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, 2009
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]
As of June 30, 2009, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the Registrant was approximately
$47,039 computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity on the OTCBB, as
of the last business day of the registrant's most recently completed second
fiscal quarter.
As of April 6, 2010, 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.
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TABLE OF CONTENTS
Page
PART I
ITEM 1. Business 4
Item 1A. Risk Factors 9-15
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 19
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 20
Item 7A. Quantitative an Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 23
Item 9A. Controls and Procedures 23
Item 9B. Other Information 24
PART III
Item 10. Directors, Executive Officers and Corporate Governance 25
Item 11. Executive and Director Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 29
Item 13. Certain Relationships and Related Transactions, and Director
Independence 30
Item 14. Principal Accountant Fees and Services 31
PART IV
Item 15. Exhibits and Financial Statement Schedules 32
Signatures 33
Report of Independent Registered Public Accounting Firm 34
Financial Statement Schedules F1-F7
Notes to Financial Statements 41-54
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. Since
inception we have been involved in a number of industries.
Regal One Corporation was initially incorporated in 1959 as Electro-Mechanical
Services Inc., in the state of Florida. In 1998 we changed our name to Regal
One Corporation. On March 7, 2005, our Board of Directors determined 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, 2009
Neuralstem, Inc. (OTCBB: CUR) Common Stock $ 716,000
Neuralstem, Inc. Warrant 855,900 (1)
LMP Money Market Trust Money Market Fund 15
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Total $1,571,915
1.) See Note 5 Investments in Notes to Financial Statements.
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.
At December 31, 2009, we held 400,000 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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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/.
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.
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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.
Compliance with the Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 imposes a wide variety of new regulatory
requirements on publicly held companies and their insiders. Many of these
requirements will affect us in the following ways: 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.
We are required 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 act.
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.
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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:
The Company Has Historically Lost Money and Losses May Continue in the Future:
Except for 2009 when the Company booked a net operating gain of $514,737
including an unrealized appreciation in value of our stock options investments
of $805,900, the Company has historically lost money. For the year ended
December 31, 2009 the Company had a net operating loss of $298,027 excluding
our realized and unrealized income from investments. However, this is an
improvement over our net operating loss for the 2008 fiscal year of $314,152
and 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 on acceptable terms. No assurances
can be given we will be successful in reaching or maintaining profitable
operations and future losses are likely to occur.
The Company changed their business model in 2005 and as a result, current
historical results may not be comparable with operating results presented prior
to 2005:
In March 2005, the Company formally began implementing our current business
model of providing services to biotech companies. As a result of how the
Company receives payment for these services, Regal is technically considered an
investment company under the 1940 Investment Company Act. As such, Regal has
presented financial results and accompanying notes according to the accounting
standards of an Investment Company. 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 years ended December 31, 2009 the Company had no operating revenues and had
operating expenses of $298,027 and $314,152 respectively. 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 income from the sale of securities in 2009
amounted to $261,114. 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, 2009 2008 2007 2006 2005
Net Asset Value $0.45 $0.31 $.67 0.22 (0.07)
Stock Price* 0.03 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 investment assets
for its continuing operating needs the Net Asset Value may decrease,
potentially affecting 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, 2009, 43% 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.
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 and market prices to the extent necessary to
reflect significant events affecting the value of such securities. 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.
<page>
Because such valuations are inherently uncertain, they 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.
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
products and successfully bring them to the marketplace.. 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, the publically traded shares of our portfolio companies will
generally be thinly traded and may be subject to volatile swings in value.
<page>
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
On April 28, 2009, one of Regal One's shareholders, AB Investments LLC ("ABI"),
sued Regal One and a number of its current and former officers and directors in
the California Central District Court asserting claims for securities fraud,
breach of contract and various torts relating to its claim that Regal One had
wrongfully failed to deliver to ABI the stock certificates representing its
Regal One stock and the stock certificates representing its dividend of stock
in Neuralstem, Inc. Regal One sought to interplead the shares because one of
ABI's managing members at the time, Allen Gelbard, had instructed Regal One not
to deliver the Neuralstem certificates to ABI until after an internal dispute
between the various members of ABI had been resolved. The court dismissed both
the securities fraud claims and the interpleader. Mr. Gelbard later filed a
motion to intervene in the action (claiming that he was the rightful owner of
the stock certificates, rather than ABI), but the court denied Mr. Gelbard's
motion to intervene. The parties eventually reached a confidential settlement
agreement of all the remaining claims in the action, pursuant to which the
court entered a stipulated final judgment and order on February 18, 2010 that
required delivery of the stock certificates at issue to ABI, and ended the
case. The Company complied with the terms of the settlement agreement and court
order, delivered the stock certificates to ABI, and considers the case to be
closed and settled between all parties.
Before the Court's entry of final judgment in the action, Mr. Gelbard
threatened to pursue further legal action against Regal One and its current and
former officers and directors if it delivered the stock certificates to ABI.
As of the date of this annual report and subsequent events, there are no
additional 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 other 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
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 three 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, 2009 $ 0.04 $0.03
Sep. 30, 2009 $ 0.055 $0.02
Jun. 30, 2009 $ 0.055 $0.02
Mar. 31, 2009 $ 0.11 $0.04
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, 2010, there were approximately:
619 shareholders of our common stock; and
10 shareholders of our preferred stock.
The Company feels the actual number of common stock holders may be
significantly higher as 2,818,602 common shares are held in street name which
is 77.6% of the total common shares outstanding.
Dividends/Distributions
On January 23, 2006, the Company declared a distribution of approximately
500,000 Neuralstem, Inc. common shares acquired as a result of services
provided. On February 5, 2007, the Company completed the distribution. As a
result of rounding for partial shares a total of 500,473 Neuralstem, Inc.
common shares was distributed. No additional distributions are contemplated in
the future. Refer to Item 3 Legal Proceedings for additional information.
<page>
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 had knowledge of
and access to sufficient information about the Company to make an informed
investment decision and were sophisticated in such transactions. 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:
There were no sales of unregistered securities in 2009.
<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>
2009 2008 2007 2006 2005
--------------------------------------------------------
Total assets $1,676,604 $1,181,256 3,737,770 2,744,472 238,666
Total liabilities $41,138 $60,528 1,312,870 1,740,977 520,363
Net assets $1,635,466 $1,120,728 2,424,900 1,003,495 (281,697)
Net asset value per
outstanding share 0.450 .308 .067 0.22 (0.07)
Shares outstanding, 3,633,067 3,633,067 3,633,067 4,633,067 4,270,567
</table>
Operating Data for the last five fiscal years ended December 31:
<table>
<c> <c> <c> <c> <c> <c>
2009 2008 2007 2006 2005
Total investment income $0 0 0 0 0
Total expenses $298,027 $314,152 445,596 779,206 220,418
Net operating (loss) (298,027) (314,152) (445,596) (779,206) (220,418)
Total tax expense (benefit) 0 $800 800 800 1,642
Stock Dividends 0 0 653,948 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 $1,676,604 and its net assets were $1,635,466
at December 31, 2009, compared to $1,181,256 and $1,120,728, respectively, at
December 31, 2008. Net income including investment and other income changed
during the twelve months ended December 31, 2009 from a $1,304,171 loss in 2008
to a $514,737 gain. The increase was mainly attributable to the unrealized
gains in stock option investments. Net operating loss (total operating
expenses) for 2009 decreased by 16,125 compared to 2008. The Company's net
realized gain of 251,413 on the sale of investment securities was offset by a
$243,565 loss on net unrealized depreciation on current investment assets. The
Company sold 187,500 shares of portfolio stock at an investment cost of $8,048.
The Company also booked an unrealized increase in investments in stock options
of $805,900 due to change in accounting procedures using a Black-Scholes
investment valuation for stock options rather than the management estimates
used in prior years. During 2009 the Company increased prepaid expenses by
$20,176 offset by a decrease in accounts payable and other accrued expenses of
$19,390. Net operating loss before other income was reduced 5% from 2008 to
$298,027. There were no extra-ordinary gains from settlements of accrued loans
in 2009. The Company incurred a $114,050 increase in legal fees in 2009 with
it's primary attorney compared to 2008 due to litigation regarding a
stockholder lawsuit which was settled in 2010. This was offset by a $118,950
reduction in fees paid to outside consultants excluding accounting consultants
and auditors.
<page>
For the prior twelve months ended December 31, 2008 the decrease in net assets
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. The Company
recorded a gain of $180,373 from settlements of accrued loans and expenses.
Accounts payable was reduced by $405,584 in 2008.
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. Our 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, 2009 and
2008
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, 2009 and 2008 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, 2009, operating expenses were $298,027
compared to $314,152 for the twelve month period ended December 31, 2008. The
decrease of $16,125 for the twelve month period ended December 31, 2009 as
compared to the comparable period of 2008 is primarily attributable to
decreases in expenses for outside consultants 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, 2009, our Net Investment Loss
amounted to $298,027. This compares to a loss of $134,579 for the year ended
December 31, 2008. The increased loss is due to increased legal expenses in
2009 and a zero gain on settlement of accounts payable and accrued expenses
compared to $180,373 gain for fiscal 2008. The 2009 operating expenses
consisted primarily of legal fees, professional services and consulting fees.
<page>
The Company anticipates our net investment loss will increase upon the addition
of more companies to our portfolio, and if we can hold onto the securities of
our portfolio companies for long term capital growth. Currently we have been
selling the securities in our investment portfolio to finance our operations.
Liquidity and Capital Resources
At December 31, 2009, we had approximately $799,730 in liquid and semi liquid
assets consisting of: $83,715 in cash and $716,015 in saleable marketable
securities.
For the twelve month period ended December 31, 2009, we satisfied our working
capital needs from cash on hand at the beginning of the period and from the net
proceeds from the sale of marketable securities in the amount of $251,413. As
of December 31, 2009, the Company's net asset value (Equity) was $1,635,466
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 $20,974 $20,974 0 0 0
Long Term Debt Obligations $ 0 0 0 0 0
Total $20,974 $20,974 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, 2009 and through the date of this report.
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 64 Chairman of the Board,
CEO, CFO, Secretary,
Treasurer & Director 2008
Dr. Malcolm Currie 82 Director 1995
Bernard L. Brodkorb 68 Director 2009
CHARLES J. NEWMAN is the present Chairman of the Board, Chief Executive
Officer, Chief Financial Officer, Secretary, and Treasurer appointed 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. Mr. Newman has been serving since 1988 as the Chief Financial
Officer of Lincoln Loan and Finance Corporation, National Acceptance
Corporation and Ambassador Finance Co., Inc. and has also been serving as the
Chief Executive Officer for those three entities since 2005. From it's
inception in 1992 Mr. Newman has been serving as President and Director of Mid
America Capital Corp. Since 1992 Mr. Newman has served as the President and
Director of the Max and Gertrude Newman - Charles and Phyllis Newman
Foundation, a 501(c)(3) charitable foundation as defined by the US Internal
Revenue Service Code. From 2000 to the present, Mr. Newman has served as Vice-
President and Director of Doubletree Capital Partners, LLC. He is also a
Director of Our World Live, Inc and North Central Capital Corporation.
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 2009 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
For the year ended December 31, 2009 there was no executive or director
compensation paid. Two directors received consulting fees for work performed
not related to being a director.
<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 2009 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, 2009.
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, 2009, 2008, and 2007 (together the "Named
Executive Officers").
Name and Stock Option All other
Principal position Year Salary Bonus Awards Award Compensation Total
Dr. Richard Hull 2009 0 0
Chief Operating Officer 2008 *1 15,000 15,000
President 2007 85,000 85,000
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 in 2008 so they are not outstanding and there was no expense to the
Company. Mr. Hull resigned as an officer of the Company in 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
At the end of fiscal year 2009, 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, 2009:
Nonqualified
Fees Earned Non-Equity Deferred
Or paid in Stock Option Incentive Compensation All Other
Name Cash Awards Awards Compensation Earnings Compensation Total
- -------------------------------------------------------------------------------
0 0 0 0 0 $0. $0
No additional Director compensation has been authorized for services for the
period from January 1, 2009 through December 31, 2009 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, 2010 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.
On April 2, 2009 the Compensation Committee approved the renewal of a
consulting agreement for Empresario, Inc. in the amount of $15,000 for three
months. Ms. Lisa Du Boise is the principal officer of Empresario, Inc. She held
a position as Director of Regal for a brief time until she resigned on March
31, 2009.
For the year ended December 31, 2009 Mr Bernard L. Brodkorb who is a Director
of Regal received $56,400 in fee compensation for providing accounting and
financial reporting services not related to his duties as a Director of Regal
One Corporation. He received no compensation for being a Director.
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, 2009 and 2008 were approximately $27,500 and $28,500,
respectively.
Audit Related Fees: None
Tax Fees: None.
All Other Fees: None.
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 2009 and 2008 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, 2009 and at December 31, 2008 F-2
Statement of Investments as of December 31, 2009 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 6, 2010
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 6, 2010
Charles J. Newman Chief Financial Officer, and
Chairman of the Board
/s/ Malcolm Currie Director April 6, 2010
Malcolm Currie
/s/ Bernard L. Brodkorb Director April 6, 2010
Bernard L. Brodkorb
<page>
De Joya Griffith & Company, LLC
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, 2009 and 2008, 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, 2009 and 2008, 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 does not generate operating revenue and must liquidate
its investment portfolio to provide cash flow for its operations, 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
March 26, 2010
<page>
PART IV FINANCIAL STATEMENT SCHEDULES
<table> <caption>
REGAL ONE CORPORATION
BALANCE SHEETS
<c> <c> <c>
December 31, 2009 December 31, 2008
(Audited) (Audited)
ASSETS -------------- -----------------
Assets:
Cash and cash equivalents $ 83,715 $ 122,478
Prepaid Insurance 20,974 41,150
Marketable securities at fair value 716,015 967,628
---------- -----------
Total Current Assets: 820,704 1,131,256
Investments:
Investments in non-affiliated portfolio companies 1,571,915 1,017,628
Less: marketable securities portion (716,015) (967,628)
-------- -----------
Total investments, net 855,900 50,000
-------- -----------
TOTAL ASSETS $ 1,676,604 1,181,256
========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities $ 41,138 $ 60,528
---------- ---------
Total Current Liabilities 41,138 60,528
---------- ---------
Stockholders' Equity:
Preferred stock, no par value
Series A - Authorized 50,000 shares,
0 issued and outstanding at December 31, 2009 -- --
Series B - Authorized 500,000 shares, 100,000
issued and outstanding at December 31, 2009
and at December 31, 2008 500 500
Common stock, no par value,:
Authorized 50,000,000 shares; 3,633,067 shares
issued and outstanding at December 31, 2009
and at December 31,2008 8,184,567 8,184,567
Additional paid-in capital 192,126 192,126
Accumulated deficit (6,741,727) (7,256,465)
----------- -----------
Total Net Assets 1,635,466 1,120,728
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $ 1,676,604 $ 1,181,256
============ ===========
Net asset value per outstanding share $ 0.450 $ 0.308
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 1% $ 17,169 (1) $716,000 No
Neuralstem Warrant 50,000 (2) 855,900 No
LMP Money Market Trust Money Market Fund 15 15 No
--------- ---------
Total Investments $ 67,184 $1,571,915
</table>
(1) As of December 31, 2009, there were 400,000 Neuralstem shares held after
the sales in this quarter of 42,500 shares. Regal recorded a net gain in book
value of 3% because the share price increased by 14% during the quarter.
These remaining shares have been reported on a fair value basis valued at the
12/31/09 market price of $1.79 with no reduction in Fair Market Value
applied. All of these shares held at December 31, 2009 have been recorded as
a current asset. During 2009 187,500 shares of Neuralstem stock were sold
from our investment inventory to finance our operations.
(2) Regal also has a 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. As of December 31,
2009 using a Black-Scholes Option Pricing Model, a $855,900 value was
assigned to these warrants including a 10% discount assigned by management
due to the low trading volumes and volatility of Neuralstem stock. There is
currently no market for Neuralstem options carried as an investment. For 2008
Regal valued the investment at $50,000. By changing to using the Black-
Scholes method to value the investment, Regal recorded a $472,900 unrealized
gain on the investment in the first half of 2009 and an additional $333,000
gain in the second half due to increases in the stock price.
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,
2009 2008 2007
(Audited) (Audited) (Audited)
OPERATIONS:
Net investment loss from operations $ (298,027) (134,579) $ (436,396)
Net realized gain on portfolio securities 251,413 1,482,454 67,259
Net change in unrealized appreciation
(depreciation) of portfolio securities (243,565) (2,618,779) 1,693,926
Net Change in unrealized appreciation
(depreciation) of option investments 805,900 -- --
Impairment of investments -- (12,500) --
Interest income -- 30 --
Interest (expense) (984) (20,797) --
------------ ---------- ---------
Net increase (decrease) in net assets
resulting from operations 514,737 (1,304,171) 1,324,789
SHAREHOLDER ACTIVITY:
Declared dividend -- -- 96,616
NET INCREASE (DECREASE) IN NET ASSETS 514,737 (1,304,171) 1,421,405
NET ASSETS:
Beginning of period 1,120,728 2,424,900 1,003,495
End of period 1,635,466 1,120,729 2,424,900
Average net assets 1,378,096 1,772,814 1,714,198
TOTAL NET ASSET VALUE RETURN 37.4% (73.6%) 82.9%
Ratios to average net assets:
Net expenses 298,027 314,152 445,596
Net investment gain (loss) 514,737 (1,304,171) (74,304)
Per share ratio expenses 21.6% 17.7% 25.9%
Per share ratio net investment loss 37.4% (73.6%) 77.3%
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
2009 2008 2007
(Audited) (Audited) (Audited)
------------- ------------- ---------- ----------
Investment income: $ -- $ -- $ --
Operating expenses:
Professional services 247,318 282,672 233,733
Litigation Settlement costs - - -- 45,000
Other selling, general and
administrative expenses 50,709 31,480 166,863
--------- -------- --------
Total Operating expenses 298,027 314,152 445,596
--------- -------- --------
Net Operating loss (298,027) (314,152) (445,596)
Other income (expense):
Gain on payable settlements -- 180,373 10,000
--------- -------- ---------
Net income (loss) before provision
for income taxes (298,027) (88,234) (435,596)
Income tax expenses -- 800 800
---------- --------- ---------
Net investment loss (298,027) (134,579) (436,396)
---------- ---------- ---------
Net realized gain on portfolio 251,413 1,482,454 67,259
Net change in unrealized
(depreciation) appreciation in
portfolio company investments (243,565) (2,618,779) 1,693,926
Net change in unrealized appreciation
in stock options 805,900 -- --
Impairment of investments -- (12,500) --
Interest income - -- 30 --
Interest (expense) (984) (20,797) --
---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations $ 514,737 $(1,304,171) $ 1,324,789
========== =========== ==========
Weighted average number of
common shares 3,633,067 3,633,067 3,964,574
Basic earnings per share $ 0.142$ (0.359) $ 0.3348
Weighted average number of
fully diluted shares (1) 13,633,067 13,633,067 13,964,574
Diluted earnings per share $ 0.038 $ (0.096) $ 0.095
========== =========== ==========
(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,
2009 2008 2007
(Audited) (Audited) (Audited)
------------------ ------------------
Cash flows from operating activities:
Net decrease in net assets from operations $ 514,737 (1,304,171) $ 1,324,789
Adjustments to reconcile net increase (decrease)
in net assets resulting from operating activities:
Realized gain on sale of marketable securities (251,413) 1,482,454 (67,259)
Unrealized decrease (increase) in investments
in portfolio companies 243,565 (2,618,779) (1,693,926)
Unrealized (increase) in investment in options (805,900) -- --
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 20,176 (41,150) 3,000
Increase (decrease) in accounts payable and
accrued expenses (19,390) (314,476) 195,957
Decrease in contingent litigation fees -- -- (250,000)
--------- -------- ----------
Net cash used in operating activities (298,227) (804,845) (353,340)
Cash flows from investing activities:
Proceeds from sale of marketable securities 259,461 1,513,856 113,159
--------- -------- ---------
Net cash provided by investing activities 259,461 1,513,856 113,159
Cash Flows from financing activities:
Increase (decrease) in officer loan
and interest payable (650,794) 413,500
--------- -------- --------
Net cash provided by (used in) financing activities (650,794) 413,500
Net change in cash (38,764) 58,216 64,220
Cash at beginning of period 122,478 64,262 42
--------- -------- -------
Cash at end of period $ 83,714 $ 122,478 $ 70,202
============= =-======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 985 20,797 --
Cash paid for income taxes -- -- 800
Non-Monetary Transactions:
Unrealized gain (loss) in marketable securities (251,613) (2,618,779)
Unrealized gain in stock option valuation 805,900 -- --
Gain on settlement of liabilities -- 180,373 --
Dividend payable on 465,430 portfolio company shares -- -- 653,948
--------- - ------- ----------
Total non-monetary transactions $ 554,287 201,170 654,748
=========== ========= =========
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,
2009 2008
(Audited) (Audited)
---------------- -----------
OPERATIONS:
Net investment income (loss) from operations (0.082) (0.037)
Net realized gain (loss) on portfolio securities 0.069 0.408
Net change in unrealized appreciation
(depreciation) of portfolio securities (0.067) (0.721)
Net change in unrealized appreciation
(depreciation) of option investments 0.222 --
Impairment of investments -- (0.003)
Interest income -- --
Interest expense (0.00) (0.006)
--------- --------
Net increase (decrease) in net assets
from operations 0.142 (0.359)
SHAREHOLDER ACTIVITY
Declared dividend -- --
-------- --------
NET INCREASE (DECREASE) IN NET ASSETS $ 0.142 $(0.359)
NET ASSET VALUE, BEGINNING OF PERIOD $ 0.308 0.667
NET ASSET VALUE, END OF PERIOD $ 0.450 0.308
========= =======
TOTAL NET ASSET VALUE RETURN (LOSS) 37.4% (73.6)%
========= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period $1,635,468 $1,120,728
=========== ===========
Ratios to average net assets:
Net expenses 21.6% 17.72%
Net investment gain (loss) 37.4% (73.6)%
Portfolio turnover rate 0.397 0.718
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 sales of inventory securities and 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.
<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
Accounting Standard Codification ("ASC") 820 "Fair Value Measurement and
Disclosure". ASC 820 defines fair value, establishes a framework for
measuring fair value <page>
in generally accepted accounting principles, and expands disclosures about
fair value measurements. The provisions of ASC 820 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 ASC 820 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.
ASC 820 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 ASC 820 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>
Fair
Level of Carrying Cost Market
Equity Investments: Investment Investment Value
Neuralstem, Inc.(CUR) Level 1 $ 17,169 $716,000
Neuralstem Warrant Level 2 -- 50,000 855,900
LMP Money Market Trust Fund Level 1 15 15
--------- ---------
Total Investments $ 67,184 $1,571,915
</Table>
Comprehensive Income
ASC 220, "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. ASC 820 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 ASC 820.
Stock Based Incentive Program
ASC 718, "Compensation-Stock Compensation", 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. This standard applies to all awards granted
after the required effective date and to awards modified, purchased, or
canceled after that date. The Company adopted ASC 718 effective January 1,
2006.
Exchange of Non-monetary Assets
In December 2004, the FASB issued ASC 845, "Non-monetary Transaction". ASC
845is 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. ASC 845 eliminates this exception and replaces it with an
exception of exchanges of non-monetary assets that do not have commercial
substance. ASC 845 became effective for the Company as of July 1, 2005. The
Company will apply the requirements of ASC 845 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 2009 Regal did not acquire or add to its investment portfolio. 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, 2009, Regal held 400,000 Neuralstem shares valued at a
fair market value of $716,000. Of the total shares held at December 31, 2009,
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, 2009. Regal also has ten year
warrants to purchase 1,000,000 common stock shares, 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 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. During 2007, 2008 and 2009,
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.
On September 30, 2009, the Company adopted changes issued by the FASB to the
authoritative hierarchy of GAAP. These changes establish the FASB Accounting
Standards Codification as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission ("SEC") under
authority of federal securities laws are also sources of authoritative GAAP
for SEC registrants. The FASB no longer issues new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead the FASB issues Accounting Standards Updates. Accounting Standards
Updates are not authoritative in their own right as they only serve to update
the Codification. These changes and the Codification itself do not change
GAAP. Other than the manner in which new accounting guidance is referenced,
the adoption of these changes had no impact on the Financial Statements.
In April 2009, the FASB issued authoritative guidance for "Interim
Disclosures about Fair Value of Financial Instruments," which requires
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements. This guidance also requires those disclosures to be in summarized
financial information at interim reporting periods. This guidance is
effective for interim reporting periods ending after June 15, 2009. The
Company adopted this guidance in the second quarter of 2009 and it did not
have a material impact on the financial statements.
In April 2009, the FASB issued authoritative guidance for the "Recognition
and Presentation of Other-Than-Temporary Impairments" in order to make
existing guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. The Company adopted this guidance in the second
quarter of 2009 and it did not have a material impact on the financial
statements.
In April 2009, the FASB issued authoritative guidance for "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly."
This guidance provides additional direction for estimating fair value in
accordance with established guidance for "Fair Value Measurements," when the
volume and level of activity for the asset or liability have significantly
decreased. This guidance also includes direction on identifying circumstances
that indicate a transaction is not orderly. This guidance is effective for
interim and annual reporting periods ending after June 15, 2009. The Company
adopted this guidance in the second quarter of 2009 and it did not have a
material impact on the financial statements.
<page>
In June 2009, the FASB issued authoritative guidance which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. This guidance applies to both interim financial
statements and annual financial statements and is effective for interim or
annual financial periods ending after June 15, 2009. This guidance does not
have a material impact on our financial statements.
In June 2009, the FASB issued authoritative guidance for "Accounting for
Transfers of Financial Assets," which eliminates the concept of a "qualifying
special-purpose entity," changes the requirements for derecognizing financial
assets, and requires additional disclosures in order to enhance information
reported to users of financial statements by providing greater transparency
about transfers of financial assets, including securitization transactions,
and an entity's continuing involvement in and exposure to the risks related
to transferred financial assets. This guidance is effective for fiscal years
beginning after November 15, 2009. The Company will adopt this guidance in
fiscal 2010 and does not expect that the adoption will have a material impact
on the financial statements.
In June 2009, the FASB issued authoritative guidance amending existing
guidance. The amendments include: (1) the elimination of the exemption for
qualifying special purpose entities, (2) a new approach for determining who
should consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. This
guidance is effective for the first annual reporting period beginning after
November 15, 2009 and for interim periods within that first annual reporting
period. The Company will adopt this guidance in fiscal 2010. The Company does
not expect that the adoption will have a material impact on the financial
statements.
In October 2009, the FASB issued changes to revenue recognition for multiple-
deliverable arrangements. These changes require separation of consideration
received in such arrangements by establishing a selling price hierarchy (not
the same as fair value) for determining the selling price of a deliverable,
which will be based on available information in the following order: vendor-
specific objective evidence, third-party evidence, or estimated selling
price; eliminate the residual method of allocation and require that the
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method, which allocates any
discount in the arrangement to each deliverable on the basis of each
deliverable's selling price; require that a vendor determine its best
estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone basis; and expand
the disclosures related to multiple-deliverable revenue arrangements. These
changes become effective on January 1, 2011. The Company has determined that
the adoption of these changes will not have an impact on the financial
statements, as the Company does not currently have any such arrangements with
its customers.
<page>
NOTE 4 - EQUITY TRANSACTIONS
Sales of common stock
None for the years ended December 31, 2009, 2008 and 2007.
Stock options
None granted for the years ended December 31, 2009, 2008 and 2007.
Preferred Stock
The Company's Certificate of Incorporation allows for segregating the
preferred stock into separate series. As of December 31, 2009, 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, 2009, 2008, 2007, 2006 and 2005, no
dividends have been declared on the Series A or Series B convertible
preferred stock.
<page>
NOTE 5 - 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 2009, 2008 and 2007 under
the Company's stock option plan. As of December 31, 2009, 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.
As of December 31, 2009 and December 31, 2008, there were no stock options or
warrants outstanding.
<page>
NOTE 6 - INVESTMENTS
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: Bulletin Board 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
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. Prior to 2009 only a
nominal $50,000 value had been assigned to these warrants carried as a long
term investment in the Balance Sheet. Also there is currently no publically
traded market for Neuralstem stock Options.
<page>
As of December 31, 2009, using a Black-Scholes Option Pricing model, a
$855,900 value has been assigned to this warrant including a 10% discount
assigned by management due to low trading volume and volatility of Neuralstem
common stock. Regal recorded a $472,900 unrealized gain on the investment in
the first half of 2009 and an additional $333,000 gain in the second half due
to increases in the stock price.
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 later 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, 2009, 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, 2009. During 2009 the
market value of Neuralstem stock has increased by 6% due to market
conditions. Management does not anticipate a significant unrealized loss in
value for the first quarter of 2010.
NOTE 7 - 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.
At December 31, 2009 and 2008, the Company had a federal operating loss carry
forward of_2,589,991 and $2,391,414 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.
<page>
The provision for income taxes consisted of the following components for the
years ended December 31:
2009 2008
--------- ----------
Current:
Federal -- --
State -- --
Deferred: (1,108,516) (1,023,525)
Components of net deferred tax assets, including a valuation allowance, are
as follows at December 31:
Deferred tax assets: 2009 2008
--------- --------
Net operating loss carry forward $1,108,516 $ 1,023,525
------------ ----------
Total deferred tax assets $1,108,516 $ 1,023,525
Less: Valuation Allowance $1,108,516 $(1,023,525)
------------ ----------
Net Deferred Tax Assets $ -- $ --
The valuation allowance for deferred tax assets as of December 31, 2009 and
2008 was $1,108,516 and $1,023,525, 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, 2009 and 2008.
Reconciliation between the statutory rate and the effective tax rate is as
follows at December 31:
2009 2008
Federal statutory tax rate (35.0)% (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 8 - 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
During 2008, the entire amounts due to stockholders and officers was either
paid or settled in 2008. There are no loans outstanding as of December 31,
2009.
<page>
NOTE 9 - OTHER
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.
NOTE 10 - Legal Proceedings
On April 28, 2009, one of Regal One's shareholders, AB Investments LLC
("ABI"), sued Regal One and a number of its current and former officers and
directors in the California Central District Court asserting claims for
securities fraud, breach of contract and various torts relating to its claim
that Regal One had wrongfully failed to deliver to ABI the stock certificates
representing its Regal One stock and the stock certificates representing its
dividend of stock in Neuralstem, Inc. Regal One sought to interplead the
shares because one of ABI's managing members at the time, Allen Gelbard, had
instructed Regal One not to deliver the Neuralstem certificates to ABI until
after an internal dispute between the various members of ABI had been
resolved. The court dismissed both the securities fraud claims and the
interpleader. Mr. Gelbard later filed a motion to intervene in the action
(claiming that he was the rightful owner of the stock certificates, rather
than ABI), but the court denied Mr. Gelbard's motion to intervene. The
parties eventually reached a confidential settlement agreement of all the
remaining claims in the action, pursuant to which the court entered a
stipulated final judgment and order on February 18, 2010 that required
delivery of the stock certificates at issue to ABI, and ended the case. The
Company complied with the terms of the settlement agreement and court order,
delivered the stock certificates to ABI, and considers the case to be closed
and settled between all parties.
Before the Court's entry of final judgment in the action, Mr. Gelbard
threatened to pursue further legal action against Regal One and its current
and former officers and directors if it delivered the stock certificates to
ABI.
As of the date of this report and subsequent events, there are no additional
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 other
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.
NOTE 11 - SUBSEQUENT EVENTS
Management evaluated all activity of the Company through December 31, 2009
(the issue date of the Financial Statements) and the subsequent period up to
and including the issue date of this report.
The legal activity settlement referred to in Note 10 Legal Proceedings was
settled by court order in the first quarter of 2010 subsequent to the end of
fiscal year.
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