UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NUMBER 1-7949
REGENCY AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-0888772
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
610 N.E. Jensen Beach Blvd., Jensen Beach, Florida 34957
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code (772) 334-8181
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of November 17, 2006 there were 3,090,810 shares of the $.01 Par Value Common
Stock outstanding.
Transitional Small Business Disclosure Form (check one): Yes |_| No |X|
Regency Affiliates, Inc. and Subsidiaries
Index to the Financial Statements
Page
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
(Unaudited)...............................................4
Condensed Consolidated Statements of
Operations (Unaudited)....................................5
Condensed Consolidated Statements of
Cash Flows (Unaudited)....................................6
Notes to Condensed Consolidated Financial
Statements................................................8-9
Item 2. Management's Discussion and Analysis or
Plan of Operation .......................................10-14
Item 3. Controls and Procedures ..................................14-15
Part II - Other Information
Item 1. Legal Proceedings.........................................15-16
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds...........................................16
Item 3. Defaults Upon Senior Securities...........................16
Item 4. Submission of Matters to a Vote of Security Holders.......16
Item 5. Other Information.........................................17
Item 6. Exhibits..................................................17-18
Signatures.................................................................19
3
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
September 30, 2006
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 345,861
Marketable securities 9,484,770
Interest receivable 644,109
Other current assets 19,412
------------
Total Current Assets 10,494,152
Investment in partnerships 7,750,652
Other Assets
Other 1,300
------------
Total Other Assets 1,300
Total Assets $ 18,246,104
============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 90,887
Accrued expenses 140,924
------------
Total Current Liabilities 231,811
Total Liabilities 231,811
------------
Shareholders' equity
Serial preferred stock not subject to mandatory redemption
(Maximum liquidation preference $24,975,312) 1,052,988
Common stock, par value $.01; authorized 8,000,000 shares;
issued 3,180,412 shares; outstanding 3,090,810 shares 31,804
Additional paid-in capital 9,002,431
Readjustment resulting from quasi-reorganization at December 31, 1987 (1,670,596)
Retained earnings 12,598,187
Note receivable - sale of stock (2,440,000)
Treasury stock, 89,602 shares (560,521)
------------
Total Shareholders' Equity 18,014,293
------------
Total Liabilities and Shareholders' Equity $ 18,246,104
============
The attached notes are an integral part of these financial statements.
4
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net Sales $ -- $ -- $ -- $ --
Costs and expenses
Selling, general and administrative expenses 550,066 345,205 1,731,121 1,142,021
----------- ----------- ----------- -----------
Loss from operations (550,066) (345,205) (1,731,121) (1,142,021)
Income from equity investment in partnerships 994,307 1,481,651 2,054,341 2,174,742
Interest and dividend income 56,288 50,802 333,277 132,073
Other income, net 96,791 85,227 181,174 223,849
Interest expense (63,863) (150) (63,863) (150)
----------- ----------- ----------- -----------
Income from operations before income tax 533,457 1,272,325 773,808 1,388,493
----------- ----------- ----------- -----------
Provision for income taxes 55,698 -- 55,698 --
----------- ----------- ----------- -----------
Net Income $ 477,759 $ 1,272,325 $ 718,110 $ 1,388,493
=========== =========== =========== ===========
Net income (loss) per common share:
Basic $ 0.15 $ 0.41 $ 0.23 $ 0.45
=========== =========== =========== ===========
Diluted $ 0.12 $ 0.33 $ 0.18 $ 0.37
=========== =========== =========== ===========
Weighted average common shares outstanding
Basic 3,096,624 3,115,847 3,109,932 3,056,002
=========== =========== =========== ===========
Diluted 4,004,852 3,822,234 4,018,160 3,762,389
=========== =========== =========== ===========
The attached notes are an integral part of these financial statements.
5
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
2006 2005
------------ ------------
Cash Flows from operating activities
Net income $ 718,110 $ 1,388,493
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization -- 1,899
Stock-based compensation 256,100 5,250
Income from equity investment in partnerships (2,054,341) (2,174,742)
Unrealized gain on marketable securities (114,044) --
Changes in operating assets and liabilities
Accrued interest receivable (144,876) (108,783)
Other current assets (8,691) 41,800
Accounts payable and accrued expenses (1,048,323) (160,213)
Income taxes payable (113,000) --
------------ ------------
Net cash used in operating activities (2,509,065) (1,006,296)
------------ ------------
Cash flows from investing activities
Cash investments in partnerships -- (200,057)
Proceeds from sales of marketable securities 78,000,000 81,000,000
Purchases of marketable securities (81,378,736) (80,998,624)
Proceeds from partnership earnings received 800,000 1,075,000
------------ ------------
Net cash provided by (used in) investing activities (2,578,736) 876,319
------------ ------------
Cash flows from financing activities
Proceeds from the exercise of stock options 9,600 158,000
Purchase of treasury stock (222,726) (42,160)
------------ ------------
Net cash provided by (used in) financing activities (213,126) 115,840
------------ ------------
(Decrease) in cash and cash equivalents $ (5,300,927) $ (14,137)
Cash and cash equivalents - beginning 5,646,788 1,469,353
------------ ------------
Cash and cash equivalents - ending $ 345,861 $ 1,455,216
============ ============
Nine Months Ended September 30,
---------------------------------
2006 2005
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 63,863 $ 150
Income taxes $ 169,158 $ 150
The attached notes are an integral part of these financial statements.
6
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Supplemental Schedule of Non-Cash Investing and Financing Activities:
None.
The attached notes are an integral part of these financial statements.
7
Regency Affiliates, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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
Item 310 of Regulation S-B. 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 three and nine month periods ended September 30, 2006 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2006. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2005.
Principles of Consolidation - The consolidated financial statements
include the accounts of Regency Affiliates, Inc. (the "Company"), 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.
Note 2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 reported period. Actual results could differ from those
estimates.
Note 3. Related Party Transactions
During the quarter ended March 31, 2006, two directors of the Company
received 500 shares each for services at a total cost of $6,100.
During the quarter ended June 30, 2006, the Company repurchased 29,134
shares of common stock of a former officer as part of a legal settlement.
The stock was purchased at a price of $6.50 per share at a total cost of
$189,371.
During the quarter ended June 30, 2006, two former directors of the
Company exercised stock options to purchase 3,000 shares of common stock.
Two thousand shares were purchased at an exercise price of $4.00 per
share, and one thousand shares were purchased at an exercise price of
$1.60 per share.
8
Regency Affiliates, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 4. Stock Based Compensation
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123R, "Share Based Payments", an amendment of FAS No. 123
"Accounting for Stock Based Compensation". FAS 123R eliminates the ability
to account for share based payments using Accounting Principles Board
Opinion No.25, "Accounting for Stock Issued to Employees", and instead
requires companies to recognize compensation expense using a fair-value
based method. The expense will be measured as the fair value of the award
on its grant date and recorded over the applicable service period. The
requirements of FAS 123R are effective for the Company beginning in 2006.
During the quarter ended June 30, 2006, our chief executive officer
received 50,000 options to purchase shares at an exercise price of $6.27.
The fair value of the options was estimated using the Black-Scholes option
pricing model which requires highly subjective assumptions including the
expected stock price volatility. The fair value of the Company's stock
options granted was estimated using the following assumptions: no expected
dividends, risk free interest rate of 4.87% expected average life of
approximately 10 years and an expected stock price volatility of 70%. The
fair value of options granted was $5.00 for total stock based compensation
expense of $250,000 for the quarter.
Note 5. Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
to common shareholders (net income less preferred stock dividend
requirements and periodic accretion if applicable) by the weighted average
number of common shares outstanding during the year.
Note 6. Treasury Stock
During the quarter ended September 30, 2006, the Company repurchased 5,468
shares of common stock at a total cost of $33,355.
Note 7. Note Receivable-Sale of Stock
In October 2001, the Company was issued a note in the amount of $2,440,000
by Statesman Group, Inc., a former shareholder. The note plus approximately
$644,000 of accrued interest thereon became due and payable on September 30,
2006. The Company is seeking to collect amounts owed under the note.
9
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements and Associated Risk
Certain statements contained in this Quarterly Report on Form 10-QSB, 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 specified below) which are difficult to
predict and, in many instances, are beyond the control of the Company. Such
factors include:
- A default in the lease or sudden catastrophe to the property owned
by Security Land and Development Company Limited Partnership
("Security") or the operating facilities owned by Mobile Energy
Services Company, LLC ("Mobile Energy") from uninsured acts of God
or war could have a materially adverse impact upon our investment in
Security or Mobile Energy, respectively, and therefore our financial
position and results of operations;
- Our subsidiaries currently lack the necessary infrastructure at the
site of the Groveland mine in order to permit them to make more than
casual sales of the rock aggregate located at the Groveland Mine;
- We have had significant tax loss and credit carryforwards and no
assurance can be provided that the Internal Revenue Service would
not attempt to limit or disallow altogether our use, retroactively
and/or prospectively, of such carryforwards, due to ownership
changes or any other reason. The disallowance of the utilization or
our net operating loss would severely impact or financial position
and results of operations due to the significant amounts of taxable
income that has been, and may in the future be, offset by our net
operating loss carryforwards;
- If the Company consummates the Reverse Stock Split (as defined
below) and Forward Stock Split (as defined below) and becomes a
privately held company, stockholders will own shares in a private
company and may not have the ability to sell their shares in the
public market. Furthermore, the Company would not file current,
10
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
quarterly or annual reports or be subject to the proxy requirements
of the federal securities laws. Stockholders may therefore find it
more difficult to obtain information about the Company and its
financial performance;
- Royalty Holdings, LLC ("Royalty"), an affiliate of the Company's
management, beneficially owns approximately 60% of our common stock.
As a result, Royalty has the ability to control the outcome of all
matters requiring stockholder approval, including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets;
- The Company does not expect to pay dividends in the foreseeable
future; and
- There are many public and private companies that are also searching
for operating businesses and other business opportunities as
potential acquisition or merger candidates. The Company will be in
direct competition with these other companies in its search for
business opportunities. Many of these entities have significantly
greater financial and personnel resources than the Company.
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
financial statements and related notes included in Item 1 of this report.
General.
The Company is committed to enhancing the value of the Company's Common Stock by
seeking opportunities to monetize certain existing assets and by seeking new
business opportunities on an opportunistic basis.
Liquidity and Capital Resources.
On September 30, 2006, the Company had current assets of $10,494,152 and
Stockholders' Equity of $18,014,293. On September 30, 2006, the Company had
$9,830,631 in cash and marketable securities, total assets of $18,246,104 and
total current liabilities of $231,811.
During the preparation of the Company's 2004 federal corporation income tax
return, a dispute arose between the Company and Security Land regarding the
proper amount of taxable income to be allocated to the Company and reported to
the Internal Revenue Service (the "IRS") on Federal Form K-1. This dispute could
not be resolved and as such the Company reported a different amount of income on
its corporation income tax return than was reported to the IRS by Security for
2004 and 2005. 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 effect the financial statements of the Company in this year as net operating
losses are available to offset any additional income not reported.
11
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
In December, 2001 the Aggregate inventory was sold to Iron Mountain Resources
Inc. ("Iron Mountain") at a purchase price of $18,200,000, payable, with
interest of 2.46%, in ninety-six equal payments of principal and interest
scheduled to commence in December, 2003. The intercompany gain on this
transaction has been eliminated in the consolidation process resulting in the
Aggregate inventory being carried at its historical cost. On February 9, 2005,
in lieu of foreclosure, Iron Mountain reconveyed the Aggregate inventory back to
National Resource Development Corporation ("NRDC") and the note was deemed
satisfied. In June 2005, the Company obtained an appraisal of the Aggregate
which concluded that the Aggregate has no value and as such a full valuation
allowance of $832,427 was taken in 2005.
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, the Company paid all
outstanding principal and interest due to PNC Bank, in satisfaction of the above
described obligations. On December 30, 2005 the Company agreed to accept a
$125,000 note from RCI as a restructuring of the above named obligation. The
note, which bears interest at 6.5%, calls for payments of $1,088 per month until
December 2008 at which time the balance will be due and payable.
Management believes that the Company's cash balance and anticipated cash flows
from operations will be adequate to fund our cash requirements for at least the
next twelve months.
Filing of Going Private Proxy Statement
On December 14, 2005, the Company 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 the Company's 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 the Company's 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 the
Company 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, the Company
will mail copies to its stockholders. The Company currently intends to effect
the Reverse Stock Split and Forward Stock Split as soon as possible after such
distribution.
12
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Results of Operations.
2006 Compared to 2005
For the three months ended September 30, 2006:
No revenue was generated by the Company in this period.
Selling and administrative expenses increased by $204,861 or 59.3%
in 2006 compared to 2005 primarily due to higher professional fees
relating to litigation defense and funding of the retirement plan
for calendar year 2006.
Income from equity investment in partnerships decreased by $487,344
or 32.9% compared to 2005, primarily due to a reduction in
partnership income. During third quarter 2005, Mobile Energy sold
excess inventory of parts resulting in a gain for the period.
Net Income decreased by $794,566 in 2006 over 2005 or 62.4%.
For the nine months ended September 30, 2006:
No revenue was generated by the Company in this period.
Selling and administrative expenses increased by $589,100 or 51.6%
in 2006 compared to 2005 primarily due to higher professional fees
relating to litigation defense, funding of the retirement plan, and
stock based compensation paid in calendar year 2006.
Income from equity investment in partnerships decreased by $120,401,
5.5% less than 2005 primarily due to a reduction in partnership
income. During third quarter 2005, Mobile Energy sold excess
inventory of parts resulting in a gain for the period.
Net Income decreased by $670,383 in 2006 over 2005 or 48.3%.
The Company's Stockholders' Equity at September 30, 2006 was $18,014,293 as
compared to $19,067,996 on September 30, 2005, a decrease of $1,053,703.
Impact of Inflation.
Although the Company has not attempted to calculate the effect of inflation,
management does not believe inflation has had a material effect on its results
of operations.
13
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES.
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's 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, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, the Company's disclosure
controls and procedures are effective.
In connection with the evaluation of the Company's internal controls during the
Company's last fiscal quarter, the Company's Chief Executive Officer and Chief
Financial Officer have determined that there are no changes to the Company's
internal controls over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On December 14, 2001, we initiated a proceeding in The Circuit Court of the
Nineteenth Judicial Circuit in and for Martin County, Florida, case number
01-1087-CA against Larry J. Horbach, individually and L.J. Horbach & Associates.
Larry Horbach was a former interim CFO and Board member. We claim that Larry
Horbach, without appropriate authority, borrowed $100,050 from Mid City Bank in
the name of Regency. We further claim that Horbach converted all or part of the
proceeds from the loan for his benefit and breached his fiduciary duties as an
officer and director. Horbach filed a Motion for the Court to determine whether
the claims asserted against him were properly brought in Florida, or whether
they should have been filed in Nebraska. The matter was fully briefed, and the
Florida Court took the matter under advisement. The Florida Court has not yet
rendered its decision on this jurisdictional issue.
On February 7, 2002, a complaint naming Regency as defendant was filed in the
District Court of Douglas County, Nebraska, case number 1012. The Plaintiffs are
Larry J. Horbach, individually and L.J. Horbach & Associates and they are
demanding payment on a loan they purchased from Mid City Bank. The plaintiffs
are requesting payment of $82,512.57 plus accrued interest, costs and attorney
fees. We are vigorously defending this litigation.
On January 20, 2004, a purported derivative and class action lawsuit was filed
by two dissident Company shareholders, Edward E. Gatz and Donald D. Graham, in
the New Castle County Court of Chancery, Delaware (the "Court"), captioned Gatz,
et al. v. Ponsoldt, Sr., et al., (C.A. No. 174-N) naming as defendants certain
current and former directors of the Company, Royalty and certain of its
14
Regency Affiliates, Inc. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. (continued)
affiliates, Statesman and, nominally, the Company (the "Delaware Action"). The
complaint alleged various breaches of fiduciary duties by the former directors
and Statesman, and that Royalty and its affiliates knowingly participated in
certain of the alleged breaches. In November 2004 the Court dismissed all but
one claim alleged in the complaint. The Company was not a defendant with respect
to the sole surviving claim, which related to the 2001 sale of a cache of
previously quarried and piled aggregate rock by NRDC to Iron Mountain (the
"Aggregate Sale"). On October 16, 2005, the Court dismissed plaintiffs' sole
remaining claim for failure to state a claim for relief. The dismissal was
without prejudice and the plaintiffs were given leave to file an amended
complaint attacking the Aggregate Sale.
On January 30, 2006, plaintiffs filed an amended complaint challenging the
Aggregate Sale and alleging that the Aggregate Sale negatively impacted the
consideration the Company received in connection with the October 2002
restructuring transactions. The Company was not a defendant with respect to this
claim. Plaintiffs sought damages in excess of $5,400,000 with respect to the
claim related to the Aggregate Sale. On May 16, 2006, the Court dismissed the
sole remaining complaint alleged in the complaint determining that the sole
remaining complaint was derivative in nature and could therefore not be
maintained by the plaintiffs. On June 14, 2006, the plaintiffs filed a Notice of
Appeal appealing the Court's rulings. The matter will be briefed in due course.
We are vigorously defending this litigation.
The defendants in the Delaware Action, other than Statesman, are entitled to be
indemnified by the Company for damages, if any, and expenses, including legal
fees, they may incur as a result of the lawsuit, subject to certain
circumstances under which such indemnification is not available. In addition,
the Company's insurance carrier contends that none of the claims contained in
the Delaware Action are covered by insurance on the basis of the "insured vs.
insured" exclusion since one of the plaintiffs, Donald D. Graham, was previously
a director of the Company.
On May 10, 2004, Gary Nuttall, a former President of the Company, commenced an
arbitration proceeding against the Company with respect to certain claims
allegedly arising under his 1995 Employment Agreement with the Company. Mr.
Nuttall sought severance and all other compensation and benefits due him under
the 1995 Employment Agreement in an amount in excess of approximately $1,650,000
($1,400,000 of which is a financing bonus), 466,667 unrestricted shares of the
Company (pre-split), options to purchase additional stock of the Company,
punitive damages, interest, fees and costs associated with the arbitration. On
May 4, 2006, the parties settled the disputes between them without admitting any
liability, fault or wrongdoing, and entered into a settlement agreement
15
Regency Affiliates, Inc. and Subsidiaries
PART II - OTHER INFORMATION
providing for, among other things, the payment of $950,000 by the Company to Mr.
Nuttall and the purchase by the Company of the 29,134 shares of Company common
stock owned by Mr. Nuttall, at a purchase price of $6.50 per share.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Small Business Issuer Purchases of Equity Securities
-----------------------------------------------------------------------------------------------------------------------------
Period (a) Total Number of (b) Average Price Paid (c) Total Number of (d) Maximum Number (or
Shares (or Units) per Share (or Unit) Shares (or Units) Approximate Dollar
Purchased Purchased as Part of Value) of Shares (or
Publicly Announced Units) that May Yet Be
Plans or Programs Purchased Under the
Plans or Programs
-----------------------------------------------------------------------------------------------------------------------------
July 1, 2006 - July 31, -- -- -- --
2006
-----------------------------------------------------------------------------------------------------------------------------
August 1, 2006 - August -- -- -- --
31, 2006
-----------------------------------------------------------------------------------------------------------------------------
September 1, 2006 - 5,468 $6.10 -- --
September 30, 2006 (1)
-----------------------------------------------------------------------------------------------------------------------------
Total 5,468 $6.10 -- --
-----------------------------------------------------------------------------------------------------------------------------
(1) On September 19, 2006, the Company purchased 5,468 shares of the Company's
common stock for an aggregate price of $33,354.80 in a privately
negotiated transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
16
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
(a) Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
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).
17
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 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
*Filed herewith
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGENCY AFFILIATES, INC.
(Registrant)
Date: November 20, 2006 /s/ Laurence S. Levy
----------------------- ---------------------------------------
(President and Chief Executive Officer)
Date: November 20, 2006 /s/ Neil N. Hasson
----------------------- ---------------------------------------
(Chief Financial Officer)
19
EXHIBIT INDEX
Exhibit Number Description of Exhibit
-------------- ----------------------
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).
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.*
20
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
*Filed herewith
21