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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NO. 1-7949
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REGENCY AFFILIATES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 72-0888772
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
729 South Federal Hwy., Suite 307, Stuart, Fl. 34994
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
10842 Old Mill Road, # 5B, Omaha, NE 68154
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(Address of administrative offices) (Zip Code)
Registrant's Telephone Number (executive office), including Area Code:
(561-220-7662)
Registrant's Telephone Number (administrative office), including Area Code:
(402-330-7460)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date.
$.40 Par Value Common Stock - 12,632,089 shares as of March 31, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Conditions And Results of Operations 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
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REGENCY AFFILIATES, INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following pages contain the information required by
Part I, Item 1.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 3L, 1999 DECEMBER 31, 1998
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(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,100,964 $ 2,168,541
Accounts receivable 493,759 752,861
Inventory 877,137 806,006
Other current assets 138,883 130,375
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Total current assets 3,610,743 3,857,783
PROPERTY, PLANT AND EQUIPMENT, NET 2,143,798 1,980,063
INVESTMENTS
Partnership investment 16,844,631 15,799,631
Rental property, net -- 108,512
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Total investments 16,844,631 15,908,143
OTHER ASSETS
Aggregate inventory 843,049 843,049
Goodwill, net of amortization 627,636 631,788
Debt issuance costs, net of amortization 829,855 869,643
Other 44,549 36,947
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Total other assets 2,345,089 2,381,427
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$24,944,261 $24,127,416
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 3L, 1999 DECEMBER 31, 1998
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(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 38,300 $ 38,300
Current portion of serial preferred stock
subject to mandatory redemption 163,600 163,600
Note payable 469,200 464,200
Accounts payable 226,193 282,945
Accrued expenses 456,382 276,165
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Total current liabilities 1,353,675 1,225,210
LONG-TERM DEBT, net of current portion 11,762,407 11,519,930
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 88,040 89,576
SERIAL PREFERRED STOCK SUBJECT TO MANDITORY
REDEMPTION (liquidation preference and redemption
value $256,700), net of current portion 78,505 73,650
SHAREHOLDERS' EQUITY
Serial preferred stock not subject to mandatory
redemption (maximum liquidation preference
$24,957,326 in 1999 and 1998) 1,052,988 1,052,988
Common stock, par value $.40, authorized
25,000,000 shares; issued and outstanding
12,632,089 shares in 1999 and 1998 (net of
12,460 treasury shares) 5,047,129 5,047,129
Additional paid-in capital 270,510 270,510
Readjustment resulting from quasi-reorganization
at December 31, 1987 (1,670,596) (1,670,596)
Retained earnings 6,961,603 6,519,019
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Total shareholders' equity 11,661,634 11,219,050
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$ 24,944,261 $ 24,127,416
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
NET SALES $ 964,557 $ 631,832
COST AND EXPENSES
Cost of goods sold 757,239 425,262
Selling and administrative 543,304 451,398
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1,300,543 876,660
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INCOME (LOSS) FROM OPERATIONS (335,986) (244,828)
INCOME FROM EQUITY INVESTMENT IN
PARTNERSHIP 1,045,000 974,521
OTHER INCOME 43,361 8,288
INTEREST EXPENSE (274,625) (213,621)
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INCOME BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST 477,750 524,360
INCOME TAX EXPENSE (23,810) (17,300)
MINORITY INTEREST 1,532 (10,101)
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NET INCOME $ 455,472 $ 496,959
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NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
(after accrued preferred stock
dividends of $8,033 in 1999 and $8,035 in 1998,
and preferred stock accretion of $4,855 in 1999
and $4,487 in 1998.) $ 442,584 $ 484,437
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NET INCOME PER COMMON SHARE
Basic $ 0.04 $ 0.04
=========== ===========
Diluted $ 0.03 $ 0.03
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 455,472 $ 496,959
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 55,498 29,102
Minority interest (1,532) 10,101
Stock issued in lieu of cash compensation -- 2,800
Income from equity invesment in partnership (1,045,000) (974,521)
Interest amortization on long-term debt 229,390 199,554
Gain on disposal of rental properties (19,250) --
Changes in operating assets and liabilities:
Accounts receivable 259,102 342,010
Inventory (71,131) (84,442)
Other current assets (8,512) (103,677)
Other assets -- 1,068
Accounts payable (56,752) 76,687
Accrued expenses 180,217 55,843
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Net cash from (used by) operating activities (22,498) 51,484
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (208,910) (1,226,043)
Proceeds from sale of rental properties 126,565 --
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Net cash used by investing activities (82,345) (1,226,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings 5,000 160,000
Proceeds from long-term borrowings 65,372 997,667
Repayment of long-term borrowings (12,497) --
Other (12,576) (9,925)
Dividends paid (8,033) (8,035)
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Net cash from financing activities 37,266 1,139,707
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (67,577) (34,852)
CASH AND CASH EQUIVALENTS - BEGINNING 2,168,541 252,354
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CASH AND CASH EQUIVALENTS - ENDING $ 2,100,964 $ 217,502
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $2,500
Interest 38,483 -0-
Supplemental disclosure of non cash investing and
Financing activities:
</TABLE>
In 1998 the Company issued 5,000 shares of treasury stock as compensation
for services rendered.
The accompanying notes are an integral part of these financial statements.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICIANT ACCOUNTING
POLICIES
A. 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 and Article 10 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 three-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant
Company and Subsidiaries' annual report on Form 10-K for the year ended
December 31, 1998.
B. Principles of Consolidation - The consolidated financial statements
include the accounts of Regency Affiliates, Inc. (the "Company"), its
wholly-owned subsidiary, Rustic Crafts International, Inc. ("RCI") and
its 80% owned subsidiaries National Resources Development Corporation
("NRDC"), Transcontinental Drilling Company ("Drilling") and
RegTransco, Inc. ("RTI"). All significant inter-company balances and
transactions have been eliminated in consolidation.
C. Earnings Per Share - Basic earnings per share are computed by dividing
net income attributable to common shareholders (net income less
preferred stock dividend requirements and periodic accretion) by the
weighted average number of common shares outstanding during the
relevant period. Diluted earnings per share computations assume the
conversion of Series E, Series B, and Junior Series D preferred stock
during the period that the preferred stock issues were outstanding. If
the results of these assumed conversion is dilutive, the dividend
requirements and periodic accretion for the preferred stock issues are
reduced.
D. Inventory - Inventories are stated at the lower of cost or market using
the first-in, first-out method ("FIFO"). Inventory is comprised of the
following at March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies $439,283
Work in process 86,370
Finished products 351,484
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$877,137
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</TABLE>
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E. Aggregate Inventory - Aggregate inventory is stated at lower of cost or
market. Liens have been attached to the aggregate inventory by the
holders of the zero coupon bonds, having a face value of $542,200 and a
carrying valuing of $422,500 at March 31, 1999. The Company is also
subject to a royalty agreement, which requires the payment of certain
royalties to a previous owner of the aggregate upon sales of the
aggregate.
F. Income Taxes - The Company utilizes Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for
those temporary differences that have future tax consequences using the
current enacted tax laws and rates that apply to the period in which
they are expected to affect taxable income. In some situations SFAS 109
permits the recognition of expected benefits of utilizing net operating
loss and tax credit carryforwards. Valuation allowances are established
based on management's estimate, if necessary. Income tax expense is the
current tax payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
The balance of this page has been intentionally left blank.
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NOTE 2. INVESTMENT IN PARTNERSHIP
In November 1994, the Company purchased a limited partnership interest
in Security Land and Development Company Limited Partnership ("Security"), which
owns and operates an office complex. The Company has limited voting rights and
is entitled to be allocated 95% of the profit and loss of the partnership until
October 31, 2003 (the lease termination date of the sole tenant of the office
complex) and 50% thereafter. The Company is to receive certain limited cash flow
after debt service, and a contingent equity build-up depending upon the value of
the project upon termination of the lease. The Company is also entitled to
receive certain management fees relating to the partnership. The Company can
force the sale of the property after December 31, 2004.
Security was organized to own and operate two buildings containing
approximately 717,000 net rentable square feet consisting of a two-story office
building and a connected six-story office tower. The building was purchased by
Security in 1986 and is located on approximately 34.3 acres of land which is
also owned by Security. The building has been occupied by the United States
Social Security Administration's Office of Disability and International
Operations for approximately 24 years under lease between the United States of
America, acting by and through the General Services Administration ("GSA").
Effective November 1, 1994, Security and the GSA entered into a nine-year lease
(the "Lease") for 100% of the building. Security has received an opinion of the
Assistant General Counsel to the GSA that lease payments are not subject to
annual appropriation by the United States Congress and the obligations to make
such payments are unconditional general obligations of the United States
Government.
The Company accounts for the investment in partnership on the equity
method, whereby the carrying value of the investment is increased or decreased
by the Company's allocable share of income or loss. The investment in
partnership included in the Consolidated Balance Sheet at March 31, 1999 was
$16,844,631. The income from the Company's equity investment in the partnership
for the three months ended March 31, 1999 was $1,045,000.
Summarized operating data for Security for the three months ended March 31,
1999, and March 31, 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Revenues $ 3,293,300 $ 3,284,600
Operating Expenses 852,100 802,000
Depreciation and Amortization 709,100 707,200
Interest Expense, Net 632,100 749,600
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Net Income $ 1,100,000 $ 1,025,800
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</TABLE>
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NOTE 3. NOTE PAYABLE
The Company's subsidiary, Rustic Crafts, has established a $1,000,000
line of credit with PNC Bank. The line of credit expires on May 18, 1999 and
bears interest at the Bank's prime rate minus one-half percent (7.25% at March
31, 1999).
The accounts receivable, inventory and other assets, such as property
and equipment, of Rustic Crafts have been pledged as collateral to secure the
line of credit. Rustic Crafts has agreed to maintain certain net worth, current
ratio and debt service coverage and is in compliance with these requirements.
The line of credit is guaranteed by the Company.
At March 31, 1999 the amount outstanding under the line of credit was
$385,000.
NOTE 4. LONG TERM DEBT
KBC Bank Loan. On June 24, 1998, the Company refinanced its previously
outstanding long-term debt with a new loan from KBC Bank N.V. ("KBC"). The due
date of the loan is November 30, 2003, with interest compounded semi-annually on
each June 1 and December 1. The interest may be paid on these semi-annual dates
or the Company may elect to add the interest to the principal of the loan then
outstanding. As of March 31, 1999, the amount outstanding under the loan is
$9,938,500, including $181,800 of interest reflected in the accompanying
Statement of Operations for the three months ended March 31, 1999.
The Company incurred debt issuance costs in connection with the above
KBC loan and purchased a residual value insurance policy to secure the repayment
of the outstanding principal and interest when due. These costs are shown as
Debt Issuance Costs and are being amortized over the life of the loan using the
effective interest method. Such amortization of $39,788 for the three months
ended March 31, 1999 is included in Interest Expense in the accompanying
Statement of Operations.
Rustic Crafts Mortgage. In March 1998, Rustic Crafts purchased a
126,000 square foot building on seven acres of land in Scranton, Pennsylvania
for approximately $1.2 million. PNC Bank provided a first mortgage term loan in
the amount of $960,000, a convertible line of credit of $410,000 and equipment
financing of $400,000. At March 31, 1999, the amounts outstanding on these loans
were $1,523,907.
NOTE 5. INCOME TAXES
As referred to in Note 1, the Company utilizes SFAS 109,
"Accounting for Income Taxes". The deferred taxes are the result of long-term
temporary differences between financial reporting and tax reporting for earnings
from the Company's partnership investment in Security Land and Development
Company Limited Partnership related to depreciation and amortization and the
recognition of income tax carryforward items.
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At March 31, 1999, the Company's net deferred tax asset, utilizing a
34% effective tax rate, consists of:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Investment partnership earnings $ 2,384,000
Net operating loss carryforwards 11,068,000
Alternative minimum tax credits 394,000
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Total deferred tax assets before valuation allowance 13,846,000
Valuation allowance (13,846,000)
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Net deferred tax asset $ -0-
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</TABLE>
The valuation allowance was 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 carryforwards before they expire.
For regular federal income tax purposes, the Company has remaining net
operating loss carryforwards of approximately $32,500,000. These losses can be
carried forward to offset future taxable income and, if not utilized, will
expire in varying amounts beginning in the year 2001.
For the three months ended March 31, 1999, and 1998, the tax effect of
net operating loss carryforwards reduced the current provision for federal
income taxes by approximately $140,000 and $180,000, respectively. The Company
provided $23,810 for state income and the alternative minimum tax in the three
months ended March 31, 1999.
NOTE 6. SUBSEQUENT EVENTS
On April 22, 1999, the Company's Board of Directors approved a
transaction whereby the Company would acquire approximately 36% of the
outstanding shares of Glas-Aire Industries, Ltd. ("Glas-Aire") for $1,213,000 in
cash and the issuance of a note of $650,000 due January 1, 2000, at an interest
rate of 7.5% per annum, which is guaranteed by Mr. William Ponsoldt, Sr.,
President of the Company. The acquisition was completed through a newly formed
subsidiary of Regency, Speed.com, Inc. Funds were loaned to Speed.com, Inc. by
an affiliate of Statesman Group, Inc. and Speed.com subsequently purchased the
shares of Glas-Aire on the terms discussed above. Glas-Aire is a publicly traded
Company which manufactures automotive parts and accessories.
As a result of this transaction, the Company has appointed two
directors to fill vacancies on the Glas-Aire board and will appoint three
additional directors subject to satisfying the applicable shareholder
notification rules.
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In May 1999, the Company entered into an agreement to acquire
GuildMaster, Inc., a Missouri corporation, ("GuildMaster") by merger of
GuildMaster into a newly formed subsidiary of the Company. The agreement
provides that the Company will acquire all of the shares of GuildMaster in
exchange for $500,000 in cash, $1,800,000 of face value convertible preferred
shares with terms and conditions to be designated by the Board of Directors, and
other consideration based on the future performance of GuildMaster. The
agreement is subject to approval by Regency's Board of Directors, which has not
yet been obtained. GuildMaster manufactures innovative and fashion-forward
decorative accessories for the home. Revenues for 1998 were approximately
$4,500,000. While the Company believes that this transaction will be completed
there can be no assurance that the transaction will in fact be completed or
that, if completed, it will be on the same or similar economic terms.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General.
Regency Affiliates, Inc. (the "Company") is the parent company of
several subsidiary business operations. The Company is committed to develop
and/or monetize these business operations for the benefit of its shareholders
and continues to commit both financial and personnel resources to an active
merger and acquisition program in order to enhance common stockholders' values.
The Company's Stockholders' Equity at March 31, 1999 was $11,661,634 as compared
to $9,828,945 at March 31, 1998, an increase of $1,832,689 for the twelve months
March 31, 1999.
Liquidity and Capital Resources.
The investment in Security is estimated to provide the Company with
management fees of approximately $100,000 per annum until 2003. In the period
ending March 31, 1999, the Company's income from its equity investment in the
Partnership was $1,045,000. These funds, however, are presently committed for
the amortization of the outstanding principal balance on Security's real estate
mortgage and, while the Company's equity investment has increased to
$16,844,631, the partnership does not provide liquidity to the Company in excess
of the $100,000 annual management fee. The Company has, however, been successful
in obtaining financing with respect to this investment.
In March 1998, Rustic Crafts purchased a building of 126,000 square
feet located near the current facility in Scranton, Pennsylvania. The cost of
acquiring and equipping this facility of approximately $2 million is being
funded by new borrowings from PNC Bank in the form of a first mortgage in the
amount of $960,000, a construction line of credit of $410,000 and equipment
financing of $400,000. This new facility has significantly increased the
operating capacity and enabled Rustic Crafts to more efficiently meet its
current order backlog and increase its customer base. Management anticipates
that Rustic Crafts will provide significant cash distributions for use by the
Company.
On the date of acquisition of the new facility, a tenant was renting
23,000 square feet of this facility at a base rent of $17,400 per year plus an
allocable share of the real estate taxes. The Company intends to maintain this
tenant relationship on an ongoing basis and has rented an additional 28,000
square feet to another tenant at an annual minimum rent of $71,680.
The Company experimented during 1997 for a one month period by
installing aggregate crushing and marketing operations at the Groveland Mine in
an informal joint venture with another company. Based on this experiment, the
Company is attempting to establish a permanent infrastructure to commercialize
the inventory of previously
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quarried and stockpiled aggregate at the Groveland Mine in conjunction with an
experienced aggregate supply company. At this time there is no assurance that
such commercialization will occur.
The Company is continuing to explore opportunities for the acquisition
of companies with operations that will provide additional liquidity and cash.
The Company anticipates that such acquisitions would be financed by borrowings
secured by the assets acquired and by the proceeds of its recent Loan Agreement,
or other loans. There can be no assurance that any such acquisition or
transaction will come to fruition. In August 1998, the Company engaged
Cruttenden Roth, Inc. a California based Investment Banking firm, to assist the
Company with its acquisition program. The Company has agreed to pay Cruttenden
Roth a fee of $25,000 payable over 12 months and a success fee if the Company
acquires a business within the next two years. The Company is analyzing the
acquisition prospects introduced by Cruttenden Roth.
Results of Operations
1999 Compared to 1998
- ---------------------
The operations of the Company include the operations of Rustic Crafts,
its subsidiary, which is engaged in the manufacture of decorative fireplaces,
heater logs and related accessories. The Company continues to actively seek
companies in the home furnishings market for merger or acquisition.
Net sales increased $332,725 in 1999 over the similar period in 1998.
The increase is due to an increase in sales at Rustic Crafts of approximately
$400,000. This increase in sales is due to a significant increase in productive
capacity and resulting manufacturing efficiencies. Rustic Crafts moved most of
its manufacturing operations into a new facility in the fourth quarter of 1998.
This allowed Rustic Craft to manufacture items for inventory and to decrease
average delivery times from about twelve weeks to six weeks. The increase in
Rustic Crafts sales was somewhat offset by a decrease in aggregate sales.
Cost of goods sold as a percent of sales increased from 67.3% in 1998
to 78.5% in 1999. Cost of goods sold increased at Rustic Craft from 76.5% in
1998 to 78.5% in 1999. Factory overhead as a percent of sales decreased,
however, this decrease was offset by freight charges on raw materials and the
mix of products sold.
Selling and administrative expenses increased $91,906 in 1999 over the
similar period in 1998. Bonuses accrued were $170,000 in 1999 compared to
$54,516 in 1998. This increase was partially offset by decreases in legal
expenses and taxes and licenses.
Income from equity in partnership increased $70,479. This increase is
due to a decrease in interest expense resulting from payment of principal offset
by increases in operating expenses for the quarter.
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Other income increased $35,073 in 1999 over 1998 due to gains on
disposition of assets of $19,250, rental income from manufacturing facility of
$9,000 and increases in interest income.
Interest expense increased $61,004 in 1999 over the similar period in
1998. This increase included an additional $36,900 of interest on the financing
used to purchase the new manufacturing facility in Scranton, PA and $24,000 of
increased expense on the KBC loan. The increase in interest on the KBC loan is
due to the higher principal amount outstanding as the effective rate decreased
from almost 20% to less than 9%.
Net income decreased $41,487 in 1999 from the same period in 1998. The
net loss from operations increased $91,158 in spite of an increase in sales
which was offset by higher cost of sales and selling and administrative
expenses. Also, the increase in income from investment in partnership was offset
by higher interest expense.
Year 2000 Issues.
The Company has determined that there will be no material effect on the
Company's business, results of operations or financial condition as a
consequence of its Year 2000 issues, considering the Company's efforts to avoid
any such consequences.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements which are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. Statements as to what the Company "believes," "intends," "expects," or
"anticipates", and other similarly anticipatory expressions, are generally
forward-looking and are made only as of the date of this Form 10-Q. Readers of
the Form 10-Q are cautioned not to place undue reliance on such forward-looking
statements, as they are subject to risks and uncertainties which could cause
actual results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. The Company is subject to
numerous contingencies, risks and uncertainties including, but not limited to,
the following that could have a severe impact on the Company;
(i) The Company currently does not generate positive cash flow
and, historically, the Company has had limited operating
activities and substantially all of its efforts have been
devoted to acquiring or developing profitable operations. The
Company's ability to continue in existence is partly dependent
upon its ability to attain satisfactory levels of operating
cash flows.
(ii) The Company currently lacks the necessary infrastructure at
the site of the Groveland Mine to permit the Company to make
more than casual sales of the Aggregate.
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(iii) As of March 31, 1999, the Company was dependent upon its
investment in Security Land and Development Company Limited
Partnership, the operations of Rustic Crafts International,
Inc. and its interest income for a material portion of its
cash flow and for a material portion of its reportable income.
(iv) The investment activities of the Company do not, in and of
themselves, generate sufficient cash flow to cover its
corporate operating expenses and thus the Company must rely on
its cash reserves to fund these expenses.
(v) An unsecured default in the Lease or sudden catastrophe to the
Security West Building from uninsured acts of God or war could
have a materially adverse impact upon the Company's investment
in Security Land And Development Company Limited Partnership
and therefore its financial position and results of
operations.
(vi) The failure of the Social Security Administration to renew its
lease of the Security West Buildings upon its expiration on
October 31, 2003 could have a materially adverse impact upon
the Company's investment in Security Land and Development
Company Limited Partnership.
(vii) The Company has 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 the
Company's use, retroactively and/or prospectively, of such
carryforwards, due to ownership changes or any other reason.
The disallowance of the utilization of the Company's net
operating loss would severely impact the Company's financial
position and results of operations due to the significant
amounts of taxable income (generated by the Company's
investment in Security) that have in the past been, and is
expected in the future to be, offset by the Company's net
operating loss carryforwards.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27 - Financial Data Schedule.
19
<PAGE> 20
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)
May 14, 1999 By: /s/ Douglas F. Long
- ------------------- -------------------------------------------
Date Douglas F. Long, Chief Financial Officer
20
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,100,964
<SECURITIES> 0
<RECEIVABLES> 493,759
<ALLOWANCES> 0
<INVENTORY> 877,137
<CURRENT-ASSETS> 3,610,743
<PP&E> 2,291,984
<DEPRECIATION> 148,187
<TOTAL-ASSETS> 24,944,261
<CURRENT-LIABILITIES> 1,353,675
<BONDS> 11,762,407
78,505
1,052,988
<COMMON> 5,047,129
<OTHER-SE> 5,561,517
<TOTAL-LIABILITY-AND-EQUITY> 24,944,261
<SALES> 964,557
<TOTAL-REVENUES> 964,557
<CGS> 757,239
<TOTAL-COSTS> 757,239
<OTHER-EXPENSES> 543,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274,625
<INCOME-PRETAX> 477,750
<INCOME-TAX> 23,810
<INCOME-CONTINUING> 455,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455,472
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
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