PRINCETON CAPITAL CORP - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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(Mark One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December 31, 2006
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the transition period from
to .
Commission
File Number 814-00710
REGAL
ONE CORPORATION
(Exact
name of Registrant as specified in its charter)
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Florida
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95-4158065
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
employer identification No.)
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11300
West Olympic Blvd, Suite 800,
Los
Angeles, CA
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90064
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(Address
of principal executive offices)
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(Zip
code)
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Registrant’s
telephone number, including area code: (310) 312-6888
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title
of Each Class
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Name
of Each Exchange on
Which
Registered
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Common
Stock
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Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ¨ No x
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will
not be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x
The
aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of its common stock on the OTCBB) on
March 31, 2007 was approximately $648,000.
As
of March 31, 2007 there were: (i) 4,633,067 shares of common stock, $.001 par
value, issued and outstanding; and 100,000 shares of Series B convertible
preferred stock outstanding. The outstanding Series B convertible preferred
stock is convertible into an aggregate of 10,000,000 shares of common stock.
Subsequent
Events.
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On
February 28, 2007 we entered into a modification of the Currie
note
originally made on December 8, 2006. The modification was entered
into for
purposes of increasing the note amount by $45,000 as a result of
the
following additional advances made by
Currie:
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$10,000
on December 18, 2006;
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$20,000
on January 6, 2007;
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$6,000
on January 31, 2007; and
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$9,000
on February 23, 2007.
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As
a
result of the increase in the outstanding loan balance, we increased
the number
of Neuralstem shares subject to the security agreement by 50,000.
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On
March 21, 2007 we entered into a further modification of the
Currie note
originally made on December 8, 2006. The modification was entered
into for
purposes of increasing the note amount by $30,000 as a result
of an
advance of this amount made by Currie on March 20,
2007.
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TABLE
OF CONTENTS
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PART
I
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Forward
Looking Statements
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2
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Description
of Business
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2
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Risk
Factors
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5
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Description
of Property
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9
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Legal
Proceedings
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9
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Submission
of Matters to a Vote of Security Holders
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9
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PART
II
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Market
for Common Equity and Related Stockholders Matters
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9
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Equity
Compensation Plan Information
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12
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Selected
Financial Data
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12
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Management
Discussion and Analysis of Financial Condition and Results of Operations
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13
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Quantitative
and Qualitative Disclosures about Market Risk
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15
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Financial
Statements
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15
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Changes
and Disagreements with Accountants on Accounting and Financial
Disclosures
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15
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Controls
and Procedures
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16
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PART
III
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Directors,
Executive Officers and Corporate Governance
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16
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Meetings
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Compensation
of Directors
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Indemnification
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Section
16(a) Beneficial Ownership Reporting Compliance
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Executive
Compensation
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18
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Outstanding
Equity Awards at Fiscal Year End
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18
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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19
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Transactions
and Business Relationships with Management and Principal
Shareholders
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19
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Principal
Accountants Fees and Services
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20
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Exhibits,
Financial Statement Schedules
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20
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PART
I
FORWARD
LOOKING STATEMENTS
In
this annual 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 use and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe are appropriate in the circumstances.
You can generally identify forward looking statements through words and phrases
such as“believe”,
“expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”,
“project”, “may likely result”, “may be”, “may continue”
and other similar expressions. When reading any forward-looking statement you
should remain mindful that actual results or developments may vary substantially
from those expected as expressed in or implied by that statement for a number
of
reasons or factors, including but not limited to:
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the
type and character of our future
investments
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future
sources of revenue and/or income
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increases
in operating expenses
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future
trends with regard to net investment
losses
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how
long cash on hand can sustain our
operations
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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 the use of our network of professionals in listing their securities
on
the over the counter market or national exchanges.
We
were initially incorporated in 1959 as Electro-Mechanical Services Inc., in
the
state of Florida. Since inception we have been involved in a number of
industries. In 1998 we changed our name to Regal One Corporation. On March
7,
2005, our board of directors determined that it was in our shareholders best
interest to change the focus of the company’s operation to that of 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 network of professions and other partners.
As
a result of our clients’ early stage of development, they typically have limited
resources and compensate us for our services in capital stock. Accordingly,
although our primary business is to provide consulting services and not to
be
engaged, directly or through wholly-owned subsidiaries, in the business of
investing, reinvesting, owning, holding or trading in securities, we may
nonetheless be considered an investment company as that term is defined in
the
Investment Company Act of 1940 (1940 Act). In order to lessen the regulatory
restrictions associated with the requirements of the 1940 Act, on June 16,
2005
we elected to be treated as a Business Development Company (BDC) in accordance
with sections 55 through 65 of the 1940 Act.
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 if there existed a ready market for such equity
securities.
2
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 professional. Our Investment Committee
has
adopted a charter wherein these criteria will be weighed against other criteria
including:
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strategic
fit,
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management
ability, and
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the
incremental value that we can bring to the potential client.
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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 then 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 twelve month ended December 31, 2006, we did not add any companies to our
portfolio. Our portfolio is as follows:
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Name
of Company
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Investment
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Neuralstem,
Inc. (OTCBB: NRLS)
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Common
Stock and Warrants
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American
Stem Cell (“ASC”)
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Common
Stock
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SuperOxide
Health Sciences, Inc. (“SOHS”)
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Common
Stock
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Neuralstem,
Inc.
On
June 16, 2005, we entered into an agreement whereby we provided services to
Neuralstem, Inc. In consideration for such services, we were granted
1,800,000
shares of Neuralstem’s common stock and a warrant to purchase an additional
1,000,000 common shares at $5.00.
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, and have ownership or exclusive licensing of
four
issued patents and 12 patent pending applications in the field of regenerative
medicine and related technologies.
The
field in which Neuralstem focuses is young and emerging. There can be no
assurances that their intellectual property portfolio will ultimately produce
viable commercialized products and processes. Even if they are able to produce
a
commercially viable product, there are strong competitors in this field and
their product may not be able to successfully compete against them.
American
Stem Cell
As
of
June 30, 2005, we entered into an agreement with American Stem Cell (“ASC”)
whereby we were to provide services. In consideration for such services were
granted 3,000,000 common shares of ASC’s.
ASC
is a
private development stage company with plans to acquire stem cell companies.
In
January of 2006 we were notified that ASC’s expected acquisition of its initial
stem cell company had fallen through. We understand that ASC is still searching
for a business to acquire, but has limited resources and no firm
plans.
SuperOxide
Health Sciences, Inc.
In
March
2005, we entered into an agreement whereby we were granted an option to purchase
up to a 40% equity interest in SuperOxide
Health Sciences, Inc. (“SOHS”).
Pursuant to that option, we invested a total of $145,000 in exchange for
approximately 8% of the issued and outstanding shares of SOHS.
SOHS
is a
privately owned development stage company looking to commercialize medical
applications of airborne superoxide ions. In September 2006 we received notice
from SOHS that due to lack of working capital, the board of directors had
decided to dissolve the company. To date we have yet to receive formal
documentation or confirmation of such dissolution. As a result of the forgoing,
we believe the value of our investment in SOHS $0.00. Accordingly, upon receipt
of confirmation as to the dissolution, we will write-off such investment.
3
Employees
We
have two part-time time employees. We expect to use consultants, attorneys,
and
accountants as necessary and we do not anticipate a need to engage any
additional full-time employees as long as business needs are being identified
and evaluated. The need for employees and their availability will be addressed
in connection with a decision concerning whether or not to acquire or
participate in a specific business venture.
Compliance
with BDC Reporting Requirements
The
Board of Directors of the Company, comprising a majority of Independent
Directors, adopted in March 2006 a number of resolutions, codes and charters
to
complete compliance with BDC operating requirements prior to reporting as a
BDC.
These include establishing Board committees for Audit, Nominating,
Compensation, Investment, and Corporate Governance, and adopting a Code of
Ethics, an Audit Committee Charter and an Investment Committee
Charter.
Code
of Ethics: The
Code of Ethics in general prohibits any officer, director or advisory person
(collectively, "Access Person") of the Company from acquiring any interest
in
any security which the Company (i) is considering a purchase or sale thereof,
(ii) is being purchased or sold by the Company, or (iii) is being sold
short by the Company. The Access Person is required to advise the Company
in writing of his or her acquisition or sale of any such security. The Company’s
Code of Ethics is posted on our website at www.regal1.com.
Audit
Committee: The
primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Company's Board of Directors and
report the result of its activities to the Board. Such responsibilities
shall include but not be limited to the selection, and if necessary the
replacement of, the Company's independent auditors; the review and discussion
with such independent auditors and the Company's internal audit department
of
(i) the overall scope and plans for the audit, (ii) the adequacy and
effectiveness of the accounting and financial controls, including the Company's
system to monitor and manage business risks, and legal and ethical programs,
and
(iii) the results of the annual audit, including the financial statements to
be
included in the Company's annual report on
Form 10-K.
The
Company's Audit Committee and Compensation Committee is comprised of one
director. We anticipate that additional board members will be admitted and
will
augment the current audit committee. 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
On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide variety of
new
regulatory requirements on publicly held companies and their insiders.
Many of these requirements will affect us. For example:
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Our
chief executive officer and chief financial officer must now certify
the
accuracy of the financial statements contained in our periodic reports;
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Our
periodic reports must disclose our conclusions about the effectiveness
of
our controls and procedures;
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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
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We
may not make any loan to any director or executive officer and we
may not
materially modify any existing
loans.
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The
Sarbanes-Oxley Act has required us to review our current policies and procedures
to determine whether we comply with the Sarbanes-Oxley Act and the new
regulations promulgated thereunder. 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.
4
RISK
FACTORS
The
purchase of shares of capital stock of the Company involves many risks. A
prospective investor should carefully consider the following factors before
making a decision to purchase any such shares:
We
Have Historically Lost Money and Losses May Continue in the
Future
We
have historically lost money. The net operating loss for the 2006
fiscal year was $779,206 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.
There
is Substantial Doubt About Our Ability to Continue as a Going Concern Due to
Recurring Losses and Working Capital Shortages, Which Means that We May Not
Be
Able to Continue Operations Unless We Obtain Additional
Funding
Our
December 31, 2006 financial statements included an explanatory paragraph
indicating there is substantial doubt about our ability to continue as a going
concern due to recurring losses and working capital shortages. Our ability
to continue as a going concern will be determined by our ability to obtain
additional funding. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We
recently undertook our current business model and as a result, historical
results may not be relied upon with regard to our operating
history.
In
March 2005 we formally began implementing our current business model of
providing services to biotech companies. As a result of how we receive payment
for these services, we are technically considered an investment company under
the 1940 Investment Company Act. As such, we have presented our financial
results and accompanying notes in such fashion. Conversely, until 2005, our
operating results were presented in the format and style of an industrial
company. As a result, our financial performance and statements may not be
comparable between the years prior and up to 2004 and the results for 2005
and
after.
The
Company’s cash expenses are very large relative to its cash flow which requires
the Company continually to sell 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
year ended December 31, 2006 the Company had no revenues and operating expenses
of $779,206. 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. This practice is likely to continue for the foreseeable
future and could lead to continuing dilution in the interest of existing Company
stockholders. Moreover, there is no assurance that the Company will be able
to
find investors willing to purchase Company shares at a price and on terms
acceptable to the Company, in which case, the Company could deplete its cash
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.
5
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.
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 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 and
corresponding stock price:
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As
of December 31,
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2006
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2005
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2004
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Net
Asset Value per common share.
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$
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0.22
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$
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(.07
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)
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$
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(.13
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)
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||||||||||
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Stock
Price*
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$
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0.15
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$
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0.30
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$
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0.95
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||||
*Stock
Price is as December 29 of each corresponding year.
Although
at present it appears that the Company is trading at a discount to Net Asset
Value, there can be no assurance that this trend will continue. Moreover, as
the
Company utilizes and monetizes its assets for its continuing operating needs,
the Net Asset Value will decrease 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 market for such securities is often
limited, the stocks are more volatile, and the risk to investors is greater.
These factors may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose
of
their shares. This could cause our stock price to decline.
We
could fail to retain or attract key personnel who are required in order for
us
to fully carry out our business plan.
The
Company’s operations and ability to implement its business plan are dependent
upon the efforts of its key personnel, the loss of the services of which could
have a material adverse effect on the Company. The Company will likely be
required to hire additional personnel to implement its business plan. Qualified
employees and consultants are in great demand and are likely to remain a limited
resource for the foreseeable future. Competition for skilled creative and
technical talent is intense. There can be no assurance that the Company will
be
successful in attracting and retaining such personnel. Any failure by the
Company to retain the services of existing employees and consultants or to
hire
new employees when necessary could have a material adverse effect upon the
Company’s business, financial condition and results of operations. Our future
success depends in significant part on the continued services of Dr. Malcolm
Currie, our Chairman and Chief Executive Officer. We have no employment
agreement with, or life insurance on, Dr. Currie.
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.
6
The
Company has been named as defendant in litigation.
The
Company, and certain of its officers and consultants were named as defendants
in
a case filed on November 2, 2003, under the name "Eco
Air Technologies vs. Regal One Corporation, et. al"
(California Superior Court, County of Orange, Case No. 03CC13317), as set forth
in Item 3. In addition to suing the O2-related parties, and their
cross-complaint, the Company’s counsel has advised the Company that its primary
exposure is in the nature of legal fees, but with little practical exposure
on
liability issues, although no assurance can be given as to the
outcome.
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 stockholders’ ability to sell
their shares because some broker-dealers may not be willing to make a market
in
the Company’s common stock because of the burdens imposed upon them by the penny
stock rules which include but are not limited to:
| · |
Section
15(g) of the Securities Exchange Act of 1934 and SEC Rules 15g-1
through
15g-6, which impose additional sales practice requirements on
broker-dealers who sell Company securities to persons other than
established customers and accredited investors.
|
| · |
Rule
15g-2 declares unlawful any broker-dealer transactions in penny stocks
unless the broker-dealer has first provided to the customer a standardized
disclosure document.
|
| · |
Rule
15g-3 provides that it is unlawful for a broker-dealer to engage
in a
penny stock transaction unless the broker-dealer first discloses
and
subsequently confirms to the customer the current quotation prices
or
similar market information concerning the penny stock in question.
|
| · |
Rule
15g-4 prohibits broker-dealers from completing penny stock transactions
for a customer unless the broker-dealer first discloses to the customer
the amount of compensation or other renumeration received as a result
of
the penny stock transaction.
|
| · |
Rule
15g-5 requires that a broker-dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer,
at the
time of or prior to the transaction, information about the sales
persons’
compensation.
|
Potential
shareholders of the Company should also be aware that, according to SEC Release
No. 34-29093, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market
for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching
of
purchases and sales and false and misleading press releases; (iii) "boiler
room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (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.
7
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.
Concentration
of portfolio company securities.
The
Company will attempt to hold the securities of several different portfolio
companies. However, a significant amount of the Company’s holdings could be
concentrated in the securities of only a few companies. This risk is
particularly acute during this time period of early Company’s operations, which
could result in significant concentration with respect to a particular issuer
or
industry. The concentration of the Company’s portfolio in any one issuer or
industry would subject the Company to a greater degree of risk with respect
to
the failure of one or a few issuers or with respect to economic downturns in
such industry than would be the case with a more diversified portfolio. At
December 31, 2006, 100% of the Company’s asset value resulted from a single
portfolio holding.
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. The types
of
factors that may be considered in fair value pricing of an investment include
the markets in which the portfolio company does business, comparison of the
portfolio company to (other) publicly traded companies, discounted cash flow
of
the portfolio company, and other relevant factors. Because such valuations
are
inherently uncertain, may fluctuate during short periods of time, and may be
based on estimates, determinations of fair value may differ materially from
the
values that would have been used if a ready market for these securities existed.
As a result, the Company may not be able to dispose of its holdings at a price
equal to or greater than the determined fair value. Net asset value could be
adversely affected if the determination regarding the fair value of Company
investments is materially higher than the values ultimately realized upon the
disposal of such securities.
The
lack of liquidity in the Company’s portfolio securities would probably prevent
the Company from disposing of them at opportune times and prices, which may
cause a loss and/or reduce 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.
8
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.
The
shares of our portfolio companies which are quoted for public trading will
generally be thinly traded and subject to wide and sometimes precipitous swings
in value.
DESCRIPTION
OF PROPERTY
The
Company does not own any real estate or other physical properties materially
important to our operation. Our offices are located at 11300 West Olympic,
Suite 800, Los Angeles, California 90064. The primary purpose of our office
is
to have a physical location at which to receive mail. Our two part-time
employees work from virtual offices. We believe the use of virtual offices
will
be adequate for our present business needs.
LEGAL
PROCEEDINGS
As
of the date of this annual report, there are no material pending legal or
governmental proceedings relating to our company or properties to which we
are a
party, and to our knowledge there are no material proceedings to which any
of
our directors, executive officers or affiliates are a party adverse to us or
which have a material interest adverse to us, other than the
following:
On
November 4, 2003 the Company and certain of its officers and consultants were
named as defendants in a lawsuit by Eco Air Technologies and Svenska Gellenvent
AB alleging ownership of certain technologies which the Company believed to
be
owned by its wholly owned subsidiary, O2 Technology, Inc. ("O2"). On
August 20, 2004, the Company answered the complaint and filed a cross-complaint
against certain shareholders of O2 for rescission of the O2 acquisition
agreement, return of the Company's common shares and compensatory and punitive
damages. In October 2005, the Company executed a settlement agreement with
Eco Air Technologies whereby the Company relinquished any claims it may have
to
the technologies in question and obtained certain marketing rights in several
foreign countries and in domestic market niches. The cross-complaint filed
by the Company against O2 shareholders and their attorney and the subsequent
cross complaint against the Company by O2 shareholders are unaffected by this
settlement and are still being pursued by the parties. A trial date
has been provisionally set for May of 2007. The Company has reserved $250,000
for litigation fees related to this matter.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The
Company’s Common Stock is traded on a limited and sporadic basis on the OTCBB
(Over-The-Counter Bulletin Board) under the symbol “RONE”. The following table
sets forth the trading history of the Common Stock on the Bulletin Board for
last two years as reported by the OTCBB web site. The quotations reflect
inter-dealer prices without retail mark-up, markdown or commission and may
not
represent actual transactions.
|
Quarter
Ending
|
Quarterly
High
|
Quarterly
Low
|
|||||
|
2006
|
|||||||
|
Dec.
31
|
$
|
0.26
|
$
|
0.15
|
|||
|
Sep.
30
|
$
|
0.40
|
$
|
0.26
|
|||
|
Jun.
30
|
$
|
0.58
|
$
|
0.26
|
|||
|
Mar.
31
|
$
|
0.58
|
$
|
0.30
|
|||
|
2005
|
|||||||
|
Dec.
31
|
$
|
0.63
|
$
|
0.28
|
|||
|
Sep.
30
|
$
|
1.48
|
$
|
0.29
|
|||
|
Jun.
30
|
$
|
1.50
|
$
|
0.30
|
|||
|
Mar.
31
|
$
|
0.95
|
$
|
0.35
|
|||
9
As
of March 21, 2007 there were approximately:
· 625
shareholders of our common stock; and
· 10
shareholders of our preferred stock.
Notwithstanding,
we feel the actual number of common stock holders may be significantly higher
as
2,306,990 common shares are held in street name.
Dividends/Distributions
On
January 23, 2006 we declared a distribution of approximately 500,000 Neuralstem,
Inc. common shares that we acquired as a result of services provided. On
February 5, 2007 we completed the distribution. As a result of rounding for
partial shares we distributed a total of 500,473 Neuralstem, Inc. common shares.
Recent
Sales of Unregistered Securities
Except
as otherwise noted, the securities described were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
of
1933. Each such issuance was made pursuant to individual contracts, which
are discrete from one another and are made only with persons who were
sophisticated in such transactions and who had knowledge of and access to
sufficient information about the Company to make an informed investment
decision. No commissions were paid in connection with the
transactions described below unless specifically noted.
| · |
On
February 9, 2004 we entered into a share transaction agreement with
O2
Technologies, Inc., whereby we issued 1,000,000 shares of our common
stock
in exchange for 100% ownership of O2 Technologies. We valued the
shares at
$.645926 each. As described in the Legal
Proceedings,
this transaction is subject to a legal dispute and we are seeking
rescission of the Agreement through the courts.
|
| · |
On
March 31, 2004 we issued a total of 100,000 common shares to Christopher
Dietrich. Of the shares issued: (i) 38,114 common shares were issued
in
exchange for $31,954 worth of legal services; and (ii) 61,886 common
shares were issued as payment in full for indebtedness in the amount
of
$51,884. We valued the shares at $.8384 each.
|
| · |
On
April 19, 2004 we issued a total of 35,000 common shares in exchange
for
$14,220 worth of consulting services. The services were provided
by the
following vendors:
|
| o |
Mr.
Charles Stevens - 15, 000 common shares;
and
|
| o |
Mr.
Richard A. Hull - 10,000 common shares;
and
|
| o |
Mr.
Richard Abruscato - 10,000 common shares,
|
We
valued the shares at $.4063 each.
| · |
On
May 12, 2004, we issued 250,000 common shares to MidAmerica Capital
Corporation in exchange for services valued at $50,000, and we valued
the
shares at $.20 each.
|
| · |
On
June 14, 2005 we issued to Mr. W.J. Reininger, in connection with
his
consulting employment 30,000 common shares. We valued the shares
granted
at $1.00 per share or an aggregate of $30,000.
|
| · |
On
June 14, 2005, we issued to The Rose Group, in lieu of fees due for
public
relations services, 10,000 common shares. We valued the shares at
$1.00
each.
|
| · |
On
June 14, 2005, we issued to Mr. Richard A. Hull, as payment for prior
consulting services provided, 10,000 common shares. We valued the
shares
at $1.00 each.
|
| · |
On
June 14, 2005, we issued to Mr. Charles Stevens, as payment for prior
consulting services, 10,000 common shares. We valued the shares at
$1.00
each.
|
| · |
On
July 12, 2005, we issued to Mr. Christopher Dietrich, for current
and
prior legal services, 300,000 common shares. Of the shares issued:
(i)
193,736 common shares were issued in exchange for current legal services,
and (ii) 106,264 common shares were issued as payment in full for
indebtedness for prior legal services We valued the shares at an
average
price of $.4167 each.
|
10
| · |
On
August 23, 2005, we entered into a financial public relations consulting
agreement with Equity Communications, LLC. As part of the agreement,
we
agreed to issue Equity Communications an option to purchase 160,000
shares
of our common stock at $0.50 per share with piggy-back registration
rights. The options began vesting on November 1, 2005 as follows;
60,000
shares vested immediately and 100,000 shares vested on August 1,
2006. The
term of the option is for a five year period commencing on November
1,
2005 and terminating on November 1, 2010. We valued the grant
at $27,236 for pro-forma financial statement purposes using the
Black-Scholes option-pricing model.
|
| · |
On
January 18, 2006, we issued to Mr. W.J. Reininger, in connection with
his consulting employment, a stock option to purchase 50,000 common
shares at $0.50 per share, vesting immediately, with piggy-back
registration rights, and exercisable for a period of three (3) years.
We
valued the grant at $10,529 for pro-forma financial statement
purposes using the Black-Scholes option-pricing model and recorded
this
amount as an expense in this
quarter.
|
| · |
On
February 7, 2006, we issued to Mr. Richard Abruscato, in connection
with his consulting employment, a stock option to purchase 175,000
common shares at $0.50 per share during the period ending on February
7, 2013, with piggy-back registration rights. The option vested as
follows: 125,000 shares were vested on the effective date of the
grant and
the balance of 50,000 shares vested on December 31, 2006. We valued
the
grant at $43,886 for pro-forma financial statement purposes using the
Black-Scholes option-pricing model.
|
| · |
On
March 10, 2006, we issued to Mr. Richard Hull, in connection with his
employment as our President and Chief Operating Officer, a non-qualified
stock option to purchase 500,000 common shares at $0.50 per
share. The option vests as follows: (i) 200,000 vested immediately;
(ii) 50,000 shares upon Regal raising over $500,000 in new capital;
(iii)
50,000 shares upon successful completion of the Neuralstem SB-2
registration; (v) 50,000 shares upon successful completion of the
SB-2
registration of the third Regal client; (vi) 50,000 shares shall
vest on
March 7, 2007 provided Mr. Hull is still employed by Regal; and (vii)
50,000 shares shall vest on March 7, 2008 provided he is still employed
by
Regal. The option has a term of ten years and expires on March 10,
2016, and has piggy-back registration rights. We valued the grant
at $168,608 for pro-forma financial statement purposes using the
Black-Scholes option-pricing model. The grant is apportuned according
to
milestones.
|
| · |
On
March 31, 2006, we completed a private placement of 362,500 of our
common shares to four accredited investors. The common shares were
priced
at $.40 per share and resulted in gross proceeds to the company of
$145,000. As part of the offering we granted the investors
piggy-back registration rights as well as certain rights providing
for the
issuance of additional shares in the event the Company’s next round of
financing is completed at a price of less than $0.60 per share before
March 31, 2007. The Company intends to use the proceeds for general
working capital.
|
| · |
On
August 8, 2006 we issued a secured private debt instrument in the
face
amount of $100,000 along with warrants to purchase 75,000 of our
common
shares are a price of $0.60. The private debt instrument has a term
of 12
months and bears interest at a rate of 10% per year. As a condition
to the
loan, we granted the lender a security interest in 100,000 shares
of
Neuralstem, Inc., one of our portfolio companies. We repaid the instrument
including accrued interest on December 11,
2006.
|
| · |
On
December 8, 2006 the company issued a demand promissory note in the
amount
of $227,294 to our CEO Malcolm Currie evidencing the following advances
previously made and that were outstanding as of the date of the
note:
|
| - |
$37,894
prior to 2004;
|
| - |
$10,000
advanced to us on September 27,
2004;
|
| - |
$10,000
advanced to us on December 15,
2004;
|
| - |
$10,000
advanced to us on January 18, 2005;
|
| - |
$5,000
advanced to us on April 25, 2005;
|
| - |
$6,400
advanced to us on October 12, 2005;
|
| - |
$10,000
advanced to us on October 13, 2005;
|
| - |
$17,000
advanced to us on November 18, 2005,
|
| - |
$8,000
advanced on December 30, 2005;
|
| - |
$4,000
advanced on January 17, 2006;
|
| - |
$4,000
advanced to us on February 6, 2006;
|
| - |
$5,000
advanced to us on March 4, 2006; and
|
| - |
$100,000
advanced to us on December 8, 2006.
|
The
note
is due and payable on or before December 8, 2008 and bears interest at a rate
of
10% per annum. Performance of the note is secured by 100,000 common shares
of
Neuralstem.
11
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to our 1995 Employee &
Consultant Incentive Benefit Plan as of December 31, 2006.
|
|
(a)
|
(b)
|
(c)
|
|||||||
|
|
Number of Securities
to be Issued
upon Exercise
of
Outstanding
Options,
Warrants
and
Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
|
Number of Securities
Remaining Available or
Future
Issuance under
Equity Compensation Plans
(Excluding
Securities
Reflected
in Column (a))
|
|||||||
|
Equity
compensation plans approved by security holders
|
0
|
0
|
980,986
|
|||||||
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|||||||
|
Total
|
0
|
0
|
980,986
|
|||||||
1995
Employee & Consultant Incentive Benefit Plan
Our
board of directors adopted the 1995 Employee & Consultant Incentive Benefit
Plan (“1995
Stock Plan”)
on May 3, 1995, and it was subsequently approved by our stockholders. The 1995
Stock Plan provides for the grant of stock options or stock to our employees,
directors, and consultants. As of December 31, 2006, there were no outstanding
options to purchase any additional shares under the plan. The 1995 Stock Plan
originally provided for the issuance of 3,000,000 shares of which 2,019,014
are
issued and outstanding. At December 31, 2006, 980,986 shares of our common
stock
remained available for future issuance under our 1995 Stock Plan.
SELECTED
FINANCIAL DATA
|
Financial
Position as of December 31:
|
||||||||||||||||
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Total
asset
|
$
|
2,744,472
|
$
|
238,666
|
$
|
10,868
|
$
|
64,003
|
$
|
17,442
|
||||||
|
Total
liabilities
|
$
|
1,740,977
|
$
|
520,363
|
$
|
460,505
|
$
|
326,488
|
$
|
308,922
|
||||||
|
Net
assets
|
$
|
1,003,495
|
$
|
(281,697
|
)
|
$
|
(449,637
|
)
|
$
|
262,485
|
)
|
$
|
(291,480
|
)
|
||
|
Net
asset value per outstanding common share
|
$
|
0.22
|
$
|
(0.07
|
)
|
$
|
(0.13
|
)
|
$
|
(0.18
|
)
|
$
|
(0.21
|
)
|
||
|
Shares
outstanding, end of fiscal year
|
4,633,067
|
4,270,567
|
3,658,259
|
1,459,202
|
1,365,356
|
|||||||||||
|
Operating
Data for year ended December 31:
|
||||||||||||||||
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Total
investment income
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||
|
Total
expenses
|
$
|
779,206
|
$
|
220,418
|
$
|
1,645,357
|
$
|
46,455
|
$
|
74,550
|
||||||
|
Net
operating (loss) income
|
$
|
(779,206
|
)
|
$
|
(220,418
|
)
|
$
|
(1,645,357
|
)
|
$
|
(46,455
|
)
|
$
|
(74,550
|
)
|
|
|
Total
tax expense (benefit)
|
$
|
800
|
$
|
1,642
|
$
|
800
|
$
|
800
|
$
|
0
|
||||||
|
Stock
Dividends
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||
(1)
The Company began operating as a Business Development Company on September
13,
2004, all prior period figures are based on prior operations.
12
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form 10-K.
Overview
We
are a financial services company which coaches and assists biomedical companies
through the use of our network of professionals in listing their securities
on
over the counter or national exchanges. Typically these services are provided
to
early stage biomedical companies who can benefit from our network of professions
and other partners. As a result of our clients’ early stage of development, they
typically have limited resources and compensate us for our services in capital
stock. Accordingly, although our primary business is to provide consulting
services and not to be engaged, directly or through wholly-owned subsidiaries,
in the business of investing, reinvesting, owning, holding or trading in
securities, we may nonetheless be considered an investment company as that
term
is defined in the Investment Company Act of 1940 (1940 Act). In order to lessen
the regulatory restrictions associated with the requirements of the 1940 Act,
on
June 16, 2005 we elected to be treated as a Business Development Company (BDC)
in accordance with sections 55 through 65 of the 1940 Act.
Managerial
Assistance
As
a
business development company we will offer and provide upon request managerial
assistance to certain of our portfolio companies. As defined under the
1940 Act, managerial assistance means providing “significant guidance and
counsel concerning the management, operations, or business objectives and
policies of a portfolio company.”
Financial
Condition Overview
The
Company's total assets were $2,744,472 and its net assets were $1,003,495 at
December 31, 2006, compared to $238,666 and $(281,697), respectively, at
December 31, 2005.
The
changes in total assets during the twelve months ended December 31, 2006 were
primarily attributable to an increase in total portfolio investment value of
$2,478,636. 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. For example, the Company suffered
an unrealized loss of $145,000 on its holdings of SuperOxide Health Sciences
for
the twelve months ended December 31, 2006 as a result of a decline in the value
of the portfolio shares from $145,000 to $0 during such time period. By
contrast, the Company incurred an unrealized gain as a result of the Securities
and Exchange Commission declaring Neuralstem, Inc’s registration statement
effective on August 30, 2006. Prior to being declared effective the Company
was
at risk of potentially forfeiting up to 1,000,000 Neuralstem shares and the
shares it did own were greatly diminished in value as a result of no public
market for such shares. This resulted in an increase in the value of the
Neuralstem Inc. shares to $2,741,430 for the twelve months ended December 31,
2006 as compared to $50,000 for the comparable period ended December 31,
2005.
The
changes in net assets during the twelve months ended December 31, 2006 were
primarily attributable to the increase in the value assigned to Neuralstem
stock. The increase in current liabilities was primarily due to the assumption
of a loan of $100,000, the inclusion of $250,000 in contingent litigation fees,
and the inclusion of $750,564 dividend payable given the removal of the
contingency delaying the Company’s previously declared dividend of Neuralstem
shares.
The
Company's financial condition is dependent on a number of factors including
the
ability of each portfolio company to effectuate its respective strategies with
the Company's help. These businesses are frequently thinly capitalized,
unproven, small companies that may lack management depth, and may be dependent
on new or commercially unproven technologies, and may have no operating
history.
13
Result
of Operations 2006 v. 2005
Investment
Income
We
anticipate generating revenue in the form of capital gains or losses on equity
securities that we acquire in portfolio companies and subsequently sell.
Potentially, we also anticipate receiving dividend income on any common or
preferred stock that we own should a dividend be declared.
We
did not have any Investment Income for the twelve months ended December 31,
2006
or 2005.
Operating
Expenses
Our
operating expenses consist mostly of fees paid to outside attorneys,
consultants, and accountants in connection with the advisory services we provide
our clients and to a lesser extent for general overhead.
For
the twelve months ended December 31, 2006, operating expenses were $779,206
compared to $220,418 for the twelve month period ended December 31, 2005. The
increase of $558,788 for the twelve month period ended December 31, 2006 as
compared to the comparable period of 2005 is primarily attributable to increases
in professional service fees, and general and administrative expenses stemming
from increased activity in managing our portfolio companies, as well as an
increase in the reserve for anticipated litigation fees. We
expensed $165,955 in connection with the issuance of common stock options
and warrants issued to employees and consultants and $26,171 in connection
with our financing activities.
We
anticipate operational expenses will continue to increase as we add more
companies to our portfolio.
Net
Investment Income/Loss
For
the twelve months ending December 31, 2006, net investment loss was $780,006
compared to $222,060 for the comparable period ended December 31, 2005. The
2006
amount consisted primarily of professional services and consulting fees and
general overhead. The increase of $557,946 in the twelve month period ending
December 31, 2006 as compared to the comparable period ended December 31, 2005
is primarily attributable to the factors discussed above.
We
anticipate our net investment loss will continue to increase as we add more
companies to our portfolio and hold the securities of our portfolio companies
for long term capital growth.
Result
of Operations 2005 v. 2004
Investment
Income
We
did not have any Investment Income for the twelve months ended December 31,
2005
or 2004.
Operating
Expenses
For
the twelve months ended December 31, 2005, operating expenses were $220,418
compared to $1,645,357 for the twelve month period ended December 31, 2004.
The
decrease of $1,424,939 for the twelve month period ended December 31, 2005
as
compared to the comparable period of 2004 is primarily attributable to a reserve
for collectability and a write down in an investment in a subsidiary that
occurred in 2004, and a decrease in professional service fees and general and
administrative expenses stemming from decreased activity for the
period.
Net
Investment Income/Loss
For
the twelve months ending December 31, 2005, net investment loss was $222,060
compared to $1,646,157 for the comparable period ended December 31, 2004. The
2005 amount consisted primarily of professional services and consulting fees
and
general overhead. The increase of $1,424,097 in the twelve month period ending
December 31, 2005 as compared to the comparable period ended December 31, 2004
is primarily attributable to the factors discussed above.
Liquidity
and Capital Resources
At
December 31, 2006, we had approximately $449,478 in liquid and semi liquid
asset
consisting of: (i) $42 in cash; and (ii) $449,436 in registered shares of
Neuralstem, offset for the distribution we are obligated to make.
For
the twelve month period ended December 31, 2006 we satisfied our working capital
needs from: (i) cash on hand at the beginning of the period; (ii) gross proceeds
from the sale of common stock totaling $145,000, (iii) gross proceeds from
the
sale of a private debt instrument and loans totaling $123,000; and (iii) an
increase in accounts payable and current liabilities of $94,260. As of December
31, 2006 the Company had a Net Asset Value of $1,003,495.
From
inception, the Company has relied for liquidity on the infusion of capital
through capital share transactions and loans. The Company does not plan to
dispose of any of its current portfolio securities to meet operational needs.
However, despite its plans, the Company may be forced to dispose of a portion
of
these securities if it ever becomes short of cash. 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. The Company's monthly cash burn rate is
approximate $20,000. Because our revenues, if generated, tend to be in the
form
of portfolio securities, such revenues are not of a type capable of being used
to satisfy the Company's ongoing monthly expenses. Consequently, for us to
be
able to avoid having to defer expenses or sell portfolio companies' securities
to raise cash to pay operating expenses it is constantly seeking to secure
adequate funding under acceptable terms. There is no assurance that the Company
will be able to do so. Further, if the Company is unable to secure adequate
funding under acceptable terms, there is substantial doubt that the company
can
continue as a going concern.
14
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
||||||||||||
|
Debt
Obligations
|
$
|
227,294
|
$
|
227,294
|
||||||||||||
|
Total
|
$
|
227,294
|
$
|
227,294
|
||||||||||||
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.
FINANCIAL
STATEMENTS
CHANGES
IN AND DISAGREEMENTS
WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Termination
of Prior Accountant
On
January 29, 2007 we formally terminated the engagement of George Brenner
(“Brenner”)
as our
independent registered public accounting firm. The decision to dismiss Brenner
was recommended and approved by our board of directors. The reason for the
change was related to Brenner’s health.
Brenner
audited our financial statements for two fiscal years ended
December 31, 2005 and reviewed our interim financial statements
through the interim period ending September 30, 2006. Brenner’s reports on
the financial statements for those fiscal years and interim period did not
contain an adverse opinion or disclaimer of opinion and was not otherwise
qualified or modified as to any other uncertainty, audit scope or accounting
principles. During those two fiscal years and also during the subsequent
period through the date of Brenner’s replacement there were no
disagreements between us and Brenner on any matter of accounting principles
or
practices, financial statement disclosure, or auditing scope or
procedure.
Appointment
of New Accountant
On
January 29, 2007, we formally appointed the public audit firm of De
Joya Griffith & Company, LLC (“De
Joya”)
as our
new independent registered public accounting firm for purposes of auditing
our
financial statements for the fiscal year ended December 31, 2006.
The decision to engage De Joya was approved by our board of directors.
During our two most recent fiscal years ended December 31, 2005, and
also during the subsequent interim period through the date of Brenner’s
resignation, we did not consult with De Joya regarding the application of
accounting principles to a specified completed or contemplated transaction,
or
the type of opinion that might be rendered regarding our financial statements,
nor did we consult De Joya with respect to any accounting disagreement or any
reportable event at any time prior to the appointment of that firm.
15
Evaluation
of Disclosure Controls and Procedures.
Based
on an evaluation under the supervision and with the participation of the our
management as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, our principal executive officer and principal financial officer
have concluded our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 are effective
to ensure that information required to be disclosed in reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms.
Changes
in Internal Controls.
There
were no significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses and
therefore there were no corrective actions taken. However, the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events and there is no certainty that any design will
succeed in achieving its stated goal under all potential future considerations,
regardless of how remote.
PART
III
DIRECTORS,
EXECUTIVE OFFICERS
AND
CORPORATE GOVERNANCE
The
following table sets forth the name, age and position of each of our directors,
executive officers and significant employees as of March 21, 2007. Except as
noted below each director will hold office until the next annual meeting of
our
stockholders or until his or her successor has been elected and qualified.
Our
executive officers are appointed by, and serve at the discretion of, the Board
of Directors.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Dr.
Malcolm Currie
|
|
80
|
|
Chairman
of the Board, CEO, Secretary, Treasurer
& Director
|
|
|
|
|
|
|
|
Carl
Perry
|
|
74
|
|
Director
|
|
Dr.
Neil Williams
|
55
|
Director
|
||
|
Richard
Hull
|
42
|
President
and Chief Operating Officer
|
Dr.
Malcolm Currie
was appointed as Chairman of the Board of Directors in 1995 and CEO of the
Company in August 2001 and has served in those capacities since. From 1969
to
1973, Dr. Currie was the Undersecretary of Research and Engineering for the
Office of Defense. From 1973 to 1977, Dr. Currie was President of the Missile
Systems Group for Hughes Aircraft Corporation. From 1977 to 1988, Dr. Currie
started as Executive Vice President and eventually became Chief Executive
Officer and Chairman of the Board of Hughes Aircraft Corporation. From 1992
to
present, Dr. Currie has been Chairman Emeritus of Hughes Aircraft Corporation.
Dr. Currie is also on the Board of Directors of LSI Logic, Enova Systems, and
Innovative Micro Technologies. Dr. Currie obtained a graduate MBA from the
University of California, Berkeley, and a PhD in Engineering and Physics at
the
University of California, Berkeley. Dr. Currie is the father-in-law of our
President and Chief Operating Officers, Richard Hull.
Carl
Perry
was elected to the Board of Directors on February 13, 2006. Mr. Perry's career
has ranged from corporate top management positions in aerospace and aircraft
companies to environmentally-friendly electric, hybrid and fuel cell vehicle
technologies. From 1997 to 2004 he led Enova Systems, Inc., a global
supplier of efficient, environmentally-friendly hybrid and fuel cell drive
systems and digital power components, as President and Chief Executive Officer.
Mr. Perry has also served as Executive Vice President of Canada's largest
aerospace company, Canadair Limited (now Bombadier), and as Executive Vice
President of the Howard Hughes Corporation's Hughes Helicopters Company (now
a
part of Boeing).
Dr.
Neil Williams
was elected to the Board of Directors on February 13, 2006. Dr. Neil D. Williams
has been President and CEO of the Environmental Management Company International
(EMCI) since 2002. EMCI has a US consulting engineering subsidiary, Innviron
Corporation, and an international consulting engineering subsidiary, Globex
Engineering International. Dr. Williams received his PhD in Geotechnical
Engineering from the University of California at Berkeley in 1982, was a
professor of Geotechnical and Environmental Engineering at the Georgia Institute
of Technology, and was a Lecturer at Utah State University in Civil Engineering.
Dr. Williams has served in Senior Management positions with several
companies, and has more than 54 technical publications.
16
Dr.
Richard Hull
was appointed President on March 13, 2006. After holding senior positions
at a number of business consulting firms in Europe, Asia and North America,
Dr.
Hull was elected Partner at Deloitte Consulting where he provided counsel to
high tech companies on marketing and business strategy, with a particular focus
on strategic planning for new businesses. From 2000 to 2003 Dr. Hull served
as
President and CEO of Spotlight Health, Inc., a privately-held healthcare
communications company delivering integrated marketing campaigns using celebrity
stories, public relations, the web and other tactics to educate and change
consumer and physician behavior. Most recently, Dr. Hull has served as
Chairman and CEO of The Metaphase Group, Inc., a privately-held consultancy
that
assists early-stage biomedical and high technology companies formulate their
strategies and access capital to execute them. Dr. Hull earned a PhD in
Biochemistry from Oxford University in 1990. Richard Hull is the son-in-law
of
our Chairman and CEO, Dr. Malcolm Currie.
MEETINGS
During
the year ended December 31, 2006 the Board of Directors met:
(i) informally
on 7 occasions; and
(ii) formally
on 3 occasions.
COMPENSATION
OF DIRECTORS
INDEMNIFICATION
As
permitted by the provisions of the General Corporation Law of the State of
Florida, the Company has the power to indemnify any officer or director who
was
or is a party to or threatens to become a party to any threatened, pending
or
completed action, suit or proceeding whether civil, criminal, administrative
or
investigative, by reason of the fact that the officer or director of the
corporation acted in good faith and in a manner reasonably believed to be in
or
not opposed to the best interest of the Company. Any such person may be
indemnified against expenses, including attorneys’ fees, judgments, fines and
settlements in defense of any action, suit or proceeding. The Company
maintains directors and officers’ liability insurance.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers,
directors, and persons who own more than ten percent (10%) of a registered
class
of our equity securities to file an initial report of ownership on Form 3 and
changes in ownership on Form 4 or 5 with the Securities and Exchange Commission
(the "SEC"). Such officers, directors and ten percent (10%) shareholders are
also required by the SEC rules to furnish us with copies of all Section 16(a)
forms they file.
Based
solely on review of copies of such forms received by the Company, or written
representations from certain reporting persons that no Forms 5 were required
for
such persons,we believes its executive officers, directors and ten percent
(10%)
shareholders complied with all Section 16(a) filing requirements applicable
to
them through the fiscal year ended December 31. 2006.
17
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information for our last three most recent completed
fiscal year concerning the compensation of (i) the Principal Executive
Officer and (ii) all other executive officers of Regal One Corporation who
earned over $100,000 in salary and bonus during the last three most recently
completed fiscal year ended December 31, 2006, 2005 and 2004 (together the
“Named Executive Officers”).
Name
and principal position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Award
|
Nonequity
Incentive
Plan
com-pensation
|
Non-qualified
deferred com-
pensation
earning
|
All
other
com-
pensation
|
Total
|
|||||||||||||||||||
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||
|
Dr.
Malcolm Currie
|
2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Chief
Executive & Financial
|
2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Officer
(Principal Executive &
|
2004
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
| Financial Officer) | ||||||||||||||||||||||||||||
|
Dr.
Richard Hull
|
2006
|
$
|
45,000
|
-
|
-
|
$
|
168,608
|
(1)
|
-
|
-
|
-
|
$
|
213,608
|
|||||||||||||||
|
Chief
Operating Officer/ President
|
2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
2004
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
|
1.
|
On
March 10, 2006, we granted Mr. Hull an option to purchase 500,000
common
shares. The option vest over two years upon the occurrence of certain
events and has an exercise price of $0.50 per common shares. As we
are
considered an investment company, the issuance of the option requires
the
majority approval of our board of directors and shareholders. As
of the
date hereof, no such approvals have occurred. Notwithstanding, we
have
disclosed the option and the grant as we anticipate such approvals
will be
forthcoming.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information concerning unexersised options; stock
that
has not vested; and equity incentive ;an awards for each Named Executive Officer
outstanding as of the end of the last completed fiscal year.
|
Name
|
Number
of securities underlying unexercised options
(#)
exercisable
|
Number
of securities underlying unexercised options
(#)
unexercisable
|
Equity
incentive plan awards: Number of securities underlying unexercised
unearned options
(#)
|
Option
exercise price
($)
|
Option
expiration
date
|
Number
of shares or units of stock that have not vested
(#)
|
Market
value of shares of units of stock that have not vested
($)
|
Equity
incentive plan award: Number of un-earned shares, units or other
rights
that have not vested
(#)
|
Equity
incentive plan awards: Market or payout value of unearned shares,
units or
other rights that have not vested
($)
|
|||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||
|
Dr.
Richard Hull
|
50,000*
|
450,000*
|
$
|
.50*
|
3/7/16*
|
|||||||||||||||||||||||
|
*
|
Pursuant
to Mr. Hull’s employment agreement, one of the vesting conditions has
already occurred. Notwithstanding, as we are considered an investment
company, the issuance of the option requires the majority approval
of our
board of directors and shareholders. As of the date hereof, no such
approvals have occurred. Notwithstanding, we have disclosed the option
and
the grant as we anticipate such approvals will be forthcoming and
as a
result of the occurrence of a vesting condition.
|
18
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth information, to the best knowledge of the Company,
as
of April 13, 2007 with respect to each person known by us to own beneficially
more than 5% of the outstanding Common Stock, each director and officer, and
all
directors and officers as a group.
|
Name
and Address of beneficial owner
|
Common
Share Equivalents beneficially owned
|
Percent
of Common Share
Equivalents
owned (1)
|
|||||
|
Malcolm
Currie (2)
11300
W. Olympic Blvd., Suite 800
Los
Angeles, California 90064
|
2,024,200
|
13.83
|
%
|
||||
|
C.B.
Family Trust (Richard Babbitt) (3)
10104
Empyrean Way
Los
Angeles, California 90067
|
1,400,000
|
9.57
|
%
|
||||
|
AB
Investments LLC (4)
4235
Cornell Road
Agoura,
CA 91301
|
3,841,500
|
26.25
|
%
|
||||
|
Aaron
Grunfeld (5)
10390
Santa Monica Blvd., 4th
Floor
Los
Angeles, CA 90025-5057
|
1,200,000
|
8.20
|
%
|
||||
|
Robert
B. Kay (6)
7005
Via Bella Luna
Las
Vegas, NV 89131
|
1,270,753
|
8.90
|
%
|
||||
|
All
Officers and Directors as a Group
|
2,024,200
|
13.83
|
%
|
||||
| (1) |
Includes
(i) 4,633,067 shares of common stock
issued and outstanding as of December 31, 2006, and (ii) 10,000,000
maximum common shares upon the conversion of the Series B preferred
class,
and totals to 14,633,067 fully diluted common share equivalents
outstanding.. Each share of Preferred Stock is convertible into 100
shares of voting common stock. Of the Preferred Stock outstanding,
20,242
shares (20.2%) are held by the Directors of the Company (Dr. Malcolm
Currie, 20,242 shares).
|
|
| (2) | Consists of 20,242 Series B preferred shares convertible into 2,024,200 common shares. | |
| (3) | Consists of 14,000 Series B preferred shares convertible into 1,400,000 common shares. | |
| (4) | Consists of 38,415 Series B preferred shares convertible into 3,841,500 common shares. | |
| (5) | Consists of 12,000 Series B preferred shares convertible into 1,200,000 common shares. | |
| (6) | Includes 236,453 common shares and 10,343 Series B preferred shares convertible into 1,034,300 common shares. |
TRANSACTIONS
AND BUSINESS RELATIONSHIPS WITH
MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
Summarized
below are certain transactions and business relationships between Regal One
Corporation and persons who are or were an executive officer, director or holder
of more than five percent of any class of our securities since March 31,
2007:
| · |
Since
2004, we have entered into a series of loans with our Chairman and
CEO,
Malcolm Currie for purposes of general working capital and the operation
of the company. For a more detailed description of the transactions,
refer
to the section caption “Recent
Sales of Unregistered Securities”
and specifically those transactions occurring on December 8, 2006,
February 28, 2007, and March 21,
2007.
|
19
PRINCIPAL
ACCOUNTANTS FEES AND SERVICES
Audit
Fees
The
aggregate fees billed by the Company's auditors for the professional services
rendered in connection with the audit of the Company's annual financial
statements for fiscal 2006 and reviews of the financial statements included
in
the Company's Forms 10-K for fiscal 2005 were approximately $15,000 and
$8,242, respectively.
Audit
Related Fees
None
Tax
Fees
None
All
Other Fees
The
aggregate fees billed by the Company's auditors for all other non-audit services
rendered to the Company, such as attending meetings and other miscellaneous
financial consulting in fiscal 2006 and 2005 were $0 and $0,
respectively.
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
20
ITEM
8. FINANCIAL STATEMENTS
The
following financial statements listed in the table below have been prepared
in
accordance with the requirements of Regulation S-X.
CONTENTS
Page
|
Independent
Registered Auditor's Report
|
F-1
|
|
Balance
Sheets
|
F-2
|
|
Schedule
of Investments
|
F-3
|
|
Statement
of Changes in Net Assets
|
F-4
|
|
Statement
of Operations
|
F-5
|
|
Statements
of Cash Flows
|
F-7
|
|
Statements
of Financial Highlights
|
F-8
|
|
Notes
to Financial Statements
|
F-9
to F-16
|
21
De
Joya
Griffith & Company, LLC
Certified
Public Accountants
2580
Anthem Village Drive
Henderson,
Nevada 89052
702.563.1600
(tel)
702.588.5979
(fax)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying balance sheet of Regal One Corporation as of December
31, 2006 and the related statements of change in net assets, operations,
and
cash flows for the year ended December 31, 2006. These financial statements
are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit. We did not audit
the financial statements of Regal One Corporation as of December 31, 2005
and
for the years ended December 31, 2005 and 2004. Those statements were audited
by
other auditors whose report has been furnished to us.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Regal One Corporation
as of
December 31, 2006, and the results of its operations and cash flows for the
years ended December 31, 2006 in conformity with accounting principles generally
accepted in the United States of America.
De
Joya
Griffith & Company, LLC
/s/
De
Joya Griffith & Company, LLC
Las
Vegas, NV
April
17,
2007
George
Brenner, CPA
A
Professional Corporation
10680
W. PICO BOULEVARD, SUITE 260
LOS
ANGELES, CALIFORNIA 90064
310/202-6445
- Fax 310/202-6494
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Regal
One
Corporation
I
have
audited the accompanying balance sheets of Regal One Corporation as of December
31, 2005 and 2004 and the related statements of operations, stockholders'
(deficit) and cash flows for the years ended December 31, 2005 and 2004. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based
on
my audit.
I
conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that I plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit
provides a reasonable basis for my opinion.
In
my
opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Regal One Corporation as of
December 31, 2005 and 2004 and the results of its operation and its cash flows
for the years ended December 31, 2005 and 2004 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that Regal One
Corporation will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's ability to generate sufficient cash flows
to
meet its obligations, either through future revenues and/or additional debt
or
equity financing, cannot be determined at this time. In addition, the Company
has suffered recurring losses and at December 31, 2005 has a stockholders'
deficit. These uncertainties raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
As
discussed in Note 1 “Presentation”, consolidated financial statements were
included in the 2004 quarterly 10Q filings with the SEC. However, because of
pending litigation between the Company and its wholly owned subsidiary it was
not possible to consolidate the parent company with its subsidiary as of
December 31, 2005 and 2004 and for its operations and cash flows for the years
then ended.
George
Brenner, CPA
Los
Angeles, California
March
28,
2006
F-1
REGAL
ONE CORPORATION
BALANCE
SHEETS
DECEMBER
31, 2006 AND DECEMBER 31, 2005
|
Dec
31, 2006
|
Dec
31, 2005
|
||||||
|
ASSETS
|
|
Audited
|
|||||
|
Current
Assets
|
|||||||
|
Cash
|
$
|
42
|
$
|
1,283
|
|||
|
Marketable
Securities - Salable
|
449,436
|
–
|
|||||
|
Marketable
Securities - Reserved for Dividend
|
750,564
|
–
|
|||||
|
Prepaid
Expense
|
3,000
|
3,000
|
|||||
|
Miscellaneous
Receivable
|
-
|
5,296
|
|||||
|
Advances
to Subsidiary
|
518,490
|
518,490
|
|||||
|
Less:
Allowance for Collectability of Advance to Subsidiary
|
(518,490
|
)
|
(518,490
|
)
|
|||
|
Total
Current Assets
|
1,203,042
|
9,579
|
|||||
|
Deferred
Tax Assets - net
|
–
|
–
|
|||||
|
Investments
|
|||||||
|
Investment
in Subsidiary
|
649,526
|
649,526
|
|||||
|
Less:
Impairment of Value of Investment in Subsidiary
|
(649,526
|
)
|
(649,526
|
)
|
|||
|
Investments
in Non-Affiliated Portfolio Companies
|
2,741,430
|
229,087
|
|||||
|
Less:
Marketable Securities Portion
|
(1,200,000
|
)
|
-
|
||||
|
Total
Investments, net
|
1,541,430
|
229,087
|
|||||
|
TOTAL
ASSETS
|
$
|
2,744,472
|
$
|
238,666
|
|||
|
LIABILITIES
& NET ASSETS (DEFICIT)
|
|||||||
|
Current
Liabilities
|
|||||||
|
Due
to Stockholders and Officers
|
$
|
95,964
|
$
|
200,258
|
|||
|
Accounts
Payable and Accrued Liabilities
|
417,155
|
320,105
|
|||||
|
Note
Payable - Officer
|
227,294
|
–
|
|||||
|
Contingent
Litigation Fees
|
250,000
|
–
|
|||||
|
Dividend
Payable
|
750,564
|
–
|
|||||
|
Total
Current Liabilities
|
1,740,977
|
520,363
|
|||||
|
Net
Assets
|
|||||||
|
Preferred
Stock, no par value
|
|||||||
|
Series
A - Authorized 50,000 shares; 0 issued and
|
–
|
–
|
|||||
|
outstanding
in 2006 and 2005
|
|||||||
|
Series
B - Authorized 500,000 shares; 100,000 issued and
|
|||||||
|
outstanding
in 2006 and 2005
|
500
|
500
|
|||||
|
Common
Stock, no par value:
|
|||||||
|
Authorized
50,000,000 shares; issued and outstanding 4,633,067
|
8,184,567
|
8,039,567
|
|||||
|
and
4,270,567 as of December 31, 2006 and 2005, respectively
|
|||||||
|
Paid
In Capital
|
192,126
|
||||||
|
Dividend
Declared
|
(750,564
|
)
|
–
|
||||
|
|
|||||||
|
Accumulated
Deficit
|
(6,623,134
|
)
|
(8,321,764
|
)
|
|||
|
Total
Net Assets
|
1,003,495
|
(281,697
|
)
|
||||
|
TOTAL
LIABILITIES & NET ASSETS
|
$
|
2,744,472
|
$
|
238,666
|
|||
|
Net
Asset Value Per Outstanding Common Share
|
$ | 0.217 | $ | (0.066 | ) | ||
See
Accompanying Notes to the Financial Statements
F-2
REGAL
ONE CORPORATION
SCHEDULE
OF INVESTMENTS
DECEMBER
31, 2006
UNAUDITED
UNAUDITED
|
Equity
Investments:
|
||||||||||||||||
|
Description
|
Percent
|
Carrying
Cost
|
||||||||||||||
|
Company
|
of
Business
|
Ownership
|
Investment
|
Fair
Value
|
Affiliation
|
|||||||||||
|
Neuralstem
|
Biomedical
company
|
7%
|
|
$
|
83,707
|
(1)
|
$
|
2,741,430
|
No
|
|||||||
|
American
Stem Cell
|
Biomedical
company
|
8%
|
|
$
|
34,087
|
$
|
0
|
No
|
||||||||
|
SuperOxide
Health Sciences
|
Biomedical
company
|
8%
|
|
$
|
145,000
|
$
|
0
|
No
|
||||||||
|
Total
Investments
|
|
$
|
262,794
|
$
|
2,741,430
|
|
||||||||||
|
(1)
970,000 of Neuralstem shares held by Regal were previously subject
to
forfeiture based on a contingency concerning the effective date of
Neuralstem’s SB-2 registration; 51,000 of these shares were forfeited in
the third quarter and the balance are no longer subject to forfeit.
As of
December 31, 2006, the 1,794,287 Neuralstem shares held after the
forfeit
have been valued above at a discounted price from the 12/31/06 market
price due to the current thinly traded market for Neuralstem shares.
Of
the total shares, 500,376 Neuralstem shares are reserved for a Regal
dividend of record. Regal 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 $50,000 value has yet been
assigned
to these warrants. In 2005, all portfolio companies were reported
on a
cost basis.
|
See
Accompanying Notes to the Financial Statements and Registered Accountant's
Report.
F-3
REGAL
ONE CORPORATION
STATEMENTS
OF CHANGE IN NET ASSETS
|
|
|||||
|
For
the Year
Ended
December 31, 2006
|
For
the Year
Ended
December 31, 2005
|
||||||
|
Audited
|
|||||||
|
OPERATIONS:
|
|||||||
|
Net
investment income (loss)
|
$
|
(780,006
|
)
|
$
|
(222,060
|
)
|
|
|
Net
change in unrealized appreciation (depreciation) of portfolio
securities
|
2,478,636
|
–
|
|||||
|
Net
increase (decrease) in net assets resulting from
operations
|
1,698,630
|
(222,060
|
)
|
||||
|
SHAREHOLDER
ACTIVITY:
|
|||||||
|
Sale
of: Common stock
|
145,000
|
||||||
|
Options
|
165,955
|
390,000
|
|||||
|
Warrants
|
26,171
|
||||||
|
Declared
Dividend
|
(750,564
|
)
|
|||||
|
(413,438
|
)
|
390,000
|
|||||
|
NET
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS
|
1,285,192
|
167,940
|
|||||
|
NET
ASSETS:
|
|||||||
|
Beginning
of Period
|
(281,697
|
)
|
(449,637
|
)
|
|||
|
End
of Period
|
$
|
1,003,495
|
$
|
(281,697
|
)
|
||
See
Accompanying Notes to the Financial Statements
F-4
REGAL
ONE CORPORATION
STATEMENTS
OF OPERATIONS
Years
Ended December 31, 2006, December 31, 2005, December 31,
2004
|
2006
|
2005
|
2004
|
||||||||
|
Audited
|
||||||||||
|
Investment
Income
|
$
|
–
|
$
|
–
|
$
|
–
|
||||
|
Operating
Expenses
|
||||||||||
|
Reserve
for Collectability
|
–
|
–
|
518,490
|
|||||||
|
Write-down
Investment in Subsidiary
|
–
|
–
|
649,526 | |||||||
|
Professional
Services
|
267,830
|
202,610
|
456,105
|
|||||||
|
Stock
Option Expense
|
165,955 |
–
|
–
|
|||||||
|
Reserve
for Litigation Fees
|
250,000
|
–
|
–
|
|||||||
|
Other
Selling, General and Administrative Expenses
|
95,421
|
17,808
|
21,236
|
|||||||
|
Total
Operating Expenses
|
779,206
|
220,418
|
1,645,357
|
|||||||
|
Net
Operating (Loss)
|
(779,206
|
)
|
(220,418
|
)
|
(1,645,357
|
)
|
||||
|
Other
Income
|
-
|
-
|
-
|
|||||||
|
Net
Income (Loss) Before Provision for Income Taxes
|
(779,206
|
)
|
(220,418
|
)
|
(1,645,357
|
)
|
||||
|
Income
Tax Expenses
|
800
|
1,642
|
800
|
|||||||
|
Net
Investment Loss
|
(780,006
|
)
|
(222,060
|
)
|
(1,646,157
|
)
|
||||
|
Net
Realized Gain (Loss) on portfolio companies
|
–
|
–
|
–
|
|||||||
|
Net
change in unrealized (depreciation) appreciation in
portfolio
companies
|
2,478,636
|
–
|
–
|
|||||||
|
Net
Increase in Net Assets Resulting from Operations
|
$
|
1,698,630
|
$
|
(222,060
|
)
|
$
|
(1,646,157
|
)
|
||
|
Weighted
Average Number of Common Shares
|
4,497,999
|
3,988,569
|
3,298,115
|
|||||||
| Basic | $ | 0.378 | $ | (0.056 | ) | $ | (0.50 | ) | ||
|
Weighted
Average Number of Fully Diluted Shares
|
14,497,999
|
13,988,569
|
3,298,115
|
|||||||
|
Basic
and Diluted
|
$
|
0.117
|
$
|
(0.056
|
)
|
$
|
(0.50
|
)
|
||
See
Accompanying Notes to the Financial Statements
F-5
REGAL
ONE CORPORATION
STATEMENTS
OF CASH FLOWS
|
Years
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Cash
Flows from operating activities:
|
Audited
|
|||||||||
|
Net
Increase (Decrease) in Net Assets resulting from options
|
$
|
1,698,630
|
$
|
(222,060
|
)
|
$
|
(1,646,157
|
)
|
||
|
Adjustments
to reconcile net increase (decrease) in net assets
resulting
from operating activities:
|
||||||||||
|
|
||||||||||
|
Stock
options
|
165,955
|
–
|
||||||||
|
Stock
for services
|
-
|
134,890
|
96,174
|
|||||||
|
(Increase)
decrease in unrealized appreciation in Investments
in
Portfolio Companies
|
(2,478,636
|
)
|
–
|
|||||||
|
518,490
|
||||||||||
|
Reserve
for Collectability of Advances
|
–
|
649,526
|
||||||||
|
Impairment
to Investment in Subsidiary
|
–
|
–
|
|
|||||||
|
Reserve
for Litigation Fees
|
250,000
|
–
|
||||||||
|
Amortization
of Loan Origination Fee
|
26,171
|
–
|
||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Increase
in Due to Stockholders and Officers
|
123,000
|
56,400
|
34,000
|
|||||||
|
Increase
(Decrease) in Miscellaneous Receivables
|
5,296
|
–
|
(5,296
|
)
|
||||||
|
Increase
in Prepaid Expenses
|
–
|
–
|
(3,000
|
)
|
||||||
|
Advances
to wholly owned subsidiary
|
–
|
–
|
(468,490
|
)
|
||||||
|
Increase
in Accounts Payable and Accrued Expenses
|
94,260
|
53,568
|
151,901
|
|||||||
|
Total
Adjustments
|
(1,813,954
|
)
|
244,858
|
973,305
|
||||||
|
Net
cash used in operating activities
|
(115,324
|
)
|
22,798
|
(672,852
|
)
|
|||||
|
Cash
Flows used in Investing Activities:
|
||||||||||
|
|
|
|||||||||
|
Investment
in Portfolio Companies
|
(30,917
|
)
|
(229,087
|
)
|
–
|
|||||
|
Net
cash used in investing activities
|
(30,917
|
)
|
(229,087
|
)
|
–
|
|||||
|
Cash
Flows from Financing Activities:
|
||||||||||
|
Stock
option exercises
|
–
|
205,000
|
661,421
|
|||||||
|
Sale
of common stock
|
145,000
|
–
|
–
|
|||||||
|
Net
cash provided by financing activities
|
145,000
|
205,000
|
661,421
|
|||||||
|
|
||||||||||
|
Net
(decrease) in cash
|
(1,241
|
)
|
(1,289
|
)
|
(11,431
|
)
|
||||
|
Cash
at beginning of period
|
1,283
|
2,572
|
14,003
|
|||||||
|
Cash
at end of period
|
$
|
42
|
$
|
1,283
|
$
|
2,572
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||||
|
Cash
paid for interest
|
$
|
3,472
|
$
|
–
|
$
|
–
|
||||
|
Cash
paid for income taxes
|
$
|
800
|
$
|
1,642
|
$
|
800
|
||||
|
Non-Monetary
Transactions:
|
||||||||||
|
Stock
options vested
|
$
|
165,955
|
||||||||
|
Dividend
Payable in 500,376 portfolio company shares
|
750,564
|
|||||||||
|
Warrant
for Prepaid Expense
|
26,171
|
|||||||||
|
Conversion
of indebtedness to Officer into Note Payable
|
227,294
|
|||||||||
|
Issuance
of shares for investment in subsidiary
|
–
|
$
|
–
|
$
|
649,526
|
|||||
|
Issuance
of shares for professional services
|
–
|
134,890
|
96,174
|
|||||||
|
Issuance
of stock for debt conversion
|
–
|
50,110
|
51,884
|
|||||||
|
Total
Non-Monetary Transactions
|
$
|
1,169,984
|
$
|
185,000
|
$
|
797,584
|
||||
See
Accompanying Notes to the Financial Statements
F-6
REGAL
ONE CORPORATION
STATEMENTS
OF FINANCIAL HIGHLIGHTS
(Unaudited)
|
Per
Unit Operating Performance:
|
|
Year
ended December 31, 2006
|
Year
ended December 31, 2005
|
||||||
|
NET
ASSET VALUE, BEGINNING OF PERIOD
|
$
|
(0.061
|
)
|
(0.105
|
)
|
||
|
INCOME
FROM INVESTMENT OPERATIONS:
|
|||||||
|
Net
investment loss
|
(0.168
|
)
|
(0.052
|
)
|
|||
|
Net
change in unrealized (depreciation) appreciation of
portfolio
companies
|
0.535
|
-
|
|||||
|
Total
from investment operations
|
0.367
|
(0.052
|
)
|
||||
|
Net
increase in net assets resulting from stock
transactions
|
(0.089
|
)
|
0.091
|
||||
|
NET
ASSET VALUE, END OF PERIOD
|
$
|
0.217
|
$
|
(0.066
|
)
|
||
|
TOTAL
NET ASSET VALUE RETURN
|
458.8
|
%
|
37.4
|
%
|
|||
|
RATIOS
AND SUPPLEMENTAL DATA:
|
|||||||
|
Net
assets, end of period
|
$
|
1,003,495
|
$
|
(281,697
|
)
|
||
|
Ratios
to average net assets:
|
|||||||
|
Net
expenses
|
92.5
|
%
|
20.8
|
%
|
|||
|
Net
investment gain (loss)
|
235.5
|
%
|
(20.8
|
%)
|
|||
|
Portfolio
Turnover Rate
|
–
|
–
|
|||||
|
See
Accompanying Notes to the Financial Statements
|
F-7
REGAL
ONE CORPORATION
NOTES
TO FINANCIAL STATEMENT
NOTE
1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
Business
Regal
One
Corporation (the "Company" or “Regal”) located in Los Angeles, California, is a
Florida corporation initially
incorporated in 1959 as Electro-Mechanical Services Inc., in the state of
Florida. Since inception we have been involved in a number of industries. In
1998 we changed our name to Regal One Corporation. On March 7, 2005, our board
of directors determined that it was in our shareholders best interest to change
the focus of the company’s operation to that of providing financial services
through our network of advisors and professionals, and to be treated as a
business development company (“BDC”) under the Investment Company Act of 1940.
On September 16, 2005 we filed a Form N54A (Notification of Election by Business
Development Companies), with the Securities and Exchange Commission, which
transforms the Company into a Business Development Company (BDC) in accordance
with sections 55 through 65 of the Investment Company Act of 1940. The Company
began reporting as an operating BDC in the March 31, 2006 10Q-SB.
Basis
of Presentation
On
February 9, 2004, the Company acquired 100% of the stock of O2 Technology by
issuing 1,000,000 shares valued at $0.6495 per share for a $649,526 investment.
During the course of 2004 the Company loaned O2 Technology $518,490 for an
aggregate investment of $1,168,016. Consolidated financial statements were
included in the 10Q filings with the SEC for March 31, June 30, and September
30, 2004.
As
set
forth in various previous financial reports and SEC filings, the Company is
seeking a rescission of the O2 Technology acquisition. The Company’s CEO by
action of its Board of Directors dismissed O2’s CEO and ordered all books and
records turned back to the Company. The CEO of O2 Technology refused the order.
As a result of the above circumstances, an audit of O2 Technology could not
be
performed. The Company’s management has elected to fully reserve the $1,168,016
investment and seek redress through the courts. Consequently, the accompanying
financial statements are not consolidated. However, pursuant to the pending
results of the litigation, a possibility exists that the Company may need to
amend these financial statements and file consolidated financial statements.
In
such event, the consolidated financial position and results of operation may
materially differ from those reflected in these unconsolidated financial
statements.
In
2006,
the Company began reporting as a BDC and the attached financial statements
for
the year ended December 31, 2005 have been formatted in conformity with the
December 31, 2006 financial statements, including the BDC 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 years ended
December 31, 2006 and 2005 and its operating results, cash flows and changes
in
net assets for each of the years ended December 31, 2006, 2005 and 2004 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, are
also
presented as they relate to each of the above referenced periods.
Accounting
Policies
Management
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Net
Increase (Decrease) in Net Assets from Operations per Share
Basic
net
increase (decrease) in net assets from operations per share is computed by
dividing the net earnings (loss) amount adjusted for cumulative dividends on
preferred stock (numerator) by the weighted average number of common shares
outstanding during the period (denominator). Diluted net increase (decrease)
in
net assets from operations per share amounts reflect the maximum dilution that
would have resulted from the assumed exercise of stock options and from the
assumed conversion of the Series B Convertible Preferred Stock. Diluted net
increase (decrease) in net assets from operations per share is computed by
dividing the net earnings (loss) amount adjusted for cumulative dividends on
preferred stock by the weighted average number of common and potentially
dilutive securities outstanding during the period. For all periods presented
the
above potentially dilutive securities are excluded from the computation as
their
effect is anti−dilutive.
F-8
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 3). 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
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 have a material effect on the consolidated financial
results of the Company for this reporting period.
Comprehensive
Income
SFAS
No.
130, Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general−purpose financial statements. It requires
that all items that are required to be recognized under accounting standards
as
components of comprehensive income be reported in a financial statement that
is
displayed with the same prominence as other financial statements. SFAS No.
130
requires that an enterprise (a) classify items of other comprehensive income
by
their nature in financial statements and (b) display the accumulated balance
of
other comprehensive income separately in the equity section of the balance
sheet
for all periods presented. 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 periods’ financial statements of
a voluntary change in accounting principles unless it is impracticable. APB
Opinion No. 20 “Accounting Changes” previously required that most voluntary
changes in accounting principles be recognized by including in net income of
the
period of the change the cumulative effect of changing to the new accounting
principle. This Statement was effective for the Company as of January 1,
2006.
F-9
Stock
Based Incentive Program
SFAS
No.
123R, Share−Based Payment, a revision to SFAS No. 123, Accounting for
Stock−Based Compensation and superseding APB Opinion No. 25, Accounting for
Stock Issued to Employees, establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services, including obtaining employee services in share−based payment
transactions. SFAS No. 123R applies to all awards granted after the required
effective date and to awards modified, purchased, or canceled after that date.
The Company adopted SFAS No. 123R effective January 1, 2006.
Exchange
of Non-monetary Assets
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 is based on
the principle that exchanges of nonmonetary assets should be measured based
on
the fair value of the assets exchanged. APB Opinion No. 29, “Accounting for
Nonmonetary 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
nonmonetary 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 nonmonetary exchange
transactions.
Recent
Accounting Pronouncements
There
are
several new accounting pronouncements issued by the Financial Accounting
Standards Board ("FASB") which are not yet effective. Each of these
pronouncements, as applicable, has been or will be adopted by the
Company.
In
February 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.
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. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.
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 become effective as of the beginning of our 2008 fiscal
year, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently evaluating
the
impact that FIN 48 will have on our financial statements.
In
September 2006, the FASB issued Statement No. 158, "Employer's Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (FAS 158). FAS 158 requires that
employers recognize the funded status of their defined benefit pension and
other
postretirement plans on the balance sheet and recognize as a component of other
comprehensive income, net of tax, the plan-related gains or losses and prior
service costs or credits that arise during the period but are not recognized
as
components of net periodic benefit cost. We will prospectively adopt FAS 158
on
April 30, 2007. However, the actual impact of adopting FAS 158 is highly
dependent on a number of factors, including the discount rates in effect at
the
next measurement date, and the actual rate of return on pension assets during
fiscal 2007. These factors could significantly increase or decrease the expected
impact of adopting FAS 158.
F-10
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements" (SAB 108),
which
addresses how to quantify the effect of financial statement errors. The
provisions of SAB 108 become effective as of the end of our 2007 fiscal year.
We
do not expect the adoption of SAB 108 to have a significant impact 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.
NOTE
2 - CASH AND MARKETABLE SECURITIES
Cash
and Cash Equivalents
Cash
and
cash equivalents consist of cash balances and may include instruments with
maturities of three months or less at the time of purchase.
Marketable
Securities
In
2005
Regal acquired approximately 1,800,000
shares of Neuralstem’s common stock and a warrant to purchase an additional
1,000,000 shares of common stock in
exchange for a variety of considerations supporting Neuralstem’s transition
to a publicly traded operational entity, principally including fees and
assistance for an SB-2 registration (see Note 7). During
2006, Neuralstem filed an SB-2 registration statement and in August 2006 it
was
declared effective and shares began trading on the OTC:BB exchange. As of
December 31, 2006, the 1,794,287 Neuralstem shares held have been valued as
indicated in the Schedule of Investments. Of those shares, 800,000 shares were
registered by Neuralstem, are readily salable and have been reclassified as
Marketable Securities in the Current Assets section of the Balance Sheet with
a
value of $1,200,000. 500,376 of those Neuralstem shares are reserved for a
Regal
dividend of record which was paid in the first quarter of 2007, thus
extinguishing the dividend payable balance in Current Liabilities. The balance
of 299,624 registered shares is freely tradable and constitutes working capital
that is still available to Regal as of March 31, 2007, with a value of
$499,436.
NOTE
3 - 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. There were no
other equity sales in the year ended December 31, 2006.
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, equal to or
higher than the public share price on the dates of the grants, and 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 options were exercised during this year.
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 Regal’s stock were issued to the lender as a commitment fee.
These warrants have been valued under the Black-Scholes Pricing Model and
$26,171 was recognized in the year as prepaid expense that was fully amortized
into expense on the payment date. The warrants are exercisable for a period
of
five years at the price of $0.60 per share, which was higher than the public
share price on the date of the grant. No warrants were exercised in
2006.
F-11
The
stock
options and warrants issued during 2006 were valued under the Black-Scholes
Option-Pricing Model using the following assumptions within the ranges defined:
market price of Regal stock at grant date; exercise price; one and three year
terms; volatility ranging from 188% to 194%; no dividends assumed; and a
discount rate - bond equivalent yield of 4.27%. As of December 31, 2006, 885,000
options, with 635,000 vested, and 75,000 vested warrants were outstanding.
The
possibility that the options may be exercised in the future represents potential
dilution to existing shareholders. If all the outstanding options and warrants
had been exercised as of December 31, 2006, the impact on the fully diluted
Earnings Per Share as reflected in the Statement Of Operations for 2006 would
be
a reduction from $0.117 earnings per share to $0.110 earnings per share.
In
conjunction with the Neuralstem registration, the contingency delaying Regal’s
previously declared dividend in Neuralstem shares has been removed. Regal now
anticipates that the dividend of 500,376 Neuralstem shares owned by Regal will
be paid in the first quarter of 2007. Since the record date for this dividend
occurred earlier in the year, Regal has recorded a payable for this dividend
in
the quarter ended December 31, 2006 using the per share valuation reflected
in
the portfolio balance at that date and has also recorded that valuation as
a
reduction in the equity section. As of the payment date, that valuation will
be
adjusted to the then existing fair market value of the Neuralstem shares and
the
Neuralstem valuation in Regal’s portfolio balance will then be reduced by that
final dividend amount.
The
authorized number of shares of preferred stock (Series A and B) is 550,000.
The
Company's bylaws allow for segregating this preferred stock into separate
series. As of December 31, 2006, the Company has authorized 50,000 shares of
series A preferred stock and 500,000 shares of series B convertible preferred
stock. At December 31, 2006, 2005 and 2004 there were no outstanding shares
of
series A preferred stock. At December 31, 2006, 2005 and 2004 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 voted by a large majority to void that dividend preference.
At
the
option of the holder of series B preferred stock, each share is convertible
into
common stock at a rate of 100 shares of common for each share of preferred.
In
connection with the acquisition of O2 Technology on February 9, 2004, the Share
Exchange agreement required that the Series B Preferred as a class be restricted
to a cumulative conversion into no more than 10,000,000 common shares. This
reduction was sought by the Company and was agreed to by 98.5% of the Series
B
class, effecting a compression of the outstanding Series B preferred from
208,965 shares to 100,000 shares. As of December 31, 2006, 2005 and 2004, no
dividends have been declared on the series A or series B convertible preferred
stock.
NOTE
4 - IMPAIRMENT OF ASSETS
On
August
9, 2004, the president / director of the Company's wholly owned subsidiary,
O2
Technology, Inc. (O2), was dismissed from both positions. Additionally, the
Company was informed by Dr. Douglas Burke of O2 that he had resigned from his
position with O2 and was claiming, as his own, the air remediation technology
(Ion Technology) which the Company had been led to believe was the property
of
O2. The immediate effect of these matters was to impair the assets acquired
in
the O2 acquisition. Accordingly, the Company has written-off in 2004 all of
the
assets acquired with O2 and the advances made to O2 - see Note 1 -
“Presentation”.
NOTE
5 - STOCK OPTION PLAN
The
Company's Stock Option Plan (Plan) was for its employees, directors, officers
and consultants or advisors of the Company. 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 Regal 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 and 2004, 252,308 and 814,057 options respectively were exercised and
the
Company realized $205,000 and $661,421 respectively 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, all outstanding options granted under
our stock option plan had either been exercised or expired. As of December
31,
2006 their were 980,986 shares available for future grants.
F-12
The
following table summarizes the Company's stock options activity under the Plan:
|
Year
Ended 12/31/06
|
Year
Ended 12/31/05
|
Year
Ended 12/31/04
|
|||||||||||||||||
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Number
of Shares
|
Weighted
Average
Exercise
Price
|
||||||||||||||
|
Outstanding
at January 1
|
–
|
–
|
1,399,448
|
$
|
.8125
|
2,213,055
|
$
|
.8125
|
|||||||||||
|
Granted
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||
|
Exercised
|
–
|
–
|
(252,308
|
)
|
$
|
.8125
|
(814,057
|
)
|
.8125
|
||||||||||
|
Expired
|
–
|
–
|
(1,147,140
|
)
|
$
|
.8125
|
–
|
–
|
|||||||||||
|
Outstanding
at December 31, 2006, 2005 and 2004
|
–
|
–
|
0
|
0
|
1,399,448
|
$
|
.8125
|
||||||||||||
NOTE
6 - INVESTMENTS
On
March
7, 2005, our board of directors determined that it was in our shareholders
best
interest to change the focus of the company’s operation to that of providing
financial services through our network of advisors and professionals, and to
be
treated as a business development company (“BDC”) under the Investment Company
Act of 1940. On September 16, 2005 we filed a Form N54A (Notification of
Election by Business Development Companies), with the Securities and Exchange
Commission, which transforms the Company into a Business Development Company
(BDC) in accordance with sections 55 through 65 of the Investment Company Act
of
1940. The Company began reporting as an operating BDC in the March 31, 2006
10Q-SB.
In
2005,
Regal signed an option agreement to acquire a significant equity stake in
SuperOxide Health Sciences, Inc. (SOHS), a privately owned development stage
company. As of December 31, 2005, Regal had made a total investment of
$145,000 in SOHS as part of the agreement and in the quarter ended March 31,
2006 made a valuation adjustment to reduce the carrying cost of this investment
to $72,500. In the quarter ended September 30, 2006, the Company wrote off
the
remainder of the investment since SOHS advised that it had no resources to
continue operating and was being dissolved.
As
of
June 30, 2005, the Company entered into an agreement with American Stem Cell
(ASC), a private development stage company, to assist ASC in the preparation
and
filing of an SB 2 registration statement. Regal
acquired 3,000,000
shares of ASC’s common stock in exchange for Regal’s
investment via a variety of considerations that support ASC’s transition
from a private development-stage company to a publicly traded
operational entity. These considerations include Regal’s assumption of
the liability for certain legal fees, principally including fees
for an SB-2 registration, and access to Regal’s network of
advisors and other related resources. Regal
has
valued these shares in its balance sheet at the $34,087 of accrued legal fees
that it has assumed to date. 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.
As
of
June 30, 2005, the Company had entered into a Letter of Intent with Neuralstem,
Inc., a private early stage company, to assist it in filing an SB-2 registration
statement. Effective September 15, 2005, those understandings were memorialized
and further defined in an “Equity Investment And Share Purchase Agreement”
between the parties. Regal
acquired approximately 1,800,000
shares of Neuralstem’s common stock and a warrant to purchase an additional
1,000,000 shares of common stock in
exchange for a variety of considerations supporting Neuralstem’s transition
from a private, early stage, research and development company to a publicly
traded operational entity. These considerations included Regal’s
assumption of the liability for certain legal fees, principally including fees
for an SB-2 registration, and access to Regal’s network of
advisors and other related resources. Regal
initially reflected these shares in its balance sheet as of December 31, 2005
based on its estimated $50,000 direct cost of the considerations it had provided
or planned to provide to Neuralstem. During 2006, Neuralstem filed an SB-2
registration statement and in August 2006 it was declared effective. As of
December 31, 2006, Neuralstem shares were trading on the OTC:BB exchange. Prior
to effectiveness of the registration, 1,000,000 of Neuralstem shares held by
Regal were subject to forfeiture based on 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 held after the forfeit have been valued as indicated in the Schedule
of
Investments. Of those shares, 800,000 shares were registered by Neuralstem,
are
readily salable and have been reclassified as Marketable Securities in the
Current Assets section of the Balance Sheet. 500,376 of those Neuralstem shares
are reserved for a Regal dividend of record. Regal 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
now been assigned to these warrants.
F-13
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, the Investment Committee of the Board of
Directors valued the portfolio under FAS 157 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 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
7 - INCOME TAXES
In
February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No.
109"). SFAS No. 109 required a change from the deferred method of accounting
for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. Effective January 1, 1993, the Company
adopted SFAS No. 109. The application of SFAS No. 109 had an immaterial effect
on the Company's financial statements for the periods prior to January 1, 1993
due to operating losses incurred by the Company in 1993 and prior years. One
of
the provisions of Statement 109 enables companies to record deferred tax assets
for the benefit to be derived from the utilization of net operating loss carry
forwards and certain deductible temporary differences. At December 31, 2006,
2005 and 2004, the tax effects, computed at a 34% tax rate, of temporary
differences that give rise to significant portions of deferred tax assets are
presented below:
|
2006
|
2005
|
2004
|
||||||||
|
Net
operating loss carry forwards
|
$
|
372,000
|
$
|
949,000
|
$
|
878,000
|
||||
|
Impairment
Loss
|
897,000
|
397,000
|
397,000
|
|||||||
|
Less:
valuation allowance
|
$
|
(769,000
|
)
|
$
|
(1,346,000
|
)
|
$
|
(1,271,,000
|
)
|
|
|
Balance
Sheet amounts
|
$
|
–
|
$
|
–
|
$
|
–
|
||||
As
of
December 31, 2006, the Company has net operating loss carry forwards of
approximately $1,093,000 for Federal income tax return purposes, which expire
through 2025. Additionally, the Company has approximately $1,168,000 in a
deferred tax asset representing the impairment to the investment in subsidiary
and the allowance for the collectibility of the loans to that subsidiary. The
future tax benefits for all these tax assets are dependent upon the Company's
ability to generate future earnings.
F-14
The
Company realized a net income in the year ended December 31, 2006 due to the
unrealized appreciation on its investments. The deferred taxes on this net
income are offset by the tax benefit arising from a Net Operating Loss carry
forward that the Company has for income tax purposes. The Company’s deferred tax
benefits totaled $1,346,000 at December 31, 2005 and were fully reserved at
that
time. The Company’s deferred tax benefits totaled $769,000 at December 31, 2006
and are fully reserved at that time.
NOTE
8 - RELATED PARTY TRANSACTIONS
The
amount due stockholders and officers of $323,258 includes a one year secured
Note Payable in the amount of $227,294 created in the fourth quarter of 2006,
the remaining open account balance of $95,964 represents advances which are
non-interest bearing, unsecured and payable on demand. Through December 31,
2006
there have been no demands made on Regal One to make any such related payments.
Under the terms of the Note Payable, the Note is due payable on or before
December 8, 2008 and bears interest at a rate of 10% per annum.
Performance of the Note is secured by 100,000 common shares of Neuralstem stock
that Regal owns. An amount due of $94,357 to a former, deceased officer was
reduced to the current value of $40,000 as of December 31, 2002 and is payable
to the widowed spouse after all other payables are covered and at the discretion
of the Board of Directors.
In
connection with the previously announced lawsuit versus the principals of
Regal’s wholly owned subsidiary, O2 Technology, and as further defined in Note
1, Regal continues to pursue recovery of its investment in O2. During the second
half of 2006, management elected to establish a reserve for costs that may
arise
in settling the suit. Accordingly, a contingent liability and expense of
$250,000 has been recorded in 2006.
Through
December 31, 2004 the Company loaned $518,490 to its wholly-owned subsidiary
that was acquired in the 1st
quarter
of 2004. The loans are subject to interest of 6% per year, were due and payable
on December 31, 2004 and are secured by a pledge of all the shares of the
wholly-owned subsidiary. Due to pending litigation between the parties, the
repayment has not occurred and the Company has established an allowance for
the
potential uncollectability of this amount. See Note 10 “Contingencies -
Litigation” below.
During
2005, Regal signed an option agreement to acquire a significant equity stake
in
SuperOxide Health Sciences, Inc. (SOHS), a privately owned development stage
company. As of December 31, 2005, Regal One had made a total investment of
$145,000 in SOHS and in 2006 wrote-off that investment. Principals of SOHS
are also principal shareholders of Regal One.
NOTE
9 - CONTINGENCIES
Litigation
The
Company and certain of its officers and consultants were named as defendants
in
a case filed on November 4, 2003, under the name "Eco
Air Technologies vs. Regal One Corporation, et. al"
(California Superior Court, County of Orange, Case No. 03CC13317).
During
the 3rd
Quarter
of 2004, Regal One Corporation (the Company) was informed by Dr. Douglas Burke
of O2 Technology, Inc. (O2), a wholly-owned subsidiary of the Company, that
he
had resigned from his position with O2 and was claiming, as his own, the air
remediation technology (Ion Technology) which the Company had been led to
believe was the property of O2. As indicated above, the Company has been named
in a lawsuit in which Eco Air Technologies, LLC and Svenska Gyllenvent AB claim
that they are the true owners of the Ion Technology. In response to that
claim and the Burke notification, the Company on August 20, 2004 filed a
cross-complaint in that case against various O2 shareholders and their
attorney seeking
a
rescission of the O2 acquisition agreement and a return of the Company's shares
of common stock issued for that acquisition, as well as compensatory and
punitive/treble damages for the actions of the named cross-defendants.
On
April
7, 2005, the Company and certain of its officers, stockholders and consultants
were named as cross-defendants in a cross-complaint filed by two of the former
directors of O2. The Company has been advised that such a filing adds
significantly to the fee exposure of the Company.
During
October 2005, the Company negotiated and executed a settlement agreement with
Eco Air Technologies and Alf Mauriston whereby the Company relinquished any
claims it may have to the technology in question, and obtained certain marketing
rights to the technology in several foreign countries and in certain domestic
market niches. The cross-complaint filed by the Company against various
O2 shareholders and their attorney seeking a rescission of the O2 acquisition
agreement and their subsequent cross-complaint filed against the Company and
certain of its officers, stockholders and consultants are not affected by this
settlement and those actions are still being pursued by the Company and those
parties
F-15
Due
to
these cross-complaints, the previous agreement of parties to submit the case
to
mediation and the court ordered date for completion of the mediation have been
delayed. It is anticipated that a new mediation date, to involve all now
appropriate parties, will be set in 2006. Answers will be filed for the Company
and all of the defendants related to the Company (many of whom, as individuals,
were previously dismissed by the original Plaintiffs).
In
addition to suing the O2-related parties, and answering their cross-complaint,
the Company’s counsel has advised the Company that its primary exposure is in
the nature of legal fees, but with little practical exposure on liability
issues, although no assurance can be given as to the outcome. While management
believes that the outcome of this case will not have a material adverse effect
on its financial position or results of operations, no assurance can be given
that management's assessments will prove to be correct. However, pursuant to
the
pending results of the litigation, a possibility exists that the Company may
need to amend these financial statements and file consolidated financial
statements. In such event, the consolidated financial position and results
of
operation may materially differ from those reflected in these unconsolidated
financial statements.
Operations
On
March
7, 2005, our board of directors determined that it was in our shareholders
best
interest to change the focus of the company’s operation to that of providing
financial services through our network of advisors and professionals, and to
be
treated as a business development company (“BDC”) under the Investment Company
Act of 1940. On September 16, 2005 we filed a Form N54A (Notification of
Election by Business Development Companies), with the Securities and Exchange
Commission, which transforms the Company into a Business Development Company
(BDC) in accordance with sections 55 through 65 of the Investment Company Act
of
1940. The Company began reporting as an operating BDC in the March 31, 2006
10Q-SB.
In
2005,
the Company initiated equity investments or agreements for investments with
three biomedical companies. Under two of those agreements, the Company agreed
to
assume certain legal fees that are reflected in the attached financial
statements for 2005 and discussed in Notes thereto. Additionally, the third
agreement allows Regal to make additional cash investments in the related
entity, which Regal presently does not expect to do.
NOTE
10 - SUBSEQUENT EVENTS
As
defined in Note 9, indebtedness to a stockholder/officer was converted into
a
secured Note Payable. In 2007, that stockholder/officer continued to make cash
advances to the Company and on February 28, 2007 Regal entered into a
modification of the Note Payable to that party. The modification was
entered into for purposes of increasing the Note Payable amount by $45,000
as a
result of additional advances made by the stockholder/officer to Regal through
February 23, 2007. As a result of the increase in the outstanding loan balance,
the number of Neuralstem shares subject to the security agreement was increased
by 50,000. On March 21, 2007, Regal entered into a further modification of
this
Note Payable to reflect an additional $30,000 advance that was made by the
shareholder/officer on March 20, 2007. It
is
anticipated that the stockholder/officer
may continue to make additional periodic advances to the Company and if these
do
occur they will also increase the secured Note Payable.
On
February 5, 2007, the Company paid the dividend that was declared and payable
in
500,376 Neuralstem shares thus extinguishing the $750,564 Dividend Payable
that
existed on December 31, 2006.
F-16