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:September
      30, 2008ORo
            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 xNo
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 Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes oNo x





NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
 OUTSTANDING
AS OF DECEMBER 31,2008: 3,468,544







REGENCY
AFFILIATES, INC.
 
 FORM
10-Q
  FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER30, 2008
 PagePart I. Financial
      InformationItem
      1. Financial StatementsConsolidated
      Balance Sheets September 30, 2008 (Unaudited) and December 31, 2007
      (Audited)
                3Consolidated
      Statements of Operations (Unaudited)
                4Consolidated
      Statement of Cash Flows (Unaudited)
                5Notes
      to Consolidated Financial Statements
                6Item 2. Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                9Item 3. Quantitative
      and Qualitative Disclosures About Market
      Risk
                13Item
      4. Controls and Procedures
                13Part
      II. Other Information
                13Item
      1. Legal Proceedings
                13Item
      1A. Risk Factors
                14Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                15Item
      3. Defaults Upon Senior Securities
                15Item
      4. Submission of Matters to a Vote of Security Holders
                15Item
      5. Other Information
                15Item
      6. Exhibits
                16Signatures
                18
  2
 Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheet
 AssetsSeptember 30,
                  2008
                  (Unaudited)
                
                
                December 31,
                  2007
                  (Audited)Current
      AssetsCash and cash
      equivalents
                
                $
                3,165,937
                
                
                $
                253,566Marketable
      securities
                
                
                7,198,470
                
                
                
                9,782,234Interest receivable,
      net of allowance of $644,109
                
                
                -
                
                
                
                -Other current
      assets
                
                
                360,636
                
                
                
                344,539Total Current
      Assets
                
                
                10,725,043
                
                
                
                10,380,339Property,
      plant and equipment, net
                
                
                10,242
                
                
                
                13,117Investment in
      partnerships/LLC
                
                
                10,635,767
                
                
                
                9,563,717Deferred
      tax asset
                
                
                1,245,500
                
                
                
                1,245,500Other
                
                
                1,300
                
                
                
                1,300Total
      Assets
                
                $
                22,617,852
                
                
                $
                21,203,973
   Liabilities
      and Stockholders’ EquityCurrent
      LiabilitiesAccounts payable and
      accrued expenses
                
                $
                269,172
                
                
                $
                391,651Income taxes
      payable
                
                
                16,000
                
                
                
                -Total
      Liabilities
                
                
                285,172
                
                
                
                391,651Stockholders'
      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
                
                
                
                35,319Additional paid-in
      capital
                
                
                7,281,219
                
                
                
                7,112,199Readjustment
      resulting from quasi-reorganization atDecember
      1987
                
                
                (1,670,596
                )
                
                
                (1,670,596
                )Retained
      earnings
                
                
                16,609,482
                
                
                
                15,258,174Note 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
                
                
                22,332,680
                
                
                
                20,812,322Total
      Liabilities and Stockholders’ Equity
                
                $
                22,617,852
                
                
                $
                21,203,973
 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
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      Sales
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Costs
      and expensesGeneral and administrative
      expenses
                
                
                534,355
                
                
                
                516,482
                
                
                
                1,177,946
                
                
                
                1,008,978534,355
                
                
                
                516,482
                
                
                
                1,177,946
                
                
                
                1,008,978Loss
      from operations
                
                
                (534,355
                )
                
                
                (516,482
                )
                
                
                (1,177,946
                )
                
                
                (1,008,978
                )Income
      from equity investment in partnerships
                
                
                1,233,922
                
                
                
                1,017,263
                
                
                
                2,447,050
                
                
                
                1,739,247Interest
      and dividend income
                
                
                43,309
                
                
                
                101,211
                
                
                
                140,693
                
                
                
                342,670Other
      income
                
                
                72
                
                
                
                1,274
                
                
                
                72
                
                
                
                1,847Income
      before income taxes
                
                
                742,948
                
                
                
                603,266
                
                
                
                1,409,869
                
                
                
                1,074,786Provision
      for income taxes
                
                
                58,560
                
                
                
                30,275
                
                
                
                58,560
                
                
                
                30,275Net
      income
                
                $
                684,388
                
                
                $
                572,991
                
                
                $
                1,351,309
                
                
                $
                1,044,511Net
      income per common share:Basic
                
                $
                .19
                
                
                $
                .16
                
                
                $
                .38
                
                
                $
                .30Diluted
                
                $
                .18
                
                
                $
                .15
                
                
                $
                .36
                
                
                $
                .28Weighted
      average number of common sharesoutstandingBasic
                
                
                3,534,812
                
                
                
                3,531,540
                
                
                
                3,533,032
                
                
                
                3,457,031Diluted
                
                
                3,741,954
                
                
                
                3,779,640
                
                
                
                3,752,528
                
                
                
                3,705,131
 
 *2007 net
income per common share – diluted and 2007 weighted average number of common
shares outstanding – diluted have been restated to properly reflect the
computations in accordance with FAS 128,
“Earnings Per Share, “ which utilizes the treasury stock method for determining
such common stock equivalents.
 
 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
      30,2008
                  
                  
                  2007Cash
      flows from operating activitiesNet
      income
                  
                  $
                  1,351,309
                  
                  
                  $
                  1,044,511Adjustments
      to reconcile net income tonet
      cash used in operating activitiesDepreciation
      and amortization
                  
                  
                  2,875
                  
                  
                  
                  2,517(Income)
      from equity investment in partnerships
                  
                  
                  (2,447,050
                  )
                  
                  
                  (1,739,247
                  )Stock
      based compensation
                  
                  
                  154,200
                  
                  
                  
                  197,750Changes
      in operating assets and liabilitiesOther
      current assets
                  
                  
                  (16,097
                  )
                  
                  
                  (7,693
                  )Accounts
      payable and accrued expenses
                  
                  
                  (107,629
                  )
                  
                  
                  (231,641
                  )Income
      taxes payable
                  
                  
                  16,000
                  
                  
                  
                  -Net
      cash (used in) operating activities
                  
                  
                  (1,046,392
                  )
                  
                  
                  (733,803
                  )Cash
      flows from investing activitiesProceeds
      received from partnership distributions
                  
                  
                  1,375,000
                  
                  
                  
                  500,000Purchases
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (12,589
                  )Proceeds
      from sales of marketable securities
                  
                  
                  60,000,000
                  
                  
                  
                  70,400,000Purchases
      of marketable securities
                  
                  
                  (57,416,237
                  )
                  
                  
                  (70,405,065
                  )Net
      cash provided by investing activities
                  
                  
                  3,958,763
                  
                  
                  
                  482,346Cash
      flows from financing activitiesProceeds
      from the exercise of stock options
                  
                  
                  -
                  
                  
                  
                  22,275Purchase
      of treasury stock
                  
                  
                  -
                  
                  
                  
                  (88,189
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  -
                  
                  
                  
                  (65,914
                  )Increase
      in cash and cash equivalents
                  
                  $
                  2,912,371
                  
                  
                  $
                  (317,371
                  )Cash
      and cash equivalents – beginning
                  
                  
                  253,566
                  
                  
                  
                  613,253Cash
      and cash equivalents – ending
                  
                  $
                  3,165,937
                  
                  
                  $
                  295,882
 
 
 Nine
      Months EndedSeptember 30,2008
                
                
                2007Supplemental
      disclosures of cash flow information:Cash paid during the period
      forInterest
                
                $
                -
                
                
                $
                47,862Income taxes
                
                $
                103,814
                
                
                $
                32,900
  The
attached notes are an integral part of these financial statements.
 
 5
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
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, 2008 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2008.  For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2007.
 
 Principles
of Consolidation - The consolidated financial statements include the accounts of
Regency Affiliates, Inc. (the "Company"), its wholly owned subsidiaries, Regency
Power, Inc. and Rustic Crafts International, Inc. ("Rustic Crafts"), its 75%
owned subsidiary, Iron Mountain Resources, Inc.  ("IMR"), and its 80%
owned subsidiary, National Resource Development Corporation
("NRDC").  All significant intercompany balances and transactions have
been eliminated in consolidation.
 
 Note
2. Related Party Transactions
 
 In
December 2005, the Company’s wholly owned subsidiary, Rustic Crafts, entered
into a stipulation of settlement with RCI Wood Products (“RCI”) regarding
outstanding indebtedness with 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.
 On June
11, 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.
 
 During
the nine month periods ended September 30, 2008 and 2007, 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 periods ended September 30, 2008 and 2007, the Company incurred
directors’ fees of $27,000 and $0, respectively, for services
rendered.  As of September 30, 2008 and 2007, $18,000 and $0,
respectively, was included in accrued expenses due to directors for services
rendered.
 
 On August
13, 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 and expire on August 13, 2018. (see note 4 –
Stock Based Compensation).
  6
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 Note
2. Related Party Transactions, continued
 
 On
February 16, 2007, the Company exercised its right to redeem all of the issued
and outstanding Series B Stock (370,747 shares), payable on March 15, 2007. The
aggregate redemption price of 430,473 shares of the Company’s common stock, at
$6.65 per share, amounted to $2,862,645. As this amount is less than the
original debt obligations exchanged with the preferred stockholders, which
represented their investment in 1991 of $3,707,470, no deemed dividend nor
beneficial conversion feature has been recognized by the Company in the current
period. This transaction resulted in the retirement by the Company of all issued
and outstanding Series B Stock.
 
 During
the quarter ended September 30, 2007, the Company issued options to an officer
of the Company to purchase 50,000 shares of its common stock, pursuant to the
Company’s 2003 Stock Incentive Plan, as amended. The stock options expire on
August 14, 2017 and have an exercise price of $5.10 per share. (see note 4 –
Stock Based Compensation).
 
 During
the quarter ended September 30, 2007, two former directors of the Company each
exercised  stock options to purchase 1,000 shares of the Company’s
common stock at an exercise price of $1.60 per share.
  Note
3. Uncertainties and Contingencies
  During
the preparation of the Company's 2004, 2005, 2006, and 2007 Federal corporation
income tax returns, a dispute arose between
the Company and Security Land and Development
Company Limited Partnership (“Security Land”)regarding the proper amount
of taxable income to be allocated to the Company and reported to the Internal
Revenue Service (the "IRS") on Federal Form K-1. This dispute could not be
resolved and the Company reported a different amount of income on its
corporation income tax return than was reported to the IRS by SecurityLand. 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.
 
 In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. The minimum threshold is defined in
FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. FIN 48 must be applied to all existing tax positions upon
initial adoption. The cumulative effect of applying FIN 48 at adoption, if any,
is to be reported as an adjustment to opening retained earnings for the year of
adoption. FIN 48 was effective for the Company’s fiscal year ended December 31,
2007 and no cumulative effects are reported through September 30,
2008.
  7
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  On January 20, 2004, a
purported derivative and class action lawsuit was filed by two dissident Company
shareholders, Edward E. Gatz and Donald D. Graham, in the New Castle County
Court of Chancery, Delaware (the "Court"), captioned Gatz, et al. v. Ponsoldt,
Sr., et al., (C.A. No. 174-N) naming as defendants certain current and former
directors of the Company, Royalty and certain of its affiliates, Statesman and,
nominally, the Company (the "Delaware Action"). The complaint alleged various
breaches of fiduciary duties by the former directors and Statesman, and that
Royalty and its affiliates knowingly participated in certain of the alleged
breaches. In November 2004 the Court dismissed all but one claim alleged in the
complaint. The Company was not a defendant with respect to the sole surviving
claim, which related to the 2001 sale of a cache of previously quarried and
piled aggregate rock by NRDC to Iron Mountain (the "Aggregate Sale"). On October
16, 2005, the Court dismissed plaintiffs' sole remaining claim for failure to
state a claim for relief. The dismissal was without prejudice and the plaintiffs
were given leave to file an amended complaint attacking the Aggregate
Sale.
  On January 30, 2006,
plaintiffs filed an amended complaint challenging the Aggregate Sale and
alleging that the Aggregate Sale negatively impacted the consideration the
Company received in connection with the October 2002 restructuring transactions.
The Company was not a defendant with respect to this claim. Plaintiffs sought
damages in excess of $5,400,000 with respect to the claim related to the
Aggregate Sale. On May 16, 2006, the Court dismissed the sole remaining
complaint alleged in the complaint determining that the sole remaining complaint
was derivative in nature and could therefore not be maintained by the
plaintiffs. On June 14, 2006, the plaintiffs filed a Notice of Appeal appealing
the Court's rulings. In its April 16, 2007 decision, citing an intervening legal
development in the area of direct and derivative claims arising while the appeal
was pending, the Supreme Court of the State of Delaware reversed the Court's
decision and remanded the case to the Court for further
proceedings.
  Following the Supreme Court's
remand, the parties began settlement discussions.  On April
28, 2008 the parties executed a memorandum of understanding (the "MOU")
reflecting an agreement in principle to settle that class action.  
Among other things, the MOU provides that if the settlement is
consummated,  the Company will pay $3,000,000 plus interest (as
provided in the MOU) to the plaintiff class. The plaintiff class is defined in
the MOU as all record and beneficial owners of our 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 intothe
Company’scommon
stock or options to purchasethe Company’scommon stock. The
Company will make that payment pursuant to its obligation to indemnify the
defendants who are former directors of the Company. The MOU provides that the
Company will undertake an appropriate process to determine if
indemnification of its former directors is appropriate under Delaware law.
The MOU expressly provides that the defendants admit no wrongdoing but have
agreed to the MOU to eliminate the uncertainty, distraction, burden and expense
of further litigation.   In exchange for the payment, all claims
against the former directors, Statesman, Royalty and the current directors will
be released by the members of the class.
  Pursuant to the MOU, the
Company engaged WolfBlock LLP(“WolfBlock”)to determine if the former
directors were entitled to indemnification.  After reviewing thousands of
pages of documents, testimony from the former directors and the plaintiffs and
interviewing certain former directors, their counsel, plaintiffs and their
counsel, WolfBlock determined that the former directors were entitled to
indemnification from the Company under Delaware law and our
bylaws.
  On December 4, 2008, the
parties signed a Stipulation of Settlement which memorialized their agreement,
subject to the approval of the Court, to settle the class action.  The
terms of the final settlement are in all material respects identical to the
terms of the MOU.  The Court has scheduled a hearing for March 16, 2009, at
which time the Court will consider whether it will approve the Stipulation of
Settlement as fair, reasonable, adequate and in the bests interests of the
class.  If the Court approves the settlement, the Company will make the $3
million payment plus interest to the class.
  The Company's insurance
carrier contends that none of the claims contained in the Delaware Action are
covered by insurance on the basis of the "insured vs. insured" exclusion since
one of the plaintiffs, Donald D. Graham, was previously a director of the
Company.
   8
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  Note
4. Stock Based Compensation
 
 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 total
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 effect.
 
 During
the quarter ended September 30, 2008, an officer of the Company received 50,000
stock options to purchase shares of the Company’s common stock at an exercise
price of $4.20 per share. The fair value of the stock options was estimated
using the Black-Scholes option-pricing model that requires highly subjective
assumptions including the expected stock price volatility. The fair value of the
stock options granted was estimated using the following assumptions: no expected
dividends, risk free interest rate of 3.94%, expected average life of
approximately 7 years, and an expected stock price volatility of
62.08%.  The fair value of the stock options granted was $3.08 for
total stock based compensation expense of $154,200 for the quarter ended
September 30, 2008.
  During
the quarter ended September 30, 2007, an officer of the Company received 50,000
stock options to purchase shares of the Company’s common stock at an exercise
price of $5.10 per share. The fair value of the stock options was estimated
using the Black-Scholes option-pricing model that requires highly subjective
assumptions including the expected stock price volatility. The fair value of the
stock options granted was estimated using the following assumptions: no expected
dividends, risk free interest rate of 4.73%, expected average life of
approximately 10 years, and an expected stock price volatility of
67%.  The fair value of the stock options granted was $3.96 for total
stock based compensation expense of $197,750 for the quarter ended September 30,
2007.
 Note
5.  Subsequent Events.
 
 On
December 17, 2008, the Company amended 5,000 outstanding stock options to
purchase shares of the Company’s common stock owned by Errol Glasser, a director
of the Company, in order to comply with provisions of Section 409A of the
Internal Revenue Code, as amended.  The previous options, which were
cancelled, were exercisable on April 1, 2005, had an expiration date of
April 1, 2013 and an exercise price of $2.40 per share.  The
replacement stock options were issued to Mr. Glasser on December 17, 2008 and
have an exercise date of December 17, 2008, an expiration date of December 17,
2018 and an exercise price of $2.60 per share.  In addition, the
employment agreements with Laurence Levy, President and Chief Executive Officer
of the Company and Neil Hasson, Chief Financial Officer of the Company, were
also amended on December 17, 2008 in order to comply with provisions of Section
409A of the Internal Revenue Code, as amended.
 
 
 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 specified below) which are difficult to predict and,
in many instances, are beyond the control of the Company.
  9
 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.
 
 LIQUIDITY
AND CAPITAL RESOURCES.
 
 On
September 30, 2008, we had current assets of $10,725,043 and stockholders'
equity of $22,332,680. On September 30, 2008, we had $10,364,407 in cash and
marketable securities, total assets of $22,617,852 and total current liabilities
of $285,172.
 
 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.
 
 During
the preparation of our 2004, 2005, 2006 and 2007 Federal corporation income tax
returns, a dispute arose between the Company and Security Land regarding
the proper amount of taxable income to be allocated to us and reported to the
Internal Revenue Service (“IRS”) on Federal Form K-1. This dispute could not be
resolved and we reported a different amount of income on our corporation income
tax return than was reported to the IRS by SecurityLandand
Development Company Limited Partnership (“Security Land”). The discrepancy may cause our tax returns to
be audited by the IRS. We believe that the outcome of any IRS examination will
not affect our financial statements 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.
  10
  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 National Resource
Development Corporation, our 80% owned subsidiary, 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
September 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.
 
 
 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
 
 2008
Compared to 2007
 
 For
the three months ended September 30, 2008 and September 30, 2007:
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses increased by $17,873 or 3.5% to $534,355 in 2008
compared to $516,482 in 2007 primarily due to an increase in professional fees
in 2008.
 
 Income
from equity investments in partnerships increased by $216,659 in 2008, 21.3%
higher than in 2007 due to a gain recognized from the sale of assets in MESC
Capital.
  11
  Net
income increased by $111,397 in 2008 compared to 2007. The increase was due to
the increase in income from partnerships of
$216,659that was offset primarily
by the increase in general and administrative expenses of $17,873and a reduction in interest and dividend income of $57,902.
 
 For
the nine months ended September 30, 2008 and September 30, 2007:
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses increased by $168,968 or 16.7% to $1,177,946 in 2008
compared to $1,008,978 in 2007 primarily due to an increase in professional fees
of $230,402, and a reduction of stock based compensation of $43,550 and an
increase in directors fees of $27,350.
 
 Income
from equity investment in partnerships increased by $707,803, 40.7% higher than
2007.  Our investment in MESC Capital produced income of approximately
$1,148,000 in the nine month period ended September 30, 2008 as compared to
income of approximately $535,000 in the nine month period ended September 30,
2007 due to a reduction in general and administrative expenses of $168,968and a gain from sale of assets in 2008 of
$600,000 Our investment in
Security Land returned income of approximately $1,299,000 in the nine month
period ended September 30, 2008 as compared to approximately $1,205,000 in the
nine month period ended September 30, 2007 as revenue increased by approximately
$18,000 primarily due to rental income increases related to the consumer price
index and expenses decreased by approximately $76,000 relating to a reduction in
professional fees, maintenance costs and interest
expense.
 Net
income increased by $306,798 in 2008 over 2007 or 29.4% primarily due to the
increase in income from equity investment in partnerships.
 
 Our Stockholders' Equity at September 30, 2008
was $22,332,680 as compared to $20,812,322 at December 31, 2007, an increase of
$1,520,358 which is due to our net income during the nine month period ended
September 30, 2008, stock issuances to one of our directors and stock options
granted to one of our officers.
  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 its 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 our 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 us 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.
  12
  We
have 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 our
ability to utilize the net operating loss and tax credit carry forwards before
they expire.
  ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 N/A
 
 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 concerning financial reporting during the
quarter ended September 30, 2008 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
  On January 20, 2004, a
purported derivative and class action lawsuit was filed by two dissident Company
shareholders, Edward E. Gatz and Donald D. Graham, in the New Castle County
Court of Chancery, Delaware (the "Court"), captioned Gatz, et al. v. Ponsoldt,
Sr., et al., (C.A. No. 174-N) naming as defendants certain current and former
directors of the Company, Royalty and certain of its affiliates, Statesman and,
nominally, the Company (the "Delaware Action"). The complaint alleged various
breaches of fiduciary duties by the former directors and Statesman, and that
Royalty and its affiliates knowingly participated in certain of the alleged
breaches. In November 2004 the Court dismissed all but one claim alleged in the
complaint. The Company was not a defendant with respect to the sole surviving
claim, which related to the 2001 sale of a cache of previously quarried and
piled aggregate rock by NRDC to Iron Mountain (the "Aggregate Sale"). On October
16, 2005, the Court dismissed plaintiffs' sole remaining claim for failure to
state a claim for relief. The dismissal was without prejudice and the plaintiffs
were given leave to file an amended complaint attacking the Aggregate
Sale.
 On January 30, 2006,
plaintiffs filed an amended complaint challenging the Aggregate Sale and
alleging that the Aggregate Sale negatively impacted the consideration the
Company received in connection with the October 2002 restructuring transactions.
The Company was not a defendant with respect to this claim. Plaintiffs sought
damages in excess of $5,400,000 with respect to the claim related to the
Aggregate Sale. On May 16, 2006, the Court dismissed the sole remaining
complaint alleged in the complaint determining that the sole remaining complaint
was derivative in nature and could therefore not be maintained by the
plaintiffs. On June 14, 2006, the plaintiffs filed a Notice of Appeal appealing
the Court's rulings. In its April 16, 2007 decision, citing an intervening legal
development in the area of direct and derivative claims arising while the appeal
was pending, the Supreme Court of the State of Delaware reversed the Court's
decision and remanded the case to the Court for further
proceedings.
  Following the Supreme Court's
remand, the parties began settlement discussions.  On April
28, 2008 the parties executed a memorandum of understanding (the "MOU")
reflecting an agreement in principle to settle that class action.  
Among other things, the MOU provides that if the settlement is
consummated,  the Company will pay $3,000,000 plus interest (as
provided in the MOU) to the plaintiff class. The plaintiff class is defined in
the MOU as all record and beneficial owners of our 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 intothe
Company’scommon
stock or options to purchasethe Company’scommon stock. The
Company will make that payment pursuant to its obligation to indemnify the
defendants who are former directors of the Company. The MOU provides that the
Company will undertake an appropriate process to determine if
indemnification of its former directors is appropriate under Delaware law.
The MOU expressly provides that the defendants admit no wrongdoing but have
agreed to the MOU to eliminate the uncertainty, distraction, burden and expense
of further litigation.   In exchange for the payment, all claims
against the former directors, Statesman, Royalty and the current directors will
be released by the members of the class.
  Pursuant to the MOU, the
Company engaged WolfBlock LLP(“WolfBlock”)to determine if the former
directors were entitled to indemnification.  After reviewing thousands of
pages of documents, testimony from the former directors and the plaintiffs and
interviewing certain former directors, their counsel, plaintiffs and their
counsel, WolfBlock determined that the former directors were entitled to
indemnification from the Company under Delaware law and our
bylaws.
  On December 4, 2008, the
parties signed a Stipulation of Settlement which memorialized their agreement,
subject to the approval of the Court, to settle the class action.  The
terms of the final settlement are in all material respects identical to the
terms of the MOU.  The Court has scheduled a hearing for March 16, 2009, at
which time the Court will consider whether it will approve the Stipulation of
Settlement as fair, reasonable, adequate and in the bests interests of the
class.  If the Court approves the settlement, the Company will make the $3
million payment plus interest to the class.
  The Company's insurance
carrier contends that none of the claims contained in the Delaware Action are
covered by insurance on the basis of the "insured vs. insured" exclusion since
one of the plaintiffs, Donald D. Graham, was previously a director of the
Company.
   13
  ITEM
1A. RISK FACTORS
 
 We
believe that the most significant risks to our business are those set forth
below.
 
 ·
              A
      default in the lease or sudden catastrophe to the property owned by
      Security Land or the operating facilities owned by Mobile Energy Services
      Company, LLC ("Mobile Energy") from uninsured acts of God or war could
      have a materially adverse impact upon our investment in Security Landor Mobile Energy, respectively, and
      therefore our financial position and results of
  operations;
 
 ·
              Our
      subsidiaries currently lack the necessary infrastructure at the site of
      the Groveland mine in order to permit them to make more than casual sales
      of the Aggregate located at the Groveland
mine;
 
 ·
              We
      have had significant tax loss and credit carryforwards and no assurance
      can be provided that the Internal Revenue Service would not attempt to
      limit or disallow altogether our use, retroactively and/or prospectively,
      of such carryforwards, due to ownership changes or any other reason. The
      disallowance of the utilization or our net operating loss would severely
      impact or financial position and results of operations due to the
      significant amounts of taxable income that has been, and may in the future
      be, offset by our net operating loss
  carryforwards;
 
 ·
              If
      we consummate the Reverse Stock Split and Forward Stock Split and become a
      privately held company, stockholders will own shares in a private company
      and may not have the ability to sell their shares in the public market.
      Furthermore, we would not file current, quarterly or annual reports or be
      subject to the proxy requirements of the federal securities laws.
      Stockholders may therefore find it more difficult to obtain information
      about us and our financial
performance;
  14
  ·
              Royalty
      Holdings, LLC(“Royalty”), an
      affiliate of our management, beneficially owns approximately 52% of our
      common stock. As a result, Royalty has the ability to control the outcome
      of all matters requiring stockholder approval, including the election and
      removal of directors and any merger, consolidation or sale of all or
      substantially all of our assets;
 
 ·
              We
      do not expect to pay dividends in the foreseeable future;
    and
 
 ·
              There
      are many public and private companies that are also searching for
      operating businesses and other business opportunities as potential
      acquisition or merger candidates. We will be in direct competition with
      these other companies in its search for business opportunities. Many of
      these entities have significantly greater financial and personnel
      resources than us.
  
 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.




15


PART
II  - OTHER INFORMATION
  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).
  16
  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).10.1+*
              Stock Option Agreement, dated as ofDecember 17,2008 between the Company andErrol
      Glasser.10.2+*
              Amendment toEmployment Agreement between the Company and
      Laurence S. Levydated as ofDecember 17,
      2008.10.3+*
              Amendment toEmployment Agreement between the Company and Neil
      Hassondated as ofDecember 17,2008.31.1+
              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
                *Indicates that exhibit is a
      management contract or compensatory plan or
      arrangement.
  17
  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 8, 2009
                By:
                /s/ Laurence
      S. LevyLaurence
      S. LevyPresident
      and Chief Executive Officer
 Date:
      January
      8, 2009
                By:
                /s/ Neil
      N. HassonNeil
      N. HassonChief
      Financial Officer
  18
  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).10.1+*
                Stock Option Agreement, dated as ofDecember 17,2008 between the Company andErrol
      Glasser.10.2+*
                Amendment toEmployment Agreement between the Company and
      Laurence S. Levydated as ofDecember 17,
      2008.10.3+*
                Amendment toEmployment Agreement between the Company and Neil
      Hassondated as ofDecember 17,2008.31.1+
                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
                  *Indicates that exhibit is a
      management contract or compensatory plan or
      arrangement.
   19