UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Commission File Number: 814-00710
-----------------------------------
REGAL ONE CORPORATION
(Exact name of registrant as specified in its charter)
Florida 95-4158065
(State of incorporation) (I.R.S. Employer Identification No.)
11300 West Olympic Blvd, Suite 800, Los Angeles, CA 90064
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (310) 312-6888
- ------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 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 Exchange Act) Yes [] No [X]
Indicate the number of shares outstanding of each of the Issuer's classes of
stock, as of the latest practical date.
As of November 12, 2010, there were 3,633,067 shares of common stock, no par
value and 100,000 shares of Series B convertible preferred stock, issued and
outstanding. The outstanding Series B convertible preferred stock is
convertible into an aggregate of 10,000,000 shares of common stock.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements ----
Balance Sheets F-2
Schedule of Investments 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 9-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 25-31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
PART I FINANCIAL INFORMATION
<table> <caption>
REGAL ONE CORPORATION
BALANCE SHEETS
<c> <c> <c>
September 30, 2010 December 31, 2009
(Unaudited) (Audited)
ASSETS -------------- -----------------
Assets:
Cash and cash equivalents $ 52,644 $ 83,715
Accounts receivable, settlement -- --
Prepaid insurance 2,555 20,974
Investment deposit 1,200 0
Marketable securities at fair value 945,015 716,015
---------- -----------
Total current assets: 1,001,414 820,704
Investments:
Investments in non-affiliated portfolio companies 2,049,315 1,571,915
Less: marketable securities portion (945,015) (716,015)
-------- -----------
Total investments, net 1,104,300 855,900
-------- -----------
TOTAL ASSETS $ 2,105,714 $ 1,676,604
========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities 13,071 41,138
---------- ---------
Total current liabilities 13,071 41,138
---------- ---------
Stockholders' Equity:
Preferred stock, no par value
Series A - Authorized 50,000 shares,
0 issued and outstanding at September 30, 2010
and December 31, 2009, respectively -- --
Series B - Authorized 500,000 shares, 100,000
issued and outstanding at September 30, 2010
and December 31, 2009, respectively 500 500
Common stock, no par value,:
Authorized 50,000,000 shares; 3,633,067 shares
issued and outstanding at September 30, 2010
and December 31, 2009, respectively 8,184,567 8,184,567
Additional paid-in capital 192,126 192,126
Accumulated deficit (6,284,550) (6,741,727)
----------- -----------
Total net assets 2,092,643 1,635,466
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $ 2,105,714 $ 1,676,604
============ ===========
Net asset value per outstanding share $ 0.580 $ 0.450
F-2
The accompanying notes are an integral part of the financial statements.
</table>
<page>
<table> <caption>
REGAL ONE CORPORATION
SCHEDULE OF INVESTMENTS
September 30, 2010
(Unaudited)
<c> <c> <c> <c> <c> <c>
Equity Investments:
Description Percent Carrying Cost Discounted
Company of Business Ownership Investment Fair Value Affiliation
Neuralstem, Inc. (CUR) Biomedical company 1% $ 16,096 (1) $ 945,000 No
Neuralstem, Inc. Warrant 50,000 (2) 1,104,300 No
Money Market Fund 15 15 No
--------- ---------
Total Investments $ 66,111 $ 2,049,315
========= =========
(1) At September 30, 2010 there were 375,000 Neuralstem shares held reported on a fair value
basis at the closing market price of $2.52 on the OTCBB with no additional reduction in Fair
Market Value applied. 5,000 shares were sold in the second quarter. Regal recorded a net gain
in book value of 1% because the share price increased by 1% during the quarter. All common
shares held have been recorded as a current marketable securities asset.
(2) Regal also has one ten year Neuralstem warrant to purchase 1,000,000 common stock shares
at an exercise price of $5.00 per share which is significantly above the present fair market
value of Neuralstem shares. As of September 30, 2010 using a Black-Scholes Option Pricing
model, a $1,104,300 value has been assigned to these stock option warrants including a 10%
discount assigned by management due to low trading volumes and volatility of Neuralstem stock
and there is currently no market for the Neuralstem stock options carried as an investment.
For 2008 Regal valued the investment at $50,000. Using the Black-Scholes valuation method,
Regal recorded a $248,400 unrealized gain on the investment during the nine months ended
September 30, 2010.
F-3
The accompanying notes are an integral part of the financial statements.
</Table>
<page>
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
<c> <c>
Nine Months Ended Nine Months Ended
September 30, 2010 September 30, 2009
(Unaudited) (Unaudited)
--------------- ---------------
OPERATIONS:
Net loss from operations $ (139,273) $ (221,448)
Net gain on recovery of legal fees 63,484 --
Net realized gain on portfolio securities 55,558 179,005
Net change in unrealized appreciation
(depreciation) of portfolio securities 229,858 (266,664)
Net change in valuation of stock options 248,400 832,900
Income tax expense (850) --
Interest expense -- (824)
------------ ----------
Net increase in net assets resulting
from operations 457,177 522,970
SHAREHOLDER ACTIVITY:
Declared dividend -- --
NET INCREASE IN NET ASSETS 457,177 522,970
NET ASSETS:
Beginning of period 1,635,466 1,120,728
End of period 2,092,643 1,643,698
Average net assets 1,864,055 1,382,213
========= =========
Ratios to average net assets:
Net expenses 7.5% 16.0%
Net investment gain 24.5% 37.8%
Per share ratio expenses 3.8% 6.1%
Per share ratio net investment gain 12.6% 14.4%
F-4
The accompanying notes are an integral part of the financial statements.
</table>
<page>
<table>
<caption>
REGAL ONE CORPORATION.
STATEMENTS OF OPERATIONS
<c> <c> <c> <c> <c>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept 30 2010 Sept 30 2009 Sept 30 2010 Sept 30 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------
Investment income: $ -- $ -- $ -- $ --
Operating expenses:
Professional services 24,460 110,213 113,125 180,732
Other selling, general and
administrative expenses 8,056 13,750 26,148 40,716
--------- --------- -------- --------
Total operating expenses 32,516 123,963 139,273 221,448
--------- --------- -------- --------
Net operating loss (32,516) (123,963) (139,273) (221,448)
Other income:
Gain on recovery of legal fees -- -- 63,484 --
--------- --------- -------- ---------
Net loss before provision
for income taxes (32,516) (123,963) (75,789) (221,448)
Income tax expenses 50 -- 850 --
--------- ---------- --------- ---------
Net investment income (loss) (32,566) (123,963) (76,639) (221,448)
--------- ---------- ---------- ---------
Net realized gain on portfolio -- 149,660 55,558 179,005
Net change in unrealized
(depreciation) appreciation in
portfolio investments 7,500 118,366 229,858 (266,663)
Appreciation of stock options 40,500 360,000 248,400 832,900
Impairment of investments -- -- -- --
Interest (expense) -- (275) -- (824)
Interest income -- -- -- --
--------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations $ 15,434 $ 503,788 $ 457,177 $522,970
========== ========== =========== ==========
Weighted average number of
common shares - basic 3,633,067 3,633,067 3,633,067 3,633,067
Basic earnings per share $ 0.004 $ (0.139) $ 0.126 $ 0.144
Weighted average number of
fully diluted shares 13,633,067 13,633,067 13,633,067 13,633,067
Diluted earnings per share $ 0.001 $ (0.0037) $ 0.034 $ 0.0038
========== ========== =========== ==========
The accompanying notes are an integral part of the financial statements.
</table>
Page F-5
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF CASH FLOWS
<c> <c> <c>
Nine Months Ended Nine Months Ended
Sept 30, 2010 Sept 30, 2009
(Unaudited) (Unaudited)
------------------ ----------------
Cash flows from operating activities:
Net decrease in net assets from operations $ 457,177 $ 522,970
Adjustments to reconcile net increase (decrease)
in net assets resulting from operating activities:
Realized gain on sale of marketable securities (55,558) (179,005)
Unrealized loss on short term investments (229,000) 272,888
Unrealized gain on stock option investments (248,400) (832,900)
Cost of investments (1,200) (6,494)
Changes in operating assets and liabilities:
Increase in accounts receivable -- --
Decrease in prepaid expense 18,419 37,035
Decrease in accounts payable/accrued
expenses (28,067) (15,930)
--------- --------
Net cash used in operating activities (86,629) (201,436)
Cash flows from investing activities:
Proceeds from sale of marketable securities 55,558 185,499
--------- --------
Net cash provided by investing activities 55,558 185,499
Net change in cash (31,071) (15,937)
Cash at beginning of period 83,715 122,478
--------- --------
Cash at end of period $ 52,644 $ 106,541
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ 824
---------- --------
Non-Monetary Transactions:
Unrealized gain (loss) in security investments 229,000 (272,888)
Unrealized gain in stock option investment 248,400 832,900
------------- -----------
Total non-monetary transactions 477,400 560,012
============= ===========
The accompanying notes are an integral part of the financial statements.
F-6
</table>
<page>
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF FINANCIAL HIGHLIGHTS
<c> <c> <c>
Nine Months Ended Nine Months Ended
September 30, 2010 September 30, 2009
(Unaudited) (Unaudited)
---------------- -------------
Per Share Unit Operating Performance
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss from operations $ (0.038) $ (0.061)
Gain on recovery of legal fees 0.017
Net realized gain on portfolio securities 0.015 0.049
Net change in unrealized (depreciation)
appreciation of portfolio companies 0.063 (0.073)
Net change in unrealized (deprecation)
appreciation of stock option investment 0.068 0.229
Income tax expense 0.000 0.000
--------- ---------
Total from investment operations .126 .144
SHAREHOLDER ACTIVITY
Declared dividend -- --
========= =======
NET INCREASE IN NET ASSETS 0.126 0.144
========= =======
NET ASSETS
Beginning of period 0.450 0.308
End of period .576 .452
========= =========
TOTAL NET ASSET VALUE RETURN 24.5% 37.8%
RATIOS AND SUPPLEMENTAL DATA:
Ratios to average net assets:
Net expenses 7.5% 16.0%
Net investment gain 24.5% 37.8%
The accompanying notes are an integral part of the financial statements.
Page F-7
</table>
REGAL ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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. Since inception the Company has 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 it was in our
shareholder's 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 10-QSB.
Basis of Presentation
In 2006, the Company began reporting as a BDC and the attached financial
statements for the periods covered by this report have been formatted in
conformity with the December 31, 2009 and 2008 financial statements, including
the BDC required supplemental schedules, for comparative purposes. The nature
of the Company's operations and its reported financial position, results of
operations, and its cash flows are dissimilar for the periods prior to and
subsequent to its becoming an investment company. The Company's financial
position and its operating results, cash flows and changes in net assets for
the periods covered by this report are presented in the accompanying financial
statements pursuant to Article 6 of Regulation S-X. In addition, the
accompanying footnotes, although different in nature as to the required
disclosures and information reported therein, is also presented as they relate
to each of the above referenced periods. These statements reflect all
adjustments, consisting of normal recurring adjustments, which, in the opinion
of management, are necessary for fair presentation of the information
contained therein.
<page>
It is suggested that these interim financial statements be read in conjunction
with the financial statements of the Company for the year ended December 31,
2009 and notes thereto included in the Company's Form 10-K. The Company
follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results. The information furnished in the interim financial statements
includes normal recurring adjustments and reflects all adjustments, which, in
the opinion of management, are necessary for a fair presentation of such
financial statements.
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 any
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 any cumulative dividends on preferred stock by the
weighted average number of common and potentially dilutive securities
outstanding during the period. For all periods presented that indicate a net
decrease in net assets from operations, 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.
<page>
Valuation of Investments (as an Investment Company)
Fair Value Accounting
As an investment company under the Investment Company Act of 1940, all of the
Company's investments must be carried at market value or fair value. For Level
2 and Level 3 investments which do not have readily determinable market values
the value is determined by management. In September 2006, the Financial
Accounting Standards Board ("FASB") issued Accounting Standard Codification
820 "Fair Value Measurement and Disclosure" ("ASC 820") which defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
The provisions of ASC 820 were adopted January 1, 2008.
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>
ASC 820 Fair Market
Level of Carrying Cost Value as of
Equity Investments: Investment Investment September 30, 2010
Neuralstem, Inc.(CUR) Level 1 $ 16,096 $ 945,000
Neuralstem Warrant Level 2 50,000 1,104,300
LMP Money Market Trust Fund Level 1 15 15
--------- ---------
Total Investments $66,111 $2,049,315
</table>
<page>
Comprehensive Income
ASC 220 Comprehensive Income, establishes standards for reporting and the
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
220 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.
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. The Company adopted ASC 718 effective
January 1, 2006 using the modified prospective method. Under this transition
method, stock compensation expense includes compensation expense for all
stock-based compensation awards granted on or after January 1, 2006, based on
the grant-date fair value estimated in accordance with the provisions of ASC
718.
NOTE 2 - CASH AND MARKETABLE SECURITIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and may include instruments
with maturities of three months or less at the time of purchase.
Marketable Securities
In 2005, Regal acquired approximately 1,800,000 shares of Neuralstem's common
stock and a warrant to purchase an additional 1,000,000 shares of common stock
which contains certain anti-dilution provisions 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 6: "Investments"). During 2006, Neuralstem filed the registration
statement and it was declared effective on August 30, 2006.
<page>
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 September 30, 2010, Regal held 375,000 Neuralstem shares valued at
$945,000. Of the total shares held at September 30, 2010, all have been
recorded as a current asset. These shares constitute working capital available
to Regal as of September 30, 2010. Regal also has one ten year warrant at an
exercise price of $5 per share which is significantly above the present fair
market value of Neuralstem shares. In the first quarter of 2009 the Company
implemented ASC 820 fair market valuation using a Black-Scholes Option Pricing
model for this Neuralstem warrant. In the third quarter of 2010, the
unrealized gain for this warrant was $248,400 compared to a $207,900 gain
recorded the second quarter. This option was priced using fair market
valuation. This Neuralstem warrant is carried as a long term investment.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In February 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic
855): Amendments to Certain Recognition and Disclosure Requirements. This
amendment addresses both the interaction of the requirements of this Topic
with the SEC's reporting requirements and the intended breadth of the
reissuance disclosure provision related to subsequent events (paragraph 855-
10-50-4). All of the amendments in this Update are effective upon issuance of
the final Update, except for the use of the issued date for conduit debt
obligors. That amendment is effective for interim or annual periods ending
after June 15, 2010. The Company does not expect the provisions of ASU 2010-
09 to have a material effect on the financial position, results of operations
or cash flows of the Company.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06, Improving Disclosures about
Fair Value Measurements, which requires entities to disclose separately the
amount and reasons behind significant transfers in and out of Levels 1 and 2,
disclose the fair value measurements for each class of assets and liabilities
and disclose the inputs and valuation techniques used to measure both
recurring and nonrecurring activities under Levels 2 and 3. The new
disclosure requirements are effective for interim and annual reporting periods
beginning after December 15, 2009. The ASU also requires that reconciliations
for fair value measurements using significant unobservable inputs (Level 3)
should separately present significant information on a gross basis. This Level
3 disclosure requirement is effective for fiscal years beginning after
December 14, 2010. The adoption of the provisions of ASU 2010-06 is not
expected to have a material impact on the Company's financial statements.
<page>
NOTE 4 - EQUITY TRANSACTIONS
The Company's outstanding common share balances as of September 30, 2010 and
at December 31, 2009 are 3,633,067 of no par value common shares.
The Company's Certificate of Incorporation allows for segregating preferred
stock into separate series. As of September 30, 2010 and December 31, 2009,
the Company had authorized 50,000 shares of Series A preferred stock and
500,000 shares of Series B convertible preferred stock. There were no
outstanding shares of Series A preferred stock and 100,000 shares of Series B
preferred stock were issued and 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.
As of the nine months ended September 30, 2010 and the year ended December 31,
2009, no dividends have been declared on the Series A or Series B convertible
preferred stock.
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. As of September
30, 2010, all outstanding options granted under our stock option plan had
either been exercised or expired.
<page>
NOTE 6 - INVESTMENTS
In the quarter ended 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 formalized 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, 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. In 2005, Regal One reflected those
options in its balance sheet based on its estimated $50,000 direct cost of the
considerations it had provided to Neuralstem.
At September 30, 2010, 375,000 Neuralstem shares held were classified as
Marketable Securities in the current assets section of the Balance Sheet.
Regal One also has one ten year warrant at an exercise price of $5 per share
which is significantly above the present fair market value of Neuralstem
shares. In the first quarter of 2009 the Company implemented ASC 820 fair
market valuation using a Black-Scholes Option Pricing model for this
Neuralstem warrant. This resulted in posting an unrealized gain of $466,600 in
this quarter. In the third quarter of 2010, the unrealized gain was $248,400.
This Neuralstem warrant is carried as a long term investment
The Board of Directors is responsible for determining in good faith the fair
value of the securities and assets held by the Company.
Since 2006, the Investment Committee of the Board of Directors adopted the
provisions of ASC 820 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.
<page>
NOTE 7 - RELATED PARTY TRANSACTIONS
Related party transactions in the third quarter of 2010 included accounting
consulting fees of $14,100 paid to Bernard L. Brodkorb who is a Director of
Regal One.
NOTE 8 - 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.
As of the date of this quarterly 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.
<page>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD LOOKING STATEMENTS
In this report we make a number of statements, referred to as "forward-looking
statements", which 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 us 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, readers are cautioned
not to place undue reliance on such forward-looking statements.
DESCRIPTION OF BUSINESS
Overview
We are a financial services company which coaches and assists biomedical
companies, through our network of professionals, in listing their securities
on the over-the-counter market.
We were initially incorporated in 1959 as Electro-Mechanical Services Inc., in
the state of Florida. Since inception we have been involved in a number of
industries. In 1998 we changed our name to Regal One Corporation. On March 7,
2005, our Board of Directors determined it was in our shareholder's best
interest to change the focus of the Company's operation to providing financial
services through our network of advisors and professionals. Typically these
services are provided to early stage biomedical companies who can benefit from
our managerial skills, network of professionals and other partners.
<page>
Our clients' are usually in the early stage of development, 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 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 September
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.
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 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.
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 nine months ended September 30, 2010, we did not add any companies
to our portfolio. Our portfolio valued at fair market value is as follows:
<page>
Regal One Corporation Portfolio Investments
Value of Investments
Name of Company Investment as of September 30, 2010
Neuralstem, Inc. (OTCBB: CUR) Common Stock $945,000
Neuralstem, Inc. Warrants 1,104,300
LMP Money Market Trust Fund Money Market Fund 15
Neuralstem, Inc. ("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 13 patent pending
applications in the field of regenerative medicine and related technologies.
The field in which Neuralstem focuses on is young and emerging. There can be
no assurances that their intellectual property portfolio will ultimately
produce viable commercialized products and processes. Even if they are able to
produce a commercially viable product, there are strong competitors in this
field and their product may not be able to successfully compete against them.
As of September 30, 2010, the Company holds 375,000 shares of Neuralstem, Inc.
common stock and warrants to purchase an additional 1,000,000 shares of common
stock at an option price of $5.00 per share.
Employees
We have one part-time employee. We expect to use independent consultants,
attorneys, and accountants as necessary and 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
www.regal1.com.
<page>
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 and Compensation Committee is comprised of one director.
We anticipate that additional board members will be admitted and will augment
the current audit committee.
Investment Committee: The Investment Committee shall have oversight
responsibility with respect to reviewing and overseeing the Company's
contemplated investments and portfolio companies on behalf of the Board and
shall report the results of their activities to the Board. Such Investment
Committee shall (i) have the ultimate authority for and responsibility to
evaluate and recommend investments, and (ii) review and discuss with
management (a) the performance of portfolio companies, (b) the diversity and
risk of the Company's investment portfolio, and, where appropriate, make
recommendations respecting the role, divestiture or addition of portfolio
investments and (c) all solicited and unsolicited offers to purchase portfolio
company positions.
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 including for
example:
Our chief executive officer and chief financial officer must now certify
the accuracy of the financial statements contained in our periodic
reports;
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
The Company may not make any loan to any director or executive officer
and we may not materially modify any existing loans.
The Sarbanes-Oxley Act required us to review our current policies and
procedures to determine whether we comply with the Sarbanes-Oxley Act and the
new regulations promulgated within the regulations stated in the SOX Act of
2002. We will continue to monitor our compliance with all future regulations
that are adopted under the Sarbanes-Oxley Act and will take actions necessary
to ensure that we are in compliance therewith.
<page>
Financial Condition Overview
The Company's total assets were $2,105,714 and its net assets were $2,092,643
at September 30, 2010, compared to $1,676,604 and $1,635,466, respectively,
for the period at December 31, 2009. The changes in total assets during the
nine months ended September 30, 2010 were primarily attributable to a increase
of $229,858 in unrealized appreciation in marketable securities, a gain of
$248,400 in unrealized appreciation in stock option investments, a net
realized gain of $55,558 on portfolio securities investments and a loss of
($76,639) on investment operations. 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 and the
number of shares owned. In the first quarter of 2009 the Company implemented
ASC 820 fair market valuation using a Black-Scholes Option Pricing model for
the Neuralstem warrant.
The changes in net assets during the nine months ended September 30, 2010 were
attributable to the same factors attributable to total assets above as there
was no shareholder activity.
The Company's financial condition is dependent on a number of factors
including the ability of each portfolio company to effectuate its respective
strategies with the Company's help. These businesses are frequently thinly
capitalized, unproven, small companies that may lack management depth, and may
be dependent on new or commercially unproven technologies, and which may have
little or no operating history.
Result of Operations for the nine month period ending September 30, 2010 vs.
2009.
Operating Expenses
For the nine months ended September 30, 2010, operating expenses were $139,273
compared to $221,448 for the comparable period of 2009. The decrease for the
nine month period ending September 30, 2010 compared to the comparable period
of 2009 was primarily due to decreased Professional Services expenses of
$67,607 and a $14,568 decrease in General and Administrative expenses.
However, the Company recorded an insurance claim gain of $63,484 to recover
legal fees significantly reducing it's net operating loss for the six months
ended June 30, 2010. These funds were received in July.
Net Investment Income/ (Loss)
For the nine months ending September 30, 2010, our net investment loss after
taxes was $76,639 compared to a loss of $221,448 for the comparable period in
2009. The net change of $144,809 in the nine month period ending September 30,
2010 as compared to the comparable period ended September 30, 2009 was
attributable to the factors discussed above.
Other increases (decreases) in net assets from investments
For the nine months ended September 30, 2010, net assets increased by $457,177
primarily from the net change in unrealized gain on the value of portfolio
securities of $229,858 combined with the unrealized gain of $248,400 in the
valuation of the investment warrant. This compares to an unrealized investment
loss of $266,664 for the comparable period in 2009 offset by an unrealized
gain of $832,900 in a stock option. Refer to the Statements of Operations page
F-5.
<page>
Liquidity and Capital Resources
At September 30, 2010, we had $1,001,414 in liquid and semi-liquid current
assets mainly consisting of $52,644 in cash, $2,555 in Prepaid Insurance
expense, a $1,200 deposit, and $945,015 in saleable marketable securities at
fair market value. For the nine month period ended September 30, 2010, we
primarily satisfied our working capital needs from cash on hand at the
beginning of the period which decreased by $31,071. Working capital
expenditures included: (i) a decrease in prepaid insurance in the amount of
$18,419.
The Company may receive loans from an established collateralized loan account
with a securities broker/dealer that as of September 30, 2010 held 375,000
shares of Regal's Neuralstem stock. No loans were required during the third
quarter of 2010 and no balance is due.
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, when the Company enters into a margin agreement loan using its
portfolio securities as collateral, 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. The Company's average current monthly
cash operating expense is approximately $15,475. Because our revenues, if
generated, tend to be in the form of portfolio securities, such revenues are
not normally of a type capable of being liquidated 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.
Item 3. 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 that 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.
<page>
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
The Company's management, under the supervision and with the participation of
various members of management, including our CEO and our CFO, has evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of
the period covered by this quarterly report. Based upon that evaluation, our
CEO and CFO have concluded that our current disclosure controls and procedures
are effective as of the end of the period covered by this quarterly report.
Changes in Internal Controls
There have been no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934) that occurred during the nine months ended September 30,
2010 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. 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.
As of the date of this quarterly 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.
<page>
Item 1A. Risk Factors
The purchase of shares of capital stock of the Company involves many risks. A
prospective investor should carefully consider the following factors before
making a decision to purchase any such shares:
We Have Historically Lost Money and Losses May Continue in the Future:
Our net operating loss for the 2009 fiscal year was $298,027 and future losses
are likely to occur. Accordingly, we may experience significant liquidity and
cash flow problems if we are not able to raise additional capital as needed
and on acceptable terms. No assurances can be given we will be successful in
reaching or maintaining profitable operations in which case, the Company could
deplete its cash and liquid resources.
The Company's cash expenses are very large relative to its cash flow which
requires the Company continually to sell its investment inventory shares. This
could result in substantial dilution to our shareholders net equity and our
ability to continue in operations should additional capital not be raised:
For the year ended December 31, 2009 the Company had no operating revenues and
operating expenses of $298,027. Consequently, the Company was required to sell
shares of the Company's inventory of investment stock or issue promissory
notes to raise the cash necessary to pay ongoing expenses. During the first
nine months of 2010, the Company sold 25,000 shares of inventory stock.
Further sales of inventory investment stock could lead to continuing dilution
in net asset value for Company stockholders.
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).
<page>
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.
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 that are 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.
<page>
The Company's common stock is trading at a substantial discount to net asset
value:
The following table summarizes the Company's historical approximate net asset
value per common share and corresponding stock price:
As of December 31, 2009 2008 2007 2006
Net Asset Value $.45 $ .31 $ 0.67 $ .22
Stock Price* $.03 $ .11 $ 0.06 $ .15
*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, however
there can be no assurance this trend will continue. Moreover, as the Company
utilizes and monetizes its assets for its continuing operating needs, the Net
Asset Value will decrease, potentially resulting in further decreases in the
price of the Company's common stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may
make it more difficult for investors to resell their shares due to suitability
requirements:
Our common stock is currently traded on the Over the Counter Bulletin Board
(OTCBB) under the symbol RONE where we expect it to remain in the foreseeable
future. Broker-dealers often decline to trade in OTCBB stocks given the
markets for such securities are often limited, the stocks are more volatile,
and the risk to investors is greater. These factors may reduce the potential
market for our common stock by reducing the number of potential investors.
This may make it more difficult for investors in our common stock to sell
shares to third parties or to otherwise dispose of their shares. This could
cause our stock price to decline.
We could fail to retain or attract key personnel who are required in order for
us to fully carry out our business plan:
The Company's operations and ability to implement its business plan are
dependent upon the efforts of its key personnel, the loss of the services of
which could have a material adverse effect on the Company. The Company will
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
that 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 our Chairman and Chief Executive officer. We have no
employment agreement with or life insurance on Charles J. Newman.
<page>
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 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.
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.
<page>
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
stockholder's 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 pre-
arranged 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; (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
<page>
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 September 30, 2010, 100% of the Company's investments asset
value resulted from a single portfolio holding.
The unlikelihood of cash distributions:
Although the Company has the corporate power to make cash distributions, such
distributions are not among the Company's objectives. Consequently, management
does not expect to make any cash distributions in the immediate future.
Moreover, even if cash distributions were made, they would depend on the size
of the Company, its performance, and the expenses incurred by the Company.
Because many of the Company's portfolio securities will be recorded at values
as determined in good faith by the Board of Directors, the prices at which the
Company is able to dispose of these holdings may differ from their respective
recorded values:
The Company values its portfolio securities at fair value as determined in
good faith by the Board of Directors. However, the Company may be required on
a more frequent basis to value the securities at fair value as determined in
good faith by the Board of Directors to the extent necessary to reflect
significant events affecting the value of such securities. For privately held
securities, and to a lesser extent, for publicly-traded securities, this
valuation is an art and not a science. The Board of Directors may retain an
independent valuation firm to aid it on a selective basis in making fair value
determinations. Factors that may be considered in fair value pricing of an
investment include the markets in which the portfolio company does business,
comparison of the portfolio company to (other) publicly traded companies,
discounted cash flow of the portfolio company, and other relevant factors.
Because such valuations are inherently uncertain, may fluctuate during short
periods of time, and may be based on estimates, determinations of fair value
may differ materially from the values that would have been used if a ready
market for these securities existed. As a result, the Company may not be able
to dispose of its holdings at a price equal to or greater than the determined
fair value. Net asset value could be adversely affected if the determination
regarding the fair value of Company investments is materially higher than the
values ultimately realized upon the disposal of such securities.
<page>
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 a gain:
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 a
product and on public perception. Unlike more seasoned companies with
historical financial projections that can be used to evaluate performance, our
clients typically do not possess such historical figures. Accordingly, shares
of our portfolio companies that are quoted for public trading will generally
be thinly traded and subject to wide and sometimes precipitous swings in
value.
<page>
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None during the third quarter of 2010.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K filed during the quarter
Exhibits
The following exhibits are included as part of this Report on Form 10-Q.
References to "the Company" in this Exhibit List mean Regal One Corporation, a
Florida corporation.
Exhibit Number Description Filed Herewith
31.1 Certification of the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [X]
32.1 Certification of Principal Executive Officer
Pursuant to 18 U.S.C Section 1350. [X]
Form 8-K Reports filed during the quarter
None
<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
Dated: November 4, 2010
By:/S/ Charles J. Newman
Charles J. Newman
Chief Executive Officer, Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Charles J. Newman, as his true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Quarterly Report on Form 10-Q, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
OFFICERS AND DIRECTORS
Name Title Date
/s/ Charles J. Newman November 12, 2010
By: Charles J. Newman
Chief Executive Officer, Chief Financial Officer, and
Director (Principal Executive Officer)
/s/ Malcolm Currie November 12, 2010
By: Malcolm Currie Director
/s/ Bernard L. Brodkorb November 12, 2010
By: Bernard L. Brodkorb Director
46
33