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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED March 31, 1996 COMMISSION FILE NO. 1-4766
REGENCY AFFILIATES, INC.
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 72-0888772
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
381 Robinwood Lane, Wheaton, IL 60187
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(Address of principal executive offices) (Zip Code)
10842 Old Mill Road #5, Omaha, Nebraska 68154
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(Address of administrative offices) (Zip Code)
Registrant's Telephone Number (executive office) including Area Code:
(708)690-8684
Registrant's Telephone Number (administrative office), including Area Code:
(402)330-8750)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date.
$.40 Par Value Common Stock- 11,655,664 shares as of March 31, 1996.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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REGENCY AFFILIATES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following pages contain the information required by Part I, Item 1.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
MARCH 31, 1996 1995
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ASSETS (UNAUDITED)
CURRENT ASSETS
Cash $ 7,844 $ 39,689
Accounts receivable 2,691 2,691
Prepaid expenses 20,710 ---
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31,245 42,380
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OTHER ASSETS
Investment in partnership 4,623,227 4,068,056
Inventory 850,000 850,000
Other 113,116 19,712
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5,586,343 4,937,768
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Total assets $5,617,588 $4,980,148
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MARCH 31, 1996 DECEMBER 31, 1995
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(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - related party $ 80,000 $ 80,000
Accounts payable 64,769 95,980
Accrued expenses 112,132 79,816
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Total current liabilities 256,901 255,796
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LONG-TERM DEBT 329,000 323,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 103,249 106,449
SERIAL PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION 375,254 368,254
SHAREHOLDERS' EQUITY
Serial preferred stock not subject to mandatory redemption
(maximum liquidation preference, $24,885,382) 1,052,988 1,052,988
Common stock, par value $.40, authorized 25,000,000 shares
issued and outstanding 11,655,664 and 11,188,997 shares
(net of 22,460 treasury shares) 4,642,975 4,456,308
Paid in capital 140,000 140,000
Readjustment resulting from quasi-reorganization at
December 31, 1987 (1,670,596) (1,670,596)
Accumulated earnings (deficit) 387,817 (52,051)
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Total shareholders' equity 4,553,184 3,926,649
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Total liablities and shareholders' equity $5,617,588 $4,980,148
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months
Ended March 31,
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1996 1995
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NET SALES $ --- $ ---
OPERATING EXPENSES
General and administrative expenses 171,265 50,994
Other Expenses --- ---
Interest expense 7,680 14,970
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INCOME (LOSS) FROM OPERATIONS (178,945) (65,964)
INCOME FROM EQUITY INVESTMENT IN PARTNERSHIP 658,400 376,000
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INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST 479,455 310,036
INCOME TAX EXPENSE (20,000) (50,000)
MINORITY INTEREST 1,200 1,500
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NET INCOME $460,655 $261,536
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NET INCOME APPLICABLE TO COMMON STOCK (after
accrued preferred stock dividends of $15,789, and
$12,616 respectively and preferred stock
accretion of $7,000 in 1996). $437,866 $248,920
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NET INCOME PER SHARE
Primary $ .04 $ . 02
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Fully diluted $ .03 $ .02
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 460,655 $ 261,536
Adjustments to reconcile net income to net cash used by
operating activities:
Minority interest (1,200) (1,500)
Stock issued for salaries and benefits 93,334 ---
Income from equity investment in partnership (658,400) (376,000)
Distribution of equity earnings from partnership 103,229 100,000
Interest amortization on long-term debt 6,000 7,500
Changes in operating assets and liabilities:
Prepaid expenses (20,710) (39,911)
Other assets (71) (53,331)
Accounts payable (31,211) 61,949
Accrued liabilities 30,318 1,181
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Net cash used by operating activities (16,056) (38,576)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (payments) --- (25,800)
Proceeds from issuance of preferred stock --- 152,000
Proceeds from issuance of common stock --- 48,000
Preferred stock dividends paid (15,789) ---
Offering costs --- (40,000)
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Net cash provided by financing activities (15,789) 134,200
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INCREASE (DECREASE) IN CASH (31,845) 95,624
CASH-BEGINNING 39,689 150,027
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CASH-ENDING $ 7,844 $245,651
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The accompanying notes are an integral part of these financial statements.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION - The accompanying unaudited condensed
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three-month period ended
March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant
Company and Subsidiaries' annual report on Form 10-K for the
year ended December 31, 1995.
B. PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of Regency Affiliates, Inc.
(the "Company") and its 80% owned subsidiaries National
Resource Development Corporation ("NRDC"), Transcontinental
Drilling Company ("Drilling") and RegTransco, Inc. ("RTI").
All significant intercompany balances and transactions have
been eliminated in consolidation.
C. EARNINGS PER SHARE - Primary earnings per share are computed
by dividing net income attributable to common shareholders
(net income less preferred stock dividend requirements and
periodic accretion) by the weighted average number of common
and dilutive equivalent shares outstanding during the year.
Fully diluted earnings per share computations assume the
conversion of Series E, Series B, and Junior Series D
preferred stock during the period that the preferred stock
issues were outstanding. If the result of these assumed
conversions is dilutive, the dividend requirements and
periodic accretion for the preferred stock issues are reduced.
D. INVENTORY - Inventory, which consists of aggregate, is stated
at lower of cost or market. Liens have been attached to the
aggregate inventory by the note payable to the related party
and the holders of the zero coupon bonds. 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 sales of the aggregate.
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E. INCOME TAXES - Effective January 1, 1993, the Company adopted
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, if necessary, to reduce the
deferred tax asset to the amount that will, more likely than
not, be realized. Income tax expense is the current tax
payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
F. In March 1995, the Financial Accounting Standards Board issued
a new standard (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995.
The Company adopted SFAS 121 in the first quarter of 1996
which has not had an effect on its financial position or
results of operations.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENT IN PARTNERSHIP
In November 1994, the Company invested $350,000 for a limited
partnership interest in Security Land and Development Company
Limited Partnership ("Security"), which owns and operates an
office complex. The Company has limited voting rights and is
entitled to be allocated 95% of the profit and loss of the
partnership until October 31, 2003 (the lease termination date
of the sole tenant of the office complex) and 50% thereafter.
The Company is to receive certain limited cash flow after debt
service, and a contingent equity build-up depending upon the
value of the project upon termination of the lease. The
Company is also entitled to receive certain management fees
relating to the partnership.
Security was organized to own and operate, for investment
purposes, a building of approximately 717,000 square feet
consisting of a two-story office building and a connected
six-story office tower. The building was purchased by
Security in 1986 and is located on approximately 34.3 acres of
land which is also owned by Security. The building has been
occupied by the United States Social Security Administration's
Office of Disability and International Operations for
approximately 22 years under leases between the United States
of America, acting by and through the General Services
Administration ("GSA"). Effective November 1, 1994, Security
and the GSA entered into a nine-year lease (the "Lease") for
100% of the building. Security has received an opinion of the
Assistant General Counsel to the GSA that lease payments are
not subject to annual appropriation by the United States
Congress and the obligations to make such payments are
unconditional general obligations of the United States
Government.
The Company accounts for the investment in partnership on the
equity method, whereby the carrying value of the investment is
increased or decreased by the Company's allocable share of
income or loss. The investment in partnership included in the
Consolidated Balance Sheet at March 31, 1996 was $4,623,227.
The income from the Company's equity investment in the
partnership for the three months ended March 31, 1996 was
$658,400.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized operating data for Security for the three months
ended March 31, 1996 is as follows:
Revenues $2,835,373
Operating Expenses 788,556
Depreciation and Amortization 462,001
Interest Expense, Net 891,764
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Net Income $ 693,052
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NOTE 3. STOCK OFFERING
Through a private placement memorandum dated November 18, 1994,
the Company offered for sale 80 units of securities, each unit
consisting of 88.5 shares of 12.5% cumulative convertible Series E
preferred stock and 6,000 shares of common stock. The units were
priced at $10,000 per unit. As of March 31, 1996, subscriptions for 57
units were received netting the Company $477,254 after offering costs
of $92,746.
NOTE 4. INCOME TAXES
As referred to in Note 1, the Company adopted SFAS 109, "Accounting
for Income Taxes," effective January 1, 1993. The deferred
taxes are the result of long-term temporary differences between
financial reporting and tax reporting for earnings from the Company's
partnership investment in Security Land and Development Company Limited
Partnership related to depreciation and amortization and the
recognition of income tax carryforward items.
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REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At March 31, 1996, the Company's net deferred tax asset,
utilizing a 34% effective tax rate, consists of:
Deferred tax assets:
Investment partnership earnings $ 1,230,000
Net operating loss carryforwards 14,850,000
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Total deferred tax assets before valuation
allowance 16,080,000
Valuation allowance (16,080,000)
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Net deferred tax asset $ -0-
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The valuation allowance was established to reduce the net
deferred tax asset to the amount that will more likely than
not be realized. This reduction is necessary due to
uncertainty of the Company's ability to utilize the net
operating loss and tax credit carryforwards before they
expire.
For regular federal income tax purposes, the Company has
remaining net operating loss carryforwards of approximately
$44,000,000. These losses can be carried forward to offset
future taxable income and, if not utilized, will expire in
varying amounts beginning in the year 2000.
For the three months ended March 31, 1996, the tax effect of
net operating loss carryforwards reduced the current provision
for federal income taxes by approximately $140,000. The
Company provided $20,000 for taxes which relates to the
alternative minimum tax.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES.
In the last quarter of 1994, Regency Affiliates, Inc.
commenced a private placement of its Cumulative Convertible $100 Series-E
Preferred Stock and $0.40 p.v. Common Stock (the "Private Placement") in a
transaction reported on Form D, Notice of Sale of Securities Pursuant To
Regulation D, filed with the Securities and Exchange Commission on November 23,
1994, the contents of which are incorporated herein by reference thereto. The
offering was concluded after the Company had placed 57 units for a total of
$570,000. The proceeds of the offering were used to cover negative
operating cash flows in 1995.
The investment in Security Land And Development Company
Limited Partnership should provide the Company with management fees of at least
$100,000 per annum until 2003. In the quarter ending March 31, 1996, the
Company's income from its equity investment in the Partnership was $658,400.
Despite the cash flow from the Partnership and the working
capital raised by the Private Placement, the Company continues to suffer from a
relative lack of liquidity and capital resources. Gary K. Nuttall, who was
elected as the Company's President on February 1, 1996, is, in large part,
focusing his efforts on obtaining a financing to be secured by the Company's
investment in Security Land And Development Company Limited Partnership. While
preliminary negotiations have been favorable and the board of directors of a
potential lender has given its approval to a loan to the Company, neither due
diligence nor definitive loan agreements have been concluded, and there can be
no assurance that the contemplated transaction will be consummated.
Regency Affiliates, Inc. is continuing to explore
opportunities for the acquisition of companies with operations that will
provide additional liquidity and cash flow. The Company anticipates that such
acquisitions would be financed by borrowings secured by the assets acquired and
by the Company's investment in Security Land And Development Company Limited
Partnership. The Company is also continuing to explore transactions which
would utilize the Company's uncommitted and remaining net operating losses.
There can be no assurances that any such acquisitions or transactions will come
to fruition.
As part of the 1993 Transaction with NRDC, the Company
received a working capital loan of $100,000 from Statesman Group, Inc., which
loan matured on July 7, 1995 and carries a 10% interest obligation payable
quarterly in arrears. Statesman has agreed to extend the maturity of its loan
beyond 1995, to a date yet to be determined. During 1994, the Company paid
Statesman $15,509 in interest and $97,464 in principal, bringing the loans
current as of December 31, 1994. As of March 31, 1995, the
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Company had a principal balance outstanding on notes payable to Statesman of
$80,000.
RESULTS OF OPERATIONS.
Operations of Regency Affiliates, Inc. and its subsidiaries in the
quarter ending March 31, 1996 were limited to the Company's ongoing effort to
secure acquisitions and/or business combinations to provide the Company with
material operations and cash flow. General and administrative expense includes
an expense of $93,334 resulting from the issuance of 233,333 shares of common
stock to Mr. Nuttall as part of his compensation arrangement with the Company.
An additional $93,333 (233,333 shares) has been deferred until Mr. Nuttall
has met certain obligations in the employment agreement.
The statement of operations reflects the income from investment in
Security of $658,400 for the three months ended March 31, 1996, which
represents 95% of the net income of Security Land and Development Company
Limited Partnership. Interest expense includes interest on NRDC's zero coupon
bonds, and the loan to Statesman.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has been named a defendant in Ronald C. Bourg, et al. v.
Continental Oil Company, Case No. 95-3192, United States District Court,
Eastern District of Louisiana, New Orleans Division, a personal injury action
arising from an alleged injury to the plaintiff while working on a stationary
platform in the Gulf of Mexico. The Company has denied all liability and has
requested a voluntary dismissal from the plaintiff on the grounds that the
Company was misidentified as an oil and gas pipeline operator.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults in the payment of principal or interest
with respect to any senior indebtedness of Regency Affiliates, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the vote of security holders during the
reporting period ending March 31, 1996.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
____________________REGENCY AFFILIATES, INC.____________________
(Registrant)
5/17/96 By: /s/ Gary K. Nuttall
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Date Gary K. Nuttall