UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10‑Q
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended:
June 30
,
2009
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OR
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o
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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
_______________
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Commission
File No.
001-07949
REGENCY
AFFILIATES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
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72-0888772
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(State or other
Jurisdiction of
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(I.R.S.
Employer
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Incorporation or
Organization)
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Identification
No.)
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610
Jensen Beach Boulevard
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Jensen Beach,
Florida
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34957
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(Address of
Principal Executive Office)
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(Zip
Code)
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(772)
334-8181
(Registrant's
Telephone Number, Including Area Code)
Indicate
by check mark whether 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 Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act, (Check
one):
Large accelerated
filer
¨
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Accelerated
filer
¨
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Non-accelerated
filer (Do not check if a smaller reporting company)
¨
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Smaller reporting
company
x
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Indicate
by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
x
NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
OUTSTANDING
AS OF SEPTEMBER 28, 2009:
3,468,544
REGENCY
AFFILIATES, INC.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2009
Page
Part
I. Financial Information
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Item
1. Financial Statements
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Consolidated
Balance Sheets June 30, 2009 (unaudited) and December 31,
2008
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3
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Consolidated
Statements of Operations (Unaudited)
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4
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Consolidated
Statement of Cash Flows (Unaudited)
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5
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Notes
to Consolidated Financial Statements
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6
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Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
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8
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk
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12
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Item
4. Controls and Procedures
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12
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Part
II. Other Information
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Item
1. Legal Proceedings
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12
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Item
1A. Risk Factors
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12
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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12
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Item
3. Defaults Upon Senior Securities
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12
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Item
4. Submission of Matters to a Vote of Security
Holders
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12
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Item
5. Other Information
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13
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Item
6. Exhibits
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13
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Signatures
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15
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Regency
Affiliates, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
Assets
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June
30,
2009
(Unaudited)
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December
31, 2008
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Current
Assets
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Cash and cash
equivalents
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$
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645,926
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$
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7,469,213
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Marketable
securities
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9,499,561
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2,900,000
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Interest receivable, net of
allowance of $644,109
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-
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-
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Other current
assets
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122,533
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404,424
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Total Current
Assets
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10,268,020
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10,773,637
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Property,
plant and equipment, net
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7,366
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9,283
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Investment
in partnerships/LLC
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11,807,933
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10,972,900
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Deferred
tax asset
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1,105,000
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1,105,000
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Other
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1,300
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1,300
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Total Assets
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$
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23,189,619
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$
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22,862,120
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Liabilities
and Shareholders’ Equity
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Current
Liabilities
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Accounts payable and accrued
expenses
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$
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273,477
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$
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300,600
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Settlement
payable
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3,044,092
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3,025,269
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Total
Liabilities
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3,317,569
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3,325,869
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Commitments
and contingencies
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-
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-
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Shareholders'
equity
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Serial preferred stock Series C
and D, 234,544 shares outstanding,
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not subject to mandatory
redemption (Maximum liquidation
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preference $21,141,940)
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486,076
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486,076
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Common stock, par value $.01;
authorized 8,000,000 shares;
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issued 3,534,812 shares;
outstanding 3,468,544 shares
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35,349
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35,349
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Additional paid-in
capital
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7,376,219
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7,281,219
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Readjustment resulting from
quasi-reorganization at
December
1987
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(1,670,596
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)
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(1,670,596
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)
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Retained earnings
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14,053,852
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13,813,053
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Note receivable - sale of stock,
net of allowance of $2,440,000
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-
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-
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Treasury stock, 66,268 shares at
cost
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(408,850
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)
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(408,850
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)
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Total Shareholders'
Equity
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19,872,050
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19,536,251
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Total
Liabilities and Shareholders’ Equity
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$
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23,189,619
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$
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22,862,120
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The
attached notes are an integral part of these financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
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Three
Months Ended June 30,
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Six
Months Ended June 30,
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2009
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2008
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2009
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2008
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Net
Sales
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$
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-
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$
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-
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$
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-
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$
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-
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Costs
and expenses
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General and administrative
expenses
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324,073
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341,722
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558,104
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622,531
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324,073
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341,722
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558,104
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622,531
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Loss
from operations
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(324,073
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)
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(341,722
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)
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(558,104
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)
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|
(622,531
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)
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Income
from equity investment in partnerships
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391,602
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525,083
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|
835,033
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|
1,213,128
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Interest
and dividend income
|
|
|
1,167
|
|
|
|
36,678
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|
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|
2,866
|
|
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|
97,385
|
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Interest
expense
|
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|
(9,502
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)
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|
|
-
|
|
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|
(18,823
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)
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|
|
-
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|
|
|
|
|
|
|
|
|
|
|
|
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Net
income before income taxes
|
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|
59,194
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|
220,039
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|
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|
260,972
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|
687,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
10,000
|
|
|
|
11,421
|
|
|
|
20,174
|
|
|
|
21,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
Income
|
|
$
|
49,194
|
|
|
$
|
208,618
|
|
|
$
|
240,798
|
|
|
$
|
666,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.01
|
|
|
$
|
.06
|
|
|
$
|
.07
|
|
|
$
|
.19
|
|
Diluted
|
|
$
|
.01
|
|
|
$
|
.06
|
|
|
$
|
.06
|
|
|
$
|
.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,534,812
|
|
|
|
3,532,445
|
|
|
|
3,534,812
|
|
|
|
3,532,127
|
|
Diluted
|
|
|
3,723,010
|
|
|
|
3,761,843
|
|
|
|
3,717,091
|
|
|
|
3,764,356
|
|
The
attached notes are an integral part of these financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
240,798
|
|
|
$
|
666,921
|
|
Adjustments to reconcile net
income to
|
|
|
|
|
|
|
|
|
net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,917
|
|
|
|
1,917
|
|
(Income) from equity investment
in partnerships
|
|
|
(835,033
|
)
|
|
|
(1,213,128
|
)
|
Stock-based
compensation
|
|
|
95,000
|
|
|
|
-
|
|
Changes in operating assets and
liabilities
|
|
|
|
|
|
|
14,850
|
|
Other current
assets
|
|
|
281,892
|
|
|
|
(11,400
|
)
|
Accounts payable and accrued
expenses
|
|
|
(27,123
|
)
|
|
|
(96,764
|
)
|
Settlement
payable
|
|
|
18,823
|
|
|
|
-
|
|
Net cash (used in) operating
activities
|
|
|
(223,726
|
)
|
|
|
(637,604
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds
from partnership distributions
|
|
|
-
|
|
|
|
875,000
|
|
Proceeds from sales of
marketable securities
|
|
|
32,100,000
|
|
|
|
28,600,000
|
|
Purchases of marketable
securities
|
|
|
(38,699,561
|
)
|
|
|
(28,812,292
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(6,599,561
|
)
|
|
|
662,708
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(6,823,287
|
)
|
|
|
25,104
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents – beginning
|
|
|
7,469,213
|
|
|
|
253,566
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents – ending
|
|
$
|
645,926
|
|
|
$
|
278,670
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
98,324
|
|
|
$
|
66,315
|
|
The
attached notes are an integral part of these financial statements.
REGENCY
AFFILIATES, INC.
AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1. Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
six-month period ended June 30, 2009 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2009. For further information, refer to the consolidated financial
statements and footnotes thereto included in Regency Affiliates, Inc.’s (the
“Company”) Annual Report on Form 10-K for the year ended December 31,
2008.
Principles
of Consolidation - The consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, Regency Power, Inc. and Rustic
Crafts International, Inc. ("Rustic Crafts"), its 75% owned subsidiary, Iron
Mountain Resources, Inc. ("IMR"), and its 80% owned subsidiary,
National Resource Development Corporation ("NRDC"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Reclassifications
– Certain items in the financial statements for 2008 have been reclassified to
conform with the current 2009 period presentation. Such
reclassification had no effect on net income.
Note
2. Related Party Transactions
In
December 2005, the Company’s wholly owned subsidiary, Rustic Crafts, entered
into a stipulation of settlement with RCI Wood Products (“RCI”) regarding
outstanding indebtedness with RCI. Under the terms of this settlement, RCI
agreed to pay to Rustic Crafts the sum of $125,000 with interest at six and
one-half percent per annum, payable in thirty-five (35) monthly installments of
$1,088 each, commencing in January 2006. No payments have been
received since March 2006. RCI defaulted on the note in April
2006. The Company had initiated an action for collection against RCI
and personal guarantor of the note. In June 2008, the Company sold
the above mentioned notes to a collection agency for $1,000 plus 50% of any
amounts received, less expenses of up to $2,500. To date, the Company
has received $1,000 from the collection agency and the collection agency has not
received any proceeds on the notes.
During
the six month period ended June 30, 2009 and 2008, the Company paid $63,000 in
each period pursuant to a license agreement entered into with Royalty
Management, Inc. (“Royalty”), an entity wholly owned by Laurence Levy, the
Company’s President and Chief Executive Officer, for office space, office
supplies and services.
During
the six month periods ended June 30, 2009 and 2008, the Company incurred
directors’ fees of $18,000 in each period for services rendered. As of
June 30, 2009 and 2008, $45,000 and $9,000, respectively, was included in
accrued expenses due to directors for services rendered.
REGENCY
AFFILIATES, INC.
AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
3. Stock-Based Compensation
During
the quarter ended June 30, 2009, the Company issued 50,000 options to purchase
shares of the Company’s common stock to an officer of the
Company. The stock options are exercisable at $2.90 per share and
expire on April 30, 2019. The fair value of the stock options granted
was $95,000.
The fair
value of the Company’s stock based compensation was estimated using the
Black-Scholes option pricing model which uses highly subjective assumptions
including the expected stock price volatility. The fair value of the Company’s
stock options was estimated using the following assumptions: no expected
dividends, risk free interest rate of 3.16%, expected average life of 8 years
and an expected stock price volatility of 60%. The weighted average fair value
of options granted was $1.35.
On June
11, 2008, the Company issued 3,000 shares of the Company’s common stock to a
director for payment of director fees for the fiscal years ended December 31,
2006 and 2007, and for the first
three
months of the fiscal year ending December 31, 2008. The value of the stock
amounted to $14,850.
Note
4. Uncertainties and Contingencies
The
Company and Security Land and Development Company Limited Partnership (“Security
Land”) are in disagreement as to the manner in which taxable income of Security
Land is to be allocated pursuant to the partnership agreement and applicable
law, and for years 2004 through 2008, the Company reported to the Internal
Revenue Service (the “IRS”) taxable income (loss) from Security Land in a manner
the Company believes is proper, but which is different than the manner reported
by Security Land. This disagreement has not been resolved. The discrepancy may
cause the Company's tax returns to be audited by the IRS. The Company
believes that the outcome of any IRS examination will not materially affect the
financial statements of the Company as net operating losses are available to
offset any additional income not reported.
In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. The minimum threshold is defined in
FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. FIN 48 must be applied to all existing tax positions upon
initial adoption. The cumulative effect of applying FIN 48 at adoption, if any,
is to be reported as an adjustment to opening retained earnings for the year of
adoption. FIN 48 was effective for the Company’s fiscal year ended December 31,
2008 and no cumulative effects are reported through June 30, 2009.
Note
5. Subsequent Events
On June
15, 2009, the Court of Chancery of the State of Delaware (the “Court”) entered
an order approving a stipulation of settlement (the “Settlement”) of the class
action lawsuit (the “Action”) filed in the Court and captioned Edward E. Gatz,
et al. v. William R. Ponsoldt, Sr., et al., (C.A. No. 174-CC). The period
for appeal of the Settlement expired on July 15, 2009.
The terms
of the Settlement are in all material respects identical to the terms of the
Memorandum of Understanding entered into among the parties to the Action on
April 28, 2008. Pursuant to the Settlement, on July 17, 2009,
the Company paid $3,045,874.72 into escrow for the benefit
of the plaintiff class. The plaintiff class is defined in the Settlement
as all record and beneficial owners of Company common stock on October 17, 2002,
including any and all of their respective successors in interest, predecessors,
representatives, trustees, executors, administrators, heirs, immediate and
remote, and any person or entity acting for or on behalf of, or claiming under
any of them, and each of them. The plaintiff class does not include
the defendants, members of their families, affiliates of the defendants, and
those individuals or entities who solely held securities convertible into
Company common stock or options to purchase Company common stock. The
Company made the settlement payment pursuant to its obligation to indemnify
the defendants who are former directors of the Company. In connection with
the Settlement, and with the assistance of independent counsel, the Company
determined that indemnification of its former directors is appropriate under
Delaware law. The Settlement expressly provides that the
defendants admit no wrongdoing but have agreed to the Settlement to
eliminate the uncertainty, distraction, burden and expense of further
litigation.
Regency’s
insurance carrier has denied coverage with respect to the claims
contained in the Action on the basis of the "insured vs. insured" exclusion
since one of the plaintiffs, Donald D. Graham, was previously a director
of the Company.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this Quarterly Report on Form 10-Q, including, but not
limited to those regarding the Company's financial position, business strategy,
acquisition strategy and other plans and objectives for future operations and
any other statements that are not historical facts constitute "forward-looking
statements" within the meaning of federal securities laws and the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements expressed or implied
by such forward-looking statements to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effect on
its business or operations. These forward-looking statements are made
based on management's expectations and beliefs concerning future events
impacting the Company and are subject to uncertainties and factors (including,
but not limited to, those described in our Annual Report on Form 10-K under Item
1A – Risk Factors) which are difficult to predict and, in many instances, are
beyond the control of the Company.
The
following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with Company’s
(unaudited) consolidated financial statements and related notes included in Item
1 of this report.
GENERAL
We are
committed to enhancing the value of our common stock by seeking opportunities to
monetize certain existing assets and by seeking new business opportunities on an
opportunistic basis. No assurance can be given that we will be
successful identifying or securing a desirable business opportunity, and no
assurance can be given that any such opportunity that is identified and secured
will produce favorable results for us and our stockholders.
LIQUIDITY
AND CAPITAL RESOURCES
On June
30, 2009, we had current assets of $10,268,020 and stockholders' equity of
$19,872,050. On June 30, 2009, we had $10,145,487 in cash and marketable
securities, total assets of $23,189,619 and total current liabilities of
$3,317,569.
The most
significant sources of cash are our equity investment in MESC Capital LLC ("MESC
Capital") and interest and dividends earned from existing cash and cash
equivalents. In the event that cash flows from operating activities are not
sufficient, we could liquidate marketable securities as necessary. We believe
our cash flow from operations and existing cash and cash equivalents will be
adequate to satisfy our cash needs for the next twelve months.
The most
significant uses of cash are for employee compensation and professional fees for
legal and accounting services.
Currently,
there are no plans for external financing of current operations or
holdings.
The
Company and Security Land are in disagreement as to the manner in which taxable
income of Security Land is to be allocated pursuant to the partnership agreement
and applicable law, and for years 2004 through 2008, the Company reported to the
IRS taxable income (loss) from Security Land in a manner the Company believes is
proper, but which is different than the manner reported by Security Land. This
disagreement has not been resolved. The discrepancy may cause the Company's tax
returns to be audited by the IRS. The Company believes that the
outcome of any IRS examination will not materially affect the financial
statements of the Company as net operating losses are available to offset any
additional income not reported.
On
September 30, 2002, our subsidiary, Rustic Crafts International, Inc. ("Rustic
Crafts") sold all of its operating assets subject to the assumption of certain
of its liabilities. Prior to the sale, Rustic Crafts had established a
$1,000,000 line of credit with PNC Bank which was guaranteed by the Company and
expired on May 18, 2002. In conjunction with the Rustic Crafts asset sale,
Rustic Crafts' indebtedness under the line of credit together with its $960,000
mortgage loan from PNC Bank and certain other indebtedness to PNC Bank was
restructured to replace such indebtedness with five notes totaling $2,432,782
and have a ten year amortization schedule. The notes bear interest at the
blended rate of 10.8% per annum. As part of the PNC Bank debt restructuring,
Rustic Crafts was required to pay down the outstanding loan balance with
$200,000 of the purchase price in the Rustic Crafts asset sale, and was required
to make a $540,000 payment in December 2002. A $40,000 payment was made to PNC
Bank in December 2002, but Rustic Crafts and the Company failed to make the
balance of the December 2002 payment. Accordingly, the PNC Bank debt was
subsequently modified to provide for the payment of the remaining $500,000
payment on or before June 30, 2003. On June 30, 2003, we paid all outstanding
principal and interest due to PNC Bank, in satisfaction of the above described
obligations. In December 2005, Rustic Crafts agreed to accept a $125,000 note
from RCI Wood Products, Inc ("RCI") as a restructuring of the above named
obligation. The note bears an interest rate of 6.5% and calls for payments of
$1,088 per month until December 2008 at which time the balance will be due and
payable. Since the quarter ended March 31, 2006, Rustic Crafts has not received
any payments under this obligation. In April 2006, RCI defaulted on the
note. We have initiated an action for collection against RCI and the
personal guarantor of the note. In June 2008, we sold the above
mentioned notes to a collection agency for $1,000 plus 50% of any amounts
received, less expenses of up to $2,500. To date, we have received $1,000 from
the collection agency and the collection agency has not received any proceeds on
the notes.
In
connection with the redemption of our common stock owned by Statesman Inc.
("Statesman"), we acquired from Statesman a three-year option to purchase the
20% stock interest in NRDC held by Statesman. To exercise the option, we were
required to deliver to Statesman for cancellation a $2,440,000 note issued to us
by Statesman in October 2001. As consideration for the option, we (i) paid
Statesman $250,000, (ii) amended the note and related pledge agreement to limit
our recourse under the note and (iii) transferred to Statesman certain office
furniture and equipment that we owned. This option expired in October 2005. As
part of the redemption, we also entered into an agreement with Statesman
providing for (i) an amendment to the Certificate of Designations of the Series
C Preferred Stock for the Company and (ii) certain limitations on the ability of
Statesman to issue or transfer shares or other beneficial interests in Statesman
or to sell, transfer, purchase or acquire any capital stock of the Company, in
each case without first receiving our written confirmation that such issuance or
transfer would not adversely affect our ability to utilize our tax loss
carryforwards. We paid Statesman an aggregate amount of $2,730,000 in
consideration of the foregoing agreements. As of June 30, 2008, through the date
of this Form 10-Q, we have not collected the $2,440,000 note and accrued
interest of approximately $644,000 due from Statesman. We have sent demand and
default notices to Statesman but we have not received a response to date. Per
the terms of the Agreement, upon event of default, overdue principal and overdue
interest will bear interest, payable upon demand, at a rate of twelve percent
(12%) per annum, and the pledged securities may be transferred into our name, or
sold for proceeds to satisfy the obligation and collection costs incurred. We
have currently reserved the receivable balance in full while we continue our
collection efforts. The reserve adjustment included a charge to impairment of
loans as other expense in the 2006 statement of operations, and an allowance
against the note within equity.
Filing
of Going Private Proxy Statement
On
December 14, 2005, we filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending our certificate of incorporation to provide for a 1-for-100 reverse
stock split (the “Reverse Stock Split”) followed immediately by a 50-for-1
forward stock split of our common stock (the “Forward Stock Split”), which would
result in the reduction of the number of common stockholders of record of the
Company to fewer than 300. This will permit us to discontinue the filing of
annual and periodic reports and other filings with the SEC. Once the
Schedule 13E-3 Transaction Statement and Schedule 14A Proxy Statement are
approved in a definitive form by the SEC, we will mail
copies to
stockholders. We currently intend to effect the Reverse Stock Split and Forward
Stock Split as soon as possible after such distribution.
RESULTS
OF OPERATIONS
Three
months ended June 30, 2009 compared to three months ended June 30,
2008:
No revenue was generated by the
Company in these periods.
General
and administrative expenses decreased by $17,649, or 5.2%, to $324,073 in the
second quarter of 2009 compared to $341,722 in the comparable period of 2008
primarily due to a decrease in professional fees of $98,873 and a decrease in
employee compensation and office expenses of $13,776, offset by an increase in
stock based compensation expense of $95,000.
Income
from equity investment in partnerships decreased by $133,481 in the three months
ended June 30, 2009, 25.4% lower than the comparable period in
2008. Our investment in MESC Capital generated a net loss of
approximately $35,500 in the quarter ended June 30, 2009 as compared to net
income of approximately $136,000 in the quarter ended June 30, 2008 due to
increased expenses associated with repairs and maintenance that MESC Capital
performed in 2009. Our investment in Security Land returned income of
approximately $427,000 in the quarter ended June 30, 2009, an increase from
$389,000 in the quarter ended June 30, 2008. Such increase was
primarily due to declines in professional fees and interest and insurance
expenses of $91,000, offset by increases in payroll expenses of $53,000 in
2009.
Net
income decreased by $159,424 in the quarter ended June 30, 2009 as compared to
the comparable period in 2008, or 76.4%, primarily due to the decrease in income
from equity investment in partnerships and reduction in interest income from
2008.
S
ix
months ended June 30, 2009 compared to six months ended June 30,
2008:
No
revenue was generated by the Company in these periods.
General
and administrative expenses decreased by $64,427 or 10.3% to $558,104 in the
first six months of 2009 compared to $622,531 in the comparable period of 2008
primarily due to a decrease in professional fees of $192,530, offset by
increases in employee compensation and benefits of $128,103.
Income
from equity investment in partnerships decreased by $378,095, 31.2% lower than
comparable six months in 2008. Our investment in MESC Capital
produced income of approximately $32,000 in the six month period ended June 30,
2009 as compared to net income of approximately $386,000 in the six month period
ended June 30, 2008 due to increased repairs and maintenance MESC Capital
performed in the comparable period in 2009. Our investment in
Security Land returned income of approximately $781,000 in the six month period
ended June 30, 2009 as compared to $827,000 in the six month period ended June
30, 2008 primarily due to an increase in Security Land’s expenses, which was
partially offset by increases in its revenue. During the six months
ended June 30, 2009, Security Land’s expenses increased by approximately
$82,000, primarily due to an increase in maintenance costs and interest expense,
which was partially offset by a reduction in administrative costs, as compared
to the comparable period in 2008. During the six months ended June
30, 2009, Security Land’s revenue increased by approximately $36,000 compared to
the comparable period in 2008 primarily due to rental income increases related
to the consumer price index.
Net
income decreased by $426,123 in the first six months of 2009 over 2008, or
63.9%, primarily due to the decrease in income from equity investment in
partnerships of $378,095, a reduction of $94,519 in interest and dividend
income, interest expense increases of $18,823, offset by the decrease in general
and administrative expenses of approximately $64,000.
Our
Stockholders'
Equity at June 30, 2009 was $19,872,050 as compared to $19,536,251 at December
31, 2008, an increase of $335,799 which is due to our 2009 year to date net
income and stock based compensation adjustments to additional paid in capital of
$95,000 recorded in April 2009.
Impact
of Inflation.
Although
we have not attempted to calculate the effect of inflation, management does not
believe inflation has had a material effect on the Company’s results of
operations.
Off-Balance
Sheet Arrangements
We have
not entered into any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Accounting
estimates and assumptions discussed in this section are those considered most
critical to understanding the financial statements because they involve
significant judgments and uncertainties. For these estimates, we caution that
future events may not develop as forecast, and that the best estimates
often
require adjustment.
Investments
- These assets
are reviewed for impairment based on criteria that include the extension which
cost exceeds market value, the duration of that decline, and the Company's
ability to hold to recovery. Market research and analysis is performed to
identify potential impairments on a regular basis.
Note Receivable
- These
assets are reviewed for collectibility on an ongoing basis. Any notes deemed
uncollectible have been offset by an allowance and related accrued interest has
been charged to expense.
Income Taxes
- As stated
above, assumptions have been made that taxable income that may result from a
possible IRS examination will be offset by existing net operating losses
generated by the Company from prior periods. Other assumptions have been made
that these net operating losses will not be limited or
disallowed,
which could affect the results of operations in future periods.
The
Company has significant net operating losses available to offset future taxable
income. The losses have been converted into deferred tax assets using an
estimated 34% tax rate. These deferred tax assets have been offset with a
valuation allowance established to reduce the net deferred tax asset to the
amount that will more likely than not be realized. This reduction is necessary
due to uncertainty of the Company's ability to utilize the net operating loss
and tax credit carry forwards before they expire.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company is a smaller reporting company as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, and is not required to provide the
information required by this Item.
ITEM
4. CONTROLS AND PROCEDURES
Our
management, with the participation of Our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period,
our disclosure controls and procedures are effective.
No change
occurred in our internal controls over financial reporting during the quarter
ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
PART
II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
There
were no material changes to the disclosure made in our Annual Report on Form
10-K for the year ended December 31, 2008 regarding these matters.
ITEM
1A. RISK FACTORS
Part I,
Item 1A — “Risk Factors,” of our Annual Report on Form 10-K for the year
ended December 31, 2008, describes important factors that could materially
affect our business, financial condition and/or future results and cause our
operating results to differ materially from those indicated, projected or
implied by forward-looking statements made in this Quarterly Report or presented
elsewhere by management from time to time. The risks described in our Annual
Report on Form 10-K are not the only risks facing our Company; additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results and cause our operating results to differ
materially from those indicated, projected or implied by forward-looking
statements made in this Quarterly Report or presented elsewhere by management
from time to time.
There
have been no material changes with respect to the risk factors previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
OTHER INFORMATION
None.
ITEM
6. EXHIBITS
(a) Exhibits
3.1(i)(a)
|
|
Restated
Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
the Company's Quarterly Report on Form 10-Q for the period ended September
30, 2002, filed on November 19, 2002, and incorporated herein by
reference).
|
3.1(i)(b)
|
|
Corrected
Certificate of Amendment reflecting amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
Quarterly
Report
on Form 10-Q for the period ended September 30, 2002, filed on November
19, 2002, and incorporated herein by reference).
|
3.1(i)(c)
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of Regency
Affiliates, Inc. (filed as Exhibit A to the Company's Information
Statement on Schedule 14C filed on October 27, 2003 and incorporated
by reference herein).
|
3.1(i)(d)
|
|
Certificate
of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
herein by
reference).
|
3.1(i)(e)
|
|
Amended
and Restated Certificate of Designation, Series C Preferred Stock, $100
Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
Current Report
on
Form 8-K filed on October 18, 2002, and incorporated herein by
reference).
|
3.1(i)(f)
|
|
Certificate
of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference).
|
3.1(i)(g)
|
|
Certificate
of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year
ended
December 31, 1995 at page E-1, and incorporated herein by
reference).
|
3.1(ii)(a)
|
|
By-laws
of the Company (filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration Number 2-86906, and incorporated
herein by
reference).
|
3.1.(ii)(b)
|
|
Amendment
No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
2002, filed on November 19, 2002, and incorporated herein
by reference).
|
10.1*
|
|
Stock
Option Agreement, dated as of April 30, 2009 between the Company and
Laurence S. Levy (incorporated by reference from the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008).
|
31.1+
|
|
Chief
Executive Officer’s Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2+
|
|
Chief
Financial Officer’s Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1+
|
|
Chief
Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2+
|
|
Chief
Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
+
Filed herewith
*
Indicates that exhibit is a
management contract or compensatory plan or
arrangement.
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
REGENCY
AFFILIATES, INC.
|
|
|
|
|
|
Date:
September 29, 2009
|
By:
|
/s/ Laurence
S. Levy
|
|
|
|
Laurence
S. Levy
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Neil
N. Hasson
|
|
|
|
Neil
N. Hasson
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
EXHIBIT
INDEX
3.1(i)(a)
|
|
Restated
Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
the Company's Quarterly Report on Form 10-Q for the period ended September
30, 2002, filed on November 19, 2002, and incorporated herein by
reference).
|
3.1(i)(b)
|
|
Corrected
Certificate of Amendment reflecting amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
Quarterly
Report
on Form 10-Q for the period ended September 30, 2002, filed on November
19, 2002, and incorporated herein by reference).
|
3.1(i)(c)
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of Regency
Affiliates, Inc. (filed as Exhibit A to the Company's Information
Statement on Schedule 14C filed on October 27, 2003 and incorporated
by reference herein).
|
3.1(i)(d)
|
|
Certificate
of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
herein by
reference).
|
3.1(i)(e)
|
|
Amended
and Restated Certificate of Designation, Series C Preferred Stock, $100
Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
Current Report
on
Form 8-K filed on October 18, 2002, and incorporated herein by
reference).
|
3.1(i)(f)
|
|
Certificate
of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference).
|
3.1(i)(g)
|
|
Certificate
of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year
ended
December 31, 1995 at page E-1, and incorporated herein by
reference).
|
3.1(ii)(a)
|
|
By-laws
of the Company (filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration Number 2-86906, and incorporated
herein by
reference).
|
3.1.(ii)(b)
|
|
Amendment
No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
2002, filed on November 19, 2002, and incorporated herein
by reference).
|
10.1*
|
|
Stock
Option Agreement, dated as of April 30, 2009, between the Company and
Laurence S. Levy (incorporated by reference from the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008).
|
31.1+
|
|
Chief
Executive Officer’s Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2+
|
|
Chief
Financial Officer’s Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1+
|
|
Chief
Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2+
|
|
Chief
Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
+ Filed
herewith
*
Indicates that exhibit is a management contract or compensatory plan or
arrangement.
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