Regency Affiliates (RAFI) 10-K 2008 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________________

FORM 10-K

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

For the fiscal year ended December 31, 2008

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 incorporation)		(IRS Employer Identification No.)
610 Jensen Beach Boulevard Jensen Beach, Florida		34957
Address of Principal Executive Offices)		Zip Code
	(772) 334-8181
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes: oNo: x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act Yes: o No: x

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 past 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: o   No: x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: o  No o

Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small 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 o	Accelerated filer o
Non-accelerated filer o	Small reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o  No: x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2008, was $6,234,358.

The number of outstanding shares of Common Stock as of August 24, 2009 was 3,468,544.

TABLE OF CONTENTS

Page

PART I

ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	6
ITEM 1B.	UNRESOLVED STAFF COMMENTS	7
ITEM 2.	PROPERTIES	7
ITEM 3.	LEGAL PROCEEDINGS	7
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	8
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS
	MATTERS AND ISSUER PURCHASES OF EQUITY
	SECURITIES	8
ITEM 6.	SELECTED FINANCIAL DATA	9
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS	9
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	12
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	12
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
	ACCOUNTING AND FINANCIAL DISCLOSURE	12
ITEM 9A(T)	CONTROLS AND PROCEDURES	12
ITEM 9B.	OTHER INFORMATION	13
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND
	CORPORATE GOVERNANCE	13
ITEM 11.	EXECUTIVE COMPENSATION	15
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
	MANAGEMENT AND RELATED STOCKHOLDER MATTERS	17
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
	DIRECTOR INDEPENDENCE	19
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	19
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	20
SIGNATURES
EXHIBIT INDEX

PART I

ITEM 1. BUSINESS

This filing contains statements which, to the extent they are not recitations of historical fact, constitute "forward looking statements" under federal securities laws. All such statements are intended to be subject to the safe harbor protection provided by applicable securities laws. For discussions identifying some important factors that could cause actual Regency Affiliates, Inc. (“we”, “us”, “our���, "Regency" or the "Company") results to differ materially from those anticipated in the forward looking statements contained in this filing, see Regency's "Narrative Description of Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Notes to Consolidated Financial Statements." Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission (the “SEC”), including the Quarterly Reports on Form 10-Q to be filed by the Company subsequent to this Annual Report on Form 10-K and any Current Reports on Form 8-K filed by the Company.

GENERAL DEVELOPMENT OF BUSINESS

The Company, formerly TransContinental Energy Corporation, was organized as a Delaware corporation in 1980 to be the successor to TransContinental Oil Corporation, which existed since 1947.

In July 1993 we acquired an 80% interest in National Resource Development Corporation ("NRDC"). At the time, NRDC's principal asset consisted of previously quarried and stockpiled rock ("Aggregate") inventory located at a mine site in Michigan. The remaining 20% interest in NRDC is owned by Statesman Group, Inc. ("Statesman"), a former shareholder of Regency. In December 2001, the Aggregate inventory was sold to Iron Mountain Resources, Inc. ("Iron Mountain"), our 75% owned subsidiary, in exchange for an $18,200,000 note. After defaulting on the note, in February 2005 Iron Mountain reconveyed the Aggregate to NRDC in lieu of foreclosure and the note was deemed satisfied. See "NARRATIVE DESCRIPTION OF BUSINESS - National Resource Development Corporation; Iron Mountain Resources, Inc."

On November 18, 1994, we acquired a limited partnership interest in Security Land and Development Company Limited Partnership ("Security Land" or the "Partnership") for an equity investment of $350,000. Security Land owns an office building complex in Woodlawn, Maryland, which is leased to the United States Social Security Administration. In June 2003, Security Land refinanced the existing indebtedness on the property resulting in a distribution of refinancing proceeds to Regency of approximately $41,000,000, approximately $14,125,000 of which was used by the Company to repay existing indebtedness to KBC Bank. See "NARRATIVE DESCRIPTION OF BUSINESS - Security Land and Development Company Limited Partnership". The remaining net proceeds of the Security Land distribution were available for general corporate purposes.

On March 17, 1997, we, through Rustic Crafts International, Inc. ("Rustic Crafts"), a wholly-owned subsidiary, acquired the assets and assumed certain liabilities of Rustic Crafts, Co., Inc., a manufacturer of wood and cast marble decorative electric fireplaces and related accessories. On September 30, 2002, Rustic Crafts sold all of its operating assets to RCI Wood Products Inc. ("RCI"), a third party controlled by the former President of Rustic Crafts, in exchange for two promissory notes totaling $1,107,000 and $200,000 cash. See "NARRATIVE DESCRIPTION OF BUSINESS - Rustic Crafts International, Inc."

On October 16, 2002, we redeemed all of the shares of our common stock owned by Statesman pursuant to the terms of a Redemption Agreement, dated October 16, 2002, between Regency and Statesman. We funded the redemption from the proceeds of an aggregate of $4,750,000 borrowed from Royalty Holdings LLC ("Royalty"), an affiliate of current management, in exchange for two notes - a $3,500,000 5% Convertible Promissory Note due October 16, 2012 and a $1,250,000 9% Promissory Note due October 16, 2007. Both notes allowed interest to accrue without current payment. The principal and interest under the Convertible Promissory Note were convertible into shares of our common stock at a conversion rate of $2.00 per shares. On November 7, 2002, Royalty converted $1,495,902 of the principal amount of the Convertible Promissory Note plus accrued interest into 750,000 shares of our common stock. On July 3, 2003, Royalty converted the remaining principal amount of the note and the $71,378 of accrued and unpaid interest thereon into 1,037,738 shares of our common stock. On the same date, we prepaid the full $1,250,000 principal amount of, and all accrued and unpaid interest under, the 9% Promissory Note in accordance with the mandatory prepayment provisions of such note. Also on July 3, 2003, we repaid all amounts outstanding under a $300,000 working capital loan facility from Royalty established in March 2003, and terminated such facility. The payment amount consisted of $180,000 of principal and $2,910 of accrued and unpaid interest.

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In connection with the redemption of our common stock owned by Statesman, we acquired from Statesman a three-year option to purchase the 20% stock interest in NRDC held by Statesman. To exercise the option, we were required to deliver to Statesman for cancellation a $2,440,000 note issued to Regency 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 Regency 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 Regency, 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. The loans, redemption, and other October 2002 transactions described above are collectively referred to herein as the "Restructuring Transactions."

On April 30, 2004, the Company through a newly-formed, wholly-owned subsidiary called Regency Power Corporation, a Delaware corporation ("Regency Power"), acquired a 50% membership interest in MESC Capital, LLC, a Delaware limited liability company ("MESC Capital"), from DTE Mobile, LLC ("DTE Mobile"), pursuant to an Assignment and Assumption Agreement dated as of April 30, 2004. The purchase price for the 50% membership interest was $3,000,000 and was funded from our working capital. DTE Mobile, which is owned by an unregulated subsidiary of a large energy company that has significant experience in owning, managing and operating electric generation and on-site energy facilities, owns the other 50% membership interest in MESC Capital.

MESC Capital was formed to acquire all of the membership interests in Mobile Energy Services Company, LLC, an Alabama limited liability company ("Mobile Energy"). Mobile Energy owns an on-site energy facility that supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile, Alabama. The acquisition of Mobile Energy was also consummated on April 30, 2004 pursuant to a Membership Interest Purchase Agreement, dated as of January 30, 2004, between MESC Capital and Mobile Energy Services Holdings, Inc. The purchase price under the Membership Interest Purchase Agreement, after certain pre-closing adjustments, was $33,600,000. The purchase price and working capital reserves were funded by the issuance of $28,500,000 of non-recourse debt, a total equity contribution by MESC Capital of $8,600,290, $4,300,145 of which was funded by Regency Power and $4,300,145 of which was funded by DTE Mobile, and a credit of $1,000,000 on account of existing and continuing tax-exempt indebtedness of Mobile Energy. The $28,500,000 acquisition indebtedness will be fully amortized over the fifteen-year term. Neither Regency Power nor DTE Mobile is obligated to contribute additional capital, or loan or otherwise advance funds, to MESC Capital. See "NARRATIVE DESCRIPTION OF BUSINESS - - Regency Power Corporation".

Narrative Description of Business.

Security Land and Development Company Limited Partnership

On November 18, 1994, we acquired a limited partnership interest in Security Land for an equity investment of $350,000. We have no obligation to make any further capital contribution to Security Land. Security Land owns the 34.3-acre Security West complex at 1500 Woodlawn Drive, Woodlawn, MD consisting of a two-story office building and a connected six-story office tower occupied by the United States Social Security Administration Office of Disability and International Operations. The buildings have a net rentable area of approximately 717,000 square feet. The construction of the Security West Buildings was completed in 1972 and the Social Security Administration has occupied the building since 1972.

On November 30, 2000, we invested $10,000 for a 5% Limited Partnership Interest in 1500 Woodlawn Limited Partnership, the General Partner of Security Land.

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During 1994, Security Land completed the placement of a $56,450,000 non-recourse project note, due November 15, 2003. The placement of the project note was undertaken by the issuance of 7.90% certificates of participation and was underwritten by Dillon Read & Co., Inc. The net proceeds received from the sale of the certificates were used to refinance existing debt of Security Land related to the project, to finance certain alterations to the project by Security Land, to fund certain reserves and to pay costs of the project note issue. The project note was a non-recourse obligation of Security Land, interest and principal payments were payable solely from the lease payments from the U.S. Government and the note was self-amortizing.

In March 2003, the General Services Administration agreed to extend the term of its lease at the building owned by Security Land through October 31, 2018. The significant terms of the lease extension include fixed annual gross rent of approximately $12,754,000 (or approximately $17.79 per sq. ft.). Security Land is responsible for all operating expenses of the building. Security Land is also responsible for upgrading some of the building's common areas.

On June 24, 2003, US SSA LLC, a single purpose entity owned by Security Land, borrowed $98,500,000 through a public debt issue underwritten by CTL Capital, LLC. Proceeds of the refinancing were used to repay the outstanding balance of Security Land's 1994 indebtedness, to establish reserves to make capital improvements to the property, to provide reserves required by the new debt, to pay costs and expenses related to issuing the debt, to pay fees related to the lease extension with the General Services Administration and the financing, and to make a distribution to the partners of Security Land. The debt matures October 31, 2018, at which time the loan will have been paid down to a balance of $10,000,000. Security Land has obtained residual value insurance for approximately $10,000,000. The interest cost of the financing is 4.63%. The financing is non-recourse for the Company.

We received approximately $41,000,000 of net refinancing proceeds from the Security Land distribution. In addition, under the terms of the Security Land partnership agreement, as amended in April 2003 in contemplation of the refinancing, we are entitled to (i) 95% of Security Land's distributions of cash flow until we have received $2,000,000 of such distributions, and thereafter 50% of such distributions and (ii) once we have received $2,000,000 of cash flow distributions, a $180,000 annual management fee from Security Land. The foregoing percentages are inclusive of our interest as a limited partner in 1500 Woodlawn, the general partner of Security Land. In connection with the Security Land refinancing and distribution, we were required to repay our KBC Bank loan. The payoff amount was approximately $14,125,000, which included a release fee and make-whole premium.

We and the general partner of Security Land are in disagreement as to the manner in which taxable income of Security Land is to be allocated pursuant to the partnership agreement and applicable law, and for 2004, 2005, 2006 and 2007 we reported taxable income (loss) from Security Land in a manner we believe is proper, but which was different than the manner reported by Security Land.

Rustic Crafts International, Inc.

Rustic Crafts was until September 30, 2002 a manufacturer of decorative wood and cast marble fireplaces, mantels, shelves, fireplace accessories and other home furnishings. On September 30, 2002, Rustic Crafts sold all of its operating assets to RCI for $1,307,000 comprised of (i) a $707,000 note bearing interest at 5% per annum requiring monthly payments of principal and interest of $13,342 and due September 30, 2007, (ii) a $400,000 note which, as restructured in August 2003; bears interest at 7% per annum and requires monthly payments of principal and interest of $5,032 with a balloon payment due September 8, 2006; and (iii) $200,000 cash (the proceeds of which were from a $250,000 loan from Regency to the buyer which was satisfied in January 2003). Additionally, the buyer entered into a three-year lease for the land and building in Scranton, PA owned by Rustic Crafts, with rental payments of $6,500 per month. Payments on the 5% note are contingent upon the quarterly positive net cash flows of the buyer, as defined by generally accepted accounting principles. Prior to the sale of its operating assets, Rustic Crafts had established a $1,000,000 line of credit with PNC Bank that was guaranteed by Regency 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 mortgage loan from PNC Bank in respect of the Scranton, PA property and certain other indebtedness to PNC Bank was restructured to replace such indebtedness with five notes totaling $2,432,782. Each of the restructured notes of which were initially due in June 2004, and a ten-year amortization schedule and bore interest at the rate of 10.8% per annum. On June 27, 2003, a payment was made to PNC Bank in the amount of $2,257,952 in full satisfaction of the restructured notes. On January 12, 2004, Rustic Crafts sold the Scranton, PA property for $531,500.

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At March 31, 2004, we held notes receivable totaling $1,127,708, which were deemed uncollectible due to lack of cash flows generated and continual default on payment terms by RCI. We determined to record full impairment of the notes and any accrued interest thereon, resulting in an impairment charge of $1,182,626. On December 30, 2005 we agreed to accept a $125,000 note from RCI as a restructuring of the above named obligation.  The note, which bears interest at 6.5%, called for payments of $1,088 per month until December 2008. No gain or income was recognized as a result of this settlement due to the uncertainty that the amount would actually be realized. Such recovery will be recognized upon receipt. During 2006, we received $3,264 of such settlement which was included in other income.  In April 2006, RCI defaulted on the note.  We have initiated an action for collection against RCI and a personal guarantor on the note.  RCI has filed for protection under Chapter 11 of the United States Bankruptcy Code and we have received a judgment on the personal guarantee.  We have initiated collection against the personal guarantee.  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.

National Resource Development Corporation; Iron Mountain Resources, Inc.

Until December 2001, our 80%-owned subsidiary, NRDC had as its principal asset approximately 70 million short tons of Aggregate located at the site of the Groveland Mine in Dickinson County, Michigan. NRDC never consummated sales of material amounts of Aggregate. In December 2001, the Aggregate was sold to Iron Mountain, a 75% owned subsidiary of Regency. The purchase price was $18,200,000 and is payable, with an interest rate of 4.00%, in ninety-six equal payments of principal and interest commencing in December 2003. The intercompany gain on this transaction has been eliminated in the consolidation process resulting in the Aggregate being carried at its historical cost. Iron Mountain was unsuccessful in its efforts to sell the Aggregate and, in December 2003, defaulted under the note to NDRC. In February 2005, in lieu of foreclosure, Iron Mountain reconveyed the Aggregate to NRDC and the note was deemed satisfied.  Based upon a subsequent fair market value appraisal, the Aggregate inventory was deemed to have no value, and as such, a full valuation allowance of $832,427 was taken in 2005.

Aggregate is primarily sold for railroad ballast, road construction, construction along shorelines and decorative uses. Ownership of the Aggregate is subject to a Royalty Agreement which requires the payment of certain royalties to M.A. Hanna Company, an independent third-party, upon sales of Aggregate. The market for Aggregate stone is highly competitive and, as shipping costs are high, the majority of any sales are likely to be made in the Great Lakes area. Other companies that produce rock and aggregate products are located in the same region as the Groveland Mine and certain of such competitors have greater financial and personnel resources than us.

Regency Power Corporation

On April 30, 2004, we, through our wholly-owned subsidiary Regency Power acquired a 50% membership interest in MESC Capital from DTE Mobile pursuant to an Assignment and Assumption Agreement dated as of April 30, 2004. The purchase price for the 50% membership interest was $3,000,000 and was funded from our working capital. The terms of the Assignment and Assumption Agreement were negotiated on an arms'-length basis between Regency and DTE Mobile. DTE Mobile, which is owned by an unregulated subsidiary of a large energy company that has significant experience in owning, managing and operating electric generation and on-site energy facilities, owns the other 50% membership interest in MESC Capital. MESC Capital was formed to acquire all of the membership interests in Mobile Energy. Mobile Energy owns an on-site energy facility that supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile, Alabama.

The acquisition of Mobile Energy was also consummated on April 30, 2004 pursuant to a Membership Interest Purchase Agreement, dated as of January 30, 2004, between MESC Capital and Mobile Energy Services Holdings, Inc. The purchase price under the Membership Interest Purchase Agreement, after certain pre-closing adjustments, was $33,600,000, subject to certain post-closing adjustments. The purchase price and working capital reserves were funded by the issuance of $28,500,000 of non-recourse debt, a total equity contribution by MESC Capital of $8,600,290, $4,300,145 of which was funded by Regency Power and $4,300,145 of which was funded by DTE Mobile, and a credit of $1,000,000 on account of existing and continuing tax-exempt indebtedness of Mobile Energy.

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The terms of the Membership Interest Purchase Agreement were negotiated on an arms'-length basis between MESC Capital and Mobile Energy Services Holdings, Inc. We did not participate in negotiations with respect to the Membership Interest Purchase Agreement.

The $28,500,000 acquisition indebtedness was obtained from Allied Irish Banks, P.L.C., which may assign or participate the loan in accordance with the terms of the loan agreement. The loan will be amortized over the fifteen-year term. In connection with the acquisition of the 50% membership interest in MESC Capital, Regency Power and DTE Mobile entered into an Operating Agreement, dated April 30, 2004, which sets forth their respective rights and obligations as members of MESC Capital as well as the duties and authority of DTE Mobile as the managing member of MESC Capital.

Under the Operating Agreement, Regency Power will receive 50% of all distributions, and participate equally in ultimate management authority through equal representation on the MESC Capital Board of Control. DTE Mobile, as managing member, is responsible for day-to-day management of MESC Capital. DTE Mobile will not receive any compensation for serving as managing member, and is subject to removal by the Board of Control with or without cause. Neither Regency Power nor DTE Mobile is obligated to contribute additional capital, or loan or otherwise advance funds, to MESC Capital, and neither member can sell or transfer its interest in MESC Capital without the consent of the other and without first complying with a right of first offer in favor of the non-selling member.

The energy facility is located on approximately 11 acres of land within the Kimberly-Clark tissue mill in Mobile, Alabama. The facility supplies up to 61 megawatts of co-generated steam and electricity for use in the mill's operations, with a power-house fueled by a combination of coal, biomass and natural gas.

In connection with MESC Capital's acquisition of Mobile Energy, Kimberly-Clark entered into a 15-year agreement with Mobile Energy pursuant to which Mobile Energy will be the exclusive steam supplier to the mill and will provide a substantial portion of the mill's electricity requirements. Under the agreement, Kimberly-Clark is obligated to make monthly fixed capacity payments, monthly fixed and variable operations and maintenance payments, and to reimburse Mobile Energy for fuel costs. Early termination of the agreement by Kimberly-Clark obligates Kimberly-Clark to make a termination payment to Mobile Energy in an amount anticipated to be sufficient to retire the acquisition financing obtained by MESC Capital and to provide a return on the MESC equity investment. In addition, in the event of an early termination by Kimberly-Clark and under certain conditions, DTE Mobile has agreed to make a termination payment to Regency Power.

Mobile Energy operated under the protection of Chapter 11 of the United States Bankruptcy Code from January 1999 until late 2003. During such time, the energy facility was operated by an interim operator. MESC Capital was selected through an auction process conducted by Mobile Energy bondholders to be the acquirer of Mobile Energy. In connection with the acquisition, the interim operator was terminated and DTE Mobile and its affiliate will provide operations, management and maintenance services and asset management support for the investment and energy facility pursuant to agreements with MESC Capital and Mobile Energy.

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 the Company’s 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 our stockholders.  We currently intend to effect the Reverse Stock Split and Forward Stock Split as soon as possible after such distribution.

COMPETITION

Other than as discussed in "ITEM 1. BUSINESS - National Resource Development Corporation; Iron Mountain Resources, Inc." and “ITEM 1A. RISK FACTORS”, our business is not materially subject to competitive forces.

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ENVIRONMENTAL REGULATIONS

Federal, state and local provisions that regulate the discharge of materials into the environment do not currently materially affect our capital expenditures, earnings or competitive position.

EMPLOYEES

As of December 31, 2008, we employed three people.  We believe that our relations with our employees are satisfactory.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy and information statements and other information with the SEC. You may read and copy any material we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 on official business days during the hours of 10:00am to 3:00pm. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC also maintains an internet web site (http://www.sec.gov) that contains our SEC filings, including our annual, quarterly and current reports, proxy and information statements and other information regarding the Company, that we file electronically with the SEC.

The Company's Internet address is www.regencyaffiliates.com. We make available on our web site, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and beneficial ownership reports on Forms 3, 4, and 5 and amendments to those reports as soon as reasonably practicable after this material is electronically filed or furnished to the SEC.

ITEM 1A. RISK FACTORS

Our business, financial condition and prospects could be adversely affected by a number of factors that should be considered by stockholders and persons considering investing in Regency. Some of such factors include:

- A default or catastrophe involving property or facilities owned by certain of our subsidiaries could adversely impact our financial position and results of operations. A default in the lease or sudden catastrophe to property owned by Security Land or the operating facilities owned by Mobile Energy from uninsured acts of God or war could have a materially adverse impact upon our investment in Security Land and Mobile Energy, respectively, and therefore our financial position and results of operations;

- We lack necessary infrastructure at the Groveland mine.  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;

- The Internal Revenue Service may limit or disallow our use of tax loss and credit carryforwards.  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 of our net operating loss would severely impact our financial position and results of operations due to the significant amounts of taxable income that have been, and may in the future be, offset by our net operating loss carryforwards;

- If we become a privately held company, stockholders may not have the ability to sell their shares in the public market and we will not be required to file periodic reports with the SEC.  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;

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- An affiliate of our management has the ability to control matters requiring stockholder approval.  Royalty, an affiliate of our management, beneficially owns approximately 60% of our common stock. As a result, Royalty has the ability to control the outcome of all matters requiring shareholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets;

- Absence of dividends.  We do not expect to pay dividends in the foreseeable future; and

- We may encounter competition in efforts to exploit business opportunities. 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 1B.  UNRESOLVED STAFF COMMENTS

We are a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and are not required to provide the information required by this Item.

ITEM 2. PROPERTIES

Security Land owns the Security West Building at 1500 Woodlawn Drive, Woodlawn, MD. See "ITEM 1. BUSINESS - NARRATIVE DESCRIPTION OF BUSINESS - Security Land and Development Company Limited Partnership", which is incorporated by reference herein, for more information on this property.

ITEM 3. LEGAL PROCEEDINGS

On December 14, 2001, we initiated a proceeding in The Circuit Court of the Nineteenth Judicial Circuit in and for Martin County, Florida, case number 01-1087-CA against Larry J. Horbach, individually and L.J. Horbach & Associates. Larry Horbach was a former interim CFO and Board member. We claim that Larry Horbach, without appropriate authority, borrowed $100,050 from Mid City Bank in the name of Regency. We further claim that Horbach converted all or part of the proceeds from the loan for his benefit and breached his fiduciary duties as an officer and director. Horbach filed a Motion for the Court to determine whether the claims asserted against him were properly brought in Florida, or whether they should have been filed in Nebraska. The matter was fully briefed, and the Florida Court took the matter under advisement. The Florida Court has not yet rendered its decision on this jurisdictional issue.

On February 7, 2002, a complaint naming Regency as defendant was filed in the District Court of Douglas County, Nebraska, case number 1012. The Plaintiffs are Larry J. Horbach, individually and L.J. Horbach & Associates and they are demanding payment on a loan they purchased from Mid City Bank. The plaintiffs are requesting payment of $82,512.57 plus accrued interest, costs and attorney fees. We are vigorously defending this litigation.

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.

7

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.

The defendants in the Delaware Action, other than Statesman, were entitled to be indemnified by the Company for damages, if any, and expenses, including legal fees, they have incurred as a result of the lawsuit, subject to certain circumstances under which such indemnification is not available.

On April 28, 2008 the parties executed a memorandum of understanding (the "MOU") reflecting an agreement in principle to settle that class action. The MOU provided that we would pay $3,000,000 plus interest to the plaintiff class.

On June 15, 2009, the Court entered an order approving a stipulation of settlement (the “Settlement”) of the Delaware Action.  The period for appeal of the Settlement expired on July 15, 2009.

The terms of the Settlement are in all material respects identical to the terms of the MOU.  Pursuant to the Settlement, on July 17, 2009, Regency paid $3,045,874.72 into escrow for the benefit of the plaintiff class.  The plaintiff class is defined in the Settlement as all record and beneficial owners of Regency common stock on October 17, 2002, including any and all of their respective successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, immediate and remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of them.  The plaintiff class does not include the defendants, members of their families, affiliates of the defendants, and those individuals or entities who solely held securities convertible into Regency common stock or options to purchase Regency common stock.  Regency made the settlement payment pursuant to its obligation to indemnify the defendants who are former directors of Regency.  In connection with the Settlement, and with the assistance of independent counsel, Regency determined that indemnification of its former directors is appropriate under Delaware law.  The  Settlement expressly provides that the defendants admit no wrongdoing but have agreed to the Settlement to eliminate the uncertainty, distraction, burden and expense of further litigation.

Regency’s insurance carrier has denied coverage with respect to the claims contained in the Delaware Action on the basis of the "insured vs. insured" exclusion since one of the plaintiffs, Donald D. Graham, was previously a director of Regency.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.  

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Our common stock is traded in the over-the-counter market on the Pink Sheets. The symbol for the listing is "RAFI.PK". The following table sets forth the high and low bid prices for each calendar quarter during our last two fiscal years. On August 24, 2009 there were approximately 2,248 common stockholders of record.

YEAR ENDED DECEMBER 31, 2007
	HIGH ($)		LOW ($)
First Quarter		6.70		5.22
Second Quarter		5.50		5.00
Third Quarter		5.75		5.10
Fourth Quarter		5.65		4.85

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YEAR ENDED DECEMBER 31, 2008
	HIGH ($)		LOW ($)
First Quarter		5.65		4.86
Second Quarter		5.16		4.06
Third Quarter		4.75		4.00
Fourth Quarter		4.00		2.50

DIVIDEND POLICY

We have not paid or declared cash dividends on our common stock during the last two fiscal years. We have no present intention to pay cash dividends on our common stock.

TRANSFER AGENT

Our transfer agent is Transfer On-Line, Inc., which is located at 317 SW Alder Street, Second Floor, Portland, Oregon 97204. Their telephone number is (503) 227-2950 and their website is www.transferonline.com.

RECENT SALES OF UNREGISTERED SECURITIES

None.

ISSUER REPURCHASE OF SECURITIES

None.

EQUITY COMPENSATION PLANS

For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.

ITEM 6. SELECTED FINCIAL DATA – Not Applicable

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Annual Report on Form 10-K, 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. See “ITEM 1A – RISK FACTORS”.

9

The following discussion and analysis of the financial condition and results of operations of Regency should be read in conjunction with the accompanying financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

GENERAL

We are committed to enhancing the value of our common stock by seeking opportunities to monetize our existing assets and by seeking new business opportunities on an opportunistic basis. To date, we have not entered into any binding agreements regarding any such transaction. We do not propose to restrict our search for business opportunities to any particular geographical area or industry, and may, therefore, acquire any business, to the extent of our resources. Our discretion in the selection of business opportunities is unrestricted, subject to the availability of such opportunities, economic conditions, and other factors. No assurance can be given that we will be successful identifying or securing a desirable business opportunity, and no assurance can be given that any such opportunity that is identified and secured will produce favorable results for us and our stockholders.

Our Stockholders' Equity at December 31, 2008 was $19,536,251 as compared to $20,812,322 on December 31, 2007, a decrease of 6.1%, primarily due to a $1,245,000 deferred tax benefit recognized in 2007 and the result of the Settlement of the Delaware Action of $3,000,000 that was accrued for the year ended December 31, 2008.

RESULTS OF OPERATIONS

Year ended December 31, 2008 vs. Year ended December 31, 2007

No revenue was generated by the Company during these periods.

General and administrative expenses increased by $48,569 or 3.4% in 2008 as compared to 2007 primarily due to increases of approximately $75,000 in legal fees relating to ongoing litigation through 2008 and $17,000 in office services, offset by a $44,000 reduction in stock based compensation.

Income from equity investment in partnerships increased by $388,205 in 2008, 14.4% higher than in 2007.  Income from Security Land was $1,678,925 in 2008, $162,470 higher than 2007 due to lower interest, taxes and insurance expenses.  Income from 1500 Woodlawn L.P., the general partner of Security Land, increased 10.7% to $4,418 in 2008.  Income from MESC Capital was $1,400,840 in 2008, $225,308 higher than 2007 as result of an increase in operating revenues, a reduction in interest expense, and a gain from sales of non-producing assets of the Company.

Interest expense was $25,269 in 2008 and $0 in 2007 as a result of the Settlement of the Delaware Action.

Income tax expense (benefit) was $171,386 in 2008 and ($1,139,827) in 2007. We do not expect significant Federal tax due as a result of previous period operating losses.  As a result of net operating losses, we estimate that we have a deferred tax asset of $1,105,000 and $1,245,500 at December 31, 2008 and 2007, respectively, which benefit is reflected in the net 2008 and 2007 income tax benefit (expense) line item.

Net income decreased by $4,282,151 in 2008 over 2007 or 150.9%. The change was primarily due to a $1,245,000 deferred tax benefit recognized in 2007 and the expense of the Settlement of $3,000,000 that was accrued at December 31, 2008.

Critical Accounting Policies and Estimates

Our financial statements are based on the selection and application of accounting policies that require our management to make significant estimates and assumptions. We believe that the following are some of the more critical accounting policies currently affecting our financial position and results of operations. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. See the Combined Financial Statements, Note 1-Summary of Significant Accounting Policies, for additional information concerning significant accounting policies.

Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain of these estimates are subjective in nature, involve assumption regarding future events, many of which are outside of the control of management, and involve uncertainty and significant judgment, and therefore cannot be determined with precision. Future events often do not occur when and as assumed in making these determinations and may require revision of the assumptions used in deriving the amounts presented in the financial statements. Changes in the assumptions used could significantly affect and the resulting reported amounts.    

10

Investments. Our income consists primarily of earnings from equity investments in operating entities.  We use the equity method of accounting for investments in equity securities in which we have more than a 20%, interest do not have a controlling interest, and are not the primary beneficiary, and the cost method of accounting for investments in equity securities where our investment is less than a 20% interest and we have little or no control over operating activities of the investee.

 Evaluation of Long-Lived Assets. In assessing the recoverability of our investments in equity securities, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges for these assets. Based on the assessments performed as of December 31, 2008 and 2007, we did not record any impairment charges related to these investments.

 Contingencies. We are involved in certain claims and litigation related to our operations. In the opinion of management, liabilities, if any, arising from these claims and litigation have had a material adverse effect on Regency’s combined financial position, liquidity, or results of operations. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter. Based on the assessments performed as of December 31, 2008 and 2007, we recorded the $3,000,000 Settlement expense and related interest expense of 25,269 for 2008 but no additional reserves for contingencies.

 Share-Based Compensation. We record the compensation expense related to stock options according to SFAS 123R, as adopted on January 1, 2006. We record the compensation expense related to options using the fair value as of the date of grant as calculated using the Black-Scholes-Merton method. We record the compensation expense related to restricted stock units using the fair value as of the date of grant.

LIQUIDITY AND CAPITAL RESOURCES

On December 31, 2008, we had current assets of $10,773,637, Shareholders' Equity of $19,536,251, $10,369,213 in cash and marketable securities, total assets of $22,862,120 and total liabilities of $3,325,869.

The most significant sources of cash are from distributions of earnings received from our equity investment in MESC Capital and interest and dividends earned from existing cash and cash equivalents. To the extent cash flows from operating activities are not sufficient, we could liquidate marketable securities as necessary. We believe our cash flow from our investments 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 Federal corporation income tax return, 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 IRS on Federal Form K-1. This dispute has not been resolved and as such we continue to report a different amount of income on our corporation income tax return than was reported to the IRS by 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 in this year as net operating losses are available to offset any additional income not reported.

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 the Company’s 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.

11

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 our results of operations.

OFF BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off balance sheet arrangements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and are not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements required by Item 8 of Part II of Form 10-K are presented on page F-1 through F-25 and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. 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.

Our senior management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  We have previously filed our Form 10KSB and Form 10-Q after the required date due to a delay in receiving necessary information from our investment in Security Land.  Although we have attempted to accelerate this process, to date we have been unsuccessful.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2008 based on the criteria set forth in a report entitled Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.

12

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting of the Company. Our management report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

No change occurred in our internal controls concerning financial reporting during the fourth quarter of the fiscal year ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following directors were elected at the annual meeting of the stockholders held June 29, 2006 and will serve until the next meeting of stockholders, upon the election and qualification of their successors. Executive officers are appointed by, and serve at the pleasure of, the Board of Directors. The following lists the name, age and principal occupation of each director and executive officer of the Company.

NAME, AGE

POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS OR EMPLOYMENT DURING PAST FIVE YEARS

Laurence S. Levy, 53

Mr. Levy is Chairman of the Board of Directors, President, and Chief Executive Officer of the Company since 2002. Mr. Levy founded the predecessor to Hyde Park Holdings, LLC in July 1986 and has since served as its Chairman. Hyde Park Holdings, LLC is an investor in middle market businesses. Mr. Levy serves as an officer or director of many companies in which Hyde Park Holdings, LLC or its affiliates invests. Presently, these companies include: Ozburn-Hessey Logistics LLC, a national logistics services company, of which Mr. Levy is a director; Derby Industries LLC, a sub-assembly business to the appliance, food and transportation industries, of which Mr. Levy is chairman; and Warehouse Associates L.P., a provider of warehouse and logistics services, of which Mr. Levy is Chairman. Mr. Levy is also the chairman of the board and chief executive officer of Rand Logistics, Inc., a NASDAQ listed company which provides bulk freight shipping services throughout the Great Lakes region and chairman of the board of Essex Rental Corp., an OTC bulletin board company and one of North America’s leading providers of lattice-boom crawler crane and attachment rental services.  In addition, from March 1997 to January 2001, Mr. Levy served as Chairman of Detroit and Canada Tunnel Corporation, a company which operates the toll tunnel between Detroit, Michigan and Windsor, Ontario, and from August 1993 until May 1999, Mr. Levy served as Chief Executive Officer of High Voltage Engineering Corporation, a diversified industrial and manufacturing company. Mr. Levy received a Bachelor of Commerce degree and a Bachelor of Accountancy degree from the University of Witwatersrand in Johannesburg, South Africa. He is qualified as a Chartered Accountant (South Africa). Mr. Levy received a Master of Business Administration degree from Harvard University and graduated as a Baker Scholar.

Neil N. Hasson, 44 Mr. Hasson is a Director and Chief Financial Officer of the Company since 2002.  In February 2005, Mr. Hasson was appointed as a Director of Citigroup Property Investors (“CPI”).  CPI is an international real estate investment manager. Previously, Mr. Hasson was the head of European Real Estate for DLJ Real Estate Capital Partners, a $660 million real estate fund managed by Donaldson, Lufkin and Jenrette ("DLJ"), where he was involved with the acquisition of real estate throughout the world. Mr. Hasson joined DLJ as a Managing Director in New York in January 1995.

13

Errol Glasser, 56 Mr. Glasser is a Director of the Company since 2002. Mr. Glasser has been President of Triangle Capital, LLC, a private investment and advisory company based in New York City since 2004.  Previously, Mr. Glasser was President of East End Capital Management and a Managing Director at Kidder, Peabody & Co. with responsibility for its West Coast investment banking activity.  Mr. Glasser is a member of the compensation, nominating and audit committees.

Carol Zelinski, 55 Ms. Zelinski is the Secretary of the Company. Since 1997, Ms. Zelinski has been an analyst at Hyde Park Holdings, LLC, a private investment firm. Ms. Zelinski also serves as the Secretary of Rand Logistics, Inc., a NASDAQ listed company which provides bulk freight shipping services throughout the Great Lakes region and Secretary of Essex Rental Corp., an OTC bulletin board company and one of North America’s leading providers of lattice-boom crawler crane and attachment rental services. Ms. Zelinski is not a Director of the Company.

There are no family relationships among any of the directors or executive officers of the Company.

Compliance with Section 16(a) of the Exchange Act

Based solely on a review of reports on Form 3 and 4 and amendments thereto furnished to us during our most recent fiscal year, reports on Form 5 and amendments thereto furnished to us with respect to our most recent fiscal year, we believe that no person who, at any time during the fiscal year ended December 31, 2008, was subject to the reporting requirements of Section 16(a) with respect to Regency failed to meet such requirements on a timely basis.

Code of Ethics

We have adopted a Code of Ethics that applies to the Company's chief executive officer and chief financial officer. A copy of the Code of Ethics will be provided without charge to any person who requests it by writing to the address set forth on the cover page to this Form 10-K.

Audit Committee

The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, and consists of Errol Glasser.  The current member of the Company's Audit Committee is an "independent director" as determined pursuant to Rule 5605(a)(2) of The NASDAQ Stock Market, LLC listing standards.

Audit Committee Financial Expert

Our Board of Directors has determined that the Audit Committee does not have an audit committee financial expert as that term is defined by applicable SEC rules. The Board of Directors believes that obtaining the services of an audit committee financial expert is not economically rational at this time in light of the costs associated with identifying and retaining an individual who would qualify as an audit committee financial expert, the limited scope of our operations and the relative simplicity of our financial statements and accounting procedures.

Nominations for Board of Directors

The Nominating Committee of the Board of Directors considers director candidates based upon a number of qualifications, including their independence, knowledge, judgment, integrity, character, leadership, skills, education, experience, financial literacy, standing in the community and ability to foster a diversity of backgrounds and views and to complement the Board's existing strengths. There are no specific, minimum or absolute criteria for Board membership. The Nominating Committee seeks directors who have demonstrated an ethical and successful career. This may include experience as a senior executive of a publicly traded corporation, management consultant, investment banker, partner at a law firm or registered public accounting firm, professor at an accredited law or business school, experience in the management or leadership of a substantial private business enterprise, educational, religious or not-for-profit organization, or such other professional experience as the Committee shall determine shall qualify an individual for Board service.

14

The Nominating Committee has not in the past relied upon third-party search firms to identify director candidates, but may employ such firms if so desired. The Nominating Committee generally relies upon, receives and reviews recommendations from a wide variety of contacts, including current executive officers, directors, community leaders, and stockholders, as a source for potential director candidates. The Board retains complete independence in making nominations for election as a member of the Board.

The Nominating Committee will consider qualified director candidates recommended by stockholders in compliance with the Company's procedures and subject to applicable inquiries. The Nominating Committee's evaluation of candidates recommended by stockholders does not differ materially from its evaluation of candidates recommended from other sources.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides the compensation of our named executive officers, direct or indirect, for services rendered in all capacities for the fiscal years ended December 31, 2008 and 2007:

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Laurence S. Levy	2008	200,000	0	0	154,200(1)	0	0	45,000(3)	399,200
President and Chief Executive Officer	2007	200,000	0	0	197,750(2)	0	0	44,000(3)	441,750
Neil N. Hasson	2008	50,000	0	0	0	0	0	12,500(3)	62,500
Chief Financial Officer	2007	50,000	0	0	0	0	0	12,500(3)	62,500

(1) On August 13, 2008 Mr. Levy was granted 50,000 stock options pursuant to our 2003 Stock Incentive Plan, as amended. We determined the above fair market values of the options issued under the Black-Scholes Option Pricing Model and with the provisions of SFAS 123(R).

(2) On August 14, 2007 Mr. Levy was granted 50,000 stock options pursuant to our 2003 Stock Incentive Plan, as amended. We determined the above fair market values of the options issued using the Black-Scholes Option Pricing Model and with the provisions of SFAS 123(R).

(3) Other compensation consists of contributions made to a SEP-IRA retirement plan.

15

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Option Awards					Stock Awards
Name	Number of  Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Laurence S. Levy (1)	25,000 50,000 50,000 50,000 50,000 50,000	0 0 0 0 0 0	0 0 0 0 0 0	1.35 1.53 2.01 6.27 5.10 4.20		4/3/2013 10/1/2013 6/10/2014 4/1/2016 8/14/2017 8/13/2018	0	0	0	0
Neil N. Hasson (1)	25,000 50,000 50,000	0 0 0	0 0 0	1.35 1.53 2.01		4/3/2013 10/1/2013 6/10/2014	0	0	0	0

The following table sets forth certain information with respect to the value of all equity awards that were outstanding at December 31, 2008.

(1) The options were granted pursuant to the Issuer’s 2003 Stock Incentive Plan, as amended.

DIRECTOR COMPENSATION

The following table summarizes compensation paid to our non-management directors during the fiscal year ended December 31, 2008. Compensation to our directors who are members of management is set forth in the Summary Compensation Table above.

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Errol Glasser	30,000 (1)	19,350 (2)	- (3)	-	-	-	$49,350

(1)            Non-management directors receive for services an annual amount of $30,000, payable in stock or cash at the sole discretion of each non-management director and 500 shares of our common stock for each committee served.

(2)            Mr. Glasser was entitled to receive 500 shares of our common stock for serving on each of our Audit Committee, Compensation Committee and Nominating Committee for the year ended December 31, 2008.  In addition, we owed Mr. Glasser 1,500 and 1,125 shares of common stock for serving on these committees during 2007 and 2006, respectively.  Mr. Glasser received such shares with 375 shares for 2008 in June 2008.  As of December 31, 2008, we owe Mr. Glasser 1,125 shares of common stock for serving on the committees for the period April-December 2008.

(3)            In December 2008, Mr. Glasser was granted 5,000 replacement options in order to comply with Section 409A of the Internal Revenue Code, as amended.  The modification did not have a material effect on the award, and no additional compensation was recorded.

16

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

In connection with the restructuring transactions described in Item 1, we entered into an Employment Agreement with Laurence S. Levy, our current President and Chief Executive Officer, and with Neil Hasson, our current Chief Financial Officer. Under each employment agreement, the executive's employment commences on the date of the Restructuring Transactions and terminates upon the date on which the executive attains retirement age, provided that the executive may terminate his employment upon 30 days notice to Regency and he may be removed from office upon death or disability or for just cause. The employment agreements provide for a base annual salary of no less than $150,000 for Mr. Levy and no less than $50,000 for Mr. Hasson, a discretionary bonus and other customary benefits. Effective April 1, 2006, Mr. Levy’s annual base salary is no less that $200,000.

The employment agreements with Laurence Levy, President and Chief Executive Officer of the Company, and Neil Hasson, Chief Financial Officer of the Company, also were amended on December 17, 2008 in order to comply with provisions of Section 409A of the Internal Revenue Code, as amended.

LONG TERM INCENTIVE PLAN

There have been no awards under any long-term Incentive Plan during the last completed fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information.

	(a)	(b)	(c)
PLAN CATEGORY	NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS (#)	WEIGHTED-AVERAGE  EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS ($)	NUMBER OF SECURITIES REMAINING AVAILABLE FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a))
Equity compensation plans approved by security holders	N/A	N/A	N/A
Equity compensation plans not approved by security holders (1)	412,500	2.98	210,000
Total	412,500	2.98	210,000

_____________________

(1) These options were granted under our 2003 Stock Incentive Plan, as amended. The 2003 Stock Incentive Plan, as amended, is administered by our Board of Directors or by a committee thereof. No grants may be made under the 2003 Stock Incentive Plan, as amended, after the 10-year anniversary of the plan. The 2003 Stock Incentive Plan, as amended, provides for the grant of non-qualified stock options in the sole discretion of the Board or a committee thereof. Stock options may be exercised in cash and/or unless otherwise provided in an applicable stock option agreement, with shares of our common stock upon the terms set forth in the 2003 Stock Incentive Plan, as amended. In addition, each non-employee director of the Company was granted 250 shares of our common stock at the end of each calendar quarter for which he or she has served as a director for such entire calendar quarter.  Effective April 1, 2006, non-management directors no longer receive 250 shares of our common stock for every quarter of a year of service completed. Effective April 1, 2006 non-management directors receive 500 shares of our common stock, per annum, per committee served.  Please see the full terms of the 2003 Stock Incentive Plan, as amended, for more detailed information.

17

Security Ownership of Certain Beneficial Owners.

The following table sets forth information regarding ownership of our common stock as of August 24, 2009 by those individuals or groups who are known by us to beneficially own more than five percent (5%) of the outstanding shares of our common stock.  Except as otherwise indicated below, to our knowledge, each such beneficial owner has sole voting and investment power with respect to the shares beneficially owned by such stockholder.

NAME AND ADDRESS OF BENEFICIAL OWNER	AMOUNT BENEFICIALLY OWNED	PERCENT OF CLASS
Royalty Holdings, LLC and  Royalty Management, Inc. 461 Fifth Avenue, 25th Fl. New York, New York 10017	1,823,738 (1)	52.6%
Laurence S. Levy (1) c/o Hyde Park Holdings, LLC 461 Fifth Avenue, 25th Fl. New York, New York 10017	2,198,738 (1)(2)	58.0%
Michael J. Meagher Stephen C. Smith c/o The Seaport Group LLC 360 Madison Avenue New York, New York 10017	257,583 (3)	7.4%

(1) Based on information contained in an amendment to the Statement on Schedule 13D filed by such entities on January 9, 2008.

(2) Comprised of (i) the 1,823,738 shares that are beneficially owned by Royalty Management, Inc., of which Mr. Levy is the President, sole director and sole stockholder, (ii) 325,000 shares underlying currently exercisable options granted to Mr. Levy under the Company's 2003 Stock Incentive Plan, as amended and (iii) 50,000 shares owned directly.

(3) Based on information contained in an amendment to the Statement on Schedule 13G filed by such entity on February 14, 2008.

The following table sets forth certain information as of August 24, 2009 regarding the ownership of common stock by (i) each director, (ii) each individual named in the Summary Compensation Table contained herein, and (iii) all current executive officers and directors of the Company as a group. Except as otherwise indicated, to our knowledge, each such individual has sole voting and investment power with respect to the shares beneficially owned by such stockholder.

NAME AND ADDRESS OF BENEFICIAL OWNER	AMOUNT AND NATURE OF BENEFICIAL OWNER	PERCENT OF CLASS
Laurence S. Levy (1)	2,198,738 (2)	58.0%
Neil N. Hasson (1)	175,000 (3)	4.9%
Errol Glasser 505 Park Avenue Suite 1902 New York, New York 10022	21,750 (4)	*
All current Directors and Executive Officers as a group (3 persons)	2,395,488	61.1%

*Less than 1%

18

(1) The address of such beneficial owner is c/o Hyde Park Holdings, LLC, 461 Fifth Avenue, 25th Floor, New York, New York 10017.

(2) Comprised of (i) the 1,823,738 shares that are beneficially owned by Royalty Management, Inc., of which Mr. Levy is the President, sole director and sole stockholder, (ii) 325,000 shares underlying currently exercisable options granted to Mr. Levy under the Company's 2003 Stock Incentive Plan, as amended, and (iii) 50,000 shares owned directly.

(3) Comprised of 125,000 shares of Common Stock underlying options currently exercisable granted to Mr. Hasson under the Company's 2003 Stock Incentive Plan, as amended, and 50,000 shares owned directly.

(4) Includes 12,500 shares of Common Stock underlying stock options currently exercisable or exercisable within sixty days issued to such individual under the Company's 2003 Stock Incentive Plan, as amended, and 9,250 directly.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence

We are not listed on any national securities exchange and, consequently, we and our Board of Directors are not subject to the independence requirements of any national securities exchange.  Our Board of Directors determines director independence based on an analysis of The NASDAQ Stock Market LLC listing standards, including Rule 5605(a)(2) thereof, and all relevant securities and other laws and regulations regarding the definition of “independent”.

Consistent with these considerations, after review of all relevant transactions and relationships between each director, any of his or her family members, and us, our executive officers and our independent registered public accounting firm, the Board of Directors has affirmatively determined that Errol Glasser is an independent director pursuant to The NASDAQ Stock Market LLC listing standards.  Mr. Glasser is also a member of the Audit Committee, Compensation Committee and Nominating Committee and is “independent” pursuant to The NASDAQ Stock Market LLC listing standards.

License Agreement

Pursuant to a License Agreement entered into in March 2003, Royalty Management, Inc., which is wholly-owned by Laurence S. Levy, our President, Chief Executive Officer and a director, provides New York City office space, office supplies and office services to us for $126,000 per year.

Employment Agreements

See "ITEM 11. EXECUTIVE COMPENSATION - EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS" which is incorporated herein by reference.

Other Arrangements

See "ITEM 1. BUSINESS - NARRATIVE DESCRIPTION OF BUSINESS - "National Resource Development Corporation; Iron Mountain Resources, Inc.", which is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company for each of the last two fiscal years for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in the Company’s quarterly reports on Forms 10-QSB and 10-Q and services that were provided in connection with statutory and regulatory filings or engagements were $57,407 for the fiscal year ended December 31, 2008 and $57,808 for the fiscal year ended December 31, 2007.

Audit-Related Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company for each of the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company’s financial statements were $0 for the fiscal year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007.

19

Tax Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company in each of the last two fiscal years for professional services rendered for tax compliance, tax advice and tax planning were $25,835 for the fiscal year ended December 31, 2008 and $41,763 for the fiscal year ended December 31, 2007.

All Other Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company in each of the last two fiscal years for products and services other than those reported in the three prior categories were $0 for the fiscal year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007.

Policy on Pre-Approval of Services Provided by Rosenberg Rich Baker Berman & Company

Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the terms of the engagement of Rosenberg Rich Baker Berman & Company are subject to the specific pre-approval of the Audit Committee. All audit and permitted non-audit services to be performed by Rosenberg Rich Baker Berman & Company require pre-approval by the Audit Committee. The procedures require all proposed engagements of Rosenberg Rich Baker Berman & Company for services of any kind to be submitted for approval to the Audit Committee prior to the beginning of any services. The Company's audit and tax services proposed for 2008 along with the proposed fees for such services were reviewed and approved by the Company's Audit Committee.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:
Financial Statements:	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2 - F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Shareholders' Equity	F-5
Consolidated Statements of Cash Flows	F-6 - F-7
Notes to Consolidated Financial Statements	F-8 - F-25
Index of Exhibits

Exhibit No.	Description of Document
3.1(i)(a)	Restated Certificate of Incorporation of the Company (filed as exhibit 3.1(i)(a) to the Company's Form 10-Q dated 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 Form 10-Q, dated November 19, 2002, and incorporated herein by reference).
3.1(i)(c)	Certificate of Amendment to Restated Certificate of Amendment (filed as Exhibit A to the Company's Information Statement on Schedule 14C filed on October 27, 2003).
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 by reference).
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 Report on Form 8-K filed on October 18, 2002, and incorporated herein by reference).

20

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 Registrant's Annual Report on Form 10-K for the year ended 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 No. 2-86906, and incorporated herein by reference).
3.1(ii)(b)	Amendment No. 1 to By-Laws of the Company (filed as exhibit 3.1(ii)(b) to the Company's Form 10-Q dated November 19, 2002, and incorporated herein by reference).
10.1	2003 Stock Incentive Plan of the Company (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003 and incorporated herein by reference) *
10.2	Amendment No. 1 to 2003 Stock Incentive Plan (filed as Exhibit 8 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference.) *
10.3	Amendment No. 2 to 2003 Stock Incentive Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB on August 23, 2004, and incorporated herein by reference.) *
10.4	Stock Option Agreement, dated April 1, 2003, between the Company and Stanley Fleishman (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.5	Stock Option Agreement, dated April 1, 2003, between the Company and Errol Glasser (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.6	Stock Option Agreement, dated April 1, 2003, between the Company and Laurence Levy (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.7	Stock Option Agreement, dated April 1, 2003, between the Company and Neil Hasson (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.8	Stock Option Agreement, dated October 1, 2003 between the Company and Laurence Levy (filed as Exhibit 11 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference). *

21

10.9	Stock Option Agreement, dated October 1, 2003 between the Company and Neil Hasson (filed as Exhibit 12 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference). *
10.10	Stock Option Agreement, dated October 1, 2003 between the Company and Errol Glasser (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-KSB filed on April 14, 2004, and incorporated herein by reference). *
10.11	Stock Option Agreement, dated October 1, 2003 between the Company and Stanley Fleishman (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-KSB filed on April 14, 2004, and incorporated herein by reference). *
10.12	Stock Option Agreement, dated as of August 13, 2004 between the Company and Laurence Levy (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB filed on August 23, 2004, and incorporated herein by reference). *
10.13	Stock Option Agreement, dated as of August 13, 2004 between the Company and Neil Hasson (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB filed on August 23, 2004, and incorporated herein by reference). *
10.14	License Agreement, dated March 17, 2003, between the Company and Royalty Management, Inc. (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference).
10.15	Demand Note from the Company in favor of Royalty Holdings LLC (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference).
10.16	Redemption Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.1 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.17	Call Option Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.2 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.18	Contingent Payment Agreement, dated October 16, 2002, between the Company and William R. Ponsoldt, Sr. (filed as exhibit 99.3 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.19	Amended and Restated Certificate of Designations of the Series C Preferred Stock (filed as exhibit 99.4 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).

22

10.20	Note Purchase Agreement, dated October 16, 2002, between the Company Royalty Holdings LLC (filed as exhibit 99.5 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.21	5% Convertible Promissory Note of the Company (filed as exhibit 99.6 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.22	9% Promissory Note of the Company (filed as exhibit 99.7 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.23	Amended and Restated Promissory Note of the Company (filed as exhibit 99.8 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.24	Amendment No. 1 to Pledge Agreement (filed as exhibit 99.9 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.25	Letter Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.10 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.26	Employment Agreement, dated October 16, 2002, between Laurence S. Levy and the Company (filed as exhibit 99.11 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.27	Employment Agreement, dated October 16, 2002, between Neil N. Hasson and the Company (filed as exhibit 99.12 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.28	Employment Agreement dated June 3, 1997, between Regency Affiliates, Inc. and William R. Ponsoldt, Sr., and Agreement dated June 3, 1997, between Regency Affiliates, Inc. and Statesman Group, Inc. (filed as exhibits 10(a) and (b) to the Company's report on Form 8-K dated June 13, 1997, and incorporated herein by reference). *
10.29	Asset Purchase and Sale Agreement dated February 27, 1997, between Rustic Crafts Co., Inc. and certain individuals, as Sellers, and Regency Affiliates, Inc., as Purchaser, and Assignment and Assumption of Purchase Agreement dated March 17, 1997, between Regency Affiliates, Inc., and Rustic Crafts International, Inc. (filed as exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 at page E-1, and incorporated herein by reference).
10.30	Amended and Restated Agreement between Regency Affiliates, Inc. and the Statesman Group, Inc., dated March 24, 1998 (filed as exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, at page E-36, and incorporated herein by reference).

23

10.31	Loan Agreement and Pledge and Security Agreement with KBC Bank N.V., dated June 24, 1998 (filed as exhibits 10.1 and 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference).
10.32	Security Land And Development Company Limited Partnership Agreement, as amended by Amendment Nos. 1 through 6 (filed as Exhibit 1(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference).
10.33	Seventh Amendment to Partnership Agreement of Security Land and Development Company Limited Partnership dated June 24, 1998 (filed as exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference).
10.34	Eighth Amendment to Partnership Agreement of Security Land and Development Company Limited Partnership, dated April 8, 2003 (filed as Exhibit 10.27 to the Company report on Form 10-KSB for the year ended December 31, 2002, filed on April 15, 2003, and incorporated herein by reference).
10.35	Purchase Agreement for a 5% Limited Partnership Interest in 1500 Woodlawn Limited Partnership, the General Partner of Security Land (filed as exhibit 10.2 to the Company's report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference).
10.36	Glas-Aire Redemption Agreement (incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 16, 2001).
10.37	Statesman exercise agreement (incorporated herein by  reference to the Company's Current Report on Form 8-K  filed on October 25, 2001).
10.38	Ninth Amendment to Security Land and Development Company  Limited Partnership Amended and Restated Limited  Partnership Agreement (filed as Exhibit 10.1 to the  Company's Form 8-K filed on June 25, 2003, and  incorporated herein by reference).
10.39	Seventh Amendment to First Amended and Restated Limited  Partnership Agreement of 1500 Woodlawn Limited  Partnership (filed as Exhibit 10.2 to the Company's Form  8-K filed on June 25, 2003, and incorporated herein by  reference).
10.40	Assignment and Assumption Agreement, dated as of April  30, 2004, between DTE Mobile, LLC and Regency Power  Corporation (incorporated by reference from the  Company's Current Report on 8-K filed on May 11, 2004).
10.41	Membership Interest Purchase Agreement, dated as of  January 30, 2004, between MESC Capital, LLC and Mobile  Energy Services Holdings, Inc. (incorporated by  reference from the Company's Current Report on 8-K filed  on May 11, 2004).
10.42	Stock Option Agreement, dated as of June 14, 2005 between the Company and Laurence S. Levy (incorporated by reference from an Amendment to Schedule 13D filed on June 24, 2005). *

24

10.43	Stock Option Agreement, dated as of June 14, 2005 between the Company and Neil Hasson (incorporated by reference from an Amendment to Schedule 13D filed on June 24, 2005). *
10.44	Stock Option Agreement, dated as of April 1, 2006 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-QSB filed on May 19, 2006). *
10.45	Stock Option Agreement, dated as of August 14, 2007 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-QSB filed on October 5, 2007). *
10.46	Third Amendment to 2003 Stock Incentive Plan dated as of August 13, 2004 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on September 12, 2008).*
10.47	Stock Option Agreement, dated as of December 17, 2008 between the Company and Errol Glasser (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.48	Amendment to Employment Agreement between the Company and Laurence S. Levy dated as of December 17, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.49	Amendment to Employment Agreement between the Company and Neil Hasson dated as of December 17, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.50	Stock Option Agreement, dated as of August 13, 2008 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on September 12, 2008). *
10.51+	Stock Option Agreement, dated as of April 30, 2009 between the Company and Laurence S. Levy. *
21+	Schedule of Subsidiaries.
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+	Certification of Chief Executive Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.
32.2+	Certification of Chief Financial Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.
99.1	Report of the Special Committee of the Company's Board  of Directors, dated May 10, 2003, and adopting  resolutions (filed as Exhibit 99.2 to Company's  Quarterly Report on Form 10-Q for the period ended March  31, 2003, and incorporated by reference herein).

____________________

*  Indicates that exhibit is a management contract or compensatory plan or arrangement.

+  Filed herewith

25

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REGENCY AFFILIATES, INC.
August 31, 2009	By:	/s/ Laurence S. Levy
Date		Laurence S. Levy, President and Chief Executive Officer

August 31, 2009	By:	/s/ Neil N. Hasson
Date		Neil N. Hasson, Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

August 31, 2009	By:	/s/ Laurence S. Levy
Date		Laurence S. Levy, President, Chief Executive Officer and Director

August 31, 2009	By:	/s/ Neil N. Hasson
Date		Neil N. Hasson, Chief Financial Officer and Director

August 31, 2009	By:	/s/ Errol Glasser
Date		Errol Glasser, Director

26

EXHIBIT INDEX

Exhibit No. Description of Document

3.1(i)(a)	Restated Certificate of Incorporation of the Company (filed as exhibit 3.1(i)(a) to the Company's Form 10-Q dated 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 Form 10-Q, dated November 19, 2002, and incorporated herein by reference).
3.1(i)(c)	Certificate of Amendment to Restated Certificate of Amendment (filed as Exhibit A to the Company's Information Statement on Schedule 14C filed on October 27, 2003).
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 by reference).
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 Report on Form 8-K filed on October 18, 2002, and incorporated herein by reference).

27

Exhibit No. Description of Document

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 Registrant's Annual Report on Form 10-K for the year ended 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 No. 2-86906, and incorporated herein by reference).
3.1(ii)(b)	Amendment No. 1 to By-Laws of the Company (filed as exhibit 3.1(ii)(b) to the Company's Form 10-Q dated November 19, 2002, and incorporated herein by reference).
10.1	2003 Stock Incentive Plan of the Company (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003 and incorporated herein by reference) *
10.2	Amendment No. 1 to 2003 Stock Incentive Plan (filed as Exhibit 8 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference.) *
10.3	Amendment No. 2 to 2003 Stock Incentive Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB on August 23, 2004, and incorporated herein by reference.) *
10.4	Stock Option Agreement, dated April 1, 2003, between the Company and Stanley Fleishman (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.5	Stock Option Agreement, dated April 1, 2003, between the Company and Errol Glasser (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.6	Stock Option Agreement, dated April 1, 2003, between the Company and Laurence Levy (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
10.7	Stock Option Agreement, dated April 1, 2003, between the Company and Neil Hasson (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *

28

Exhibit No. Description of Document

10.8 Stock Option Agreement, dated October 1, 2003 between the Company and Laurence Levy (filed as Exhibit 11 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference). *

10.9	Stock Option Agreement, dated October 1, 2003 between the Company and Neil Hasson (filed as Exhibit 12 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference). *
10.10	Stock Option Agreement, dated October 1, 2003 between the Company and Errol Glasser (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-KSB filed on April 14, 2004, and incorporated herein by reference). *
10.11	Stock Option Agreement, dated October 1, 2003 between the Company and Stanley Fleishman (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-KSB filed on April 14, 2004, and incorporated herein by reference). *
10.12	Stock Option Agreement, dated as of August 13, 2004 between the Company and Laurence Levy (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB filed on August 23, 2004, and incorporated herein by reference). *
10.13	Stock Option Agreement, dated as of August 13, 2004 between the Company and Neil Hasson (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB filed on August 23, 2004, and incorporated herein by reference). *
10.14	License Agreement, dated March 17, 2003, between the Company and Royalty Management, Inc. (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference).
10.15	Demand Note from the Company in favor of Royalty Holdings LLC (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference).
10.16	Redemption Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.1 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.17	Call Option Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.2 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).

29

Exhibit No. Description of Document

10.18	Contingent Payment Agreement, dated October 16, 2002, between the Company and William R. Ponsoldt, Sr. (filed as exhibit 99.3 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.19	Amended and Restated Certificate of Designations of the Series C Preferred Stock (filed as exhibit 99.4 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).

10.20	Note Purchase Agreement, dated October 16, 2002, between the Company Royalty Holdings LLC (filed as exhibit 99.5 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.21	5% Convertible Promissory Note of the Company (filed as exhibit 99.6 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.22	9% Promissory Note of the Company (filed as exhibit 99.7 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.23	Amended and Restated Promissory Note of the Company (filed as exhibit 99.8 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.24	Amendment No. 1 to Pledge Agreement (filed as exhibit 99.9 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.25	Letter Agreement, dated October 16, 2002, between the Company and Statesman (filed as exhibit 99.10 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference).
10.26	Employment Agreement, dated October 16, 2002, between Laurence S. Levy and the Company (filed as exhibit 99.11 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.27	Employment Agreement, dated October 16, 2002, between Neil N. Hasson and the Company (filed as exhibit 99.12 to Company's Current Report on Form 8-K filed October 18, 2002, and incorporated herein by reference). *
10.28	Employment Agreement dated June 3, 1997, between Regency Affiliates, Inc. and William R. Ponsoldt, Sr., and Agreement dated June 3, 1997, between Regency Affiliates, Inc. and Statesman Group, Inc. (filed as exhibits 10(a) and (b) to the Company's report on Form 8-K dated June 13, 1997, and incorporated herein by reference). *

30

Exhibit No. Description of Document

10.29

Asset Purchase and Sale Agreement dated February 27, 1997, between Rustic Crafts Co., Inc. and certain individuals, as Sellers, and Regency Affiliates, Inc., as Purchaser, and Assignment and Assumption of Purchase Agreement dated March 17, 1997, between Regency Affiliates, Inc., and Rustic Crafts International, Inc. (filed as exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 at page E-1, and incorporated herein by reference).

10.30

Amended and Restated Agreement between Regency Affiliates, Inc. and the Statesman Group, Inc., dated March 24, 1998 (filed as exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, at page E-36, and incorporated herein by reference).

10.31	Loan Agreement and Pledge and Security Agreement with KBC Bank N.V., dated June 24, 1998 (filed as exhibits 10.1 and 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference).
10.32	Security Land And Development Company Limited Partnership Agreement, as amended by Amendment Nos. 1 through 6 (filed as Exhibit 1(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference).
10.33	Seventh Amendment to Partnership Agreement of Security Land and Development Company Limited Partnership dated June 24, 1998 (filed as exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference).
10.34	Eighth Amendment to Partnership Agreement of Security Land and Development Company Limited Partnership, dated April 8, 2003 (filed as Exhibit 10.27 to the Company report on Form 10-KSB for the year ended December 31, 2002, filed on April 15, 2003, and incorporated herein by reference).
10.35	Purchase Agreement for a 5% Limited Partnership Interest in 1500 Woodlawn Limited Partnership, the General Partner of Security Land (filed as exhibit 10.2 to the Company's report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference).
10.36	Glas-Aire Redemption Agreement (incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 16, 2001).
10.37	Statesman exercise agreement (incorporated herein by  reference to the Company's Current Report on Form 8-K  filed on October 25, 2001).

31

Exhibit No. Description of Document

10.38	Ninth Amendment to Security Land and Development Company  Limited Partnership Amended and Restated Limited  Partnership Agreement (filed as Exhibit 10.1 to the  Company's Form 8-K filed on June 25, 2003, and  incorporated herein by reference).
10.39	Seventh Amendment to First Amended and Restated Limited  Partnership Agreement of 1500 Woodlawn Limited  Partnership (filed as Exhibit 10.2 to the Company's Form  8-K filed on June 25, 2003, and incorporated herein by  reference).
10.40	Assignment and Assumption Agreement, dated as of April  30, 2004, between DTE Mobile, LLC and Regency Power  Corporation (incorporated by reference from the  Company's Current Report on 8-K filed on May 11, 2004).
10.41	Membership Interest Purchase Agreement, dated as of  January 30, 2004, between MESC Capital, LLC and Mobile  Energy Services Holdings, Inc. (incorporated by  reference from the Company's Current Report on 8-K filed  on May 11, 2004).
10.42	Stock Option Agreement, dated as of June 14, 2005 between the Company and Laurence S. Levy (incorporated by reference from an Amendment to Schedule 13D filed on June 24, 2005). *

10.43	Stock Option Agreement, dated as of June 14, 2005 between the Company and Neil Hasson (incorporated by reference from an Amendment to Schedule 13D filed on June 24, 2005). *
10.44	Stock Option Agreement, dated as of April 1, 2006 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-QSB filed on May 19, 2006). *
10.45	Stock Option Agreement, dated as of August 14, 2007 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-QSB filed on October 5, 2007). *
10.46	Third Amendment to 2003 Stock Incentive Plan dated as of August 13, 2004 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on September 12, 2008).*
10.47	Stock Option Agreement, dated as of December 17, 2008 between the Company and Errol Glasser (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.48	Amendment to Employment Agreement between the Company and Laurence S. Levy dated as of December 17, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.49	Amendment to Employment Agreement between the Company and Neil Hasson dated as of December 17, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on January 8, 2009).*
10.50	Stock Option Agreement, dated as of August 13, 2008 between the Company and Laurence S. Levy (incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on September 12, 2008). *
10.51+	Stock Option Agreement, dated as of April 30, 2009 between the Company and Laurence S. Levy. *
21+	Schedule of Subsidiaries.
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

Exhibit No. Description of Document

32.1+	Certification of Chief Executive Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.
32.2+	Certification of Chief Financial Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.
99.1	Report of the Special Committee of the Company's Board  of Directors, dated May 10, 2003, and adopting  resolutions (filed as Exhibit 99.2 to Company's  Quarterly Report on Form 10-Q for the period ended March  31, 2003, and incorporated by reference herein).

____________________

*  Indicates that exhibit is a management contract or compensatory plan or arrangement.

+  Filed herewith

33

Regency Affiliates, Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2008 and 2007

34

Regency Affiliates, Inc. and Subsidiaries

Index to the Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-1
Financial Statements
Consolidated Balance Sheets	F-2-F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Changes in Shareholders' Equity	F-5
Consolidated Statements of Cash Flows	F-6-F-7
Notes to Consolidated Financial Statements	F-8-F-25

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

   of Regency Affiliates, Inc. and Subsidiaries

We have audited the consolidated balance sheets of Regency Affiliates, Inc. and Subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the two year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Regency Affiliates, Inc. and Subsidiaries as of December 31, 2008 and 2007 and the results of its consolidated operations, changes in shareholder's equity and cash flows each of the years in the two year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

   /s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey

August 25, 2009

F-1

Regency Affiliates, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2008		2007
Assets
Current Assets
Cash and cash equivalents	$	7,469,213	$	253,566
Marketable securities		2,900,000		9,782,234
Accrued interest receivable, net of allowance of $644,109 in  both years		-		-
Other current assets		404,424		344,539
Total Current Assets		10,773,637		10,380,339
Property, plant and equipment, net		9,283		13,117
Investment in partnerships / LLC		10,972,900		9,563,717
Deferred tax asset		1,105,000		1,245,500
Other
Total Other Assets		1,300		1,300
Total Assets	$	22,862,120	$	21,203,973

See notes to the consolidated financial statements.

F-2

Regency Affiliates, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2008			2007
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	300,600		$	391,651
Settlement payable		3,025,269			–
Total Current Liabilities		3,325,869			391,651
Commitments and contingencies		–			–
Shareholders' equity
Serial preferred stock, Series C and D, not subject to mandatory redemption, 234,544 shares outstanding; (Maximum liquidation preference $21,141,940)		486,076			486,076
Common stock, par value $0.01; 8,000,000 shares authorized; 3,534,812 in 2008 and 3,531,812 in 2007 issued; 3,468,544 in 2008 and 3,465,544 in 2007 outstanding		35,349			35,319
Additional paid-in capital		7,281,219			7,112,199
Readjustment resulting from quasi-reorganization at December 1987		(1,670,596	)		(1,670,596	)
Retained earnings		13,813,053			15,258,174
Note receivable-sale of stock, net of allowance of $2,440,000		-			-
Treasury stock, 66,268 shares at cost		(408,850	)		(408,850	)
Total Shareholders' Equity		19,536,251			20,812,322
	$	22,862,120		$	21,203,973

See notes to the consolidated financial statements.

F-3

Regency Affiliates, Inc. and Subsidiaries

Consolidated Statements of Operations

	Year Ended December 31,
	2008			2007
Net Sales	$	-		$	-
Costs and expenses
General and Administrative expenses		(1,474,939	)		(1,426,370	)
Loss from operations		(1,474,939	)		(1,426,370	)
Other income (expense)
Income from equity investment in partnerships		3,084,183			2,695,978
Loss from settlement		(3,000,000	)		-
Interest expense		(25,269	)		-
Interest and dividend income		142,795			431,552
Unrealized investment gains (losses)		(505	)		(3,957	)
Net income (loss) before income taxes		(1,273,735	)		1,697,203
Income tax expense (benefit)		171,386			(1,139,827	)
Net Income (Loss)	$	(1,445,121	)	$	2,837,030
Net income (loss) per common share:
Basic
Net income (loss) per common share	$	(0.41	)	$	0.82
Weighted average number of shares		3,533,480			3,475,932
Diluted
Net income (loss)  per common share	$	(0.41	)	$	0.76
Weighted average number of shares		3,848,983			3,710,303

See notes to the consolidated financial statements.

F-4

Regency Affiliates, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Years Ended December 31, 2008 and 2007

	Preferred Stock						Common Stock						Additional Paid in Capital			Readjustment Resulting from Quasi- Reorganization			Retained Earnings			Note Receivable Sale of Stock		Treasury Stock						Total Stockholders' Equity
	Shares			Amount			Shares			Amount														Shares			Amount
Balance – January 1, 2007		605,291		$	1,052,988			3,103,078		$	31,031		$	6,417,739		$	(1,670,596	)	$	12,421,144		$	-		66,268			(408,850	)	$	17,843,456
Exercise of stock options		-			-			13,000			130			22,145			-			-			-		-			-			22,275
Stock options granted to officers		-			-			-			-			197,750			-			-			-		-			-			197,750
Conversion of preferred shares		(370,747	)		(566,912	)		430,473			4,305			562,607			-			-			-		-			-			-
Purchase treasury shares		-			-			-			-			-			-			-			-		14,739			(88,189	)		(88,189	)
Retirement of treasury shares		-			-			(14,739	)		(147	)		(88,042	)		-			-			-		(14,739	)		88,189			-
Net income		-			-			-			-			-			-			2,837,030			-		-			-			2,837,030
Balance - December 31, 2007		234,544			486,076			3,531,812			35,319			7,112,199			(1,670,596	)		15,258,174			-		66,268			(408,850	)		20,812,322
Issuance of common stock for accrued expenses		-			-			3,000			30			14,820			-			-			-		-			-			14,850
Stock options granted to officers		-			-									154,200			-			-			-		-			-			154,200
Net income (loss)		-			-			-			-			-			-			(1,445,121	)		-		-			-			(1,445,121	)
Balance - December 31, 2008		234,544		$	486,076			3,534,812		$	35,349		$	7,281,219		$	(1,670,596	)	$	13,813,053		$	-		66,268		$	(408,850	)	$	19,536,251

See notes to the consolidated financial statements.

F-5

Regency Affiliates, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007
Cash flows from operating activities
Net income (loss)	$	(1,445,121	)	$	2,837,030
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Income from equity investment in partnerships		(3,084,183	)		(2,695,978	)
Stock-based compensation		154,200			197,750
Depreciation and amortization		3,834			3,476
Deferred tax asset		140,500			(1,245,500	)
Changes in assets and liabilities
Increase in other current assets		(59,885	)		(203,388	)
Decrease in accounts payable and accrued expenses		(76,201	)		(82,275	)
(Increase) in settlement payable		3,025,269			−
Net cash used in operating activities		(1,341,587	)		(1,188,885	)
Cash flows from investing activities
Purchases of property and equipment		-			(12,589	)
Distribution of earnings from partnership		1,675,000			1,204,635
Purchases of marketable securities		(111,617,766	)		(104,796,934	)
Proceeds from sales of marketable securities		118,500,000			104,500,000
Net cash provided by investing activities		8,557,234			895,112
Cash flows from financing activities
Proceeds from the exercise of stock options		-			22,275
Purchase of treasury stock		-			(88,189	)
Net cash used in financing activities		-			(65,914	)
Increase (Decrease) in cash and cash equivalents	$	7,215,647		$	(359,687	)
Cash and cash equivalents – beginning		253,566			613,253
Cash and cash equivalents – ending	$	7,469,213		$	253,566

See notes to the consolidated financial statements.

F-6

Regency Affiliates, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (continued)

	Years Ended December 31,
	2008		2007
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	-	$	-
Income taxes	$	119,886	$	44,200
Supplemental disclosures of non-cash investing and financing activities:
Stock issued in settlement of accrued expenses	$	14,850	$	-

See notes to the consolidated financial statements.

F-7

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated financial statements include the accounts of Regency Affiliates, Inc. (the "Company"), its wholly owned subsidiary, Regency Power Inc. (“Regency Power”) since April 30, 2004, date of inception, its 75% owned subsidiary, Iron Mountain Resources, Inc. (“Iron Mountain”) and its 80% owned subsidiary, National Resource Development Corporation ("NRDC"). All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations - The Company has limited operations through its subsidiaries, Iron Mountain, Rustic Crafts, and NRDC.  Iron Mountain is currently an inactive entity.  Rustic Crafts was a manufacturer of decorative woods, cast marble fireplaces, and other home furnishings.  Its assets were sold in 2002, to a buyer who has since defaulted on the note (refer to Note 5 - -  Note Receivable).  Except for its collection efforts from the buyer, Rustic Crafts has not engaged in any significant operations since 2002. NRDC’s principal asset consists of previously quarried and stockpiled rock (“Aggregate”) inventory located at a mine site in Michigan.  The Company has never consummated sales of significant amounts of the Aggregate.  In 2005, based on a fair value appraisal, the Aggregate was deemed to have no value and a full valuation was taken against the asset.   There have been only limited sales of Aggregate in recent years.

Regency Power owns a 50% interest in MESC Capital, LLC, a Delaware limited liability company (“MESC Capital”).  MESC Capital owns a 100% interest in Mobile Energy Services, Company, LLC, an Alabama limited liability company (“Mobile Energy”), which owns an on-site energy facility that supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile, Alabama.  Also refer to Note 4, “Investment in MESC Capital LLC,” for additional information.

In addition, the Company holds a limited partnership interest in Security Land and Development Company Limited Partnership (“Security Land”), which owns and operates 34.3 acres of land and rental property of approximately 717,000 square feet in Woodlawn, Maryland, which is occupied by the United States Social Security Administration’s Office of Disability and International Operations. In November, 2000, the Company acquired a 5% limited partnership interest in 1500 Woodlawn Limited Partnership, the general partner of Security Land.  Also refer to Note 3, “Investment in Security Land and Development Company Limited Partnership,” for additional information.

Earnings Per Share - Basic earnings per share is 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 all stock options outstanding for the period.  Diluted earnings per share of common stock reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net income of the Company.  Also refer to Note 11, "Basic and Diluted Earnings Per Share," for additional information.

Stock Based Compensation - The Company accounts for stock and stock options issued for services and compensation by employees under the fair value method. For non-employees, the fair market value of the Company’s stock is measured on the date of stock issuance or the date an option/warrant is granted. The Company determined the fair market value of the options issued under the Black-Scholes Pricing Model. Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R), “Share-based Payment,” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant).

Fair Value of Financial Instruments - The fair values of cash, other current assets, accounts payable and accrued expenses approximate their carrying values because of the short maturity of these financial instruments.

F-8

Limitations – Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Cash and Cash Equivalents - Cash and cash equivalents represent cash and short-term highly liquid investments with original maturities of three months or less.  The Company places its cash and cash equivalents with high credit quality financial institutions that may exceed federally insured amounts at times.

Property, Plant and Equipment - Property, plant and equipment are carried at cost.  Depreciation is provided over the estimated useful lives of the assets by the use of the straight-line and declining balance methods.

These items consist of the following at December 31, 2008 and 2007:

	2008		2007
Machinery and equipment	$	50,697	$	50,697
Leasehold improvements		9,742		9,742
		60,439		60,439
Accumulated depreciation		51,156		47,322
	$	9,283	$	13,117

Depreciation expense for the years ended December 31, 2008 and 2007 was $3,834 and $3,476, respectively.

Investments – The Company uses the equity method of accounting for investments in equity securities in which it has more than a 20% interest, but does not have a controlling interest and is not the primary beneficiary.  The Company uses the cost method of accounting for investments in equity securities in which it has a less than 20% equity interest and virtually no influence over the investee’s operations.

Aggregate Inventory - Inventory, which consists of 70+ million short tons of previously quarried and stockpiled aggregate rock located at the site of the Groveland Mine in Dickinson County, Michigan, 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.

In December, 2001 the aggregate inventory was sold to Iron Mountain, a 75% owned subsidiary of the company.  The purchase price was $18,200,000 and was payable, with interest of 2.46%, in ninety-six equal payments of principal and interest commencing in December, 2003. The intercompany gain on this transaction was eliminated in the consolidation process resulting in the aggregate inventory being carried at its historical cost.  On February 9, 2005, in lieu of foreclosure, Iron Mountain reconveyed the aggregate inventory back to NRDC and the note was deemed satisfied.  Based upon a subsequent fair market value appraisal, the aggregate inventory was deemed to have no value, and as such a full valuation allowance of $832,427 was taken in 2005.

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

F-9

Evaluation of Long Lived Assets - Long-lived assets are assessed for recoverability on an ongoing basis.  In evaluating the fair value and future benefits of long-lived assets, their carrying value would be reduced by the excess, if any of the long-lived asset over management's estimate of the anticipated undiscounted future net cash flows of the related long-lived asset.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Note 2. Marketable Securities

In accordance with SFAS 157, fair value was determined based on quoted prices in active markets, or Level 1 inputs.

The cost and fair value of the Company's investments in marketable securities are as follows:

Trading securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2008:
2,900,000 US Treasury bills	$	2,900,505	$	-	$	(505	)	$	2,900,000
As of December 31, 2007:
9,800,000 US Treasury bills	$	9,786,191	$	-	$	(3,957	)	$	9,782,234

Note 3. Investment in Security Land and Development Company Limited Partnership

In November 1994, the Company purchased, for $350,000, a limited partnership interest in Security Land, which owns and operates an office complex.   The Company has limited voting rights and is entitled to allocations of the profit and loss of Security Land and operating cash flow distributions, as amended (see below).

Security Land 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 buildings were purchased by Security Land in 1986 and are located on approximately 34.3 acres of land which is also owned by Security Land.  The buildings have been occupied by the United States Social Security Administration's Office of Disability and International Operations for approximately 30 years under leases between the United States of America, acting by and through the General Services Administration ("GSA").  Effective November 1, 1994, Security Land and the GSA entered into a nine-year lease for 100% of the building.  In March 2003, the General Services Administration agreed to extend the terms of the lease through October 31, 2018.  Security Land 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.

In April 2003, the Company entered into an amendment to the Security Land partnership agreement. The amendment provides for the distribution of the net proceeds of a loan to Security Land to the Company and the non-Company partners on a 50/50 basis, provided that such allocation would result in a minimum distribution to the Company of $39,000,000 (a "qualified financing").  This qualified financing was obtained in June 2003 (see below).  The amendment also provides that, following the qualified financing, the Company will be entitled to (i) 95% of Security Land's distributions of cash flow until it has received $2,000,000 of such distributions, and thereafter 50% of such distributions, and (ii) once it has received $2,000,000 of cash flow distributions, it will receive $180,000 annual management fee from Security Land.  The foregoing percentages are inclusive of the Company's interest as a limited partner in 1500 Woodlawn Limited Partnership, the general partner of Security Land.

F-10

The refinancing of Security Land’s property at 1500 Woodlawn Drive, Woodlawn, Maryland closed on June 24, 2003.  US SSA LLC (a single purpose entity owned by Security Land) borrowed $98,500,000 through a public debt issue underwritten by CTL Capital, LLC.  Proceeds of the refinancing were used to repay the outstanding balance of Security Land's 1994 indebtedness, to establish reserves to make capital improvements to the property, to provide reserves required by the new debt, to pay costs and expenses related to issuing the debt, to pay fees related to the lease extension with the GSA and the financing, and to make a distribution to the partners of Security Land.  The debt is for a term of 15.3 years maturing October 31, 2018 at which time the loan will have been paid down to a balance of $10,000,000.  Security Land also obtained residual value insurance for approximately $10,000,000.  The interest cost of the financing is 4.63%.  The financing is non-recourse to the Company.  The Company received $41,018,943 from the Security distribution.  In connection with the Security Land refinancing and distribution, the Company was required to repay its KBC Bank loan.  The payoff amount was $14,145,410, which included a release fee and make-whole premium.

For the years ended December 31, 2008 and 2007 the Company's income from its equity investment in Security Land was $1,678,925 and $1,516,455, respectively.   These funds, however, are principally committed to the amortization of the outstanding principal balance on Security Land's real estate mortgage. Security Land does not currently provide liquidity to the Company.

Summarized financial information for Security Land is as follows:

	2008			2007
Balance Sheet Data
Cash and receivables	$	1,201,696		$	1,109,104
Restricted cash		2,276,931			2,254,315
Real estate, net		28,081,476			30,456,122
Deferred charges, net		6,314,898			7,172,186
Other assets		320,044			350,681
Total Assets		38,195,045			41,342,408
Accounts payable and accrued expenses		354,490			350,425
Project note payable		73,550,621			78,459,228
Other liabilities		151,482			161,591
Total Liabilities		74,056,593			78,971,244
Partners' capital:
Regency Affiliates, Inc.		4,953,818			3,274,894
Other partners		(40,815,366	)		(40,903,730	)
Total Partners' Capital		(35,861,548	)		(37,628,836	)
Total Liabilities and Partner's Capital		38,195,045			41,342,408
Statement of Operations Data
Revenues	$	13,241,407		$	13,250,867
Expenses		7,892,831			8,033,403
Net operating income		5,348,576			5,217,464
Other expenses		(3,581,288	)		(3,621,196	)
Net income	$	1,767,288		$	1,596,268

F-11

Effective November 30, 2000 the Company invested $10,000 for a 5% limited partnership interest in 1500 Woodlawn Limited Partnership, the general partner of Security Land.  The Company recognized income of $4,418 in 2008 and $3,991 in 2007 from this investment.

Note 4.  Investment in MESC Capital LLC

On April 30, 2004, the Company, through a newly-formed, wholly-owned subsidiary called Regency Power Corporation, a Delaware corporation, acquired a 50% membership interest in MESC Capital, a Delaware limited liability company, from DTE Mobile, LLC (“DTE Mobile”), pursuant to an Assignment and Assumption Agreement dated as of April 30, 2004. The purchase price for the 50% membership interest was $3,000,000 and was funded from Regency's working capital. The terms of the Assignment and Assumption Agreement were negotiated on an arms'-length basis between Regency and DTE Mobile. DTE Mobile, which is owned by an unregulated subsidiary of a large energy company that has significant experience in owning, managing and operating electric generation and on-site energy facilities, owns the other 50% membership interest in MESC Capital.

MESC Capital was formed to acquire all of the membership interests in Mobile Energy. Mobile Energy owns an on-site energy facility that supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile, Alabama. The acquisition of Mobile Energy was also consummated on April 30, 2004 pursuant to a Membership Interest Purchase Agreement, dated as of January 30, 2004, between MESC Capital and Mobile Energy Services Holdings, Inc. The purchase price under the Membership Interest Purchase Agreement, after certain pre-closing adjustments, was $33,600,000, and is subject to certain post-closing adjustments. The purchase price and working capital reserves were funded by the issuance of $28,500,000 of non-recourse debt, a total equity contribution by MESC Capital of $8,600,290, $4,300,145 of which was funded by Regency Power and $4,300,145 of which was funded by DTE Mobile, and a credit of $1,000,000 on account of existing and continuing tax-exempt indebtedness of Mobile Energy. The terms of the Membership Interest Purchase Agreement were negotiated on an arms'-length basis between MESC Capital and Mobile Energy. The Company did not participate in negotiations with respect to the Membership Interest Purchase Agreement.

The $28,500,000 acquisition indebtedness was obtained from Allied Irish Banks, P.L.C., which may assign or participate the loan in accordance with the terms of the loan agreement. The loan will be amortized over the fifteen-year term. In connection with the acquisition of the 50% membership interest in MESC Capital, Regency Power and DTE Mobile entered into an Operating Agreement, dated April 30, 2004, which sets forth their respective rights and obligations as members of MESC Capital as well as the duties and authority of DTE Mobile as the managing member of MESC Capital. Under the Operating Agreement, Regency Power will receive 50% of all distributions. Neither Regency Power nor DTE Mobile is obligated to contribute additional capital, or loan or otherwise advance funds, to MESC Capital, and neither member can sell or transfer its interest in MESC Capital without the consent of the other and without first complying with a right of first offer in favor of the non-selling member.

The Company accounts for the Investment in Partnerships using the equity method, whereby the carrying value of these investments are increased or decreased by the Company's allocable share of book income or loss.  The Company recognized income of $1,400,840 in 2008 and $1,175,532 in 2007 from this investment.

F-12

Summarized financial information for MESC Capital LLC is as follows:

	2008			2007
Balance Sheet Data
Cash and cash equivalents	$	2,071,871		$	7,347,784
Restricted cash		2,636,641			1,298,930
Trade receivable		2,808,699			1,534,313
Current portion of net investment in direct financing lease		1,420,059			1,312,055
Inventory		3,615,972			3,469,905
Prepaid expenses and other current assets		176,195			208,546
Total current assets		12,729,437			15,171,533
Debt issuance costs		1,027,155			1,203,159
General plant, net		875			17,287
Investment in direct financing lease, net of current portion		20,369,174			21,789,234
Total assets		34,126,641			38,181,213
Accounts payable		2,473,941			4,711,825
Accrued liabilities		49,117			29,846
Long term debt, net of current position		1,487,700			1,350,900
Total current liabilities		4,010,758			6,092,571
Current portion of long term debt		23,124,550			24,612,250
Total liabilities		27,135,308			30,704,821
Unrealized Loss on Interest Rate Swap Contract		1,289,115			267,881
Members’ equity		5,702,218			7,208,511
Total liabilities and members’ equity		34,126,641			38,181,213
Statement of Operations Data
Revenues	$	15,262,737		$	14,893,320
Expenses		11,897,955			11,196,293
Net operating income		3,364,782			3,697,027
Other income (expense)		(563,103	)		(1,345,963	)
Net income	$	2,801,679		$	2,351,064

Note 5. Notes Receivable

Pursuant to the sale of the net operating assets of the Company's subsidiary, Rustic Crafts Inc. (“Rustic Crafts”), on September 30, 2002, Rustic Crafts obtained notes receivable. At December 31, 2003, these notes consisted of the following:

	2003
Note receivable, 5% per annum, with monthly payments of principal and interest of $13,342, due 9/30/07	$	707,000
Note receivable, 7.5% per annum, with monthly payments of principal and interest of $5,032, with a balloon payment due 9/8/06		422,271
Total	$	1,129,271

F-13

In March 2004, these notes were deemed to be uncollectible due to the lack of cash flows generated and the continual default on payment terms RCI Wood Products, Inc. (“RCI”). The Company determined to record full impairment of the notes and any accrued interest thereon which totaled $1,182,626.

In December 2005, a stipulation of settlement was entered into in which the Company agreed to accept a total of $125,000 payable over three years in full settlement of the notes detailed above.  No gain or income was recognized as a result of this settlement due to the uncertainty that the amount will actually be realized. Such recovery will be recognized upon receipt. During 2006, the Company received $3,264 of such settlement which was included in other income.  In April 2006, RCI defaulted on the note.  The Company has initiated an action for collection against RCI and a personal guarantor on the note.  RCI has filed for protection under Chapter 11 of the United States Bankruptcy Code.  The Company has received a judgement on the personal guarantee and has initiated collection.  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.

Note 6. Serial Preferred Stock

At December 31, 2008 and 2007, the Company had 2,000,000 of authorized shares of $.10 par value serial preferred stock.  Serial preferred stock at December 31, 2008 and 2007, all of which is convertible and cumulative, consists of:

	Shares				Value
							2008		2007
	Designated		Outstanding		Carrying		Liquidation		Liquidation
Series C, $100 stated
value, cumulative		210,000		208,850	$	229,136	$	20,885,000	$	20,885,000
Series B, $10 stated
value, 6% cumulative		-		-		-		-		-
Junior Series, D, $10
Stated value, 7%
Cumulative		26,000		25,694		256,940		256,940		256,940
		236,000		234,544	$	486,076	$	21,141,940	$	21,141,940

Series C - - The Series C shares were issued on July 7, 1993 as part of the transaction to acquire an 80% interest in NRDC.  The cumulative dividend right is equal to 20% (not to exceed $500,000) of annual after tax earnings of NRDC.  At the Company's option, the Series C may be redeemed at the lesser of (a) the stated value plus accrued and unpaid dividends or (b) the fair market value of the common stock interest acquired by the Company in NRDC.  At the Company's option, the redemption price may be satisfied by the delivery of the shares in NRDC owned by the Company.

Also, on October 16, 2002, the Company entered into agreements with Statesman providing for the amendment to the Company's Series C Preferred Stock and certain restrictions relating to Statesman's future ownership of an interest in the Company and Statesman's ability to issue or transfer beneficial interests in Statesman, in exchange for a payment to Statesman of $2,730,000.  The payment was recorded as a reduction in paid-in capital in the accompanying financial statements.

F-14

Series B - - The Series B shares were issued in 1991 as part of a restructuring plan limited to senior lenders and was issued in exchange for all obligations and any claims or causes of action relating to the Company's obligations and guarantees.  Such preferred stock includes, among other provisions and preferences, the following:

(a) A 6% cumulative dividend right commencing on the 24th month from the consummation of a defined "initial business combination transaction" (which occurred with the acquisition of Rustic Crafts in 1997 (see Note 6) and if the Company has reached a defined ratio of earnings to fixed charges.  In addition, dividends accrue for a period of 35 additional months without cash payment.

(b) At the Company's option, the shares may be redeemed, subject to certain limitations, by cash payment or by exchanging shares of its common stock at 77% of its stated value divided by the quoted market value of its common stock.

(c) A contingent conversion provision which conversion right, and the Company common shares to be issued in connection with the conversion, would be based on the stated value divided by the average bid and asked price for the 90 days preceding the conversion date of the Company's common shares.  In addition, the number of the Company's common shares to be received upon conversion is subject to certain limitations.

Junior Series D - The junior preferred stock was issued in 1992 in exchange for the Company's Restructuring Serial Promissory Notes.  This preferred stock is redeemable, at the Company's option, at the stated value plus accrued and unpaid dividends and is contingently convertible into common at the fair market value of the common as determined by the average of the bid and asked price for the thirty (30) day period preceding the conversion date.

Generally, no dividends can be paid on the Company's common stock until all cumulative dividends on the serial preferred stock have been paid.  Additionally, no dividends on the Company's common shares can be paid if the Company is in default or in arrears with respect to any sinking or analogous fund or any call or tenders or other agreement for the purchase, redemption or other retirement of shares of preferred stock.  No provision for dividends has been made for the Company's Series B and C "increasing rate preferred stock," as defined in Staff Accounting Bulletin Topic 5Q, due to the contingent nature of dividends on such shares.

Generally the preferred shares have limited voting rights.  However, in the event dividends payable on the Series C shares are accumulated and unpaid for seven quarterly dividends (whether or not declared and whether or not consecutive), the holders of record of the Series C shares, shall thereafter have the right to elect two directors (each) until all arrears in required cash dividends (whether or not declared) on such shares have been paid.  The Company's bylaws provide for eight members on its Board of Directors.

On February 16, 2007, the Company exercised its right to redeem all of the 370,747 issued and outstanding shares of Series B Stock, payable on March 15, 2007. The aggregate redemption price of 430,473 shares of the Company’s common stock, at $6.65 per share, was $2,862,645. As this amount was less than the original debt obligations exchanged with the preferred stockholders, which represented their investment in 1991 of $3,707,470, no deemed dividend or beneficial conversion feature was recognized by the Company. This transaction resulted in the retirement by the Company of all issued and outstanding Series B stock.

Note 7. Stock Option and Note Receivable - Statesman

Effective June 3, 1997, the Company issued options to purchase 6.1 million (pre-2002 10-1 reverse split) shares of common stock to Statesman Group, Inc. (“Statesmen”).   The options were issued to Statesman in order to secure the release of Mr. William R. Ponsoldt, Sr. to serve as President and Chief Executive Officer of the Company and to recognize in part, the amendment to the Series C preferred shares under which Statesman forfeited certain common stock conversion rights with respect thereto.  Statesman also agreed to provide loan guarantees not to exceed the sum of $300,000 upon the request of the Company and a showing of reasonable need.  Statesman and/or its affiliated interests have provided loan guarantees and/or unsecured prime interest rate direct loans to the Company exceeding $2,000,000 since June 1997.

F-15

On October 15, 2001 Statesman exercised in full its option, which had been granted in 1997, to acquire 610,000 post-reverse-split shares of the Company's common stock.  The exercise was made pursuant to an agreement which provided for (1) a purchase price at $0.40 per share (par value) rather than the formula price in the option, which would have yielded 25% less to the Company, (2) the execution of a note from Statesman to the Company in the principal amount of $2,440,000 payable in five years with interest to accrue at the prevailing prime rate and (3) the obligation to be collateralized by the 610,000 post-reverse-split common shares of the Company purchased upon exercise of the option as well as the 20% remaining interest in the Company's 80% owned subsidiary, NRDC.

On October 16, 2002, in Amendment No. 1 to the Pledge Agreement dated as of October 15, 2001, the Pledge Agreement was amended to provide the obligation to be collateralized by 208,650 shares of the Company’s Series C preferred shares in lieu of the 610,000 post-reverse-split common shares, as well as the 20% remaining interest in the Company’s 80% owned subsidiary, NRDC.

In addition, the Company acquired from Statesman a three-year option to acquire Statesman's 20% interest in NRDC exercisable by delivery to Statesman of the aforementioned $2,440,000 note.  The Company acquired the option by paying Statesman $250,000, amending the note (and underlying pledge agreement) to limit recourse and transferring to Statesman certain office furniture and equipment.  This option expired in 2005 and was therefore recorded as an expense.

As of December 31, 2008, through the date of this Form 10-K, the Company has not collected the $2,440,000 note and accrued interest of approximately $644,000 which was due on September 30, 2006 from Statesman. The Company has sent demand and default notices to Statesman but has not received a response to date.  Per the terms of the Pledge 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 the Company’s name, or sold for proceeds to satisfy the obligation and collection costs incurred.  At December 31, 2006, the Company had reserved the receivable balance in full while it continues its collection efforts.

Note 8.  Stock Based Compensation

2003 Incentive Stock Plan

Effective as of March 17, 2003, the Company’s Board of Directors and Stockholders approved and adopted the 2003 Stock Incentive Plan (the “2003 Plan”). The 2003 Plan allows the Administrator (as defined in the 2003 Plan), currently the Compensation Committee, to determine the issuance of incentive stock options, non-qualified stock options and restricted stock to eligible employees and outside directors and consultants of the Company. The Company has reserved 500,000 shares of common stock for issuance under the 2003 Plan. The exercise price of any option granted under the 2003 Plan is determined by the Administrator, and no option or award exercise date can exceed ten years from the grant date. On August 13, 2008, the Company’s Board of Directors approved an amendment to the 2003 Plan that increased the total number of authorized shares available from 500,000 to 750,000. All other terms of the Plan remain in full force and effect.

On August 13, 2008, the Company granted 50,000 stock options to the Company’s Chief Executive Officer under the 2003 Plan. The options granted have a term of 10 years and vest immediately.  On August 14, 2007, the Company granted 50,000 stock options to the Company’s Chief Executive Officer.  These options have a term of 10 years and vest immediately.

The fair value of the stock options granted during 2008 and 2007, respectively, under the 2003 Plan was $154,200 and $197,750.  Each stock option award is estimated as of the date of grant using a Black-Scholes option valuation model that uses the assumptions noted below. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. 

F-16

The fair value of the Company's stock-based compensation was estimated using the Black-Scholes option pricing model which requires highly subjective assumptions including the expected stock price volatility.  The fair value of the Company's stock options was estimated using the following assumptions: no expected dividends, risk free interest rate of 3.94% and 4.73%, expected average life of 7 years and 10 years and an expected stock price volatility of 62% and 67%, for each of the years ended December 31, 2008 and 2007, respectively.  The weighted average fair value of options granted was $2.98 during 2008 and $3.08 during 2007.

Effective December 17, 2008 the Company amended 5,000 outstanding stock options to a director of the Company in order to comply with provisions of Section 409A of the Internal Revenue Code, as amended.  The cancelled options were exercisable on April 1, 2005, had an exercise date of April 1, 2013, and an exercise price of $2.40 per share.  The replacement options have an exercise date of December 17, 2008 an expiration date of December 17, 2018 and an exercise price of $2.60 per share.  The fair market value of the original 5,000 options was measured prior to modification and compared to the fair market value of the modified option award, on the date of modification, based on the remaining contractual term through April 1, 2013.  The Black-Scholes option pricing model was used with the following assumptions: no expected dividends, a risk free interest rate of 1.35%, expected average life of 4.25 years, and an expected price volatility of 32.43%.  The modifications did not have a material effect on the award and no additional compensation expense has been recorded.

The following is a summary of the status of the Company's options for the years ended December 31, 2008 and 2007:

	Exercise Price Range		Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding at 1/1/07	$	.40 - 6.27		344,000		$	2.12		7.07
Issued		5.10		50,000			5.10		10
Exercised, forfeited or expired		.40-2.40		(14,000	)		.40		1.70
Outstanding at 12/31/07	$	1.35– 6.27		380,000		$	3.08		7.33
	Exercise Price Range		Options			Average Exercise Price		Average Contract Life
Outstanding at 1/1/08	$	1.35 - 6.27		380,000		$	3.08		7.33
Issued		2.60 - 4.20		55,000			4.05		10
Exercised, forfeited or expired		1.58 – 2.40		(22,500	)		2.31		3.75
Outstanding at 12/31/08	$	1.35– 6.27		412,500		$	2.98		6.21

Note 9.  Income Taxes

As referred to in Note 1, the Company accounts for income taxes under 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 the recognition of income tax carryforward items.

F-17

At December 31, 2008 and 2007, the Company’s net deferred tax asset, utilizing a 34% effective tax rate, respectively, consists of:

	2008			2007
Deferred tax assets:
Net operating loss carryforward		2,210,000			2,491,000
Valuation allowance		(1,105,000	)		(1,245,000	)
Subtotal	$	1,105,000		$	1,245,000

The valuation allowance was established to reduce the net deferred tax asset to the amount that will more likely than not be realized.  This reduction is necessary due to uncertainty of the Company’s ability to utilize the net operating loss (“NOL”) and tax credit carryforwards before they expire.  The primary income of the Company is derived from its investments in Security Land (Note 3) and MESC Capital (Note 4), and future utilization of the carryforwards against this income cannot be determined with certainty.  As a result, the Company reconsidered the need for a valuation adjustment to the NOL’s.   To analyze the need for a valuation allowance, estimates of future taxable income were made using estimates of continuing income from Security Land and MESC Capital and future general and administrative expenses.  The result of this analysis was that the Company estimates that as of December 31, 2008 and 2007, approximately 50% of the NOL’s will be utilized prior to their expiration.  In making these estimates, the Company was required to make certain assumptions regarding future events in both entities, which are managed by third parties.  The future profitability of Security Land and MESC Capital are dependent on future events outside the control of management; future events often do not occur as anticipated and the deviations from estimated earnings can be material.  The 50% adjustment to the valuation allowance of the deferred tax asset yields a $1,105,000 and $1,245,500 net deferred tax asset, as reflected on the balance sheet at December 31, 2008 and 2007, respectively, for use in future periods.

For regular federal income tax purposes, the Company had remaining net operating loss carryforwards of approximately $6,501,000 and $7,327,000 as of December 31, 2008 and 2007, respectively.  These losses can be carried forward to offset future taxable income and, if not utilized, will expire in varying amounts beginning in 2024.  The Company’s tax returns have not recently been examined by the Internal Revenue Service (“Service”) and there is no assurance that the Service would not attempt to limit the Company’s use of its net operating loss and tax credit carry forwards.

The Company and the general partner of Security Land are in disagreement as to the manner in which taxable income of Security Land is to be allocated pursuant to the partnership agreement and applicable law, and for years 2004 through 2007, the Company has reported taxable income (loss) from Security Land in a manner it believes is proper, but which was different than the manner reported by Security Land.

For the years ended December 31, 2008 and 2007, the tax effect of net operating loss carryforwards reduced the current provision for regular Federal income taxes by approximately $636,000 and $541,000, respectively.  At December 31, 2008 and 2007, the Company has provided $30,886 and $105,673, respectively, for taxes which relate to state income taxes.

The provision (benefit) for income taxes is as follows for the years ended December 31:

	2008		2007
Current	$	30,886	$	105,673
Deferred		140,500		(1,245,500	)
	$	171,386	$	(1,139,827	)

F-18

The difference between income tax benefits in the financial statements and the tax benefit computed at the applicable statutory rates of 34% at December 31, 2008 and 2007 is as follows:

	2008	2007
Federal expense (benefit) at the statutory rate	34.0%	34.0%
State tax expense	2.4	6.2
Benefit of net operating loss carry forward, net	(22.9)	(107.4)
Effective tax rate of income tax expense (benefit)	13.5%	(67.2)%

As of December 31, 2007, approximately $332,800 of state taxes were remitted on the Company’s behalf by its Security Land partnership interest.  These prepaid taxes are included in Other Current Assets on the Balance Sheet as of December 31, 2008 and 2007.  These prepaid taxes were subsequently received by the Company in 2009.

Note 10. Employment Agreements

In connection with the 2002 redemption of Statesman's interest, each of the Company's directors resigned effective October 28, 2002 with successors appointed by Royalty Management, LLC (“Royalty”), the holder of certain notes payable.  Simultaneously, all officers of the Company resigned and were replaced by Laurence S. Levy (an affiliate of Royalty) as CEO and Neil Hasson (an affiliate of Royalty) as CFO and Secretary.  On October 16, 2002, the Company entered into Employment Agreements with Mr. Levy and Mr. Hasson, with terms as follows:

Laurence S. Levy - base annual salary of no less than $150,000 per annum, discretionary annual bonus, options to purchase 25,000 shares of common stock at an exercise price of $1.35 per share, benefits, expense reimbursement and insurance (including, but not limited to, life, travel accident, health).  Effective April 1, 2006, Mr. Levy’s salary is no less than $200,000 per annum.

Neil Hasson - base annual salary of no less than $50,000 per annum, discretionary annual bonus, options to purchase 25,000 shares of common stock at an exercise price of $1.35 per share, benefits, expense reimbursement and insurance (including, but not limited to, life, travel accident, health).

Note 11. Basic and Diluted Earnings Per Share

Net income per common share is determined in accordance with Statement of Financial Accounting Standards (“FAS”) No. 128, “Earnings per Share” (“FAS 128”).  Under the provisions of FAS 128, basic net income per common share is computed by dividing the net income applicable to common shares by the weighted average number of common shares outstanding during the period.  Weighted average common shares include shares of the Company’s stock.  Diluted net income per common share adjusts basic net income per common share for the effects of convertible preferred stock, outstanding stock options and any other potentially dilutive instruments, only in the periods in which such effect is dilutive under the treasury stock method.

F-19

A reconciliation of the numerators and denominators of basic and diluted earnings per share as of December 31, 2008 and 2007 consisted of the following.

	December 31, 2008						December 31, 2007
	Basic			Dilutive			Basic		Dilutive
Weighted average number of shares outstanding		3,533,480			3,533,480			3,475,932		3,475,932
Common Stock equivalent shares
Preferred shares Series D		-			50,519			-		44,841
Preferred shares Series B		-			-			-
Options (treasury share method)		-			264,984			-		189,530
Total weighted average and equivalent shares		3,533,480			3,848,983			3,475,932		3,710,303
Net Income	$	(1,445,121	)	$	(1,445,121	)	$	2,837,030	$	2,837,030
Earnings per share, basic and dilutive	$	(.41	)	$	(.41	)	$	0.82	$	0.76

Convertible preferred Series D stock outstanding at December 31, 2007 were converted to 44,841 shares of common stock for the above dilutive earnings per share computations.

Convertible preferred Series B shares were converted into 430,473 shares of common stock during 2007.

Options to purchase 412,500 and 380,000 shares of common stock at varying prices were outstanding at December 31, 2008 and 2007, respectively.  The options were issued pursuant to the 2003 Stock Incentive Plan, as amended, and expire at varying dates through August 2018.

Options to purchase shares of common stock at an exercise price greater than the average market price of the common stock during the reporting period are antidilutive and therefore not included in the computation of diluted net income (loss) per common share.  For the year ended December 31, 2007, 50,000 of such options have been excluded from the above computations.  For the year ended December 31, 2008, all options to purchase shares of common stock were excluded from the calculation of dilutive earnings per share as the effect would have been antidilutive.

Note 12. 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 this settlement RCI agreed to pay Rustic Crafts the sum of $125,000 with interest at six and one-half percent per annum, payable in thirty-five installments of $1,088 each, commencing in January 2006. In April 2006, Rustic Crafts defaulted on the note.  The Company had initiated an action for collection against RCI and a personal guarantor on 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.

Pursuant to a License Agreement entered into in March 2003, Royalty Management, Inc., which is wholly-owned by Laurence Levy, the Company's President and a director, provides New York City office space, office supplies and services to the Company for $126,000 per year.

F-20

During the year ended December 31, 2008, the Company issued 3,000 shares of the Company’s common stock to a director for payment of director fees for the fiscal years ended December 31, 2006, December 31, 2007, and the first three months of the fiscal year ended December 31, 2008. The value of the stock amounted to $14,850.

During the year ended December 31, 2008, the Company issued 50,000 options to purchase 50,000 shares of its common stock to an officer of the Company. The stock options expire on August 13, 2018 and have an exercise price of $4.20 per share.

During the year ended December 31, 2008, the Company amended 5,000 outstanding stock options to a director of the Company in order to comply with provisions of Section 409A of the Internal Revenue Code, as amended. The cancelled options 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 options have an exercise date of December 17, 2008, an expiration date of December 17, 2008 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, also were amended on December 17, 2008 in order to comply with provisions of Section 409A of the Internal Revenue Code, as amended.

During the years ended December 31, 2008 and 2007, the Company incurred directors’ fees of $36,350 and $50,500, respectively, for services rendered.

During the year ended December 31, 2007, a director of the Company exercised 2,500 stock options at an exercise price of $2.40 per share and 2,500 stock options at an exercise price of $1.53 per share. Also during the year 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.

During the year ended December 31, 2007, the Company purchased 5,439 shares of its common stock from a consultant of the Company at a cost of $5.10 per share, or $27,739, and subsequently retired such shares of common stock from treasury. The Company also issued 6,000 shares of common stock to the consultant upon the exercise of 1,000 stock options at an exercise price of $1.60 per share and 5,000 stock options at an exercise price of $1.53 per share.

During the year ended December 31, 2007, the Company issued options to an officer of the Company to purchase 50,000 shares of its common stock, pursuant to the Issuer’s 2003 Stock Incentive Plan, as amended. The options expire on August 14, 2017 and have an exercise price of $5.10 per share.

In March 2007, the Company exercised its right to redeem all outstanding shares of Series B preferred stock in exchange for 430,473 shares of the Company’s common stock.

Note 13. Contingencies, Risks and Uncertainties

The Company is subject to numerous contingencies, risks and uncertainties including, but not limited to, the following that could have a severe impact on the Company:

(i) The Company currently lacks the necessary infrastructure at the site of the Groveland Mine in order to permit the Company to make more than casual sales of the aggregate (See Note 1).

(ii) A 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 (See Note 4).

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(iii) 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.

The defendants in the Delaware Action, other than Statesman, were entitled to be indemnified by the Company for damages, if any, and expenses, including legal fees, they have incurred as a result of the lawsuit, subject to certain circumstances under which such indemnification is not available.

On April 28, 2008 the parties executed a memorandum of understanding (the "MOU") reflecting an agreement in principle to settle that class action. The MOU provided that we would pay $3,000,000 plus interest to the plaintiff class.

On June 15, 2009, the Court entered an order approving a stipulation of settlement (the “Settlement”) of the Delaware Action.  The period for appeal of the Settlement expired on July 15, 2009.

The terms of the Settlement are in all material respects identical to the terms of the MOU.  Pursuant to the Settlement, on July 17, 2009, Regency paid $3,045,874.72 into escrow for the benefit of the plaintiff class.  The plaintiff class is defined in the Settlement as all record and beneficial owners of Regency common stock on October 17, 2002, including any and all of their respective successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, immediate and remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of them.  The plaintiff class does not include the defendants, members of their families, affiliates of the defendants, and those individuals or entities who solely held securities convertible into Regency common stock or options to purchase Regency common stock.  Regency made the settlement payment pursuant to its obligation to indemnify the defendants who are former directors of Regency.  In connection with the Settlement, and with the assistance of independent counsel, Regency determined that indemnification of its former directors is appropriate under Delaware law.  The  Settlement expressly provides that the defendants admit no wrongdoing but have agreed to the Settlement to eliminate the uncertainty, distraction, burden and expense of further litigation.

Regency’s insurance carrier has denied coverage with respect to the claims contained in the Delaware Action on the basis of the "insured vs. insured" exclusion since one of the plaintiffs, Donald D. Graham, was previously a director of Regency.

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(iv) The Company has significant tax loss and credit carryforwards and no assurance can be provided that the Internal Revenue Service would not attempt to limit or disallow altogether the Company's use, retroactively and/or prospectively, of such carryforwards, due to ownership changes or any other reason.  The disallowance of the utilization of the Company's net operating loss would severely impact the Company's financial position and results of operations due to the significant amounts of taxable income (generated by the Company's investment in Security Land) that has in the past been, and may in the future be, offset by the Company's net operating loss carryforwards (See Note 9).

(v) Royalty, an affiliate of the company's management, beneficially owns approximately 60% of the Company's common stock.  As a result, Royalty has the ability to control the outcome of all matters requiring shareholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of the Company's assets.

(vi) The Company does not expect to pay dividends in the foreseeable future.

(vii) There are many public and private companies that are also searching for operating businesses and other business opportunities as potential acquisition or merger candidates.  The Company 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 the Company.

(viii) The Company and the general partner of Security Land are in disagreement as to the manner in which taxable income of Security Land is to be allocated pursuant to the partnership agreement and applicable law, and for 2004, 2005 and 2006, the Company reported taxable income (loss) from Security Land in a manner the Company believes is proper, but which was different than the manner reported by Security Land.

Note 14.  Simplified Employee Pension – Individual Retirement Account (SEP-IRA)

The Company had adopted a SEP-IRA Plan in 2004.  During the years ended December 31, 2008 and 2007, the Company made contributions of $69,688 and $74,250, respectively, to the SEP-IRA Plan.  The SEP-IRA Plan covers all employees who received compensation from the Company during the year.  Employer contributions are discretionary and determined annually.  In addition, the SEP-IRA Plan allows participants to make elective deferral contributions through payroll deductions.

Note 15. Lease Commitments

Regency has renewed its office space lease through June 30, 2011.  Minimum lease payments are $22,680 for 2009 and 2010, and $11,340 for 2011.  Rent expense was $22,138 and $20,325 for the years ended December 31, 2008 and 2007, respectively.

Note 16.  Filing of Going Private Proxy Statement

On December 14, 2005, the Company 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 the Company’s 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 the Company’s 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 the Company to discontinue the obligations of filing annual and periodic reports and make 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, the Company will mail copies to all of its stockholders describing all of the material terms of the Reverse Stock Split and Forward Stock Split.  The Company currently intends to effect the Reverse Stock Split and Forward Stock Split as soon as possible thereafter.

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Note 17.  New Accounting Standards

Effective January, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157”). In February 2008, the FASB issued Staff Position (“FSP”) FAS 157-1 to exclude SFAS No. 13, “Accounting for Leases” and its related interpretive accounting pronouncements that address leasing transactions, from the scope of SFAS No. 157. In February 2008, the FASB also issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement 157”, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provision of SFAS 157 with respect to its financial assets and liabilities only. For the portion of SFAS 157 that has been deferred, the Company is currently evaluating the effects of SFAS 157 will have on its financial statements. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – quoted prices in active markets for identical assets or liabilities.

Level 2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities

The adoption of this statement did not have a material impact on the Company’s results of operations and financial condition.

In December 2007, the FASB issued SFAS 141(R), “Business Combinations”.  SFAS 141(R) establishes principles and requirements for an acquirer, which improves the relevance, representational faithfulness and comparability of information provided by a reporting entity in its financial reports about business combinations and its effects.  SFAS 141(R) is effective prospectively to business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  SFAS 141(R) is not expected to have a material impact on the Company’s financial statements.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements (an amendment of ARB No. 51)”.  SFAS 160 establishes accounting and reporting standards designed to improve the relevance, comparability and transparency of the financial information provided in a reporting entity’s consolidated financial statements.  SFAS 160 requires that ownership interests in subsidiaries held by parties, other than the parent, to be clearly identified, labeled and presented in the consolidated balance sheet within the equity, but separate from the parent’s equity; net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations; changes in the parent’s ownership interest to be accounted for as equity transactions, if a subsidiary is deconsolidated and any retained noncontrolling equity investment to be measured at fair value; and that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and noncontrolling owners.

SFAS 160 is effective for fiscal years and interim periods beginning on or after December 15, 2008.  The Company is currently evaluating the impact of SFAS 160 on its financial statements.

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In March 2008, the FASB issued SFAS 161, “Disclosure about Derivative Instruments and Hedging Activities.”  This Statement is an amendment of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.”  This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the implementation of this new standard to have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles.”  FAS 162 is intended to improve financial reporting by indentifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities.  FAS 162 is effective 60 days following the SEC’s approval of the PCAOB amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”  The Company does not expect the adoption of this statement to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.”  FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 143, “Goodwill and Other Intangible Assets.”  This change is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141R and other GAAP.  FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which will be the Company’s fiscal year 2009.  The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.  The Company does not expect the adoption of this statement to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue 07-05, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.”  EITF 07-05 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock.  It is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  The Company does not expect the adoption of EITF 07-05 to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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