UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
Commission File Number: 814-00710
-----------------------------------
REGAL ONE CORPORATION
(Exact name of registrant as specified in its charter)
Florida 95-4158065
(State of incorporation) (I.R.S. Employer Identification No.)
11300 West Olympic Blvd, Suite 800, Los Angeles, CA 90064
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (310) 312-6888
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No []
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of accelerated filer, large accelerated filer and smaller reporting
company in rule 12b-2 of the exchange act. (Check one.)
Large accelerated filer [] Accelerated filer []
Non Accelerated filer [X] Smaller Reporting Company []
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [] No [X]
Indicate the number of shares outstanding of each of the Issuer's classes of
stock, as of the latest practical date.
As of November 14, 2008, there were 3,633,067 shares of common stock, $.001 par
value and 100,000 shares of Series B convertible preferred stock, issued and
outstanding. The outstanding Series B convertible preferred stock is
convertible into an aggregate of 10,000,000 shares of common stock.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements ----
Balance Sheets F-2
Schedule of Investments F-3
Statements of Changes in Net Assets F-4
Statements of Operations F-5
Statements of Cash Flows F-6
Statements of Financial Highlights F-7
Notes to Financial Statements 9-20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
PART II OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults upon Senior Securities 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 36
PART I FINANCIAL INFORMATION
REGAL ONE CORPORATION
BALANCE SHEETS
September 30, 2008 December 31, 2007
(Unaudited) (Audited)
ASSETS -------------- -----------------
Assets:
Cash and cash equivalents $ 87,808 $ 64,262
Marketable securities at fair value 789,668 3,611,008
---------- -----------
Total Current Assets: 877,476 3,675,270
Investments:
Investments in non-affiliated portfolio companies 839,668 3,673,508
Less: marketable securities portion (789,668) (3,611,008)
-------- -----------
Total investments, net 50,000 62,500
-------- -----------
TOTAL ASSETS $ 927,476 $ 3,737,770
========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Due to stockholders and officers -- 195,964
Accounts payable and accrued liabilities 8,315 466,112
Loan payable brokerage account 132 --
Note payable - officer/principal shareholder -- 650,794
---------- ---------
Total Current Liabilities 8,447 1,312,870
---------- ---------
Stockholders' Equity:
Preferred stock, no par value
Series A - Authorized 50,000 shares,
0 issued and outstanding at September 30, 2008 -- --
Series B - Authorized 500,000 shares, 100,000
issued and outstanding at September 30, 2008
and December 31, 2007 500 500
Common stock, no par value,:
Authorized 50,000,000 shares; 3,633,067 shares
issued and outstanding at September 30, 2008 8,184,567 8,184,567
Additional paid-in capital 192,126 192,126
Accumulated deficit (7,458,164) (5,952,293)
----------- -----------
Total Net Assets 919,029 2,424,900
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $ 927,476 $ 3,737,770
============ ===========
Net asset value per outstanding share $ 0.253 $ 0.667
F-2
See accompanying notes to the financial statements.
REGAL ONE CORPORATION
SCHEDULE OF INVESTMENTS
September 30, 2008
(Unaudited)
Equity Investments:
Description Percent Carrying Cost Discounted
Company of Business Ownership Investment Fair Value Affiliation
Neuralstem Biomedical company 2% $ 28,115 (3) $789,668 No
Neuralstem Warrant -- (4) 50,000
--------- ---------
Total Investments $ 28,115 $ 839,668
(1) As of March 31, 2008, there were 1,000,000 Neuralstem shares held after the sale in this
quarter of 273,814 shares. These remaining shares have been valued at a discounted price from
the 3/31/08 market price due to the current thinly traded market for Neuralstem shares and all
of these shares held at 3/31/08 have been recorded as a current asset. Regal also has ten year
Neuralstem warrants at an exercise price of $5 per share which is significantly above the
present fair market value of Neuralstem shares, therefore only a $50,000 value has yet been
assigned to these warrants, carried as an Investment along with the American Stem Cell
holding. In 2007, all portfolio companies were also reported on a fair value basis.
(2) As of June 30, 2008, there were 843,000 Neuralstem shares held after the sale in this
quarter and first quarter of 430,814 shares. These remaining shares have been valued at a
discounted price from the 06/30/08 market price due to the current thinly traded market for
Neuralstem shares and all of these shares held at 06/30/08 have been recorded as a current
asset. Regal also has ten year Neuralstem warrants at an exercise price of $5 per share which
is significantly above the present fair market value of Neuralstem shares, therefore only a
$50,000 value has yet been assigned to these warrants, carried as an Investment along with the
American Stem Cell holding. In 2007, all portfolio companies were also reported on a fair
value basis.
(3) As of September 30, 2008, there were 655,000 Neuralstem shares held after the sales in
this quarter of 88,000 shares and transfer of 100,000 shares to a related party. These
remaining shares have been reported on a fair value basis valued at a discounted price from
the 09/30/08 market price due to the thinly traded market for Neuralstem shares. All of these
shares held at September 30, 2008 have been recorded as a current asset.
(4) Regal also has one ten year Neuralstem warrant to purchase 1,000,000 common stock shares
at an exercise price of $5.00 per share which is significantly above the present fair market
value of Neuralstem shares. A $50,000 value has been assigned to these warrants.
F-3
See accompanying notes to the financial statements.
REGAL ONE CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
For the Nine For the Nine
Months Ended Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
OPERATIONS:
Net investment loss from operations $ (29,123) $ (282,405)
Net realized gain on portfolio securities 1,356,137 (2,083)
Net change in unrealized appreciation
(depreciation) of portfolio securities (2,799,621) 206,018
Impairment of investments (12,500) --
Interest income 30 --
Interest (expense) (20,794) --
------------ ------------
Net increase (decrease) in net assets resulting
from operations (1,505,871) (74,304)
SHAREHOLDER ACTIVITY:
Declared dividend -- 96,616
NET INCREASE (DECREASE) IN NET ASSETS (1,505,871) 22,312
NET ASSETS:
Beginning of period 2,424,900 1,003,495
End of period 919,029 1,025,807
Average net assets 1,671,965 1,014,651
Ratios to average net assets:
Net expenses 208,696 291,605
Net investment gain (loss) (1,505,871) (74,304)
Per share ratio expenses 12.5% 28.7%
Per share ratio net investment loss (90.1%) (7.3%)
F-4
See accompanying notes to the financial statements
REGAL ONE CORPORATION.
STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30 2008 Sept. 30 2007 Sept. 30, 2008 Sept. 30,2007
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------
Investment income: $ -- $ -- $ -- $ --
Operating expenses:
Professional services 104,480 37,968 186,892 140,697
Litigation Settlement - - - 45,000
Other selling, general and
administrative expenses 4,788 50,266 21,804 105,908
--------- --------- -------- --------
Total Operating expenses 109,268 88,234 208,696 291,605
--------- --------- -------- --------
Net Operating loss (109,268) (88,234) (208,696) (291,605)
Other income (expense):
Gain on payable settlements - - 180,373 10,000
--------- --------- -------- ---------
Net income (loss) before provision
for income taxes (109,268) (88,234) (28,323) (281,605)
Income tax expenses -- 800 (800) 800
--------- ---------- --------- ----------
Net investment loss (109,268) (89,034) (29,123) (282,405)
--------- ---------- ---------- ---------
Net realized gain on portfolio 291,369 42,259 1,356,137 2,083
Net change in unrealized
(depreciation) appreciation in
portfolio companies ( 94,493) 400,528 (2,799,621) 206,018
Impairment of investments ( 12,500) -- (12,500)
Interest (expense) (2,632) -- (20,794) --
Interest income - -- 30 --
--------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations $ 72,476 $ 353,753 $ (1,505,871) $ (74,304)
========== ========== =========== ==========
Weighted average number of
common shares 3,633,067 3,633,067 3,633,067 3,671,067
Basic earnings per share $ 0.020 $ (0.097) $ (0.414) $ (0.020)
Weighted average number of
fully diluted shares 13,633,067 13,633,067 13,633,067 13,633,067
Diluted earnings per share $ 0.005 $ (0.026) $ (0.110) $ (0.005)
========== ========== =========== ==========
See accompanying notes the financial statements.
Page F-5
REGAL ONE CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
------------------ ------------------
Cash flows from operating activities:
Net decrease in net assets from operations $(1,505,871) $ (74,304)
Adjustments to reconcile net increase (decrease)
in net assets resulting from operating activities:
Unrealized decrease (increase) in investments
in portfolio companies 2,799,621 (45,859)
Impairment of investments 12,500
Realized gain on sale of marketable securities (1,356,137) (2,083)
Gain on settlement of liabilities (180,373) (10,000)
Changes in operating assets and liabilities:
Decrease in due to stockholders and officers (367,025) 70,000
Increase (decrease) in accounts payable/accrued
expenses (113,500) (41,094)
Decrease in contingent litigation fees __ (250,000)
--------- --------
Net cash used in operating activities (710,785) (353,340)
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,384,994 --
--------- --------
Net cash provided by investing activities 1,384,994 --
Cash Flows from financing activities:
Increase in margin loan 132 --
Increase (decrease) in note payable - shareholder (786,422) 423,500
Proceeds from note holder 135,628 --
--------- --------
Net cash provided by (used in) financing activities (650,662) 423,500
Net change in cash 23,547 70,160
Cash at beginning of period 64,262 42
--------- --------
Cash at end of period $ 87,808 $ 70,202
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-Monetary Transactions:
Gain on settlement of liabilities 180,373 --
Dividend payable on 465,430 portfolio company shares -- 653,948
--------- --------
Total non-monetary transactions $ 180,373 $ 653,948
=========== ===========
See accompanying notes to the financial statements
F-6
REGAL ONE CORPORATION
STATEMENTS OF FINANCIAL HIGHLIGHTS
Nine Months Ended Nine Months Ended
September 30,2008 September 30, 2007
(Unaudited) (Unaudited)
---------------- -------------
Per Share Unit Operating Performance
NET ASSET VALUE, BEGINNING OF PERIOD $ 0.667 $0.276
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.008) (0.078)
Net change in unrealized (depreciation)
appreciation of portfolio companies (0.774) 0.057
Net realized gain on portfolio securities 0.373 0.001
--------- ---------
Total from investment operations (0.414) (0.020)
SHAREHOLDER ACTIVITY
Declared dividend 0.027
NET ASSET VALUE, END OF PERIOD $ 0.253 $0.282
========= =======
TOTAL NET ASSET VALUE RETURN (LOSS) (90.1)% 2.2%
======== =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period $ 919,029 $1,025,807
========= =========
Ratios to average net assets:
Net expenses 12.5% 28.7%
Net investment loss (90.1)% (7.3)%
Portfolio turnover rate 0.57 --
See accompanying notes to the financial statements
Page F-7
REGAL ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Regal One Corporation (the "Company" or "Regal One") located in Los Angeles,
California, is a Florida corporation initially incorporated in 1959 as
Electro-Mechanical Services Inc. Since inception the Company has been involved
in a number of industries. In 1998 we changed our name to Regal One
Corporation. On March 7, 2005, our board of directors determined it was in our
shareholder's best interest to change the focus of the Company's operation to
that of providing financial services through our network of advisors and
professionals, and to be treated as a business development company ("BDC")
under the Investment Company Act of 1940. On September 16, 2005, we filed a
Form N54A (Notification of Election by Business Development Companies), with
the Securities and Exchange Commission, which transforms the Company into a
Business Development Company (BDC) in accordance with sections 55 through 65
of the Investment Company Act of 1940. The Company began reporting as an
operating BDC in the March 31, 2006 10-QSB.
Basis of Presentation
On February 9, 2004, the Company acquired 100% of the stock of O2 Technology
by issuing 1,000,000 shares valued at $0.6495 per share for a $649,526
investment. During the course of 2004, the Company loaned O2 Technology
$518,490 for an aggregate investment of $1,168,016. Consolidated financial
statements were included in the 10Q filings with the SEC for March 31, June
30, and September 30, 2004. As set forth in various previous financial reports
and SEC filings, the Company sought a rescission of the O2 Technology
acquisition. The Company's management elected to fully reserve the $1,168,016
investment and seek redress through the courts. In May 2007, the Eco
Litigation was settled by the parties (see Note 10: "Contingencies").
Accordingly, Regal One has recovered and retired the 1,000,000 shares of Regal
One common stock that was provided in exchange for all O2 Technology stock.
Consequently, the accompanying financial statements are not consolidated.
In 2006, the Company began reporting as a BDC and the attached financial
statements for the quarter ended September 30, 2008 have been formatted in
conformity with the December 31, 2007 and 2006 financial statements, including
the BDC required supplemental schedules, for comparative purposes. Although
the nature of the Company's operations and its reported financial position,
results of operations, and its cash flows are dissimilar for the periods prior
to and subsequent to its becoming an investment company, its financial
position for the quarter ended September 30, 2008 and the year ended December
31, 2007 and its operating results, cash flows and changes in net assets for
the quarter ended and nine months September 30, 2008 and the year ended
December 31, 2007 are presented in the accompanying financial statements
pursuant to Article 6 of Regulation S-X. In addition, the accompanying
footnotes, although different in nature as to the required disclosures and
information reported therein, is also presented as they relate to each of the
above referenced periods. These statements reflect all adjustments, consisting
of normal recurring adjustments, which, in the opinion of management, are
necessary for fair presentation of the information contained therein. It is
suggested that these interim financial statements be read in conjunction with
the financial statements of the Company for the year ended December 31, 2007
and notes thereto included in the Company's Form 10-KSB. The Company follows
the same accounting policies in the preparation of interim reports. Results of
operations for the interim periods are not indicative of annual results.
Accounting Policies
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Net Increase (Decrease) in Net Assets from Operations per Share
Basic net increase (decrease) in net assets from operations per share is
computed by dividing the net earnings (loss) amount adjusted for any
cumulative dividends on preferred stock (numerator) by the weighted average
number of common shares outstanding during the period (denominator). Diluted
net increase (decrease) in net assets from operations per share amounts
reflect the maximum dilution that would have resulted from the assumed
exercise of stock options and from the assumed conversion of the Series B
Convertible Preferred Stock. Diluted net increase (decrease) in net assets
from operations per share is computed by dividing the net earnings (loss)
amount adjusted for any cumulative dividends on preferred stock by the
weighted average number of common and potentially dilutive securities
outstanding during the period. For all periods presented that indicate a net
decrease in net assets from operations, the above potentially dilutive
securities are excluded from the computation as their effect is anti-dilutive.
Income Taxes
The Company has not elected to be a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. Accordingly,
the Company will be subject to U.S. federal income taxes on sales of
investments for which the fair values are in excess of their tax basis. Income
taxes are accounted for using an asset and liability approach for financial
reporting. The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
financial statement carrying amount and the tax basis of assets and
liabilities and net operating loss and tax credit carry forwards. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
marketable securities to be cash equivalents (see Note 2: "Cash and Marketable
Securities"). None of the Company's cash is restricted.
Valuation of Investments (as an Investment Company)
As an investment company under the Investment Company Act of 1940, all of the
Company's investments must be carried at market value or fair value. The value
is determined by management for investments which do not have readily
determinable market values. In September 2006, the FASB issued SFAS No. 157
"Fair Value Measurements". SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles and expands disclosure about fair values. This statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Management
has adopted SFAS No. 157 and expects it will not have a material effect on the
consolidated financial results of the Company in future years.
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and the display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general purpose
financial statements. It requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in financial
statements and (b) display the accumulated balance of other comprehensive
income separately in the equity section of the balance sheet for all periods
presented.
The Company's comprehensive income (loss) does not differ from its reported
net income (loss). As an investment company, the Company must report changes
in the fair value of its investments outside of its operating income on its
statement of operations and reflect the accumulated appreciation or
depreciation in the fair value of its investments as a separate component of
its stockholders' deficit. This treatment is similar to the treatment required
by SFAS No. 130.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a replacement of APB No. 20 and FASB Statement No. 3" ("SFAS No.
154"). SFAS No. 154 requires retrospective application to prior period
financial statements of a voluntary change in accounting principles unless it
is impracticable. APB Opinion No. 20 "Accounting Changes" previously required
that most voluntary changes in accounting principles be recognized by
including in net income of the period of the change the cumulative effect of
changing to the new accounting principle. This Statement was effective for the
Company as of January 1, 2006.
Stock Based Incentive Program
SFAS No. 123(R), "Share Based Payment", a revision to SFAS No. 123,
"Accounting for Stock Based Compensation" and superseding APB Opinion No. 25,
"Accounting for Stock Issued to Employees", establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services, including obtaining employee services in
share based payment transactions. SFAS No. 123(R) applies to all awards
granted after the required effective date and to awards modified, purchased,
or canceled after that date. The Company adopted SFAS No. 123(R) effective
January 1, 2006.
Exchange of Non-monetary Assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29" ("SFAS No. 153"). SFAS No. 153 is
based on the principle that exchanges of non-monetary assets should be
measured based on the fair value of the assets exchanged. APB Opinion No. 29,
"Accounting for Non-monetary Transactions", provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
Under APB Opinion No. 29, an exchange of a productive asset for a similar
productive asset was based on the recorded amount of the asset relinquished.
SFAS No. 153 eliminates this exception and replaces it with an exception of
exchanges of non-monetary assets that do not have commercial substance. SFAS
No. 153 became effective for the Company as of July 1, 2005. The Company will
apply the requirements of SFAS No. 153 to any future non-monetary exchange
transactions.
Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments; an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" to permit fair value re-measurement for
any hybrid financial instrument with an embedded derivative that otherwise
would require bifurcation, provided that the whole instrument is accounted for
on a fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets" to allow a qualifying special-
purpose entity to hold a derivative financial instrument that pertains to
beneficial interest other than another derivative financial instrument.
NOTE 2 - CASH AND MARKETABLE SECURITIES
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15,
2006, with earlier application allowed. Regal adopted this standard effective
January 1, 2007 without any effect and this standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and may include instruments
with maturities of three months or less at the time of purchase.
Marketable Securities
In 2005 Regal acquired approximately 1,800,000 shares of Neuralstem's common
stock and a warrant to purchase an additional 1,000,000 shares of common stock
which contains certain anti-dilution provisions in exchange for a variety of
considerations supporting Neuralstem's transition to a publicly traded
operational entity, principally including fees and assistance in connection
with the filing of a registration statement on Form SB-2 registration (see
Note 7: "Investments"). During 2006, Neuralstem filed the registration
statement and it was declared effective on August 30, 2006.
In late December 2006, the shares began trading on the OTC: BB under the
ticker symbol NRLS.OB. On February 5, 2007, the Company distributed 500,473
Neuralstem shares to its shareholder of which 35,038 of these shares were
returned to the Company's ownership in connection with the settlement of the
Eco Litigation. On August 27, 2007, Neuralstem shares began trading on the
American Stock Exchange under the symbol CUR.
As of September 30, 2008, Regal held 655,000 Neuralstem shares valued at a
discounted price from the September 30, 2008 market price due to the current
thinly traded market for Neuralstem shares. Of the total shares held at
September 30, 2008, all have been recorded as a current asset. These shares
constitute working capital available to Regal as of September 30, 2008. Regal
also has one ten year warrant at an exercise price of $5 per share which is
significantly above the present fair market value of Neuralstem shares. Only a
$50,000 value has been assigned to these warrants. This Neuralstem warrant is
carried as a long term investment. On December 31, 2006, Regal had recorded a
dividend payable balance in the current liabilities section of its Balance
Sheet. This distribution initially consisted of 500,473 Neuralstem shares. The
distribution was made in the first quarter of 2007 and resulted in an
adjustment to the current liabilities balance.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued by the Financial
Accounting Standards Board ("FASB") which are not yet effective. Each of these
pronouncements, as applicable, has been adopted by the Company.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires that
we recognize in our financial statements the benefit of a tax position if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 became effective as
of the beginning of our 2007 fiscal year, with no cumulative effect of the
change in accounting principle needing to be recorded as an adjustment to
opening retained earnings. We are currently evaluating the impact that FIN 48
will have on our financial statements.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115" (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation
and disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of
assets and liabilities. The provisions of FAS 159 become effective as of the
beginning of our 2009 fiscal year. We are currently evaluating the impact that
FAS 159 will have on our financial statements.
In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51" which applies
to all entities that prepare consolidated financial statements, except not-
for-profit organizations, but will affect only those entities that have an
outstanding non-controlling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133,"
(SFAS 161) as amended and interpreted, which requires enhanced disclosures
about an entity's derivative and hedging activities and thereby improves the
transparency of financial reporting. Disclosing the fair values of derivative
instruments and their gains and losses in a tabular format provides a more
complete picture of the location in an entity's financial statements of both
the derivative positions existing at period end and the effect of using
derivatives during the reporting period. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. Early adoption is permitted. Management is currently
evaluating the effect this pronouncement will have on our financial
statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60" ("SFAS
163"). SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial obligation.
This Statement also clarifies how Statement 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to
account for premium revenue and claim liabilities. Those clarifications will
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded
disclosures about financial guarantee insurance contracts. The accounting and
disclosure requirements of the Statement will improve the quality of
information provided to users of financial statements. SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008. We do not expect the adoption of SFAS 163 will have a
material impact on our financial condition or results of operation.
NOTE 4 - EQUITY TRANSACTIONS
During the quarter ended March 31, 2006, the Company raised $145,000 through
the sale of 362,500 shares of newly issued, unregistered common stock. Since
that date, there has been no other equity sales in the nine months ended
September 30, 2008 and years ended December 31, 2007 and December 31, 2006.
In May 2007, the Eco Litigation was settled by the parties (see Note 10:
"Contingencies - Eco Litigation"). Accordingly, Regal has recovered and
retired the 1,000,000 shares of Regal One common stock that was provided in
exchange for all O2 Technology stock. As a result, the Company's outstanding
common share balance as of September 30, 2008 and at December 31, 2007 are
3,633,067.
During the quarter ended March 31, 2006, the Company made four option grants
with the total grants amounting to 885,000 common shares of which 535,000 were
vested in the quarter. An expense of $136,555 was calculated under the Black-
Scholes Option-Pricing Model and was recognized in that quarter for the vested
options. All the options are exercisable at the price of $0.50 per share,
which is equal to or higher than the public share price on the dates of the
grants and as of September 30, 2008 and December 31, 2007. The option lives
ranged from 3 years to 10 years. During the quarter ended September 30, 2006,
no additional options were granted but 50,000 options vested in conjunction
with the effective date of the Neuralstem SB-2 registration, a contractual
milestone, and an additional option expense of $16,861 was realized.
In the quarter ended December 31, 2006, 50,000 options vested in conjunction
with a contractual milestone and an additional option expense of $12,539 was
realized. No additional options were granted or vested and no options were
exercised during the nine months ended September 30, 2008 and year ended
December 31, 2007.
In connection with the secured loan received during the quarter ended
September 30, 2006 and paid in the quarter ended December 31, 2006, warrants
to purchase 75,000 shares of the Company's stock were issued to the lender as
a commitment fee. These warrants have been valued under the Black-Scholes
Pricing Model and $26,171 was recognized in the year as prepaid expense that
was fully amortized into expense on the payment date. The warrants are
exercisable for a period of five years at the price of $0.60 per share. None
of these warrants were exercised during the nine months ended September 30,
2008 or during the year ended December 31, 2007.
The authorized number of shares of preferred stock (Series A and B) is
550,000. The Company's Certificate of Incorporation allows for segregating
this preferred stock into separate series. As of September 30, 2008 and
December 31, 2007, the Company had authorized 50,000 shares of Series A
preferred stock and 500,000 shares of Series B convertible preferred stock and
there were no outstanding shares of Series A preferred stock 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.
As of the nine months ended September 30, 2008 and the year ended December 31,
2007, no dividends have been declared on the Series A or Series B convertible
preferred stock.
NOTE 5 - IMPAIRMENT OF ASSETS
As set forth in various previous financial reports and SEC filings, the
Company was seeking a rescission of the O2 Technology acquisition. The
immediate effect of these matters was to impair the assets acquired in the O2
acquisition. Accordingly, the Company had written-off in 2004 all of the
assets acquired from O2 and the advances made to O2 (see Note 1 - "Basis of
Presentation"). In May 2007, this litigation was settled by the parties (see
Note 10: "Contingencies - Eco Litigation").
NOTE 6 - STOCK OPTION PLAN
The Company's Stock Option Plan (Plan) provides a means to offer incentives to
its employees, directors, officers, consultants and advisors. On May 3, 1995,
the Company filed a registration statement on Form S-8 adopting a 3,000,000
common share plan. Under the plan, the Board of Directors was authorized to
grant options to individuals who have contributed, or will contribute to the
well being of the Company. In 2004 and earlier years, the Plan was extended by
the Company's shareholders. On March 4, 2005, the Company's shareholders
approved another extension of time in which to exercise outstanding options to
purchase shares of the Company's common stock at the $0.8125 exercise price.
That extension ran from March 31, 2005 to September 30, 2005. (See the
Company's 14C filing dated March 23, 2005.) By the extended September 30, 2005
option expiration date, the then remaining outstanding options were not
further extended and as a result 1,147,140 unexercised options became null and
void. During the year ended December 31, 2005, 252,308 options, respectively,
were exercised and the Company realized $205,000 in working capital. As of
September 30, 2005, holders had exercised options to purchase 1,852,860 shares
of common stock. As of December 31, 2006 and December 31, 2007, all
outstanding options granted under our stock option plan had either been
exercised or expired. As of December 31, 2007 and September 30, 2008, there
were no changes and there were 980,986 shares available for future grants.
NOTE 7 - INVESTMENTS
On March 7, 2005, Regal's Board of Directors determined it was in our
shareholder's best interest to change the focus of the Company's business to
providing financial services through our network of advisors and
professionals, and to be treated as a business development company ("BDC")
under the Investment Company Act of 1940.
On September 16, 2005, the Company filed a Form N54A (Notification of Election
by Business Development Companies), with the Securities and Exchange
Commission, which transforms the Company into a Business Development Company
(BDC) in accordance with sections 55 through 65 of the Investment Company Act
of 1940. The Company began reporting as an operating BDC in the March 31, 2006
10-QSB SEC filings.
In the quarter ended June 30, 2005, the Company entered into an agreement with
American Stem Cell Corporation (ASCC), a private development stage company, to
assist ASC in the preparation and filing of an SB-2 registration statement.
Regal One acquired 3,000,000 shares of ASC's common stock in exchange for the
Company's investment via a variety of considerations that would support ASC's
transition from a private development-stage company to a publicly traded
operational entity.
These considerations included the Company's assumption of the liability for
certain legal fees, principally including fees for an SB-2 registration, and
access to the Company's network of advisors and other related resources. Regal
One valued these shares in its balance sheet at the $34,087 of accrued legal
fees that it had assumed. However, in 2006 the SB-2 registration was withdrawn
and ASC undertook a restructuring of its various securities holders. In the
quarter ended December 31, 2006, the Company wrote off its $34,087 investment
in ASC. In December 2007, the Company sold 2,000,000 of the 3,000,000 common
shares it held back to American Stem Cell for $25,000. The remaining 1,000,000
shares were valued at $12,500, as a long term investment as of June 30, 2008
and December 31, 2007. During the third quarter of 2008, the Investment
Committee of the Board of Directors approved the write-off of the fair value
of the 1,000,000 shares of American Stem Cell Corporation (ASCC) portfolio
common stock valued at $12,500 because the stock has no marketable value at
the present time.
Also in the quarter ended June 30, 2005, the Company had entered into a Letter
of Intent with Neuralstem, Inc., a private early stage company, to assist it
in filing an SB-2 registration statement. Effective September 15, 2005, those
understandings were formalized in an "Equity Investment and Share Purchase
Agreement" between the parties. Regal One acquired approximately 1,800,000
shares of Neuralstem's common stock and a warrant, containing certain anti-
dilution provisions, to purchase an additional 1,000,000 shares of common
stock in exchange for a variety of considerations supporting Neuralstem's
transition from a private, early stage, research and development company to a
publicly traded operational entity. These considerations included the
Company's assumption of the liability for certain legal fees, principally
including fees for an SB-2 registration, and access to the Company's network
of advisors and other related resources. Regal One has reflected these shares
in its balance sheet based on its estimated $50,000 direct cost of the
considerations it had provided to Neuralstem.
During 2006, Neuralstem filed an SB-2 registration statement with the SEC and
in August 2006 it was declared effective. As of December 31, 2006, Neuralstem
shares were trading on the OTC: BB exchange. Prior to effectiveness of the
registration, 1,000,000 of Neuralstem shares held by Regal were subject to
forfeiture based on a contingency concerning the initial submission date and
effective date of Neuralstem's SB-2 registration; 51,000 of these shares were
forfeited in the third quarter of 2006 and the balance are no longer subject
to forfeit. As of December 31, 2006, the 1,794,287 Neuralstem shares then held
after the forfeit were valued as indicated in the financial statements Balance
Sheet of 2006. Of those shares, 800,000 shares were registered by Neuralstem,
were readily salable and were reclassified as Marketable Securities in the
Current Assets section of the Balance Sheet. Initially, 500,473 of those
Neuralstem shares were reserved for distribution to the Company's shareholders
as a dividend, which distribution was made on February 5, 2007. Of that
amount, 35,038 shares were withheld from distribution pending the outcome of
the Eco Litigation. On May 7, 2007, the Company reached a settlement in the
Eco Litigation resulting in the release of the 35,038 Neuralstem shares to the
Company.
As of September 30, 2008, the 655,000 Neuralstem shares held were classified
as Marketable Securities in the current assets section of the Balance Sheet.
Regal One also has ten year warrants at an exercise price of $5 per share
which is significantly above the present fair market value of Neuralstem
shares, therefore only a nominal $50,000 value has been assigned to these
warrants which are carried as a long term investment in the Balance Sheet.
As of December 31, 2007, all Neuralstem shares held by the Company were
reclassified from Investments in Non-Affiliated Portfolio Companies to
Marketable Securities in the current assets section of the Balance Sheet. This
reclassification was made because all shares then held were either included in
Neuralstem's original registration statement and therefore were free-trading
or were unregistered but then had been held long enough to become free-trading
under the provisions of Rule 144.
The Board of Directors is responsible for determining in good faith the fair
value of the securities and assets held by the Company.
In 2005, all portfolio companies were reported on a cost basis. For 2006, 2007
and the nine months ended September 30, 2008, 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.
NOTE 8 - INCOME TAXES
At December 31, 2007 and 2006, the Company had a federal operating loss carry
forward of $3,718,820 and $3,409,683, respectively. The valuation allowance
for deferred tax assets as of December 31, 2007 and 2006 was $1,264,399 and
$1,159,292, respectively. In assessing the recovery of the deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. 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. Management considers the scheduled reversals of future deferred
tax assets, projected future taxable income, and tax planning strategies in
making this assessment. As a result, management determined it was more likely
than not the deferred tax assets would be realized as of December 31, 2007 and
2006.
For the nine months ended September 30, 2008, the Company realized a net loss
from operations of $1,505,871 and the related valuation.
NOTE 9 - RELATED PARTY TRANSACTIONS
Indebtedness to a stockholder/officer was converted into a secured Note
Payable in the fourth quarter of 2006. In 2007, that stockholder/officer
continued to make cash advances to and on behalf of the Company and Regal
entered into modifications of the Note Payable to that party. The
modifications were entered into for purposes of increasing the Note Payable
amount as a result of additional advances made by the stockholder/officer to
Regal through September 30, 2007. There were no new advances made by the
stockholder /officer after May 31, 2007, but a correction was recorded in the
quarter ended September 30, 2007.
It is not presently contemplated that the stockholder/officer will make
additional periodic advances to the Company. Advances under the Note have been
made to pay the Company's litigation expenses and settlement, and for working
capital. As a result of the increases in the outstanding loan balance, the
number of Neuralstem shares subject to the security agreement was increased to
600,000 shares on June 25, 2007. The $650,794 loan balance and related accrued
interest at 10% per annum of approximately $87,000 were not paid when they
became due and payable on December 8, 2007.
In February 2008, the stockholder/officer and the Company agreed to certain
terms regarding this matter and in March 2008 a payment of $600,000 towards
principal and interest was made, leaving a combined balance of principal and
interest of $150,850 as of March 31, 2008. During the quarter ended June 30,
2008, additional interest of $2,521 was accrued on the note. This note was
fully settled in July 2008 for $153,371 by transferring 100,000 shares of
Neuralstem stock.
The combined amounts due to stockholders and officers and note payable to
officer, as of September 30, 2008, are $ 0 and at December 31, 2007 were
$846,758. Both amounts include the above secured Note Payable and the related
accrued interest.
In the fourth quarter of 2007, annual compensation totaling $85,000 was
accrued for two independent directors and for consulting services of a
stockholder, and during the quarter ended March 31, 2008 this amount increased
by $15,000. In March 2008, a payment of $100,000 for total accrued
compensation was paid to the Company's President who resigned effective March
31, 2008. The total due to stockholders and officers that represent advances
and compensation which are non-interest bearing, unsecured and payable on
demand was $0 at September 30, 2008.
Relative to the settlement and payment of other payables and claims, the Board
has resolved that the officers of Regal shall negotiate and settle the
Company's outstanding debts in exchange for mutual releases, for debts in
excess of $5,000, of all past and present monies owed to any such creditors.
Through March 31, 2008, such settlements were reached with four service
providers and three stockholders whereby payments totaling $266,000 were
concurrently paid in full settlement of all amounts owed, along with release
of other claims and obligations between the parties. The Company realized a
gain on these settlements in the amount of $117,123 in the quarter ended March
31, 2008, of which $6,214 was realized from the shareholder settlements.
Additionally, as of March 31, 2008, Regal wrote off an old contingent debt of
$40,000 carried in the due to officers and directors account and payable
solely at the discretion of the Board of Directors, and Regal recognized a
$40,000 gain on this write off.
During the quarter ended June 30, 2008 a settlement was reached with a
shareholder due $6,750 resulting in a $3,250 gain recorded. Additionally, a
$60,000 reduction in accrued expense liability for Director fees was achieved
by cash settlement payments totaling $40,000, resulting in a gain on
settlement expense of $20,000. Funds used to make all of the payments
described above were derived from the sale of some of the marketable
securities held by the Company at December 31, 2007.
NOTE 10 - CONTINGENCIES
On April 1, 2007, the Company and Equity Communications entered into a
settlement agreement regarding the value of services provided by Equity
Communications to the Company. The result of this settlement was that the
Company provided 20,000 Neuralstem shares to Equity Communications in full
settlement of the $72,000 that Equity had billed to the Company. The Company
recognized a $10,000 gain on this settlement.
Since the Company has historically incurred substantial debts in connection
with its operations, the Company has entered into negotiations and settlements
of most of its outstanding debts. In this regard, a contingent liability for
$25,000 was included in the December 31, 2007 financial statements as an
expense and payable relative to such matters. This amount was disbursed in
full settlement in the quarter ended March 31, 2008.
NOTE 11 - DISCLOSURES WITH REGARD TO CERTAIN OFFICERS AND DIRECTORS
Effective June 16, 2008, the Board of Directors of the Company agreed to
accept the resignation of Malcolm Currie from his position as the Company's
Chief Executive officer, Chief Financial Officer and Chairman of the Board of
Directors. Mr. Currie will, however, remain a director of the Company. The
Board also appointed Charles J. Newman to a vacant seat on the Board of
Directors and appointed Mr. Newman as the Company's new Chief Executive
Officer, Chief Financial Officer, and Chairman of the Board of Directors.
As of February 5, 2008, the Company's Board of Directors ratified a unanimous
written consent concerning the negotiation and settlement of its outstanding
debts and the recognition and settlement of certain other compensation,
services and reimbursable expense matters, as follows:
Relative to the compensation of Regal's two independent directors for services
rendered in 2007, the Board resolved they each should be paid 10,000 shares of
Neuralstem stock, the total of which at year end was valued at $60,000 and was
included in the December 31, 2007 financial statements as an expense and
payable. These debts were settled in May 2008 by cash payments of $20,000 to
each director as payment in full. The difference of $20,000 was recorded as a
settlement gain during the quarter ended June 30, 2008.
The Company settled the outstanding loan payable and accrued interest to an
officer/shareholder in the amount due of $153,371 by transferring 100,000
shares of Neuralstem common stock in Regal's portfolio to the account of the
officer on July 31, 2008.
Relating to the ongoing settlement and payment of other payables and claims,
the Board directed the officers of Regal to negotiate and settle the Company's
outstanding debts in exchange for mutual releases, for debts in excess of
$5,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD LOOKING STATEMENTS
In this report we make a number of statements, referred to as "forward-looking
statements", which are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe are appropriate in the
circumstances. You can generally identify forward looking statements through
words and phrases such as "believe", "expect", "seek", "estimate",
"anticipate", "intend", "plan", "budget", "project", "may likely result", "may
be", "may continue" and other similar expressions. When reading any forward-
looking statement you should remain mindful that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including but
not limited to:
The type and character of our future investments
Future sources of revenue and or income
Increases in operating expenses
Future trends with regard to net investment losses
How long cash on hand can sustain our operations as well as other
statements regarding our future operations, financial condition and
prospects and business strategies.
These forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from
those reflected in the forward-looking statements. We undertake no obligation
to revise or publicly release the results of any revision to these forward-
looking statements. Given these risks and uncertainties, readers are cautioned
not to place undue reliance on such forward-looking statements.
DESCRIPTION OF BUSINESS
Overview
We are a financial services company which coaches and assists biomedical
companies, through our network of professionals, in listing their securities
on the over-the-counter market.
We were initially incorporated in 1959 as Electro-Mechanical Services Inc., in
the state of Florida. Since inception we have been involved in a number of
industries. In 1998 we changed our name to Regal One Corporation. On March 7,
2005, our Board of Directors determined it was in our shareholder's best
interest to change the focus of the Company's operation to providing financial
services through our network of advisors and professionals. Typically these
services are provided to early stage biomedical companies who can benefit from
our managerial skills, network of professionals and other partners.
Our clients' are usually in the early stage of development, typically have
limited resources and compensate us for our services in capital stock.
Accordingly, although our primary business is to provide consulting services
and not to be engaged, directly or through wholly-owned subsidiaries, in the
business of investing, reinvesting, owning, holding or trading in securities,
we may nonetheless be considered an investment company as defined in the
Investment Company Act of 1940 (1940 Act). In order to lessen the regulatory
restrictions associated with the requirements of the 1940 Act, on 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.
Strategy
We intend to focus our efforts on assisting private biomedical companies with
distinctive IP and well-defined, near-term applications that address
significant and quantifiable markets and that can benefit from our network of
business professionals. Our Investment Committee has adopted a charter wherein
these criteria will be weighed against other criteria including:
Strategic fit,
Management ability, and
Incremental value we can bring to the potential client.
The potential client must also be willing to comply with the Company's
requirement as a BDC to offer significant managerial oversight and guidance,
including the right of the Company to a seat on the client's board of
directors.
To date we have secured our clients through word of mouth or industry
referrals from lawyers, accountants and other professionals. In looking at
prospective clients, we do not focus on any particular geographic region and
would consider clients globally.
Portfolio Investments
During the nine months ended September 30, 2008, we did not add any companies
to our portfolio. Our portfolio valued at a discount from fair market value is
as follows:
Regal One Corporation Portfolio Investments
Value of Investments
Name of Company Investment as of September 30, 2008
Neuralstem, Inc. (OTCBB: CUR) Common Stock $789,668
Neuralstem, Inc. Warrants 50,000
Neuralstem, Inc. ("Neuralstem") is a life sciences company focused on the
development and commercialization of treatments based on transplanting human
neural stem cells. At present, Neuralstem is pre-revenue and has not yet
undertaken any clinical trials with regard to their technology.
Neuralstem has developed and maintains a portfolio of patents and patent
applications that form the proprietary base for their research and development
efforts in the area of neural stem cell research. Neuralstem, Inc. has
ownership or exclusive licensing of four issued patents and 13 patent pending
applications in the field of regenerative medicine and related technologies.
The field in which Neuralstem focuses on is young and emerging. There can be
no assurances that their intellectual property portfolio will ultimately
produce viable commercialized products and processes. Even if they are able to
produce a commercially viable product, there are strong competitors in this
field and their product may not be able to successfully compete against them.
As of September 30, 2008, the Company holds 655,000 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.
American Stem Cell Corporation
American Stem Cell Corporation ("ASCC") is a private development stage company
with plans to acquire stem cell companies and technologies. In January of
2006, we were notified that ASC's expected acquisition of its initial stem
cell company had failed. We understand that ASCC is still searching for a
business to acquire, but has limited resources and no firm plans.
As of September 30, 2008, we hold 1,000,000 shares of ASCC common stock. For
purposes of portfolio valuation, our investment committee has valued the
investment at $0.00 because the stock has no market value and is no longer
listed as an investment asset.
Employees
We have one part-time employee. We expect to use independent consultants,
attorneys, and accountants as necessary and we do not anticipate a need to
engage any additional full-time employees as long as business needs are being
identified and evaluated. The need for employees and their availability will
be addressed in connection with a decision concerning whether or not to
acquire or participate in a specific business venture.
Compliance with BDC Reporting Requirements
The Board of Directors of the Company, comprising a majority of Independent
Directors, adopted in March 2006 a number of resolutions, codes and charters
to complete compliance with BDC operating requirements prior to reporting as a
BDC. These include establishing Board committees for Audit, Nominating,
Compensation, Investment, and Corporate Governance, and adopting a Code of
Ethics, an Audit Committee Charter and an Investment Committee Charter.
Code of Ethics: The Code of Ethics in general prohibits any officer, director
or advisory person (collectively, "Access Person") of the Company from
acquiring any interest in any security which the Company (i) is considering a
purchase or sale thereof, (ii) is being purchased or sold by the Company, or
(iii) is being sold short by the Company. The Access Person is required to
advise the Company in writing of his or her acquisition or sale of any such
security. The Company's Code of Ethics is posted on our website at
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 and Compensation Committee is comprised of one director.
We anticipate that additional board members will be admitted and will augment
the current audit committee. At present, we do not have a qualified financial
expert because we have not been able to identify and retain a qualified
candidate.
Investment Committee: The Investment Committee shall have oversight
responsibility with respect to reviewing and overseeing the Company's
contemplated investments and portfolio companies on behalf of the Board and
shall report the results of their activities to the Board. Such Investment
Committee shall (i) have the ultimate authority for and responsibility to
evaluate and recommend investments, and (ii) review and discuss with
management (a) the performance of portfolio companies, (b) the diversity and
risk of the Company's investment portfolio, and, where appropriate, make
recommendations respecting the role, divestiture or addition of portfolio
investments and (c) all solicited and unsolicited offers to purchase portfolio
company positions. The Company's Investment Committee Charter is filed as an
exhibit to this Form 10-K.
Compliance with the Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 imposes a wide variety of new regulatory
requirements on publicly held companies and their insiders including for
example:
Our chief executive officer and chief financial officer must now certify
the accuracy of the financial statements contained in our periodic
reports;
Periodic reports must disclose our conclusions about the effectiveness
of our controls and procedures;
Our periodic reports must disclose whether there were significant changes
in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses; and
The Company may not make any loan to any director or executive officer
and we may not materially modify any existing loans.
The Sarbanes-Oxley Act required us to review our current policies and
procedures to determine whether we comply with the Sarbanes-Oxley Act and the
new regulations promulgated within the regulations stated in the SOX Act of
2002. We will continue to monitor our compliance with all future regulations
that are adopted under the Sarbanes-Oxley Act and will take actions necessary
to ensure that we are in compliance therewith.
Financial Condition Overview
The Company's total assets were $927,476 and its net assets were $919,029 at
September 30, 2008, compared to $3,737,770 and $2,424,900, respectively, for
the period at December 31, 2007.
The changes in total assets during the nine months ended September 30, 2008
were primarily attributable to a decrease in unrealized appreciation in
marketable securities of $2,799,621 and impairment of investments of $12,500
offset by a realized gain of $1,356,137 and a loss of ($29,123) on investment
operations. The Company's unrealized appreciation (depreciation) varies
significantly from period to period as a result of the wide fluctuations in
value of the Company's portfolio securities and the number of shares owned.
The changes in net assets during the nine months ended September 30, 2008 were
attributable to the net operating loss from operations for the period of
($29,123), the changes in investment value arising from a $1,356,137 realized
gain on sale of investments, the $2,799,621 unrealized loss on the portfolio
valuation and impairment of investments of $12,500, interest expense of
$20,794 and $30 interest income.
The Company's financial condition is dependent on a number of factors
including the ability of each portfolio company to effectuate its respective
strategies with the Company's help. These businesses are frequently thinly
capitalized, unproven, small companies that may lack management depth, and may
be dependent on new or commercially unproven technologies, and which may have
little or no operating history.
Result of Operations for the nine month period ending September 30, 2008 vs.
2007.
Operating Expenses
For the nine months ended September 30, 2008, operating expenses were $208,696
compared to $291,605 for the comparable period of 2007. The decrease for the
nine month period ending September 30, 2008 compared to the comparable period
of 2007 is primarily attributed to no Litigation Settlement expense ($45,000)
and decreased General and Administrative Expenses ($84,104) offset by a
$46,195 increase for Professional Services expenses.
Net Investment Income/ (Loss)
For the nine months ending September 30, 2008, our net investment loss after
taxes was $29,123 compared to a loss of $282,405 for the comparable period in
2007. The net change gain of $253,282 in the nine month period ending
September 30, 2008 as compared to the comparable period ended September 30,
2007 was attributable to the factors discussed above and an $180,373 gain on
settlements of various payables.
Other increases (decreases) in net assets from investments
For the nine months ended September 30, 2008, net assets increased from the
proceeds from the Net Realized Gain on the sale of portfolio securities of
$1,356,137 compared to a gain of $2,083 for the comparable period in 2007.
Refer to the Statements of Operations schedule F-5.
Liquidity and Capital Resources
At September 30, 2008, we had approximately $877,476 in liquid and semi-liquid
assets consisting of $87,808 in cash; and $789,668 in saleable marketable
securities discounted from their fair market value by 28%, as determined by
the management of the Company and its Board of Directors.
For the nine month period ended September 30, 2008, we primarily satisfied our
working capital needs from: (i) cash on hand at the beginning of the period,
(ii) the sale of marketable securities in the gross amount of $1,384,994,
(iii) loans from officers and repayment in full in the amount of $135,628 and
(iv) borrowing from our brokerage margin account loan. Working capital
expenditures included: i) a decrease in a note payable and interest due to one
of our officers in the amount of $650,794, (ii) payment of accounts
payable/accrued expenses of $113,500 and (iii) net payments due to other
stockholders of $367,025 for the nine months ended September 30, 2008. The
Company established a collateralized loan account with a securities
broker/dealer that as of September 30, 2008 held 600,000 shares of Regal's
Neuralstem stock. During the nine months ended September 30, 2008, Regal
received loans in the amount of $450,000 under this margin account, and repaid
$450,000 of that amount, with neither amount reflecting small interest
amounts. No additional loans were required during the third quarter of 2008.
From inception, the Company has relied on the infusion of capital through
capital share transactions and loans. The Company plans to either: (i) dispose
of its current portfolio securities to meet operational needs; or (ii) borrow
against such securities via a traditional margin account or other such credit
facility. Any such dispositions may have to be made at inopportune times and
there is no assurance that, in light of the lack of liquidity in such shares,
they could be sold at all, or if sold, could bring values approximating the
estimates of fair value set forth in the Company financial statements.
Additionally, when the Company enters into a margin agreement loan using its
portfolio securities as collateral, a decrease in their market value may
result in a liquidation of such securities which could greatly depress the
value of such securities in the market. The Company's average current monthly
cash operating expense is approximately $37,000. Because our revenues, if
generated, tend to be in the form of portfolio securities, such revenues are
not normally of a type capable of being liquidated to satisfy the Company's
ongoing monthly expenses. Consequently, for us to be able to avoid having to
defer expenses or sell portfolio companies' securities to raise cash to pay
operating expenses, we are constantly seeking to secure adequate funding under
acceptable terms.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our business activities contain high elements of risk. The Company considers a
principal type of market risk to be a valuation risk. All assets are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors (which is based, in part, on quoted market prices of similar
investments).
Market prices of common equity securities in general, are subject to
fluctuations 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.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
The Company's management, under the supervision and with the participation of
various members of management, including our CEO and our CFO, has evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of
the period covered by this quarterly report. Based upon that evaluation, our
CEO and CFO have concluded that our current disclosure controls and procedures
are effective as of the end of the period covered by this quarterly report.
Changes in Internal Controls
There have been no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934) that occurred during the nine months ended September 30,
2008 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
The purchase of shares of capital stock of the Company involves many risks. A
prospective investor should carefully consider the following factors before
making a decision to purchase any such shares:
We Have Historically Lost Money and Losses May Continue in the Future:
Our net operating loss for the 2007 fiscal year was $445,596 and future losses
are likely to occur. Accordingly, we may experience significant liquidity and
cash flow problems if we are not able to raise additional capital as needed
and on acceptable terms. No assurances can be given we will be successful in
reaching or maintaining profitable operations.
The Company's cash expenses are very large relative to its cash flow which
requires the Company continually to sell new shares. This could result in
substantial dilution to our shareholders or our ability to continue in
operations should additional capital not be raised:
For the year ended December 31, 2007, the Company had no revenues and
operating expenses of $445,596. Consequently, the Company was required either
to sell new shares of Company common stock or issue promissory notes to raise
the cash necessary to pay ongoing expenses. During the first nine months of
2008, the Company sold or transferred 618,814 shares of inventory stock that
along with a declining stock value and a stock write-off reduced the
investment inventory value by $2,821,340. This practice is likely to continue
for the foreseeable future and could lead to continuing dilution in net asset
value for Company stockholders. The Company cannot assure it will be able to
find investors willing to purchase it's shares on acceptable terms, in which
case, the Company could deplete its cash and liquid resources.
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.
The Company's equity investments may lose all or part of their value, causing
the Company to lose all or part of its investment in those companies:
The equity interests in which the Company invests may not appreciate in value
and may decline in value. Accordingly, the Company may not be able to realize
gains from its investments and any gains that are realized on the disposition
of any equity interests may not be sufficient to offset any losses
experienced. Moreover, the Company's primary objective is to invest in early
stage companies, the products or services of which will frequently not have
demonstrated market acceptance. Many portfolio companies lack depth of
management and have limited financial resources. All of these factors make
investments in the Company's portfolio companies particularly risky.
The Company's common stock has historically traded at a substantial premium to
net asset value:
Historically, the Company's common stock has traded at a substantial premium
to its net asset value. The following summarizes the Company's approximate net
asset value per common share and corresponding stock price:
As of December 31, 2007 2006 2005
Net Asset Value $ 0.67 $ 0.22 $ (0.07)
Stock Price* $ 0.06 $ 0.15 $ 0.30
*Stock Price is as of the last trading day in December of each corresponding
year.
Although at present it appears the Company is trading at a discount to Net
Asset Value, there can be no assurance this trend will continue. Moreover, as
the Company utilizes and monetizes its assets for its continuing operating
needs, the Net Asset Value will decrease, potentially resulting in further
decreases in the price of the Company's common stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may
make it more difficult for investors to resell their shares due to suitability
requirements:
Our common stock is currently traded on the Over the Counter Bulletin Board
(OTCBB) where we expect it to remain in the foreseeable future. Broker-dealers
often decline to trade in OTCBB stocks given the markets for such securities
are often limited, the stocks are more volatile, and the risk to investors is
greater. These factors may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it more difficult
for investors in our common stock to sell shares to third parties or to
otherwise dispose of their shares. This could cause our stock price to
decline.
We could fail to retain or attract key personnel who are required in order for
us to fully carry out our business plan:
The Company's operations and ability to implement its business plan are
dependent upon the efforts of its key personnel, the loss of the services of
which could have a material adverse effect on the Company. The Company will
likely be required to hire additional personnel to implement its business
plan. Qualified employees and consultants are in great demand and are likely
to remain a limited resource for the foreseeable future. Competition for
skilled, creative and technical talent is intense. There can be no assurance
that the Company will be successful in attracting and retaining such
personnel. Any failure by the Company to retain the services of existing
employees and consultants or to hire new employees when necessary could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The Company operates in a highly competitive market:
The Company faces competition from a number of sources, many of which have
longer operating histories, and significantly greater financial, management,
marketing and other resources than the Company. The Company's ability to
generate new portfolio clients depends to a significant degree on its
reputation among potential clients and partners, and its ability to reach
acceptable investment terms with potential clients relative to competitive
alternatives. In the event that the reputation of the Company is adversely
impacted, or that potential portfolio clients perceive competitive
alternatives to be superior, the business, financial condition and operating
results of the Company could be adversely affected.
Our officers and directors have the ability to exercise significant influence
over matters submitted for stockholder approval and their interests may differ
from other stockholders:
Our executive officers and directors have the ability to appoint a majority to
the Board of Directors. Accordingly, our directors and executive officers,
whether acting alone or together, may have significant influence in
determining the outcome of any corporate transaction or other matter submitted
to our Board for approval, including issuing common and preferred stock,
appointing officers, which could have a material impact on mergers,
acquisitions, consolidations and the sale of all or substantially all of our
assets, and the power to prevent or cause a change in control. The interests
of these board members may differ from the interests of the other
stockholders.
Our share ownership is concentrated:
The Company's officers, directors and principal stockholders, together with
their affiliates, beneficially own approximately 70% of the Company's voting
shares. As a result, these stockholders, if they act together, will exert
significant influence over all matters requiring stockholder approval,
including the election and removal of directors, any merger, consolidation or
sale of all or substantially all of assets, as well as any charter amendment
and other matters requiring stockholder approval. In addition, these
stockholders may dictate the day to day management of the business. This
concentration of ownership may delay or prevent a change in control and may
have a negative impact on the market price of the Company's common stock by
discouraging third party investors. In addition, the interests of these
stockholders may not always coincide with the interests of the Company's other
stockholders.
We may change our investment policies without further shareholder approval:
Although we are limited by the Investment Company Act of 1940 with respect to
the percentage of our assets that must be invested in qualified investment
companies, we are not limited with respect to the minimum standard that any
investment company must meet, neither are we limited to the industries in
which those investment companies must operate. We may make investments without
shareholder approval and such investments may deviate significantly from our
historic operations. Any change in our investment policy or selection of
investments could adversely affect our stock price, liquidity, and the ability
of our shareholders to sell their stock.
The Company's common stock may be subject to the penny stock rules which might
make it harder for stockholders to sell:
As a result of our stock price, our shares are subject to the penny stock
rules. Because a "penny stock" is, generally speaking, one selling for less
than $5.00 per share, the Company's common stock may be subject to the
foregoing rules. The application of the penny stock rules may affect
stockholder's ability to sell their shares because some broker-dealers may not
be willing to make a market in the Company's common stock because of the
burdens imposed upon them by the penny stock rules which include but are not
limited to:
Section 15(g) of the Securities Exchange Act of 1934 and SEC Rules
15g-1 through 15g-6, which impose additional sales practice requirements
on broker-dealers who sell Company securities to persons other than
established customers and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in penny
stocks unless the broker-dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage
in a penny stock transaction unless the broker-dealer first discloses
and subsequently confirms to the customer the current quotation prices
or similar market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock
transactions for a customer unless the broker-dealer first discloses to
the customer the amount of compensation or other remuneration received
as a result of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock
transaction, other than one exempt under Rule 15g-1, disclose to its
customer, at the time of or prior to the transaction, information about
the sales persons' compensation.
Potential shareholders of the Company should also be aware that, according to
SEC Release No. 34-29093, the market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include (i) control of
the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through pre-
arranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv)
excessive and undisclosed bid-ask differential and markups by selling broker-
dealers; and (v) the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along
with the resulting inevitable collapse of those prices and with consequent
investor losses.
Limited regulatory oversight may require potential investors to fend for
themselves:
The Company has elected to be treated as a business development company under
the 1940 Act which makes the Company exempt from some provisions of that
statute. The Company is not registered as a broker-dealer or investment
advisor because the nature of its proposed activities does not require it to
do so; moreover it is not registered as a commodity pool operator under the
Commodity Exchange Act, based on its intention not to trade commodities or
financial futures. However, the Company is a reporting company under the
Securities Exchange Act of 1934. As a result of this limited regulatory
oversight, the Company is not subject to certain operating limitations,
capital requirements, or reporting obligations that might otherwise apply and
investors may be left to fend for themselves.
The Company's concentration of portfolio company securities:
The Company will attempt to hold the securities of several different portfolio
companies. However, a significant amount of the Company's holdings could be
concentrated in the securities of only a few companies. This risk is
particularly acute during this time period of early Company's operations,
which could result in significant concentration with respect to a particular
issuer or industry. The concentration of the Company's portfolio in any one
issuer or industry would subject the Company to a greater degree of risk with
respect to the failure of one or a few issuers or with respect to economic
downturns in such industry than would be the case with a more diversified
portfolio. At September 30, 2008, 100% of the Company's asset value resulted
from a single portfolio holding.
The unlikelihood of cash distributions:
Although the Company has the corporate power to make cash distributions, such
distributions are not among the Company's objectives. Consequently, management
does not expect to make any cash distributions in the immediate future.
Moreover, even if cash distributions were made, they would depend on the size
of the Company, its performance, and the expenses incurred by the Company.
Because many of the Company's portfolio securities will be recorded at values
as determined in good faith by the Board of Directors, the prices at which the
Company is able to dispose of these holdings may differ from their respective
recorded values:
The Company values its portfolio securities at fair value as determined in
good faith by the Board of Directors. However, the Company may be required on
a more frequent basis to value the securities at fair value as determined in
good faith by the Board of Directors to the extent necessary to reflect
significant events affecting the value of such securities. For privately held
securities, and to a lesser extent, for publicly-traded securities, this
valuation is an art and not a science. The Board of Directors may retain an
independent valuation firm to aid it on a selective basis in making fair value
determinations. Factors that may be considered in fair value pricing of an
investment include the markets in which the portfolio company does business,
comparison of the portfolio company to (other) publicly traded companies,
discounted cash flow of the portfolio company, and other relevant factors.
Because such valuations are inherently uncertain, may fluctuate during short
periods of time, and may be based on estimates, determinations of fair value
may differ materially from the values that would have been used if a ready
market for these securities existed. As a result, the Company may not be able
to dispose of its holdings at a price equal to or greater than the determined
fair value. Net asset value could be adversely affected if the determination
regarding the fair value of Company investments is materially higher than the
values ultimately realized upon the disposal of such securities.
The lack of liquidity in the Company's portfolio securities would probably
prevent the Company from disposing of them at opportune times and prices,
which may cause a loss and/or reduce a gain:
The Company will frequently hold securities in privately-held companies. Some
of these securities will be subject to legal and other restrictions on resale
or will otherwise be less liquid than publicly traded securities. The
illiquidity of such investments may make it difficult to sell such investments
at advantageous times and prices or in a timely manner. In addition, if the
Company is required to liquidate all or a portion of its portfolio quickly, it
may realize significantly less than the values recorded for such investments.
The Company may also face other restrictions on its ability to liquidate an
investment in a portfolio company to the extent that the Company has material
non-public information regarding such portfolio company. If the Company is
unable to sell its assets at opportune times, it might suffer a loss and/or
reduce a gain. Restrictions on resale and limited liquidity are both factors
the Board will consider in determining fair value of portfolio securities.
Moreover, even holdings in publicly-traded securities are likely to be
relatively illiquid because the market for companies of the type in which the
Company invests tend to be thin and usually cannot accommodate large volume
trades.
Holding securities of privately held companies may be riskier than holding
securities of publicly traded companies due to the lack of available public
information:
The Company will frequently hold securities in privately-held companies which
may be subject to higher risk than holdings in publicly traded companies.
Generally, little public information exists about privately-held companies,
and the Company will be required to rely on the ability of management to
obtain adequate information to evaluate the potential risks and returns
involved in investing in these companies. If the Company is unable to uncover
all material information about these companies, it may not make a fully
informed investment decision, and it may lose some or all of the money it
invests in these companies. These factors could subject the Company to greater
risk than holding securities in publicly traded companies and negatively
affect investment returns.
The market values of publicly traded portfolio companies are likely to be
extremely volatile:
Our clients tend to be early stage biotech companies. As a result, their
operations and futures are highly dependent on their ability to develop a
product and on public perception. Unlike more seasoned companies with
historical financial projections that can be used to evaluate performance, our
clients typically do not possess such historical figures. Accordingly, shares
of our portfolio companies that are quoted for public trading will generally
be thinly traded and subject to wide and sometimes precipitous swings in
value.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K filed during the quarter
Exhibits
The following exhibits are included as part of this Report on Form 10-Q.
References to "the Company" in this Exhibit List mean Regal One Corporation, a
Florida corporation.
Exhibit Number Description Filed Herewith
31.1 Certification of the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [X]
32.1 Certification of Principal Executive Officer
Pursuant to 18 U.S.C Section 1350. [X]
Form 8-K Reports filed during the quarter
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Regal One Corporation
Dated: November 14, 2008
By:/S/ Charles J. Newman
Charles J. Newman
Chief Executive Officer, Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Charles J. Newman, as his true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Quarterly Report on Form 10-Q, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
OFFICERS AND DIRECTORS
Name Title Date
/s/ Charles J. Newman November 13, 2008
By: Charles J. Newman
Chief Executive Officer, Chief Financial Officer, and
Director (Principal Executive Officer)
/s/ Carl Perry November 13, 2008
By: Carl Perry Director
/s/ Neil Williams November 13, 2008
By: Neil Williams Director
46