UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NUMBER 1-7949
REGENCY AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-0888772
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
729 South Federal Highway, Suite 307, Stuart, Florida 34994
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code (561) 220-7662
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
As of March 31, 2001 there were 17,251,619 shares of the $ .40 Par Value
Common Stock outstanding, including 4,040,375 shares held by an approximately
50% owned subsidiary.
Regency Affiliates, Inc. and Subsidiaries
Index
Page Number
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets........................... 3-4
Consolidated Statements of Operations................. 5
Consolidated Statements of Cash Flows................. 6-7
Notes to Consolidated Financial Statements............ 8-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 12-15
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings ...................................... 15
Item 2. Changes in Securities and Use of Proceeds .............. 15
Item 3. Defaults Upon Senior Securities ........................ 15
Item 4. Submission of Matters to a Vote of Security Holders .... 15
Item 5. Other Information .................................... 15
Item 6. Exhibits and Reports on Form 8-K ..................... 16
Signatures ...................................................... 16
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Regency Affiliates, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2001 2000
Assets
Current Assets
Cash and Cash Equivalents $ 1,205,973 $ 928,636
Accounts receivable, net of allowance 1,410,514 2,553,589
Income taxes receivable 52,372 24,556
Inventory 2,308,783 2,243,726
Other current assets 350,491 127,728
--------- ---------
Total current assets 5,328,133 5,878,235
Property, Plant and Equipment, Net 4,312,966 4,343,170
Investment in partnerships 25,801,277 24,575,881
Other Assets
Aggregate inventory 834,675 834,675
Goodwill, net of amortization 804,364 820,774
Debt issuance costs, net of amortization 504,085 551,343
Other 4,150 12,751
--------- ---------
Total other assets 2,147,274 2,219,543
---------- ----------
$ 37,589,650 $ 37,016,829
=============== ============
The accompanying notes are an integral part of these financial statements.
Regency Affiliates, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
March 31, December 31,
2001 2000
Current Liabilities
Current portion of long-term debt $ 122,106 $ 128,510
Notes Payable - Banks 429,231 692,174
Notes payable - Related Party 949,503 776,000
Accounts payable 833,907 1,080,904
Accrued expenses 1,874,838 899,837
Taxes payable 107,156 78,820
--------- ---------
Total current liabilities 4,316,741 3,656,245
Long term debt, net of current portion 12,548,267 13,072,341
Deferred income taxes 380,230 402,048
Minority interest in consolidated subsidiaries 3,842,603 3,810,143
Shareholders' equity
Serial preferred stock not subject to mandatory redemption 1,052,988 1,052,988
(maximum liquidation preference $24,975,312 in 2000 and 1999,
respectively
Common stock, par value $.40 authorized 25,000,000 shares; issued 6,900,659 6,900,659
and outstanding 17,251,619 shares in 2001 and 2000
Additional paid-in capital 2,308,484 2,308,484
Readjustment resulting from quasi-reorganization at December 31, 1987 (1,670,596) (1,670,596)
Retained earnings 11,370,002 10,915,990
Accumulated other comprehensive income (121,695) (93,440)
Treasury stock, 4,052,825 shares in 2001 and 2000 (3,338,033) (3,338,033)
----------- -----------
Total shareholders' equity 16,501,809 16,076,052
$ 37,589,650 $ 37,016,829
============ ============
The accompanying notes are an integral part of these financial statements.
Regency Affiliates, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
Costs and expenses
Net Sales $ 3,385,072 $ 2,139,499
--------- ---------
Costs of goods sold 2,572,388 1,536,092
Selling and administrative 1,187,923 989,616
--------- ---------
3,760,311 2,525,708
Income (loss) from operations (375,239) (386,209)
Income from equity investment in partnerships 1,225,396 1,130,517
Other income, net 24,583 28,748
Interest expense (314,345) (279,265)
--------- ----------
Income before income tax expense, and minority interest 560,395 493,791
Income tax expense (68,923) (65,895)
Minority interest (37,460) (34,644)
--------- ----------
Net income $ 454,012 $ 393,252
========= ==========
Net income per common share:
Basic $ 0.03 $ 0.03
========= ==========
Diluted $ 0.03 $ 0.03
============== =============
The accompanying notes are an integral part of these financial statements.
Regency Affiliates, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
Cash flows from operating activities
Net income $ $ 393,252
454,012
Adjustments to reconcile net income to net cash
from (used by) operating activities
Depreciation and amortization 166,889 107,632
Change in deferred income taxes (21,818) 30,131
Minority interest 32,460 34,644
Stock issued for services rendered - 101,113
Income from equity investment in partnerships (1,225,396) (1,130,517)
Interest amortization on long-term debt 210,771 220,637
Changes in operating assets and liabilities
Accounts receivable 1,143,075 979,319
Inventory (65,057) (130,944)
Other current assets (250,579) (35,499)
Accounts payable (246,997) (143,688)
Accrued expenses 1,003,337 (76,357)
--------- ----------
Net cash from (used by) operating activities 1,200,697 349,723
Cash flows from investing activities
Capital expenditures (73,017) (108,033)
Other 8,601 (106,095)
----------- -----------
Net cash (used by) investing activities (64,416) (214,128)
Cash flows from (used by) financing activities
Net short-term borrowings (payments) (89,440) (808,262)
Repayment of long-term borrowings (741,249) (22,642)
Redemption of Series E preferred stock - (159,300)
Other - (81,405)
--------- -----------
Net cash from (used) by financing activities (830,689) (1,071,609)
Foreign currency translation adjustment (28,255) (31,654)
Increase (decrease) in cash and cash equivalents 277,337 (967,668)
Cash and cash equivalents - beginning 928,636 2,348,989
--------- ---------
Cash and cash equivalents - ending $ 1,205,973 $ 1,349,667
=============== ==============
The accompanying notes are an integral part of these financial statements.
Regency Affiliates, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 86,695 $ 80,020
====== ======
Interest 6,478 85,423
====== ======
Supplemental disclosures of noncash investing and financing activities:
In 2000, the Company issued 95,877 shares of common stock in exchange for 885
shares of Series E preferred stock.
In 2000, the Company issued 114,000 shares of common stock as payment for
costs in connection with acquisition of Glas-Aire.
In 2000, the Company issued 147,254 shares of common stock for to
an investor relations company in return for services.
In 2000, accrued compensation in the amount of $650,000 payable to an officer
was converted to debt.
The accompanying notes are an integral part of these financial statements.
Regency Affiliates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
A. Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not includes all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Registrant Company and Subsidiaries' annual report on Form 10-K
for the year ended December 31, 2000.
B. Principals of Consolidation and Nature of Business - The consolidated
financial statements include the accounts of Regency Affiliates, Inc.
(the "Company"), its wholly owned subsidiaries, Rustic Crafts
International, Inc. ("Rustic Crafts"), its 80% owned subsidiaries,
National Resource Development Corporation ("NRDC"), Transcontinental
Drilling Company ("Drilling") and RegTransco, Inc. ("RTI") and its
approximately 50% owned subsidiary, Glas-Aire Industries Group, Ltd.
("Glas-Aire"). All significant intercompany balances and transactions
have been eliminated in consolidation.
C. Earnings Per Share - Basic earnings per share are computed by dividing
net income attributable to common shareholders by the weighted average
number of common shares outstanding during the year. Diluted earnings
per share computations assume the conversion of Series B, and Junior
Series D preferred stock during the period that the preferred stock
issues were outstanding. If the result of these assumed conversions is
dilutive, the dividend requirements and periodic accretion for the
preferred stock issues are reduced. The shares of the Company held by
Glas-Aire were treated as treasury shares for earnings per share
computations.
D. Inventory - Inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method. Inventory is comprised of
the following at March 31, 2001:
Raw materials and supplies $ 1,120,763
Work-in-process 251,842
Finished products 936,178
---------
$ 2,308,783
==============
E. Aggregate Inventory - Inventory, which consists of 70+ million short
tons is stated at lower of cost or market. The Company is also subject
to a royalty agreement which requires the payment of certain royalties
to a previous owner of the aggregate inventory upon sale of the
aggregate. The Company has made only casual sales of the inventory
during the periods.
F. Income Taxes - The Company utilizes Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for
those temporary differences that have future tax consequences using
the current enacted tax laws and rates that apply to the periods in
which they are expected to
Regency Affiliates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
(Continued)
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
change in the deferred tax assets and liabilities.
G. Change in Reporting Period - Prior to December 31, 2000 Glas-Aire had
a fiscal year end of January 31. As a result, the Company's condensed
statement of operations for the three month period ended March 31,
2000 included the financial activity of Glas-Aire for the months of
February and March 2000 only.
Had the financial activity of Glas-Aire for the month of January 2000
been included, the Company's loss from operations would be as follows:
Net Sales $ 3,074,027
Costs and expenses
Costs of goods sold 2,148,234
Selling and administrative 1,206,559
---------
3,354,793
---------
Loss from operations $ (280,766)
===========
Note 2. Investment in Partnership
In November 1994, the Company purchased a limited partnership interest
in Security Land and Development Company Limited Partnership
("Security"), which owns and operates an office complex. The Company
has limited voting rights and is entitled to be allocated 95% of the
profit and loss of the Partnership until October 31, 2003 (the lease
termination date of the sole tenant of the office complex) and 50%
thereafter. The Company is to receive certain limited cash flow after
debt service, and a contingent equity build-up depending upon the
value of the project upon termination of the lease. The Company is
also entitled to receive certain management fees relating to the
partnership
Security was organized to own and operate two buildings containing
approximately 717,000 net rentable square feet consisting of a
two-story office building and a connected six-story office tower. The
building was purchased by Security in 1986 and is located on
approximately 34.3 acres of land which is also owned by Security. The
building has been occupied by the United States Social Security
Administration's Office of Disability and International Operations for
approximately 24 years under a lease between the United States of
America, acting by and through the General Services Administration
("GSA"). Effective November 1, 1994, Security and the GSA entered into
a nine-year lease (the "Lease") for 100% of the building. Security has
received an opinion of the Assistant General Counsel to the GSA that
lease payments are not subject to annual appropriation by the United
States Congress and the obligations to make such payments are
unconditional general obligations of the United States Government.
The Company accounts for the investment in partnership on the equity
method, whereby the carrying value of the investment is increased or
decreased by the Company's allocable share of income or loss. The
investment in partnership included in the Consolidated Balance Sheets
at March 31, 2001 $25,801,277. The income from the Company's equity
investment in the Partnership for the three months ended March 31,
2001 was $1,225,396.
Regency Affiliates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2. Investment in Partnership (Continued)
Summarized operating data for Security for the three months ended
March 31, 2001, and March 31, 2000, is as follows:
2001 2000
Revenues $ 3,352,823 $ 3,314,485
Operating Expenses 982,451 904,881
Depreciation and Amortization 716,067 710,067
Interest Expense, Net 364,444 509,519
--------- ---------
Net Income $ 1,289,861 $ 1,190,018
----------- -----------
Note 3. Notes Payable - Banks
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,
2001 and bears interest at the Bank's prime rate minus one-half
percent (9% at March 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 March 31, 2001, the amount
outstanding under the line of credit was $353,231.
The Company's subsidiary, Glas-Aire, has established a Canadian
$3,000,000 (U.S. $2,040,000) line of credit with a Canadian bank. The
line of credit is collateralized by accounts receivable and inventory
and bears interest at the rate of the Canadian bank's prime rate plus
one-half percent (6.6% at March 31, 2001). At March 31, 2001, the
amount outstanding under the line of credit was zero.
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 3/4%, adjusted monthly. As of March 31, 2001, $76,000 remained
outstanding; the interest rate was 10.25%. This obligation is
guaranteed by two shareholders, one of whom is a former officer and
director of the Company.
Note 4. Related Parties
The Company has outstanding $186,000 of demand notes bearing interest
at 10% payable to a shareholder. Additionally the Company has
outstanding a $763,503 demand note bearing interest at a rate of prime
minus 1% to its President. These obligations are secured by the
shares of Glas-Aire owned by the Company.
Note 5. Long-Term Debt
KBC Bank Loan - On June 24, 1998, the Company refinanced the long-term
debt previously outstanding with Southern Indiana Properties, Inc.
("SIPI") and entered into a Loan Agreement (the "Loan") with KBC Bank
N.V. ("KBC"). Under the terms of the Loan Agreement, KBC advanced
$9,383,320. The due date of the Loan is November 30, 2003 with
interest at the rate of 7.5% compounded semi-annually on each June 1
and December 1, commencing December 1, 1998. The interest may be paid
by the Company in cash on these semi-annual dates or the Company may
elect to add the interest to the principal of the Loan then
outstanding. As of March 31, 2001, the amount outstanding under the
Loan is $11,239,283, including $210,771 of interest for the three
months ended March 31, 2001.
Regency Affiliates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Long-Term Debt (Continued)
The Company purchased a residual value insurance policy which secures
the repayment of the outstanding principal and interest when due with
a maximum liability of $14 million. The costs related to the insurance
along with legal fees and other costs associated with obtaining the
Loan have been capitalized as debt issuance costs and are being
amortized over the life of the Loan using the effective interest
method.
Mortgage Loan - On March 25, 1998, Rustic Crafts purchased a building
of 126,000 square feet located in Scranton, Pennsylvania. The purchase
of this facility was funded in part by a first mortgage term loan in
the amount of $960,000. The first mortgage term loan is payable in
consecutive monthly installments over 10 years with a 20 year
amortization.
Equipment Loans - In connection with the purchase of the building, PNC
Bank loaned the Company a total of $767,000 to finance the acquisition
of new equipment and to install such equipment in the facility.
Principal payments on one loan of $604,000 began March 2000 for 120
months in amounts sufficient to amortize the outstanding balance over
twenty years from March 2000. In March 2000 the interest rate was
changed to the average weekly yield on U.S. Treasury Bills, plus 200
basis points. The remaining loan in the original amount of $163,500 is
payable in equal monthly installments of $2,518.
Miscellaneous Loan - In June 1999, Rustic Crafts obtained an
additional loan from PNC Bank for the purpose of funding additional
equipment purchases and working capital in the amount of $156,000. The
loan is payable in equal monthly installments, including principal and
interest, of $3,153.
The interest rates on the mortgage loan, the equipment loan and the
miscellaneous loan range from 7.52% to 8.25% at March 31, 2001. The
outstanding balance on these loans is $1,730,400 at March 31, 2001.
Rustic Craft's real and personal property, equipment, accounts
receivable, inventory and other general intangibles are pledged as
security for the loans. The loans are also guaranteed by the Company.
The security agreement requires Rustic Crafts to maintain certain
financial ratios. Rustic Crafts was in compliance with such ratios at
March 31, 2001.
Lease Obligations - Glas-Aire has two long-term lease obligations to
purchase equipment. These obligations were five year capital leases
and have been recorded as a capital asset and long-term debt. The
equipment is pledged as collateral for the leases. The terms of the
leases required equal monthly installment of $7,484 including
principal and interest over a five year period. Interest rates on the
leases range from 6.5% to 8.6%. The total outstanding balance of these
lease obligations is $111,461 at March 31, 2001.
Regency Affiliates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6. Income Taxes
As referred to in Note 1, the Company utilizes SFAS 109, "Accounting
For Income Taxes." The deferred taxes are the result of long-term
temporary differences between financial reporting and tax reporting
for depreciation, earnings from the Company's partnership investment
in Security Land and Development Company Limited Partnership related
to depreciation and amortization and the recognition of income tax
carryforward items.
For regular federal income tax purposes, the Company has remaining net
operating loss carryforwards of approximately $27,982,000. These
losses can be carried forward to offset future taxable income and, if
not utilized, will expire in varying amounts beginning in the year
2001.
For the three months ended March 31, 2001, and 2000, the tax effect of
net operating loss carryforwards reduced the current provision for
regular Federal income taxes by approximately $154,000, and $115,000,
respectively. The Company provided $68,923 and $65,895, for Canadian,
state income and the alternative minimum tax in the three months ended
March 31,2001 and 2000, respectively.
Note 7. Redemption of Series E Preferred Stock
On January 31, 2000, the holders of the Series E preferred stock
either converted their preferred shares to the Company's common stock
or received cash equal to the par value of the shares, plus accrued
dividends. The Company issued 95,877 of its common shares in exchange
for 885 shares of preferred stock and paid cash in the amount of
$159,300 for 1,593 shares.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General.
Regency Affiliates, Inc. (the "Company") is the parent company of
several subsidiary business operations. The Company is committed to
develop and/or monetize these business operations for the benefit of
its shareholders and continues to commit both financial and personnel
resources to an active merger and acquisition program in order to
enhance common stockholders' values. The Company's Shareholders'
Equity at March 31, 2001 was $16,501,809 as compared to $14,178,411 at
March 31, 2000, an increase of $2,323,398 for the twelve months ended
March 31, 2001.
Liquidity and Capital Resources.
The investment in Security is estimated to provide the Company with
management fees of approximately $100,000 per annum until 2003. In the
period ending March 31, 2001, the Company's income from its equity
investment in the Partnership (as well as its interest in its General
Partner, 1500 WoodLawn L.P.) was $1,225,396. These funds, however, are
presently committed for the amortization of the outstanding principal
balance on Security's real estate mortgage and, while the Company's
equity investment in the Partnership has increased to $25,801,277,
neither provides liquidity to the Company in excess of the $100,000
annual management fee. The Company has, however, been successful in
obtaining financing with respect to this investment.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
On March 15, 1998, Rustic Crafts purchased a building of 126,000
square feet located near the current facility in Scranton,
Pennsylvania. The purchase of this facility was funded by new
borrowings from PNC Bank in the form of a first mortgage term loan in
the amount of $960,000. Rustic Crafts also obtained financing of
approximately $923,000 from PNC Bank to equip the facility and
purchase new equipment. The move to the new facility was completed in
1999 and has significantly increased the operating capacity and
enabled Rustic Crafts to more efficiently fill its current orders and
increase its customer base. On the date of acquisition of the new
facility, a tenant was renting 23,000 square feet of this facility at
a base rent of $17,400 per year plus an allocable share of the real
estate taxes. The Company intends to maintain this tenant relationship
on an ongoing basis and has rented an additional 28,000 square feet to
another tenant at an annual minimum rent of $71,680. Rustic Crafts
also has a $1 million line of credit which expired on May 18, 2001 and
is being renegotiated.
The Company has had discussions with several companies regarding the
possible sale of its interest in NRDC. To facilitate the discussions
concerning a possible sale, the NRDC zero coupon bonds (secured by the
aggregate inventory), were retired in 1999 by the issuance of 121,000
shares of the Company's common stock. Following the termination of the
1999 NRDC Plan of Merger with Cotton Valley Resources Corporation, the
Company installed limited aggregate crushing and marketing operations
at the Groveland Mine in an informal joint venture with another
company. The Company is also exploring the possibility of establishing
a permanent infrastructure during the year 2001 to commercialize the
inventory of previously quarried and stockpiled aggregate at the
Groveland Mine in cooperation with an experienced aggregate supply
company.
On April 22, 1999, the Company acquired 513,915 shares (35%) of the
outstanding common stock of Glas-Aire ("Glas-Aire") for the issuance
of a promissory note of $650,000 due January 1, 2000, at an interest
rate of 7.5% per annum, which note was guaranteed by Mr. William
Ponsoldt, Sr., President of the Company and $1,213,000 in cash. Said
cash and additional funds necessary for the purchase of shares in the
open market were provided by Liberty Group. Inc., Interswiss Trading
Co., Ltd., Isla International Corp., and National Trust Co., former
affiliaes of the Statesman Group. Additional shares were purchased
through a common stock exchange agreement between the Company and
certain shareholders of Glas-Aire. Under the common stock exchange
agreement, the Company issued 1,188,000 shares of its restricted
common stock in exchange for 288,000 Glas-Aire common shares held by
the shareholders. The Company also sold 2,852,375 shares of its common
stock to Glas-Aire for cash of $1,967,960 and 86,000 shares of
Glas-Aire common stock. The proceeds were used to repay the funding
provided by the former affiliates of Statesman named above and other
general corporate requirements. As of September 23, 1999 Regency had
acquired 51.3% of the common stock of Glas-Aire.
The Company is indebted to the Statesman Group (a significant
shareholder of the Company) in the amount of $186,000 at March 31,
2001 pursuant to a series of secured demand notes bearing interest at
10% per annum. Such funds are used for working capital purposes.
Statesman has agreed to provide the Company with an aggregate of up to
$300,000 in financing on a similar basis. No assurances can be given
that the Company will be able to find additional financing on terms
acceptable to it if the Company fully utilizes the financing available
from Statesman.
Results of Operations
In September 1999, the Company acquired a 51% interest in Glas-Aire
which manufacturers automotive accessories. The financial statements
for March 1, 2001 include the results of Glas-Aire. The operations of
the Company also include the operations of Rustic Crafts, which is
engaged in the manufacturing of decorative fireplaces, heater logs and
related accessories.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
2001 Compared to 2000
Net sales increased $1,245,573 in 2001 over the similar period in 2000
of which $934,528 is attributable to Glas-Aire's change in fiscal year
from January 31 year end to December 31. Results for 2000 include
only two months of operations for Glas-Aire. The remaining increase is
due to $465,711 of additional sales of sales from Glas-Aire, offset by
a decrease in sales at Rustic Crafts of $154,666. The decrease at
Rustic Crafts was due to smaller backlogs at December 31, 2000 and the
decrease in sales of low margin products.
Gross margin increased $209,277 of which $269,278 is attributable to
Glas-Aire's change in fiscal year. The remaining decrease is due to
decrease in gross margins from Glas-Aire of $9,222 and of Rustic
Crafts of $50,779.
Selling and administrative expenses increased $198,307 in 2001 as
compared to 2000, which increase is largely attributable to
Glas-Aire's change in year end.
Income from equity in partnerships increased $94,879. This increase is
due to a decrease in interest expense resulting from payment of
principal offset by increases in operating expenses for the quarter as
to Security and income resulting from the Company's 5% limited
partnership interest in Woodlawn, L.P.
Interest expense increased by $35,080 and is largely attributable to
increased interest expense on the KBC loan.
Net income increased $60,760 in 2001 compared to 2000. Glas-Aire
earnings of $36,200, after minority interests and increased equity
earnings from partnerships were offset by additional losses at Rustic
Crafts.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q,
including, but not limited to those regarding the Company's financial
position, business strategy, acquisition strategy and other plans and
objectives for future operations and any other statements that are not
historical facts constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results,
performance or achievements expressed or implied by such forward-looking
statements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Although the Company believes that the expectations reflected in these
forward-looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the
expected effect on its business or operations. These forward-looking
statements are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to
uncertainties and factors (including, but not limited to, those specified
below) which are difficult to predict and, in many instances, are beyond
the control of the Company. As a result, actual results of the Company may
differ materially from those results contemplated by such forward-looking
statements which include, but are not limited to:
(i) The Company's current operations do not generate sufficient cash flow
at the parent company level to cover corporate operating expenses and
thus the Company must rely on external sources to fund these expenses.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
(ii) The Company currently lacks the necessary infrastructure at the site
of the Groveland Mine to permit the Company to make more than casual
sales of the aggregate.
(iii)An uncured default in the Lease or sudden catastrophe to the
Security West Building from uninsured acts of God or war could have a
materially adverse impact upon the Company's investment in Security
Land and Development Company Limited Partnership and therefore its
financial position and results of operations.
(iv) The failure of the Social Security Administration to renew its lease
of the Security West Buildings upon its expiration on October 31, 2003
could have a materially adverse impact upon the Company's investment
in Security Land and Development Company Limited Partnership.
(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 have in the past been, and is expected in
the future to be, offset by the Company's net operating loss
carryforwards.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGENCY AFFILIATES, INC.
(Registrant)
Date: May 17, 2001 /s/ Marc H. Baldinger
------------------- ----------------------
(Chief Financial Officer and Director)