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 March 31, 2007
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 August 14, 2007 there were 3,463,544 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 Sheets (Unaudited).............3
Condensed Consolidated Statements of Operations (Unaudited)...4
Condensed Consolidated Statements of Cash Flows (Unaudited)...5
Notes to Condensed Consolidated Financial Statements..........6-7
Item 2. Management's Discussion and Analysis or Plan of Operation.....8-11
Item 3. Controls and Procedures.......................................11
Part II - Other Information
Item 1. Legal Proceedings.............................................12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...12-13
Item 3. Defaults Upon Senior Securities...............................13
Item 4. Submission of Matters to a Vote of Security Holders...........13
Item 5. Other Information.............................................13
Item 6. Exhibits......................................................13-15
Signatures.................................................................16
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2007
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 269,439
Marketable securities 9,481,340
Interest receivable, net of allowance of $644,109 --
Other current assets 134,711
------------
Total Current Assets 9,885,490
Property, plant and equipment, net
12,930
Investment in partnerships/LLC 7,886,717
Other 1,300
------------
Total Assets $ 17,786,437
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 260,710
Income taxes payable 15,138
------------
Total Liabilities 275,848
Stockholders' equity
Serial preferred stock Series C and D, 234,544 shares outstanding,
not subject to mandatory redemption (Maximum liquidation
preference $21,141,940)
486,076
Common stock, par value $.01; authorized 8,000,000 shares;
issued 3,524,251 shares; outstanding 3,457,983 shares 35,243
Additional paid-in capital 6,919,989
Readjustment resulting from quasi-reorganization at December 31, 1987 (1,670,596)
Retained earnings 12,148,727
Note receivable - sale of stock --
Treasury stock, 66,268 shares at cost (408,850)
------------
Total Stockholders' Equity 17,510,589
------------
Total Liabilities and Stockholders' Equity $ 17,786,437
============
The attached notes are an integral part of these financial statements.
3
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
---------------------------------
2007 2006
------------ ------------
Net Sales $ -- $ --
Costs and expenses
Costs of goods sold -- --
Selling, general and administrative expenses 207,664 293,437
------------ ------------
207,664 293,437
------------ ------------
Loss from operations (207,664) (293,437)
Income (loss) from equity investment in partnerships (185,658) 691,762
Interest and dividend income 119,057 215,203
Other income 1,848 8,108
------------ ------------
Net income (loss) (272,417) 621,636
============ ============
Net income (loss) per common share:
Basic $ (.08) $ .20
============ ============
Diluted * $ (.08) $ .18
============ ============
Weighted average number of common shares outstanding:
Basic 3,308,335 3,122,234
------------ ------------
Diluted * 3,308,335 3,378,234
------------ ------------
* For the quarter ended March 31, 2007, common stock equivalents have not been
included in the computation of diluted earnings per share as their effects would
be anti-dilutive.
The attached notes are an integral part of these financial statements.
4
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
---------------------------------
2007 2006
------------ ------------
Cash Flows from operating activities
Net income (loss) $ (272,417) $ 621,636
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 816 --
(Income) loss from equity investment in partnerships 185,657 (691,762)
Stock issued for services -- 6,100
Changes in operating assets and liabilities
Accrued interest -- (45,751)
Other current assets 6,440 10,625
Accounts payable and accrued expenses (213,216) (109,447)
Income taxes payable 15,138 --
------------ ------------
Net cash used in operating activities (277,582) (208,629)
------------ ------------
Cash flows from investing activities
Purchases of property and equipment (9,742) --
Proceeds from sales of marketable securities 12,000,000 24,000,000
Purchases of marketable securities (11,996,040) (26,994,180)
Disbursements from partnerships -- 250,000
------------ ------------
Net cash used in investing activities (5,782) (2,744,180)
------------ ------------
Cash flows from financing activities
Purchase of treasury stock (60,450) --
------------ ------------
Net cash used in financing activities (60,450) --
------------ ------------
Decrease in cash and cash equivalents $ (343,814) $ (2,952,809)
Cash and cash equivalents - beginning 613,253 5,646,788
------------ ------------
Cash and cash equivalents - ending $ 269,439 $ 2,693,979
Three Months Ended March 31,
2007 2006
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ -- $ --
------------ ------------
Income taxes $ 47,862 $ --
------------ ------------
The attached notes are an integral part of these financial statements.
5
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-month period ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2007. 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,
2006.
Principles of Consolidation - The consolidated financial statements
include the accounts of Regency Affiliates, Inc. (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.
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 that company. Under the terms of
this settlement, RCI will 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.
During the quarters ended March 31, 2007 and 2006, $0 and $3,264,
respectively, was received under this obligation. RCI defaulted on the
note in April 2006. The Company has initiated an action for collection
against RCI and personal guarantor of the note.
During the quarter ended March 31, 2006, two directors of the Company each
received 500 shares of common stock for services. The fair market value of
the stock issued was $6,100 and this expense is included in selling,
general and administrative expenses in the statement of operations.
During the quarter ended March 31, 2007, the Company repurchased 9,300
shares of its outstanding common stock at a cost of $60,450. The shares
were then subsequently retired from the treasury.
During the quarter ended March 31, 2007, in accordance with EITF 00-27,
"Accounting for Derivative Financial Instruments," the Company recorded
its redemption of 370,747 shares of Cumulative Preferred Stock, Series B
("Series B Stock") for 430,473 shares of the Company's common stock. In
1991, as part of a corporate restructuring, the Company issued the 370,747
shares of $10 stated value preferred stock designated as Series B to
senior lenders in exchange for $3,707,470 in outstanding obligations due
to them. The Series B Stock held contingent provisions and rights, and the
Company's common stock to be issued in connection with the redemption was
to be based upon the fair market value of the Company's common stock at
the date of redemption. Therefore, such transaction has potential
beneficial conversion features and attributes for the preferred
stockholders.
6
Regency Affiliates, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 2. Related Party Transactions, continued
On February 16, 2007, the Company exercised its right to redeem all of the
issued and outstanding Series B Stock (370,747 shares), payable on March
15, 2007. The aggregate redemption price of 430,473 shares of the
Company's common stock, at $6.65 per share, amounted to $2,862,645. As
this amount is less than the original debt obligations exchanged with the
preferred stockholders, which represented their investment in 1991 of
$3,707,470, no deemed dividend nor beneficial conversion feature has been
recognized by the Company in the current period. This transaction resulted
in the retirement by the Company of all issued and outstanding Series B
Stock.
Note 3. Recently Issued Accounting Pronouncements
In February, 2007, FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" including an amendment of FAS
115, or FAS 159. This statement provides companies with an option to
report selected financial assets and liabilities at fair value. This
statement is effective for fiscal years beginning after November 15, 2007
with early adoption permitted. The Company is assessing FAS No. 159 and
has not yet determined the impact that the adoption of FAS No. 159 will
have on its results of operations or financial position, if any.
In September 2006, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 157 "Fair Value Measurements." This statement
defines fair value, establishes a fair value hierarchy to be used in
generally accepted accounting principles and expands disclosures about
fair value measurements. Although this statement does not require any new
fair value measurements, the application could change current practice.
The statement is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact of this statement to
its financial position and results of operations.
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 is effective for the Company's year end 2007,
although early adoption is permitted.
Note 4. Subsequent Events
Subsequent to March 31, 2007, the Company purchased 5,439 shares of common
stock from a consultant of the Company, at $5.10 per share. The Company
also issued common shares to a director and consultant of the Company who
exercised 5,000 and 6,000 common stock options, respectively, in April
2007.
7
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 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 we consummate the Reverse Stock Split (as defined below) and
Forward Stock Split (as defined below) and become 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,
we would not file current, 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 us and our
financial performance;
- Royalty Holdings, LLC ("Royalty"), an affiliate of our management,
beneficially owns approximately 53% 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;
- We do not expect to pay dividends in the foreseeable future; and
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
- There are many public and private companies that are also
searching for operating businesses and other business opportunities as
potential acquisition or merger candidates. We 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 us.
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 March 31, 2007, the Company had current assets of $9,885,490 and
stockholders' equity of $17,510,589. On March 31, 2007, the Company had
$9,750,779 in cash and marketable securities, total assets of $17,786,437 and
total current liabilities of $275,848.
During the preparation of the Company's 2004 and 2005 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. 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 affect the
financial statements of the Company in this year 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, the Company paid all
outstanding principal and interest due to PNC Bank, in satisfaction of the above
described obligations. In December 2005, the Rustic Crafts agreed to accept a
$125,000 note from RCI Wood Products, Inc. ("RCI") as a restructuring of the
9
above named obligation. The note, that 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. During the quarter ended March 31, 2007 Rustic Crafts did
not receive any payments under this obligation. No gain or income was recognized
as a result of this settlement due to the uncertainty that the amount will
actually be realized. Such recovery will be recognized upon receipt. During 2006
Rustic Crafts received $3,264 of such settlement which is included in other
income. In April 2006, RCI defaulted on the note. The Company has initiated an
action for collection against RCI and a personal guarantor on the note.
In connection with the redemption of our common stock owned by Statesman Group,
Inc. ("Statesman"), we acquired from Statesman a three-year option to purchase
the 20% stock interest in National Resource Development Corporation held by
Statesman. To exercise the option, we were required to deliver to Statesman for
cancellation a $2,440,000 note issued to the Company 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 December 31, 2006, through the date of this Form 10-QSB, the
Company has not collected the $2,440,000 note and accrued interest of
approximately $644,000 due from Statesman. The Company has sent demand and
default notices to Statesman but has 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 the
Company's name, or sold for proceeds to satisfy the obligation and collection
costs incurred. The Company has currently reserved the receivable balance in
full while it continues its 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 as of December 31,
2006.
Filing of Going Private Proxy Statement
On December 14, 2005, the Company filed with the Securities and Exchange
Commission (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 obligations of filing
annual and periodic reports and make 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
stockholders. The Company currently intends to effect the Reverse Stock Split
and Forward Stock Split as soon as possible thereafter.
10
Regency Affiliates, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Results of Operations.
2007 Compared to 2006
For the three months ended March 31, 2007 and March 31, 2006:
No revenue was generated by the Company in these periods.
Selling, general and administrative expenses decreased by $85,773 or
29.2% to $207,664 in 2007 compared to $ 293,437 in 2006 due to a
decrease in professional fees.
Income from equity investment in partnerships decreased by $877,420,
126.8% less than 2006, primarily due to a reduction in the earnings
of MESC Capital, LLC that resulted from a scheduled major overhaul
of equipment and delayed repairs resulting from Hurricane Katrina.
Net income decreased by $894,053 in 2007 over 2006 or 143.8%
primarily due to the reduction in income from equity investment in
partnerships.
The Company's Stockholders' Equity at March 31, 2007 was $17,510,589
as compared to $17,880,945 on March 31, 2006, a decrease of $370,356
or 2.1%.
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.
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.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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
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. In its April 16, 2007 decision, citing an
intervening legal development in the area of direct and derivative claims
arising while the appeal was pending, the Supreme Court of the State of Delaware
reversed the Court's decision and remanded the case to the Court for further
proceedings. The Company has been advised that the defendants intend to
vigorously defend the claim asserted against them in the Delaware Action.
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On February 20, 2007, the Company exercised its right to redeem its outstanding
shares of Series B preferred stock for a redemption price payable in shares of
the Company's common stock. On March 15, 2007, the Company redeemed all
outstanding shares of its Series B preferred stock for an aggregate redemption
price of 430,473 shares of the Company's common stock. Exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), for the issuance of such shares of common stock is claimed
under 4(2) of the Securities Act.
12
Regency Affiliates, Inc. and Subsidiaries
PART II - OTHER INFORMATION (continued)
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
-----------------------------------------------------------------------------------------------------------------------------
January 1, 2007 - -- -- -- --
January 31, 2007
-----------------------------------------------------------------------------------------------------------------------------
February 1, 2007 - -- -- -- --
February 28, 2007 (1)
-----------------------------------------------------------------------------------------------------------------------------
March 1, 2007 - 9,300 $6.50 -- --
March 31, 2007
-----------------------------------------------------------------------------------------------------------------------------
Total 9,300 $6.50 -- --
-----------------------------------------------------------------------------------------------------------------------------
On March 28, 2007, the Company purchased 9,300 shares of the Company's common
stock for an aggregate price of $60,450 in a privately negotiated transaction.
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
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).
13
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).
14
Regency Affiliates, Inc. and Subsidiaries
PART II - OTHER INFORMATION (continued)
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
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
REGENCY AFFILIATES, INC.
(Registrant)
Date: August 17, 2007 /s/ Laurence S. Levy
--------------------- ---------------------------------------
(President and Chief Executive Officer)
Date: August 17, 2007 /s/ Neil N. Hasson
--------------------- ---------------------------------------
(Chief Financial Officer)
16
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.*
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
17