UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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, par value $.001 per share 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 December 31, 2010, the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the Registrant was
approximately $138,296 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 March 31, 2011, 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 28
Item 13. Certain Relationships and Related Transactions, and Director
Independence 29
Item 14. Principal Accountant Fees and Services 29
PART IV
Item 15. Exhibits and Financial Statement Schedules 30
Signatures 31
Report of Independent Registered Public Accounting Firm F1
Financial Statement Schedules F2-F7
Notes to Financial Statements 39-48
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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, 2010, we added an investment
deposit for $1,200 for Common stock in Rampart Detection Systems Ltd. to our
portfolio. Our investment portfolio is summarized as follows:
Carrying Value
Name of Company Investment of Investment as of
Dec. 31, 2010
Neuralstem, Inc. (OTCBB: CUR) Common Stock $ 784,400
Neuralstem, Inc. Warrant 689,400 (1)
Western Asset Money Market Fund Money Market Fund 15
West America Securities Cash Account 10,424
Rampart Detections Systems Ltd. Common Stock 1,200 (2)
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Total $1,485,439
See also Schedule F-3 Schedule of Investments and Note 5 Investments in Notes
to Financial Statements.
1.) At December 31, 2010, we held 370,000 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.
2.) The Company has an investment valued at cost in the common stock of
Rampart Detection Systems Ltd.
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 Business Development Company 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.
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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.
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 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 and 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.
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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 option investment
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, 2010 and December 31, 2009 the Company had no
operating revenues and had operating expenses of $165,374 and $298,027
respectively. Consequently, the Company was required to sell shares of the
Company's inventory of investment common stock to raise the cash necessary to
pay ongoing expenses. Net proceeds income from the sale of securities in 2010
amounted to $65,553. 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, 2010 2009 2008 2007 2006
Net Asset Value $0.41 $0.45 $0.31 $0.67 $0.22
Stock Price* 0.06 0.03 0.11 0.06 0.15
*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. 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, 2010, 57 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.
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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 may hold securities in privately-held companies 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.
15
<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.
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
None.
16
<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, 2010 $ 0.06 $0.03
Sep. 30, 2010 $ 0.06 $0.03
Jun. 30, 2010 $ 0.10 $0.06
Mar. 31, 2010 $ 0.10 $0.03
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
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, 2011, 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
No dividends were declared or distribution of Common Shares made in 2010 or
2009.
17
<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 Regal One Corporation unregistered securities in 2010,
2009, or 2008.
18
<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, 2010, 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>
2010 2009 2008 2007 2006
--------------------------------------------------------
Total assets $1,521,219 $1,676,604 1,181,256 3,737,770
2,744,472
Total liabilities $19,465 $41,138 60,528 1,312,870
1,740,977
Net assets $1,501,754 $1,635,466 1,120,728 2,424,900
1,003,495
Net asset value per
outstanding share 0.413 0.450 0.308 0.067
0.220
Shares outstanding, 3,633,067 3,633,067 3,633,067 3,633,067
4,633,067
</table>
Operating Data for the last five fiscal years ended December 31:
<table>
<c> <c> <c> <c> <c> <c>
2010 2009 2008 2007 2006
Total investment income $0 0 0 0 0
Total expenses $165,374 $298,027 314,152 445,596 779,206
Payable settlement gain 63,484
Net operating (loss) (101,890) (298,027) (314,152) (445,596)
(779,206)
Total tax expense (benefit) 62 $0 800 800 800
Stock Dividends 0 0 0 653,948 0
</table>
19
<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. Results reported
prior to 2005 are based on prior operations.
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 $1,521,219 and its net assets were $1,501,754
at December 31, 2010, compared to $1,676,604 and $1,635,466 at December 31,
2009. Net income including investment and other income changed during the
twelve months ended December 31, 2010 to a loss of $(133,711) from a $514,737
gain in 2009. The decrease was mainly attributable to the unrealized losses
in stock option investments. Net operating loss (total operating expenses)
including a $63,484 gain on a payable settlement for 2010 decreased by
$196,285 compared to 2009.
The Company realized a gain of $65,553 on the sale of investment securities
was and also had unrealized appreciation in it's current asset investment
portfolio of $69,688. The Company sold 30,000 shares of portfolio stock at an
investment cost of $1,288. The Company also booked an unrealized loss
(decrease) in investments in stock options of $166,500 due to change in
accounting procedures using a Black-Scholes investment valuation for stock
options. Management changed the data sample used to calculate volatility to
include a four year sample annualized from a one year sample used in our
prior reports. As a result of this change in method, management believes the
volatility input in our calculation will be reduced by looking at a longer
time frame period for the data. Refer to our comments under Note 5 to the
financial Statements on investments.
20
<page>
During 2010 the Company increased prepaid expenses by $2,221 and increased
accounts payable and other accrued expenses by $21,673. Net operating loss
before other income was reduced 45% from 2009 to $165,374.
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, 2010
and 2009
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, 2010 and 2009 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, 2010, operating expenses were
$165,374 compared to $298,027 for the twelve month period ended December 31,
2009. The decrease of $132,653 for the twelve month period ended December 31,
2010 as compared to the comparable period of 2009 is primarily attributable
to decreases in expenses for outside consultants and general and
administrative expenses. The Company plans to decrease its operational
expenses in 2011 if no more companies are added to our portfolio.
Net Investment Income/(Loss)
For the twelve months ending December 31, 2010, our Net Investment Loss
amounted to $101,890. This compares to a loss of $298,027 for the year ended
December 31, 2009. The decreased loss in 2010 is due to decreased legal
expenses and a $63,484 gain from an insurance settlement of legal expenses.
The 2010 operating expenses consisted primarily of legal fees, professional
services and consulting fees.
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.
21
<page>
Liquidity and Capital Resources
At December 31, 2010, we had $831,819 in current assets consisting of:
$23,009 in cash, $23,195 in Prepaid Insurance, $1,200 in an Investment
deposit for common stock and $784,415 in saleable marketable securities.
For the twelve month period ended December 31, 2010, we satisfied our working
capital needs from cash on hand at the beginning of the period, the net
proceeds from the sale of marketable securities in the amount of $65,553, and
from an insurance settlement gain of $63,484. As of December 31, 2010, the
Company's net asset value (Equity) was $1,501,754.
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 $18,920 $18,920 0 0 0
Long Term Debt Obligations $ 0 0 0 0 0
Total $18,920 $18,920 0 0 0
22
<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
Management's Responsibility Statement
The management of Regal One Corporation is responsible for the integrity,
objectivity, and accuracy of the financial statements of the Company, The
financial statements are prepared by the Company in accordance with
accounting principles generally accepted in the United States of America, and
using management's best estimates and judgments where appropriate. The
Financial information presented throughout this Annual Report on Form 10-K is
consistent with that in the financial statements.
The management of Regal One Corporation is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the direction, supervision,
and participation of our Chief Executive Officer and Chief Financial Officer,
management conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO-Framework). Based on the results of this evaluation
management has concluded that internal control over financial reporting was
effective as of December 31, 2010. Item 9A of this Annual Report on Form 10-K
contains management's favorable assessment of internal controls over
financial reporting based on their review and evaluation utilizing the COSO-
Framework criteria.
Financial Statements and Schedules
The financial statement schedules and notes for Regal One Corporation are
annexed in PART IV of this report.
23
<page>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Item 9A. CONTROLS AND PROCEDURES
Management's Conclusion Regarding the Effectiveness of Disclosure controls
and Procedures
The Company's management, under the direction, supervision, and involvement
of the Chief Executive Officer and Chief Financial Officer, has carried out
an evaluation, as of the end of the period covered by this report, of the
effectiveness of the design and operation of the disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act") of the Company. Based on this
evaluation, the Chief Executive Officer has concluded that disclosure
controls and procedures in place at the Company are effective 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) under the Exchange Act.
Management's Report on Internal Control Over Financial Reporting.
The Company's management is responsible for establishing and maintaining
adequate internal 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 direction, supervision and participation of the Company's
management, including our Chief Executive Officer and principal financial
officers, the Company's management 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 ("COSO-Framework"). Based
on the results of this evaluation under the COSO Framework, management has
concluded that its internal control over financial reporting was effective as
of December 31, 2010.
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 for
non-accelerated filers by the Securities and Exchange Commission permiting
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.
24
<page>
Item 9B. OTHER INFORMATION
Compensatory Arrangements of Certain Officers
No stock options were issued or stock grants granted during fiscal year 2010.
Regal's Chief Executive officer did not receive any salary or other
compensation other than direct expense reimbursements.
Departure of Directors or Certain Officers
None in 2010.
25
<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 65 Chairman of the Board,
CEO, CFO, Secretary,
Treasurer, and Director 2008
Dr. Malcolm Currie 83 Director 1995
Bernard L. Brodkorb 69 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.
26
<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 or 2010 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, 2010 there was no executive or director
compensation paid. One director received consulting fees for work performed
not related to being a director.
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
which provides protection and coverage for directors and officers.
27
<page>
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, 2010.
EXECUTIVE AND DIRECTOR COMPENSATION
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
At the end of fiscal year 2010, 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, 2010:
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, through December 31, 2010 and through the date of this
Form 10-K report filing.
28
<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, 2011 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, Officer and Director
P.O. Box 25610
Scottsdale, AZ 85255 1,044,683 7.66%
Malcolm Currie, Director (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%
Bernard L. Brodkorb, Director
2560 Rice Street
Saint Paul, MN 55113 47,000 0.34%
Robert B. Kay, Affiliate (6)
P.O. BOX 751477
Las Vegas, NV 89136 1,270,753 9.32%
All Officers and Directors as a Group 3,115,833 22.86%
(1) Includes (i) 3,633,067 shares of common stock issued and outstanding as
of December 31, 2010, 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 a Director of the Company (Dr.
Malcolm Currie, 20,242 shares).
(2) 20,242 Series B preferred shares convertible into 2,024,200 common
shares.
(3) 14,000 Series B preferred shares convertible into 1,400,000 common
shares.
(4) 38,415 Series B preferred shares convertible into 3,841,500 common
shares.
(5) 12,000 Series B preferred shares convertible into 1,200,000 common
shares.
(6) 236,453 common shares and 10,343 Series B preferred shares convertible
into 1,034,300 common shares.
<page> 29
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
during the last two fiscal years:
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, 2010, Mr. Bernard L. Brodkorb who is a
Director of Regal received $64,870 in fee compensation for providing
accounting and financial reporting services not related to his duties as a
Director of Regal One Corporation. He received $56,400 for these services in
2009 and 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, 2010 and 2009 were approximately $12,500 and $27,500,
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 2010 and 2009 were $0 and $0,
respectively.
30
<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, 2010 and at December 31, 2009 F-2
Statement of Investments as of December 31, 2010 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 Pages 39-48
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.
31
<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 14, 2011
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 14, 2011
Charles J. Newman Chief Financial Officer, and
Chairman of the Board
/s/ Malcolm Currie Director April 14, 2011
Malcolm Currie
/s/ Bernard L. Brodkorb Director April 14, 2011
Bernard L. Brodkorb
32
<page>
De Joya Griffith & Company, LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Regal One Corporation
We have audited the accompanying balance sheets of Regal One Corporation as
of December 31, 2010 and 2009, 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. The
company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
company's internal control over financial reporting. Accordingly, we express
no such opinion. 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, 2010 and 2009, 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 24, 2011
F-1
<page>
PART IV FINANCIAL STATEMENT SCHEDULES
<table> <caption>
REGAL ONE CORPORATION
BALANCE SHEETS
<c> <c> <c>
December 31, 2010 December 31,
2009
(Audited) (Audited)
ASSETS -------------- -----------------
Assets:
Cash and cash equivalents $ 23,009 $ 83,715
Prepaid Insurance 23,195 20,974
Investment deposit 1,200 --
Marketable securities at fair value 784,415 716,015
---------- -----------
Total Current Assets: 831,819 820,704
Investments:
Investments in non-affiliated portfolio companies 1,473,815 1,571,915
Less: marketable securities portion (784,415) (716,015)
-------- -----------
Total investments, net 689,400 855,900
-------- -----------
TOTAL ASSETS $ 1,521,219 1,676,604
========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities $ 19,465 $ 41,138
---------- ---------
Total Current Liabilities 19,465 41,138
---------- ---------
Stockholders' Equity:
Preferred stock, no par value
Series A - Authorized 50,000 shares,
0 issued and outstanding at December 31, 2010 -- --
Series B - Authorized 500,000 shares, 100,000
issued and outstanding at December 31, 2010
and at December 31, 2009 500 500
Common stock, no par value,:
Authorized 50,000,000 shares; 3,633,067 shares
issued and outstanding at December 31, 2010
and at December 31,2009 8,184,567 8,184,567
Additional paid-in capital 192,126 192,126
Accumulated deficit (6,875,439) (6,741,727)
----------- -----------
Total Net Assets 1,501,754 1,635,466
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $ 1,521,219 $ 1,676,604
============ ===========
Net asset value per outstanding share $ 0.413 $ 0.450
See accompanying notes to the financial statements.
F-2
<page>
</table>
REGAL ONE CORPORATION
SCHEDULE OF INVESTMENTS
December 31, 2010
(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% $ 15,881 (1) $784,400 No
Neuralstem Warrant Biomedical company 50,000 (2) 689,400 No
West America Cash Account 10,424 (3) 10,424 No
LMP Money Market Trust Money Market Fund 15 (4) 15 No
Rampart Detection Systems Manufacturing 1,200 (5) 1,200 No
--------- ---------
Total Investments $ 77,520 $1,485,439
(1) As of December 31, 2010, there were 370,000 Neuralstem shares held reported on a
fair value basis valued at the closing market price of $2.12 with no reduction in fair
market value applied. 30,000 shares were sold during 2010. All shares held have been
recorded as a current asset.
(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, 2010 using a Black-
Scholes Option Pricing Model, a $689,400 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 2009 Regal valued the investment at $855,900.
To calculate the December 31, 2010 value of the Neuralstem warrant Management used the
following factors in a Black-Scholes Option Pricing Model:
Number of shares in option: 1,000,000
Date option was issued: 9/15/2005
Term of option in years: 10.0
Neuralstem Common Stock closing price on 12/31/2010: 2.12
Annual volatility based on a four year data sample: 68.3266%
Discount Rate based on Daily Treasury Bills long term rates on 12/31/10: 1.65%
Management estimated discount applied to fair market value: 10.0%
Management changed the data sample used to calculate volatility in 2010 to a four year
sample annualized from a one year sample used in prior reports. As a result of this
change management believes the volatility input in our valuation will be reduced by
looking at a longer time period for the data. If management had used the same sampling
method in 2009 the net result would have been a reduction in volatility changing the
valuation of the option on December 31, 2009 to $557,100 compared to the reported
valuation of $855,900. This would lower the Company's unrealized gain on the warrant
by $298,800 for 2009. This in turn would of raised the unrealized gain on the warrant
in 2010 by $298,800 and the Company would of reported an unrealized $132,300 gain
rather than the unrealized $166,500 loss as currently reported in this year end Form
10-K financial report. Management believes the new method will produce a more
realistic valuation subject to less variation due to market conditions and activity.
(3) The Company had $10,424 in a cash account with a brokerage firm at 12/31/2010.
This amount is included in cash and cash equivalents on the Balance Sheet.
(4) The Company had $15 in a money market fund as of 12/31/2010.
(5) Regal purchased Common Stock valued at cost of $1,200 as an investment in Rampart
Detection Systems Ltd.
</table>
See accompanying notes to the financial statements.
F-3
<page>
<table>
<caption>
REGAL ONE CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
<c> <c> <c>
For the For the
Year Ended Year Ended
December 31, December 31,
2010 2009
(Audited) (Audited)
OPERATIONS: ---------- -----------
Net investment loss from operations $ (165,374) (298,027)
Gain on legal expense settlement 63,484 --
Net realized gain on portfolio securities 65,553 251,413
Net change in unrealized appreciation
(depreciation) of portfolio securities 69,688 (243,565)
Net Change in unrealized appreciation
(depreciation) of option investments (166,500) 805,900
Income tax expense (62) --
Interest income -- --
Interest (expense) (499) (984)
------------ ----------
Net increase (decrease) in net assets
resulting from operations (133,711) 514,737
SHAREHOLDER ACTIVITY:
Declared dividend -- --
NET INCREASE (DECREASE) IN NET ASSETS (133,711) 514,737
NET ASSETS:
Beginning of period 1,635,465 1,120,728
End of period 1,501,754 1,635,466
Average net assets 1,568,609 1,378,096
TOTAL NET ASSET VALUE RETURN (8.5%) 37.4%
Ratios to average net assets:
Net expenses 165,374 298,027
Net investment gain (loss) (133,711) 514,737
Per share ratio expenses 4.6% 8.22%
Per share ratio net investment gain (loss) (3.7%) 14.2%
See accompanying notes to the financial statements.
</table>
F-4
<page>
<table>
<caption>
REGAL ONE CORPORATION.
STATEMENTS OF OPERATIONS
<c> <c> <c>
For the Years Ended December 31
2010 2009
(Audited) (Audited)
------------- ------------- ----------
Investment income: $ -- $ --
Operating expenses:
Professional services 67,775 190,918
Accounting fees- related party 64,870 56,400
Other selling, general and
administrative expenses 32,331 50,709
Penalties and fines expense 398 --
--------- --------
Total Operating expenses 165,374 298,027
--------- --------
Net Operating loss (165,374) (298,027)
Other income (expense):
Gain on payable settlements 63,484 --
--------- --------
Net income (loss) before provision
for income taxes (101,890) (298,027)
Income tax expenses 62 --
---------- ---------
Net investment loss (102,952) (298,027)
---------- ----------
Net realized gain on portfolio 65,553 251,413
Net change in unrealized
(depreciation) appreciation in
portfolio company investments 69,688 (243,565)
Net change in unrealized appreciation
in stock options (166,500) 805,900
Interest (expense) (499) (984)
---------- ----------
Net increase (decrease) in net assets
resulting from operations $ (133,711) $ 514,737
========== ===========
Weighted average number of
common shares 3,633,067 3,633,067
Basic earnings per share $ (0.037)$ $ 0.142
Weighted average number of
fully diluted shares (1) 13,633,067 13,633,067
Diluted earnings per share $ (0.037) $ 0.038
========== ===========
(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>
For the Years Ended December 31,
2010 2009
(Audited) (Audited)
------------------ ----------
Cash flows from operating activities:
Net decrease in net assets from operations $ (133,711) 514,737
Adjustments to reconcile net increase (decrease)
in net assets resulting from operating activities:
Realized gain on sale of marketable securities (65,553) (251,413)
Unrealized decrease (increase) in investments
in portfolio companies (68,400) 243,565
Unrealized (increase) in investment in options 166,500 (805,900)
Gain on settlement of liabilities -- --
Impairment of investments -- --
Changes in operating assets and liabilities:
Decrease in due to stockholders and officers -- --
Decrease (increase) in prepaid expense (2,221) 20,177
Increase (decrease) in accounts payable and
accrued expenses (21,673) (19,390)
--------- --------
Net cash used in operating activities (125,058) (298,224)
Cash flows from investing activities:
Increase in investment deposit (1,200) --
Proceeds from sale of marketable securities 65,553 259,461
--------- --------
Net cash provided by investing activities 64,353 259,461
Cash Flows from financing activities:
Increase (decrease) in officer loans -- --
--------- --------
Net cash provided by (used in) financing activities -- --
Net change in cash (60,705) (38,763)
Cash at beginning of period 83,714 122,478
--------- --------
Cash at end of period $ 23,009 $ 83,715
============= =-========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 499 985
Cash paid for income taxes -- --
Non-Monetary Transactions:
Unrealized gain (loss) in marketable securities 68,400 (251,613)
Unrealized gain in stock option valuation (166,500) 805,900
Gain on settlement of liabilities --
Dividend payable on 465,430 portfolio company shares -- --
--------- - -------
Total non-monetary transactions $ (98,100) 554,287
=========== =========
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,
2010 2009
(Audited) (Audited)
---------------- -----------
OPERATIONS:
Net investment income (loss) from operations (0.046) (0.082)
Net realized gain (loss) on portfolio securities 0.018 0.069
Net change in unrealized appreciation
(depreciation) of portfolio securities 0.019 (0.67)
Net change in unrealized appreciation
(depreciation) of option investments (0.046) 0.222
Gain on Legal Expense settlement 0.017 --
Interest expense (0.00) (0.00)
--------- --------
Net increase (decrease) in net assets
from operations (0.037) 0.142
SHAREHOLDER ACTIVITY
Declared dividend -- --
-------- --------
NET INCREASE (DECREASE) IN NET ASSETS $ (0.037) 0.142
NET ASSET VALUE, BEGINNING OF PERIOD $ 0.450 0.308
NET ASSET VALUE, END OF PERIOD $ 0.413 0.450
========= =======
TOTAL NET ASSET VALUE RETURN (LOSS) (8.5%) 37.4%
========= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period $1,501,754 $1,635,465
=========== ===========
Ratios to average net assets:
Net expenses 10.5% 21.6%
Net investment gain (loss) (8.5%) 37.4%
Portfolio turnover rate 0.080 0.397
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
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 now 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.
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.
40
<page>
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.
Management has established a valuation allowance to reduce deferred tax
assets to the amounts expected to be realized in future years.
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 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.
41
<page>
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).
Fair
Level of Carrying Cost Market
Equity Investments: Investment Investment Value
Neuralstem, Inc.(CUR) Level 1 $ 15,881 $784,400
West America cash account Level 1 10,424 10,424
LMP Money Market Trust Fund Level 1 15 15
Investment Deposit Level 2 1,200 1,200
Neuralstem Warrant Level 3 -- 50,000 689,400
--------- ---------
Total Investments $ 77,520 $1,485,439
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.
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.
42
<page>
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
845 is based on the principle that exchanges of non-monetary assets should be
measured based on the fair value of the assets exchanged. APB Opinion No. 29,
"Accounting for Non-monetary Transactions", provided an exception to its
basic measurement principle (fair value) for exchanges of similar productive
assets. Under APB Opinion No. 29, an exchange of a productive asset for a
similar productive asset was based on the recorded amount of the asset
relinquished. 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.
43
<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
and cash equivalent balances on deposit with investment brokerage firms.
Marketable Securities
As of December 31, 2010, Regal held 370,000 Neuralstem common shares valued
at a fair market value of $784,400 as an investment. Of the total shares held
at December 31, 2010, all have been recorded as a current asset, which are
registered and freely tradable under rule 144. These shares constitute
working capital that is available to Regal as of December 31, 2010. Regal
also has ten year warrants to purchase 1,000,000 common stock shares
containing certain anti-dilution provisions, at an exercise price of $5 per
share which is significantly above the present fair market value of
Neuralstem shares, carried as a long term investment under Other Assets.
During 2007, 2008, 2009 and 2010, the Company sold part of its inventory of
Neuralstem shares to finance operations and reduce debt.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS (PLEASE REVIEW AND EDIT)
There are several new accounting pronouncements issued by the Financial
Accounting Standards Board ("FASB") which are not yet effective. Each of
these pronouncements, as applicable, has been or will be adopted by the
Company.
In January 2010, the FASB issued guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value measurements.
The guidance requires a roll forward of activities on purchases, sales,
issuance, and settlements of the assets and liabilities measured using
significant unobservable inputs (Level 3 fair value measurements). The
guidance will become effective for the Company with the reporting period
beginning July 1, 2011. The adoption of this guidance will not have a
material impact on the Company's financial statements.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not, or are not
believed by management to, have a material impact on the Company's present or
future financial statements.
44
<page>
NOTE 4 - EQUITY TRANSACTIONS
Preferred Stock
The Company's Certificate of Incorporation allows for segregating the
preferred stock into separate series. As of December 31, 2010, 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, 2010, 2009, 2008, 2007 and 2006, no
dividends have been declared on the Series A or Series B convertible
preferred stock.
NOTE 5 - INVESTMENTS
Neuralstem, Inc.
At December 31, 2010, the Company owned 370,000 common shares of Neuralstem,
Inc. held as an investment. These shares had a valuation of $784,400 based on
the closing market price of the stock. 30,000 shares were sold in 2010 to
finance Company operations. These shares are not restricted and are freely
tradable.
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 at cost in the Balance Sheet. There is currently no
publically traded market for Neuralstem stock Options. The price of the
publicly traded common stock is used as an input in the valuation process.
As of December 31, 2010, using a Black-Scholes Option Pricing model, a
$689,400 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 $166,500 unrealized loss on the investment in
2010 due to decreases in the stock price and volatility ratio. Management
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changed the data sample used to calculate volatility using Black-Sholes to
include a four year sample annualized from a one year sample used in our
prior reports. As a result of this change in method management believes will
reduce the volatility input in our valuation by looking at a longer time
period for the data.
The Board of Directors is responsible for determining in good faith the fair
value of the securities and assets held by the Company. For 2006 and later
reports 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, 2010, the Company did not reduce the valuation
of the inventory of portfolio securities included as a current asset on its
balance sheet below the market value as of December 31, 2010.
NOTE 6 - 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, 2010 and 2009, the Company had a federal operating loss carry
forward of 2,626,889 and $2,589,991 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 2019 to 2030.
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The provision for income taxes consisted of the following components for the
years ended December 31, 2010 and 2009:
2010 2009
--------- ----------
Current:
Federal -- --
State -- --
Deferred: (1,124,309) (1,108,516)
Components of net deferred tax assets, including a valuation allowance, are
as follows at December 31:
Deferred tax assets: 2010 2009
--------- --------
Net operating loss carry forward $1,124,309 $ 1,108,516
------------ ----------
Total deferred tax assets $1,124,309 $ 1,108,516
Less: Valuation Allowance (1,124,309) (1,108,516)
------------ ----------
Net Deferred Tax Assets $ -- $ --
FASB authoritative guidance requires that a valuation allowance be
established when it is more likely than not that all or a portion of deferred
tax assets will not be realized. The valuation allowance for deferred tax
assets as of December 31, 2010 and 2009 was $1,124,309 and $1,108,516,
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 not be realized as of
December 31, 2010 and 2009. Net Deferred Tax Assets are not presented on our
Balance Sheets.
Reconciliation between the statutory rate and the effective tax rate is as
follows at December 31:
2010 2009
Federal statutory tax rate (34.0)% (34.0)%
State taxes, net of federal tax benefit (8.8)% (8.8)%
Permanent difference and other 42.8 42.8%
Effective tax rate 0% 0%
NOTE 7 - RELATED PARTY TRANSACTIONS
For the year ended December 31, 2010 Bernard L. Brodkorb who is a Director of
Regal received $64,870 in fee compensation for providing accounting and
financial reporting services not related to his duties as a Director of Regal
One Corporation and no compensation for his Director duties. In 2009 he
received $56,400 for these services and no compensation for being a Director.
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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. 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 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 9 - Subsequent Events
Management anticipates a significant unrealized loss in value for the first
quarter of 2011 in its investments as the ending closing price of Neuralstem
stock at 03-31-2011 was $1.80, a decline of 15% from $2.12 at 12-31-2010. On
April 12, 2011 the closing market price was 1.81. After subtracting the
10,000 shares sold during the first quarter of 2011 management estimates the
value of its Neuralstem Inc. common stock investment of 360,000 shares at
April 12, 2011 to be at $651,600 compared to $784,400 at December 31, 2010.
Our estimated unrealized loss for the first quarter ended March 31, 2011 for
the current stock investment will be approximately $132,800.
Likewise the estimated valuation of the Neuralstem warrant investment would
carry a value at April 12, 2011 using a Black-Scholes calculation of $517,500
compared to the book value at December 31, 2010 of $689,400, a decline of
$171,900 using the closing price on April 12, 2011, a discount rate of 1.66%,
volatility of 67.248%, and a 10% management estimated discount.
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