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 1934

                  For the quarterly period ended June 30, 2001

                                       OR

               TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


For the transition period from ______             to _______

                          COMMISSION FILE NUMBER 1-7949

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



           Delaware                                     72-0888772
           --------                                     ----------
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)




729 South Federal Highway, Suite 307, Stuart, Florida                  34994
-----------------------------------------------------                  -----
      (Address of principal executive offices)                       (Zip Code)




Registrant's Telephone Number, including Area Code  (561) 220-7662
                                                    --------------


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 _____


As of June 30, 2001 there were  17,251,619  shares of the $ .40 Par Value Common
Stock  outstanding,   including  4,040,375  shares  held  by  a  majority  owned
subsidiary

<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                        Index to the Financial Statements


                                                                         Page

Part I - Financial Information (Unaudited)

         Item 1.  Financial Statements

                  Consolidated Balance Sheets                            3-4

                  Consolidated Statements of Operations                    5

                  Consolidated Statements of Cash Flows                  6-7

                  Notes to Consolidated Financial Statements            8-12

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations        12-16

Part II - Other Information (Unaudited)

         Item 1.  Legal Proceedings                                       16

         Item 2.  Changes in Securities and Use of Proceeds               16

         Item 3.  Defaults Upon Senior Securities                         16

         Item 4.  Submission of Matters to a Vote of Security Holders     16

         Item 5.  Other Information                                       16

         Item 6.  Exhibits and Reports on  Form 8-K                       16

Signatures                                                                17

<PAGE>


                    Regency Affiliates, Inc. and Subsidiaries
                           Consolidated Balance Sheets


Part I - Financial Information (Unaudited)

Item 1.Financial Statements

<TABLE>
<CAPTION>

                                                                                           June 30, 2001    December 31, 2000
                                                                                         ----------------   -----------------
Assets

<S>                                                                                     <C>                 <C>
         Current Assets
         Cash and Cash Equivalents                                                       $    1,629,032     $     928,636
         Accounts receivable, net of allowance                                                1,850,463         2,553,589
         Income taxes receivable                                                                110,124            24,556
         Inventory                                                                            2,425,189         2,243,726
         Other current assets                                                                   329,632           127,728
                                                                                         ----------------   ---------------
                 Total current assets                                                         6,344,440         5,878,235

         Property, Plant and Equipment, Net                                                   4,203,989         4,343,170

         Investment in partnerships                                                          27,323,987        24,575,881

         Other Assets
         Aggregate inventory                                                                    834,548           834,675
         Goodwill, net of amortization                                                          787,635           820,774
         Debt issuance costs, net of amortization                                               456,827           551,343
          Other                                                                                   3,150            12,751
                                                                                          ----------------   --------------
                Total other assets                                                            2,082,160         2,219,543
                                                                                         ----------------    --------------

                                                                                       $      39,954,576     $ 37,016,829
                                                                                         ================    ==============


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

</TABLE>

<PAGE>
<TABLE>


                    Regency Affiliates, Inc. and Subsidiaries
                           Consolidated Balance Sheets



                                                                                 June 30, 2001      December 31, 2000
                                                                                ----------------    -----------------
     Current Liabilities
<S>                                                                              <C>                  <C>
         Current portion of long-term debt                                       $      122,384       $   128,510
         Notes Payable - Banks                                                          958,085           692,174
         Notes payable - Related Parties                                              1,169,503           776,000
         Accounts payable                                                               897,766         1,080,904
          Accrued expenses                                                            1,746,808           899,837
         Taxes payable                                                                  117,847            78,820
                                                                                ----------------     --------------
                Total current liabilities                                             5,012,393         3,656,245

Long term debt, net of current portion                                               13,351,252        13,072,341

Deferred income taxes                                                                   405,516          3402,048
Minority interest in consolidated subsidiaries                                        3,870,925         3,810,143
Shareholders'  equity
         Serial preferred stock not subject to mandatory redemption                   1,052,988         1,052,988
           (maximum liquidation preference $24,975,312 in 2001 and
           2000, respectively
         Common stock, par value $.40 authorized 25,000,000
           shares; issued 6,900,659 6,900,659 and outstanding
           17,251,619 shares in 2001 and 2000
         Additional paid-in capital                                                   2,308,484         2,308,484
              Readjustment resulting from quasi-reorganization
                at December 31, 1987                                                 (1,670,596)       (1,670,596)
         Retained earnings                                                           12,161,823        10,915,990
         Accumulated other comprehensive income                                        (100,835)          (93,440)
         Treasury stock, 4,052,825 shares in 2001 and 2000                           (3,338,033)       (3,338,033)
                                                                                ----------------   ----------------
                Total shareholders' equity                                           17,314,490        16,076,052
                                                                                ----------------   ----------------
                                                                                $    39,954,576    $    37,016,829
                                                                                ================   ================

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


</TABLE>

<TABLE>
<CAPTION>

                    Regency Affiliates, Inc. and Subsidiaries
                      Consolidated Statements of Operations
                Three and Six Months Ended June 30, 2001 and 2000
                                   (Unaudited)



                                                              Three Months Ended                   Six Months Ended
                                                           June 30         June 30            June 30        June 30
                                                            2001             2000              2001           2000
                                                        ---------------- ---------------   -------------   ------------
<S>                                                   <C>                  <C>            <C>             <C>
                      Net Sales                       $    3,209,359       2,971,112      $ 6,594,431     $  5,125,677
                  Costs and expenses
                      Costs of goods sold                  2,142,065       2,232,399        4,714,453        3,768,490
                  Selling and administrative               1,423,015       1,187,233        2,610,938        2,191,003
                                                        ---------------- --------------- ---------------   -------------
                                                           3,565,080       3,419,632        7,325,391        5,959,493
                                                        ---------------- --------------- ---------------   -------------

            Income (loss) from operations                   (355,721)       (448,520)        (730,960)        (833,816)
            Income from equity investment
              in partnerships                              1,522,710       1,193,165        2,748,106        2,323,682
                  Other income, net                           (7,781)          6,890           16,802           16,870
                  Interest expense                          (307,669)       (315,169)        (622,014)        (576,580)
                                                        -------------     -------------   ---------------   ------------
            Income before income tax expense,
                and minority interest                        851,539         436,366        1,411,934          930,156
                  Income tax expense                         (36,396)            701         (105,319)         (65,194)
                  Minority interest                          (23,322)          2,283          (60,782)         (32,361)
                                                        -------------    --------------   ---------------   ------------
                      Net income                      $      791,821     $   439,350      $ 1,245,833      $   832,601
                                                        =============    ==============   ===============   ============
              Net income per common share:
                            Basic                     $        0.06      $      0.03      $      0.09      $      0.06
                                                        ---------------- --------------- --------------- ---------------
                            Diluted                   $        0.06      $      0.03      $      0.09      $      0.06
                                                        ================ =============== =============== ===============

</TABLE>

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


<PAGE>
<TABLE>

                    Regency Affiliates, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                     Six Months Ended June 30, 2001 and 2000
                                   (Unaudited)


                                                                                              June 30,          June 30,
                                                                                               2001              2000
                                                                                          ---------------   ---------------
<S>                                                                                       <C>               <C>
Cash flows from operating activities
        Net income                                                                        $  1,245,833      $  832,601
        Adjustments to reconcile net income to net cash
             used by operating activities
                Depreciation and amortization                                                  334,401         235,932
                Change in deferred income taxes                                                  3,468          30,131
                Minority interest                                                               60,782          32,361
                Stock issued for services rendered                                                   0         217,134
                Income from equity investment in partnerships                               (2,748,106)     (2,323,682)
                Distribution of equity earnings in partnership                                       0         106,250
                Interest amortization on long-term debt                                        427,140         460,895
                Changes in operating assets and liabilities
                     Accounts receivable                                                       703,126         566,787
                     Inventory                                                                (181,336)       (286,590)
                     Other current assets                                                     (287,472)         (8,792)
                     Accounts payable                                                         (183,138)        (37,081)
                     Accrued expenses                                                          885,998        (330,607)
                                                                                          ------------     -------------
                         Net cash from (used by) operating                                     260,696        (504,661)
                         activities
                                                                                          ------------     -------------
Cash flows from investing activities
        Capital expenditures                                                                   (67,565)       (158,535)
        Other                                                                                    9,601          (3,905)
                                                                                         ---------------   -------------
                         Net cash used by investing activities                                 (57,964)       (162,440)
                                                                                         ---------------   -------------
Cash flows from financing activities
        Net short-term borrowings (payments)                                                   659,414        (594,159)
        Net  long-term borrowings (payments)                                                  (154,355)        (70,900)
        Redemption of Series E preferred stock                                                       0        (159,300)
        Other                                                                                        0         (80,389)
                                                                                         ---------------   -------------
             Net cash from (used) by financing                                                 505,059        (904,748)
             activities
                                                                                         ---------------   -------------
Foreign currency translation adjustment                                                         (7,395)        (11,350)
Increase (decrease) in cash and cash equivalents                                               700,396      (1,583,199)
Cash and cash equivalents - beginning                                                          928,636       2,348,989
                                                                                         ---------------   -------------
Cash and cash equivalents - ending                                                     $     1,629,032      $  765,790
                                                                                         ===============   =============

   The accompanying notes are an integral part of these financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                    Regency Affiliates, Inc. and Subsidiaries
                Consolidated Statements of Cash Flows (continued)
                     Six Months Ended June 30, 2001 and 2000
                                   (Unaudited)

                                                                   June 30,        June 30
                                                                     2001            2000
                                                                --------------- ---------------
      Supplemental disclosures of cash flow information:
                Cash paid during the year for:
<S>                                                            <C>             <C>
                         Income taxes                          $    211,960    $    326,063
                         Interest                                   105,434          45,227

</TABLE>

Supplemental disclosures of noncash 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 114,000 shares of common stock
        as payment for costs in connection with acquisition of Glas-Aire.

        In 2000, the Company issued 147,254 shares of common stock
        for services.

        In 2000, accrued compensation in the amount of $650,000
        payable to an officer was converted to debt.




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

<PAGE>


                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 1.  Bases 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 and six month  periods ended June 30,
          2000 and June 30, 2001 are not  necessarily  indicative of the results
          that  may be  expected  for the  years  ended  December  31,  2000 and
          December 31, 2001. 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, 2000.

     B.   Principals of Consolidation  and Nature of Business - The consolidated
          financial statements include the accounts of Regency Affiliates,  Inc.
          (the  "Company"),   its  wholly  owned  subsidiaries,   Rustic  Crafts
          International,  Inc. ("Rustic  Crafts"),  its 80% owned  subsidiaries,
          National Resource Development  Corporation ("NRDC"),  Transcontinental
          Drilling  Company  ("Drilling")  and RegTransco,  Inc. ("RTI") and its
          approximately 50% owned subsidiary,  Glas-Aire  Industries Group, Ltd.
          ("Glas-Aire").  All significant intercompany 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 by the weighted average
          number of common shares  outstanding during the year. Diluted earnings
          per share  computations  assume the conversion of 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 (FIFO) method. Inventory is comprised of
          the following at June 30, 2001:

                  Raw materials and supplies                $       1,154,120
                  Work-in-process                                     229,010
                  Finished products                                 1,042,059
                                                               ---------------
                                                            $       2,425,189
                                                               ===============


     E.   Aggregate  Inventory - Inventory,  which consists of 70+ million short
          tons of  aggregate  rock,  is stated at lower of cost or  market.  The
          Company is also  subject to a royalty  agreement  which  requires  the
          payment of certain  royalties  to a  previous  owner of the  aggregate
          inventory upon sale 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 periods 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 upon  management' s estimate 8 Regency  Affiliates,
          Inc. and Subsidiaries Notes to Consolidated Financial Statements

<PAGE>

Note 1.  Bases of Presentation and Summary of Significant Accounting Policies
        (Continued)

         if   necessary.  Income  tax  expense  is the  current  tax  payable or
         refundable  for  the  period  plus or  minus  the net  exchange  in the
         deferred tax assets and liabilities.

     G.   Change in Reporting  Period - Prior to December 31, 2000 Glas-Aire had
          a fiscal year end of January 31. As a result, the Company's  condensed
          statement of  operations  for the six month period ended June 30, 2000
          included  the  financial  activity  of  Glas-Aire  for the  months  of
          February through June 2000 only.

          Had the financial  activity of Glas-Aire for the month of January 2000
          been included, the Company's loss from operations would be as follows:

                 Net Sales                                   $       6,060,205
                 Costs and expenses
                     Costs of goods sold                             4,380,632
                     Selling and administrative                      2,407,946
                                                                    ------------
                                                                     6,788,578
                                                                    ------------
                 Loss from operations                        $        (728,373)
                                                                    ============

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 entitled to receive operating income in the
          form of management fees relating to the partnership.

          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 a 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.

          Effective  November  30 2000 the  Company  invested  $10,000  for a 5%
          limited  partnership  interest in 1500 Wood Lawn Limited  Partnership,
          the general partner of security.

          The Company  accounts for the investment in partnerships on the equity
          method,  whereby the carrying  value of the investment is increased or
          decreased  by the  Company's  allocable  share of income or loss.  The
          investment in partnerships included in the Consolidated Balance Sheets
          at June 30, 2001 is $27,323,987.  The income from the Company's equity
          investment in the  Partnerships for the six months ended June 30, 2001
          was $2,748,106.

<PAGE>

                   9Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 2.  Investment in Partnership (Continued)

          Summarized  operating  data for  Security for the three and six months
          ended June 30, 2001 and June 30, 2000, is as follows:

<TABLE>
<CAPTION>
                                              Three Months Ended                  Six Months Ended
                                           June 30,        June 30           June 30          June 30
                                             2001            2000             2001             2000
                                        --------------- ---------------  --------------    -------------
<S>                                    <C>              <C>               <C>              <C>
  Revenues                             $   3,460,613    $  3,316,138      $  6,813,436     $  6,630,623
  Operating Expenses                         648,355         868,975         1,630,806        1,773,856
  Depreciation and Amortization              716,067         710,067         1,432,134        1,420,134
  Interest Expense, Net                      498,290         481,133           862,734          990,652
                                        --------------- ---------------  --------------     ------------
                     Net Income        $   1,597,901    $  1,255,963      $  2,887,762      $ 2,445,981
                                        --------------- ---------------   -------------     ------------

</TABLE>

Note 3.  Notes Payable - Banks

          On October 24, 2000, a former officer (and Director) and a shareholder
          obtained a commitment for a short term loan of $100,050,  on behalf of
          the  company,  from a bank  bearing  interest  at the prime  rate plus
          three-fourths  percent,  adjusted monthly. As of June 30, 2001 $76,000
          remained outstanding; the interest rate was 10.25%. This obligation is
          guaranteed by two  shareholders,  one of whom is a former  officer and
          director of the Company.

          The Company's subsidiary,  Rustic Crafts, has established a $1,000,000
          line of credit  with PNC Bank.  The line of credit  expires on May 18,
          2002 and bears  interest  at the  Bank's  prime  rate  minus  one-half
          percent (9% at June 30, 2001). 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,  2001,  the amount
          outstanding under the line of credit was $882,085.

          The  Company's  subsidiary,  Glas-Aire,  has  established  a  Canadian
          $3,000,000 (U.S.  $2,040,000) line of credit with a Canadian bank. The
          line of credit is collateralized by accounts  receivable and inventory
          and bears interest at the rate of the Canadian  bank's prime rate plus
          one-half percent.  At June 30, 2001, the amount  outstanding under the
          line of credit was zero.

Note 4.  Notes Payable - Related Parties

          The Company has outstanding  $406,000 of demand notes bearing interest
          at  10%  payable  to  a  shareholder.  Additionally  the  Company  has
          outstanding a $763,503 demand note bearing interest at a rate of prime
          minus 1% to its President. These obligations are secured by the shares
          of Glas-Aire owned by the Company.

Note 5.  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  Agreement,  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.


<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 5.  Long-Term Debt (Continued)

          As of  June  30,  2001,  the  amount  outstanding  under  the  Loan is
          $11,667,349,  including  $427,140 of interest for the six months ended
          June 30, 2001.

          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 $767,000 to finance the acquisition
          of new  equipment  and to  install  such  equipment  in the  facility.
          Principal  payments on one loan of  $604,000  began 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 8.25% at June 30,  2001.  The
          outstanding balance on these loans is $1,701,602 at June 30, 2001.

          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.

          Lease  Obligations - Glas-Aire has two long-term lease  obligations to
          purchase  equipment.  These  obligations were 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  required  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 $104,685 at June 30, 2001.

Note 6.  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 depreciation,  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.

          For regular federal income tax purposes, the Company has remaining net
          operating  loss  carryforwards  of  approximately  $27,982,000.  These
          losses can be carried  forward to offset future taxable income and, if
          noutilized, will expire in varying amounts beginning in the year 2001.

<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 6.  Income Taxes (Continued)

          For the three and six months  ended June 30, 2001,  and 2000,  the tax
          effect  of  net  operating  loss  carryforwards  reduced  the  current
          provision for regular Federal income taxes by  approximately  $154,000
          and  $259,000,  $146,000  and  $261,000,   respectively.  The  Company
          provided $36,396 and $105,319,  $(701) and $65,194 for Canadian, state
          income  and the  alternative  minimum  tax in the three and six months
          ended June 30,2001 and 2000, respectively.

          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 shares in exchange
          for 885  shares of  preferred  stock  and paid  cash in the  amount of
          $159,300 for 1,593 shares.

Item 2.   Management's  Discussion and Analysis of Financial  Condition
          and Results of Operations.

General.

          Regency  Affiliates,  Inc. (the  "Company")  is the parent  company of
          several subsidiary  business  operations.  The Company is committed to
          develop and/or  monetize these business  operations for the benefit of
          its  shareholders and continues to commit both financial and personnel
          resources  to an active  merger  and  acquisition  program in order to
          enhance  common  stockholders'  values.  The  Company's  Shareholders'
          Equity at June 30, 2001 was  $17,314,490 as compared to $14,720,400 at
          June 30, 2000, an increase of  $2,594,090  for the twelve months ended
          June 30, 2001.

Liquidity and Capital Resources.

          The  investment  in Security is  estimated to provide the Company with
          management fees of approximately $100,000 per annum until 2003. In the
          period  ending June 30,  2001,  the  Company's  income from its equity
          investment in the  Partnership  (as well as its interest in Security's
          General  Partner,  1500 WoodLawn  L.P.) was  $2,748,106.  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  in  the  Partnerships  has
          increased to $27,323,987, neither provides 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.

          On March 15,  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.


<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations. (Continued)

          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 of the
          1999 NRDC Plan of Merger with Cotton Valley Resources Corporation, 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  during the year 2001 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  ("Glas-Aire ") for the issuance
          of a promissory  note of $650,000 due January 1, 2000,  at an interest
          rate of 7.5% per  annum,  which  note was  guaranteed  by Mr.  William
          Ponsoldt,  Sr., President of the Company 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. ("Statesman"),  a substantial shareholder of the
          Company,  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 and other general corporate requirements.

          The  Company's  Board of  Directors  and  management  believe that the
          Company's  common  stock is  substantially  undervalued,  and that the
          future  growth  and  success  of the  Company  is  dependent  upon the
          development of a cogent  strategic plan upon which the majority of the
          Board of Directors and  management  agree.  The Board of Directors and
          management are considering various alternatives to enhance and improve
          shareholder  value,  and for the  growth  and  future  success  of the
          Company.  The following among others are  alternatives  that have been
          discussed:  Share buyback of all or a portion of the Company's  shares
          in the open market or by private transactions,  redemption of all or a
          portion of the  Company's  outstanding  common  stock from  Glas-Aire,
          increase or decrease  in the  Company's  ownership  in  Glas-Aire,  or
          acquisition  of other  companies or  technologies  that  complement or
          enhance the Company's existing products.

          The  foregoing  constitutes  a  forward-looking   statement,   and  no
          assurance can be given that the Company will pursue any one or more of
          these  alternatives.   Further,  pursuit  of  one  of  more  of  these
          alternatives  may be  expected  to  involve  a change  in  either  the
          Company's  cash,  other  assets,  or equity  positions.  At this time,
          management  is unable to state with any degree of  certainty  which of
          the above actions, if any, will occur.


<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations. (Continued)

Results of Operations

          In September  1999,  the Company  acquired a 51% interest in Glas-Aire
          which manufacturers  automotive accessories.  The financial statements
          for June 30, 2000 and June 30, 2001 include the results of  Glas-Aire.
          The  operations  of the Company also include the  operations of Rustic
          Crafts,   which  is  engaged  in  the   manufacturing   of  decorative
          fireplaces, heater logs and related accessories.

  2001 Compared to 2000

          For the six -month ended June 30,2001:

          Net sales  increased  $1,468,754  over the  similar  period in 2000 of
          which $934,528 is attributable  to Glas-Aire's  change in fiscal year.
          The  remaining  increase is due to $792,871 of  additional  sales from
          Glas-Aire  and  $10,843  from NRDC,  offset by a decrease  in sales at
          Rustic  Crafts of $269,488.  The decrease at Rustic  Crafts was due to
          smaller backlogs at December 31, 2000 and the decrease in sales of low
          margin products.

          Gross margin  increased  $522,791 of which $322,386 is attributable to
          Glas-Aire's change in fiscal year. The remaining increase is due to an
          increase in gross margins from  Glas-Aire of $258,221 and from NRDC of
          $10,716,  offset by a decrease in gross  margin  from Rustic  Craft of
          $68,532.

          Selling  and  administrative  expenses  increased  $419,935 in 2001 as
          compared to 2000, of which  $216,943 is  attributable  to  Glas-Aire's
          change in year end. Of the  remainder,  $241,927  related to Glas-Aire
          (primarily  increased warranty costs, public relations consulting fees
          and  legal   fees)   offset  by  a  net   reduction   of  selling  and
          administrative  expenses incurred by Regency,  Rustic Crafts, and NRDC
          amounting to $38,935

          Income from equity in partnerships  increased $424,424.  This increase
          is due to a decrease in interest  expense  resulting  from  payment of
          principal offset by increases in operating expenses for the quarter as
          to Security and income  resulting from the Company's  acquisition of a
          5% limited partnership interest in Woodlawn, L.P.

          Interest expense  increased by $45,434 and is largely  attributable to
          increased  interest  expense on the KBC loan,  indebtedness to related
          parties offset by borrowing costs of Rustic Crafts.

          Net  income  increased  $413,232  in 2001  compared  to 2000 of  which
          $398,029 represents increase equity earnings from partnerships.

For the three months ended June 30, 2001:

          Net sales increased  $238,247 in 2001 over the similar period in 2000,
          of which $327,160 and $10,843 is  attributable  to Glas-Aire and NRDC,
          respectively.  Sales of Rustic Crafts  decreased  $99,756  during this
          period.

          Gross margin increased $328,581 of which $267,443, $50,422 and $10,716
          is derived from Glas-Aire, Rustic Crafts and NRDC.

          Selling  and  administrative  expenses  increase  $235,  782 and  were
          incurred primarily by Glas-Aire ($164,556) and Regency ($71,046). 14

<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations. (Continued)

          Income form equity in partnerships  increased $329,545.  This increase
          is due to a decrease in interest  expense  resulting  from  payment of
          principal offset by increases in operating expenses for the quarter as
          to Security and income  resulting from the Company's  acquisition of a
          5% limited partnership interest in Woodlawn, L.P.

          Interest expense decreased modestly this quarter.

          Net income increased $352,471,  of which $252,361 represents increased
          equity earnings from partnerships.

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's current operations do not generate  sufficient cash
               flow to cover corporate  operating  expenses and thus the Company
               must  rely on  external  sources  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.

          (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.

<PAGE>

                    Regency Affiliates, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations. (Continued)

          (v)  The Company has a 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 he 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.


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.

                           None.




<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.




                                         REGENCY AFFILIATES, INC.
                                         ------------------------
                                                 (Registrant)



Date: August 10, 2001                    /s/ Marc H. Baldinger
---------------------                   ----------------------
                                       (Chief Financial Officer and Director)

























17