund 15
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Total $1,017,628
Neuralstem, Inc.
On June 16, 2005, we entered into an agreement whereby we provided services to
Neuralstem, Inc. In consideration for such services, we were granted
approximately 1,800,000 shares of Neuralstem's common stock and a warrant to
purchase an additional 1,000,000 common shares at $5.00. The warrant contains
certain anti-dilution provisions. Of the approximately 1,800,000 shares granted
to us, we distributed approximately 500,000 shares to our stockholders on
February 5, 2007.
Neuralstem is a life sciences company focused on the development and
commercialization of treatments based on transplanting human neural stem cells.
At present Neuralstem is pre-revenue and has not yet undertaken any clinical
trials with regard to their technology.
Neuralstem has developed and maintains a portfolio of patents and patent
applications that form the proprietary base for their research and development
efforts in the area of neural stem cell research. Neuralstem, Inc. has
ownership or exclusive licensing of four issued patents and 12 patent pending
applications in the field of regenerative medicine and related technologies.
The field in which Neuralstem focuses is young and emerging. There can be no
assurances that their intellectual property portfolio will ultimately produce
viable commercialized products and processes. Even if they are able to produce
a commercially viable product, there are strong competitors in this field and
their product may not be able to successfully compete against them.
As of December 31, 2008, we hold 587,500 shares of Neuralstem, Inc. common
stock and warrants to purchase an additional 1,000,000 shares of common stock
at a price of $5.00 per share.
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American Stem Cell
On June 30, 2005, we entered into an agreement with American Stem Cell ("ASC")
whereby we were to provide consulting services. In consideration for such
services we were granted 3,000,000 common shares of ASC.
ASC is a private development stage company with plans to acquire stem cell
companies and technologies. In January of 2006, we were notified that ASC's
expected acquisition of its initial stem cell company had failed. We understand
ASC is still searching for a business to acquire, but has limited resources and
no firm plans.
In October of 2007, ASC offered to repurchase 2,000,000 of its common shares
that we held in exchange for $25,000 and a general mutual release of our
obligations to file a registration statement on behalf of ASC. On November 20,
2007, our board of directors approved the transaction which was completed on
December 7, 2007.
As a result of the above described transaction, we reduced our holdings in ASC
stock by 2,000,000 common shares. As of December 31, 2008, we hold 1,000,000
shares of ASC common stock. At September 30, 2008, our investment committee of
the Board of Directors determined the common stock in ASC had no marketable
value at the present time and approved the write-off of the asset value of
$12,500 for the 1,000,000 shares it owns.
Employees
We have one part-time employee. We expect to use consultants, attorneys, and
accountants as necessary and we do not anticipate a need to engage any
additional full-time employees as long as business needs are being identified
and evaluated. The need for employees and their availability will be addressed
in connection with a decision concerning whether or not to acquire or
participate in a specific business venture.
Compliance with BDC Reporting Requirements
The Board of Directors of the Company, comprising a majority of Independent
Directors, adopted in March 2006 a number of resolutions, codes and charters to
complete compliance with BDC operating requirements prior to reporting as a
BDC. These include establishing Board committees for Audit, Nominating,
Compensation, Investment, and Corporate Governance, and adopting a Code of
Ethics, an Audit Committee Charter and an Investment Committee Charter.
Code of Ethics:
The Code of Ethics in general prohibits any officer, director or advisory
person (collectively, "Access Person") of the Company from acquiring any
interest in any security which the Company (i) is considering a purchase or
sale thereof, (ii) is being purchased or sold by the Company, or (iii) is
being sold short by the Company. The Access Person is required to advise the
Company in writing of his or her acquisition or sale of any such security. The
Company's Code of Ethics is posted on our website at http://www.regal1.com/.
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Audit Committee:
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Company's Board of Directors and
report the result of its activities to the Board. Such responsibilities shall
include but not be limited to the selection, and if necessary, the replacement
of the Company's independent auditors; the review and discussion with such
independent auditors and the Company's internal audit department of (i) the
overall scope and plans for the audit, (ii) the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risks, and legal and ethical programs, and (iii)
the results of the annual audit, including the financial statements to be
included in the Company's annual report on Form 10-K.
The Company's Audit Committee and Compensation Committee is comprised of one
director. We anticipate that additional board members will be admitted and will
augment the current audit committee. In January 2009, Mr. Bernard L. Brodkorb
was accepted as a Regal Board Member and Director. Mr. Brodkorb is a licensed
certified public accountant (CPA) who is a qualified financial expert and will
be actively participating on the Audit Committee.
Investment Committee: The Investment Committee shall have oversight
responsibility with respect to reviewing and overseeing the Company's
contemplated investments and portfolio companies on behalf of the Board and
shall report the results of their activities to the Board. Such Investment
Committee shall (i) have the ultimate authority for and responsibility to
evaluate and recommend investments, and (ii) review and discuss with management
(a) the performance of portfolio companies, (b) the diversity and risk of the
Company's investment portfolio, and, where appropriate, make recommendations
respecting the role, divestiture or addition of portfolio investments and (c)
all solicited and unsolicited offers to purchase portfolio company positions.
The Company's Investment Committee Charter is filed as an exhibit to this Form
10-K.
Compliance with the Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide variety of
new regulatory requirements on publicly held companies and their insiders.
Many of these requirements will affect us. For example: Our chief executive
officer and chief financial officer must now certify the accuracy of the
financial statements contained in our periodic reports;
Our periodic reports must disclose our conclusions about the effectiveness of
our controls and procedures;
Our periodic reports must disclose whether there were significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses; and
We may not make any loan to any director or executive officer and we may not
materially modify any existing loans.
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The Sarbanes-Oxley Act has required us to review our current policies and
procedures to determine whether we comply with the Sarbanes-Oxley Act and the
new regulations promulgated within the regulations stated in the SOX act of
2002. We will continue to monitor our compliance with all future regulations
that are adopted or required under the Sarbanes-Oxley Act and will take actions
necessary to ensure we are in compliance therewith.
Item 1A. RISK FACTORS
The purchase of shares of capital stock of the Company involves many risks. A
prospective investor should carefully consider the following factors before
making a decision to purchase any such shares:
We Have Historically Lost Money and Losses May Continue in the Future:
We have historically lost money. Our net operating loss for the 2008 fiscal
year was $314,152 and future losses are likely to occur. This is an improvement
over our operating loss for fiscal 2007 in the amount of $445,596. Accordingly,
we may experience significant liquidity and cash flow problems if we are not
able to raise additional capital as needed and on acceptable terms. No
assurances can be given we will be successful in reaching or maintaining
profitable operations.
We recently undertook our current business model and as a result, historical
results may not be relied upon with regard to our operating history:
In March 2005, we formally began implementing our current business model of
providing services to biotech companies. As a result of how we receive payment
for these services, we are technically considered an investment company under
the 1940 Investment Company Act. As such, we have presented our financial
results and accompanying notes in such fashion. Conversely, until 2005, our
operating results were presented in the format and style of an industrial
company. As a result, our financial performance and statements may not be
comparable between the years prior and up to 2004 and the results for 2005 and
after.
The Company's cash expenses are very large relative to its cash flow which
requires the Company continually to sell shares from its investments. This
could result in substantial dilution to our shareholders equity or our ability
to continue in operations should additional capital not be raised:
For year ended December 31, 2008, the Company had no operating revenues and had
operating expenses of $314,152. Consequently, the Company was required to sell
shares of the Company's inventory of investment common stock or issue
promissory notes to raise the cash necessary to pay ongoing expenses. Gross
proceeds from the sale of securities in 2008 in the amount of $1,513,856 were
realized. This practice is likely to continue for the foreseeable future and
could lead to continuing dilution in net asset value for the Company's
stockholders. Moreover, there is no assurance the Company will be able to find
investors willing to purchase Company shares at a price and on terms acceptable
to the Company, in which case, the Company could further deplete its cash
resources.
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Regulations governing operations of a business development company will affect
the Company's ability to raise, and the way in which the Company raises
additional capital. This could result in the Company not being able to raise
additional capital and accordingly cease operations:
Under the provisions of the 1940 Act, the Company is permitted, as a business
development company, to issue senior securities only in amounts such that asset
coverage, as defined in the 1940 Act, equals at least 200% after each issuance
of senior securities. If the value of portfolio assets declines, the Company
may be unable to satisfy this test. If that happens, the Company may be
required to sell a portion of its investments and, depending on the nature of
the Company's leverage, repay a portion of its indebtedness at a time when such
sales may be disadvantageous and result in unfavorable prices. Applicable law
requires that business development companies may invest 70% of its assets only
in privately held U.S. companies, small, publicly traded U.S. companies,
certain high-quality debt, and cash. The Company is not generally able to issue
and sell common stock at a price below net asset value per share. The Company
may, however, sell common stock, or warrants, options or rights to acquire
common stock, at prices below the current net asset value of the common stock
if the Board of Directors determines that such sale is in the best interests of
the Company and its stockholders approve such sale. In any such case, the price
at which the Company's securities are to be issued and sold may not be less
than a price which, in the determination of the Board of Directors, closely
approximates the market value of such securities (less any distributing
commission or discount).
The success of the Company will depend in part on its size, and in part on
management's ability to make successful investments:
If the Company is unable to select profitable investments, the Company will not
achieve its objectives. Moreover, if the size of the Company remains small,
operating expenses will be higher as a percentage of invested capital than
would otherwise be the case, which increases the risk of loss (and reduces the
chance for gain) for investors.
The Company's investment activities are inherently risky:
The Company's investment activities involve a significant degree of risk. The
performance of any investment is subject to numerous factors which are neither
within the control of nor predictable by the Company. Such factors include a
wide range of economic, political, competitive and other conditions which may
affect investments in general or specific industries or companies.
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The Company's equity investments may lose all or part of their value, causing
the Company to lose all or part of its investment in those companies:
The equity interests in which the Company invests may not appreciate in value
and may decline in value. Accordingly, the Company may not be able to realize
gains from its investments and any gains realized on the disposition of any
equity interests may not be sufficient to offset any losses experienced.
Moreover, the Company's primary objective is to invest in early stage
companies, the products or services of which will frequently not have
demonstrated market acceptance. Many portfolio companies lack depth of
management and have limited financial resources. All of these factors make
investments in the Company's portfolio companies particularly risky.
The Company's common stock is trading at a substantial discount to net asset
value:
The following summarizes the Company's approximate net asset value per common
share and corresponding stock price:
As of December 31, 2008 2007 2006 2005
Net Asset Value $0.31 $.67 0.22 (0.07)
Stock Price* 0.11 0.06 0.15 0.30
*Stock Price is the closing price as of the last trading day in December of
each corresponding year.
At present the Company is trading at a discount to Net Asset Value. In 2005,
the Company's common stock traded at a substantial premium to its net asset
value. Moreover, as the Company utilizes and monetizes its assets for its
continuing operating needs the Net Asset Value will decrease, potentially
resulting in further decreases in the price of the Company's common stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may
make it more difficult for investors to resell their shares due to suitability
requirements:
Our common stock is currently traded on the Over the Counter Bulletin Board
(OTCBB) under the symbol (RONE) where we expect it to remain in the foreseeable
future. Broker-dealers often decline to trade in OTCBB stocks given the markets
for such securities are often limited, the stocks are more volatile, and the
risk to investors is greater. These factors may reduce the potential market for
our common stock by reducing the number of potential investors. This may make
it more difficult for investors in our common stock to sell shares to third
parties or to otherwise dispose of their shares. This could cause our stock
price to decline.
We could fail to retain or attract key personnel who are required in order for
us to fully carry out our business plan:
The Company's operations and ability to implement its business plan are
dependent upon the efforts of its key personnel, the loss of the services of
which could have a material adverse effect on the Company. The Company will
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likely be required to hire additional personnel to implement its business plan.
Qualified employees and consultants are in great demand and are likely to
remain a limited resource for the foreseeable future. Competition for skilled,
creative and technical talent is intense. There can be no assurance the Company
will be successful in attracting and retaining such personnel. Any failure by
the Company to retain the services of existing employees and consultants or to
hire new employees when necessary could have a material adverse effect upon the
Company's business, financial condition and results of operations. Our future
success depends in significant part on the continued services of Charles J.
Newman, our Chairman, Chief Executive Officer and CFO. We have no employment
agreement with or company life insurance on Mr. Newman.
The Company operates in a highly competitive market:
The Company faces competition from a number of sources, many of which have
longer operating histories, and significantly greater financial, management,
marketing and other resources than the Company. The Company's ability to
generate new portfolio clients depends to a significant degree on its
reputation among potential clients and partners, and its ability to reach
acceptable investment terms with potential clients relative to competitive
alternatives. In the event that the reputation of the Company is adversely
impacted, or that potential portfolio clients perceive competitive alternatives
to be superior, the business, financial condition and operating results of the
Company could be adversely affected.
Our officers and directors have the ability to exercise significant influence
over matters submitted for stockholder approval and their interests may differ
from other stockholders:
Our executive officers and directors have the ability to appoint a majority to
the Board of Directors. Accordingly, our directors and executive officers,
whether acting alone or together, may have significant influence in determining
the outcome of any corporate transaction or other matter submitted to our Board
for approval, including issuing common and preferred stock, appointing
officers, which could have a material impact on mergers, acquisitions,
consolidations and the sale of all or substantially all of our assets, and the
power to prevent or cause a change in control. The interests of these board
members may differ from the interests of the other stockholders.
Our share ownership is concentrated:
The Company's officers, directors and principal stockholders, together with
their affiliates, beneficially own approximately 70% of the Company's voting
shares. As a result, these stockholders, if they act together, will exert
significant influence over all matters requiring stockholder approval,
including the election and removal of directors, any merger, consolidation or
sale of all or substantially all of the assets, as well as any charter
amendment and other matters requiring stockholder approval. In addition, these
stockholders may dictate the day to day management of the business. This
concentration of ownership may delay or prevent a change in control and may
have a negative impact on the market price of the Company's common stock by
discouraging third party investors. In addition, the interests of these
stockholders may not always coincide with the interests of the Company's other
stockholders.
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We may change our investment policies without further shareholder approval:
Although we are limited by the Investment Company Act of 1940 with respect to
the percentage of our assets that must be invested in qualified investment
companies, we are not limited with respect to the minimum standard that any
investment company must meet, neither are we limited to the industries in which
those investment companies must operate. We may make investments without
shareholder approval and such investments may deviate significantly from our
historic operations. Any change in our investment policy or selection of
investments could adversely affect our stock price, liquidity, and the ability
of our shareholders to sell their stock.
The Company's common stock may be subject to the penny stock rules which might
make it harder for stockholders to sell:
As a result of our stock price, our shares are subject to the penny stock
rules. Because a "penny stock" is, generally speaking, one selling for less
than $5.00 per share, the Company's common stock may be subject to the
foregoing rules. The application of the penny stock rules may affect
stockholders' ability to sell their shares because some broker-dealers may not
be willing to make a market in the Company's common stock because of the
burdens imposed upon them by the penny stock rules which include but are not
limited to:
Section 15(g) of the Securities Exchange Act of 1934 and SEC Rules 15g-1
through 15g-6, which impose additional sales practice requirements on broker-
dealers who sell Company securities to persons other than established customers
and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in penny
stocks unless the broker-dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a
penny stock transaction unless the broker-dealer first discloses and
subsequently confirms to the customer the current quotation prices or similar
market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock
transactions for a customer unless the broker-dealer first discloses to the
customer the amount of compensation or other remuneration received as a result
of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock
transaction, other than one exempt under Rule 15g-1, disclose to its customer,
at the time of or prior to the transaction, information about the sales persons
compensation.
Potential shareholders of the Company should also be aware that, according to
SEC Release No. 34-29093, the market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include (i) control of
the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons;
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(iv) excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and (v) the wholesale dumping of the same securities by
promoters and broker dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses.
Limited regulatory oversight may require potential investors to fend for
themselves:
The Company has elected to be treated as a business development company under
the 1940 Act which makes the Company exempt from some provisions of that
statute. The Company is not registered as a broker-dealer or investment advisor
because the nature of its proposed activities does not require it to do so;
moreover it is not registered as a commodity pool operator under the Commodity
Exchange Act, based on its intention not to trade commodities or financial
futures. However, the Company is a reporting company under the Securities
Exchange Act of 1934. As a result of this limited regulatory oversight, the
Company is not subject to certain operating limitations, capital requirements,
or reporting obligations that might otherwise apply and investors may be left
to fend for themselves.
The Company's concentration of portfolio company securities:
The Company will attempt to hold the securities of several different portfolio
companies. However, a significant amount of the Company's holdings could be
concentrated in the securities of only a few companies. This risk is
particularly acute during this time period of early Company's operations, which
could result in significant concentration with respect to a particular issuer
or industry. The concentration of the Company's portfolio in any one issuer or
industry would subject the Company to a greater degree of risk with respect to
the failure of one or a few issuers or with respect to economic downturns in
such industry than would be the case with a more diversified portfolio. At
December 31, 2008, 82% of the Company's asset value resulted from a single
portfolio holding.
The unlikelihood of cash distributions:
Although the Company has the corporate power to make cash distributions, such
distributions are not among the Company's objectives. Consequently, management
does not expect to make any cash distributions in the immediate future.
Moreover, even if cash distributions were made, they would depend on the size
of the Company, its performance, and the expenses incurred by the Company.
Because many of the Company's portfolio securities will be recorded at values
as determined in good faith by the Board of Directors, the prices at which the
Company is able to dispose of these holdings may differ from their respective
recorded values:
The Company values its portfolio securities at fair value as determined in good
faith by the Board of Directors. However, the Company may be required on a more
frequent basis to value the securities at fair value as determined in good
faith by the Board of Directors to the extent necessary to reflect significant
events affecting the value of such securities. For privately held
<page>
securities, and to a lesser extent, for publicly-traded securities, this
valuation is an art and not a science. The Board of Directors may retain an
independent valuation firm to aid it on a selective basis in making fair value
determinations. The types of factors that may be considered in fair value
pricing of an investment include the markets in which the portfolio company
does business, comparison of the portfolio company to (other) publicly traded
companies, discounted cash flow of the portfolio company, and other relevant
factors. Because such valuations are inherently uncertain, may fluctuate during
short periods of time, and may be based on estimates, determinations of fair
value may differ materially from the values that would have been used if a
ready market for these securities existed. As a result, the Company may not be
able to dispose of its holdings at a price equal to or greater than the
determined fair value. Net asset value could be adversely affected if the
determination regarding the fair value of Company investments is materially
higher than the values ultimately realized upon the disposal of such
securities.
The lack of liquidity in the Company's portfolio securities would probably
prevent the Company from disposing of them at opportune times and prices, which
may cause a loss and/or reduce again:
The Company will frequently hold securities in privately held companies. Some
of these securities will be subject to legal and other restrictions on resale
or will otherwise be less liquid than publicly traded securities. The
illiquidity of such investments may make it difficult to sell such investments
at advantageous times and prices or in a timely manner. In addition, if the
Company is required to liquidate all or a portion of its portfolio quickly, it
may realize significantly less than the values recorded for such investments.
The Company may also face other restrictions on its ability to liquidate an
investment in a portfolio company to the extent that the Company has material
non-public information regarding such portfolio company. If the Company is
unable to sell its assets at opportune times, it might suffer a loss and/or
reduce a gain. Restrictions on resale and limited liquidity are both factors
the Board will consider in determining fair value of portfolio securities.
Moreover, even holdings in publicly-traded securities are likely to be
relatively illiquid because the market for companies of the type in which the
Company invests tend to be thin and usually cannot accommodate large volume
trades.
Holding securities of privately held companies may be riskier than holding
securities of publicly traded companies due to the lack of available public
information:
The Company will frequently hold securities in privately-held companies which
may be subject to higher risk than holdings in publicly traded companies.
Generally, little public information exists about privately held companies, and
the Company will be required to rely on the ability of management to obtain
adequate information to evaluate the potential risks and returns involved in
investing in these companies. If the Company is unable to uncover all material
information about these companies, it may not make a fully informed investment
decision, and it may lose some or all of the money it invests in these
companies. These factors could subject the Company to greater risk than holding
securities in publicly traded companies and negatively affect investment
returns.
<page>
The market values of publicly traded portfolio companies are likely to be
extremely volatile:
Our clients tend to be early stage biotech companies. As a result, their
operations and futures are highly dependent on their ability to develop a
product and on public perception. Unlike more seasoned companies with
historical financial projections that can be used to evaluate performance, our
clients typically do not possess such historical figures. Accordingly, shares
of our portfolio companies that are quoted for public trading will generally be
thinly traded and subject to wide and sometimes precipitous swings in value.
Item 2. PROPERTIES
The Company does not own any real estate or other physical properties
materially important to our operation. Our offices are located at 11300 West
Olympic Blvd., Suite 800, Los Angeles, California 90064. The primary purpose of
our office is to have a physical location at which to receive mail. Our part-
time employees and consultants work from virtual offices. We believe the use of
virtual offices will be adequate for our present business needs.
Item 3. LEGAL PROCEEDINGS
As of the date of this annual report, there are no material pending legal or
governmental proceedings relating to our company or properties to which we are
a party, and to our knowledge there are no material proceedings to which any of
our directors, executive officers or affiliates are a party adverse to us or
which have a material interest adverse to us.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 2008, there were no submissions of
any matters to a vote of the Company's security holders.
See Note 11 - SUBSEQUENT EVENTS. On February 4, 2009 there was a shareholder
meeting to vote on Directors and nominees for Director for Regal One
Corporation. Schedule Form 14-C was filed with the commission on February 20,
2009 to report the consent to action reported in this information statement.
Mr. Charles J. Newman was confirmed as Chairman of the Board, CEO, CFO, and
Director. Two new Directors were confirmed and added to the Board.
<page>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Market Information
The Company's Common Stock is traded on a limited and sporadic basis on the
OTCBB (Over-The-Counter Bulletin Board) under the symbol (RONE). The following
table sets forth the trading history of the closing price of the Common Stock
on the Bulletin Board for last two years as reported by the WWW.OTCBB.COM web
site. The quotations reflect inter-dealer prices without retail mark-up,
markdown or commission and may not represent actual transactions.
Quarter Ending Quarterly High Quarterly Low
Dec. 31, 2008 $ 0.11 $0.06
Sep. 30, 2008 $ 0.10 $0.06
Jun. 30, 2008 $ 0.14 $0.06
Mar. 31, 2008 $ 0.19 $0.08
Dec. 31, 2007 $ 0.16 $0.05
Sep. 30, 2007 $ 0.30 $0.05
Jun. 30, 2007 $ 0.14 $0.05
Mar. 31, 2007 $ 0.34 $0.07
Notwithstanding the forgoing, our common stock is sporadically and thinly
trading. Accordingly, although there appears to be quotation information, the
Company does not believe that there exists an established public market for our
securities. Further, there can be no assurance the current market for the
Company's common stock will be sustained or grow in the future.
Holders of record
As of March 12, 2009, there were approximately:
621 shareholders of our common stock; and
10 shareholders of our preferred stock.
Notwithstanding, we feel the actual number of common stock holders may be
significantly higher as 2,304,263 common shares are held in street name.
Dividends/Distributions
On January 23, 2006, we declared a distribution of approximately 500,000
Neuralstem, Inc. common shares we acquired as a result of services provided. On
February 5, 2007, we completed the distribution. As a result of rounding for
partial shares we distributed a total of 500,473 Neuralstem, Inc. common
shares. We do not currently contemplate making any additional distributions in
the future.
Recent Sales of Unregistered Securities
Except as otherwise noted, the securities described were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. Each such issuance was made pursuant to individual contracts, which are
discrete from one another and are made only with persons who were
<page>
sophisticated in such transactions and who had knowledge of and access to
sufficient information about the Company to make an informed investment
decision. No commissions were paid in connection with the transactions
described below unless specifically noted. The information relates as to all
securities of the Company sold by the Company within the past three years which
were not registered under the Securities Act. Including sales of reacquired
securities, as well as new issues, securities issued in exchange for property,
services, or other securities, and new securities resulting from the
modification of outstanding securities:
On June 14, 2005, we issued to Mr. W.J. Reininger, in connection with his
consulting employment, 30,000 common shares. We valued the shares granted at
$1.00 per share or an aggregate of $30,000.
On June 14, 2005, we issued to The Rose Group, in lieu of fees due for
public relations services, 10,000 common shares. We valued the shares at $1.00
each.
On June 14, 2005, we issued to Mr. Richard A. Hull, as payment for prior
consulting services provided, 10,000 common shares. We valued the shares at
$1.00 each.
On June 14, 2005, we issued to Mr. Charles Stevens, as payment for prior
consulting services, 10,000 common shares. We valued the shares at $1.00 each.
On July 12, 2005, we issued to Mr. Christopher Dietrich, for current and
prior legal services, 300,000 common shares. Of the shares issued: 193,736
common shares were issued in exchange for current legal services, and 106,264
common shares were issued as payment in full for indebtedness for prior legal
services We valued the shares at an average price of $0.4167 each.
On August 23, 2005, we entered into a financial public relations
consulting agreement with Equity Communications, LLC. As part of the agreement,
we agreed to issue Equity Communications an option to purchase 160,000 shares
of our common stock at $0.50 per share with piggy-back registration rights. The
options began vesting on November 1, 2005 as follows; 60,000 shares vested
immediately and 100,000 shares vested on August 1, 2006. The term of the option
is for a five year period commencing on November 1, 2005 and terminating on
November 1, 2010. We valued the grant at $27,236 for pro-forma financial
statement purposes using the Black-Scholes option-pricing model.
On January 18, 2006, we issued to Mr. W.J. Reininger, in connection with
his consulting employment, a stock option to purchase 50,000 common shares at
$0.50 per share, vesting immediately, with piggy-back registration rights, and
exercisable for a period of three (3) years. We valued the grant at $10,529 for
pro-forma financial statement purposes using the Black-Scholes option-pricing
model.
On February 7, 2006, we issued to Mr. Richard Abruscato, in connection
with his consulting employment, a stock option to purchase 175,000 common
shares at $0.50 per share during the period ending on February 7, 2013, with
piggy-back registration rights. The option vested as follows: 125,000 shares
were vested on the effective date of the grant and the balance of 50,000
<page>
shares vested on December 31, 2006. We valued the grant at $43,886 for pro-
forma financial statement purposes using the Black-Scholes option-pricing
model.
On March 7, 2006, we issued to Mr. Richard Hull, in connection with his
employment as our President and Chief Operating Officer, a non-qualified stock
option to purchase 500,000 common shares at $0.50 per share. The option vests
as follows: (i) 200,000 vested immediately; (ii) 50,000 shares upon Regal
raising over $500,000 in new capital; (iii) 50,000 shares upon successful
completion of the Neuralstem SB-2 registration; (v) 50,000 shares upon
successful completion of the SB-2 registration of the third Regal client; (vi)
50,000 shares shall vest on March 7, 2007 provided Mr. Hull is still employed
by Regal; and (vii) 50,000 shares shall vest on March 7, 2008 provided he is
still employed by Regal. The option has a term of ten years and expires on
March 10, 2016, and has piggy-back registration rights. We valued the grant at
$168,608 for pro-forma financial statement purposes using the Black-Scholes
option-pricing model.
On March 31, 2006, we completed a private placement of 362,500 of our
common shares to four accredited investors. The common shares were priced at
$0.40 per share and resulted in gross proceeds to the Company of $145,000. As
part of the offering we granted the investors piggy-back registration rights as
well as certain rights providing for the issuance of additional shares in the
event the Company's next round of financing is completed at a price of less
than $0.60 per share before March 31, 2007. The Company intends to use the
proceeds for general working capital.
On August 8, 2006, we issued a secured private debt instrument in the face
amount of $100,000 along with warrants to purchase 75,000 of our common shares
at a price of $0.60. The private debt instrument had a term of 12 months and
bears interest at a rate of 10% per year. As a condition to the loan, we
granted the lender a security interest in 100,000 shares of Neuralstem, Inc.,
one of our portfolio companies. We repaid the instrument including accrued
interest on December 11, 2006.
On February 5, 2008, per board resolution we issued 400,000 common shares
to Richard Hull in exchange for a warrant to purchase 500,000 shares of the
Corporation's common stock. On March 5, 2008, Richard Hull voluntarily
surrendered those 400,000 shares to the Corporation and those shares were
cancelled.
<page>
EQUITY COMPENSATION PLAN INFORMATION
1995 Employee & Consultant Incentive Benefit Plan
Our board of directors adopted the 1995 Employee & Consultant Incentive Benefit
Plan ("1995 Stock Plan") on May 3, 1995, and it was subsequently approved by
our stockholders. The 1995 Stock Plan provided for the grant of stock options
or stock to our employees, directors, and consultants. The 1995 Stock Plan
originally provided for the issuance of 3,000,000 shares of which 2,019,014 are
issued and outstanding. As of December 31, 2008, there were no outstanding
options to purchase any additional shares under the plan as the plan has been
cancelled.
Item 6. SELECTED FINANCIAL DATA
Financial Position as of December 31:
<table>
<c> <c> <c> <c> <c> <c>
2008 2007 2006 2005 2004
--------------------------------------------------------
Total assets $1,181,256 3,737,770 2,744,472 238,666 10,868
Total liabilities $60,528 1,312,870 1,740,977 520,363 460,505
Net assets $1,120,728 2,424,900 1,003,495 (281,697) (449,637)
Net asset value per
outstanding share .308 .067 0.22 (0.07) (0.12)
Shares outstanding, 3,633,067 3,633,067 4,633,067 4,270,567 3,658,259
</table>
Operating Data for the last five fiscal years ended December 31:
<table>
<c> <c> <c> <c> <c> <c>
2008 2007 2006 2005 2004
Total investment income $0 0 0 0 0
Total expenses $314,152 445,596 779,206 220,418 1,645,357
Net operating loss (314,152) (445,596) (779,206) (220,418)(1,645,357)
Total tax expense (benefit) $800 800 800 1,642 800
Stock Dividends 0 653,948 0 0 0
</table>
(1) The Company began operating as a Business Development Company on September
13, 2004, all prior period figures are based on prior operations.
<page>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form 10-K.
Overview
We are a financial services company which coaches and assists biomedical
companies through the use of our network of professionals in listing their
securities on over the counter or national exchanges. Typically these services
are provided to early stage biomedical companies who can benefit from our
network of professionals and other partners. As a result of our clients' early
stage of development, they typically have limited resources and compensate us
for our services in capital stock. Accordingly, although our primary business
is to provide consulting services and not to be engaged, directly or through
wholly-owned subsidiaries, in the business of investing, reinvesting, owning,
holding or trading in securities, we may nonetheless be considered an
investment company as that term is defined in the Investment Company Act of
1940 (1940 Act). In order to lessen the regulatory restrictions associated with
the requirements of the 1940 Act, on June 16, 2005 we elected to be treated as
a Business Development Company (BDC) in accordance with sections 55 through 65
of the 1940 Act.
Managerial Assistance
As a business development company we will offer and provide upon request
managerial assistance to certain of our portfolio companies. As defined under
the 1940 Act, managerial assistance means providing "significant guidance and
counsel concerning the management, operations, or business objectives and
policies of a portfolio company."
Financial Condition Overview
The Company's total assets were $1,181,256 and its net assets were $1,120,728
at December 31, 2008, compared to $3,737,770 and $2,424,900, respectively, at
December 31, 2007.
<page>
The changes in total assets during the twelve months ended December 31, 2008
were primarily attributable to a decrease in unrealized gain of our portfolio
investment value of $2,618,779. The Company sold 686,314 shares of portfolio
stock at an investment cost of $29,458. Also the Company wrote off it's
investment in American Stem Cell for a loss of $12,500. The Company's
unrealized appreciation (depreciation) varies significantly from period to
period as a result of the wide fluctuations in value of the Company's portfolio
securities.
The decrease in net assets during the twelve months ended December 31, 2008 was
primarily attributable to the decrease in the value assigned to Neuralstem
stock, and a significant reduction in current liabilities of $1,252,342. The
reduction in current liabilities was primarily due to settlement of loans from
stockholders and an officer/principal shareholder of the Company. Accounts
payable was reduced by $405,584 in 2008. Due to volatile current market
conditions and the thinly traded market for Neuralstem shares, management
believes the current value of these investments is now approximately 38% less
than the fair market value reported as of December 31, 2008.
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. 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.
Result of Operations for the twelve month periods ending December 31, 2008 and
2007
Investment Income
We anticipate generating revenue in the form of capital gains or losses on
equity securities that we acquire in portfolio companies and subsequently sell.
Potentially, we also anticipate receiving dividend income on any common or
preferred stock that we own should a dividend be declared.
Investment Income for the twelve months ended December 31, 2008 and 2007 was $0
and $0, respectively.
Operating Expenses
Our operating expenses consist mostly of fees paid to outside attorneys,
consultants, and accountants in connection with the advisory services we
provide our clients and to a lesser extent for general overhead.
For the twelve months ended December 31, 2008, operating expenses were $314,152
compared to $445,596 for the twelve month period ended December 31, 2007. The
decrease of $131,444 for the twelve month period ended December 31, 2008 as
compared to the comparable period of 2007 is primarily attributable to
decreases in litigation settlement fees and general and administrative
expenses. Operational expenses may increase in the future upon the addition of
more companies to our portfolio.
Net Investment Income/Loss
For the twelve months ending December 31, 2008, total operating expenses before
other income and expenses and taxes amounted to $314,152. This compares to
$445,596 for the year ended December 31, 2007. Gain on settlement of accounts
<page>
payable and accrued expenses was $180,000 for fiscal 2008 compared to $10,000
for fiscal 2007. These factors combined to provide an improvement in net
operating expense before investments of $301,817 for the year. The 2008
expenses consisted primarily of professional services and consulting fees and
general overhead.
We anticipate our net investment loss will increase upon the addition of more
companies to our portfolio, and as we hold the securities of our portfolio
companies for long term capital growth.
Liquidity and Capital Resources
At December 31, 2008, we had approximately $1,131,256 in liquid and semi liquid
assets consisting of: $122,478 in cash; 41,150 in prepaid insurance expense and
$967,628 in saleable marketable securities.
For the twelve month period ended December 31, 2008, we satisfied our working
capital needs from: (i) cash on hand at the beginning of the period; (ii) the
net realized gain from sale of marketable securities in the amount of
$1,482,454 (iii) settlement gains from payables owed to vendors and Directors
of $180,373. As of December 31, 2008, the Company's net asset value (Equity)
was $1,120,728.
As of December 31, 2008, the aggregate outstanding balance due under the
officer loan was paid in full along with accrued interest.
From inception, the Company has relied on the infusion of capital through
capital share transactions and loans. The Company plans to either: (i) dispose
of its current portfolio securities to meet operational needs; or (ii) borrow
against such securities via a traditional margin account or other such credit
facility. Any such dispositions may have to be made at inopportune times and
there is no assurance that, in light of the lack of liquidity in such shares,
they could be sold at all, or if sold, could bring values approximating the
estimates of fair value set forth in the Company financial statements.
Additionally, in the event the Company enters into a margin agreement with
regard to any portfolio securities, a decrease in their market value may result
in a liquidation of such securities which could greatly depress the value of
such securities in the market. Because our revenues, if generated, tend to be
in the form of portfolio securities, such revenues are not of a type capable of
being used to satisfy the Company's ongoing monthly expenses. Consequently, for
us to be able to avoid having to defer expenses or sell portfolio companies'
securities to raise cash to pay operating expenses, we are constantly seeking
to secure adequate funding under acceptable terms. There is no assurance that
the Company will be able to do so. Further, if the Company is unable to secure
adequate funding under acceptable terms, there is substantial doubt that the
Company can continue as a going concern.
Contractual Obligations
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Insurance financing $35,230 35,230 0 0 0
Long Term Debt Obligations $ 0 0 0 0 0
Total $35,230 35,230 0 0 0
<page>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business activities contain high elements of risk. The Company considers a
principal type of market risk to be a valuation risk. All assets are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors (which is based, in part, on quoted market prices of similar
investments).
Market prices of common equity securities in general, are subject to
fluctuations which could cause the amount to be realized upon sale to differ
significantly from the current reported value. The fluctuations may result
from perceived changes in the underlying economic characteristics of the
Company's portfolio companies, the relative prices of alternative investments,
general market conditions and supply and demand imbalances for a particular
security
Neither the Company's investments nor an investment in the Company is intended
to constitute a balanced investment program. The Company will be subject to
exposure in the public-market pricing and the risks inherent therein. For a
further discussion of the risk associated with the Company, please refer to the
section of this annual report entitled "Risk Factors"
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statement schedules annexed in PART IV of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
Item 9A. CONTROLS AND PROCEDURES
Attached as exhibits to this Annual Report on Form 10-K are certifications of
Regal's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), which
are required in accordance with Rule 13a-14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). This section includes information
concerning the controls and controls evaluation referred to in the
certifications.
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to the Company's management to
allow timely decisions regarding required disclosure based closely on the
definition of "disclosure controls and procedures" in Rule 13a-15(e) and 15d-
15(e). In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
<page>
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered in this report. Based on the foregoing, our
principal executive officer and principal financial officer concluded that as
of the period covered by this annual report on Form 10-K, the Company's
disclosure controls and procedures were effective in enabling us to record,
process, summarize and report information required to be included in our
periodic SEC reporting within the required time period.
There has been no change in our internal controls over financial reporting that
occurred during the period covered by this Annual Report on Form 10-K that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting.
The Company's management is responsible for establishing and maintaining
adequate control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the
supervision and with the participation of the Company's management, including
our principal executive and principal financial officers, conducted an
evaluation of the effectiveness of its internal control over financial
reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the "COSO Framework"). Based on this evaluation under the COSO Framework,
management concluded that its internal control over financial reporting was
effective as of December 31, 2008.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting that
occurred during the period covered by this Annual Report on Form 10-K that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
Item 9B. OTHER INFORMATION
Compensatory Arrangements of Certain Officers
No stock options were issued or stock grants granted during fiscal year 2008.
Regal's Chief Executive officer did not receive any salary or other
compensation other than direct expense reimbursements.
Departure of Directors or Certain Officers
Malcolm Currie resigned his positions as Chief Executive Officer and Chairman
of the Board on June 16, 2008. He still serves as a Director.
<page>
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the name, age and position of each of our
directors, executive officers and significant employees as of March 31, 2009.
Except as noted below each director will hold office until the next annual
meeting of our stockholders or until his or her successor has been elected and
qualified. Our executive officers are appointed by, and serve at the discretion
of, the Board of Directors.
Name Age Current Position Position Held Since
Charles J. Newman 63 Chairman of the Board,
CEO, CFO, Secretary,
Treasurer & Director 2008
Dr. Malcolm Currie 81 Director 1995
Bernard L. Brodkorb 67 Director 2009
CHARLES J. NEWMAN was appointed Chairman of the Board, Chief Executive Officer,
Chief Financial Officer, Secretary, and Treasurer on June 16, 2008. Mr. Newman
is a private investor with corporate management experience. From 1982 to the
present, Mr. Newman has been serving as Chief Executive Officer of NCJ
Corporation. From 1985 to the present, Mr. Newman has been serving as the Chief
Executive Officer of Mid America Venture Capital Fund, Inc. From 1988 to the
present, he has been serving as Chief Financial Officer of Lincoln Loan &
Finance Corp., National Acceptance Corporation and Ambassador Finance Co., Inc.
Mr. Newman has also been serving as the Chief Executive Officer for those three
entities since 2005. From 1993 to the present, Mr. Newman has been serving as
President and Director of Mid America Capital Corp. From 2004 to the present,
Mr. Newman has been serving as Chief Financial Officer of Viurx
Pharmaceuticals, Inc. From 2005 to the present, Mr. Newman has been serving as
President and Director of Cardiovas Corporation and, from 1999 to the present,
he has served in those same capacities for Porchester Gardens, LTD. From 2000
to the present, Mr. Newman has served as Vice-President and Director of
Doubletree Capital Partners, LLC, which is a controlling shareholder of ISA
Internationale, Inc., a corporation whose shares are traded on the NASDAQ Over-
the-Counter Bulletin Board under the symbol "ISAT".
DR. MALCOLM CURRIE was appointed as Chairman of the Board of Directors in 1995
and CEO, CFO of the Company in August 2001 and served in those capacities until
June 16, 2008. He remains in his position as Director. From 1969 to 1973, Dr.
Currie was the Undersecretary of Research and Engineering for the Office of
Defense. From 1973 to 1977, Dr. Currie was President of the Missile Systems
Group for Hughes Aircraft Corporation. From 1977 to 1988, Dr. Currie started as
Executive Vice President and eventually became Chief Executive Officer and
Chairman of the Board of Hughes Aircraft Corporation. From 1992 to present, Dr.
Currie has been Chairman Emeritus of Hughes Aircraft Corporation. Dr. Currie is
also on the Board of Directors of LSI Logic, Enova Systems, and Innovative
Micro Technologies. Dr. Currie obtained a graduate MBA from the University of
California, Berkeley, and a PhD in Engineering and Physics at the University of
California, Berkeley.
<page>
BERNARD L. BRODKORB was appointed to the Board of Directors on February 1,
2009. Mr. Brodkorb has served on the Board of Directors of ISA Internationale
Inc., a public company, for over eleven years. He has served as Chairman of the
Board of Directors, President, Chief Executive Officer, and Chief Financial
Officer from February 2001 to present. Mr. Brodkorb is an independent
practicing licensed Certified Public Accountant (CPA) within the State of
Minnesota for many years, and has extensive experience in financial and
accounting matters relating to both private and public companies, including
auditing, financial consulting, and advising on corporate taxation. He is a
member of the Minnesota Society of Certified Public Accountants and the
American Institute of Certified Public Accountants.
BOARD AND COMMITTEE MEETINGS
During the year ended December 31, 2008, the Board of Directors held a total of
two (2) meetings and approved two (2) actions by written consent. During that
time, no incumbent Director attended fewer than 100% of the total number of
meetings of the Board of Directors held during the period for which he has been
a Director.
There were no committees of the Board of Directors in 2008 as the Company did
not have sufficient members on the Board that could be classified as
independent members. New independent Board members added in 2009 will add their
expertise to committees formed to provide oversight of management operations.
Refer to the Schedule 14C filed on February 20, 2009 for additional information
on new board members nominated in 2009.
Item 11. EXECUTIVE AND DIRECTOR COMPENSATION
On June 2, 2008, we paid two independent directors $20,000 each as a negotiated
settlement for services rendered in 2006 and 2007. The Company realized a gain
of $20,000 for the agreements because in 2007 we booked an estimated cost of
Directors fees of $60,000 as an accrued expense. The settlement payments were
disbursed rather than each director receiving 10,000 shares of Neuralstem stock
from our portfolio inventory as originally proposed by our board of directors.
<page>
INDEMNIFICATION
As permitted by the provisions of the General Corporation Law of the State of
Florida, the Company has the power to indemnify any officer or director who was
or is a party to or threatens to become a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, by reason of the fact that the officer or director of the
corporation acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interest of the Company. Any such person may be
indemnified against expenses, including attorneys' fees, judgments, fines and
settlements in defense of any action, suit or proceeding. The Company maintains
directors' and officers' liability insurance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors, and persons who own more than ten percent (10%) of a
registered class of our equity securities to file an initial report of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC"). Such officers, directors and ten percent
(10%) shareholders are also required by the SEC rules to furnish us with copies
of all Section 16(a) forms they file.
In 2008 Charles J. Newman filed periodic Statement of Changes in Beneficial
Ownership on Form 4 and also filed the Annual Statement of Changes in
Beneficial Ownership on Form 5. Based solely on review of copies of such forms
received by the Company, or written representations from certain reporting
persons that no Forms 5 were required, we believe its executive officers,
directors and ten percent (10%) shareholders complied with all Section 16(a)
filing requirements applicable to them through the fiscal year ended December
31, 2008.
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table sets forth information for our last three most recent
completed fiscal years concerning the compensation of the Principal Executive
Officer and all other executive officers of Regal One Corporation who earned
over $100,000 in salary and bonus during the last three most recently completed
fiscal years ended December 31, 2008, 2007, and 2006 (together the "Named
Executive Officers").
Name and Stock Option All other
Principal position Year Salary Bonus Awards Award Compensation Total
Dr. Richard Hull 2008 *1 15,000 15,000
Chief Operating Officer 2007 85,000 85,000
President 2006 $45,000 $168,608 *2 $213,608
Note 1.) In March 2008, the Board of Directors approved the issuance of 400,000
shares to Mr. Hull in exchange for the stock option held for 500,000 shares
which expired on 3/7/2016. Mr. Hull accepted this agreement and then cancelled
the shares so they are not outstanding and there was no expense to the Company.
Note 2.) On March 10, 2006, the Company granted Mr. Hull an option to purchase
500,000 common shares valued at $168,608. The option vested over two years upon
the occurrence of certain events and had an exercise price of $0.50 per common
share. These options were cancelled in 2008 per mutual agreement with Mr. Hull.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
At the end of fiscal year 2008, there were no outstanding equity awards,
unexercised options exercisable or unexercisable, and no equity incentive plan
awards that are vested or not vested due to Officers of the Company or outside
consultants.
SUMMARY NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
The following table summarizes the compensation for our non-employee board of
directors for the fiscal year ended December 31, 2008:
Nonqualified
Fees Earned Non-Equity Deferred
Or paid in Stock Option Incentive Compensation All Other
Name Cash Awards Awards Compensation Earnings Compensation Total
- -------------------------------------------------------------------------------
Carl Perry 20,000 (3) 20,000
Neil Williams 20,000 (3) 0 0 0 0 20,000
Note 3. In 2008 two Directors each received payment of $20,000 for services
performed during fiscal years 2006 and 2007 as a negotiated settlement. On
February 5, 2008, the board of directors approved granting two independent
directors 10,000 shares each of Neuralstem common stock for services rendered
in 2006 and 2007, for a total of 20,000 shares of Neuralstem common stock
valued at $60,000. On June 2, 2008, we paid two independent directors $20,000
each as a negotiated settlement for services rendered in 2006 and 2007. The
Company realized a gain of $20,000 for the agreements because in 2007 we booked
an estimated cost of Directors fees of $60,000 as an accrued expense. The
settlement payments were disbursed rather than each director receiving 10,000
shares of Neuralstem stock from our portfolio inventory as originally proposed
by our board of directors.
No additional Director compensation has been authorized for services for the
period from January 1, 2008 through December 31, 2008 and through the date of
this 10-K report filing.
<page>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information, to the best knowledge of the
Company, as of March 31, 2009 with respect to each person known by us to own
beneficially more than 5% of the outstanding Common Stock, each director and
officer, and all directors and officers as a group.
Name and Address Common Share Percent of
of Equivalents Common Share
Beneficial owner beneficially owned Equivalents owned (1)
Charles J. Newman
11300 W. Olympic Blvd., Suite 800
Los Angeles, California 90064 1,044,683 7.66%
Malcolm Currie (2)
11300 W. Olympic Blvd., Suite 800
Los Angeles, California 90064 2,024,200 14.85%
C.B. Family Trust (Richard Babbitt) (3)
10104 Empyrean Way
Los Angeles, California 90067 1,400,000 10.27%
AB Investments LLC (4)
4235 Cornell Road
Agoura, CA 91301 3,841,500 28.18%
Aaron Grunfeld (5)
10390 Santa Monica Blvd., 4th Floor
Los Angeles, CA 90025-5057 1,200,000 8.80%
Robert B. Kay (6)
7005 Via Bella Luna
Las Vegas, NV 89131 1,270,753 9.32%
All Officers and Directors as a Group 3,068,883 22.51%
(1) Includes (i) 3,633,067 shares of common stock issued and outstanding as of
December 31, 2008, and (ii) 10,000,000 maximum common shares upon the
conversion of the Series B preferred class, and totals to 13,633,067 fully
diluted common share equivalents outstanding. Each share of Preferred Stock is
convertible into 100 shares of voting common stock. Of the Preferred Stock
outstanding, 20,242 shares (20.2%) are held by the Directors of the Company
(Dr. Malcolm Currie, 20,242 shares).
(2) Consists of 20,242 Series B preferred shares convertible into 2,024,200
common shares.
(3) Consists of 14,000 Series B preferred shares convertible into 1,400,000
common shares.
(4) Consists of 38,415 Series B preferred shares convertible into 3,841,500
common shares.
(5) Consists of 12,000 Series B preferred shares convertible into 1,200,000
common shares.
(6) Includes 236,453 common shares and 10,343 Series B preferred shares
convertible into 1,034,300 common shares.
<page>
Item 13. TRANSACTIONS AND BUSINESS RELATIONSHIPS WITH MANAGEMENT AND PRINCIPAL
SHAREHOLDERS
The Board has adopted a policy relating to the approval of transactions with
related persons that are required to be disclosed in statements by SEC
regulations, which are commonly referred to as "Related Person Transactions." A
"related person" is defined under the applicable SEC regulation and includes
our directors, executive officers and 5% or more beneficial owners of our
common stock. The Board administers the procedures with regards to related
person transactions. Approval of a related person transaction requires the
affirmative vote of the majority of disinterested directors. In approving any
related person transaction, the disinterested directors must determine that the
transaction is fair and reasonable to the Company.
Summarized below are certain transactions and business relationships between
Regal One Corporation and persons who are or were an executive officer,
director or holder of more than five percent of any class of our securities:
On December 8, 2006, the Company issued a demand promissory note in the amount
of $227,294 to our CEO, Malcolm Currie, evidencing the following advances
previously made and that were outstanding as of the date of the note. The note
was due and payable on or before December 8, 2008 and bears interest at a rate
of 10% per annum. Performance of the note is secured by 100,000 common shares
of Neuralstem.
$37,894 prior to 2004;
$10,000 advanced to us on September 27, 2004;
$10,000 advanced to us on December 15, 2004;
$10,000 advanced to us on January 18, 2005;
$5,000 advanced to us on April 25, 2005;
$6,400 advanced to us on October 12, 2005;
$10,000 advanced to us on October 13, 2005;
$17,000 advanced to us on November 18, 2005,
$8,000 advanced on December 30, 2005;
$4,000 advanced on January 17, 2006;
$4,000 advanced to us on February 6, 2006;
$5,000 advanced to us on March 4, 2006; and
$100,000 advanced to us on December 8, 2006.
On February 28, 2007, we entered into a modification of the Currie note
originally made on December 8, 2006. The modification was entered into for
purposes of increasing the note amount by $45,000 as a result of the following
additional advances made by Currie:
$10,000 on December 18, 2006;
$20,000 on January 6, 2007;
$6,000 on January 31, 2007; and
$9,000 on February 23, 2007.
As a result of the increase in the outstanding loan balance, we increased the
number of Neuralstem shares subject to the security agreement by 50,000.
On April 9, 2007, we entered into a further modification of the Currie note
originally made on December 8, 2006. The modification was entered into for
purposes of increasing the note amount by $30,000 as a result of an advance of
this amount made by Currie on March 20, 2007.
<page>
On June 25, 2007, we entered into a further modification of the Currie note
originally made on December 8, 2006. The modification was entered into for
purposes of increasing the note amount by $348,500 as a result of an advance of
$24,000 made by Currie on April 11, 2007, an advance of $81,500 made by Currie
on May 3, 2007, and the payment of $243,000 by Currie of legal fees in the
defense of the Company. As a result, the amended promissory note at December
31, 2007 was $650,794.
On February 5, 2008, the board of directors approved granting two independent
directors 10,000 shares each of Neuralstem common stock for services rendered
in 2006 and 2007, for a total of 20,000 shares of Neuralstem common stock
valued at $60,000. On June 2, 2008, we paid two independent directors $20,000
each as a negotiated settlement for services rendered in 2006 and 2007. The
Company realized a gain of $20,000 for the agreements because in 2007 we booked
an estimated cost of Directors fees of $60,000 as an accrued expense. The
settlement payments were disbursed rather than each director receiving 10,000
shares of Neuralstem stock from our portfolio inventory as originally proposed
by our board of directors.
Item 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
Audit Fees
The aggregate fees billed by the Company's auditors for the professional
services rendered in connection with the annual audit of the Company's annual
financial statements and reviews of the financial statements for the years
ended December 31, 2008 and 2007 were approximately $28,500 and $30,500,
respectively.
Audit Related Fees
None
Tax Fees
None
All Other Fees
The aggregate fees billed by the Company's auditors for all other non-audit
services rendered to the Company, such as attending meetings and other
miscellaneous financial consulting in fiscal 2008 and 2007 were $0 and $0,
respectively.
<page>
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The following exhibits are included as part of this Annual Report on form 10-K.
References to "the Company" in this Exhibit List mean Regal One Corporation, a
Florida corporation.
Exhibit
Number Description
31.1 Certification of the Principal Executive Officer and Principal Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.2 Certification of the Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C Section 1350*
* Filed herewith
Financial Statement Schedules
Financial statements required by Item 15 of this form are filed as a separate
part of this report following Part IV:
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets at December 31, 2008 and at December 31, 2007 F-2
Statement of Investments as of December 31, 2008 F-3
Statements of Changes in Net Assets F-4
Statements of Operations F-5
Statements of Cash Flows F-6
Statements of Financial Highlights F-7
Notes to Financial Statements F-8 - F-20
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements and the notes thereto.
<page>
SIGNATURES
In accordance with 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.
Regal One Corporation
By:
/S/ Charles J. Newman
Charles J. Newman
Chief Executive Officer, Chief Financial Officer, and
Chairman of the Board
Dated: April 10, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/ Charles J. Newman Chief Executive Officer, April 10, 2009
Charles J. Newman Chief Financial Officer, and
Chairman of the Board
/s/ Malcolm Currie Director April 10, 2009
Malcolm Currie
/s/ Bernard L. Brodkorb Director April 10, 2009
Bernard L. Brodkorb
<page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Regal One Corporation
Los Angeles, CA
We have audited the accompanying balance sheets of Regal One Corporation as of
December 31, 2008 and 2007, and the related statements of operations, changes
in net assets, and cash flows for the years then ended. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Regal One Corporation as of
December 31, 2008 and 2007, and the results of its operations, changes in net
assets, and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered losses from operations and the Company has
not generated any revenue since inception, which all raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
April 3, 2009
F-1
<page>
PART IV FINANCIAL STATEMENT SCHEDULES
<table> <caption>
REGAL ONE CORPORATION
BALANCE SHEETS
<c> <c> <c>
December 31, 2008 December 31, 2007
(Audited) (Audited)
ASSETS -------------- -----------------
Assets:
Cash and cash equivalents $ 122,478 $ 64,262
Prepaid Insurance 41,150 0
Marketable securities at fair value 967,628 3,611,008
---------- -----------
Total Current Assets: 1,131,256 3,675,270
Investments:
Investments in non-affiliated portfolio companies 1,017,628 3,673,508
Less: marketable securities portion (967,628) (3,611,008)
-------- -----------
Total investments, net 50,000 62,500
-------- -----------
TOTAL ASSETS $ 1,181,256 $ 3,737,770
========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Due to stockholders and officers -- 195,964
Accounts payable and accrued liabilities 60,528 466,112
Note payable - officer/principal shareholder -- 650,794
---------- ---------
Total Current Liabilities 60,528 1,312,870
---------- ---------
Stockholders' Equity:
Preferred stock, no par value
Series A - Authorized 50,000 shares,
0 issued and outstanding at December 31, 2008 -- --
Series B - Authorized 500,000 shares, 100,000
issued and outstanding at December 31, 2008
and at December 31, 2007 500 500
Common stock, no par value,:
Authorized 50,000,000 shares; 3,633,067 shares
issued and outstanding at December 31, 2008
and at December 31,2007 8,184,567 8,184,567
Additional paid-in capital 192,126 192,126
Accumulated deficit (7,256,465) (5,952,293)
----------- -----------
Total Net Assets 1,120,728 2,424,900
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $ 1,181,256 $ 3,737,770
============ ===========
Net asset value per outstanding share $ 0.308 $ 0.667
F-2
See accompanying notes to the financial statements.
</table>
<page>
REGAL ONE CORPORATION
SCHEDULE OF INVESTMENTS
December 31, 2008
(Audited)
<table> <caption>
Equity Investments:
<c> <c> <c> <c> <c> <c>
Fair
Description Percent Carrying Cost Market
Company of Business Ownership Investment Value Affiliation
Neuralstem, Inc.(CUR) Biomedical company 2% $ 25,217 (1) $967,613 No
Neuralstem Warrant -- (2) 50,000 No
LMP Money Market Trust Money Market Fund 15 15 No
--------- ---------
Total Investments $ 25,232 $1,017,628
</table>
(1) As of December 31, 2008, there were 587,500 Neuralstem shares held after
the sales in this quarter of 67,500 shares. These remaining shares have been
reported on a fair value basis valued at the 12/31/08 market price with no
reduction in Fair Market Value applied. All of these shares held at December
31, 2008 have been recorded as a current asset. During 2008 686,314 shares of
Neuralstem stock were sold from our investment inventory to finance our
operations.
(2) Regal also has one ten year Neuralstem warrant to purchase 1,000,000
common stock shares at an exercise price of $5.00 per share which is
significantly above the present fair market value of Neuralstem shares. A
$50,000 value has been assigned to these warrants.
See accompanying notes to the financial statements.
F-3
<page>
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
<c> <c> <c> <c>
For the For the For the
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2008 2007 2006
(Audited) (Audited) (Audited)
OPERATIONS:
Net investment loss from operations $ (134,579) $ (436,396) $(780,006)
Net realized gain on portfolio securities 1,482,454 67,259 --
Net change in unrealized appreciation
(depreciation) of portfolio securities (2,618,779) 1,693,926 2,478,636
Impairment of investments (12,500) -- --
Interest income 30 -- --
Interest (expense) (20,797) -- --
------------ ---------- ---------
Net increase (decrease) in net assets
resulting from operations (1,304,171) 1,324,789 1,698,630
SHAREHOLDER ACTIVITY:
Stock sales, warrants, and vested options -- -- 337,126
Declared dividend -- 96,616 (750,564)
NET INCREASE (DECREASE) IN NET ASSETS (1,304,171) 1,421,405 1,285,192
NET ASSETS:
Beginning of period 2,424,900 1,003,495 (281,697)
End of period 1,120,729 2,424,900 1,003,495
Average net assets 1,772,814 1,714,198 360,899
TOTAL NET ASSET VALUE RETURN (73.6%) 82.9% 356.1%
Ratios to average net assets:
Net expenses 314,152 445,596 779,206
Net investment gain (loss) (1,304,171) (74,304) 1,698,630
Per share ratio expenses 17.7% 25.9% 215.9%
Per share ratio net investment loss (73.6%) 77.3% 470.7%
See accompanying notes to the financial statements
</table>
F-4
<page>
<table>
<caption>
REGAL ONE CORPORATION.
STATEMENTS OF OPERATIONS
<c> <c> <c> <c>
For the Years Ended December 31
2008 2007 2006
(Audited) (Audited) (Audited)
------------- ------------- ---------- ----------
Investment income: $ -- $ -- $ --
Operating expenses:
Professional services 282,672 233,733 267,830
Litigation Settlement - - 45,000 250,000
Other selling, general and
administrative expenses 31,480 166,863 95,421
Stock Option expense -- -- 165,955
--------- -------- --------
Total Operating expenses 314,152 445,596 779,206
--------- -------- --------
Net Operating loss (314,152) (445,596) (779,206)
Other income (expense):
Gain on payable settlements 180,373 10,000 --
--------- -------- ---------
Net income (loss) before provision
for income taxes (88,234) (435,596) (779,206)
Income tax expenses 800 800 800
---------- --------- ---------
Net investment loss (134,579) (436,396) (780,006)
---------- ---------- ---------
Net realized gain on portfolio 1,482,454 67,259 --
Net change in unrealized
(depreciation) appreciation in
portfolio company investments (2,618,779) 1,693,926 2,478,636
Impairment of investments (12,500) -- --
Interest income - 30 -- --
Interest (expense) (20,797) -- --
---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations $(1,304,171) $ 1,324,789 $ 1,698,630
========== =========== ==========
Weighted average number of
common shares 3,633,067 3,964,574 4,497,999
Basic earnings per share $ (0.359) $ 0.334 $ 0.378
Weighted average number of
fully diluted shares (1) 13,633,067 13,964,574 14,497,999
Diluted earnings per share $ (0.096) $ 0.095 $ 0.117
========== =========== ==========
(1) Includes Series B Preferred Shares convertible at 100 for 1.
See accompanying notes the financial statements.
</table>
F-5
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF CASH FLOWS
<c> <c> <c> <c>
For the Years Ended December 31,
2008 2007 2006
(Audited) (Audited) (Audited)
------------------ ------------------
Cash flows from operating activities:
Net decrease in net assets from operations $(1,304,171) $ 1,324,789 $ 1,698,630
Adjustments to reconcile net increase (decrease)
in net assets resulting from operating activities:
Amortization of loan origination fee -- -- 26,171
Stock options -- -- 165,955
Realized gain on sale of marketable securities 1,482,454 (67,259) --
Unrealized decrease (increase) in investments
in portfolio companies (2,618,779) (1,693,926) (2,478,636)
Reserve for litigation settle 250,000
Gain on settlement of liabilities (180,373) -- --
Impairment of investments 12,500 -- --
Changes in operating assets and liabilities:
Decrease in due to stockholders and officers (113,500) 25,000 --
Decrease (increase) in prepaid expense (41,150) 3,000 5,296
Increase (decrease) in accounts payable and
accrued expenses (314,476) 195,957 94,260
Decrease in contingent litigation fees -- (250,000) --
--------- -------- ----------
Net cash used in operating activities (804,845) (353,340) (238,324)
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,513,856 113,159 (30,917)
--------- -------- ---------
Net cash provided by investing activities 1,513,856 113,159 (30,917)
Cash Flows from financing activities:
Sales of common stock -- -- 145,000
Increase (decrease) in officer loan
and interest payable (650,794) 413,500 123,000
--------- -------- --------
Net cash provided by (used in) financing activities (650,794) 413,500 268,000
Net change in cash 58,216 64,220 (1,241)
Cash at beginning of period 64,262 42 1,283
--------- -------- -------
Cash at end of period $ 122,478 $ 70,202 42
============= ======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 20,797
Cash paid for income taxes -- 800 800
Non-Monetary Transactions:
Gain on settlement of liabilities 180,373 -- --
Warrant for prepaid expense -- -- 26,171
Dividend payable on 465,430 portfolio company shares -- 653,948 --
Dividend payable in 500,376 portfolio company shares 750,564
Stock options vested 165,955
Conversion of indebtedness to officer into note payable 227,294
--------- - ------- ----------
Total non-monetary transactions $ 201,170 654,748 1,170,784
=========== ========= =========
See accompanying notes to the financial statements
F-6
</table>
<page>
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF FINANCIAL HIGHLIGHTS
Per Share Unit Operating Performance
<c> <c> <c>
Year Ended Year Ended
December 31, December 31,
2008 2007
(Audited) (Audited)
---------------- -----------
OPERATIONS:
Net investment income (loss) from operations (0.037) (0.121)
Net realized gain (loss) on portfolio securities 0.408 0.019
Net change in unrealized appreciation
(depreciation) of portfolio securities (0.721) 0.466
Impairment of investments (0.003) --
Interest income -- --
Interest expense (0.006) --
--------- --------
Net increase (decrease) in net assets
from operations (0.359) 0.364
SHAREHOLDER ACTIVITY
Declared dividend -- 0.027
-------- -------
NET INCREASE (DECREASE) IN NET ASSETS $ (0.359) $0.391
NET ASSET VALUE, BEGINNING OF PERIOD $ 0.667 $0.276
NET ASSET VALUE, END OF PERIOD $ 0.308 $0.667
========= =======
TOTAL NET ASSET VALUE RETURN (LOSS) (73.6)% 82.9%
======== =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period $1,120,728 $2,424,900
=========== ===========
Ratios to average net assets:
Net expenses 17.7% 26.0%
Net investment loss (73.6)% 77.3%
Portfolio turnover rate 0.69 0.07
See accompanying notes to the financial statements
F-7
</table>
REGAL ONE CORPORATION
NOTES TO FINANCIAL STATEMENT
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Regal One Corporation (the "Company" or "Regal One"), located in Los Angeles,
California, is a Florida corporation initially incorporated in 1959 as
Electro-Mechanical Services Inc., in the state of Florida. Since inception we
have been involved in a number of industries. In 1998 we changed our name to
Regal One Corporation. On March 7, 2005, our board of directors determined
that it was in our shareholders best interest to change the focus of the
company's operation to that of providing financial services through our
network of advisors and professionals, and to be treated as a business
development company ("BDC") under the Investment Company Act of 1940. On
September 16, 2005, we filed a Form N54A (Notification of Election by
Business Development Companies), with the Securities and Exchange Commission,
which transforms the Company into a Business Development Company (BDC) in
accordance with sections 55 through 65 of the Investment Company Act of 1940.
The Company began reporting as an operating BDC in the March 31, 2006 10Q-SB.
Basis of Presentation
On February 9, 2004, the Company acquired 100% of the stock of O2 Technology
by issuing 1,000,000 shares valued at $0.6495 per share for a $649,526
investment. During the course of 2004 the Company loaned O2 Technology
$518,490 for an aggregate investment of $1,168,016. Consolidated financial
statements were included in the 10Q filings with the SEC for March 31, June
30, and September 30, 2004.
As set forth in various previous financial reports and SEC filings, the
Company sought a rescission of the O2 Technology acquisition. The Company's
management elected to fully reserve the $1,168,016 investment and seek
redress through the courts. In May 2007, the Eco Litigation was settled by
the parties (see Note 9: "Contingencies"). Accordingly, Regal One has
recovered and retired the 1,000,000 shares of Regal One common stock that was
provided in exchange for all O2 Technology stock. Consequently, the
accompanying financial statements are not consolidated and the Company has no
operating subsidiaries.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates the creation of assets
and the liquidation of liabilities in the normal course of business. The
Company does not currently generate operating revenue and must liquidate the
Company's investment portfolio to provide cash flow for its operations. The
Company is actively seeking sources of revenue for its consulting services
but does not have contractual obligations presently or in the near future to
generate revenue. This fact and the declining market value of the portfolio
investment stock it owns due to volatile market conditions has raised doubt
regarding Regal's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
F-8
<page>
Accounting Policies
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Net Increase (Decrease) in Net Assets from Operations per Share
Basic net increase (decrease) in net assets from operations per share is
computed by dividing the net earnings (loss) amount adjusted for cumulative
dividends on preferred stock (numerator) by the weighted average number of
common shares outstanding during the period (denominator). Diluted net
increase (decrease) in net assets from operations per share amounts reflect
the maximum dilution that would have resulted from the assumed exercise of
stock options and from the assumed conversion of the Series B Convertible
Preferred Stock. Diluted net increase (decrease) in net assets from
operations per share is computed by dividing the net earnings (loss) amount
adjusted for cumulative dividends on preferred stock by the weighted average
number of common and potentially dilutive securities outstanding during the
period. For all periods presented the above potentially dilutive securities
are excluded from the computation as their effect is anti-dilutive.
Income Taxes
The Company has not elected to be a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. Accordingly,
the Company will be subject to U.S. federal income taxes on sales of
investments for which the fair values are in excess of their tax basis.
Income taxes are accounted for using an asset and liability approach for
financial reporting. The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the financial statement carrying amount and the tax basis of assets
and liabilities and net operating loss and tax credit carry forwards.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
marketable securities to be cash equivalents (see Note 2: Cash and Marketable
Securities). None of the Company's cash is restricted.
Valuation of Investments (as an Investment Company)
Fair Value Accounting
In September 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157
defines fair value, establishes a framework for measuring fair value in
<page>
generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of FAS 157 were adopted January 1, 2008.
In February 2008, the FASB staff issued Staff Position No. 157-2 "Effective
Date of FASB Statement No. 157" ("FSP FAS 157-2"). FSP FAS 157-2 delayed the
effective date of FAS 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (at least annually). The
provisions of FSP FAS 157-2 are effective for the Company's fiscal year
beginning January 1, 2009.
FAS 157 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy under FAS 157 are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or
liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that
are observable, either directly or indirectly, for
substantially the full term of the asset or liability;
Level 3 Prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable
(supported by little or no market activity).
<table> <caption>
<c> <c> <c> <c>
FAS 157 Fair
Level of Carrying Cost Market
Equity Investments: Investment Investment Value
Neuralstem, Inc.(CUR) Level 1 $ 25,217 $967,613
Neuralstem Warrant Level 2 -- 0 50,000
LMP Money Market Trust Fund Level 1 15 15
--------- ---------
Total Investments $ 25,232 $1,017,628
</Table>
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. It requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in financial statements
and (b) display the accumulated balance of other comprehensive income
separately in the equity section of the balance sheet for all periods
presented.
<page>
The Company's comprehensive income (loss) does not differ from its reported
net income (loss). As an investment company, the Company must report changes
in the fair value of its investments outside of its operating income on its
statement of operations and reflect the accumulated appreciation or
depreciation in the fair value of its investments as a separate component of
its stockholders' deficit. This treatment is similar to the treatment
required by SFAS No. 130.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections", a replacement of APB No. 20 and FASB Statement No. 3. SFAS No.
154 requires retrospective application to prior periods' financial statements
of a voluntary change in accounting principles unless it is impracticable.
APB Opinion No. 20 "Accounting Changes" previously required that most
voluntary changes in accounting principles be recognized by including in net
income of the period of the change the cumulative effect of changing to the
new accounting principle. This Statement was effective for the Company as of
January 1, 2006.
Stock Based Incentive Program
SFAS No. 123R, Share Based Payment, a revision to SFAS No. 123, Accounting
for Stock Based Compensation and superseding APB Opinion No. 25, Accounting
for Stock Issued to Employees, establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services, including obtaining employee services in share based payment
transactions. SFAS No. 123R applies to all awards granted after the required
effective date and to awards modified, purchased, or canceled after that
date. The Company adopted SFAS No. 123R effective January 1, 2006.
Exchange of Non-monetary Assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29". SFAS No. 153 is based on the
principle that exchanges of non-monetary assets should be measured based on
the fair value of the assets exchanged. APB Opinion No. 29, "Accounting for
Non-monetary Transactions", provided an exception to its basic measurement
principle (fair value) for exchanges of similar productive assets. Under APB
Opinion No. 29, an exchange of a productive asset for a similar productive
asset was based on the recorded amount of the asset relinquished. SFAS No.
153 eliminates this exception and replaces it with an exception of exchanges
of non-monetary assets that do not have commercial substance. SFAS No. 153
became effective for the Company as of July 1, 2005. The Company will apply
the requirements of SFAS No. 153 to any future non-monetary exchange
transactions.
<page>
NOTE 2 - CASH AND MARKETABLE SECURITIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and may include
instruments with maturities of three months or less at the time of purchase.
Marketable Securities
In 2005 Regal acquired approximately 1,800,000 shares of Neuralstem's common
stock and a warrant to purchase an additional 1,000,000 shares of common
stock in exchange for a variety of considerations supporting Neuralstem's
transition to a publicly traded operational entity, principally including
fees and assistance in connection with the filing of a registration statement
on Form SB-2 registration (see Note 7: "Investments"). During 2006,
Neuralstem filed the registration statement and it was declared effective on
August 30, 2006. In late December 2006, the shares began trading on the OTC:
BB under the ticker symbol NRLS.OB. On February 5, 2007, the Company
distributed 500,473 Neuralstem shares to its shareholder of which 35,038 of
these shares were returned to the Company's ownership in connection with the
settlement of the Eco Litigation. On August 27, 2007, Neuralstem shares began
trading on the American Stock Exchange under the symbol CUR. As of December
31, 2008, Regal held 587,500 Neuralstem shares that have been valued at a
fair value market. Of the total shares held at December 31, 2008, all have
been recorded as a current asset, which were registered and are now freely
tradable under rule 144. These shares constitute working capital that is
available to Regal as of December 31, 2008. Regal also has ten year warrants,
which contains certain anti-dilution provisions, at an exercise price of $5
per share which is significantly above the present fair market value of
Neuralstem shares, therefore only a $50,000 value has yet been assigned to
these warrants, which are carried as a long term investment. On December 31,
2006, Regal had recorded a dividend payable balance in the Current
Liabilities section of its Balance Sheet. This distribution initially
consisted of 500,473 Neuralstem shares. The distribution was made in the
first quarter of 2007 and resulted in an adjustment to the Current
Liabilities balance. In 2007 and 2008, the Company sold part of its inventory
of Neuralstem shares to finance operations and reduce debt.
<page>
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued by the Financial
Accounting Standards Board ("FASB") which are not yet effective. Each of
these pronouncements, as applicable, has been or will be adopted by the
Company.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115" (FAS 159). FAS 159 permits companies 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 and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar
types of assets and liabilities. The provisions of FAS 159 become effective
as of the beginning of our 2008 fiscal year. The Company does not expect the
adoption of SFAS 159 will have a material impact on its financial condition
or results of operation.
In December 2007, the FASB issued SFAS 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 which applies
to all entities that prepare consolidated financial statements, except not-
for-profit organizations, but will affect only those entities that have an
outstanding non-controlling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities", an amendment of SFAS No. 133. SFAS 161
applies to all derivative instruments and nonderivative instruments that are
designated and qualify as hedging instruments pursuant to paragraphs 37 and
42 of SFAS 133 and related hedged items accounted for under SFAS 133. SFAS
161 requires entities to provide greater transparency through additional
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and how derivative instruments and
related hedged items affect an entity's financial position, results of
operations, and cash flows. SFAS 161 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2008. We do not
expect that the adoption of SFAS 161 will have a material impact on our
financial condition or results of operation.
In May 2008, the FASB issued Statement of Financial Accounting Standards No.
163, "Accounting for Financial Guarantee Insurance Contracts - an
interpretation of FASB Statement No. 60," ("SFAS No. 163"). SFAS 163 requires
that an insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration has
occurred in an insured financial obligation. This Statement also clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded
disclosures about financial guarantee insurance contracts. The accounting and
disclosure requirements of the Statement will improve the quality of
<page>
information provided to users of financial statements. SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of SFAS 163 will
have a material impact on its financial condition or results of operation.
NOTE 4 - EQUITY TRANSACTIONS
Sales of common stock
During the quarter ended March 31, 2006, the Company raised $145,000 through
the sale of 362,500 shares of newly issued, unregistered common stock. Since
that date, there have been no other equity sales in the three years ended
December 31, 2008. In May 2007, the Eco Litigation was settled by the parties
(see Note 10: Contingencies - Eco Litigation). Accordingly, Regal has
recovered and retired the 1,000,000 shares of Regal One common stock that was
provided in exchange for all O2 Technology stock. As a result, the Company's
outstanding common share balance as of December 31, 2008 is 3,633,067. The
total number of issued and outstanding shares of common stock at year end has
not changed since 2006.
Stock options
During the quarter ended March 31, 2006, the Company made four option grants
with the total grants amounting to 885,000 common shares of which 535,000
were vested in the quarter. An expense of $136,555 was calculated under the
Black-Scholes Option-Pricing Model and was recognized in that quarter for the
vested options. All the options were exercisable at the price of $0.50 per
share, equal to or higher than the public share price on the dates of the
grants and as of December 31, 2008, and option lives ranged from 3 years to
10 years. During the quarter ended September 30, 2006, no additional options
were granted. Also during the quarter ended September 30, 2006, 50,000
options vested in conjunction with the effective date of the Neuralstem SB-2
registration, a contractual milestone, and an additional option expense of
$16,861 was realized. In the quarter ended December 31, 2006, 50,000 options
vested in conjunction with a contractual milestone and an additional option
expense of $12,539 was realized. No additional options were granted or vested
and no options were exercised during 2008 and 2007. As of December 31, 2008,
there were no outstanding options to purchase any additional shares under the
plan as the plan has been cancelled.
In connection with the secured loan received during the quarter ended
September 30, 2006 and paid in the quarter ended December 31, 2006, warrants
to purchase 75,000 shares of the Company's stock were issued to the lender as
a commitment fee. These warrants have been valued under the Black-Scholes
Pricing Model and $26,171 was recognized in the year as prepaid expense that
was fully amortized into expense on the payment date. The warrants are
exercisable for a period of five years at the price of $0.60 per share, which
was higher than the public share price on the date of the grant and as of
December 31, 2008. None of these warrants were exercised in 2007 or the year
ended December 31, 2008.
<page>
The stock options and warrants issued during 2006 were valued under the
Black-Scholes Option-Pricing Model using the following assumptions within the
ranges defined: market price of Regal stock at grant date; exercise price;
one and three year terms; volatility ranging from 188% to 350%; no dividends
assumed; and a discount rate - bond equivalent yield of 4.27%. As of December
31, 2008, the 885,000 share options, with 635,000 vested, and 75,000 vested
warrants that were outstanding were cancelled in 2008 as part of mutual
settlements with the stock option holders. At December 31, 2008 there were no
stock options outstanding. No table of stock options is presented.
In conjunction with the Neuralstem registration, the contingency delaying the
Company's previously declared dividend in Neuralstem shares has been removed.
Regal paid that dividend, amounting to 500,473 Neuralstem shares including
rounding, on February 5, 2007. Of this amount, 35,038 shares were returned to
Regal One as part of the O2 settlement. Since the record date for this
dividend occurred earlier in 2006, Regal One had recorded a payable for this
dividend in the quarter ended December 31, 2006 using the per share valuation
reflected in the portfolio balance at that date and also recorded that
valuation as a reduction in the equity section. As of the payment date, that
valuation was adjusted to the then existing fair market value of the
Neuralstem shares and the Neuralstem valuation in the Company's portfolio
balance was then reduced by that final dividend amount.
Preferred Stock
The Company's Certificate of Incorporation allows for segregating the
preferred stock into separate series. As of December 31, 2008, the Company
had authorized 50,000 shares of Series A preferred stock with no shares
outstanding. 500,000 shares of Series B convertible preferred stock were
authorized and 100,000 shares of Series B preferred stock were outstanding.
Holders of Series A preferred stock shall be entitled to voting rights
equivalent to 1,000 shares of common stock for each share of preferred. The
Series A preferred stock has certain dividend and liquidation preferences
over common stockholders.
Holders of Series B preferred stock shall be entitled to voting rights
equivalent to 100 shares of common stock for each share of preferred. The
Series B preferred stock had been entitled to a non-cumulative dividend of
8.75% of revenues which exceed $5,000,000. In 2004, the Series B class
shareholders' voted by a large majority to void the dividend preference. At
the option of the holder of Series B preferred stock, each share is
convertible into common stock at a rate of 100 shares of common for each
share of preferred. In connection with the acquisition of O2 Technology on
February 9, 2004, the Share Exchange agreement required that the Series B
preferred as a class be restricted to a cumulative conversion into no more
than 10,000,000 common shares. This reduction was sought by the Company and
was agreed to by 98.5% of the Series B class, effecting a compression of the
outstanding Series B preferred from 208,965 shares to the now outstanding
100,000 shares. As of December 31, 2008, 2007, 2006 and 2005, no dividends
have been declared on the Series A or Series B convertible preferred stock.
<page>
NOTE 5 - IMPAIRMENT OF ASSETS
As set forth in various previous financial reports and SEC filings, the
Company was seeking a rescission of the O2 Technology acquisition. The
immediate effect of these matters was to impair the assets acquired in the O2
acquisition. Accordingly, the Company had written-off in 2004 all of the
assets acquired from O2 and the advances made to O2 (see Note 1 - "Basis of
Presentation"). In May 2007, this litigation was settled by the parties (see
Note 10: "Contingencies - Eco Litigation").
NOTE 6 - STOCK OPTION PLAN
The Company's Stock Option Plan (Plan) provides a means to offer incentives
to its employees, directors, officers, consultants and advisors. On May 3,
1995, the Company filed a registration statement on Form S-8 adopting a
3,000,000 common share Plan. Under the plan, the Board of Directors was
authorized to grant options to individuals who have contributed, or will
contribute to the well being of the Company. In 2004 and earlier years, the
Plan was extended by the Company's shareholders. On March 4, 2005, the
Company's shareholders approved another extension of time in which to
exercise outstanding options to purchase shares of the Company's common stock
at the $0.8125 exercise price. That extension ran from March 31, 2005 to
September 30, 2005. (See the Company's Form 14C filing dated March 23, 2005.)
By the extended September 30, 2005 option expiration date, the then remaining
outstanding options were not further extended and as a result 1,147,140
unexercised options became null and void. During the year ended December 31,
2005, 252,308 options respectively were exercised and the Company realized
$205,000 in working capital. As of September 30, 2005, holders had exercised
options to purchase 1,852,860 shares of common stock. No options were
granted, exercised, or expired in 2008 and 2007 under the Company's stock
option plan. As of December 31, 2008, there were no outstanding options to
purchase any additional shares under the plan as the plan has been cancelled.
The 500,000 share options granted to Richard Hull in 2006 and 385,000 share
options held by three outside consultants, with 635,000 vested options and
75,000 vested warrants that were outstanding were cancelled by mutual
agreement in 2008 as part of negotiated settlements with the stock option
holders. At December 31, 2008, there were no stock options or warrants
outstanding.
NOTE 7 - INVESTMENTS
American Stem Cell
As of June 30, 2005, the Company entered into an agreement with American Stem
Cell (ASC), a private development stage company, to assist ASC in the
preparation and filing of an SB 2 registration statement. Regal One acquired
3,000,000 shares of ASC's common stock in exchange for the Company's
investment via a variety of considerations that would support ASC's
transition from a private development-stage company to a publicly traded
operational entity. These considerations included the Company's assumption of
the liability for certain legal fees, principally including fees for an SB-2
registration, and access to the Company's network of advisors and other
related resources. Regal One valued these shares in its balance sheet at the
$34,087 of accrued legal fees that it had assumed. However, in 2006 the SB-2
registration was withdrawn and ASC undertook a restructuring of its various
securities holders. In the quarter ended December 31, 2006, the Company wrote
off its $34,087 investment in ASC. In December 2007, the Company sold
2,000,000 of the 3,000,000 common shares it holds back to American Stem Cell
for $25,000. The remaining 1,000,000 shares that had been valued at $12,500,
the $0.0125 per share value implied in that transaction, as a long term
investment at December 31, 2007 were written off as of September 30, 2008.
Neuralstem, Inc.
As of June 30, 2005, the Company had entered into a Letter of Intent with
Neuralstem, Inc., a private early stage company, to assist it in filing an
SB-2 registration statement. Effective September 15, 2005, those
understandings were memorialized and further defined in an "Equity Investment
and Share Purchase Agreement" between the parties. Regal One acquired
approximately 1,800,000 shares of Neuralstem's common stock and a warrant,
containing certain anti-dilution provisions (value not yet determined) to
purchase an additional 1,000,000 shares of common stock in exchange for a
variety of considerations supporting Neuralstem's transition from a private,
early stage, research and development company to a publicly traded
operational entity. These considerations included the Company's assumption of
the liability for certain legal fees, principally including fees for an SB-2
registration, and access to the Company's network of advisors and other
related resources. Regal One initially reflected these shares in its balance
sheet as of December 31, 2005 based on its estimated $50,000 direct cost of
the considerations it had provided or planned to provide to Neuralstem.
During 2006, Neuralstem filed an SB-2 registration statement and in August
2006 it was declared effective. As of December 31, 2006, Neuralstem shares
were trading on the OTC: BB exchange.
Prior to effectiveness of the registration, 1,000,000 of Neuralstem shares
held by Regal were subject to forfeiture based on a contingency concerning
the initial submission date and effective date of Neuralstem's SB-2
registration; 51,000 of these shares were forfeited in the third quarter of
2006 and the balance are no longer subject to forfeit. As of December 31,
2006, the 1,794,287 Neuralstem shares then held after the forfeit were valued
<page>
as indicated in the financial statements Balance Sheet of 2006. Of those
shares, 800,000 shares were registered by Neuralstem, were readily salable
and were reclassified as Marketable Securities in the Current Assets section
of the Balance Sheet. 500,473 of those Neuralstem shares were reserved for
distribution to the Company's shareholders as a dividend, which distribution
was made on February 5, 2007.
Of that amount, 35,038 shares were withheld from distribution pending the
outcome of the Eco Litigation. On May 7, 2007, the Company reached a
settlement in the Eco Litigation resulting in the release of the 35,038
Neuralstem shares to the Company. At December 31, 2007, the 1,273,814
Neuralstem investment portfolio shares were classified as Marketable
Securities in the Current Assets section of the Balance Sheet. This
reclassification was made because all shares then held were either included
in Neuralstem's original registration statement and therefore were free-
trading or were unregistered but then had been held long enough to become
free-trading under the provisions of Rule 144 Regal One also has one ten year
warrant for 1,000,000 common shares of Neuralstem at an exercise price of $5
per share which is significantly above the present fair market value of
Neuralstem shares, therefore only a nominal $50,000 value has been assigned
to these warrants which is carried as a long term investment in the Balance
Sheet as of December 31, 2008.
The Board of Directors is responsible for determining in good faith the fair
value of the securities and assets held by the Company. In 2005, all
portfolio companies were reported on a cost basis. For 2006 and 2007, the
Investment Committee of the Board of Directors early adopted the provisions
of FAS 157 for valuation of the portfolio and bases its determination 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 and
the 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 stock market. 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 was a ready market for such equity securities.
As of the end of December 31, 2008, the Company did not reduce the valuation
of the inventory of portfolio securities included as a current asset on it's
balance sheet below the market value as of December 31, 2008. Subsequently,
in 2009, the market value of Neuralstem stock has declined over 38% due to
volatile market conditions. Management believes the stock price may return to
prior values as market conditions improve, however management anticipates a
significant unrealized loss in value for the first quarter of 2009.
NOTE 8 - INCOME TAXES
At December 31, 2008 and 2007, the Company had a federal operating loss carry
forward of $2,391,414 and $3,718,820, respectively. Under IRC Section
172(b)(3), the taxpayer elects to relinquish the entire two year carryback
period with respect to any regular tax and AMT net operating loss incurred
during the current tax year. Regal became a BDC in June 2005. The deferred
tax expires in the periods between 2018 to 2029.
The provision for income taxes consisted of the following components for the
years ended December 31:
2008 2007
--------- ----------
Current:
Federal -- --
State -- --
Deferred: (1,023,525) (1,591,655)
Components of net deferred tax assets, including a valuation allowance, are
as follows at December 31:
Deferred tax assets: 2008 2007
--------- --------
Net operating loss carry forward $ 1,023,525 1,591,655
------------ ----------
Total deferred tax assets $ 1,023,525 1,591,655
Less: Valuation Allowance (1,023,525) (1,591,655)
------------- ------------
Net Deferred Tax Assets $ -- $ --
The valuation allowance for deferred tax assets as of December 31, 2008 and
2007 was $1,023,525 and $1,591,655, respectively. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
in the periods in which those temporary differences become deductible. In
assessing the recovery of the deferred tax assets, management considers the
scheduled reversals of future deferred tax assets, projected future taxable
income, and tax planning strategies in making this assessment. As a result,
management determined it was more likely than not the deferred tax assets
would be realized as of December 31, 2008 and 2007.
Reconciliation between the statutory rate and the effective tax rate is as
follows at December 31:
2008 2007
Federal statutory tax rate (34.0)% (34.0)%
State taxes, net of federal tax benefit (8.8)% (8.8)%
Permanent difference and other 42.8 42.8%
Effective tax rate 0% 0%
<page>
NOTE 9 - RELATED PARTY TRANSACTIONS
Secured loans from a stockholder/officers
Indebtedness to a stockholder/officer was converted into a secured Note
Payable in the fourth quarter of 2006. In 2007, that stockholder/officer
continued to make cash advances to and on behalf of the Company and Regal
entered into modifications of the Note Payable to that party. The
modifications were entered into for purposes of increasing the Note Payable
amount as a result of additional advances made by the stockholder/officer to
Regal through September 30, 2007. There were no new advances made after May
31, 2007, but a correction was recorded in the quarter ended September 30,
2007. It is not presently contemplated that the stockholder/officer will make
additional periodic advances to the Company. Advances under the Note have
been made to pay the Company's litigation expenses and settlement, and for
working capital. The $650,794 loan balance and related accrued interest at
10% per annum of approximately $87,200 were outstanding as of December 31,
2007. In February 2008, the stockholder/officer and the Company agreed to
certain terms regarding this matter and the loan balance and additional
accrued interest was settled by a $600,000 payment in March 2008 and a
transfer in kind of 100,000 shares of Neuralstem stock in July 2008.
During fiscal year 2008 a related entity controlled by a stockholder/officer
loaned Regal $108,179 and also purchased 14,000 shares of Neuralstem stock on
behalf of the Company. The value of the stock purchased was converted at fair
market value and added to the loan payable to the related entity. During May
and June Regal sold 100,000 shares of Neuralstem stock and used the proceeds
to repay the loan and accumulated interest and charges.
Other loans
The combined remaining open account balances due to stockholders and
officers, as of December 31, 2007, was $255,964 not including the above
secured Note Payable and the related accrued interest. The total $255,964
amount represents advances and compensation which are non-interest bearing,
unsecured and payable on demand. An original indebtedness of $94,357 to a
former, deceased officer was reduced to the current value of $40,000 as of
December 31, 2002 and was payable to the widowed spouse after all other
payables are covered and at the discretion of the Board of Directors. This
payable was written off in February 2008. During 2008, the entire amounts due
to stockholders and officers was either paid or settled in 2008.
<page>
NOTE 10 - CONTINGENCIES
Eco Litigation
The Company and certain of its officers and consultants were named as
defendants in a case filed on November 4, 2003, under the name "Eco Air
Technologies vs. Regal One Corporation, et. al" (California Superior Court,
County of Orange, Case No. 03CC13317). On April 7, 2005, the Company and
certain of its officers, stockholders and consultants were named as cross-
defendants in a cross-complaint filed by two of the former directors of O2.
The Company had been advised that such a filing added significantly to the
fee exposure of the Company.
During October 2005, the Company negotiated and executed a settlement
agreement with Eco Air Technologies and Alf Mauriston whereby the Company
relinquished any claims it may have to the technology in question, and
obtained certain marketing rights to the technology in several foreign
countries and in certain domestic market niches.
On May 10, 2007, the Company filed an 8-K to report that it and its officers
and associated representatives and consultants had entered into a
confidential, final and complete settlement on May 7, 2007, with O2
Technology, Inc., Ronald Hofer, Richard Allen Smith and Amber Le Bleu-Hofer,
resolving their differences which were detailed in the Orange County Superior
court case, Eco Air vs. Regal One et. al. and the various cross-complaints in
that litigation. The parties determined that their business transaction
failed to close through a mutual mistake of fact without fault by any party
and, consequently, they never had any rights in each other. All parties are
returned to their status as if the contemplated transaction never occurred
and no party admits or accepts any liability for events transpiring in the
interim as between and among the various persons and corporations involved.
The parties acknowledge that they have no interest or claim to each other's
securities and that there are no debts or obligations between them.
Accordingly, Regal has recovered and retired the 1,000,000 shares of Regal
common stock that was provided in exchange for all O2 Technology stock. The
Company originally recorded the second quarter 2007 return of those Regal
shares in the equity section of the balance sheet at the original recorded
value of $649,526. The Company has subsequently determined that the return of
its own shares should be recorded at a zero value and this revision is
reflected in the December 31, 2007 financials.
<page>
Operations
On March 7, 2005, Regal's Board of Directors determined that it was in our
shareholders best interest to change the focus of the company's operation to
providing financial services through our network of advisors and
professionals, and to be treated as a business development company (BDC)
under the Investment Company Act of 1940. On September 16, 2005, we filed a
Form N54A (Notification of Election by Business Development Companies), with
the Securities and Exchange Commission, which transforms the Company into a
Business Development Company (BDC) in accordance with sections 55 through 65
of the Investment Company Act of 1940. The Company began reporting as an
operating BDC in the March 31, 2006 10-QSB filing.
In 2005, the Company initiated equity investments or agreements for
investments with three biomedical companies. Under two of those agreements,
the Company agreed to assume certain legal fees that are reflected in the
financial statements for 2005 and discussed in Notes thereto. The obligations
to assume any other such expenses were terminated in 2006. Additionally, the
third agreement allows Regal to make additional cash investments in the
related entity, which Regal has not done and does not expect to do.
On April 1, 2007, the Company and Equity Communications entered into a
settlement agreement regarding the value of services provided by Equity
Communications to the Company. The result of this settlement was that the
Company provided 20,000 Neuralstem shares to Equity Communications in full
settlement of the $72,000 that Equity had billed to the Company. The Company
recognized a $10,000 gain on this settlement.
The Company has historically incurred substantial debts in connection with
its operations. In 2008 the Company entered into negotiations and settled
most of its outstanding loans and payables to officers, shareholders and
consultants due as of December 31, 2007. Current liabilities were reduced by
$1,252,342 in 2008.
NOTE 11 - SUBSEQUENT EVENTS
On February 4, 2009, there was a shareholder meeting to vote on Directors and
nominees for Director for Regal One Corporation. Schedule Form 14-C was filed
with the commission on February 20, 2009 to report the consent to action
reported in this information statement. Mr. Charles J. Newman was confirmed
as Chairman of the Board, CEO, CFO, and Director and two new Directors were
added to the Board. One of these newly elected Directors, Lisa DuBoise, has
voluntarily resigned as of March 31, 2009 in order to pursue other business
interests. This was announced in a Form 8-K filed on April 1, 2009.
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