TABLE OF CONTENTS




|                               |                                                                                                |  |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|PART II  OTHER INFORMATION   
|                               | ITEM 1. LEGAL PROCEEDINGS.                                                                    
|                               | ITEM 2. CHANGES IN SECURITIES.                                                                
|                               | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                       
|                               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                  
|                               | ITEM 5. OTHER INFORMATION.                                                                    
|                               | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                     
|SIGNATURES                    
|Exhibit 27                    



---



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 June 30, 2000 COMMISSION FILE NO. 1-7949

REGENCY AFFILIATES, INC.(Exact name of registrant as specified in its charter)

|                                                                                       |  |                                               
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization)                 |  | 72-0888772(IRS Employer
Identification Number)
|                                                                                      
|729 South Federal Hwy., Suite 307, Stuart, Fl.(Address of principal executive offices) |  | 34994(Zip Code)                               
|                                                                                      
|10842 Old Mill Road, # 5B, Omaha, NE(Address of administrative offices)                |  | 68154(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)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes __X__ No _____

Indicate 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  17,203,686 shares as of July 31, 2000, including
4,040,375 shares held by a majority owned subsidiary.

1



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##### Table of Contents



TABLE OF CONTENTS

|                                |                                                                                               |  |  |      |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  |  | ---- |  | 
|                                |                                                                                               |  |  | PAGE
|                                |                                                                                               |  |  |     
|PART I   FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                  |  |  | 3    | 
|                                | Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations |  |  | 14   | 
|PART II  OTHER INFORMATION    
|                                | Item 1. Legal Proceedings                                                                     |  |  | 20   | 
|                                | Item 2. Changes in Securities and Use of Proceeds                                             |  |  | 20   | 
|                                | Item 3. Defaults Upon Senior Securities                                                       |  |  | 20   | 
|                                | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |  | 20   | 
|                                | Item 5. Other Information                                                                     |  |  | 20   | 
|                                | Item 6. Exhibits and Reports on Form 8-K                                                      |  |  | 20   | 

2



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##### Table of Contents



REGENCY AFFILIATES, INC.




PART 1  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

The following pages contain the information required by Part I, Item 1.

3



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##### Table of Contents



REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                   |                                          |                      |            |               |           |                   |            |           |           | 
|---------------------------------- | ---------------------------------------- | -------------------- | ---------- | ------------- | --------- | ----------------- | ---------- | --------- | --------- | 
|                                   |                                          |                      |            | June 30, 2000 |           | December 31, 1999
|                                   |                                          |                      |            |               |           |                  
|                                   |                                          |                      |            | (Unaudited)  
|CURRENT ASSETS                    
|                                  
|                                  
|                                  
|                                  
|                                   | Cash and cash equivalents                |                      | $          | 765,790       |           |                   | $          | 2,348,989 |          
|                                  
|                                  
|                                  
|                                  
|                                   | Accounts receivable, net of allowance    |                      |            | 1,806,488     |           |                   |            | 2,373,275 |          
|                                  
|                                  
|                                  
|                                  
|                                   | Inventory                                |                      |            | 2,129,582     |           |                   |            | 1,842,992 |          
|                                  
|                                  
|                                  
|                                  
|                                   | Other current assets                     |                      |            | 247,479       |           |                   |            | 238,687   |          
|                                   |                                          |                      |            |               |           |                   |            |           |          
|                                   |                                          | Total current assets |            |               | 4,949,339 |                   |            |           | 6,803,943 | 
|                                   |                                          |                      |            |               |           |                   |            |          
|PROPERTY, PLANT AND EQUIPMENT, NET |                                          |                      | 4,344,798  |               |           |                   | 4,427,891 
|                                   |                                          |                      |            |               |           |                   |            |          
|INVESTMENT IN PARTNERSHIP          |                                          |                      | 22,176,949 |               |           |                   | 19,959,517 |          
|                                   |                                          |                      |            |               |           |                   |            |          
|OTHER ASSETS                      
|                                  
|                                  
|                                  
|                                  
|                                   | Aggregate inventory                      |                      |            | 838,383       |           |                   |            | 838,383   |          
|                                  
|                                  
|                                  
|                                  
|                                   | Goodwill, net of amortization            |                      |            | 961,420       |           |                   |            | 902,138   |          
|                                  
|                                  
|                                  
|                                  
|                                   | Debt issuance costs, net of amortization |                      |            | 630,918       |           |                   |            | 710,493   |          
|                                  
|                                  
|                                  
|                                  
|                                   | Other                                    |                      |            | 107,553       |           |                   |            | 15,270    |          
|                                  
|                                  
|                                  
|                                  
|                                   |                                          |                      |            |               |           |                   |            |           |          
|                                   |                                          | Total other assets   |            |               | 2,538,274 |                   |            |           | 2,466,284 | 
|                                   |                                          |                      |            |               |           |                   |            |           |          
|                                   |                                          | $                    | 34,009,360 |               |           | $                 | 33,657,635 |          
|                                   |                                          |                      |            |               |           |                   |            |           |          

The accompanying notes are an integral part of these financial statements.

4



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##### Table of Contents



REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |            | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ------------- | ---------- | ----------------- | ---------- | ---------- | ---------- | 
|                                               |                                                                                                                            |                            |            | June 30, 2000 |            | December 31, 1999
|                                               |                                                                                                                            |                            |            |               |            |                  
|                                               |                                                                                                                            |                            |            | (Unaudited)  
|CURRENT LIABILITIES                           
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of long-term debt                                                                                          |                            | $          | 147,648       |            |                   | $          | 176,800    |           
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of serial preferred stock
subject to mandatory redemption                                                  |                            |            |              |            |                   |            | 247,800    |           
|                                              
|                                              
|                                              
|                                              
|                                               | Notes payable                                                                                                              |                            |            | 555,103       |            |                   |            | 1,149,262  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                                                                                                           |                            |            | 954,506       |            |                   |            | 991,587    |           
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued expenses                                                                                                           |                            |            | 914,403       |            |                   |            | 1,236,160  |           
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|                                               |                                                                                                                            | Total current liabilities  |            |               | 2,571,660  |                   |            |            | 3,801,609  | 
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|LONG-TERM DEBT, net of current portion         |                                                                                                                            |                            | 12,693,216 |               |            |                   | 12,353,644 |           
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|DEFERRED INCOME TAXES                          |                                                                                                                            |                            | 446,826    |               |            |                   | 416,695    |           
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES |                                                                                                                            |                            | 3,577,258  |               |            |                   | 3,449,637  |           
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|SHAREHOLDERS EQUITY                          
|                                               | Serial preferred stock not subject to mandatory
redemption (maximum liquidation preference
$24,975,312 in 2000 and 1999)   |                            |            | 1,052,988     |            |                   |            | 1,052,988  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock, par value $.40, authorized
25,000,000 shares; issued 17,203,686 shares in
2000 and 16,894,488 shares in 1999 |                            |            | 6,881,475     |            |                   |            | 6,757,806  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid-in capital                                                                                                 |                            |            | 2,282,668     |            |                   |            | 2,096,824  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Readjustment resulting from quasi-reorganization
at December 31, 1987                                                      |                            |            | (1,670,596    | )          |                   |            | (1,670,596 | )         
|                                              
|                                              
|                                              
|                                              
|                                               | Retained earnings                                                                                                          |                            |            | 9,593,336     |            |                   |            | 8,760,736  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive income                                                                                     |                            |            | (81,438       | )          |                   |            | (23,675    | )         
|                                               | Treasury stock, 4,052,825 shares in 2000 and 1999                                                                          |                            |            | (3,338,033    | )          |                   |            | (3,338,033 | )         
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|                                               |                                                                                                                            | Total shareholders equity |            |               | 14,720,400 |                   |            |            | 13,636,050 | 
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                            | $                          | 34,009,360 |               |            | $                 | 33,657,635 |           
|                                               |                                                                                                                            |                            |            |               |            |                   |            |            |           

The accompanying notes are an integral part of these financial statements.

5



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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)

|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |           |           | 
|-------------------------------- | -------------------------------------------------------------------------------------- | -------------------------- | --------- | ------------ | --------- | ---------- | --------- | --------- | ------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                 |                                                                                        |                            |           | Three Months |           | Six Months
|                                 |                                                                                        |                            |           |              |           |           
|                                 |                                                                                        |                            |           | 2000         |           | 1999       |           | 2000      |         | 1999
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |     
|NET SALES                        |                                                                                        | $                          | 2,971,112 |              |           | $          | 901,022   |           |         | $    | 5,125,677 |           |           | $ | 1,876,175 |          
|                                
|COSTS AND EXPENSES              
|                                
|                                
|                                
|                                
|                                 |                                                                                        | Cost of goods sold         |           |              | 2,232,399 |            |           |           | 766,728 |      |           |           | 3,768,490 |   |           |           | 1,523,967 | 
|                                
|                                
|                                
|                                
|                                 |                                                                                        | Selling and administrative |           |              | 1,187,233 |            |           |           | 475,190 |      |           |           | 2,191,003 |   |           |           | 1,012,191 | 
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|                                 |                                                                                        |                            | 3,419,632 |              |           |            | 1,241,918 |           |         |      | 5,959,493 |           |           |   | 2,536,158 |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|INCOME (LOSS) FROM OPERATIONS    |                                                                                        |                            | (448,520  | )            |           |            | (340,896  | )         |         |      | (833,816  | )         |           |   | (659,983  | )        
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|INCOME FROM EQUITY INVESTMENT   
|                                 | IN PARTNERSHIP                                                                         |                            |           | 1,193,165    |           |            |           | 1,067,115 |         |      |           | 2,323,682 |           |   |           | 2,112,115 |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|OTHER INCOME, NET                |                                                                                        |                            | 6,890     |              |           |            | 57,373    |           |         |      | 16,870    |           |           |   | 71,006    |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|INTEREST EXPENSE                 |                                                                                        |                            | (315,169  | )            |           |            | (303,670  | )         |         |      | (576,580  | )         |           |   | (565,466  | )        
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|INCOME BEFORE INCOME TAX EXPENSE
|                                 | AND MINORITY INTEREST                                                                  |                            |           | 436,366      |           |            |           | 479,922   |         |      |           | 930,156   |           |   |           | 957,672   |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|INCOME TAX EXPENSE (BENEFIT)     |                                                                                        |                            | (701      | )            |           |            | 17,500    |           |         |      | 65,194    |           |           |   | 41,310    |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|MINORITY INTEREST                |                                                                                        |                            | 2,283     |              |           |            | 2,646     |           |         |      | (32,361   | )         |           |   | 4,178     |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|NET INCOME                       |                                                                                        | $                          | 439,350   |              |           | $          | 465,068   |           |         | $    | 832,601   |           |           | $ | 920,540   |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|NET INCOME ATTRIBUTABLE TO      
|                                
|                                
|                                
|                                
|COMMON SHAREHOLDERS             
|                                
|                                
|                                
|                                
|                                 | (after accrued preferred stock dividends
and accretion of $12,887 and $25,775
in 1999) |                            | $         | 439,350      |           |            | $         | 452,181   |         |      | $         | 832,601   |           |   | $         | 894,765   |          
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|NET INCOME PER COMMON SHARE     
|                                
|                                
|                                
|                                
|                                 |                                                                                        | Basic                      |           | $            | 0.03      |            |           | $         | 0.04    |      |           | $         | 0.06      |   |           | $         | 0.07      | 
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          
|                                 |                                                                                        | Diluted                    |           | $            | 0.03      |            |           | $         | 0.03    |      |           | $         | 0.06      |   |           | $         | 0.06      | 
|                                 |                                                                                        |                            |           |              |           |            |           |           |         |      |           |           |           |   |           |          

The accompanying notes are an integral part of these financial statements.

6



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##### Table of Contents



REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)

|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |            |            |  
|------------------------------------------------ | -------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------- | -------- | ---------- | -------- | --------- | ---------- | ---------- | ---------- | -
|                                                 |                                                                                  |                                                |                                              |          | 2000       |          | 1999     
|                                                 |                                                                                  |                                                |                                              |          |            |          |          
|CASH FLOWS FROM OPERATING ACTIVITIES            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income                                                                       |                                                | $                                            | 832,601  |            |          | $         | 920,540    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income to net
cash used by by operating activities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Depreciation and amortization                  |                                              |          | 235,932    |          |           |            | 114,704    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Change in deferred income taxes                |                                              |          | 30,131     |          |           |            |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Minority interest                              |                                              |          | 32,361     |          |           |            | (4,178     | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Stock issued for services rendered             |                                              |          | 217,134    |          |           |            |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Income from equity investment in partnership   |                                              |          | (2,323,682 | )        |           |            | (2,112,115 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Distribution of equity earnings in partnership |                                              |          | 106,250    |          |           |            | 101,326    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Undistributed earnings of equity investment    |                                              |          |           |          |           |            | (30,000    | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Interest amortization on long-term debt        |                                              |          | 460,895    |          |           |            | 468,269    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Gain on disposal of rental properties          |                                              |          |           |          |           |            | (19,250    | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Changes in operating assets and liabilities:  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  |                                                | Accounts receivable                          |          |            | 566,787  |           |            |            | 351,070    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  |                                                | Inventory                                    |          |            | (286,590 | )         |            |            | (56,931    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  |                                                | Other current assets                         |          |            | (8,792   | )         |            |            | (97,213    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  |                                                | Accounts payable                             |          |            | (37,081  | )         |            |            | (5,509     | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  |                                                | Accrued expenses                             |          |            | (330,607 | )         |            |            | (24,680    | )
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |           
|                                                 |                                                                                  | Net cash used by operating activities          |                                              |          | (504,661   | )        |           |            | (393,967   | )         
|CASH FLOWS FROM INVESTING ACTIVITIES            
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital expenditures                                                             |                                                |                                              | (158,535 | )          |          |           | (535,770   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of equity investment                                                    |                                                |                                              |         |            |          |           | (1,213,000 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of rental properties                                          |                                                |                                              |         |            |          |           | 126,565    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Other                                                                            |                                                |                                              | (3,905   | )          |          |           | (68,647    | )         
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |           
|                                                 |                                                                                  |                                                | Net cash used by investing activities        |          |            | (162,440 | )         |            |            | (1,690,852 | )
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS FROM FINANCING ACTIVITIES            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net short-term borrowings (payments)                                             |                                                |                                              | (594,159 | )          |          |           | 305,800    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of equity investment                                                    |                                                |                                              |         |            |          |           | 1,213,000  |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term borrowings                                               |                                                |                                              | 5,681    |            |          |           | 149,572    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of long-term borrowings                                                |                                                |                                              | (76,581  | )          |          |           | (22,982    | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Redemption of Series E preferred stock                                           |                                                |                                              | (159,300 | )          |          |           |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Other                                                                            |                                                |                                              | (80,389  | )          |          |           |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Dividends paid                                                                   |                                                |                                              |         |            |          |           | (16,068    | )         
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |           
|                                                 |                                                                                  |                                                | Net cash from (used by) financing activities |          |            | (904,748 | )         |            |            | 1,629,322  |  
|                                                
|                                                
|                                                
|                                                
|FOREIGN CURRENCY TRANSLATION ADJUSTMENT          |                                                                                  |                                                | (11,350                                      | )        |            |          |          |           
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |           
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                  |                                                | (1,583,199                                   | )        |            |          | (455,497  | )         
|                                                
|                                                
|                                                
|                                                
|CASH AND CASH EQUIVALENTS  BEGINNING            |                                                                                  |                                                | 2,348,989                                    |          |            |          | 2,168,541 |           
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |           
|CASH AND CASH EQUIVALENTS  ENDING               |                                                                                  | $                                              | 765,790                                      |          |            | $        | 1,713,044 |           
|                                                 |                                                                                  |                                                |                                              |          |            |          |           |            |           

The accompanying notes are an integral part of these financial statements.

7



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|                                                   |              |  |      |         |      |  |   |        | 
|-------------------------------------------------- | ------------ |  | ---- | ------- | ---- |  | - | ------ | 
|                                                   |              |  | 2000 |         | 1999
|                                                   |              |  |      |         |     
|Supplemental disclosures of cash flow information:
|                                                  
|                                                  
|                                                  
|                                                  
|Cash paid during the period for:                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Income taxes |  | $    | 326,063 |      |  | $ | 35,000 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Interest     |  |      | 45,227  |      |  |   | 71,414 | 
|                                                  
|                                                  
|                                                  
|



| |                                                                        
| | -----------------------------------------------------------------------
| | Supplemental disclosure of non cash investing and
financing activities:



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | In 2000 the Company issued 95,877 shares of common stock in exchange for
885 shares of Series E preferred stock.



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | In 2000 the Company issued 86,833 shares of common stock as payment
for public relations and consulting services rendered.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | In 2000 the Company issued 114,000 shares of common stock as payment for
costs in connection with acquisition of Glas-Aire.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | In 1999 the Company issued a promissory note of $650,000 for the purchase
of an equity investment in Glas-Aire.

The accompanying notes are an integral part of these financial statements.

8



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##### Table of Contents



REGENCY AFFILIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation and Summary of Significant 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
and six-month periods ended June 30, 2000, are not necessarily indicative
of the results that may be expected for the year ended December 31, 2000.
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, 1999.

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. (Rustic
Crafts), its 80% owned subsidiaries National Resources Development
Corporation (NRDC), Transcontinental Drilling Company (Drilling) and
RegTransco, Inc. (RTI), and its majority owned subsidiary Glas-Aire
Industries Group, Ltd. (Glas-Aire). 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 exercise of common
stock options and 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 result of these assumed conversions is dilutive, the
dividend requirements and periodic accretion for the preferred stock
issues are reduced. The shares of the Company held by Glas-Aire were
treated as treasury shares for earnings per share computations.

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 June 30, 2000:

| |                            |  |  |  |  |   |           |         | 
| | -------------------------- |  |  |  |  | - | --------- | ------- | 
| | Raw materials and supplies |  |  |  |  | $ | 863,254   |        
|
|
|
|
| | Work in process            |  |  |  |  |   |           | 338,754 | 
|
|
|
|
| | Finished products          |  |  |  |  |   |           | 927,574 | 
| |                            |  |  |  |  |   |           |        
| |                            |  |  |  |  | $ | 2,129,582 |        
| |                            |  |  |  |  |   |           |        
|
|
|
|
|

9



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##### Table of Contents



E. Aggregate Inventory Aggregate inventory consists of 70+ million
short tons and is stated at lower of cost or market. The Company is subject to a royalty agreement
which requires the payment of certain royalties to a previous owner of the aggregate upon sales of the
aggregate. The Company has made only casual sales of the inventory during the periods.

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.

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

10



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##### Table of Contents



allocable share of income or loss. The investment in
partnership included in the Consolidated Balance Sheet at June 30, 2000 was
$22,176,949. The income from the Companys equity investment in the
partnership for the three months and six months ended June 30, 2000 was
$1,193,165 and $2,323,682.

Summarized operating data for Security for the three months and six months
ended June 30, 2000, and June 30, 1999, is as follows:

|                              |  |              |           |            |  |      |           |      |  |   |           |  |  |   |           | 
|----------------------------- |  | ------------ | --------- | ---------- |  | ---- | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                              |  | Three Months |           | Six Months
|                              |  |              |           |           
|                              |  | 2000         |           | 1999       |  | 2000 |           | 1999
|                              |  |              |           |            |  |      |           |     
|Revenues                      |  | $            | 3,316,138 |            |  | $    | 3,303,815 |      |  | $ | 6,630,623 |  |  | $ | 6,597,114 | 
|                             
|                             
|                             
|                             
|Operating expenses            |  |              | 868,975   |            |  |      | 847,299   |      |  |   | 1,773,856 |  |  |   | 1,695,556 | 
|                             
|                             
|                             
|                             
|Depreciation and amortization |  |              | 710,067   |            |  |      | 709,123   |      |  |   | 1,420,134 |  |  |   | 1,418,246 | 
|                             
|                             
|                             
|                             
|Interest expense, net         |  |              | 481,133   |            |  |      | 627,938   |      |  |   | 990.652   |  |  |   | 1,260,032 | 
|                              |  |              |           |            |  |      |           |      |  |   |           |  |  |   |           | 
|Net income                    |  | $            | 1,255,963 |            |  | $    | 1,119,455 |      |  | $ | 2,445,981 |  |  | $ | 2,223,280 | 
|                              |  |              |           |            |  |      |           |      |  |   |           |  |  |   |           | 

Note 3. Notes 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 September 18, 2000 and
bears interest at the Banks prime rate minus one-half percent (9.0% at June
30, 2000). 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. The line of credit is guaranteed by the Company.
At June 30, 2000, the amount outstanding under the line of credit was $421,000.

The Companys subsidiary, Glas-Aire, has established a Canadian $1,000,000
(U.S. $680,000) line of credit with a Canadian bank. The line of credit
expires in April 2001, and is collateralized by accounts receivable and
inventory and bears interest at the rate of the Canadian banks prime rate plus
one-half percent (6.6% at June 30, 2000). At June 30, 2000, the amount
outstanding under the line of credit was $134,103.

Note 4. Long-Term Debt

KBC Bank Loan On June 24, 1998, the Company refinanced the long-term
debt previously outstanding with Southern Indiana Properties, Inc. (SIPI) and
entered into a Loan Agreement (the Loan) with KBC Bank N.V. (KBC). Under
the terms of the Loan, KBC advanced $9,383,320. The due date of the Loan is
November 30, 2003 with interest at the rate of 7.5% compounded semi-annually on
each June 1 and December 1, commencing December 1, 1998. The interest may be
paid by the Company in cash on these semi-annual dates or the Company may elect
to add the interest to the principal of the Loan then outstanding. As of June
30, 2000, the amount outstanding under the Loan is $10,894,038, including
interest for the three months and six months ended June 30, 2000 of $200,472
and $381,320, respectively.

11



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##### Table of Contents



The Company purchased a residual value insurance policy which secures the
repayment of the outstanding principal and interest when due with a maximum
liability of $14 million. The costs related to the insurance along with legal
fees and other costs associated with obtaining the Loan have been capitalized
as debt issuance costs and are being amortized over the life of the Loan using
the effective interest method.

Mortgage Loan On March 25, 1998, Rustic Crafts purchased a building of
126,000 square feet located in Scranton, Pennsylvania. The purchase of this
facility was funded in part by a first mortgage term loan in the amount of
$960,000. The first mortgage term loan is payable in consecutive monthly
installments over 10 years with a 20 year amortization.

Equipment Loans In connection with the purchase of the building, PNC
Bank loaned the Company a total of $767,500 to finance the acquisition of new
equipment and to install such equipment in the facility. Principal payments on
one loan of $604,000 began in March 2000 for 120 months in amounts sufficient
to amortize the outstanding balance over twenty years from March 2000. In
March 2000 the interest rate was changed to the average weekly yield on U.S.
Treasury Bills, plus 200 basis points. The remaining loan in the original
amount of $163,500 is payable in equal monthly installments of $2,518.

Miscellaneous Loan In June 1999, Rustic Crafts obtained an additional
loan from PNC Bank for the purpose of funding additional equipment purchases
and working capital in the amount of $156,000. The loan is payable in equal
monthly installments, including principal and interest, of $3,153.

The interest rates on the mortgage loan, the equipment loan and the
miscellaneous loan range from 7.52% to 9.0% at June 30, 2000. The outstanding
balance on these loans is $1,778,495 at June 30, 2000.

Rustic Crafts real and personal property, equipment, accounts receivable,
inventory and other general intangibles are pledged as security for the loans.
The loans are also guaranteed by the Company. The security agreement requires
Rustic Crafts to maintain certain financial ratios. Rustic Crafts was in
compliance with such ratios at June 30, 2000.

Lease Obligations Glas-Aire has two long-term lease obligations to
purchase equipment. These obligations are five-year capital leases and have
been recorded as a capital asset and long-term debt. The equipment is pledged
as collateral for the leases. The terms of the leases require equal monthly
installment of $7,484 including principal and interest over a five year period.
Interest rates on the leases range from 6.5% to 8.6%. The total outstanding
balance of these lease obligations is $168,331 at June 30, 2000.

12



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##### Table of Contents



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.

At June 30, 2000, the Companys net deferred tax liabilities, utilizing a
34% effective tax rate, consists of:

|                             |                                  |          |          |             |   |  |  |  |  |  |  |  |  |  |  |  |  | 
|---------------------------- | -------------------------------- | -------- | -------- | ----------- | - |  |  |  |  |  |  |  |  |  |  |  |  | 
|Deferred tax assets:        
|                            
|                            
|                            
|                            
|                             | Investment partnership earnings  |          | $        | 2,799,000   |  
|                            
|                            
|                            
|                            
|                             | Net operating loss carryforwards |          |          | 9,580,000   |  
|                            
|                            
|                            
|                            
|                             | Alternative minimum tax credits  |          |          | 474,000     |  
|                            
|                            
|                            
|                            
|                             | Valuation allowance              |          |          | (12,853,000 | )
|                             |                                  |          |          |            
|                             |                                  | Subtotal |          |             | 0 | 
|                            
|                            
|                            
|                            
|Deferred tax liabilities:   
|                            
|                            
|                            
|                            
|                             | Depreciation                     |          |          | (446,826    | )
|                             |                                  |          |          |            
|Net deferred tax liabilities |                                  | $        | (446,826 | )          
|                             |                                  |          |          |            

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 $29,235,000. 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 and six months ended June 30, 2000, the tax effect of
net operating loss carryforwards reduced the current provision for federal
income taxes by approximately $146,000 and $261,000, respectively. The Company
provided for Canadian, state income and the alternative minimum tax in the
three months and six months ended June 30, 2000 in the amount of ($701) and
$65,194, respectively.

Note 6. Redemption of Series E Preferred Stock

On January 31, 2000, the holders of the Series E preferred stock either
converted their preferred shares to the Companys common stock or received cash
equal to the par value of the shares, plus accrued dividends. The Company
issued 95,877 of its common

13



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##### Table of Contents



shares in exchange for 885 shares of preferred
stock and paid cash in the amount of $159,300 for 1,593 shares. 88.5 shares of
preferred stock are being held pending a new series of preferred stock.

Note 7. Proposed Acquisitions

In early 2000, the Company announced that it had executed Letters of
Intent to acquire 55% of Knight Enterprises, Inc., and 100% of Southwest Mill
and Lumber Company and its affiliate Valley Wholesale Supply Corp. The Company
anticipated that these acquisitions would be financed by borrowings secured by
the assets acquired, additional borrowings secured by the Companys partnership
interest in Security Land and Development Company, and from proceeds of a
private placement of preferred stock.

Consummation of the transactions contemplated by the Letters of Intent
were subject to the completion of due diligence by the Company, the execution
of definitive purchase agreements and completion of audits of the financial
statements to determine among other things, the final purchase price. As of
August 10, 2000, definitive purchase agreements have not been executed.
Furthermore, certain terms of the transaction have changed significantly from
those contemplated and set forth in the Letters of Intent. While the Company
continues to talk with the sellers or their representatives in an effort to
reach agreements, there can be no assurance that either of the transactions
will be consummated.




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 shareholders values. The
Companys Shareholders Equity at June 30, 2000 was $14,720,400 as compared to
$12,113,813 at June 30, 1999, an increase of $2,606,587 for the twelve months
ended June 30, 2000.

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
six-month period ending June 30, 2000, the Companys income from its equity
investment in the Partnership was $2,323,682. 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 $22,176,949, the partnership

14



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##### Table of Contents



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 1998, Rustic Crafts purchased a building of 126,000 square feet located
near the current facility in Scranton, Pennsylvania. The purchase of this
facility was funded by new borrowings from PNC Bank in the form of a first
mortgage term loan in the amount of $960,000. Rustic Crafts also obtained
financing of approximately $923,000 from PNC Bank to equip the facility and
purchase new equipment. The move to the new facility was completed in 1999 and
has significantly increased the operating capacity and enabled Rustic Crafts to
more efficiently fill its current orders and increase its customer base. 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 has had discussions with several companies regarding the
possible sale of its interest in NRDC. To facilitate the discussions
concerning a possible sale, the NRDC zero coupon bonds (secured by the
aggregate inventory), were retired in 1999 by the issuance of 121,000 shares of
the Companys common stock. Following the termination in 1999 of a proposed
merger, the Company installed limited aggregate crushing and marketing
operations at the Groveland Mine in an informal joint venture with another
company. The Company is also exploring the possibility of establishing a
permanent infrastructure to commercialize the inventory of previously quarried
and stockpiled aggregate at the Groveland Mine in cooperation with an
experienced aggregate supply company.

On April 22, 1999, the Company acquired 513,915 shares (35%) of the
outstanding common stock of Glas-Aire for the issuance of a
promissory note of $650,000 and $1,213,000 in cash. As of September 23, 1999, Regency had
acquired 51.3% of the common stock of Glas-Aire. These common stock
acquisitions were effected by open market purchases, with the funding provided
by an affiliate of Statesman Group, Inc. on an unsecured basis,
by direct purchases from Glas-Aire, and by a common stock exchange agreement
between the Company and certain shareholders of Glas-Aire. Under the common
stock exchange agreement, the Company issued 1,188,000 shares of its
restricted common stock in exchange for 288,000 Glas-Aire common shares held
by the shareholders.

The Company also sold 2,852,375 shares of its common stock to Glas-Aire
for cash of $1,967,960 and 86,000 shares of Glas-Aire common stock. The
proceeds were used to repay the funding provided by an affiliate of Statesman Group
and other general corporate requirements.

15



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##### Table of Contents



The Company continues to explore opportunities to acquire companies with
operations that will provide additional liquidity and cash flow. In early 2000,
the Company announced that it had executed Letters of Intent to acquire 55% of
Knight Enterprises, Inc., and 100% of Southwest Mill and Lumber Company and its
affiliate Valley Wholesale Supply Corp. The Company anticipated that these
acquisitions would be financed by borrowings secured by the assets acquired,
additional borrowings secured by the Companys partnership interest in Security
Land and Development Company, and from proceeds of a private placement of
preferred stock.

Consummation of the transactions contemplated by the Letters of Intent
were subject to the completion of due diligence by the Company, the execution
of definitive purchase agreements and completion of audits of the financial
statements to determine among other things, the final purchase price. As of
August 10, 2000, definitive purchase agreements have not been executed.
Furthermore, certain terms of the transaction have changed significantly from
those contemplated and set forth in the Letters of Intent. While the Company
continues to talk with the sellers or their representatives in an effort to
reach agreements, there can be no assurance that either of the transactions
will be consummated.

Results of Operations

In September 1999, the Company acquired a 51% interest in Glas-Aire which
manufactures automotive accessories, therefore, the consolidated financial
statements for June 30, 2000 include the operations of Glas-Aire. The
operations of the Company also include the operations of Rustic Crafts, which
is engaged in the manufacture of decorative fireplaces, heater logs and related
accessories.

Three Months Ended June 30, 2000 compared to 1999

Net sales increased $2,070,090 in 2000 over the similar period in 1999.
The increase is due to the inclusion of $2,401,356 of sales from Glas-Aire,
offset by a decrease in sales at Rustic Crafts of $328,141. The decrease at
Rustic Crafts was due to smaller backlogs and a decrease in sales of low margin
products.

Gross margin increased $604,419 due to gross margins from Glas-Aire of
$596,569 an increases in gross margins at Rustic Crafts of $10,975. Rustic
Crafts increased their gross margin as a percent of sales from 14.5% in 1999 to
24.7% in 2000 reflecting their emphasis on manufacturing efficiency, reduction
of factory overhead and manufacture of higher margin products.

Selling and administrative expenses increased $712,043 in 2000 as compared
to 1999. Selling and administrative expenses of Glas-Aire were $601,168 in
2000. Corporate administrative expenses reflect significantly higher
consulting and contract expenses related to increased acquisition, financing
and public relations activities. Also, executive bonuses in 1999 reflected a
second quarter adjustment to correct first quarter accruals.

16



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##### Table of Contents



Income from equity in partnership increased $126,050. This increase is
due to a decrease in interest expense resulting from payment of principal
offset by increases in operating expenses within the partnership for the
quarter.

Interest expense in 2000 remained about the same as in the prior year.
Increased interest expense on the KBC loan and loans at Rustic Crafts was
offset by the elimination of interest expense on the zero coupon bonds and
short-term financing to acquire an equity interest in Glas-Aire.

Income tax expense in 2000 reflects an adjustment to tax expense at
Glas-Aire in an amount approximately equal to the accrual for other companies.

Net income decreased $25,718 in 2000 compared to 1999. Increased equity
earnings from the partnership and a reduction in the loss at Rustic Crafts were
offset by higher corporate administrative expenses and a reduction in interest
income resulting from lower short-term cash investments.

Six Months Ended June 30, 2000 compared to 1999

Total sales increased $3,249,502 in the first six months of 2000 compared
to 1999. The six months of 2000 include $3,963,164 of sales of Glas-Aire in
which the Company acquired a 51% interest in September 1999. Sales of Rustic
Crafts declined by $714,869 in 2000 due to the reduction in backlog at the
beginning of the year and the companys focus on higher margin products and an
effort to reduce its reliance on its major customer.

Total gross margin increased $1,004,979 due to the gross margin of
Glas-Aire of $1,024,900. Gross margins at Rustic Crafts remained about the
same as in prior years reflecting the success of the companys strategy to
focus on higher margin products. The material cost of goods sold was reduced from
almost 50% of sales in 1999 to about 31% in 2000.

Selling and administrative expenses increased $1,178,812 in 2000 over
1999, including selling and administrative expenses of Glas-Aire of $912,501.
Corporate administrative expenses increased significantly primarily due to
higher consulting and contract fees in 2000. These expenses include
approximately $162,060 for outside consultants and public relations expense.
Fees associated with financing and acquisitions were also higher in 2000.

Income from partnership increased $211,567 primarily due to a reduction in
interest expense related to long-term financing offset by an increase in
operating expenses within the partnership.

Other income decreased due to lower short-term investment balances in
2000. Short-term investments were liquidated to provide operating funds.

17



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##### Table of Contents



Total interest expense remained approximately the same in 2000. The
reduction in interest due to the retirement of the zero coupon bonds in late
1999 was offset by higher interest expense at Rustic Crafts and on the KBC bank
loan.

Net income decreased $87,939 in 2000 compared to 1999. This decrease is
attributable to a decrease in net operating income of $173,833 in spite of the
contribution of Glas-Aire of $112,399. The reduction is primarily due to
increased corporate administrative expenses as described above. Management
believes that administrative expenses in the last half of 2000 will be
approximately the same as the last half in 1999.

Year 2000 Issues.

The Company had not anticipated any material difficulties associated with
Year 2000 issues, and none materialized. The Company made no significant
expenditures in connection with Year 2000 issues.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q,
including, but not limited to, those regarding the Companys financial
position, business strategy, acquisition strategy and other plans and
objectives for future operations and any other statements that are not
historical facts constitute forward-looking statements within the meaning of
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. As a result, actual results of the Company may differ
materially from those results contemplated by such forward-looking statements
which include, but are not limited to:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  The Company had a negative cash flow from operations for the
first six months in 2000. The Companys current operations do not
generate sufficient cash flow to cover corporate operating expenses
and thus the Company must rely on its cash reserves to fund these
expenses. The Companys ability to continue in existence is partly
dependent upon its ability to generate satisfactory levels of
operating cash flow and to obtain financing using its assets as
collateral.

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| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.



| |                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii)  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.



| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv)  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.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v)  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.

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##### Table of Contents






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.

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##### Table of Contents






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)

|                |  |    |  |                                                               
|--------------- |  | -- |  | --------------------------------------------------------------
|August 17, 2000 |  | By |  | /s/ Larry J. Horbach                                          
|                |  |    |  |                                                               
|Date            |  |    |  | Larry J. Horbach, Interim Chief Financial Officer
and Director

21