UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D. C. 20549
 
 FORM
10‐Q
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended:September30, 2009ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934For
      the transition period from _______________ to
      _______________
  Commission
File No. 001-07949
 
 REGENCY
AFFILIATES, INC.
 (Exact
Name of Registrant as Specified in Its Charter)
  Delaware
              
              72-0888772(State or other
      Jurisdiction of
              
              (I.R.S.
      EmployerIncorporation or
      Organization)
              
              Identification
      No.)610
      Jensen Beach BoulevardJensen Beach,
      Florida
              
              34957(Address of
      Principal Executive Office)
              
              (Zip
      Code)
  (772)
334-8181
 (Registrant's
Telephone Number, Including Area Code)
 
 Indicate
by check mark whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes x  No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act, (Check
one):
  Large accelerated
      filer  ̈
                
                Accelerated
      filer   ̈Non-accelerated
      filer (Do not check if a smaller reporting company)  ̈
                
                Smaller reporting
      company x
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.)  Yes o No o
 Indicate
by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o x
 
 NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
 OUTSTANDING
AS OF January 4, 2010:3,468,544







REGENCY
AFFILIATES, INC.
 
 FORM
10-Q
 
 FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 
 PagePart
      I.Financial InformationItem
      1.
                Financial
      StatementsCondensed
      Consolidated Balance Sheets September 30, 2009 (unaudited) and December
      31, 2008
                3Condensed
      Consolidated Statements of Operations (Unaudited)
                4Condensed
      Consolidated Statement of Cash Flows (Unaudited)
                5Notes
      to Condensed Consolidated Financial Statements
                6Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                10Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                13Item
      4.
                Controls
      and Procedures
                14Part
      II. Other InformationItem
      1.
                Legal
      Proceedings
                14Item
      1A.
                Risk
      Factors
                14Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                14Item
      3.
                Defaults
      Upon Senior Securities
                14Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                14Item
      5.
                Other
      Information
                14Item
      6.
                Exhibits
                14Signatures
                
                
                16
 
 2
 
 Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheet
 
 AssetsSeptember
      30,
                2009
                (Unaudited)
              
              
              December
      31, 2008Current
      AssetsCash and cash
      equivalents
              
              $
              3,288,093
              
              
              $
              7,469,213Marketable
    securities
              
              
              3,800,000
              
              
              
              2,900,000Interest receivable, net of
      allowance of $644,109
              
              
              -
              
              
              
              -Other current
    assets
              
              
              194,575
              
              
              
              404,424Total
      Current Assets
              
              
              7,282,668
              
              
              
              10,773,637Property,
      plant and equipment, net
              
              
              6,408
              
              
              
              9,283Investment
      in partnerships/LLC
              
              
              13,051,940
              
              
              
              10,972,900Deferred
      tax asset
              
              
              1,105,000
              
              
              
              1,105,000Other
              
              
              1,300
              
              
              
              1,300Total Assets
              
              $
              21,447,316
              
              
              $
              22,862,120
 Liabilities
      and Stockholders’ EquityCurrent
      LiabilitiesAccounts payable and accrued
      expenses
              
              $
              331,679
              
              
              $
              300,600Settlement
payable
              
              
              -
              
              
              
              3,025,269Total
    Liabilities
              
              
              331,679
              
              
              
              3,325,869Stockholders'
      equitySerial preferred stock Series C
      and D, 234,544 shares outstanding,not
      subject to mandatory redemption (Maximum liquidationpreference
      $21,141,940)
              
              
              486,076
              
              
              
              486,076Common stock, par value $.01;
      authorized 8,000,000 shares;issued
      3,534,812 shares; outstanding 3,468,544 shares
              
              
              35,349
              
              
              
              35,349Additional paid-in
      capital
              
              
              7,376,219
              
              
              
              7,281,219Readjustment resulting from
      quasi-reorganization atDecember
      1987
              
              
              (1,670,596
              )
              
              
              (1,670,596
              )Retained earnings
              
              
              15,297,439
              
              
              
              13,813,053Note receivable - sale of stock,
      net of allowance of $2,440,000
              
              
              -
              
              
              
              -Treasury stock, 66,268 shares at
      cost
              
              
              (408,850
              )
              
              
              (408,850
              )Total
      Stockholders' Equity
              
              
              21,115,637
              
              
              
              19,536,251Total
      Liabilities and Stockholders’ Equity
              
              $
              21,447,316
              
              
              $
              22,862,120
  The
attached notes are an integral part of these financial statements.
  3
  Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Operations
 (Unaudited)
  Three
      Months Ended Sept. 30,
              
              
              Nine
      Months Ended Sept. 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Sales
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Costs
      and expensesGeneral and administrative
      expenses
              
              
              318,052
              
              
              
              555,415
              
              
              
              876,156
              
              
              
              1,177,946318,052
              
              
              
              555,415
              
              
              
              876,156
              
              
              
              1,177,946Loss
      from operations
              
              
              (318,052
              )
              
              
              (555,415
              )
              
              
              (876,156
              )
              
              
              (1,177,946
              )Income
      from equity investment in partnerships
              
              
              1,594,008
              
              
              
              1,233,922
              
              
              
              2,429,041
              
              
              
              2,447,050Interest
      and dividend income
              
              
              1,470
              
              
              
              43,318
              
              
              
              43,308
              
              
              
              140,693Interest
      expense
              
              
              (1,783
              )
              
              
              72
              
              
              
              (20,606
              )
              
              
              72Net
      income  before income taxes
              
              
              1,275,643
              
              
              
              721,887
              
              
              
              1,536,615
              
              
              
              1,409,869Income
      tax expense
              
              
              32,055
              
              
              
              37,499
              
              
              
              52,229
              
              
              
              58,560Net
      Income
              
              $
              1,243,588
              
              
              $
              684,388
              
              
              
              1,484,386
              
              
              
              1,351,309Net
      Income per common shareBasic
              
              $
              .35
              
              
              $
              .19
              
              
              $
              .42
              
              
              $
              .38Diluted
              
              $
              .33
              
              
              $
              .18
              
              
              $
              .40
              
              
              $
              .36Weighted
      average number of common shares
                outstandingBasic
              
              
              3,534,812
              
              
              
              3,534,812
              
              
              
              3,534,812
              
              
              
              3,533,032Diluted
              
              
              3,744,489
              
              
              
              3,741,954
              
              
              
              3,695,811
              
              
              
              3,752,528
  The
attached notes are an integral part of these financial statements.
  4
  Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
  Nine Months Ended September 30,2009
                
                
                2008Cash
      Flows from operating activitiesNet income
                $
                1,484,386
                
                $
                1,351,309Adjustments to reconcile net
      income tonet cash used in operating
      activitiesDepreciation and
      amortization
                
                2,875
                
                
                2,875(Income) from equity investment
      in partnerships
                
                (2,429,040)
                
                
                (2,447,050)Stock based
      compensation
                
                95,000
                
                
                154,200Changes in operating assets and
      liabilitiesOther current
      assets
                
                209,849
                
                
                (16,097)Accounts payable and accrued
      expenses
                
                31,079
                
                
                (91,629)Settlement
    payable
                
                (3,025,269)
                
                
                -Net
      cash (used in) operating activities
                
                (3,631,120)
                
                
                (1,046,392)Cash
      flows from investing activitiesProceeds
      from partnership distributions
                
                350,000
                
                
                1,375,000Proceeds
      from sales of marketable securities
                
                54,600,000
                
                
                60,000,000Purchases
      of marketable securities
                
                (55,500,000)
                
                
                (57,416,237)Net cash provided by (used in)
      investing activities
                
                (550,000)
                
                
                3,958,763Increase
      (decrease) in cash and cash equivalents
                $
                (4,181,120)
                
                $
                2,912,371Cash
      and cash equivalents – beginning
                
                7,469,213
                
                
                253,566Cash
      and cash equivalents – ending
                $
                3,288,093
                
                $
                3,165,937
  Nine
      Months Ended September 30,2009
                
                
                2008Supplemental
      disclosures of cash flow information:Cash paid during the period
      forInterest
                $
                20,606
                
                $
                -Income taxes
                $
                139,905
                
                $
                103,814
 The
attached notes are an integral part of these financial statements.
  5
 
 REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 Note
1.  Basis of Presentation
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.  Operating results for the
nine-month period ended September 30, 2009 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2009.  For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2008.
 
 Principles
of Consolidation - The consolidated financial statements include the accounts of
Regency Affiliates, Inc. (the "Company"), its wholly owned subsidiaries, Regency
Power, Inc. and Rustic Crafts International, Inc. ("Rustic Crafts"), its 75%
owned subsidiary, Iron Mountain Resources, Inc.  ("IMR"), and its 80%
owned subsidiary, National Resource Development Corporation
("NRDC").  All significant intercompany balances and transactions have
been eliminated in consolidation.
  Fair
Value of Financial Instruments - The fair values of cash, other current assets,
accounts payable and accrued expenses approximate their carrying values because
of the short maturity of these financial instruments.
  Limitations
– Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial statements. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
  Reclassifications
– Certain items in the financial statements for 2008 have been reclassified to
conform with the current 2009 period presentation.  Such
reclassification had no effect on net income.
  Note
2.  Related Party Transactions
 
 In
December 2005, the Company’s wholly owned subsidiary, Rustic Crafts, entered
into a stipulation of settlement with RCI Wood Products (“RCI”) regarding
outstanding indebtedness with RCI. Under the terms of this settlement, RCI
agreed to pay to Rustic Crafts the sum of $125,000 with interest at six and
one-half percent per annum, payable in thirty-five (35) monthly installments of
$1,088 each, commencing in January 2006.  No payments have been
received since March 2006.  RCI defaulted on the note in April
2006.  The Company had initiated an action for collection against RCI
and personal guarantor of the note.  In June 2008, the Company sold
the above mentioned notes to a collection agency for $1,000 plus 50% of any
amounts received, less expenses of up to $2,500.  To date, the Company
has received $1,000 from the collection agency and the collection agency has not
received any proceeds on the notes.
 
 During
the nine month periods ended September 30, 2009 and 2008, the Company paid
$31,500 in each quarter pursuant to a license agreement entered into with
Royalty Management, Inc. (“Royalty”), an entity wholly owned by Laurence Levy,
the Company’s President and Chief Executive Officer, for office space, office
supplies and services.
 
 During
the nine month period ended September 30, 2009 and 2008, the Company incurred
directors’ fees of $27,000 and $27,000, respectively for services
rendered.
  Note
3.  Stock Based Compensation
 
 During
the nine month period ended September 30, 2009, the Company issued 50,000
options to purchase shares of the Company’s common stock to an officer of the
Company.  The stock options are exercisable at $2.90 per share and
expire on April 30, 2019. The fair value of the stock options granted was
$95,000.
 
 The fair
value of the Company’s stock based compensation was estimated using the
Black-Scholes option pricing model which uses highly subjective assumptions
including the expected stock price volatility. The fair value of the Company’s
stock options was estimated using the following
  6
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 assumptions:
no expected dividends, risk free interest rate of 3,16%, expected average life
of 8 years and an expected stock price volatility of 60%. The weighted average
fair value of options granted was $1.35.
 
 On August
13, 2008, the Company’s Board of Directors approved an amendment to the
Company’s 2003 Stock Incentive Plan, as amended, which increased the number of
authorized shares available under the
Plan from 500,000 to 750,000. All other terms of the Plan remain in full force
and in effect.
 
 During
the nine month period ended September 30, 2008, the Company issued 50,000
options to purchase shares of the Company’s common stock to an officer of the
Company. The stock options are exercisable at $4.20 per share. The fair value of
the stock options granted was $154,200.
 
 The fair
value of the Company’s stock based compensation was estimated using the
Black-Scholes option pricing model which uses highly subjective assumptions
including the expected stock price volatility. The fair value of the Company’s
stock options was estimated using the following assumptions: no expected
dividends, risk free interest rate of 3.94%, expected average life of 7 years
and an expected stock price volatility of 62.08%.
 
 During
the nine month period ended September 30, 2008, the Company issued 3,000 shares
of the Company’s common stock to a director for payment of director fees for the
fiscal year ended December 31, 2006, the fiscal year ended December 31, 2007 and
for the first three months of the fiscal year ending December 31, 2008. The
value of the stock amounted to $14,850.
  .Note
4.  Uncertainties and Contingencies
  The
Company and Security Land and Development Company Limited Partnership (“Security
Land”) are in disagreement as to the manner in which taxable income of Security
Land is to be allocated pursuant to the partnership agreement and applicable
law. For the years 2004 through 2008, the Company reported to the Internal
Revenue Service (the "IRS") taxable income (loss) from Security Land in a manner
the Company believes is proper, but which is different than was reported by
Security Land. This disagreement has not been resolved. The discrepancy may
cause the Company's tax returns to be audited by the IRS.  The Company
believes that the outcome of any IRS examination will not affect the financial
statements of the Company as net operating losses are available to offset any
additional income not reported.  Effective September 15, 2009, the
Company adopted the Financial Accounting Standards Board Accounting Standards
Codification (ASC) 740-10, “Accounting for Uncertainty in Income Taxes” which
supercedes FIN 48.
 
 In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. The minimum threshold is defined in
FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. FIN 48 must be applied to all existing tax positions
upon
 
 7
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  initial
adoption. The cumulative effect of applying FIN 48 at adoption, if any, is to be
reported as an adjustment to opening retained earnings for the year of adoption.
FIN 48 was effective for the Company’s fiscal year ended December 31, 2008 and
no cumulative effects are reported through September 30, 2009.
 
 On June
15, 2009, the Court of Chancery of the State of Delaware (the “Court”) entered
an order approving a stipulation of settlement (the “Settlement”) of the class
action lawsuit (the “Action”) filed in the Court and captioned Edward E. Gatz,
et al. v. William R. Ponsoldt, Sr., et al., (C.A. No. 174-CC).  The period
for appeal of the Settlement expired on July 15, 2009.
 
 The terms
of the Settlement are in all material respects identical to the terms of the
Memorandum of Understanding entered into among the parties to the Action on
April 28, 2008.  Pursuant to the Settlement, on July 17, 2009,
the Company paid $3,045,874.72 into escrow for the benefit
of the plaintiff class.  The plaintiff class is defined in the Settlement
as all record and beneficial owners of Company common stock on October 17, 2002,
including any and all of their respective successors in interest, predecessors,
representatives, trustees, executors, administrators, heirs, immediate and
remote, and any person or entity acting for or on behalf of, or claiming under
any of them, and each of them.  The plaintiff class does not include
the defendants, members of their families, affiliates of the defendants, and
those individuals or entities who solely held securities convertible into
Company common stock or options to purchase Company common stock.  The
Company made the settlement payment pursuant to its obligation to indemnify
the defendants who are former directors of the Company.  In connection with
the Settlement, and with the assistance of independent counsel, the Company
determined that indemnification of its former directors is appropriate under
Delaware law.  The  Settlement expressly provides that the
defendants admit no wrongdoing but have agreed to the Settlement to
eliminate the uncertainty, distraction, burden and expense of further
litigation.
 
 Regency’s
insurance carrier has denied coverage with respect to the claims
contained in the Action on the basis of the "insured vs. insured" exclusion
since one of the plaintiffs, Donald D. Graham, was previously a director
of the Company.
  8
 
 REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 
 Note 5.
Subsequent Events
 
 Effective  October
19, 2009, the Company redeemed all outstanding shares of its 7% Cumulative
Contingent Convertible, Junior Preferred Stock, $10, Series D, $0.10 par value
(“the Series D Preferred Stock”) for $10.00 per share ($256,940.00 in the
aggregate for the 25,694 shares of Series D Preferred Stock outstanding).As
of January 4, 2010 the Company has paid $112,430 to Shareholders for the
redemptions.
 
 On
December 24, 2009, the Company issued notices of redemption to the holders
of its outstanding shares of Cumulative, Senior Preferred Stock $100,
Series C, par value $0.10 per share (the “Series C Preferred Stock”), with
an effective redemption date of January 11, 2010.  From and after the
redemption effective date, the Series C Preferred Stock will no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Company shall cease (other than the right to
receive the redemption price from the registrant).  The
redemption price paid for the Series C Preferred Stock (the “Series C Redemption
Price”) will be satisfied by delivery to each holder of Series C Preferred Stock
of a percentage of the common stock of NRDC (“NRDC Common Stock”), currently
owned by the Company equal to the percentage of the outstanding shares of Series
C Preferred Stock owned by such holder, rounded to the nearest whole
share.  Following payment of the Series C Redemption Price to all
holders of Series C Preferred Stock, the Company will not own any NRDC Common
Stock.
 
 Note 6.
New Accounting Prononuncements
 
 Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10 Generally Accepted Accounting
Principles-Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretative releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Task Force
Abstracts. Instead, it will issue Accounting Standards Updates (ASUs”). The FASB
will not consider ASUs as authoritative in their own right. ASUs will serve only
to update the Codification, provide background information about the guidance
and provide the bases for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for
the Codification.
 
 Effective
April 1, 2009, the Company adopted FASB ASC 855-10, Subsequent Events — Overall(“ASC 855-10”). ASC 855-10 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date — that is, whether that date represents the date the
financial statements were issued or were available to be issued. This disclosure
should alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. Adoption of ASC 855-10 did not have a material impact on the
Company’s results of operations or financial condition.
 
 9
 
 Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820)(“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures — Overall,for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial
condition.
  ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  FORWARD-LOOKING
STATEMENTS
 
 Certain
statements contained in this Quarterly Report on Form 10-Q, including, but not
limited to those regarding the Company's financial position, business strategy,
acquisition strategy and other plans and objectives for future operations and
any other statements that are not historical facts constitute "forward-looking
statements" within the meaning of federal securities laws and the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements expressed or implied
by such forward-looking statements to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effect on
its business or  operations. These forward-looking statements are made
based on management's expectations and beliefs concerning future events
impacting the Company and are subject to uncertainties and factors (including,
but not limited to, those described in our Annual Report on Form 10-K under Item
1A – Risk Factors and those specified below) which are difficult to predict and,
in many instances, are beyond the control of the Company.
 
 The
following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
financial statements and related notes included in Item 1 of this
report.
 
 GENERAL.
 
 We are
committed to enhancing the value of our common stock by seeking opportunities to
monetize certain existing assets and by seeking new business opportunities on an
opportunistic basis.  No assurance can be given that we will be
successful identifying or securing a desirable business opportunity, and no
assurance can be given that any such opportunity that is identified and secured
will produce favorable results for us and our stockholders.
  LIQUIDITY
AND CAPITAL RESOURCES.
 
 On
September 30, 2009, we had current assets of $7,282,668 and stockholders' equity
of $21,115,637. On September 30, 2009, we had $7,088,093 in cash and marketable
securities, total assets of $21,447,316 and total current liabilities of
$331,679.
 
 The most
significant sources of cash are our equity investment in MESC Capital LLC ("MESC
Capital") and interest and dividends earned from existing cash and cash
equivalents. In the event that cash flows from operating activities are not
sufficient, we could liquidate marketable securities as necessary. We believe
our cash flow from operations and existing cash and cash equivalents will be
adequate to satisfy our cash needs for the next twelve months.
 
 The most
significant uses of cash are for employee compensation and professional fees for
legal and accounting services.
 
 Currently,
there are no plans for external financing of current operations or
holdings.
  10
  The
Company and Security Land are in disagreement as to the manner in which taxable
income of Security Land is to be allocated pursuant to the partnership agreement
and applicable law, and for years 2004 through 2008, the Company reported to the
IRS taxable income (loss) from Security Land in a manner the Company believes is
proper, but which is different than the manner reported by Security Land. This
disagreement has not been resolved. The discrepancy may cause the Company's tax
returns to be audited by the IRS.  The Company believes that the
outcome of any IRS examination will not materially affect the financial
statements of the Company as net operating losses are available to offset any
additional income not reported.
 
 On
September 30, 2002, our subsidiary, Rustic Crafts International, Inc. ("Rustic
Crafts") sold all of its operating assets subject to the assumption of certain
of its liabilities. Prior to the sale, Rustic Crafts had established a
$1,000,000 line of credit with PNC Bank which was guaranteed by the Company and
expired on May 18, 2002. In conjunction with the Rustic Crafts asset sale,
Rustic Crafts' indebtedness under the line of credit together with its $960,000
mortgage loan from PNC Bank and certain other indebtedness to PNC Bank was
restructured to replace such indebtedness with five notes totaling $2,432,782
and have a ten year amortization schedule. The notes bear interest at the
blended rate of 10.8% per annum. As part of the PNC Bank debt restructuring,
Rustic Crafts was required to pay down the outstanding loan balance with
$200,000 of the purchase price in the Rustic Crafts asset sale, and was required
to make a $540,000 payment in December 2002. A $40,000 payment was made to PNC
Bank in December 2002, but Rustic Crafts and the Company failed to make the
balance of the December 2002 payment. Accordingly, the PNC Bank debt was
subsequently modified to provide for the payment of the remaining $500,000
payment on or before June 30, 2003. On June 30, 2003, we paid all outstanding
principal and interest due to PNC Bank, in satisfaction of the above described
obligations. In December 2005, Rustic Crafts agreed to accept a $125,000 note
from RCI Wood Products, Inc ("RCI") as a restructuring of the above named
obligation. The note bears an interest rate of 6.5% and calls for payments of
$1,088 per month until December 2008 at which time the balance will be due and
payable. Since the quarter ended March 31, 2006, Rustic Crafts has not received
any payments under this obligation. In April 2006, RCI defaulted on the
note.  We have initiated an action for collection against RCI and the
personal guarantor of the note.  In June 2008, we sold the above
mentioned notes to a collection agency for $1,000 plus 50% of any amounts
received, less expenses of up to $2,500. To date, we have received $1,000 from
the collection agency and the collection agency has not received any proceeds on
the notes.
 
 In
connection with the redemption of our common stock owned by Statesman Inc.
("Statesman"), we acquired from Statesman a three-year option to purchase the
20% stock interest in NRDC held by Statesman. To exercise the option, we were
required to deliver to Statesman for cancellation a $2,440,000 note issued to us
by Statesman in October 2001. As consideration for the option, we (i) paid
Statesman $250,000, (ii) amended the note and related pledge agreement to limit
our recourse under the note and (iii) transferred to Statesman certain office
furniture and equipment that we owned. This option expired in October 2005. As
part of the redemption, we also entered into an agreement with Statesman
providing for (i) an amendment to the Certificate of Designations of the Series
C Preferred Stock for the Company and (ii) certain limitations on the ability of
Statesman to issue or transfer shares or other beneficial interests in Statesman
or to sell, transfer, purchase or acquire any capital stock of the Company, in
each case without first receiving our written confirmation that such issuance or
transfer would not adversely affect our ability to utilize our tax loss
carryforwards. We paid Statesman an aggregate amount of $2,730,000 in
consideration of the foregoing agreements. As of June 30, 2008, through the date
of this Form 10-Q, we have not collected the $2,440,000 note and accrued
interest of approximately $644,000 due from Statesman. We have sent demand and
default notices to Statesman but we have not received a response to date. Per
the terms of the Agreement, upon event of default, overdue principal and overdue
interest will bear interest, payable upon demand, at a rate of twelve percent
(12%) per annum, and the pledged securities may be transferred into our name, or
sold for proceeds to satisfy the obligation and collection costs incurred. We
have currently reserved the receivable balance in full while we continue our
collection efforts. The reserve adjustment included a charge to impairment of
loans as other expense in the 2006 statement of operations, and an allowance
against the note within equity.
  11
  Filing
of Going Private Proxy Statement
 
 On
December 14, 2005, we filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending our certificate of incorporation to provide for a 1-for-100 reverse
stock split (the “Reverse Stock Split”) followed immediately by a 50-for-1
forward stock split of our common stock (the “Forward Stock Split”), which would
result in the reduction of the number of common stockholders of record of the
Company to fewer than 300. This will permit us to discontinue the filing of
annual and periodic reports and other filings with the SEC.  Once the
Schedule 13E-3 Transaction Statement and Schedule 14A Proxy Statement are
approved in a definitive form by the SEC, we will mail
 copies to
stockholders. We currently intend to effect the Reverse Stock Split and Forward
Stock Split as soon as possible after such distribution.
  RESULTS
OF OPERATIONS
 
 Three
months ended September 30, 2009 compared to the three months ended September 30,
2008:
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses decreased by $237,363 or 42.7% to $318,052 in the
third quarter of 2009 compared to $555,415 in the comparable period of 2008
primarily due to a decrease in professional fees of $85,435 and a decrease in
salaries, taxes, and stock based compensation expense of $166,626 offset by
increases in office supplies and services of $14,698.
 Income
from equity investments in partnerships increased by $360,086 in 2009, 29.2%
higher than in 2008. Our investment in MESC Capital produced income of
approximately $1,014,000 in the quarter ended September 30, 2009 as compared to
a net income of approximately $762,000 in the quarter ended September 30, 2008
primarily due to increased labor and repairs and maintenance costs that offset
an increase in energy sales in the same period in 2009.  Our
investment in Security Land returned income of approximately $578,000 in the
quarter ended September 30, 2009 as compared to $471,000 in the quarter ended
September 30, 2008, as revenue increased due to rental income adjustments
related to the consumer price index and tenant reimbursements of approximately
$140,000 that offset an increase in expenses of approximately
$33,000.
  Net
income increased by $559,200 or 81.7% in the quarter ended September 30, 2009
compared to the quarter ended September 30, 2008. The increase was due to an
increase in income from equity investment in partnerships, and the reduction in
general and administrative expenses from 2008.
  Nine
months ended September 30, 2009 compared to the nine months September 30,
2008:
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses decreased by $301,790 or 25.6% to $876,156 in 2009
compared to $1,177,946 in 2008 primarily due to a decrease in professional fees
of $277,966, a decrease in salaries, taxes, benefits, and stock based
compensation of $40,549 offset by an increase in office expenses of
$16,725.
 
 Income
from equity investment in partnerships decreased by $18,009, 0.7% lower than
2008.  Our investment in MESC Capital produced income of approximately
$1,066,000 in the nine month period ended September 30, 2009 as compared to a
net income of approximately $1,148,000 in the nine month period ended September
30, 2008 primarily due to increased repairs and maintenance costs that offset an
increase in energy sales in the same period in 2009.  Our investment
in Security Land returned income of approximately $1,363,000 in the nine month
period ended September 30, 2009 as compared to $1,299,000 in the nine month
period ended September 30, 2008, as revenue increased by approximately $175,000
primarily due to rental income increases related to the consumer price index,
offset by expenses that increased by approximately $111,000 due to increases in
administrative and maintenance costs.
  12
  Net
income increased by $133,077 in the nine months ended September 30, 2009 over
the nine months ended September 30, 2008 or 9.8%, primarily due to a reduction
of approximately $136,000 in interest and dividend income and $18,000 in
partnership income, offset by the decrease in general and administrative
expenses of approximately $301,000 and an increase in interest expense of
$20,000 and income taxes of $6,000.
 
 Our
Stockholders' Equity at September 30, 2009 was $21,115,637 as compared to
$19,536,251 at December 31, 2008, an increase of $1,579,386 which is primarily
due to the 2009 year to date net income offset by a stock based compensation
adjustment to additional paid in capital of $95,000 recorded in April
2009.
  Impact
of Inflation.
 
 Although
we have not attempted to calculate the effect of inflation, management does not
believe inflation has had a material effect on the Company’s results of
operations.
 
 Off-Balance
Sheet Arrangements.
 
 We have
not entered into any off-balance sheet arrangements.
 
 Critical
Accounting Estimates.
 
 Accounting
estimates and assumptions discussed in this section are those considered most
critical to understanding the financial statements because they involve
significant judgments and uncertainties. For these estimates, we caution that
future events may not develop as forecast, and that the best estimates often
require adjustment.
 
 Investments- These assets
are reviewed for impairment based on criteria that include the extension which
cost exceeds market value, the duration of that decline, and the Company's
ability to hold to recovery. Market research and analysis is performed to
identify potential impairments on a regular basis.
 
 Note Receivable- These
assets are reviewed for collectibility on an ongoing basis. Any notes deemed
uncollectible have been offset by an allowance and related accrued interest has
been charged to expense.
 
 Income Taxes- As stated
above, assumptions have been made that taxable income that may result from a
possible IRS examination will be offset by existing net operating losses
generated by the Company from prior periods. Other assumptions have been made
that these net operating losses will not be limited or disallowed,
which could affect the results of operations in future periods.
 
 The
Company has significant net operating losses available to offset future taxable
income. The losses have been converted into deferred tax assets using an
estimated 34% tax rate. These deferred tax assets have been offset with a
valuation allowance established to reduce the net deferred tax asset to the
amount that will more likely than not be realized. This reduction is necessary
due to uncertainty of the Company's ability to utilize the net operating loss
and tax credit carry forwards before they expire.
  ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 The
Company is a smaller reporting company as defiined in Rule 12b-2 under the
Securities  Exchange Act of 1934, as amended, and is not required to
provide information required by this item.
  13
  ITEM
4.  CONTROLS AND PROCEDURES
 
 Our
management, with the participation of Our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period,
our disclosure controls and procedures are effective.
 
 No change
occurred in our internal controls over financial reporting during the quarter
ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial
reporting.
  PART
II  -  OTHER INFORMATION
  ITEM 1.  LEGAL PROCEEDINGS
 
 There
were no material changes to the disclosure made in our Annual Report on Form 10K
for the year ended December 31, 2008 regarding these matters.
 
 ITEM
1A.  RISK FACTORS
 
 Part I,
Item 1A — “Risk Factors,” of our Annual Report on Form 10-K for the year
ended December 31, 2008, describes important factors that could materially
affect our business, financial condition and/or future results and cause our
operating results to differ materially from those indicated, projected or
implied by forward-looking statements made in this Quarterly Report or presented
elsewhere by management from time to time. The risks described in our Annual
Report on Form 10-K are not the only risks facing our Company; additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results and cause our operating results to differ
materially from those indicated, projected or implied by forward-looking
statements made in this Quarterly Report or presented elsewhere by management
from time to time.
 
 There
have been no material changes with respect to the risk factors previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008.
 
 ITEM
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 None.
 
 ITEM
3.  DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 ITEM 5.  OTHER INFORMATION
 
 None.
  14
  ITEM
6.  EXHIBITS
 
 (a)  Exhibits
  3.1(i)(a)
              
              Restated
      Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
      the Company's Quarterly Report on Form 10-Q for the period ended September
      30, 2002, filed on November 19, 2002, and incorporated herein by
      reference).3.1(i)(b)
              
              Corrected
      Certificate of Amendment reflecting amendment to Restated Certificate of
      Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
      QuarterlyReport
      on Form 10-Q for the period ended September 30, 2002, filed on November
      19, 2002, and incorporated herein by reference).3.1(i)(c)
              
              Certificate
      of Amendment of Restated Certificate of Incorporation of Regency
      Affiliates, Inc. (filed as Exhibit A to the Company's Information
      Statement on Schedule 14C filed on October 27, 2003 and incorporated by
      reference herein).3.1(i)(d)
              
              Certificate
      of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
      value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
      herein byreference).3.1(i)(e)
              
              Amended
      and Restated Certificate of Designation, Series C Preferred Stock, $100
      Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
      Current Reporton
      Form 8-K filed on October 18, 2002, and incorporated herein by
      reference).3.1(i)(f)
              
              Certificate
      of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
      par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
      incorporated herein by reference).3.1(i)(g)
              
              Certificate
      of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
      value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
      for the yearended
      December 31, 1995 at page E-1, and incorporated herein by
      reference).3.1(ii)(a)
              
              By-laws
      of the Company (filed as Exhibit 3.4 to the Company's Registration
      Statement on Form S-1, Registration Number 2-86906, and incorporated
      herein byreference).3.1.(ii)(b)
              
              Amendment
      No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
      Company's Quarterly Report on Form 10-Q for the period ended September 30,
      2002, filed on November 19, 2002, and incorporated herein by
      reference).31.1+
              
              Chief
      Executive Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
              
              Chief
      Financial Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
              
              Chief
      Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
              
              Chief
      Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.+
      Filed herewith
  15
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  REGENCY
      AFFILIATES, INC.Date  January
      6, 2010
                    By:
                    /s/ Laurence
      S. LevyLaurence
      S. LevyPresident
      and Chief Executive Officer
 Date  January
      6, 2010
                    By:
                    /s/ Neil
      N. HassonNeil
      N. HassonChief
      Financial Officer
  16
 EXHIBIT
INDEX
 
 3.1(i)(a)
              
              Restated
      Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
      the Company's Quarterly Report on Form 10-Q for the period ended September
      30, 2002, filed on November 19, 2002, and incorporated herein by
      reference).3.1(i)(b)
              
              Corrected
      Certificate of Amendment reflecting amendment to Restated Certificate of
      Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
      QuarterlyReport
      on Form 10-Q for the period ended September 30, 2002, filed on November
      19, 2002, and incorporated herein by reference).3.1(i)(c)
              
              Certificate
      of Amendment of Restated Certificate of Incorporation of Regency
      Affiliates, Inc. (filed as Exhibit A to the Company's Information
      Statement on Schedule 14C filed on October 27, 2003 and incorporated by
      reference herein).3.1(i)(d)
              
              Certificate
      of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
      value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
      herein byreference).3.1(i)(e)
              
              Amended
      and Restated Certificate of Designation, Series C Preferred Stock, $100
      Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
      Current Reporton
      Form 8-K filed on October 18, 2002, and incorporated herein by
      reference).3.1(i)(f)
              
              Certificate
      of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
      par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
      incorporated herein by reference).3.1(i)(g)
              
              Certificate
      of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
      value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
      for the yearended
      December 31, 1995 at page E-1, and incorporated herein by
      reference).3.1(ii)(a)
              
              By-laws
      of the Company (filed as Exhibit 3.4 to the Company's Registration
      Statement on Form S-1, Registration Number 2-86906, and incorporated
      herein byreference).3.1.(ii)(b)
              
              Amendment
      No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
      Company's Quarterly Report on Form 10-Q for the period ended September 30,
      2002, filed on November 19, 2002, and incorporated herein by
      reference).31.1+
              
              Chief
      Executive Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
              
              Chief
      Financial Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
              
              Chief
      Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
              
              Chief
      Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
  + Filed
herewith
  17


---