UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934

For the Fiscal Year Ended December 31, 2001 - Commission File Number 1-7949

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

DELAWARE 72-0888772
(State of incorporation) (IRS Employer Identification Number)

729 SOUTH FEDERAL HWY.
SUITE 307, STUART, FL. 34994
(Address of principal executive offices) (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Title of each class Name of each exchange on which registered
COMMON STOCK, $0.01 PAR VALUE NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

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 [ ]

Indicate by check mark if 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]

The Aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $5,063,071on April 8, 2002, computed on the basis
of $2.61 per share of Common Stock, the mean of the bid and asked price as
reported on the over-the-counter market of the bulletin board on that date.

The number of shares outstanding of the registrant's $.01 Par Value Common Stock
issued as of April 8, 2002, was 1,939,874.

Documents incorporated by reference: None

-1-

Table of Contents

Part I Page

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
General Development of Business . . . . . . . . . . . . . . 3
Financial information about industry segments
and foreign and domestic operations . . . . . . . . . . 4
Narrative description of business . . . . . . . . . . . . . 4
National Resource Development Corporation . . . . . . . . . 4
Security Land and Development Company
Limited Partnership . . . . . . . . . . . . . . . . . . . 5
Rustic Crafts International, Inc . . . . . . . . . . . . . 6
Glas-Aire Industries, Group Ltd . . . . . . . . . . . . . . 6
Regtransco, Inc . . . . . . . . . . . . . . . . . . . . . . 7
Transcontinental Drilling Company . . . . . . . . . . . . . 7
Speed.Com, Inc. . . . . . . . . . . . . . . . . . . . . . . 7
Iron Mountain Resources, Inc. . . . . . . . . . . . . . . . 7
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders.. . . . 8

Part II

Item 5. Market for Registrant's Common Stock and
Related Security Holders Matters.. . . . . . . . . . . . 9
Item 6. Selected Financial Data.. . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition. . . . . . 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 16
Item 8. Consolidated Financial Statements and Supplementary Data. . 16
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.. . . 17

Part III

Item 10. Directors and Executive Officers of the Registrant . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . 23
Item 13. Certain Relationships and Related Transactions . . . . . . 24

Part IV
Item 14. Exhibits, Financial Statements, Schedules,
And Reports on Form 8-K. . . . . . . . . . . . . . . . . 27

-2-

PART I

ITEM 1. BUSINESS

Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events and our plans and expectations. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below under
"Factors That May Affect Future Results," and "Forward looking Statements", as
well as those discussed elsewhere in this Form 10-K.

GENERAL DEVELOPMENT OF BUSINESS.
- ----------------------------------

Regency Affiliates, Inc., formerly TransContinental Energy Corporation, was
organized as a Delaware corporation in 1980 to be the successor to
Transcontinental Oil Corporation, which existed since 1947.

After a restructuring in 1992, the Company, on July 7, 1993, acquired an 80%
interest in National Resource Development Corporation ("NRDC") (the "NRDC
Transaction") by the issuance of 2,975,000 shares of the Company's $0.40 P.V.
Common Stock, 208,850 shares of the Company's cumulative $100 Series C Preferred
Stock and 20% of the outstanding shares of Transcontinental Drilling Company
("Drilling"), a subsidiary of the Company to the Statesman Group, Inc.
("Statesman"), an international business corporation organized under the laws of
the Bahamas (see Item 12). NRDC's principal asset consists of previously
quarried and stockpiled rock (Aggregate) inventory located at a mine site in
Michigan. The Aggregate inventory was pledged to secure repayment of certain
Zero Coupon Bonds which have been issued by NRDC having a face value at maturity
of $542,000 on January 1, 2002. These Bonds were retired in 1999 through the
issuance of common stock of the Company. As part of the NRDC Transaction, we
acquired 80% of the issued and outstanding stock of NRDC. The remainder (20%) is
owned by Statesman.

On November 18, 1994, we acquired a limited partnership interest in Security
Land and Development Company Limited Partnership (the "Partnership") for an
equity investment of $350,000. The Partnership owns an office building complex
in Woodlawn, Maryland, which is leased to the United States Social Security
Administration.

On March 17, 1997, Regency, through Rustic Crafts International, Inc., 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. Consideration for the acquisition consisted
of cash of $1,100,000, assumption of certain liabilities, and 100,000 restricted
shares of our Common Stock.

On April 22, 1999, we acquired 513,915 shares of the common stock of Glas-Aire
Industries Group, Ltd. ("Glas-Aire") in exchange for a promissory note of
$650,000 due January 1, 2000, at an interest rate of 7.5% per annum, which note
was guaranteed by Mr. William Ponsoldt, Sr., President of Regency, and

-3-

$1,213,000 in cash. Glas-Aire is a reporting company, and its shares are listed
on the Nasdaq small cap market under the symbol "GLAR" and on the Pacific
Exchange "GLA". The cash was obtained from an affiliate of Statesman through the
issuance of an unsecured demand note at the interest rate of 7.5% per annum. We
also purchased 3,000 shares of the common stock of Glas-Aire on the open market.

On August 2, 1999, we acquired 41,600 shares of the common stock of Glas-Aire on
the open market for $119,619. The funds were provided by an affiliate of
Statesman on an unsecured basis.

On August 14, 1999, we sold 2,852,375 shares of our common stock to Glas-Aire
for cash of $1,967,960 and 86,000 shares of Glas-Aire common stock for total
consideration of $2,281,900.

On September 23, 1999, we closed a common stock exchange agreement with certain
shareholders of Glas-Aire. Under the agreement, Regency, in a private
transaction, issued 1,188,000 shares of its restricted common stock to such
shareholders in exchange for 288,000 Glas-Aire common shares held by the
shareholders.

On October 1, 2001, we announced that we had completed a transaction for the
disposing of our interest in Glas-Aire. Pursuant to an agreement entered into
on September 17, 2001 and amended on October 1, 2001, we exchanged 1,215,105
shares of common stock of Glas-Aire, representing approximately 50% of the
issued and outstanding shares of Glas-Aire, for $2,500,000 plus 4,040,375 shares
of our common stock, or approximately 23% of the issued and outstanding shares
of Regency. As a result of the transaction, neither Regency nor Glas-Aire owns
any stock of the other.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC
- ------------------------------------------------------------------------------
OPERATIONS.
- -----------

Reference is made to the Regency's financial statements at page F-1 for this
information.

NARRATIVE DESCRIPTION OF BUSINESS.
- ------------------------------------

NATIONAL RESOURCE DEVELOPMENT CORPORATION

NRDC had as its principal asset approximately 70 million short tons of
previously quarried and stockpiled rock ("Aggregate") located at the site of the
Groveland Mine in Dickinson County, Michigan. Aggregate is primarily sold for
railroad ballast, road construction, construction along shorelines and
decorative uses. The market for Aggregate stone is highly competitive and, as
shipping costs are high, the majority of sales, if any, are anticipated to be
made locally. Other companies that produce rock and Aggregate products are
located in the same region as the Groveland Mine. There are competitors have
greater financial and personnel resources. As a consequence, there can be no
assurance that acting alone, NRDC will be able to consummate sales of material
amounts of its Aggregate.

In December 2001, the aggregate inventory was sold to Iron Mountain Resources,
Inc., a 75% owned subsidiary of the company. The purchase price was $18,200,000
and is payable, with interest of 2.46%, in ninety-six equal payments of

-4-

principal and interest commencing December 2003. The intercompany gain on this
transaction has been eliminated in the consolidation process resulting in the
aggregate inventory being carried at its historical cost

Our Aggregate is commingled with other aggregate not owned by NRDC and is rock
that was separated from iron ore during previous mining operations. The
ownership of the Aggregate is subject to a Royalty Agreement between North
American Demolition Company (International Aggregate Corporation's predecessor
in title) and M.A. Hanna Company dated December 22, 1989, as amended, which
requires the payment of certain royalties to M.A. Hanna Company upon sales of
Aggregate.

SECURITY LAND AND DEVELOPMENT COMPANY LIMITED PARTNERSHIP

On November 18, 1994, we acquired a limited partnership interest in Security
Land And Development Company Limited Partnership (the "Partnership") for an
equity investment of $350,000. We have no obligation to make any further capital
contribution to the Partnership. The Partnership 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 under a nine-year lease expiring October 31, 2003 (the "Lease"). 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 under prior leases
between the U.S. Government and the Partnership.

During 1994, the Partnership 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 the Partnership
related to the project, to finance certain alterations to the project by the
Partnership, to fund certain reserves and to pay costs of the project note
issue. The project note is a non-recourse obligation of the Partnership and is
payable solely from the Lease payments from the U.S. Government. Such rental
payments under the Lease are not subject to annual appropriation by the United
States Congress and accordingly, the obligations to make such payments are
unconditional general obligations of the Government backed by the full faith and
credit of the United States. The payments under the Lease consist of base rent,
maintenance rent, additional base rent, additional maintenance rent and the
government tax reimbursement amount. The base rent, maintenance rent and
additional base rent are fixed amounts and are not subject to adjustment. The
base rent and the additional base rent together constitute the finance rent,
which will be utilized to pay principal and interest on the project note,
certain real estate taxes and costs of insurance and other reserves.

The terms of the Security Land And Development Company Limited Partnership
Agreement (as amended) and the project note (which note will be fully amortized
over the term of the lease) call for us to be allocated 95% of the profits and
losses of the Partnership until October 31, 2003, and 50% thereafter. The
investment in Security Land And Development Company Limited Partnership
Agreement is estimated to provide us with management fees of approximately

-5-

$100,000 per annum until 2003. In the year ending December 31, 2001, the income
from our equity investment in the Partnership was $5,418,197. These funds,
however, are presently committed for the amortization of the outstanding
principal balance on Security Land And Development Company Limited Partnership
Agreement real estate mortgage and, while our investment has increased to
$2,984,078 the partnership does not provide cash flow to us in excess of the
$100,000 annual management fee. The partnership agreement provides for the
distribution of "Sale or Refinancing Proceeds" in accordance with the partner's
positive tax capital account balances. At December 31, 2001, we were the only
partner with a positive tax capital account balance.

On November 30, 2000, we invested $10,000 for a 5% Limited Partnership Interest
in 1500 Woodlawn Limited Partnership, the General Partner of Security. In 2001,
we earned $188,268 from this investment.

RUSTIC CRAFTS INTERNATIONAL, INC.

Rustic Crafts International, Inc., a wholly owned subsidiary of Regency, is a
manufacturer of decorative wood and cast marble fireplaces, mantels, shelves,
fireplace accessories and other home furnishings. Rustic Crafts employed 26
people at December 31, 2001.

In 2001 and 2000 Rustic Crafts generated net sales of approximately $2,407,722
and $3,313,827 respectively. Rustic Crafts had Net (Loss) Income before
Management Fees of $(510,064) and $150,571 respectively, over the same period.
As of December 31, 2001, Rustic Crafts had approximately $264,000 of open orders
compared to approximately $225,000 in 2000. Although orders are generally
subject to termination, we have historically experienced minimal cancellation of
orders.

Rustic Crafts purchases the raw materials used in its manufacturing process from
several suppliers. We believe that there is minimal risk from any termination of
suppliers and that there are several suppliers who are capable of supplying
similar quality products at competitive prices.

Rustic Crafts has a number of competitors for its products, and management
considers the business to be competitive.

GLAS-AIRE INDUSTRIES GROUP, LTD.

Glas-Aire Industries Group, LTD. (Glas-Aire), a publicly traded Company, was a
subsidiary of Regency. Glas-Aire designs, develops, manufactures and sells
sunroof deflectors, hood protectors and rear air deflectors for cars, light
trucks and vans. It uses plastics and thermoforming technology to produce these
products. Glas-Aire's products are used in the diverse and growing automotive
components market, comprised of after-market accessories, dealer installed
accessories, car care products and other products purchased by consumers for the
purpose of improving their vehicles (versus those purchased for routine
maintenance). Glas-Aire participates in the OEM segment of the appearance
accessory market, providing products to the automotive manufacturers that then
distribute the products to consumers through their dealer networks. Glas-Aire
employs approximately 208 persons.

-6-

Glas-Aire generated net sales of $8,378,202 for the nine-month period ending
September 30, 2001. Income before income from equity investment and income tax
expense was $449,040 over the same period. Glas-Aire had been included in
Regency's consolidated financial statements effective September 23, 1999 (the
date that we acquired 51.3% control of Glas-Aire) through September 30, 2001.

As of December 31, 2001, Regency and its subsidiaries employed approximately 28
people.

REGTRANSCO, INC.

RegTransco, Inc. (RTI) has two classes of outstanding common stock, Class A and
Class B. There are 20,000 shares of Class common stocks outstanding, all of
which are owned by Drilling (an 80% owned subsidiary of Regency Affiliates,
Inc.). Five thousand (5,000) shares of Class B common stock were issued to the
Original Investors who financed the our Chapter XI filing in 1986 and 1987 and
represented 20% of the voting power of RTI's outstanding common stock. As part
of the 1992 Restructuring, the holders of the Class B stock returned their 20%
interest as a group to RTI. RTI's Class A and Class B common stock are equal to
each other in all respects except dividend preference. Holders of shares of
Class A and Class B common stock are entitled to one vote per share in the
election of directors. This entity has no current operations.

TRANSCONTINENTAL DRILLING COMPANY ("DRILLING")

As part of the NRDC Transaction, Drilling issued sufficient shares to transfer
20% of the issued and outstanding stock of Drilling to Statesman. We own the
remaining 80%. This entity has no current operations.

SPEED.COM, INC.

Speed.com is a wholly owned subsidiary of Regency Affiliates, Inc. Previously
this entity was involved in the purchase of Glas Aire. This entity has no
current operations.

IRON MOUNTAIN RESOURCES, INC.

-7-

transaction has been eliminated in the consolidation process resulting in the
aggregate inventory being carried at its historical cost.

ITEM 2. PROPERTIES

The Partnership owns the Security West Building at 1500 Woodlawn Drive,
Woodlawn, MD.

In March 1998, Rustic Craft purchased a 117,000 square foot building located at
40 Poplar Street in Scranton, Pennsylvania. The building was renovated and
occupied in early 1999. Approximately 14,000 square feet in this building is
leased to another tenant. The manufacturing operation uses approximately 75,000
square feet of the building. This facility should satisfy Rustic Crafts needs
for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

On February 7, 2002 a complaint naming Regency Affiliates, Inc. 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 Regency Affiliates 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
and had previously commenced litigation regarding the same subject in December
2001.

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.

On September 13, 2001, Glas Aire Industries LTD., Multicorp Holdings Inc., Glas
Aire Industries Group Ltd, Craig Grossman, Todd Garrett, Speed.Com, Inc.,
Regency Affiliates, Inc., William Ponsoldt, and Marc Baldinger were listed as
defendants in a proceeding in the Supreme Court of British Columbia with Alex Y.
W. Ding as plaintiff. The case number is S015104. Mr. Ding, the former
president of Glas-Aire, has asserted that the October 2001 Regency-Glas-Aire
transaction is in breach of bank agreements, securities law and fiduciary duties
owed to Glas-Aire and its stockholders. While the company has been served,
plaintiff has not proceeded on this action and has not filed a statement of
claim on a timely basis. Should plaintiff continue with the action, the
defendants, including Regency, would vigorously defend this litigation

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

The following matters were submitted to the Stockholders at The 2001 Meeting of
Stockholders of Regency Affiliates, Inc. held at Nassau, Bahamas, on Wednesday,
January 16, 2001:

-8-

1. To elect five directors of Regency to serve until the next Meeting of
Stockholders. The vote for the respective nominees for election as
directors was as follows with all of such directors continuing after the
meeting:

DIRECTORS FOR AGAINST ABSTAIN
William Ponsoldt 14,580,336 60,522 327,791
Stephanie Carey 14,580,437 60,421 327,791
Martin J. Craffey 14,580,437 60,421 327,791
William R. Ponsoldt, Jr. 14,580,336 60,533 327,791
Marc Baldinger 14,580,437 60,421 327,791

2. To approve the proposed one-for-ten reverse stock split of Regency's Common
Stock, $0.40 par value per share, the decrease in the par value to $.01 per
share and the retention of the same number of authorized common shares. The
results of the vote to amend the articles of incorporation regarding the
reverse split was:

For: 14,405,745 Against: 525,840 Abstain: 37,064

3. To amend the Restated Certificate of Incorporation to eliminate the
stockholders' ability to act by written consent. The results of the vote to
amend the Restated Certificate of Incorporation to eliminate the
stockholders' ability to act by written consent was rejected by the
shareholders:

For: 8,584,041 Against: 542,102 Abstain: 19,661

4. To ratify the appointment of Rosenberg Rich Baker Berman & Company as
independent public accountants. The results of the vote to ratify the
appointment of Rosenberg Rich Baker Berman & Company as independent public
accountants was:

For: 14,599,298 Against: 342,714 Abstain: 26,512

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS

MARKET INFORMATION

Our Common Stock is traded in the over-the-counter market on the bulletin board.
The symbol for the listing was changed following the reverse stock split to
"RAFI". The following table sets forth the high and low bid prices for each
calendar quarter during the last two fiscal years of Regency. The bid quotations
represent interdealer prices without retail markups, mark-downs or commissions
and may not necessarily represent actual transactions. The prices for 2000 and
2001 as indicated may not reflect the actual market for substantial quantities
of our Common Stock. As of April 8, 2002, there were approximately 2,433 common
shareholders of record.

-9-

YEAR ENDED
- -----------

DECEMBER 31, 2000 HIGH ($) LOW ($)
- ----------------- -------- -------
First Quarter 5.875 .44
- ----------------- -------- -------
Second Quarter 2.93 .9688
- ----------------- -------- -------
Third Quarter 1.01 .70
- ----------------- -------- -------
Fourth Quarter .7188 .41
- ----------------- -------- -------

YEAR ENDED
- -----------

DECEMBER 31, 2001 HIGH ($) LOW ($)
- ----------------- -------- -------
First Quarter .625 .3438
- ----------------- -------- -------
Second Quarter .53 .36
- ----------------- -------- -------
Third Quarter .43 .31
- ----------------- -------- -------
Fourth Quarter .40 .22
- ----------------- -------- -------

Our Shareholders approved a one-for-ten reverse stock split of our Common Stock,
$0.40 par value per share, the decrease in the par value to $.01 per share and
the retention of the same number of authorized common shares effective February
15, 2002 and the above prices represent the pre-split prices. The price of our
common stock closed at $1.75 on April 12, 2002.

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 in the future.

In January 2001, Transfer On-Line, Inc. was named as transfer agent replacing
Horbach & Associates. Transfer On-Line, Inc. is located at 227 Pine Street,
Suite 300, Portland, Oregon 97204. Their telephone number is (503) 227-2950 and
their website is www.transferonline.com.

ISSUANCE OF UNREGISTERED SECURITIES.

Effective June 3, 1997, we issued 466,667 shares of Common Stock at a value of
$233,333 and options to purchase an additional 6.1 million shares of Common
Stock to Statesman Group, Inc.

On October 15, 2001, Statesman exercised the option in full pursuant to an
agreement that (1) provided for a purchase price at $.40 per share (par value)
rather than the formula price in the option, which would have yielded
approximately 25% less and (2) provided for collateral for the $2.44 million 5
year note issued by Statesman to Regency (in addition to the shares purchased)
in the form of the 20% stock interest owned by Statesman in National Resource
Development Corporation, our 80% owned subsidiary.

-10-

We consider these securities to have been offered and sold in a transaction not
involving a public offering and, therefore, to be exempt from Registration under
Section 4(2) of the Securities Act of 1933 as amended.

See Item 13 - Certain Relationships and Related Party Transactions.

SECURITIES OF THE REGISTRANT
- -------------------------------

VOTING $0.01 PAR VALUE COMMON

Regency Affiliates, Inc. has authorized 25,000,000 shares of its voting $0.01
P.V. Common Stock. Holders of the Common Stock are entitled to one vote per
share on matters submitted to shareholders for approval or upon the election of
directors. The number of shares outstanding of our $.01 Par Value Common Stock
issued, as of April 8, 2002, was 1,939,874.

CUMULATIVE CONTINGENT CONVERTIBLE PREFERRED $10 STATED VALUE SERIES-B STOCK
$0.10 PAR VALUE

By agreement and in settlement of the Senior Lenders' obligations as part of our
1992 Restructuring Plan, 212,747 shares of the Series-B Preferred Stock were
issued to Washington Square Capital and 158,000 shares to Cargill Financial
Services. Such shares (370,747 in the aggregate) which represent 100% of the
shares of Series-B authorized, issued and outstanding. Semi-annual dividend
periods commence on the 24th month from the consummation of an "Initial Business
Combination" (March 19, 1997), as defined in the Certificate of Designation for
the Series-B Preferred Stock, and accrue for a period of 35 months without cash
payment. Dividends accrue at the rate of 6% per annum. The holders of the
Series-B Preferred Stock hold contingent rights to convert into Common Stock
exercisable on the earlier of the date that we (and our tax consolidated
subsidiaries) have accumulated consolidated taxable earnings of $55 Million, or
the date that at least 80% in value of any convertible securities of Regency, as
adjusted in certain circumstances, issued in the Initial Business Combination
are retired or converted by the holders thereof. The events of convertibility
have, at this point, not occurred. The Series-B shares carry a preference upon
liquidation. Except in limited circumstances, the Series-B shares carry no
voting rights. We have the right to redeem the Series-B Preferred Stock at any
time.

CUMULATIVE SENIOR PREFERRED $100 STATED VALUE SERIES-C STOCK - $0.10 PAR VALUE

On July 7, 1993, 208,850 shares of our Cumulative Senior Preferred $100 Series-C
Stock were delivered to Statesman Group, Inc. as part of the NRDC Transaction.
Such shares represent 100% of the issued and outstanding Series-C shares.
210,000 shares of the Series-C Preferred Stock are authorized. Quarterly
dividend periods commenced on September 30, 1993 and quarterly dividends per
share are equal to 20%, not to exceed $500,000, of the annual after tax earnings
of NRDC, divided by the number of shares outstanding. The Series-C shares carry
a preference upon liquidation. Except in limited circumstances, the Series-C
shares carry no voting rights. We have the right to redeem the Series-C
Preferred Stock at any time.

-11-

CUMULATIVE CONTINGENT CONVERTIBLE JUNIOR PREFERRED $10 STATED VALUE SERIES-D
STOCK - $0.10 PAR VALUE

The Series-D junior preferred shares were issued in exchange for the serial
restructuring promissory notes issued as part of our 1992 Restructuring. The
total issued was 25,694 shares and was required by the Acquisition Agreement as
a condition to closing. 26,000 shares of the Series-D Preferred Stock are
authorized. Annual dividend periods commenced on January 1, 1993. Dividends
accrue at the rate of 7% per annum. The holders of the Series-D Preferred Stock
hold contingent rights to convert into Common Stock, but cannot convert without
the consent of a majority of the holders of the Series-C Preferred Stock. The
Series-D shares carry a preference upon liquidation. Except in limited
circumstances, the Series-D shares carry no voting rights. We have the right to
redeem the Series-D Preferred Stock at any time.

ITEM 6. SELECTED FINANCIAL DATA.

2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------

INCOME STATEMENT
Revenues $10,885,765 $14,342,613 $ 7,835,071 $ 3,789,839 $ 2,908,253
Income from Equity Investment
in Partnership 5,607,465 4,712,615 4,261,212 3,950,090 3,820,913
Net Income $ 3,673,682 $ 2,155,254 $ 2,292,922 $ 1,794,560 $ 2,187,618
Net Income per Share (basic) .21 .16 .18 .14 .17
Net Income
per Share (diluted) .18 .14 .15 .12 .15
BALANCE SHEET
Total assets $36,139,876 $37,016,829 $33,657,635 $24,127,416 $15,432,529
Long-term debt (including
current portion) & redeemable
Preferred Stock $13,733,323 $13,200,851 $12,778,244 $11,795,480 $ 5,175,400

On October 1, 2001, we announced that we had completed a transaction disposing
of our interest in Glas-Aire. Pursuant to an agreement entered into on
September 17, 2001 and amended on October 1, 2001, we exchanged 1,215,105 shares
of common stock of Glas-Aire, representing approximately 50% of the issued and
outstanding shares of Glas-Aire, for $2,500,000 plus 4,040,375 shares of our
common stock, or approximately 23% of the issued and outstanding shares of
Regency. As a result of the transaction, neither Regency nor Glas-Aire owns any
stock of the other.

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

FORWARD-LOOKING STATEMENTS.
- ----------------------------

CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING, BUT
NOT LIMITED TO, THOSE REGARDING OUR 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" EXPECTATIONS AND BELIEFS CONCERNING FUTURE EVENTS IMPACTING US AND
ARE SUBJECT TO UNCERTAINTIES AND FACTORS (INCLUDING, BUT NOT LIMITED TO, THOSE

-12-

SPECIFIED BELOW) WHICH ARE DIFFICULT TO PREDICT AND, IN MANY INSTANCES, ARE
BEYOND OUR CONTROL. AS A RESULT, OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE RESULTS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS WHICH INCLUDE BUT
ARE NOT LIMITED TO:

(i) WE CURRENTLY DO NOT GENERATE POSITIVE CASH FLOW AS OUR CURRENT
ACTIVITIES DO NOT, IN AND OF THEMSELVES, GENERATE SUFFICIENT CASH FLOW
TO COVER OUR CORPORATE OPERATING EXPENSES AND THUS WE MUST RELY ON OUR
CASH RESERVES TO FUND THESE EXPENSES. OUR ABILITY TO CONTINUE IN
EXISTENCE IS PARTLY DEPENDENT UPON OUR ABILITY TO ATTAIN SATISFACTORY
LEVELS OF OPERATING CASH FLOWS.

(ii) WE CURRENTLY LACK THE NECESSARY INFRA STRUCTURE AT THE SITE OF THE
GROVELAND MINE IN ORDER TO PERMIT US TO MAKE MORE THAN CASUAL SALES OF
THE AGGREGATE.

(iii) AN UNSECURED DEFAULT IN THE LEASE OR SUDDEN CATASTROPHE TO THE
SECURITY WEST BUILDING FROM UNINSURED ACTS OF GOD OR WAR COULD HAVE A
MATERIALLY ADVERSE IMPACT UPON OUR INVESTMENT IN SECURITY LAND AND
DEVELOPMENT COMPANY LIMITED PARTNERSHIP AND THEREFORE ITS FINANCIAL
POSITION AND RESULTS OF OPERATIONS.

(IV) THE FAILURE OF THE SOCIAL SECURITY ADMINISTRATION TO RENEW ITS LEASE
OF THE SECURITY WEST BUILDINGS UPON ITS EXPIRATION ON OCTOBER 31, 2003
COULD HAVE AN ADVERSE IMPACT UPON OUR INVESTMENT IN SECURITY LAND AND
DEVELOPMENT COMPANY LIMITED PARTNERSHIP.

(V) WE HAVE 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 (GENERATED
BY OUR INVESTMENT IN SECURITY) THAT HAS IN THE PAST BEEN, AND IS
EXPECTED IN THE FUTURE TO BE, OFFSET BY THE OUR NET OPERATING LOSS
CARRYFORWARDS.

GENERAL

We are the parent of several subsidiary business operations. We are committed to
develop and/or monetize these business operations for the benefit of our
shareholders and continue to commit both financial and personnel resources to an
active merger and acquisition program in order to enhance common shareholders'
values.

Our Shareholders' Equity at December 31, 2001 was $19,878,174 as compared to
$16,076,052 on December 31, 2000, an increase of 19.13%.

-13-

LIQUIDITY AND CAPITAL RESOURCES.

The investment in Security is estimated to provide us with management fees of
approximately $100,000 per annum until 2003. In the years ended December 31,
2001, December 31, 2000, December 31, 1999, our income from the equity
investment in the Partnership was $5,418,197, $4,712,615, and $4,261,212,
respectively. These funds, however, are presently committed for the amortization
of the outstanding principal balance on Security's real estate mortgage and,
while our equity investment has increased to $29,984,078, the partnership does
not provide liquidity to us in excess of the $100,000 annual management fee. The
partnership agreement provides for the distribution of "Sale or Refinancing
Proceeds" in accordance with the partner's positive tax capital account
balances. At December 31, 2001, we were the only partner with a positive tax
capital account balance. We have been previously successful in obtaining
financing with respect to this partnership interest to fund our acquisition
program and cash flow deficits.

Following the termination of the 1999 NRDC Plan of Merger with Cotton Valley
Resources Corporation, we installed limited Aggregate crushing and marketing
operations at the Groveland Mine in an informal joint venture with another
company. Pending the outcome of current discussions regarding the possible sale
of the our interest, we also continue to explore the possibility of establishing
a permanent infrastructure to commercialize the inventory of previously quarried
and stockpiled Aggregate at the Groveland Mine. In December 2001, the aggregate
inventory was sold to Iron Mountain Resources, Inc., a 75% owned subsidiary of
the company. The purchase price was $18,200,000 and is payable, with interest
of 2.46%, in ninety-six equal payments of principal and interest commencing
December 2003. The intercompany gain on this transaction has been eliminated in
the consolidation process resulting in the aggregate inventory being carried at
it's historical cost.

We sold 2,852,375 shares of our common stock to Glas-Aire for cash of $1,967,960
and 86,000 shares of Glas-Aire common stock. The proceeds were used to repay the
funding provided by an affiliate of Statesman and other general corporate
requirements.

We continue to explore opportunities to acquire companies with operations that
will provide additional liquidity and cash flow. Our ability to continue in
existence is partly dependent upon our ability to attain satisfactory levels of
operating cash flows and our ability to continue borrowing.

RESULTS OF OPERATIONS

2001 COMPARED TO 2000

Net sales decreased $3,456,848 compared to 2000, a 24% decrease. Net sales
included $8,378,202 of Glas-Aire sales through September 30, 2001, when the
investment in Glas Aire was disposed. Sales of household accessories decreased
by $903,028 due to general economic conditions, the effects of September 11,
2001, and a reduction in the purchases of a large retail customer. Rustic Crafts
continues to emphasize higher margin sales in 2001, has begun diversifying its
product line, and has reduced its reliance on its single large customer, who
required discounted prices.

-14-

Gross margins decreased $1,273,429 in 2001 over 2000, which is primarily
attributable to the disposition of Glas-Aire and its inclusion in the company's
financial statements through only September 30, 2001. Gross margins of home
accessories decreased $437,441 in 2001 reflecting the softer economic
conditions, and a reduced reliance on its single largest customer.

Selling and administrative expenses were reduced by $18,467 or 3.4% in 2001
compared to 2000. Increases in professional fees were offset by similar
reductions attributable closing the Omaha office and removal of Glas-Aire
activities from September 30, 2001. Expenses increased at Rustic Crafts by
$57,132 as a result of an increase in spending for Research and Development to
diversify into other product lines and higher costs of selling and marketing.

Income from equity investment in partnership increased $705,582 over 2000 due to
the reduction of interest expenses on the lower loan principal balance of the
partnership.

Interest expense increased by $94,197 in 2001 over 2000 as a result of higher
loan balances at Rustic Crafts and of Regency.

Income tax expense decreased $58,082 due to lower income tax expense for
Glas-Aire. Regency cannot use its net operating loss to offset the earnings of
Glas Aire.

Minority interest in the Statement of Operations decreased $118,045 due
primarily to the elimination of the results of operations of Glas-Aire.

Net income increased $1,518,428 or 70.5% in 2001 over 2000. The increase was due
to the recognition of a gain in 2001 resulting from the sale of Glas-Aire and
increased partnership earnings reduced by losses at Rustic Craft. Income before
extraordinary gain increased $192,197 or 9.8% in 2000 over 1999.

2000 COMPARED TO 1999

Net sales increased $6,507,542 over 1999, an 83% increase. Net sales include
$10,929,775 of Glas-Aire sales. Sales of household accessories decreased by
$485,286 due to general economic conditions resulting in a decline in sales and
a reduction in backlog orders from the previous period. Rustic Crafts continues
to emphasized higher margin sales in 2000 and to reduce its reliance on it's
single large customer, who requires discounted prices.

Gross margins increased $2,050,695 in 2000 over 1999, which is primarily
attributable to the acquisition of Glas-Aire and it's inclusion in the company's
financial statements for the entire year. Gross margins of home accessories
increased $196,200 in 2000 reflecting the Company's focus on higher margin
products.

Selling and administrative expenses increased $1,960,385 or 58% in 2000 compared
to 1999 The increase is attributable to the inclusion in the companies financial
statement of Glas-Aire activities for the entire year. Expenses increased at
Rustic Crafts by $214,842 as a result of higher costs of selling and marketing,
including the compensation of key employees.

-15-

Income from equity investment in partnership increased $451,403 over 1999 due to
the reduction of interest expenses on the lower loan principal balance of the
partnership, partially offset by increased operating and administrative
expenses.

Other income decreased $91,085 in 2000 as compared to 1999. Other income in 1999
includes $114,960 of equity earnings related to the Company's ownership in
Glas-Aire prior to September 1999. These earnings were offset by decreased
interest income from declining invested cash balances.

Interest expense decreased $12,421 in 2000 from 1999 as a result of lower cost
of funds. Interest expense in 1998 included significant costs and penalties in
connection with the refinancing of the SIPI loan in June 1998. The elimination
of the refinancing costs was partially offset by additional loans for equipment
and facilities at Rustic Crafts and the higher loan balance of the KBC loan
which refinanced the SIPI loan.

Income tax expense increased $190,984 due to income tax expense for Glas-Aire.
The Company cannot use its net operating loss to offset the earnings of this 51%
owned subsidiary.

Minority interest in the Statement of Operations increased $79,128 due primarily
to the inclusion of the results of operations of Glas-Aire for the full year of
2000.

Net income decreased $137,668 or 6% in 2000 over 1999. The decrease was due to
the recognition of an extraordinary gain in 1999. Income before extraordinary
gain increased $192,937 or 9.8% in 2000 over 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks due primarily to changes in interest
rates. We do not use derivatives to alter the interest characteristics of our
debt securities. We have no holdings of derivative or commodity instruments and
we do not transact business in foreign currencies.

The fair value of our cash and cash equivalents or related income would not be
significantly impacted by changes in interest rates since the investment
maturities are short. Debt from drawdowns on our lines of credit incurs interest
at the Prime Lending Rate, which would change from time to time.

It is not possible to anticipate the level of interest rates going forward.
Changes in interest rates have little impact as the majority of our debt is at a
fixed interest rate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements and supplementary data required by Item 8 of Part II of
Form 10-K for the year ending December 31, 2001, are presented on page F1 and
are incorporated by reference.

-16-

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

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT.

Identification of directors and officers.

The following directors were elected at the 2001 meeting of the stockholders
held January 16, 2002 and will serve until the next meeting of stockholders.
Executive officers are elected annually by the Board of Directors or until their
successors are duly elected and qualified. Following is a list of the names and
addresses, ages, positions with Regency, principal occupation and periods of
service of the directors and executive officers.

NAME (AGE) ADDRESS POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS OR
EMPLOYMENT DURING PAST FIVE YEARS

William R. Ponsoldt, Sr. (60) Mr. Ponsoldt has served as Chairman of the Board of Directors
729 South Federal since August, 1996 and as President and CEO since June, 1997.
Hwy., South 307 On April 16, 1999, Mr. Ponsoldt was elected to fill a vacant
Stuart, Florida 34994 position on the Board of Directors of Glas-Aire Industries Group
Ltd. ("Glas-Aire") and was elected Chairman of the Board of Glas-
Aire at that time. During the past five years, Mr. Ponsoldt has
served as the portfolio manager for several hedge funds. Mr.
Ponsoldt is the father of William R. Ponsoldt, Jr. a director of the
Company
Stephanie Carey (51) Ms. Carey is a principal and the Investment Manager for managed
Beaumont House, 3rd Floor companies with Bradley Management (Bahamas) Limited. She was
King & George Street formerly a director of Regal Bahamas International Airways Limited
P.O. Box CB 10985 and Bank of the Bahamas. She is also a director of Caribtours
Nassau, Bahamas Company Ltd., Y.M.C.A. Bahamas Chapter and Southwestern
District Bahamas School Board.
Martin J. Craffey (63) Mr. Craffey was a real estate and business broker and contract
145 Roseland Lane vendee with Prudential Realty of Long Island, New York from
East Patchogue, N.Y. 11772 January 1988 until December 31, 1993. Mr. Craffey is presently
employed seeking financing for, and reorganizing, real estate
projects.
William R. Ponsoldt, Jr. (36) Mr. Ponsoldt is an attorney engaged in the private practice of law in
1000 S.E. Monterrey Commons Blvd. Florida with the firm of Wright, Ponsoldt & Lozeau Trial Attorneys,
Stuart, Florida 34994 LLP. Formerly he was a partner in the firm of Warner, Fox, Seeley,
Dungey & Sweet. Mr. Ponsoldt is the son of William R. Ponsoldt,
Sr.

-17-

Marc H. Baldinger (46) Mr. Baldinger, C.F.P. until recently was a senior officer of financial
P. O. Box 383 services for Riverside National Bank, located in Palm City, Florida.
Palm City Fl. 34991 Prior to his employment at Riverside, he was a financial advisor for
American Express Financial Advisors, Inc. and Linsco Private
Ledger. Mr. Baldinger was elected to fill a vacant position on the
Board of Directors of Glas-Aire on April 16, 1999.
Jackie Teske (51) Secretary of Regency since February 2001. From October 1982 to
P. O. Box 2998 the present, Ms. Teske was employed as Secretary of National
Stuart, Fl. 34995 Investment Company.

Each of Messrs. Ponsoldt, Jr. and Craffey, and Ms. Carey were appointed
directors by Statesman as part of the closing of the NRDC Transaction on July 7,
1993. Each had an understanding with Statesman and/or Regency that as an
inducement to accept their positions as directors, he or she would receive
certain consideration from Statesman and/or Regency. Ms. Carey received 100,000
shares of our Common Stock from Statesman in 1997.

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 the Regency during its 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 2001, was subject to the
reporting requirements of Section 16(a) with respect to Regency failed to meet
such requirements on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table.

The following table sets forth the annual and long-term compensation during the
last three years for William R. Ponsoldt, Sr., and Marc Baldinger.

SUMMARY COMPENSATION TABLE

Annual Compensation (1) Long Term Compensation

Other Annual Restricted Securities All other
Name and Principal Salary Bonus Compensation Stock Underlying Compensation
Position Year ($) ($) ($) Awards(s) Options(#) ($)
- ---------------------- ---- -------- -------- ------------- ----------- ----------- -------------

William Ponsoldt, Sr. 2001 271,638 935,920 10,000 0 10,000 0
Pres/CEO(1) 2000 269,114 501,904 10,000 0 10,000 0
1999 258,000 307,393 7,200 0 10,000 0

Marc Baldinger (2) 2001 40,000 10,000 10,000
CFO 2000 0 0 10,000 0 10,000 0
1999 0 0 10,000 0 10,000 0

(1) Mr. Ponsoldt's employment agreement provides for Mr. Ponsoldt to continue
in these duties until his attainment of retirement age, provided that he may
resign upon 30 days notice to us and further provided that Mr. Ponsoldt may be
removed from office upon death or disability or for just cause. The Agreement
provides for a base salary in annual installments, in advance, of $250,000 each,
which salary is to be adjusted on January 1 of every year by any increase since
the previous January 1 in the Consumer Price Index ("CPI") for All Urban
Consumers, U.S. city average, as published by the U.S. Department of Labor,
Bureau of Labor Statistics. As additional compensation, payable on a quarterly

-18-

basis, Mr. Ponsoldt is to receive an amount equal to 20% of our increase in
quarterly common stock net worth, which is defined to be the difference between
(i) total shareholders' equity and (ii) any shareholders' equity accounts
relating to preferred stock. Mr. Ponsoldt may elect to have a portion of his
salary or additional compensation in the form of (i) a qualified pension plan;
(ii) a qualified profit sharing plan; or (iii) life insurance with a beneficiary
of his choice. We may elect to pay up to 50% of the additional compensation by
the issuance of warrants to purchase our Common Stock at a price equal to 50% of
the average bid price for our Common Stock for the calendar quarter for which
the increased compensation is payable. At Mr. Ponsoldt's option, payment for
the exercise of the warrants, in whole or in part, may be made in the form of a
promissory note secured by a pledge of the shares purchased. The Agreement
further provides for Mr. Ponsoldt to receive health and disability insurance
(with a benefit of $100,000/year payable in the event of long term disability),
an automobile allowance of $600/month (to be adjusted by increases in the CPI),
and reimbursement of expenses. The Agreement provides that Mr. Ponsoldt will
not compete with us for a two-year period following the termination of his
employment. In addition, we have agreed to indemnify Mr. Ponsoldt under certain
circumstances. Any disputes between the parties under the Agreement are to be
resolved through arbitration. William Ponsoldt had accrued payment of his salary
and bonus until October 2001. On that date, Regency had paid his salary, bonus,
and accrued interest of $1,355,00.

2. Marc Baldinger accepted the position of CFO in 2001. Mr. Baldinger was paid
$40,000 as compensation in 2001 and $0 in 2000 or before.

Option/SAR Grants.

The Option/SAR Grants Table below shows the individual grants of stock options
(whether or not in tandem with SARs) and freestanding SARs made during the last
completed fiscal year to any of the named executive officers. Other than the
2001 year options for 10,000 shares, exercisable at $0.40 per shares, issued to
William R. Ponsoldt, Sr. and Marc Baldinger in their capacity as a director no
options were granted.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES OF
TOTAL STOCK PRICE APPRECIATION
NUMBER OF OPTIONS EXERCISE MARKET FOR THE OPTION TERM (1)
SECURITIES GRANTED TO PRICE PRICE ON ------------------------------
UNDERLYING EMPLOYEES DATE OF
OPTIONS IN GRANT EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE ($) ($) DATE 5% 10%
- ----------------------- ---------- ------------ -------------- ---------- ---------- ------------ ----------------

William R. Ponsoldt, Sr 10,000 100% $ 4.00 $ 0.33 08/05/06 $ 422 $ 1,846
Marc Baldinger. . . . . 10,000 100% $ 0.40 $ 0.33 08/05/06 $ 422 $ 1,846
=========================================================================================================================

(1) The Securities and Exchange Commission (the "SEC") requires disclosure
of the potential realizable value or present value of each grant. The
5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent the Company's
estimate or projection of the Company's future common stock prices.
The disclosure assumes the options will be held for the full six year
term prior to exercise. Such options may be exercised prior to the end
of such six-year term. The actual value, if any, an executive officer
may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. There can be no
assurance that the stock price will appreciate at the rates shown in
the table.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value.

-19-

The Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values table shows there were no exercises of stock options (nor tandem SARs)
nor freestanding SARs during the last completed fiscal year by any of the named
executive officers.

OPTION VALUES AT DECEMBER 31, 2001

NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF
SHARES AT DECEMBER 31, 2001 IN-THE-MONEY OPTIONS AT
ACQUIRED # OF SHARES DECEMBER 31, 2001 (4) (1)
ON VALUE -------------------------- --------------------------
NAME (# SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ---------- -------- ----------- ------------- ----------- -------------

William R. Ponsoldt, Sr. - - 10,000 20,000 - -
Marc Baldinger - - 10,000 20,000

- --------------------------------------------------------------------------------

- ---------------
(1) The Securities and Exchange Commission (the "SEC") requires disclosure of
the potential realizable value or present value of each grant. The 5% and 10%
assumed annual rates of compounded stock price appreciation are mandated by
rules of the SEC and do not represent the Company's estimate or projection of
the Company's future common stock prices. The disclosure assumes the options
will be held for the full six-year term prior to exercise. Such options may be
exercised prior to the end of such six-year term. The actual value, if any, an
executive officer may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised. There can be no
assurance that the stock price will appreciate at the rates shown in the table.

INCENTIVE STOCK OPTION PLANS

The Company has reserved 500,000 shares of its Common Stock for issuance under
the 1988 Incentive Stock Plan. There are no options to purchase Common Stock
outstanding under this plan.

Stock Options Granted to Statesman Group, Inc.

The Statesman Group, Inc. is an international business corporation organized
under the laws of the Bahamas. Statesman's principal business is the making of
investments in the United States and elsewhere. Both its principal business and
principal office are located at Bay Street, Nassau, Bahamas. The Statesman
Irrevocable Trust dated April 15, 1991 is the controlling person of Statesman.
The Statesman Trust is an irrevocable trust for the benefit of William R.
Ponsoldt, Jr., a director of Regency, Tracey A. Ponsoldt, now married and
sometimes known as Tracey A. Powers, and Christopher J. Ponsoldt, all children
of William R. Ponsoldt, Sr. The acting trustees of the Statesman Trust, dated
April 15, 1991, have the sole right to control the disposition of and vote
Regency's securities acquired by Statesman

-20-

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
Regency and a showing of reasonable need. In 2001, we accessed and repaid the
line of credit from Statesman. The loans had been collateralized with holdings
of Glas-Aire Stock owned by Regency. Statesman and/or its affiliated interests
have provided loan guarantees and/or unsecured prime interest rate direct loans
to Regency exceeding $2,000,000 since June 1997. Pursuant to the Amended and
Restated Agreement between Regency and Statesman, until their date of
expiration, the options were exercisable at any time in whole or in part at a
price equal to the lower of (a) the closing trading price as of the most recent
date on which at least 10,000 shares of such stock were traded, or (b) the
average closing trading price of the shares during the ninety day period
immediately preceding the date of exercise. We agreed to reserve sufficient
shares to meet the requirements of the options. The options became exercisable
immediately and remained exercisable until April 15, 2007. At the option of
Statesman, payment could and was made by Statesman for exercise of the options,
in whole, in the form of a promissory note executed by Statesman, secured only
by a pledge of the shares purchased, which promissory note would accrue interest
for any quarter at the prime rate in effect on the last day of the quarter at
Chase Manhattan Bank, with interest and principal payable in a balloon payment
five years after the date of execution of the note, provided that if our Board
of Directors reasonably determines that exercising the options by delivery of a
note would render the respective purchase of shares void or voidable, then the
Board may require, as a condition to exercise of the options, that Statesman
either (i) pay at least the par value of the shares in cash (with the balance
paid by delivery of a note), or (ii) provide acceptable collateral other than
the shares themselves to secure payment of the note. We received no cash
consideration with respect to the issuance of the securities to Statesman, no
commissions were paid, and no underwriter was involved. The options granted to
Statesman have no readily determinable value and, therefore, we have not
recognized any costs associated with the issuance of these options.

At a meeting of our Board of Directors on December 3, 2000, Statesman notified
us that it intended to exercise its option. The Board formed a committee to
negotiate for collateral for the note that Statesman was entitled to issue to
exercise the option. The committee also obtained independent expert advice with
respect to the transaction.

On October 15, 2001, Statesman exercised the option in full pursuant to an
agreement that (1) provided for a purchase price at $.40 per share (par value)
rather than the formula price in the option, which would have yielded us
approximately 25% less and (2) provided for collateral for the $2.44 million 5
year note issued by Statesman to Regency (in addition to the shares purchased)
in the form of the 20% stock interest owned by Statesman in National Resource
Development Corporation, our 80% owned subsidiary.

-21-

Non Qualified Stock Options.

Non qualified options to acquire a total of 70,000 common shares were granted in
2001 to directors of Regency in accordance with the Directors' compensation
program as approved by the Shareholders in the 1999 Meeting of Shareholders. The
options were granted at an exercise price of $0.40 per share, respectively, the
par value of the common shares at date of grant. The options vest on February
5,2002 and are exercisable to August 5, 2006.

LTIP Awards.

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

Defined Benefit Plans.

We have no defined benefit or actuarial plans.

Compensation of Directors.

At the 1999 Meeting of Shareholders held on August 5, 1999, the Shareholders
approved a compensation program for directors providing for (i) an annual
retainer for all directors of $10,000, payable one-half in cash and one-half in
our Common Stock, (ii) a fee of $125/hour, with a two hour minimum, for
attendance at each meeting of the Board or committee thereof, provided that
multi-day meetings and specific consultations with our executive management
lasting at least eight hours are compensated on a flat per diem rate of $1,000,
and (iii) an award of an option to all directors to purchase 10,000 shares of
our Common Stock, at fair market value on date of grant.

Other Arrangements.

Martin J. Craffey was paid $7,400 for consulting primarily with respect to the
operations of Rustic Crafts International, Inc. There were no other arrangements
pursuant to which any director was compensated during our last completed fiscal
year for services provided as a director.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS.

On June 3, 1997, the Company entered into an Employment Agreement with William
R. Ponsoldt, Sr. pursuant to which he became the President and Chief Executive
Officer of the Company. The Agreement provides for Mr. Ponsoldt to continue in
these duties until his attainment of retirement age, provided that he may resign
upon 30 days notice to the Company and further provided that Mr. Ponsoldt may be
removed from office upon death or disability or for just cause. The Agreement
provides for a base salary in annual installments, in advance, of $250,000 each,
which salary is to be adjusted on January 1 of every year by any increase since
the previous January 1 in the Consumer Price Index ("CPI") for All Urban
Consumers, U.S. city average, as published by the U.S. Department of Labor,

-22-

Bureau of Labor Statistics. As additional compensation, payable on a quarterly
basis, Mr. Ponsoldt is to receive an amount equal to 20% of the Company's
increase in quarterly common stock net worth, which is defined to be the
difference between (i) total shareholders' equity and (ii) any shareholders'
equity accounts relating to preferred stock. Mr. Ponsoldt may elect to have a
portion of his salary or additional compensation in the form of (i) a qualified
pension plan; (ii) a qualified profit sharing plan; or (iii) life insurance with
a beneficiary of his choice. The Company may elect to pay up to 50% of the
additional compensation by the issuance of warrants to purchase the Company's
Common Stock at a price equal to 50% of the average bid price for the Company's
Common Stock for the calendar quarter for which the increased compensation is
payable. At Mr. Ponsoldt's option, payment for the exercise of the warrants, in
whole or in part, may be made in the form of a promissory note secured by a
pledge of the shares purchased. The Agreement further provides for Mr. Ponsoldt
to receive health and disability insurance (with a benefit of $100,000/year
payable in the event of long term disability), an automobile allowance of
$600/month (to be adjusted by increases in the CPI), and reimbursement of
expenses. The Agreement provides that Mr. Ponsoldt will not compete with the
Company for a two year period following the termination of his employment. In
addition, the Company agrees to indemnify Mr. Ponsoldt under certain
circumstances. Any disputes between the Company and Mr. Ponsoldt under the
Agreement are to be resolved through arbitration.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security Ownership of Certain Beneficial Owners

To the best of the Company's knowledge, the only beneficial owners of more than
five percent of the Company's Common Stock, its only voting securities, as of
April 12, 2002 are listed below:

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
-----------------------------------------------

COMMON STOCK SERIES C PREFERRED STOCK
------------------ ---------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES % SHARES %
- -------------------------------------- ---------- ------ ------------- ------------

Statesman Group, Inc. (2) 754,950(3) 38.9 10,885 51.8
Bay Street
Nassau, Bahamas
Edward E. Gatz, M.D. 92,060 (4) -0- -0-

- ---------------
(1) The nature of beneficial ownership is sole investment power and sole voting
power as to all shares listed except as listed below.
(2) See "Certain Relationships and Related Party Transactions."
(3) In addition to 754,950 shares of Common Stock owned outright, Statesman
Group, Inc. has voting trusts for 10,000 shares of Common Stock. It also holds
proxies for 62,393 shares of Common Stock subject to release under certain
conditions. A committee of Regency's Board of Directors has the ability to vote
the shares of Common Stock.
(4) The shareholder's most recent Schedule 13D, filed on June 5, 1998, reports
that the shareholder owns 5% of the outstanding shares of the Common Stock.
However, based on the number of shares owned by the shareholder as reported in
the Schedule 13D and the number of outstanding shares of Common Stock, the
Company believes the shareholder holds less than 5% of the outstanding Common
Stock.

-23-

Security Ownership of Management

The following table sets forth as of April 12, 2002 the number of shares of our
Common Stock, $0.01 par value per share and the Series C Preferred Stock,
beneficially owned by each director and by all executive officers and directors
of the Company as a group as of such date. Unless otherwise indicated, each
person has sole voting and investment powers with respect to the shares of
Common Stock and the Series C Preferred Stock indicated.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
---------------------------------------------
COMMON STOCK SERIES C PREFERRED STOCK
----------------- --------------------------
NAME OF BENEFICIAL OWNER SHARES % SHARES %
- ----------------------------------------------------- --------- ------ -------- ----------------

William R. Ponsoldt, Sr. 4,313 (2) * -0- -0-
Stephanie Carey 4,313 (2) * -0- -0-
Martin J. Craffey 4,313 (2) * 100 *
William R. Ponsoldt, Jr. 4,313 (2) * 100 *
Marc H. Baldinger 4,313 (2) * -0- -0-
All officers and directors as a group (5 individuals)
21,566(2) .01% -0- -0-

- ---------------

* Less than 0.1%
(1) The nature of beneficial ownership is sole investment power and sole voting
power as to all shares listed except as listed below.
(2) Includes 2,000 shares of common stock underlying stock options issued to
each director in accordance with the Company's director compensation program.

Cumulative Senior Preferred $100 Series-C Stock

As of December 31, 2001 certain members of the Board of Directors of Regency
Affiliates, Inc. held warrants to purchase Cumulative Senior Preferred $100
Series-C Stock from Statesman Group, Inc., as follows: William R. Ponsoldt, Jr.
(warrants to purchase 1,000 shares) and Martin J. Craffey (warrants to purchase
1,000 shares).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

STATESMAN GROUP, INC. OPTIONS

Statesman Group, Inc. ("Statesman") is an international business corporation
organized under the laws of the Bahamas. Statesman's principal business is the
making of investments in the United States and elsewhere. Both its principal
business and principal office are located at Bay Street, Nassau, Bahamas. The
Statesman Irrevocable Trust, dated April 15, 1991, is the controlling person of
Statesman. The Statesman Trust is an irrevocable trust for the benefit of
William R. Ponsoldt, Jr., a director of the Company, Tracey A. Ponsoldt, now
married and sometimes known as Tracey A. Powers, and Christopher J. Ponsoldt,
all children of William R. Ponsoldt, Sr. The acting trustees of the Statesman
Trust is Liedenhall Bank and Trust, Nassau, Bahamas, which has the sole right to
control the disposition of and vote the Company's securities acquired by
Statesman.

-24-

Pursuant to an Agreement dated June 3, 1997, as amended and restated on March
24, 1998, Statesman Group, Inc. was granted options to purchase 6.1 million
shares of Common Stock. Statesman owned approximately 25% of the Company's
outstanding common stock prior to the issuance of these options. 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,
for the release of certain contractual rights held by Statesman, for assignment
of certain rights of first refusal and for other consideration. Pursuant to the
Amended and Restated Agreement between the Company and Statesman, until their
date of expiration, the options were exercisable at any time in whole or in part
at a price equal to the lower of (a) the closing trading price as of the most
recent date on which at least 10,000 shares of such stock were traded, or (b)
the average closing trading price of the shares during the ninety day period
immediately preceding the date of exercise. The options became exercisable
immediately and were to remain exercisable until April 15, 2007. At the option
of Statesman, payment could be made by Statesman for exercise of the options, in
whole or in part, in the form of a promissory note executed by Statesman,
secured only by a pledge of the shares purchased, which promissory note would
accrue interest for any quarter at the prime rate in effect on the last day of
the quarter at Chase Manhattan Bank, with interest and principal payable in a
balloon payment five years after the date of execution of the note, provided
that if the Company's Board of Directors reasonably determined that exercising
the options by delivery of a note would render the respective purchase of shares
void or voidable, then the Board could require, as a condition to exercise of
the options, that Statesman either (i) pay at least the par value of the shares
in cash (with the balance paid by delivery of a note), or (ii) provide
acceptable collateral other than the shares themselves to secure payment of the
note.

At a meeting of Regency's Board of Directors on December 3, 2000, Statesman
notified the Company that it intended to exercise its option. The Board of
Directors formed a committee to negotiate for collateral for the note that
Statesman was entitled to issue to exercise the option. The committee also
obtained independent expert advice with respect to the transaction.

On October 15, 2001, Statesman exercised the option in full pursuant to an
agreement that (1) provided for a purchase price at $.40 per share (par value)
rather than the formula price in the option, which would have yielded the
Company approximately 25% less and (2) provided for collateral for the $2.44
million 5 year note issued by Statesman to the Company (in addition to the
shares purchased) in the form of the 20% stock interest owned by Statesman in
National Resource Development Corporation, the Company's 80% owned subsidiary.
As a result of the transaction the Statesman Group owns approximately 38.2 % of
our stock.

In addition, pursuant to the Amended and Restated Agreement, 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. The Company has
accessed the Statesman loan. The loan is a demand loan which was collateralized
by the Glas-Aire Stock held by the Company. Statesman and/or its affiliated
interests have provided loan guarantees and/or unsecured prime interest rate

-25-

direct loans to the Company in excess of $2,000,000 since June 1997. As of
October 2, 2001, the balances of such loans have been paid in full.

DISPOSITION OF OUR INTEREST IN GLAS AIRE

On September 17, 2001, the Company completed a transaction for the disposition
of its interest in its partially owned subsidiary, Glas-Aire Industries Group
Ltd. ("Glas-Aire"). Prior to the transaction, each corporation owned a
substantial percentage of the common stock of the other, and they had certain
officers and directors in common. Pursuant to an agreement entered into on
September 17, 2001 and amended on October 1, 2001, Regency exchanged 1,215,105
shares of common stock of Glas-Aire, representing approximately 50% of the
issued and outstanding shares of Glas-Aire, for $2,500,000 plus 4,040,375 shares
of Regency's common stock, or approximately 23% of the issued and outstanding
shares of Regency. As a result of the transaction, neither Regency nor
Glas-Aire owns any stock of the other.

The exchange rate was based on negotiations between the parties and confirmed as
to fairness by independent valuation firms, hired by respective committees of
each of the Boards of Directors of Regency and Glas-Aire.

The former president of Glas-Aire has commenced litigation in British Columbia,
Canada against Glas-Aire, the Company, Mr. Ponsoldt and Mr. Baldinger, among
other things, asserting that the Regency-Glas-Aire transaction is in breach of
bank agreements, securities law and fiduciary duties owed to Glas-Aire and its
stockholders. While the company has been served, plaintiff has not proceeded on
this action and has not filed a statement of claim on a timely basis. Should
plaintiff continue with the action, the defendants, including Regency, would
vigorously defend this litigation

WILLIAM R. PONSOLDT'S, SR. EMPLOYMENT AGREEMENT

Mr. Ponsoldt's employment agreement provides for Mr. Ponsoldt to continue in
these duties until his attainment of retirement age, provided that he may resign
upon 30 days notice to us and further provided that Mr. Ponsoldt may be removed
from office upon death or disability or for just cause. The Agreement provides
for a base salary in annual installments, in advance, of $250,000 each, which
salary is to be adjusted on January 1 of every year by any increase since the
previous January 1 in the Consumer Price Index ("CPI") for All Urban Consumers,
U.S. city average, as published by the U.S. Department of Labor, Bureau of Labor
Statistics. As additional compensation, payable on a quarterly basis, Mr.
Ponsoldt is to receive an amount equal to 20% of our increase in quarterly
common stock net worth, which is defined to be the difference between (i) total
shareholders' equity and (ii) any shareholders' equity accounts relating to
preferred stock. Mr. Ponsoldt may elect to have a portion of his salary or
additional compensation in the form of (i) a qualified pension plan; (ii) a
qualified profit sharing plan; or (iii) life insurance with a beneficiary of his
choice. We may elect to pay up to 50% of the additional compensation by the
issuance of warrants to purchase our Common Stock at a price equal to 50% of the
average bid price for our Common Stock for the calendar quarter for which the
increased compensation is payable. William Ponsoldt had accrued payment of his
salary and bonus until October 2001. On that date, Regency had paid his salary,

-26-

bonus, and accrued interest of $1,355,00. At Mr. Ponsoldt's option, payment for
the exercise of the warrants, in whole or in part, may be made in the form of a
promissory note secured by a pledge of the shares purchased. The Agreement
further provides for Mr. Ponsoldt to receive health and disability insurance
(with a benefit of $100,000/year payable in the event of long term disability),
an automobile allowance of $600/month (to be adjusted by increases in the CPI),
and reimbursement of expenses. The Agreement provides that Mr. Ponsoldt will
not compete with us for a two-year period following the termination of his
employment. In addition, we have agreed to indemnify Mr. Ponsoldt under certain
circumstances. Any disputes between the parties under the Agreement are to be
resolved through arbitration.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K.

a. The following documents are filed as part of this report:

1. Financial Statements: Page

Independent Auditors' Reports F-1

Consolidated Balance Sheets as of
December 31, 2001 and 2000 3-4

Consolidated Statements of Operations for the years
ended December 31, 2001, 2000, and 1999 5

Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999 6

Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000, and 1999 7-8

Notes to Consolidated Financial Statements 9-26

2. Schedules.

-27-

Certain schedules are omitted because of the condition under which
they are required or because the required information is included in
the financial statements or notes thereof.

b. The following reports on Form 8-K were filed by the registrant
during the quarter ended December 31, 2001:

Current Report on Form 8-K dated November 6, 2001 and filed November
6, 2001

Current Report on Form 8-K dated October 15, 2001 and Filed October
25, 2001

Current Report on Form 8-K dated October 1, 2001 and Filed October 16,
2001

INDEX TO EXHIBITS

Exhibit No. Description of Document

1(b) Irrevocable Proxies over 85,599 shares of Regency's $0.01 par value
Common Stock, and incorporated herein by reference
1(d) Security Land And Development Company Limited Partnership
Agreement, as amended, 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
3(a) Certificate of Incorporation of Registrant filed at Exhibit 6.1 to
Registrant's Registration Statement on Form S-14, Registration No.
2-66923 1 (a), page E-1 Agreement For Acquisition among Regency
Affiliates, Inc., Statesman Group, Inc., and National Resource
Development Corporation, as amended, and incorporated herein by
reference
3(b) Certificate of Amendment of Certificate of Incorporation of
Registrant filed at Exhibit 3.2 to Registrant's Annual Report on Form
10-K, and incorporated herein by reference
3(c) Certificate of Amendment of Certificate of Incorporation filed
February 15, 1988, and incorporated herein by reference
3(d) By-laws of Registrant filed at Exhibit 3.4 to Registrant's Registration
Statement on Form S-1, Registration No. 2-86906, and incorporated
herein by reference
4(b) 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
4(c) Certificate of Designation - Series C Preferred Stock, $100 Stated
Value, $.10 Par Value filed as Exhibit to Form 10-K dated June 7,
1993 and incorporated herein by reference

-28-

4(d) 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
4(k) 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
10 1984 Incentive Stock Option filed as exhibit to Registrants' 1984
Proxy Statement, and incorporated herein by reference

10(a) Agreement For Acquisition among Regency Affiliates, Inc.,
Statesman Group, Inc., and National Resource Development
Corporation filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference
10(h) 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 Registrant's report on Form
8-K dated June 13, 1997, and incorporated herein by reference

10(i) 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 Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 at page E-1, and incorporated herein by
reference
10(j) Amended and Restated Agreement Between Regency Affiliates, Inc.
and the Statesman Group dated March 24, 1998 filed as Exhibit 10.2
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, at page E-36, and incorporated herein by
reference.
10(k) 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
registrant's report on Form 10-Q for the quarter ended June 30, 1998,
and incorporated herein by reference.
10(l) 7th Amendment to Partnership Agreement of Security Land and
Development Company Limited Partnership dated June 24, 1998,
filed as Exhibit 10.3 to the Registrant's report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by reference.
10(m) Purchase Agreement for a 5% Limited Partnership Interest in 1500
Woodlawn Limited Partnership, the General Partner of Security.

-29-

Exhibit No. Description of Document

10.1 Glas-Aire Redemption Agreement (incorporated herein by reference
the 8-K filed on October 16, 2001)

10.2 Statesman exercise agreement (incorporated herein by reference the
8-K filed on October 25, 2001)

10.3 Certificate of Amendment for Reverse Split (incorporated herein by
reference the 8-K filed on February 5, 2002)

21 Schedule of Registrant's Subsidiaries

23 Consent Letter from Rosenberg, Rich, Baker, Bermann & Company

-30-

SIGNATURES

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

REGENCY AFFILIATES, INC.
(Registrant)

April 16, 2002 By: /s/ William R. Ponsoldt Sr., President
Date --------------------------------------
William R. Ponsoldt, Sr., President

By: /s/ Marc H. Baldinger
-----------------------
Marc H. Baldinger, CFO

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

Date Signature and Title

April 16, 2002 By: /s/ William R. Ponsoldt, Sr.
Date -------------------------------------
William R. Ponsoldt, Sr. President
and Director

April 16, 2002 /s/ Stephanie Carey
Date -------------------------------------
Stephanie Carey,
Director

April 16, 2002 /s/ Martin J. Craffey
Date -------------------------------------
Martin J. Craffey,
Director

April 16, 2002 /s/ William R. Ponsoldt, Jr
Date -------------------------------------
William R. Ponsoldt, Jr.,
Director

April 16, 2002 /s/ Marc H. Baldinger
Date -------------------------------------
Marc H. Baldinger,
Director

-31-

REGENCY AFFILIATES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
INDEX TO THE FINANCIAL STATEMENTS

Page

Independent Accountant's Report . . . . . . . . . . . . . . . . . . . . 1

Financial Statements

Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . 2-3

Consolidated Statements of Operations . . . . . . . . . . . . . . . . 4

Consolidated Statements of Shareholders' Equity. . . . . . . . . . . 5

Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 6-7

Notes to Consolidated Financial Statements . . . . . . . . . . . . . 8-26

Independent Auditor's Report

To the Board of Directors and Stockholders
of Regency Affiliates, Inc. and Subsidiaries

We have audited the consolidated balance sheets of Regency Affiliates, Inc. and
Subsidiaries as of December 31, 2001and 2000 and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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, 2001 and 2000 and the
results of its consolidated operations, changes in shareholder's equity and cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
April 6, 2002

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December 31,
------------------------
2001 2000
----------- -----------

Assets
Current Assets
Cash and Cash Equivalents $ 310,093 $ 928,636
Accounts receivable, net of allowance 495,160 2,553,589
Income taxes receivable 8,988 24,556
Inventory 953,909 2,243,726
Other current assets 309,663 127,728
----------- -----------
Total current assets 2,077,813 5,878,235

Property, Plant and Equipment, Net 2,192,695 4,343,170

Investment in partnerships 30,183,346 24,575,881

Other Assets
Aggregate inventory 834,194 834,675
Goodwill, net of amortization 484,312 820,774
Debt issuance costs, net of amortization 362,311 551,343
Other 5,205 12,751
----------- -----------
Total other assets 1,686,022 2,219,543

$36,139,876 $37,016,829
=========== ===========

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December 31,
--------------------------
2001 2000
------------ ------------

Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 238,145 $ 128,510
Note Payable - Banks 906,977 692,174
Notes payable - Related Party - 776,000
Accounts payable 366,440 1,080,904
Accrued expenses 1,043,221 899,837
Taxes payable 180,000 78,820
------------ ------------
Total current liabilities 2,734,783 3,656,245

Long term debt, net of current portion 13,495,178 13,072,341

Deferred income taxes - 402,048
Minority interest in consolidated subsidiaries 31,741 3,810,143
Shareholders' equity
Serial preferred stock not subject to mandatory redemption
(maximum liquidation preference $24,975,312 in 2001
and 2000) 1,052,988 1,052,988
Common stock, par value$.40 authorized 25,000,000 shares,
issued and outstanding 19,398,744 and 17,251,619 shares
in 2001 and 2000, respectively 7,759,509 6,900,659
Additional paid-in capital 597,294 2,308,484
Readjustment resulting from quasi-reorganization at December 31, 1987 (1,670,596) (1,670,596)
Retained earnings 14,589,672 10,915,990
Accumulated other comprehensive income - (93,440)
Note receivable - related party (2,440,000) -
Treasury stock, 4,052,825 shares, at cost, in 2001 and 2000,
respectively (10,693) (3,338,033)
------------ ------------
Total shareholders' equity 19,878,174 16,076,052
------------ ------------

$36,139,876 $37,016,829
============ ============

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------

Net Sales $10,885,765 $14,342,613 $ 7,835,071

Costs and expenses
Costs of goods sold 7,616,980 9,800,399 5,343,552
Selling and administrative expenses 5,337,584 5,356,051 3,395,666
------------ ------------ ------------
12,954,564 15,156,450 8,739,218
------------ ------------ ------------

Loss from operations (2,068,799) (813,837) (904,147)
Income from equity investment in partnerships 5,607,465 4,712,615 4,261,212
Gain on disposition of subsidiary 1,818,820 - -
Other income, net 77,665 99,875 190,960
Interest expense (1,267,778) (1,173,581) (1,186,002)
------------ ------------ ------------
Income before income tax expense, minority interest and
extraordinary gain 4,167,373 2,825,072 2,362,023
Income tax expense (368,211) (426,293) (235,309)
Minority interest (125,480) (243,525) (164,397)
------------ ------------ ------------
Income before extraordinary gain 3,673,682 2,155,254 1,962,317
Extraordinary gain - retirement of debt - - 330,605
------------ ------------ ------------
Net income $ 3,673,682 $ 2,155,254 2,292,922
============ ============ ============

Net income attributable to common shareholders
(after paid or accrued preferred stock dividends of $0,
$0, and $49,791 in 2001, 2000 and 1999, respectively,
and preferred stock accretion of $0, $0 and
$19,400 in 2001, 2000 and 1999 respectively) $ 3,673,682 $ 2,155,254 2,223,731
============ ============ ============

Net income per common share:
Basic $ 0.21 $ 0.16 0.18
============ ============ ============
Diluted $ 0.18 $ 0.14 0.15
============ ============ ============

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

Readjustment
Preferred Stock* Common Stock Additional Resulting
--------------------- ------------------------- Paid in from Quasi-
Shares Amount Shares Amount Capital Reorganization
--------- ---------- ----------- ------------ ------------ ----------------

Balance - January 1, 1999 605,291 $1,052,988 12,644,549 $ 5,057,831 $ 270,510 $ (1,670,596)
Issuance of common stock - - 198,736 79,494 110,606 -
Common stock issued to acquire
Glas-Aire - - 4,040,375 1,616,150 1,711,190 -
Conversion of Series E
preferred stock - - 10,828 4,331 4,518 -
Accretion of Series E
preferred stock - - - - - -
Payment of dividend on Series E
preferred stock - - - - - -
Purchase of treasury stock - - - - - -
Re-issue treasury stock - - - - - -
Comprehensive income: - - - - - -
Net income - - - - - -
Translation adjustments net - - - - - -
Comprehensive income - - - - - -
--------- ---------- ----------- ------------ ------------ ----------------

Balance - December 31, 1999 605,291 1,052,988 16,894,488 6,757,806 2,096,824 (1,670,596)
Issuance of common stock
Common stock issued as
additional consideration
to acquire Glas-Aire - - 114,000 45,600 54,400 -
Conversion of Series E
preferred stock - - 95,877 38,351 41,299 -
Common stock issued
for services - - 147,254 58,902 115,961 -
Comprehensive income: - - - - - -
Net income - - - - - -
Translation adjustments net - - - - - -
Comprehensive income - - - - - -
--------- ---------- ----------- ------------ ------------ ----------------

Balance - December 31, 2000 605,291 1,052,988 17,251,619 6,900,659 2,308,484 (1,670,596)
========= ========== =========== ============ ============ ================

Disposition of subsidiary shares,
Glas-Aire - - (4,040,375) (1,616,150) (1,711,190) -
Common stock acquisition at par
by exercise of option
- Statesman Group - - 6,100,000 2,440,000 - -
Common stock issued for services - - 87,500 35,000 - -
Comprehensive income:
Net income - - - - - -
--------- ---------- ----------- ------------ ------------ ----------------
605,291 $1,052,988 19,398,744 $ 7,759,509 $ 597,294 $ (1,670,596)
========= ========== =========== ============ ============ ================

Accumulated Note
Other Receivable Treasury Stock Total
Retained Comprehensive Related ------------------------- Stockholders'
Earnings Income Party Shares Amount Equity
------------ --------------- ------------ ----------- ------------ ---------------

Balance - January 1, 1999 $ 6,519,019 $ - $ - 12,460 $ (10,702) $ 11,219,050
Issuance of common stock - - - - - 190,100
Common stock issued to acquire
Glas-Aire - - - - - 3,327,340
Conversion of Series E
preferred stock - - - - - 8,849
Accretion of Series E
preferred stock (19,400) - - - - (19,400)
Payment of dividend on Series E
preferred stock (31,805) - - - - (31,805)
Purchase of treasury stock - - - 4,040,375 (3,327,340) (3,327,340)
Re-issue treasury stock - - - (10) 9 9
Comprehensive income: - - - - -
Net income 2,292,922 - - - - 2,292,922
Translation adjustments net - (23,675) - - - (23,675)
---------------
Comprehensive income - - - - - 2,269,247
------------ --------------- ------------ ----------- ------------ ---------------

Balance - December 31, 1999 8,760,736 (23,675) - 4,052,825 (3,338,033) 13,636,050
Issuance of common stock
Common stock issued as
additional consideration
to acquire Glas-Aire - - - - - 100,000
Conversion of Series E
preferred stock - - - - - 79,650
Common stock issued
for services - - - - - 174,863
Comprehensive income: - - - - -
Net income 2,155,254 - - - - 2,155,254
Translation adjustments net - (69,765) - - - (69,765)
---------------
Comprehensive income - - - - - 2,085,489
------------ --------------- ------------ ----------- ------------ ---------------

Balance - December 31, 2000 10,915,990 (93,440) - 4,052,825 (3,338,033) 16,076,052
============ =============== ============ =========== ============ ===============

Disposition of subsidiary shares,
Glas-Aire - 93,440 - (4,040,375) 3,327,340 93,440
Common stock acquisition at par
by exercise of option
- Statesman Group - - (2,440,000) - - -
Common stock issued for services - - - - - 35,000
Comprehensive income:
Net income 3,673,682 - - - - 3,673,682
------------ --------------- ------------ ----------- ------------ ---------------
$14,589,672 $ - $(2,440,000) 12,450 $ (10,693) $ 19,878,174
============ =============== ============ =========== ============ ===============

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------

Cash flows from operating activities
Net income $ 3,673,682 $ 2,155,254 $ 2,292,922
Adjustments to reconcile net income to net cash
used by operating activities
Minority interest (3,778,402) 360,506 164,397
Income from equity investment in partnerships (5,607,465) (4,712,615) (4,261,212)
Distribution of management fees earnings from
partnership - 106,251 101,326
Interest accretion on long-term debt 773,642 799,091 952,075
Depreciation and amortization 609,788 576,727 351,985
Issuance of common stock in lieu of cash 35,000 274,863 69,100
Gain on retirement of debt and disposal of assets (253,591) - (346,211)
Undistributed earnings of subsidiaries - - (114,961)
Deferred taxes (402,048) (14,647) -
Changes in operating assets and liabilities
Accounts receivable 2,058,429 (180,314) (100,154)
Inventory 1,290,298 (400,734) (233,221)
Other current assets (181,935) 86,403 124,353
Other assets 7,546 6,227 110,764
Accounts payable (714,464) 739,317 (555,802)
Accrued expenses and taxes payable 184,132 (257,503) 879,332
------------ ------------ ------------
Net cash used by operating activities (2,305,388) (461,174) (565,307)
------------ ------------ ------------
Cash flows from investing activities
Proceeds from disposition of Glas-Aire 2,500,000 - -
Acquisition of business, net of cash of $0 in 2001, $0 in
2000 and $595,995 in 1999 - (10,000) (885,098)
Expenditures for property and equipment (86,788) (251,492) (1,002,781)
Proceeds from sales of property - - 126,565
------------ ------------ ------------
Net cash used by investing activities 2,413,212 (261,492) (1,761,314)
------------ ------------ ------------

Cash flows from financing activities
Redemption of serial preferred stock - (168,150) -
Proceeds from long-term debt - 411,224 636,323
Payment of long-term debt (241,170) (870,996) (85,962)
Proceeds from line of credit - bank 290,803 - -
Loans from related parties 322,000 - -
Repayment of related party loans (1,098,000) - -
Net short-term proceeds - - 20,553
Issuance of common stock - - 1,967,960
Dividends paid - - (31,805)
------------ ------------ ------------
Net cash provided (used) by financing activities (726,367) (627,922) 2,507,069
------------ ------------ ------------
Effect of foreign exchange rates and cash - (69,765) -
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (618,543) (1,420,353) 180,448
Cash and cash equivalents - beginning 928,636 2,348,989 2,168,541
------------ ------------ ------------
Cash and cash equivalents - ending $ 310,093 $ 928,636 $ 2,348,989
============ ============ ============

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $239,824 $374,490 $259,652
Income taxes 274,942 319,453 78,415

Supplemental disclosures of noncash investing and financing activities: In 2001,
the Company issued 6,100,000 shares of common stock at par to Statesman
Group, Inc. a related party, for a promissory note of $2,440,000.

In 2001, a bank loan for $76,000 was paid off by a former officer of the
Company who was guarantor on the loan. This liability is included in
accrued expenses as part of an estimated contingent liability.

In 2001, the Company issued 87,500 shares of common stock for
services.

In 2000, the Company issued 95,877 shares of common stock in exchange
for 885 shares of Series E preferred stock.

In 2000, the Company issued 114,000 shares of common stock as payment
for costs in connection with acquisition of Glas-Aire.

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

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

In 1999, the Company issued: 10,828 shares of common stock in exchange
for 88.5 shares of Series E mandatory redeemable preferred stock;
121,000 shares of common stock to retire the zero coupon bonds issued
by NRDC; 47,736 shares as compensation to its board of directors; and
30,010 shares to satisfy other obligations.

In 1999, the Company issued 1,580,425 shares of its common stock, a
promissory note in the amount of $650,000 and paid cash of $1,481,093
for 51.3% of the outstanding common stock of Glas-Aire Industries
Group, Ltd. In connection therewith, the Company acquired assets and
assumed certain liabilities as follows:

Fair value of assets acquired, including
goodwill $ 5,304,776
Cash paid (1,481,093)
Promissory note issued (650,000)
Common stock issued (1,359,380)
--------------
Liabilities assumed $ 1,814,303
==============

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

A. Principals of Consolidation and Nature of Business - The
consolidated financial statements include the accounts of Regency
Affiliates, Inc. (the "Company"), its wholly owned subsidiaries,
Rustic Crafts International, Inc. ("Rustic Crafts"), and
Speed.com, Inc., it's 75% owned subsidiary, Iron Mountain
Minerals, Inc. ("IMM") since December 13, 2001, its 80% owned
subsidiaries, National Resource Development Corporation ("NRDC"),
Transcontinental Drilling Company ("Drilling") and RegTransco,
Inc. ("RTI") and its 50% owned subsidiary, Glas-Aire Industries
Group, Ltd. ("Glas-Aire") from September 23, 1999, the date in
which the Company achieved an ownership interest greater than 50%
through October 1, 2001, the date this interest was disposed of.
All significant intercompany balances and transactions have been
eliminated in consolidation.

The Company is engaged in multiple business activities (See
Note 16).

Regency Affiliates, Inc.'s share of consolidated net assets at
December 31, 2001 and 2000 consists principally of cash and cash
equivalents of approximately $280,000 and $12,000 respectively,
investment in partnerships of approximately $30,183,200 and
$24,576,000, respectively, property, plant and equipment of
approximately $19,600 and $27,300, respectively, and liabilities
of approximately $12,100,000 and $12,303,000, respectively.

B. Revenue Recognition - The Company's subsidiaries recognize
revenue from the sale of goods upon shipment to their respective
customers.

C. Earnings Per Share - Basic earnings per share are computed by
dividing net income attributable to common shareholders (net
income less preferred stock dividend requirements and periodic
accretion if applicable) by the weighted average number of common
shares outstanding during the year. 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
(See Note 9).

The weighted average number of shares used in basic earnings per
share computations for 2001, 2000 and 1999 was approximately
17,547,161 and 13,085,106 and 12,664,000, respectively. The
weighted average number of shares used in the computation of
diluted earnings per share for 2001, 2000 and 1999 was
approximately 20,439,524, 14,864,004 and 14,923,000,
respectively. The Company's stock was thinly traded in the
over-the-counter market on the bulletin board section until late
1999. In 2001, 2000 and 1999, market prices of $.256, $.587 and
$.984 per share, respectively, were utilized in the conversion
formulas for the computation of diluted earnings per share. In
2001, 2000 and 1999, if market prices of $.230, $.406 per share,
and $.563 per share, respectively, the lowest bid price of the
Company's common shares during the year, were used in the
conversion formulas, the weighted average number of shares
utilized in the computation of diluted earnings per share would
amount to approximately 20,551,994, 15,061,106 and 15,435,000,
respectively, yielding diluted earnings per share of $.18, $.14
and $.15, respectively.

See notes to the consolidated financial statements.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (Continued)

C. Earnings Per Share (Continued)

Earnings per common share attributable to extraordinary gain (net
of tax) for 1999 are: Earnings per common share - basic of $.03
and earning per common share - diluted of $.02.

D. Fair Value of Financial Instruments - The fair values of cash,
accounts receivable, accounts payable and other short-term
obligations approximate their carrying values because of the
short maturity of these financial instruments. The carrying
values of the Company's long-term obligations approximate their
fair value. In accordance with Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," rates available at balance sheet dates to the
Company are used to estimate the fair value of existing debt.

E. 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 which may exceed federally insured amounts at times.

F. Inventory - Inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method. Market value for raw
materials is defined as replacement cost and for work-in-progress
and finished products as net realizable value. Inventory is
comprised of the following at December 31, 2001 and 2000:

2001 2000
-------- ----------
Finished products $646,958 $ 819,738
Work-in-process 8,793 274,988
Raw materials and supplies 298,158 1,149,000
-------- ----------
$953,909 $2,243,726
======== ==========

G. 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, 2001 and 2000:

Property, Plant and
Equipment
----------------------
2001 2000
---------- ----------
Land $ 100,000 $ 100,000
Buildings 2,332,160 2,307,411
Leasehold improvements 77,986 320,636
Machinery and equipment 209,605 3,390,195
---------- ----------
2,719,751 6,118,242
Accumulated depreciation 527,056 1,775,072
---------- ----------
$2,192,695 $4,343,170
========== ==========

Depreciation expense for the years ended December 31, 2001, 2000 and
1999 was $372,837, $399,362 and $295,193, respectively.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (Continued)

H. 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 Minerals, Inc., a 75% owned subsidiary of the company.
The purchase price was $18,200,000 and is payable, with interest
of 2.46%, in ninety six equal payments of principal and interest
commencing December, 2003. The intercompany gain on this
transaction has been eliminated in the consolidation process
resulting in the aggregate inventory being carried at it's
historical cost.

I. Goodwill - Goodwill resulted from the acquisition of Rustic
Crafts in 1997 and Glas-Aire in 1999. The goodwill attributable
to Rustic Crafts is being amortized straight-line over a period
of 15 years. Accumulated amortization was $256,542 and $208,623
at December 31, 2001 and 2000, respectively.

J. Debt Issuance Costs - Debt issuance costs are recorded at cost
and are being amortized over 66 months, the life of the related
loan using the effective interest method. Accumulated
amortization was $587,361 and $398,329 at December 31, 2001 and
2000, respectively.

K. 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 is the current tax
payable or refundable for the period plus or minus the net
exchange in the deferred tax assets and liabilities.

L. Foreign Currency Translation - Glas-Aire's functional currency is
the Canadian dollar and its operations have been translated into
the U. S. dollar using Statement of Financial Accounting
Standards No. 52.

M. 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.

N. Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are
reviewed annually at a minimum for potential impairment by
comparing the carrying value to the

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (Continued)

fair value of the reporting unit to which they are assigned. The
provisions of SFAS No. 142 apply to goodwill and intangible
assets arising for acquisitions completed subsequent to June 30,
2001. SFAS No. 142 is required to be adopted for goodwill and
intangible assets arising from acquisitions prior to June 30,
2001 as of December 31, 2001 and is effective for fiscal years
beginning after December 15, 2001. The Company is currently
determining the impact of adopting this standard under the
transition provisions of SFAS No. 142.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses accounting and
reporting for the obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. This statement is effective for fiscal years beginning
after June 15, 2001. The Company is currently assessing the
impact of this new standard.

O. 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.

P. Reclassifications - Certain reclassifications were made to prior
period financial statement presentations to conform with current
period presentations.

Note 2. Investment in Glas-Aire

On April 22, 1999, the Company, through its wholly-owned subsidiary
Speed.com, Inc., acquired 513,915 shares of the common stock of
Glas-Aire in exchange for the issuance of a promissory note of
$650,000 due January 1, 2000, at an interest rate of 7.5% per annum,
which note was guaranteed by Mr. Ponsoldt, Sr., President of the
Company and $1,213,000 in cash. The cash was obtained from an
affiliate of a shareholder through the issuance of an unsecured demand
note at 7.5% per annum. The Company also purchased 3,000 shares of the
common stock of Glas-Aire on the open market. On August 2, 1999, the
Company acquired 41,600 shares of the common stock of Glas-Aire on the
open market for $119,619. The funds were provided by an affiliate of a
shareholder on an unsecured basis. On August 14, 1999, the Company
sold 2,852,375 shares of its common stock to Glas-Aire for cash of
$1,967,960 and 86,000 shares of Glas-Aire common stock for an
aggregate consideration of $2,281,900. On September 23, 1999, the
Company closed a common stock exchange agreement with certain
shareholders of Glas-Aire. Under the agreement, the Company, in a
private transaction, issued 1,188,000 shares of its restricted common
stock to such shareholders in exchange for 288,000 newly issued shares
of Glas-Aire stock. On May 17, 2000 the Company also issued 114,000
shares of it's restricted common stock as additional consideration
pursuant to the common stock exchange agreement.

With the closing of the agreement, the Company owned 51.3% of the then
outstanding common shares of Glas-Aire. Through December 31, 2000 the
Company has increased the number of common shares of Glas-Aire to
1,220,123 by virtue of the receipt of 287,608 common shares as the
result of stock dividends. At December 31, 2000 such shares owned by
the Company represented 50.1% of Glas-Aire's total issued and
outstanding common shares.

The Company accounted for the investment in Glas-Aire on the equity
method from April 22, 1999 until September 23, 1999 when the Company's
ownership exceeded 50%, whereupon the Company began to consolidate the
accounts of Glas-Aire (Note 1A.). Income recognized under the equity
method related to Glas-Aire in 1999 was $114,961 and is included in
other income in the Consolidated Statement of Operations. The common
shares of the Company, held by Glas-Aire, are treated as treasury
shares in these financial statements.

The following unaudited pro forma consolidated results of operations
assumes that the consolidation of Glas-Aire occurred at January 1,
1999. The pro forma results are for illustrative purposes only and do
not purport to be indicative of the actual results which would have
occurred had the transaction been consummated at an earlier date, nor
are they indicative of results of operations which may occur in the
future.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Investment in Glas-Aire (Continued)

1999
(Unaudited)
------------
Net sales $ 13,638,300
Net income 2,358,800
Net income applicable to common stock 2,307,600
Net income per common shares
Basic .19
Diluted .16

Pursuant to an agreement entered into on September 17, 2001 and
amended on October 1, 2001, the Company exchanged 1,215,105 shares of
common stock of Glas-Aire, representing approximately 50% of the
issued and outstanding shares of Glas-Aire, for $2,500,000 plus
4,040,375 of its common stock, or approximately 23% of its issued and
outstanding shares. As a result of the transaction, neither the
company or Glas-Aire owns any stock of the other.

The Company's consolidated results of operations for 2001 include the
financial activity of Glas-Aire up to and through September 30, 2001.
As a result of this transaction, Regency recognized a gain of
$1,818,820 as follows:

Cash received $2,500,000
Net Assets of Glas-Aire at October 31, 2001 (1,694,991)
Elimination of minority interest and
Unamortized goodwill 1,013,811 (681,180)
----------- -----------
Gain on Disposition $1,818,820
-----------

On September 13, 2001 the Company was named as a defendant in
litigation commenced by Glas-Aire's former president. The complaint
alleges that the Regency/Glas-Aire transaction is in breach of bank
agreements, securities law and fiduciary duties owed Glas-Aire and its
stockholders. While the company has been served, plaintiff has, to
date, taken no further action in this matter. Should the litigation
proceed, the Company intends to vigorously defend its position.

Note 3. Acquisition of Rustic Crafts

In March 1997, the Company, through its newly formed subsidiary,
Rustic Crafts, Inc. acquired all of the operating assets, including
cash, accounts receivable, inventory, property and equipment and
intangibles, of Rustic Crafts Co., Inc. Rustic Crafts, Inc. is
involved in the manufacture of wood and cast marble decorative
fireplaces, heater logs and related accessories. The Company paid
$1,100,000 in cash and issued 100,000 shares of common stock and
assumed trade accounts payable, bank debt and certain other accrued
liabilities of $413,778. The transaction was accounted for using the
purchase method and resulted in goodwill and intangibles of $715,000.
Such goodwill is being amortized on a straight-line basis over a
fifteen year period.

Note 4. Investment in Partnerships

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 entitled to 95% of operating cash
flow distributions, as defined, until October 31, 2003, which are
expected to be limited in amount, and 50% thereafter.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Investment in Partnerships (Continued)

For the years ended December 31, 2001, 2000 and 1999, the Company's
income from its equity investment in the Partnership was $5,418,197,
$4,712,615 and $4,261,214, respectively. These funds, however, are
committed for the amortization of the outstanding principal balance on
Security's real estate mortgage and, while the Company's equity
investment has increased to $29,984,078 at December 31, 2001 the
partnership does not provide liquidity to the Company in excess of an
approximately $100,000 annual management fee.

For the years ended December 31, 2001, 2000 and 1999, the Company
earned $109,793, $106,251, and $101,326, respectively, for management
services provided to Security.

Security was organized to own and operate two buildings containing
approximately 717,000 net rentable square feet consisting of a
two-story office building and a connected six-story office tower. The
building was purchased by Security in 1986 and is located on
approximately 34.3 acres of land which is also owned by Security. The
building has been occupied by the United States Social Security
Administration's Office of Disability and International Operations for
approximately 25 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. The Lease,
among other provisions, requires substantial renovations and
improvements to the building, which were completed in 1998. 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 Security's book income
or loss. The investment in partnership included in the Consolidated
Balance Sheets at December 31, 2001 and 2000 was $29,984,078 and
$24,565,881, respectively. The undistributed earnings from the
Company's equity investment in the Partnership as of December 31, 2001
and 2000 amounted to $29,635,078 and $24,215,881, respectively.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Investment in Partnership (Continued)

Summarized Financial information for Security is as follows:

2001 2000
----------- -----------

Balance Sheet Data
Cash and receivables $ 1,072,657 $ 1,066,481
Restricted cash 3,940,057 3,843,022
Real estate, net 43,343,491 45,692,368
Other assets 405,615 573,533
----------- -----------

Total assets 48,761,820 51,175,404
=========== ===========

Accounts payable and accrued expenses 325,515 714,389
Project note payable 16,185,097 23,269,305
Other liabilities 1,777,576 2,311,650
----------- -----------

Total liabilities 18,288,188 26,295,344

Partners' capital:
Regency Affiliates, Inc. 29,984,078 24,565,884
Other partners 489,554 314,176
----------- -----------
Total partners' capital 30,473,632 24,880,060
----------- -----------
Total liabilities and partners' capital $48,761,820 $51,175,404
=========== ===========

2001 2000 1999
------------ ------------ ------------

Statement of Operations Data
Revenues $13,690,444 $13,311,337 $13,244,631
Expenses 6,261,611 6,394,400 6,229,300
Net operating income 7,428,833 6,916,937 7,015,331
------------ ------------ ------------
Other expenses (1,725,468) (1,956,606) (2,529,846)
------------ ------------ ------------
Net income $ 5,703,365 $ 4,960,331 $ 4,485,485
============ ============ ============

See Note 14. Contingencies, Risks and Uncertainties related to the Company's
investment in Security.

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

The Company recognized income of $188,268 and $0 in 2001 and 2000,
respectively, from this investment.

Note 5. Note Receivable - Related Party

On October 15, 2001 the Statesman Group, Inc. (Statesman) exercised in
full its option, which had been granted in 1997, to acquire 6,100,000
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

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Note Receivable - Related Party (Continued)

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 6,100,000 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.

Statesman is controlled by The Statesman Irrevocable Trust dated April
15, 1991, a trust for the benefit of William R. Ponsoldt, Jr. (a
director of the Company) and two other children of William R.
Ponsoldt, Sr., the Company's President and Chief Executive Officer.

Note 6. Note Payable

The Company's subsidiary, Rustic Crafts, has established a $1,000,000
line of credit with PNC Bank. The line of credit expires on May 18,
2002 and is renewable annually, and bears interest at the Bank's prime
rate minus one-half percent (5.25% at December 31, 2001). The accounts
receivable, inventory and other assets, such as property and
equipment, of Rustic Crafts have been pledged as collateral to secure
the line of credit. The line of credit is guaranteed by the Company.
At December 31, 2001 and 2000, the amounts outstanding under the line
of credit were $906,977 and $616,174, respectively.

At December 31, 2000, the Company had outstanding $126,000 of demand
notes bearing interest at 10%, payable to a shareholder. Additionally,
the Company had outstanding a $650,000 demand note bearing interest at
a rate of prime minus one percent to its President. These obligations
were paid in 2001.

On October 24, 2000, the Company obtained a commitment for a short
term loan of $100,050 from a bank bearing interest at the prime rate
plus three-fourths percent, adjusted monthly. As of December 31, 2000
$76,000 remained outstanding; the interest rate was 10.25%. This
obligation was guaranteed by two shareholders, one of whom was a
former officer and director of the Company. (See Note 13)

Note 7. Long-Term Debt

KBC Bank Loan - On June 24, 1998, the Company refinanced the long-term
-------------
debt previously outstanding with Southern Indiana Properties, Inc.
("SIPI") and entered into a Loan Agreement (the "Loan") with KBC Bank
N.V. ("KBC"). Under the terms of the Loan Agreement, KBC advanced
$9,383,320. The due date of the Loan is November 30, 2003 with
interest at the rate of 7.5% compounded semi-annually on each June 1
and December 1, commencing December 1, 1998. The interest may be paid
by the Company in cash on these semi-annual dates or the Company may
elect to add the interest to the principal of the Loan then
outstanding. As of December 31, 2001 and 2000, the amount outstanding
under the Loan is $12,089,931 and $11,311,808, respectively, including
$2,706,611 and $1,928,488 of interest, through December 31, 2001 and
2000, respectively.

The Loan is secured by all of the Company's interest in Security,
including the Company's interest in all profits and distributions,
other than the payment of management fees of approximately $100,000
annually, and all of the Company's rights, powers, and remedies under
the Security Land and Development Company Limited Partnership
Agreement as amended and restated. The security agreement requires the
Company to maintain a certain ratio of debt to equity. At any time,
the Company may prepay the entire principal balance of the Loan, plus
accrued and unpaid interest, plus a make-whole premium as defined in
the Loan Agreement, if any.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Long-Term Debt (Continued)

To facilitate the loan from KBC, the Company purchased a residual
value insurance policy through R.V.I. American Insurance Company
("RVI") which secures the repayment of the outstanding principal and
interest when due with a maximum liability of $14 million. Should RVI
pay a claim under this policy they will be entitled to certain of the
Company's rights with respect to the property of Security, including
but not limited to the right to solicit bona fide, third party offers
for the property and to accept such offers and bind the Partnership in
order to recoup the amount paid. The costs related to the insurance
($745,000) along with legal fees and other costs associated with
obtaining the Loan ($205,000) have been capitalized as debt issuance
costs and are being amortized over the life of the Loan using the
effective interest method.

Mortgage Loan - On March 25, 1998, Rustic Crafts purchased a building
--------------
of 126,000 square feet located in Scranton, Pennsylvania. The purchase
of this facility was funded in part by a first mortgage term loan in
the amount of $960,000. The first mortgage term loan is payable in
consecutive monthly installments over 10 years with a 20 year
amortization. The balance outstanding at December 31, 2001 and 2000
was $878,193 and $903,065, respectively.

Equipment Loans - In connection with the purchase of the building, PNC
---------------
Bank loaned the Company a total of $767,000 to finance the acquisition
of new equipment and to install such equipment in the facility.
Principal payments on one loan of $604,000 began in March 2000 and
will continue for 120 months in amounts sufficient to amortize the
outstanding balance over twenty years from March 2000. In March 2000
the interest rate changed to the average weekly yield on U.S. Treasury
Bills, plus 200 basis points. The remaining loan in the original
amount of $163,500 is payable in equal monthly installments of $2,518.
The outstanding balance of these loans was $ 675,766 and $730,797 at
December 31, 2001 and 2000, respectively.

In June 1999, Rustic Crafts obtained an additional loan from PNC Bank
for the purpose of funding additional equipment purchases and working
capital in the amount of $156,000. The loan is payable in equal
monthly installments, including principal and interest, of $3,153. The
outstanding balance was $89,433 and $118,927 at December 31, 2001 and
2000, respectively.

The interest rates on the mortgage loan and the equipment loan vary
from 7.52% to 8.50% as of December 31, 2001.

Rustic Crafts' real and personal property, equipment, accounts
receivable, inventory and other general intangibles are pledged as
security for the loans. The loans are also guaranteed by Regency
Affiliates, Inc., the parent company.

Zero Coupon Bonds - The zero coupon non-recourse secured bonds, due
-------------------
January 2, 2002, had a face value of $542,000 and a carrying value of
$414,700 at December 31, 1998. The bonds were issued by NRDC and the
difference (discount) between the face value and carrying value was
being amortized utilizing the interest method at 9%. Interest expense
related to the bonds for 1999 was $36,905.

In 1999, certain bondholders agreed to exchange these zero coupon
bonds for 121,000 shares of the Company's common stock at an agreed
upon per share value of $1.00. Also, a significant amount of the bonds
were retired in connection with the Agreement of the Company to
discontinue certain claims against one of the bondholders. The
exchange of common stock for the bonds and settlement of the claims
resulted in a gain on retirement of debt of $330,605 (net of tax of
$-0-, due to available net operating loss carryforward), which is
reflected in the accompanying statement of operations as an
extraordinary gain.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Long-Term Debt (Continued)

Lease Obligations - Glas-Aire had two long-term lease obligations to
------------------
purchase equipment. These obligations were five year capital leases
and had been recorded as a capital asset and long-term debt. The
Equipment, with a cost of $292,273 and $303,171 and accumulated
depreciation of $46,764 and $18,980, as of December 31, 2000 and 1999,
respectively, was pledged as collateral for the leases. The terms of
the leases required equal monthly installments of $7,484 including
principal and interest over a five year period. Interest rates on the
leases ranged from 6.5% to 8.6%. The total outstanding balance of
these lease obligations was $136,254 at December 31, 2000.

Required annual principal payments (based on the current carrying
value of debt securities) on long-term debt at December 31, 2001 are:

2002 238,145
2003 12,340,387
2004 252,931
2005 249,876
2006 239,059
Thereafter 412,925
------------
$ 13,733,323
============

Note 8. Minority Interest

Statesman Group, Inc. has a 20% minority interest in the Company's
three 80% owned subsidiaries. In addition, Statesman holds a
significant common stock interest in the Company.

Note 9. Serial Preferred Stock

At December 31, 2001 and 2000, the Company had 5,000,000 authorized
shares of $.10 par value serial preferred stock. Serial preferred
stock at December 31, 2001 and 2000, all of which is convertible
(other than Series C) and cumulative, consists of:

Mandatory Redeemable Shares - Series E, $100 stated value, 12.5%
----------------------------------------------------------------------
cumulative
----------

Shares Value
------------------------ -------------------------
Designated Outstanding Carrying Liquidation
---------- ------------ ---------- -------------

Balance, December 31, 1999 566,400 2,478 $ 247,800 $ 247,800

Converted to common shares - (885) (88,500) (88,500)

Redeemed - (1,593) (159,300) (159,300)

Balance, December 31, 2000 566,400 - - -
---------- ------------ ---------- -------------

Balance, December 31, 2001 566,400 - $ - $ -
========== ============ ========== =============

Shares Value
----------------------- -------------------------------------------
2001 2000
Designated Outstanding Carrying Liquidation Liquidation
---------- ----------- ---------- ------------ ------------

Series C, $100 stated
value, cumulative 210,000 208,850 $ 229,136 $ 20,885,000 (a) $ 20,885,000 (a)

Series B, $10 stated
value, 6% cumulative 370,747 370,747 566,912 3,707,470 3,707,470

Junior Series, D, $10
stated value,
7% cumulative 26,000 25,694 256,940 382,842 (b) 382,842 (b)
---------- ----------- ---------- ------------ ------------
606,747 605,291 $1,052,988 $ 24,975,312 $ 24,975,312
========== =========== ========== ============ ============

(a) This represents the estimated maximum possible liquidation value
of the Series C preferred shares, which is defined as the lesser
of: 1) net proceeds of the assets of NRDC or 2) the redemption
value (defined below). In the event of liquidation, the Series C
shares are senior to all other shares of the Company's stock,
with the exception of the Series E shares.

(b) The liquidation value of the Junior Series D shares includes
accrued and unpaid dividends of $125,902 at December 31, 2001 and
2000.

On January 31, 2000, the holders of the Series E preferred stock
either converted their preferred shares to the Company's common stock
or received cash equal to the par value of the shares, plus accrued
dividends. The Company issued 95,877 of its common shares in exchange
for 885 shares of preferred stock and paid cash in the amount of
$159,300 for 1,593 shares.

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.

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 3)) 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.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Serial Preferred Stock (Continued)

(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 and E shares,
respectively, 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.
At December 31, 2001 the company had no accumulated and unpaid
dividends on Series C preferred shares.

Note 10. Stock Options/Stock Option Plans

Effective June 3, 1997, the Company issued options to purchase 6.1
million shares of common stock to Statesman Group, Inc. 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. These options were exercised on October
15, 2001 (See Note 5).

In 2001 and 2000, the Company issued 70,000 and 90,000, respectively,
non-qualified common stock options at the exercise price of $.40 (par
value) and $.84 (fair market value) of the Company's common stock,
respectively, on the date of grant, to the directors in accordance
with the Director's Compensation Program approved by the shareholders.
The 2001 and 2000 options will vest completely on February 5, 2002 and
2001, and are exercisable until August 5, 2006 and 2005, respectively.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Stock Options/Stock Option Plans (Continued)

The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for options. The Company has
elected to treat these option awards to directors as employee based
compensation and therefore has not recorded the estimated value of
these options in the accompanying statement of operations. The fair
value of the Company's stock-based compensation to directors was
estimated using the Black-Scholes option pricing model. The
Black-Scholes model was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input
of highly subjective assumptions including the expected stock price
volatility. The Company's stock-based compensation has characteristics
significantly different from those traded options and changes in the
subjective input can materially affect the fair value estimate. The
fair value of the Company's stock awards was estimated assuming the
following assumptions: no expected dividends, risk free interest rate
of 5.9% expected average life of approximately 2.5 to 5 years and
expected stock price volatility of 90% in 2001, 41% in 2000 and 55% in
1999. The weighted average fair value of options granted was $.22
during 2001, $.38 during 2000, and $.43 during 1999.

Had compensation cost for the options been determined based on the
fair value at the grant dates for the awards, net income and net
income per common share basic and diluted would have been as follows
for 2001:

As Reported Pro Forma
------------ ----------
Net income $ 3,673,682 $3,658,282
Net income attributable to common shares 3,673,682 3,658,282
Net income per common share:
Basic .21 .21
Diluted .18 .18

The following is a summary of the status of the Company's options for
2001:

Average
Exercise
Options Price
--------- ---------
Outstanding at beginning of year 180,000 $ 0.89
Issued 70,000 0.40
Cancelled - -
--------- ---------
Outstanding at end of year 250,000 $ 0.75
========= =========

Number of outstanding and exercisable 250,000 shares
Average remaining contractual life 4 years
Exercise price $.40 - $.93 per share

Had compensation cost for the options been determined based on the
fair value at the grant dates for the awards, net income and net
income per common share (basic and diluted) would have ben as follows
for 2000:

As Reported Pro Forma
------------ ----------
Net income $ 2,155,254 $2,121,054
Net income attributable to common shares 2,155,254 2,121,054
Net income per common share:
Basic .16 .16
Diluted .14 .14

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Stock Options/Stock Option Plans (Continued)

The following is a summary of the status of the Company's options for
2000:

Average
Exercise
Options Price
------- ---------
Outstanding at beginning of year 90,000 $ 0.93
Issued 90,000 0.84
Cancelled - -
------- ---------
Outstanding at end of year 180,000 $ 0.89
======= =========

The following table summarizes information about options outstanding
at December 31, 2000:

Number of outstanding and exercisable 180,000 shares
Average remaining contractual life 4.15 years
Exercise price $.84 - $.93 per share

Note 11. 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 Development Company
Limited Partnership related to depreciation and amortization and the
recognition of income tax carryforward items.

At December 31, 2001 and 2000, the Company's net deferred tax asset,
utilizing a 34% effective tax rate, consists of:

2001 2000
------------ -------------

Deferred tax assets:
Investment partnership earnings $ 2,418,000 $ 2,214,000
Net operating loss carry forward 2,552,000 9,606,000
Alternative minimum tax credits 493,000 493,000
Valuation allowance (5,463,000) (12,313,000)
------------ -------------

Subtotal $ - $ -
============ =============
2001 2000
------------ -------------
Deferred tax liabilities:
Depreciation - (402,048)
------------ -------------

Net deferred tax liabilities $ - $ (402,048)
============ =============

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 carry forwards before
they expire. The deferred tax liability relates to depreciation and is
due to the consolidation of the accounts of Glas-Aire in 2000.
Glas-Aire files a separate return for income tax purposes.

For regular federal income tax purposes, the Company has remaining net
operating loss carryforwards of approximately $7,507,000. These losses
can be carried forward to offset future taxable income and, if not

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Income Taxes (Continued)

utilized, will expire in varying amounts beginning in the year 2001.
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 carryforwards.

For the years ended December 31, 2001, 2000 and 1999, the tax effect
of net operating loss carryforwards reduced the current provision for
regular Federal income taxes by approximately $1,375,226, $670,000,
and $980,000, respectively. At December 31, 2001, 2000 and 1999, the
Company has provided $368,211, $426,293, and $235,309, respectively,
for taxes, which relate to federal taxes, including alternative
minimum tax liabilities (See Note 14) and state income taxes.

The provision for income taxes is as follows:

2001 2000 1999
-------- -------- --------
Current $368,211 $254,760 $212,092
Deferred - 171,533 23,217
-------- -------- --------
$368,211 $426,293 $235,309
======== ======== ========

Note 12. Employment Agreements

On June 3, 1997, Regency entered into an Employment Agreement with
William R. Ponsoldt, Sr., pursuant to which he became the President
and CEO of the Company. The Agreement provides for Mr. Ponsoldt to
continue in these duties until attainment of retirement age, provided
that he may resign upon the provision of 30 days notice to the Company
and further provided that Mr. Ponsoldt may be removed from office upon
death or disability or for just cause. The Agreement provides for a
base salary in annual installments, in advance, of $250,000 each,
which salary is to be adjusted on January 1 of every year by any
increase since the previous January 1 in the Consumer Price Index
("CPI") for All Urban Consumers, U.S. city average, as published by
the U. S. Department of Labor Bureau of Labor Statistics. As
additional compensation, Mr. Ponsoldt is to receive an amount equal to
20% of the Company's increase in quarterly common stock net worth,
which is defined to be the difference between (i) total shareholders'
equity and (ii) any shareholders' equity accounts relating to
preferred stock. At December 31, 2001 and 2000, approximately $786,000
and $935,000, respectively, of additional compensation is included in
accrued expenses in the consolidated balance sheets. The Company may
elect to pay up to 50% of the additional compensation by the issuance
of warrants to purchase the Company's common stock at a price equal to
50% of the average bid price for the Company's common stock for the
calendar quarter for which the increased compensation is payable. The
Agreement further provides for Mr. Ponsoldt to receive health and
disability insurance ($100,000/year in the event of long term
disability), an automobile allowance of $600/month (to be adjusted by
increases in the CPI), and reimbursement of expenses. The Agreement
provides that Mr. Ponsoldt will not compete with the Company for a two
year period following the termination of his employment and provides
for indemnification under certain circumstances. Any disputes between
the Company and Mr. Ponsoldt under the Agreement are to be resolved
through arbitration.

Note 13. Related Party Transactions

L. J. Horbach, a director of the Company through December 5, 2001 and
L. J. Horbach and Associates, of which Mr. Horbach is the sole owner,
received $0 in 2001, $134,180 in 2000 and $90,700 in 1999 for
services, expenses and certain administrative functions provided to
the Company.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Related Party Transactions (Continued)

On November 2, 2001 Mr. Horbach purchased from Mid City Bank a certain
promissory note of the Company for $71,109, as to which he had been a
guarantor. Thereafter, Mr. Horbach filed suit against the company
seeking to collect both the principal amount of the note and accrued
interest which amounted to $82,978. In December 2001, the company
filed suit against Mr. Horbach seeking to void it's alleged liability
and other relief.

Note 14. 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 does not generate positive cash flow as the
current activities of the Company do not, in and of themselves,
generate sufficient cash flow to cover its corporate operating
expenses and thus the Company must rely on its cash reserves to
fund these expenses. The Company's ability to continue in
existence is partly dependent upon its ability to attain
satisfactory levels of operating cash flows.

(ii) 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.G).

(iii) An unsecured default in the Lease or sudden catastrophe to the
Security West Building from uninsured acts of God or war could
have a materially adverse impact upon the Company's investment in
Security Land and Development Company Limited Partnership and,
therefore, its financial position and results of operations (See
Note 4).

(iv) The failure of the Social Security Administration to renew its
lease of the Security West Buildings upon its expiration on
October 31, 2003 could have a materially adverse impact upon the
Company's investment in Security Land and Development Company
Limited Partnership.

(v) 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) that has in
the past been, and is expected in the future to be, offset by the
Company's net operating loss carryforwards (See Note 11).

(vi) As described at Note 16, the Company's operating subsidiaries
(Rustic Crafts) is dependent on a limited number of customers for
a substantial portion of its respective revenue. The loss of one
or more of these customers could have a significant effect on the
Company's results of operations.

Note 15. Lease Commitments

Regency leases office space and is committed to the minimum lease
payment of $34,048 through July 31, 2002 under an operating lease for
premises. Rent expense was $38,340, $43,276 and $42,990 for the years
ended December 31, 2001, 2000 and 1999, respectively.

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Segment Information

The Company's operating structure includes operating segments for
Automobile Accessories through September 30, 2001 (the operations of
Glas-Aire, which was acquired in September 1999 (Note 2)), Home
Furnishing Accessories (the operations of Rustic Crafts, which was
acquired in March 1997 (Note 3)), Investment in Partnerships (the
investment in Security Land and Development Limited Partnership and
1500 Wood Lawn Limited Partnership (Note 4)), and Corporate and Other.
The Company operates and generates its revenue in the United States,
Canada and Japan. One Home Furnishing Accessories customer accounted
for approximately 24%, 16% and 19% of consolidated sales for 2001,
2000 and 1999, respectively. Three Automobile Accessories customers
accounted for 60% and 40% of consolidated sales for 2000, and 1999,
respectively. Security Land and Development Limited Partnership leases
its property to a single tenant.

Information about the Company's Operations by segment follows:

Home Investment
Automobile Furnishing in Corporate and
Accessories Accessories Partnership Other Consolidated
------------ ------------- ------------ --------------- --------------

2001
- ----
Net sales $ 8,378,202 $ 2,486,949 $ - $ 20,614 $ 10,885,765
Income (loss) from operations 425,656 (362,466) - (2,131,989) (2,068,799)
Other income (expense) 50,982 26,651 - 32 77,665
Interest expense 27,598 174,250 - 1,065,930 1,267,778
Income from equity investment
in partnership - - 5,607,465 - 5,607,465
Identifiable operating assets - 3,869,167 - 1,186,618 5,055,785
Investments - - 30,183,346 - 30,183,346
Capital expenditures 7,898 78,890 - - 86,788
Depreciation and amortization 203,332 207,242 - 199,214 609,788
Income before income tax
expense and minority interest 449,040 (510,065) 5,607,465 (1,379,067) 4,167,373

Home Investment
Automobile Furnishing in Corporate and
Accessories Accessories Partnership Other Consolidated
------------ ------------- ------------ --------------- --------------
2001
- ----
Net sales $ 10,929,775 $ 3,389,977 $ - $ 22,861 $ 14,342,613
Income (loss) from operations 836,521 312,324 - (1,962,682) (813,837)
Other income (expense) 90,885 8,990 - - 99,875
Interest expense 20,968 222,563 - 930,050 1,173,581
Income from equity investment
in partnership - - 4,712,615 - 4,712,615
Identifiable operating assets 5,820,746 4,828,727 - 1,218,603 11,868,076
Investments - - 24,575,881 - 24,575,881
Capital expenditures 177,136 3,486 - 70,870 251,492
Depreciation and amortization 251,475 189,753 - 135,499 576,727
Income before income tax
expense and minority interest 564,836 24,915 4,712,615 (2,477,294) 2,825,072

REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Segment Information (Continued)

Home Investment
Automobile Furnishing in Corporate and
Accessories Accessories Partnership Other Consolidated
------------ ------------- ------------ --------------- --------------

1999
- ----
Net sales $ 3,930,541 $ 3,875,263 $ - $ 29,267 $ 7,835,071
Income (loss) from operations 395,027 318,446 - (1,617,620) (904,147)
Other income (expense) 32,686 (30,974) - 189,248 190,960
Interest expense - 164,905 - 1,021,097 1,186,002
Income from equity investment
in partnership - - 4,261,212 - 4,261,212
Identifiable operating assets 5,499,895 4,734,718 - 3,463,505 13,698,118
Investments - - 19,959,517 - 19,959,517
Capital expenditures 406,506 595,586 - 689 1,002,781
Depreciation and amortization 129,002 202,959 - 20,024 351,985
Income before income tax
expense and minority
interest 367,193 186,227 4,261,212 (2,122,004) 2,692,628

Note 17. Quarterly Information (Unaudited)

First Quarter Second Quarter
---------------------------------- ----------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ---------- ---------- ---------- ----------

Net sales $3,385,072 $2,139,499 $ 975,154 $3,209,359 $2,971,112 $ 901,022
Net income 454,012 393,252 455,472 791,821 439,350 465,068
Earnings per share:
Basic .03 .03 .04 .06 .03 .04
Diluted .03 .03 .03 .06 .03 .03

Third Quarter Fourth Quarter
---------------------------------- ----------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ---------- ---------- ---------- ----------

Net sales $3,358,715 $4,268,915 $1,164,941 $ 932,619 $4,963,087 $4,793,954
Net income 670,172 585,023 490,105 1,757,677 737,629 882,277
Earnings per share:
Basic .05 .04 .04 .07 .06 .06
Diluted .05 .04 .03 .04 .04 .06

Note 18. Subsequent Events

On February 5, 2002 the Company's stockholders approved a one-for-ten
reverse stock split of the Company's common stock, par value $0.40 per
share, and a decrease in the par value to $0.01 per share of common
stock. The record date for the reverse stock split was February 15,
2002 and the effective date was February 22, 2002.