RAFI Regency Affiliates Inc (PK)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________________

 

FORM 10-K

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

For the fiscal year ended December 31, 2009

Commission file number: 1-7949

 

	REGENCY AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware		72-0888772
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)
610 Jensen Beach Boulevard Jensen Beach, Florida		34957
Address of Principal Executive Offices)		Zip Code
	(772) 334-8181
Registrant’s Telephone Number, Including Area Code

 

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

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

Common stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes:  o No:  x

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes:  o No: x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the  Exchange Act. (Check One)

 

Large accelerated filer o		Accelerated filer o
Non-accelerated filer  o		Small reporting company x

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

PART I

ITEM 1.

BUSINESS

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

GENERAL DEVELOPMENT OF BUSINESS

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

In July 1993 we acquired an 80% interest in National Resource Development Corporation ("NRDC"). At the time, NRDC's principal asset consisted of previously quarried and stockpiled rock ("Aggregate") inventory located at a mine site in Michigan. The remaining 20% interest in NRDC is owned by Statesman Group, Inc. ("Statesman"), a former shareholder of Regency. In December 2001, the Aggregate inventory was sold to Iron Mountain Resources, Inc. ("Iron Mountain"), our 75% owned subsidiary, in exchange for an $18,200,000 note. After defaulting on the note, in February 2005 Iron Mountain reconveyed the Aggregate to NRDC in lieu of foreclosure and the note was deemed satisfied. See "NARRATIVE DESCRIPTION OF BUSINESS - National Resource Development Corporation; Iron Mountain Resources, Inc."  Effective as of January 11, 2010, we redeemed all of the outstanding shares of our Cumulative, Senior Preferred Stock $100, Series C, par value $0.10 per share (the “Series C Preferred Stock”).  The redemption price paid for the Series C Preferred Stock (the “Series C Redemption Price”) was satisfied by delivery to the holders of Series C Preferred Stock of the common stock (“NRDC Common Stock”) of NRDC, then owned by the Company.  Following payment of the Redemption Price to all holders of Series C Preferred Stock, the Company does not own any NRDC Common Stock.

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

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

 

 

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

In connection with the redemption of our common stock owned by Statesman, we acquired from Statesman a three-year option to purchase the 20% stock interest in NRDC held by Statesman. To exercise the option, we were required to deliver to Statesman for cancellation a $2,440,000 note issued to Regency by Statesman in October 2001. As consideration for the option, we (i) paid Statesman $250,000, (ii) amended the note and related pledge agreement to limit our recourse under the note and (iii) transferred to Statesman certain office furniture and equipment that we owned. This option expired in October 2005.  As part of the redemption, we also entered into an agreement with Statesman providing for (i) an amendment to the Certificate of Designations of the Series C Preferred Stock for Regency and (ii) certain limitations on the ability of Statesman to issue or transfer shares or other beneficial interests in Statesman or to sell, transfer, purchase or acquire any capital stock of Regency, in each case without first receiving our written confirmation that such issuance or transfer would not adversely affect our ability to utilize our tax loss carryforwards. We paid Statesman an aggregate amount of $2,730,000 in consideration of the foregoing agreements. The loans, redemption, and other October 2002 transactions described above are collectively referred to herein as the "Restructuring Transactions."

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

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

 

Narrative Description of Business.

Security Land and Development Company Limited Partnership

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

 

 

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

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

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

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

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

We and the general partner of Security Land are in disagreement as to the manner in which taxable income of Security Land is to be allocated pursuant to the partnership agreement and applicable law. Specifically, Regency and the general partner of Security Land disagree as to which allocation provisions of Security Land's limited partnership agreement should govern the allocation of Security Land's operating (taxable) income for the applicable years.  The general partner's position is that the regular allocation provisions, under which 95% of Security Land's taxable operating income would be allocated to Regency, control.  Regency's position is that special so-called "regulatory allocation" provisions, specifically the "minimum gain chargeback" provisions, of the partnership agreement - which override the normal allocations of taxable operating income and allocate taxable operating income to the partners with deficit balances in their capital accounts in varying percentages based on their share of any reduction in the amount of Security Land's "minimum gain" as defined in the income tax regulations - control and that under these provisions, the Security Land partners other than Regency should be allocated most of the partnership's taxable operating income during the years at issue.  As a result, for 2004 through 2009 we reported taxable income (loss) from Security Land in a manner we believe is proper, but which was different than the manner reported by Security Land.   The amount of taxable income that would be allocated away from Regency assuming that the regulatory allocation provisions control in future years will continue to increase in each year, beginning with 2009, until 2017, after which Regency projects that the regulatory allocation provisions will not cause it to be allocated less taxable income than Security Land allocates to it.  Regency has discussed its position with the management of Security Land, but has not taken formal action to definitively resolve the dispute.  There can be no assurance that the IRS would agree with Regency’s position that the regulatory allocation provisions of the Security Land partnership agreement control.  If the IRS determines that the general partner of Security Land’s position controls (based on an audit of Regency’s tax returns or otherwise), Regency may be required to utilize its existing net operating loss carryforwards with respect to prior tax years, and may be liable for additional income taxes going forward, which could materially and adversely effect Regency’s liquidity and capital resources.

 

 

Rustic Crafts International, Inc.

At March 31, 2004, we held notes receivable totaling $1,127,708, which were deemed uncollectible due to lack of cash flows generated and continual default on payment terms by RCI. We determined to record full impairment of the notes and any accrued interest thereon, resulting in an impairment charge of $1,182,626. On December 30, 2005 we agreed to accept a $125,000 note from RCI as a restructuring of the above named obligation.  The note, which bears interest at 6.5%, called for payments of $1,088 per month until December 2008. No gain or income was recognized as a result of this settlement due to the uncertainty that the amount would actually be realized. Such recovery will be recognized upon receipt. During 2006, we received $3,264 of such settlement which was included in other income.  In April 2006, RCI defaulted on the note.  We have initiated an action for collection against RCI and a personal guarantor on the note.  RCI has filed for protection under Chapter 11 of the United States Bankruptcy Code and we have received a judgment on the personal guarantee.  We have initiated collection against the personal guarantee.  In June 2008, the Company sold the above mentioned notes to a collection agency for $1,000 plus 50% of any amounts received less expenses of up to $2,500.  To date, the Company has received $1,000 from the collection agency and the collection agency has not received any proceeds on the notes.

National Resource Development Corporation; Iron Mountain Resources, Inc.

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

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

FILING OF GOING PRIVATE INFORMATION STATEMENT

 

On March 1, 2010, the Company filed with the SEC a Schedule 13e-3 Transaction Statement and an Information Statement on Schedule 14C with respect to the Reverse Stock Split and the Forward Stock Split. Once the Schedule 13E-3 Transaction Statement and Information Statement on Schedule 14C are approved in a definitive form by the SEC, we will mail copies to our stockholders.  We currently intend to effect the Reverse Stock Split and Forward Stock Split as soon as possible after such distribution.

COMPETITION

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

ENVIRONMENTAL REGULATIONS

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

EMPLOYEES

As of December 31, 2009, we employed two people.  We believe that our relations with our employees are satisfactory.

WHERE YOU CAN FIND MORE INFORMATION

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

 

 

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

ITEM 1A.

RISK FACTORS

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

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

- The Internal Revenue Service may limit or disallow our use of tax loss and credit carryforwards, or may disagree with our position regarding the allocation of taxable income of Security Land.   We have had significant tax loss and credit carryforwards and no assurance can be provided that the Internal Revenue Service would not attempt to limit or disallow altogether our use, retroactively and/or prospectively, of such carryforwards, due to ownership changes or any other reason. In addition, there can be no assurance that the IRS would agree with Regency’s position that the regulatory allocation provisions of the Security Land partnership agreement control. If the IRS determines that the general partner of Security Land’s position controls (based on an audit of Regency’s tax returns or otherwise), Regency may be required to utilize its existing net operating loss carryforwards with respect to prior tax years, and may be liable for additional income taxes going forward. The disallowance of the utilization of our net operating loss or an adverse ruling from the IRS regarding the allocation of taxable income of Security Land would severely impact our financial position and results of operations due to the significant amounts of taxable income that have been, and may in the future be, offset by our net operating loss carryforwards;

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

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

- We may encounter competition in efforts to exploit business opportunities. There are many public and private companies that are also searching for operating businesses and other business opportunities as potential acquisition or merger candidates. We will be in direct competition with these other companies in its search for business opportunities. Many of these entities have significantly greater financial and personnel resources than us.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

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

 

 

ITEM 2.

PROPERTIES

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

ITEM 3.

LEGAL PROCEEDINGS

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

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

 

On January 20, 2004, a purported derivative and class action lawsuit was filed by two dissident Company shareholders, Edward E. Gatz and Donald D. Graham, in the New Castle County Court of Chancery, Delaware (the "Court"), captioned Gatz, et al. v. Ponsoldt, Sr., et al., (C.A. No. 174-N) naming as defendants certain current and former directors of the Company, Royalty and certain of its affiliates, Statesman and, nominally, the Company (the "Delaware Action").  The complaint alleged various breaches of fiduciary duties by the former directors and Statesman, and that Royalty and its affiliates knowingly participated in certain of the alleged breaches.  In November 2004 the Court dismissed all but one claim alleged in the complaint.  The Company was not a defendant with respect to the sole surviving claim, which related to the 2001 sale of a cache of previously quarried and piled aggregate rock by NRDC to Iron Mountain (the "Aggregate Sale").  On October 16, 2005, the Court dismissed plaintiffs' sole remaining claim for failure to state a claim for relief.  The dismissal was without prejudice and the plaintiffs were given leave to file an amended complaint attacking the Aggregate Sale.

On January 30, 2006, plaintiffs filed an amended complaint challenging the Aggregate Sale and alleging that the Aggregate Sale negatively impacted the consideration the Company received in connection with the October 2002 restructuring transactions.  The Company was not a defendant with respect to this claim.  Plaintiffs sought damages in excess of $5,400,000 with respect to the claim related to the Aggregate Sale.  On May 16, 2006, the Court dismissed the sole remaining complaint alleged in the complaint determining that the sole remaining complaint was derivative in nature and could therefore not be maintained by the plaintiffs. On June 14, 2006, the plaintiffs filed a Notice of Appeal appealing the Court's rulings.  In its April 16, 2007 decision, citing an intervening legal development in the area of direct and derivative claims arising while the appeal was pending, the Supreme Court of the State of Delaware reversed the Court's decision and remanded the case to the Court for further proceedings.

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

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

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

 

 

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

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

ITEM 4.

(Removed and Reserved)

 

PART II

ITEM 5.

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

Our common stock is traded in the over-the-counter market on the Pink Sheets. The symbol for the listing is "RAFI.PK". The following table sets forth the high and low bid prices for each calendar quarter during our last two fiscal years. On July 22, 2010 there were approximately 2,515 common stockholders of record.

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

YEAR ENDED
DECEMBER 31, 2009
		HIGH ($)				LOW ($)
First Quarter			2.50				2.25
Second Quarter			4.50				2.42
Third Quarter			4.00				3.80
Fourth Quarter			3.85				3.10

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. However, following the completion of the going private transaction, Regency’s management intends to evaluate Regency’s business, investments and corporate and capital strucutre, as a non-SEC reporting company, with a view towards maximizing value to Regency’s stockholders.  Such evaluation may include a possible dividend or spinoff of Regency’s investments and/or cash assets such that Regency’s stockholders would hold such investments and/or cash directly or through a successor entity, rather than through their holding of Regency’s common stock.  No such transaction has yet been fully considered by Regency’s management and no assurance can be given that any such transaction will ever be fully considered or, if fully considered, effectuated.

 

 

TRANSFER AGENT

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

RECENT SALES OF UNREGISTERED SECURITIES

None.

ISSUER REPURCHASE OF SECURITIES

None .

EQUITY COMPENSATION PLANS

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

ITEM 6.

SELECTED FINANCIAL DATA – Not Applicable

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained in this Annual Report on Form 10-K, including, but not limited to those regarding the Company's financial position, business strategy, acquisition strategy and other plans and objectives for future operations and any other statements that are not historical facts constitute "forward-looking statements" within the meaning of federal securities laws and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements expressed or implied by such forward-looking statements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected effect on its business or operations. These forward-looking statements are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. See “ITEM 1A – RISK FACTORS”.

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

GENERAL

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

Our Stockholders' Equity at December 31, 2009 was $23,495,264  as compared to $19,536,251 on December 31, 2008, an increase of 8.3%, primarily due to net income, the issuance of stock options, less the redemption of Preferred Series C shares during 2009.

 

 

RESULTS OF OPERATIONS

Year ended December 31, 2009 vs. Year ended December 31, 2008

No revenue was generated by the Company during these periods.

General and administrative expenses decreased by $222,236 or 15.1% in 2009 as compared to 2008 primarily due to decreases of approximately $115,000 in legal fees relating to ongoing litigation through 2008, approximately $48,000 in payroll expenses, and a $59,000 reduction in stock based compensation.

Income from equity investment in partnerships increased by $800,522 in 2009, 26.0% higher than in 2008.  Income from Security Land was $1,840,572 in 2009, $161,648 higher than 2008 due to increased rental income and tenant reimbursements, and lower interest and insurance expenses, which offset increases in administrative and operating expenses.  Income from 1500 Woodlawn L.P., the general partner of Security Land, increased 1.0% to $4,844 in 2009.  Income from MESC Capital was $2,039,289 in 2009, $638,449 higher than 2008 as a result of an increase in operating revenues, a reduction in interest, repairs and maintenance and other operating expenses, and a gain from sales of non-producing assets of the Company.

Interest expense was $20,606 in 2009 and $25,269 in 2008 as a result of the Settlement of the Delaware Action.

Income taxes created a benefit of $1,508,926 in 2009 and resulted in an expense of $171,386 in 2008. We do not expect significant Federal tax due as a result of previous period operating losses.  As a result of net operating losses, we estimate that we have a deferred tax asset of $2,791,400 and $1,105,000 at December 31, 2009 and 2008, respectively, which benefit is reflected in the net 2009 and 2008 income tax benefit (expense) line item.

Net income increased by $5,566,174 in 2009 over 2008 or 385.2%. The change was primarily due to an increase in income from partnerships of $800,522 in 2009, a decrease in total operating expenses of $222,236 in 2009, a decrease in  interest,  dividend and investment income of $142,984, and a deferred tax benefit of $1,686,400.  2008 had a one-time settlement expense of  $3,000,000 that was accrued at December 31, 2008.

 

Critical Accounting Policies and Estimates

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

 

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

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

 

 

Evaluation of Long-Lived Assets . In assessing the recoverability of our investments in equity securities, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges for these assets. Based on the assessments performed as of December 31, 2009 and 2008, we did not record any impairment charges related to these investments.

Contingencies. We are involved in certain claims and litigation related to our operations. In the opinion of management, liabilities, if any, arising from these claims and litigation have had a material adverse effect on Regency’s combined financial position, liquidity, or results of operations. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter. Based on the assessments performed as of December 31, 2009 and 2008, we recorded the $3,000,000 Settlement expense and related interest expense of 20,606 for 2009 and 25,269 for 2008 but no additional reserves for contingencies.

Share-Based Compensation. We record the compensation expense related to stock options according to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260, as adopted on January 1, 2006. We record the compensation expense related to options using the fair value as of the date of grant as calculated using the Black-Scholes-Merton method. We record the compensation expense related to restricted stock units using the fair value as of the date of grant.

LIQUIDITY AND CAPITAL RESOURCES

On December 31, 2009, we had current assets of $7,245,808, Shareholders' Equity of $23,495,364, $7,187,020 in cash and marketable securities, total assets of $24,051,562 and total liabilities of $556,198.

The most significant sources of cash are from distributions of earnings received from our equity investment in MESC Capital and interest and dividends earned from existing cash and cash equivalents. To the extent cash flows from operating activities are not sufficient, we could liquidate marketable securities as necessary. We believe our cash flow from our investments and existing cash and cash equivalents will be adequate to satisfy our cash needs for the next twelve months.

The most significant uses of cash are for employee compensation and professional fees for legal and accounting services.

Currently, there are no plans for external financing of current operations or holdings.

During the preparation of our 2004 Federal corporation income tax return, a dispute arose between the Company and Security Land regarding the proper amount of taxable income to be allocated to us and reported to the IRS on Federal Form K-1. This dispute has not been resolved and as such we continue to report a different amount of income on our corporation income tax return than was reported to the IRS by Security Land. The discrepancy may cause our tax returns to be audited by the IRS. We believe that the outcome of any IRS examination will not affect our financial statements in this year as net operating losses are available to offset any additional income not reported.

FILING OF GOING PRIVATE INFORMATION STATEMENT

 

On January 28, 2010, our Board of Directors approved an amendment to Regency’s Certificate of Incorporation to effect a 1-for-100 reverse split (the “Reverse Stock Split”) of Regency’s common stock, to be followed immediately by an amendment to Regency’s certificate of incorporation to effect a 100-for-1 forward stock split (the “Forward Stock Split”) of Regency’s common stock, which we expect will result in a reduction of the number of common stockholders of record of the Company to fewer than 300.   This will permit us to discontinue the filing of annual reports and other filings with the SEC.  The Reverse Stock Split and the Forward Stock Split were approved by the written consent in lieu of a meeting, dated February 26, 2010, of holders of a majority of our issued and outstanding common stock.

Regency estimates that it will save approximately $200,000, or approximately 16.0% of its total general and administrative expenses for the year ended December 31, 2009, annually by terminating the registration of its common stock.

 

 

On March 1, 2010, the Company filed with the SEC a Schedule 13e-3 Transaction Statement and an Information Statement on Schedule 14C with respect to the Reverse Stock Split and the Forward Stock Split. Once the Schedule 13E-3 Transaction Statement and Information Statement on Schedule 14C are approved in a definitive form by the SEC, we will mail copies to our stockholders.  We currently intend to effect the Reverse Stock Split and Forward Stock Split as soon as possible after such distribution.

 

IMPACT OF INFLATION

Although we have not attempted to calculate the effect of inflation, management does not believe inflation has had a material effect on our results of operations.

OFF BALANCE SHEET ARRANGEMENTS

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

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A(T).

CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our  disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

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

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

Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2009 based on the criteria set forth in a report entitled Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that, as of December 31, 2009, our internal control over financial reporting is effective based on those criteria.

 

 

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

No change occurred in our internal controls concerning financial reporting during the fourth quarter of the fiscal year ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

None

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

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

 

NAME, AGE

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

Laurence S. Levy, 54

Mr. Levy is Chairman of the Board of Directors, President, and Chief Executive Officer of the Company since 2002. Mr. Levy founded the predecessor to Hyde Park Holdings, LLC in July 1986 and has since served as its Chairman. Hyde Park Holdings, LLC is an investor in middle market businesses. Mr. Levy serves as an officer or director of many companies in which Hyde Park Holdings, LLC or its affiliates invests. Presently, these companies include: Ozburn-Hessey Logistics LLC, a national logistics services company, of which Mr. Levy is a director; Derby Industries LLC, a sub-assembly business to the appliance, food and transportation industries, of which Mr. Levy is chairman; PFI Resource Management LP, an investor in the Private Funding Initiative program in the United Kingdom, of which Mr. Levy is general partner; and Warehouse Associates L.P., a provider of warehouse and logistics services, of which Mr. Levy is Chairman. During the past five years, Mr. Levy has served on the Board of Directors of two public companies: Rand Logistics, Inc. Rand Logistics, Inc., a NASDAQ listed company which provides bulk freight shipping services throughout the Great Lakes region, of which Mr. Levy is chairman of the board and chief executive officer, and Essex Rental Corp., a NASDAQ listed company and one of North America’s leading providers of lattice-boom crawler crane and attachment rental services, of which he is chairman of the board.  Mr. Levy is a director of Sunbelt Holdings, Inc., a leading distributor of wine and spirits.  In addition, from March 1997 to January 2001, Mr. Levy served as Chairman of Detroit and Canada Tunnel Corporation, a company which operates the toll tunnel between Detroit, Michigan and Windsor, Ontario, and from August 1993 until May 1999, Mr. Levy served as Chief Executive Officer of High Voltage Engineering Corporation, a diversified industrial and manufacturing company. Mr. Levy received a Bachelor of Commerce degree and a Bachelor of Accountancy degree from the University of Witwatersrand in Johannesburg, South Africa. He is qualified as a Chartered Accountant (South Africa). Mr. Levy received a Master of Business Administration degree from Harvard University and graduated as a Baker Scholar.  In light of Mr. Levy’s financial, accounting and investment knowledge, his service on boards and as an advisor to other public and private companies, and the knowledge and experience he has gained from such service, including his ability and expertise in evaluating potential investment opportunities and in the area of corporate governance, our Board has concluded that Mr. Levy should continue to serve as a member of our Board of Directors.

 

 

Neil N. Hasson, 45

Mr. Hasson is a Director and Chief Financial Officer of the Company since 2002.  In February 2005, Mr. Hasson was appointed as a Director of Citigroup Property Investors (“CPI”).  CPI is an international real estate investment manager. Previously, Mr. Hasson was the head of European Real Estate for DLJ Real Estate Capital Partners, a $660 million real estate fund managed by Donaldson, Lufkin and Jenrette ("DLJ"), where he was involved with the acquisition of real estate throughout the world. Mr. Hasson joined DLJ as a Managing Director in New York in January 1995. In light of Mr. Hasson’s substantial investment experience, particularly in the area of real estate investments, including his ability and expertise in evaluating potential investment opportunities, our Board has concluded that Mr. Hasson should continue to serve as a member of our Board of Directors.

Errol Glasser, 57

Mr. Glasser is a Director of the Company since 2002. Mr. Glasser has been President of Triangle Capital, LLC, a private investment and advisory company based in New York City since 2004.  Previously, Mr. Glasser was President of East End Capital Management and a Managing Director at Kidder, Peabody & Co. with responsibility for its West Coast investment banking activity and served as a member of the Bord of Directors and the Audit Committee of Motgomery Ward. Mr. Glasser is a member of the compensation, nominating and audit committees. Mr. Glasser received a Bachelor of Commerce degree and a Higher Diploma in Accountancy from the University of Witwatersrand in Johannesburg, South Africa. He received his MBA from the Tuck School of Business at Dartmouth.   In light of Mr. Glasser’s financial, accounting and investment knowledge, his service on boards, on an audit committee and as an advisor to other public and private companies, and the knowledge and experience he has gained from such service, including his ability and expertise in evaluating potential investment opportunities and in the area of corporate governance, our Board has concluded that Mr. Glasser should continue to serve as a member of our Board of Directors.

 

Carol Zelinski, 56

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

 

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

Compliance with Section 16(a) of the Exchange Act

Based solely on a review of reports on Form 3 and 4 and amendments thereto furnished to us during our most recent fiscal year, reports on Form 5 and amendments thereto furnished to us with respect to our most recent fiscal year, we believe that no person who, at any time during the fiscal year ended December 31, 2009, was subject to the reporting requirements of Section 16(a) with respect to Regency failed to meet such requirements on a timely basis.

 

 

Code of Ethics

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

Audit Committee

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

Audit Committee Financial Expert

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

Nominations for Board of Directors

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

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

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

ITEM 11.

EXECUTIVE COMPENSATION

 

SUMMARY COMPENSATION TABLE

The following table provides the compensation of our named executive officers, direct or indirect, for services rendered in all capacities for the fiscal years ended December 31, 2009 and 2008:

 

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Laurence S. Levy	2009	200,000	0	0	95,000 (1)	0	0	45,000 (3)	340,000
President and Chief Executive Officer	2008	200,000	0	0	154,200 (2)	0	0	45,000 (3)	399,200
Neil N. Hasson	2009	50,000	0	0	0	0	0	12,500 (3)	62,500
Chief Financial Officer	2008	50,000	0	0	0	0	0	12,500 (3)	62,500

 

 

(1)	On April 30, 2009 Mr. Levy was granted 50,000 stock options pursuant to our 2003 Stock Incentive Plan, as amended. We determined the above fair market values of the options issued under the Black-Scholes Option Pricing Model and with the provisions of FASB ASC Topic 718.

(2)	On August 13, 2008 Mr. Levy was granted 50,000 stock options pursuant to our 2003 Stock Incentive Plan, as amended. We determined the above fair market values of the options issued using the Black-Scholes Option Pricing Model and with the provisions of FASB ASC Topic 718.

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

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

Option Awards						Stock Awards
Name	Number of  Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Laurence S. Levy (1)	25,000 50,000 50,000 50,000 50,000 50,000 50,000	0 0 0 0 0 0 0	0 0 0 0 0 0 0	1.35 1.53 2.01 6.27 5.10 4.20 2.90	4/3/2013 10/1/2013 6/10/2014 4/1/2016 8/14/2017 8/13/2018 4/30/2019	0	0	0	0
Neil N. Hasson (1)	25,000 50,000 50,000	0 0 0	0 0 0	1.35 1.53 2.01	4/3/2013 10/1/2013 6/10/2014	0	0	0	0

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

 

 

DIRECTOR COMPENSATION

 

The following table summarizes compensation paid to our non-management directors during the fiscal year ended December 31, 2009. Compensation to our directors who are members of management is set forth in the Summary Compensation Table above.

 

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Errol Glasser	36,000 (1)	0 (2)	- (3)	-	-	-	$36,000

(1)              Non-management directors receive for services an annual amount of $36,000, payable in stock or cash at the sole discretion of each non-management director and 500 shares of our common stock for each committee served .

(2)              Mr. Glasser was entitled to receive 500 shares of our common stock for serving on each of our Audit Committee, Compensation Committee and Nominating Committee for the year ended December 31, 2009.  Mr. Glasser received 3,000 shares in June 2008 for serving on these Committees in 2006, 2007, and the first quarter of 2008.  As of December 31, 2009, we owe Mr. Glasser 2,625 shares of common stock for serving on the committees for the period April 2008-December 2009.

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

 

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

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

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

LONG TERM INCENTIVE PLAN

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

 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information.

 

PLAN CATEGORY ----------------------	(a)   NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS (#) ----------------------	(b)     WEIGHTED-AVERAGE  EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS ($) ----------------------	(c)   NUMBER OF SECURITIES REMAINING AVAILABLE FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) -----------------------
Equity compensation plans approved by security holders	N/A	N/A	N/A
Equity compensation plans not approved by security holders (1)	462,500	2.98	160,000
Total	462,500	2.98	160,000

 

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

 

Security Ownership of Certain Beneficial Owners.

The following table sets forth information regarding ownership of our common stock as of July 22, 2010 by those individuals or groups who are known by us to beneficially own more than five percent (5%) of the outstanding shares of our common stock.  Except as otherwise indicated below, to our knowledge, each such beneficial owner has sole voting and investment power with respect to the shares beneficially owned by such stockholder.

 

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

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

(2)

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

 

 

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

The following table sets forth certain information as of July 22, 2010 regarding the ownership of common stock by (i) each director, (ii) each individual named in the Summary Compensation Table contained herein, and (iii) all current executive officers and directors of the Company as a group. Except as otherwise indicated, to our knowledge, each such individual has sole voting and investment power with respect to the shares beneficially owned by such stockholder.

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

*Less than 1%

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

(2)

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

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

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

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence

 

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

 

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

 

 

License Agreement

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

Employment Agreements

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

Other Arrangements

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

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company for each of the last two fiscal years for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in the Company’s quarterly reports on Forms 10-K and 10-Q and services that were provided in connection with statutory and regulatory filings or engagements were $76,914 for the fiscal year ended December 31, 2009 and $57,407 for the fiscal year ended December 31, 2008.

 

Audit-Related Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company for each of the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company’s financial statements were $0 for the fiscal year ended December 31, 2009 and $0 for the fiscal year ended December 31, 2008.

 

Tax Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company in each of the last two fiscal years for professional services rendered for tax compliance, tax advice and tax planning were $42,210 for the fiscal year ended December 31, 2009 and $25,835 for the fiscal year ended December 31, 2008.

 

All Other Fees. The aggregate fees billed by Rosenberg Rich Baker Berman & Company in each of the last two fiscal years for products and services other than those reported in the three prior categories were $0 for the fiscal year ended December 31, 2009 and $0 for the fiscal year ended December 31, 2008.

 

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

 

Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the terms of the engagement of Rosenberg Rich Baker Berman & Company are subject to the specific pre-approval of the Audit Committee. All audit and permitted non-audit services to be performed by Rosenberg Rich Baker Berman & Company require pre-approval by the Audit Committee. The procedures require all proposed engagements of Rosenberg Rich Baker Berman & Company for services of any kind to be submitted for approval to the Audit Committee prior to the beginning of any services. The Company's audit and tax services proposed for 2009 along with the proposed fees for such services were reviewed and approved by the Company's Audit Committee.

 

PART IV

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

 

 

Index of Exhibits

 

 

	3.1(i)(f)	Certificate of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10 par value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated herein by reference).
	3.1(i)(g)	Certificate of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par value (filed as Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 at page E-1, and incorporated herein by reference).
	3.1(ii)(a)	By-laws of the Company (filed as Exhibit 3.4 to the Company's Registration Statement on Form S-1, Registration No. 2-86906, and incorporated herein by reference).
	3.1(ii)(b)	Amendment No. 1 to By-Laws of the Company (filed as exhibit 3.1(ii)(b) to the Company's Form 10-Q dated November 19, 2002, and incorporated herein by reference).
	10.1	2003 Stock Incentive Plan of the Company (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003 and incorporated herein by reference) *
	10.2	Amendment No. 1 to 2003 Stock Incentive Plan (filed as Exhibit 8 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference.) *
	10.3	Amendment No. 2 to 2003 Stock Incentive Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB on August 23, 2004, and incorporated herein by reference.) *

	10.4	Stock Option Agreement, dated April 1, 2003, between the Company and Stanley Fleishman (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
	10.5	Stock Option Agreement, dated April 1, 2003, between the Company and Errol Glasser (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
	10.6	Stock Option Agreement, dated April 1, 2003, between the Company and Laurence Levy (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
	10.7	Stock Option Agreement, dated April 1, 2003, between the Company and Neil Hasson (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated herein by reference). *
	10.8	Stock Option Agreement, dated October 1, 2003 between the Company and Laurence Levy (filed as Exhibit 11 to Amendment No. 3 to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein by reference). *

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

 

 

 

 

 

 

 

 

 

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

+	Filed herewith

 

SIGNATURES

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

 

 

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

 

 

EXHIBIT INDEX