During
1994, Security Land completed the placement of a $56,450,000 non-recourse
project note, due November 15, 2003. The placement of the project note was
undertaken by the issuance of 7.90% certificates of participation and was
underwritten by Dillon Read & Co., Inc. The net proceeds received from the
sale of the certificates were used to refinance existing debt of Security Land
related to the project, to finance certain alterations to the project by
Security Land, to fund certain reserves and to pay costs of the project note
issue. The project note was a non-recourse obligation of Security Land, interest
and principal payments were payable solely from the lease payments from the U.S.
Government and the note was self-amortizing.
In
March 2003, the General Services Administration agreed to extend the term of its
lease at the building owned by Security Land through October 31, 2018. The
significant terms of the lease extension include fixed annual gross rent of
approximately $12,754,000 (or approximately $17.79 per sq. ft.). Security Land
is responsible for all operating expenses of the building. Security Land is also
responsible for upgrading some of the building's common areas.
On
June 24, 2003, US SSA LLC, a single purpose entity owned by Security Land,
borrowed $98,500,000 through a public debt issue underwritten by CTL Capital,
LLC. Proceeds of the refinancing were used to repay the outstanding balance of
Security Land's 1994 indebtedness, to establish reserves to make capital
improvements to the property, to provide reserves required by the new debt, to
pay costs and expenses related to issuing the debt, to pay fees related to the
lease extension with the General Services Administration and the financing, and
to make a distribution to the partners of Security Land. The debt matures
October 31, 2018, at which time the loan will have been paid down to a balance
of $10,000,000. Security Land has obtained residual value insurance for
approximately $10,000,000. The interest cost of the financing is 4.63%. The
financing is non-recourse for the Company.
We
received approximately $41,000,000 of net refinancing proceeds from the Security
Land distribution. In addition, under the terms of the Security Land partnership
agreement, as amended in April 2003 in contemplation of the refinancing, we are
entitled to (i) 95% of Security Land's distributions of cash flow until we have
received $2,000,000 of such distributions, and thereafter 50% of such
distributions and (ii) once we have received $2,000,000 of cash flow
distributions, a $180,000 annual management fee from Security Land. The
foregoing percentages are inclusive of our interest as a limited partner in 1500
Woodlawn, the general partner of Security Land. In connection with the Security
Land refinancing and distribution, we were required to repay our KBC Bank loan.
The payoff amount was approximately $14,125,000, which included a release fee
and make-whole premium.
We
and the general partner of Security Land are in disagreement as to the manner in
which taxable income of Security Land is to be allocated pursuant to the
partnership agreement and applicable law, and for
2004,
2005 and 2006
, we reported taxable income
(loss)
from Security Land in a manner we believe is proper, but which was different
than the manner reported by Security Land.
Rustic
Crafts International, Inc.
Rustic
Crafts was until September 30, 2002 a manufacturer of decorative wood and cast
marble fireplaces, mantels, shelves, fireplace accessories and other home
furnishings. On September 30, 2002, Rustic Crafts sold all of its operating
assets to RCI for $1,307,000 comprised of (i) a $707,000 note bearing interest
at 5% per annum requiring monthly payments of principal and interest of $13,342
and due September 30, 2007, (ii) a $400,000 note which, as restructured in
August 2003; bears interest at 7% per annum and requires monthly payments of
principal and interest of $5,032 with a balloon payment due September 8, 2006;
and (iii) $200,000 cash (the proceeds of which were from a $250,000 loan from
Regency to the buyer which was satisfied in January 2003). Additionally, the
buyer entered into a three-year lease for the land and building in Scranton, PA
owned by Rustic Crafts, with rental payments of $6,500 per month. Payments on
the 5% note are contingent upon the quarterly positive net cash flows of the
buyer, as defined by generally accepted accounting principles. Prior to the sale
of its operating assets, Rustic Crafts had established a $1,000,000 line of
credit with PNC Bank that was guaranteed by Regency and expired on May 18, 2002.
In conjunction with the Rustic Crafts asset sale, Rustic Crafts' indebtedness
under the line of credit together with its mortgage loan from PNC Bank in
respect of the Scranton, PA property and certain other indebtedness to PNC Bank
was restructured to replace such indebtedness with five notes totaling
$2,432,782. Each of the restructured notes of which were initially due in June
2004, and a ten-year amortization schedule and bore interest at the rate of
10.8% per annum. On June 27, 2003, a payment was made to PNC Bank in the amount
of $2,257,952 in full satisfaction of the restructured notes. On January 12,
2004, Rustic Crafts sold the Scranton, PA property for
$531,500.
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%, calls 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 will actually be realized. Such recovery will be
recognized upon receipt. During 2006
,
we
received
$3,264
of
such settlement which is 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.
National
Resource Development Corporation; Iron Mountain Resources, Inc.
Until
December 2001, our 80%-owned subsidiary, NRDC had as its principal asset
approximately 70 million short tons of Aggregate located at the site of the
Groveland Mine in Dickinson County, Michigan. NRDC never consummated sales of
material amounts of Aggregate. In December 2001, the Aggregate was sold to Iron
Mountain, a 75% owned subsidiary of Regency. The purchase price was $18,200,000
and is payable, with an interest rate of 4.00%, in ninety-six equal payments of
principal and interest commencing in December 2003. The intercompany gain on
this transaction has been eliminated in the consolidation process resulting in
the Aggregate being carried at its historical cost. Iron Mountain was
unsuccessful in its efforts to sell the Aggregate and, in December 2003,
defaulted under the note to NDRC. In February 2005, in lieu of foreclosure, Iron
Mountain reconveyed the Aggregate to NRDC and the note was deemed satisfied.
Based upon a subsequent fair market value appraisal, the Aggregate inventory
was
deemed to have no value, and as such, a full valuation allowance of
$832,427 was taken in 2005.
Aggregate
is primarily sold for railroad ballast, road construction, construction along
shorelines and decorative uses. Ownership of the Aggregate is subject to a
Royalty Agreement which requires the payment of certain royalties to M.A. Hanna
Company, an independent third-party, upon sales of Aggregate. The market for
Aggregate stone is highly competitive and, as shipping costs are high, the
majority of any sales are likely to be made in the Great Lakes area. Other
companies that produce rock and aggregate products are located in the same
region as the Groveland Mine and certain of such competitors have greater
financial and personnel resources than us.
Regency
Power Corporation
On
April 30, 2004, we, through our wholly-owned subsidiary Regency Power
Corporation (a Delaware corporation) acquired a 50% membership interest in MESC
Capital, LLC (a Delaware limited liability company) from DTE Mobile, LLC
pursuant to an Assignment and Assumption Agreement dated as of April 30, 2004.
The purchase price for the 50% membership interest was $3,000,000 and was funded
from our working capital. The terms of the Assignment and Assumption Agreement
were negotiated on an arms'-length basis between Regency and DTE Mobile. DTE
Mobile, which is owned by an unregulated subsidiary of a large energy company
that has significant experience in owning, managing and operating electric
generation and on-site energy facilities, owns the other 50% membership interest
in MESC Capital. MESC Capital was formed to acquire all of the membership
interests in Mobile Energy. Mobile Energy owns an on-site energy facility that
supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile,
Alabama.
The
acquisition of Mobile Energy was also consummated on April 30, 2004 pursuant to
a Membership Interest Purchase Agreement, dated as of January 30, 2004, between
MESC Capital and Mobile Energy Services Holdings, Inc. The purchase price under
the Membership Interest Purchase Agreement, after certain pre-closing
adjustments, was $33,600,000, subject to certain post-closing adjustments. The
purchase price and working capital reserves were funded by the issuance of
$28,500,000 of non-recourse debt, a total equity contribution by MESC Capital of
$8,600,290, $4,300,145 of which was funded by Regency Power and $4,300,145 of
which was funded by DTE Mobile, and a credit of $1,000,000 on account of
existing and continuing tax-exempt indebtedness of Mobile
Energy.
The
terms of the Membership Interest Purchase Agreement were negotiated on an
arms'-length basis between MESC Capital and Mobile Energy Services Holdings,
Inc. We did not participate in negotiations with respect to the Membership
Interest Purchase Agreement.
The
$28,500,000 acquisition indebtedness was obtained from Allied Irish Banks,
P.L.C., which may assign or participate the loan in accordance with the terms of
the loan agreement. The loan will be amortized over the fifteen-year term. In
connection with the acquisition of the 50% membership interest in MESC Capital,
Regency Power and DTE Mobile entered into an Operating Agreement, dated April
30, 2004, which sets forth their respective rights and obligations as members of
MESC Capital as well as the duties and authority of DTE Mobile as the managing
member of MESC Capital.
Under
the Operating Agreement, Regency Power will receive 50% of all distributions,
and participate equally in ultimate management authority through equal
representation on the MESC Capital Board of Control. DTE Mobile, as managing
member, is responsible for day-to-day management of MESC Capital. DTE Mobile
will not receive any compensation for serving as managing member, and is subject
to removal by the Board of Control with or without cause. Neither Regency Power
nor DTE Mobile is obligated to contribute additional capital, or loan or
otherwise advance funds, to MESC Capital, and neither member can sell or
transfer its interest in MESC Capital without the consent of the other and
without first complying with a right of first offer in favor of the non-selling
member.
The
energy facility is located on approximately 11 acres of land within the
Kimberly-Clark tissue mill in Mobile, Alabama. The facility supplies up to 61
megawatts of co-generated steam and electricity for use in the mill's
operations, with a power-house fueled by a combination of coal, biomass and
natural gas.
In
connection with MESC Capital's acquisition of Mobile Energy, Kimberly-Clark
entered into a 15-year agreement with Mobile Energy pursuant to which Mobile
Energy will be the exclusive steam supplier to the mill and will provide a
substantial portion of the mill's electricity requirements. Under the agreement,
Kimberly-Clark is obligated to make monthly fixed capacity payments, monthly
fixed and variable operations and maintenance payments, and to reimburse Mobile
Energy for fuel costs. Early termination of the agreement by Kimberly-Clark
obligates Kimberly-Clark to make a termination payment to Mobile Energy in an
amount anticipated to be sufficient to retire the acquisition financing obtained
by MESC Capital and to provide a return on the MESC equity investment. In
addition, in the event of an early termination by Kimberly-Clark and under
certain conditions, DTE Mobile has agreed to make a termination payment to
Regency Power.
Mobile
Energy operated under the protection of Chapter 11 of the United States
Bankruptcy Code from January 1999 until late 2003. During such time, the energy
facility was operated by an interim operator. MESC Capital was selected through
an auction process conducted by Mobile Energy bondholders to be the acquirer of
Mobile Energy. In connection with the acquisition, the interim operator was
terminated and DTE Mobile and its affiliate will provide operations, management
and maintenance services and asset management support for the investment and
energy facility pursuant to agreements with MESC Capital and Mobile
Energy.
FILING
OF GOING PRIVATE PROXY STATEMENT
On
December 14, 2005, we filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending our certificate of incorporation to provide for a 1-for-100 reverse
stock split (the “Reverse Stock Split”) followed immediately by a 50-for-1
forward stock split of the Company’s common stock (the “Forward Stock Split”),
which would result in the reduction of the number of common stockholders of
record of the Company to fewer than 300. This will permit us to discontinue the
filing of annual and periodic reports and other filings with the SEC.
Once
the Schedule 13E-3 Transaction Statement and Schedule 14A Proxy Statement are
approved in a definitive form by the SEC, we will mail copies to our
stockholders. We currently intend to effect the Reverse Stock Split and Forward
Stock Split as soon as possible after such
distribution.
COMPETITION
Other
than as discussed in "ITEM 1. DESCRIPTION OF BUSINESS - NARRATIVE DESCRIPTION OF
BUSINESS - National Resource Development Corporation; Iron Mountain Resources,
Inc.", 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, 2007, we employed three people. We believe that our relations
with our employees are satisfactory.
SPECIAL
INVESTMENT CONSIDERATIONS
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 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;
-
Our subsidiaries currently lack the necessary infrastructure at the site of the
Groveland mine in order to permit them to make more than casual sales of the
Aggregate located at the Groveland mine;
-
We have had significant tax loss and credit carryforwards and no assurance can
be provided that the Internal Revenue Service would not attempt to limit or
disallow altogether our use, retroactively and/or prospectively, of such
carryforwards, due to ownership changes or any other reason. The disallowance of
the utilization of our net operating loss would severely impact our financial
position and results of operations due to the significant amounts of taxable
income that have been, and may in the future be, offset by our net operating
loss carryforwards;
-
If we consummate the Reverse Stock Split and Forward Stock Split and become
s
a privately held company, stockholders will own shares in a private company and
may not have the ability to sell their shares in the public market. Furthermore,
we would not file current, quarterly or annual reports or be subject to the
proxy requirements of the federal securities laws. Stockholders may therefore
find it more difficult to obtain information about us and our financial
performance;
-
Royalty, an affiliate of our management, beneficially owns approximately 52
%
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;
-
We do not expect to pay dividends in the foreseeable future; and
-
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
our
search for business opportunities. Many of these entities have significantly
greater financial and personnel resources than us.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also 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
Company's Internet address is www.regencyaffiliates.com. We make available on
our website, free of charge, our Annual Report on Form
10-KSB
,
quarterly reports on Form
10-QSB
,
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.
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, are entitled to be
indemnified by the Company for damages, if any, and expenses, including legal
fees, they may incur as a result of the lawsuit, subject to certain
circumstances under which such indemnification is not available. In addition,
the Company's insurance carrier contends that none of the claims contained in
the Delaware Action are covered by insurance on the basis of the "insured vs.
insured" exclusion since one of the plaintiffs, Donald D. Graham, was previously
a director of the Company. The Company has submitted a claim to its carrier with
respect to the claims in the Delaware Action against the current director
defendants. No assurance can be given as to the position that the carrier will
take with respect to such claims.
On
April 28,
2008
the parties executed a memorandum of understanding (the "MOU") reflecting an
agreement in principle to settle that class action. If the settlement is
consummated,
we
will
pay $3,000,000 plus interest (as provided in the MOU) to the plaintiff class.
The plaintiff class is defined in the MOU as all record and beneficial owners of
our
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.
The
Company
will
make that payment pursuant to its obligation to indemnify the defendants who are
former directors of
the
Company
.
The MOU provides that
the
Company
will
undertake an appropriate process to determine if indemnification of its former
directors is appropriate under
Delaware
law.
The MOU expressly provides that the defendants admit no wrongdoing but have
agreed to the MOU to eliminate the uncertainty, distraction, burden and expense
of further litigation. The settlement will not occur if
the
Company
determines
that no such indemnification is appropriate or the Court of Chancery refuses to
approve the settlement. There can be no assurance that the settlement will
occur.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS MARKET
INFORMATION
AND SMALL BUSINESS 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 28, 2008 the closing sale price of our common stock was $4.00. As of July
28, 2008, there were approximately 2,256 common stockholders of
record.
YEAR
ENDED
DECEMBER
31, 2006
|
|
|
|
|
|
|
|
|
HIGH
($)
|
|
|
LOW
($)
|
|
First
Quarter
|
|
|
6
.45
|
|
|
|
6
.10
|
|
Second
Quarter
|
|
|
7
.00
|
|
|
|
5
.40
|
|
Third
Quarter
|
|
|
6
.00
|
|
|
|
5
.35
|
|
Fourth
Quarter
|
|
|
6
.20
|
|
|
|
5
.45
|
|
YEAR
ENDED
DECEMBER
31, 2007
|
|
|
|
|
|
|
|
|
HIGH
($)
|
|
|
LOW
($)
|
|
First
Quarter
|
|
|
6.70
|
|
|
|
5.22
|
|
Second
Quarter
|
|
|
5.50
|
|
|
|
5.00
|
|
Third
Quarter
|
|
|
5.75
|
|
|
|
5.10
|
|
Fourth
Quarter
|
|
|
5.65
|
|
|
|
4.85
|
|
DIVIDEND
POLICY
We
have not paid or declared cash dividends on our common stock during the last two
fiscal years. We have no present intention to pay cash dividends on our common
stock.
TRANSFER
AGENT
Our
transfer agent is Transfer On-Line, Inc., which is located at 317 SW Alder
Street, Second Floor, Portland, Oregon 97204. Their telephone number is (503)
227-2950 and their website is www.transferonline.com.
RECENT
SALES OF UNREGISTERED SECURITIES
None.
SMALL
BUSINESS ISSUER REPURCHASE OF SECURITIES
None.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Certain
statements contained in this Annual Report on Form 10-KSB, 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. Such factors
include:
-
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;
-
Our subsidiaries currently lack the necessary infrastructure at the site of the
Groveland mine in order to permit them to make more than casual sales of the
Aggregate located at the Groveland mine;
-
We have had significant tax loss and credit carryforwards and no assurance can
be provided that the Internal Revenue Service would not attempt to limit or
disallow altogether our use, retroactively and/or prospectively, of such
carryforwards, due to ownership changes or any other reason. The disallowance of
the utilization of our net operating loss would severely impact our financial
position and results of operations due to the significant amounts of taxable
income that have been, and may in the future be, offset by our net operating
loss carryforwards;
-
If we consummate the Reverse Stock Split and Forward Stock Split and become a
privately held company, stockholders will own shares in a private company and
may not have the ability to sell their shares in the public market. Furthermore,
we would not file current, quarterly or annual reports or be subject to the
proxy requirements of the federal securities laws. Stockholders may therefore
find it more difficult to obtain information about us and our financial
performance;
-
Royalty, an affiliate of our management, beneficially owns approximately
52%
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;
-
We do not expect to pay dividends in the foreseeable future; and
-
There are many public and private companies that are also searching for
operating businesses and other business opportunities as potential acquisition
or merger candidates. The Company will be in direct competition with these other
companies in its search for business opportunities. Many of these entities have
significantly greater financial and personnel resources than us.
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 7 of this Annual Report
on Form 10-KSB.
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, 2007 was $20,812,322 as compared to
$17,843,456 on December 31, 2006, an increase of 16.6%, primarily as a result of
our net income for the year ended December 31, 2007 of $2,837,030.
RESULTS
OF OPERATIONS
Y
ear
ended December 31, 2007 vs. Year ended December 31,
2006
No
revenue was generated by the Company during these periods.
General
and administrative expenses decreased by $850,296 or 37.3% in 2007 as compared
to 2006 primarily due to a decrease of approximately $800,000 in legal fees
relating to pending and resolved litigation in 2006.
Income
from equity investment in partnerships decreased by $308,263 in 2007, 10.3%
lower than in 2006. Income from Security Land was $1,516,455 in 2007, $99,345
lower than 2006 due to higher operating expenses.
Income
from MESC Capital was $1,175,532 in 2007, $208,656 lower than 2006 as result of
an increase in repairs and maintenance costs
in
2007, including completing equipment
repairs
resulting
fr
om
Hurricane Katrina
damage
s
that
occurred
in
2005
.
Interest
expense was $0 in 2007 and $63,863 in 2006. This was a result of a Florida
Department of Revenue tax audit which disallowed the use of net operating losses
arising prior to the Company being registered in the state, thus creating
taxable income and a related state tax expense. Although penalties were
abated
,
interest expense was assessed and paid in 2006.
Current
i
ncome
tax expense was $105,673 in 2007 and $112,651 in 2006, relating to state income
taxes. We do not expect any Federal tax due as a result of previous period
operating losses. As a result of net operating losses,
we
estimate
that
we
have a $1,245,500 deferred tax asset, which benefit is reflected in
i
ncome
tax
expense (benefit)
in 2007.
N
et
income increased by
$2,295,963
in 2007 over 2006
or
424.3%. The change was primarily due to a decrease in 2007 general and
administrative expenses
of $850,296
,
a $1,245,
5
00
deferred tax benefit from recognizing the net operating loss
carryforward
s
,
a 2006 Statesman note impairment of $644,000 not repeated in 2007
, a 2007
decrease in income from MESC Capital and Security Land of $308,263, no interest
expense in 2007 as compared to $63,863 of interest expense in 2006, no interest
income recognized on the Statesman note in 2007 as compared to $144,876 accrued
in 2006, as well as a $54,557 decline in interest and dividend income in 2007
over 2006 due to lower rates of market returns on our marketable
securities.
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 estimat
es
and assumptions. We
believe
that the following are some of the more critical accounting policies currently
affecting
our
financial
position and results of operations. See the C
onsolidated
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 invol
ve
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
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, primarily investments i
n
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 ch
ange
in the future, we
may
be required to record additional impairment charges for these assets. Based on
the assessments performed as of December 31,
2007
and 2006, 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 would not have a material adverse effect on
our
combined
financial position, liquidity, or result
s
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 3
1,
2007 and 2006, we
did
not
record any reserves for contingencies.
Share-Based
Compensation.
We
record
the compensation expense related to stock options according to SFAS 123R, as
adopted
on
January 1, 2006. We
record
the comp
ensation
expense related to
options
using the fair value as of the date of grant as calculated using the
Black-Sch
oles
method. We
record
the comp
ensation
expense related to
restricted
stock units using the fair value as of the date of
grant.
Provisions
for Income Taxes
.
We
are required to estimate the provision for income taxes, including the current
tax expense together with assessing temporary differences resulting from
differing treatments of assets and liabilities for tax and financial accounting
purposes. These differences together with net operating loss carryforwards and
tax credits are recorded as deferred tax assets or liabilities on the balance
sheet. An assessment must then be made of the likelihood that the deferred tax
assets will be recovered from future taxable income. In the event that we
determine that it is more likely than not that the deferred asset will not be
utilized, a valuation allowance will be established.
LIQUIDITY
AND CAPITAL RESOURCES
On
December 31, 2007, we had current assets of $10,380,339 and Shareholders' Equity
of $20,812,322 and had $10,035,800 in cash and marketable securities, total
assets of $21,203,973 and total liabilities of $391,651.
The
most significant sources of cash are from distributions of earnings received
from
our
equity
investment in MESC Capital LLC ("MESC Capital") and interest and dividends
earned from existing cash and cash equivalents. To the extent cash requirements
for 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,
2005, and 2006 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 could not be resolved and
as such
we
reported
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
t
hat
the outcome of any IRS examination will not affect
our
financial
statements in this year as net operating losses are available to offset any
additional income not reported.
FILING
OF GOING PRIVATE PROXY STATEMENT
On
December 14, 2005, we filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending our certificate of incorporation to provide for a 1-for-100 reverse
stock split (the “Reverse Stock Split”) followed immediately by a 50-for-1
forward stock split of the Company’s common stock (the “Forward Stock Split”),
which would result in the reduction of the number of common stockholders of
record of the Company to fewer than 300. This will permit us to discontinue the
filing of annual and periodic reports and other filings with the SEC. Once the
Schedule 13E-3 Transaction Statement and Schedule 14A Proxy Statement are
approved in a definitive form by the SEC, we will mail copies to stockholders.
We currently intend to effect the Reverse Stock Split and Forward Stock Split as
soon as possible after such distribution.
OFF
BALANCE SHEET ARRANGEMENTS
The
Company has not entered into any off balance sheet
arrangements.
ITEM
7. FINANCIAL STATEMENTS
The
Financial Statements required by Item 7 of Part II of Form 10-KSB are presented
on page F-1 and are incorporated herein by reference.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL
DISCLOSURE
None
ITEM
8A(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-KSB and Form 10-QSB 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, 2007 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, 2007, our internal
control over financial reporting is effective based on those
criteria.
This
annual report on Form 10-KSB 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, 2007 that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
ITEM
8B. OTHER INFORMATION
None
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROLS
PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
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, 52
|
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; Parking Company of America Airports
LLC, an owner and operator of airport parking garages, of which Mr. Levy
is a director. Mr. Levy is also the chairman of the board and chief
executive officer of Rand Logistics, Inc. a NASDAQ listed company which
provides bulk freight shipping services throughout the Great Lakes region
and chairman of the board and chief executive officer of Hyde Park
Acquisition Corp., a specified purpose acquisition corporation. In
addition, from March 1997 to January 2001, Mr. Levy served as Chairman of
Detroit and Canada Tunnel Corporation, a company which operates the toll
tunnel between Detroit, Michigan and Windsor, Ontario, and from August
1993 until May 1999, Mr. Levy served as Chief Executive Officer of High
Voltage Engineering Corporation, a diversified industrial and
manufacturing company. Mr. Levy received a Bachelor of Commerce degree and
a Bachelor of Accountancy degree from the University of Witwatersrand in
Johannesburg, South Africa. He is qualified as a Chartered Accountant
(South Africa). Mr. Levy received a Master of Business Administration
degree from Harvard University and graduated as a Baker
Scholar.
|
Neil
N. Hasson, 42
|
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.
|
|
|
Errol
Glasser, 54
|
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.
|
|
|
Carol
Zelinski, 53
|
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 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, 2007,
was subject to the reporting requirements of Section 16(a) with respect to
Regency failed to meet such requirements on a timely basis except that Laurence
S. Levy filed a late Statement of Changes of Beneficial Ownership on Form 4 with
respect to options granted on August 14, 2007.
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-KSB.
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 4200(a)(15) 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
10. EXECUTIVE COMPENSATION
SUMMARY
COMPENSATION TABLE
The
following table pr
ovides the compensation of
our named executive officers, direct or indirect, for services rendered in all
capacities for the fiscal years ended December 31, 2007 and
2006:
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
|
|
2007
|
|
|
200,000
|
(1)
|
|
|
0
|
|
|
0
|
|
|
197,750
|
(2)
|
|
|
0
|
|
|
0
|
|
|
44,000
|
(4)
|
|
|
441,750
|
|
President
and Chief Executive Officer
|
|
2006
|
|
|
183,000
|
(1)
|
|
|
0
|
|
|
0
|
|
|
250,000
|
(3)
|
|
|
0
|
|
|
0
|
|
|
44,000
|
(4)
|
|
|
477,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil
N. Hasson
|
|
2007
|
|
|
50,000
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
0
|
|
|
0
|
|
|
12,500
|
(4)
|
|
|
62,500
|
|
Chief
Financial Officer
|
|
2006
|
|
|
50,000
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
0
|
|
|
0
|
|
|
12,500
|
(4)
|
|
|
62,500
|
|
|
(1)
|
Effective
April 1, 2006, Mr. Levy's annual base annual salary is
$200,000.
|
|
(2)
|
On August 14, 2007
Mr. Levy was granted 50,000 stock options pursuant to our 2003 Stock
Incentive Plan, as amended. We determined the above fair market values of
the options issued under the Black-Scholes
Option
Pricing Model and
with
the provisions of SFAS
123(R).
|
|
(3)
|
On
April, 2006 Mr. Levy was granted 50,000 stock options pursuant to our 2003
Stock Incentive Plan, as amended. We determined the above fair market
values of the options issued using the Black-Scholes Option Pricing Model
and with the provisions of SFAS
123(R).
|
|
(4)
|
Other compensation
consists of contributions made to a SEP-IRA retirement plan.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table sets forth certain information with respect to the value of all
equity awards that were outstanding at December 31, 2007.
Option
Awards
|
Stock
Awards
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
|
|
Option
Exercise Price
($)
|
|
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
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.35
|
|
4/3/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.53
|
|
10/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2.01
|
|
6/10/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6.27
|
|
4/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5.10
|
|
8/14/2017
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Neil
N. Hasson
(1)
|
|
|
25,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.35
|
|
4/3/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.53
|
|
10/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2.01
|
|
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, 2007. Compensation to our directors
who are members of management is set forth in the Summary Compensation Table
above.
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Nonqualified
Deferred Compensation Earnings
($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
Errol
Glasser
|
|
|
30,000
|
(1)
|
|
$
|
7,500
|
(
2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
37,500
|
|
(1) Non-management
directors receive for services an annual amount of $30,000, payable in stock or
cash at the sole discretion of each non-management director and 500 shares of
our common stock for each committee served.
(2) Mr.
Glasser was entitled to receive 500 shares of our common stock for serving on
each of our Audit Committee, Compensation Committee and Nominating Committee
for
the year ended December 31, 2007. In addition, we owed Mr. Glasser
1,125 shares of common stock for serving on these committees during
2006.
Mr. Glasser received such shares in June
2008.
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
$
200,000
.
LONG
TERM INCENTIVE PLAN
There have been no awards
under any long-term Incentive Plan during the last completed fiscal
year.
ITEM
11. 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)
|
|
|
3
80
,000
|
|
|
|
3.08
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
80
,000
|
|
|
|
3.08
|
|
|
|
10,000
|
|
__________________________
|
(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,
for
each
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 outstanding shares
of our common stock as of July 28, 2008 by those individuals or groups who have
advised us that they own more than five percent (5%) of such outstanding
shares.
NAME
AND ADDRESS OF
BENEFICIAL
OWNER
|
|
AMOUNT
BENEFICIALLY OWNED
|
|
|
PERCENT
OF CLASS
|
|
|
|
|
|
|
|
|
Royalty
Holdings, LLC and Royalty Management, Inc.
462
Fifth Avenue, 25
th
Fl.
New
York, New York 10017
|
|
|
1,823,738
|
(1)
|
|
|
51.6
|
%
|
|
|
|
|
|
|
|
|
|
Laurence
S. Levy (1)
c/o
Hyde Park Holdings, LLC
461
Fifth Avenue, 25
th
Fl.
New
York, New York 10017
|
|
|
2,098,738
|
(1)(2)
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
|
|
Michael
J. Meagher
Stephen
C. Smith
c/o
The Seaport Group LLC
360
Madison Avenue
New
York, New York 10017
|
|
|
257,583
|
(3)
|
|
|
7.3
|
%
|
(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) 225,000 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 28, 2008 regarding the
ownership of common stock by (i) each director and nominee for 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, each such stockholder 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)
|
|
|
2,098,738
|
(2)
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
|
|
Neil
N. Hasson (1)
|
|
|
175,000
|
(3)
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2,295,488
|
|
|
|
58.9
|
%
|
* Less
than 1%
(1)
|
The
address of such beneficial owner is c/o Hyde Park Holdings,
LLC,
461
Fifth Avenue, 25
th
Fl.,
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)
225,000
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
12. 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 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
10. 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 by reference
herein.
The
following documents are filed as part of this report:
|
|
|
|
|
Financial
Statements:
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-1
|
|
Consolidated
Balance Sheets
|
|
|
F-2
- F-3
|
|
Consolidated
Statements of Operations
|
|
|
F-4
|
|
Consolidated
Statements of Shareholders' Equity
|
|
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
|
|
F-6
- F-7
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-8
- F-23
|
|
Index
of
Exhibits
|
Exhibit
No.
|
Description
of Document
|
|
|
|
|
3.1(i)(a)
|
Restated
Certificate of Incorporation of the Company (filed as exhibit 3.1(i)(a) to
the Company's Form 10-Q dated November 19, 2002, and incorporated herein
by reference).
|
|
3.1(i)(b)
|
Corrected
Certificate of Amendment reflecting amendment to Restated Certificate of
Incorporation of the Company (filed as exhibit 3.1(i)(b) to the Company's
Form 10-Q, dated November 19, 2002, and incorporated herein by
reference).
|
|
3.1(i)(c)
|
Certificate
of Amendment to Restated Certificate of Amendment (filed as Exhibit A to
the Company's Information Statement on Schedule 14C filed on October 27,
2003).
|
|
3.1(i)(d)
|
Certificate
of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
herein by reference).
|
|
3.1(i)(e)
|
Amended
and Restated Certificate of Designation, Series C Preferred Stock, $100
Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
Current Report on Form 8-K filed on October 18, 2002, and incorporated
herein by reference).
|
|
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).
|
|
10.15
|
Demand
Note from the Company in favor of Royalty Holdings LLC (filed as Exhibit
10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002
filed on April 15, 2003, and incorporated herein by
reference).
|
|
10.16
|
Redemption
Agreement, dated October 16, 2002, between the Company and Statesman
(filed as exhibit 99.1 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
|
10.17
|
Call
Option Agreement, dated October 16, 2002, between the Company and
Statesman (filed as exhibit 99.2 to Company's Current Report on Form 8-K
filed October 18, 2002, and incorporated herein by
reference).
|
|
10.18
|
Contingent
Payment Agreement, dated October 16, 2002, between the Company and William
R. Ponsoldt, Sr. (filed as exhibit 99.3 to Company's Current Report on
Form 8-K filed October 18, 2002, and incorporated herein by reference).
*
|
|
10.19
|
Amended
and Restated Certificate of Designations of the Series C Preferred Stock
(filed as exhibit 99.4 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
|
10.20
|
Note
Purchase Agreement, dated October 16, 2002, between the Company Royalty
Holdings LLC (filed as exhibit 99.5 to Company's Current Report on Form
8-K filed October 18, 2002, and incorporated herein by
reference).
|
|
10.21
|
5%
Convertible Promissory Note of the Company (filed as exhibit 99.6 to
Company's Current Report on Form 8-K filed October 18, 2002, and
incorporated herein by reference).
|
|
10.22
|
9%
Promissory Note of the Company (filed as exhibit 99.7 to Company's Current
Report on Form 8-K filed October 18, 2002, and incorporated herein by
reference).
|
|
10.23
|
Amended
and Restated Promissory Note of the Company (filed as exhibit 99.8 to
Company's Current Report on Form 8-K filed October 18, 2002, and
incorporated herein by reference).
|
|
10.24
|
Amendment
No. 1 to Pledge Agreement (filed as exhibit 99.9 to Company's Current
Report on Form 8-K filed October 18, 2002, and incorporated herein by
reference).
|
|
10.25
|
Letter
Agreement, dated October 16, 2002, between the Company and Statesman
(filed as exhibit 99.10 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
|
10.26
|
Employment
Agreement, dated October 16, 2002, between Laurence S. Levy and the
Company (filed as exhibit 99.11 to Company's Current Report on Form 8-K
filed October 18, 2002, and incorporated herein by reference).
*
|
|
10.27
|
Employment
Agreement, dated October 16, 2002, between Neil N. Hasson and the Company
(filed as exhibit 99.12 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by reference).
*
|
|
10.28
|
Employment
Agreement dated June 3, 1997, between Regency Affiliates, Inc. and William
R. Ponsoldt, Sr., and Agreement dated June 3, 1997, between Regency
Affiliates, Inc. and Statesman Group, Inc. (filed as exhibits 10(a) and
(b) to the Company's report on Form 8-K dated June 13, 1997, and
incorporated herein by reference).
*
|
|
10.29
|
Asset
Purchase and Sale Agreement dated February 27, 1997, between Rustic Crafts
Co., Inc. and certain individuals, as Sellers, and Regency Affiliates,
Inc., as Purchaser, and Assignment and Assumption of Purchase Agreement
dated March 17, 1997, between Regency Affiliates, Inc., and Rustic Crafts
International, Inc. (filed as exhibit 10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 at page E-1, and
incorporated herein by reference).
|
|
10.30
|
Amended
and Restated Agreement between Regency Affiliates, Inc. and the Statesman
Group, Inc., dated March 24, 1998 (filed as exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, at page
E-36, and incorporated herein by
reference).
|
|
10.31
|
Loan
Agreement and Pledge and Security Agreement with KBC Bank N.V., dated June
24, 1998 (filed as exhibits 10.1 and 10.2 to the Company's report on Form
10-Q for the quarter ended June 30, 1998, and incorporated herein by
reference).
|
|
10.32
|
Security
Land And Development Company Limited Partnership Agreement, as amended by
Amendment Nos. 1 through 6 (filed as Exhibit 1(a) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
|
|
10.33
|
Seventh
Amendment to Partnership Agreement of Security Land and Development
Company Limited Partnership dated June 24, 1998 (filed as exhibit 10.3 to
the Company's report on Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference).
|
|
10.34
|
Eighth
Amendment to Partnership Agreement of Security Land and Development
Company Limited Partnership, dated April 8, 2003 (filed as Exhibit 10.27
to the Company report on Form 10-KSB for the year ended December 31, 2002,
filed on April 15, 2003, and incorporated herein by
reference).
|
|
10.35
|
Purchase
Agreement for a 5% Limited Partnership Interest in 1500 Woodlawn Limited
Partnership, the General Partner of Security (filed as exhibit 10.2 to the
Company's report on Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference).
|
|
10.36
|
Glas-Aire
Redemption Agreement (incorporated herein by reference to the Company's
Current Report on Form 8-K filed on October 16,
2001).
|
|
10.37
|
Statesman
exercise agreement (incorporated herein by reference to the Company's
Current Report on Form 8-K filed on October 25,
2001).
|
|
10.38
|
Ninth
Amendment to Security Land and Development Company Limited Partnership
Amended and Restated Limited Partnership Agreement (filed as Exhibit 10.1
to the Company's Form 8-K filed on June 25, 2003, and incorporated herein
by reference).
|
|
10.39
|
Seventh
Amendment to First Amended and Restated Limited Partnership Agreement of
1500 Woodlawn Limited Partnership (filed as Exhibit 10.2 to the Company's
Form 8-K filed on June 25, 2003, and incorporated herein by
reference).
|
|
10.40
|
Assignment
and Assumption Agreement, dated as of April 30, 2004, between DTE Mobile,
LLC and Regency Power Corporation (incorporated by reference from the
Company's Current Report on 8-K filed on May 11,
2004).
|
|
10.41
|
Membership
Interest Purchase Agreement, dated as of January 30, 2004, between MESC
Capital, LLC and Mobile Energy Services Holdings, Inc. (incorporated by
reference from the Company's Current Report on 8-K filed on May 11,
2004).
|
|
10.42
|
Stock
Option Agreement, dated as of June 14, 2005 between the Company and
Laurence S. Levy (incorporated by reference from an Amendment to Schedule
13D filed on June 24, 2005). *
|
|
10.43
|
Stock
Option Agreement, dated as of June 14, 2005 between the Company and Neil
Hasson (incorporated by reference from an Amendment to Schedule 13D filed
on June 24, 2005). *
|
|
10.44
|
Stock
Option Agreement, dated as of April 1, 2006 between the Company and
Laurence S. Levy (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB filed on May 19, 2006).
*
|
|
10.45
|
Stock
Option Agreement, dated as of August 14, 2007 between the Company and
Laurence S. Levy (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB filed on October 5, 2007).
*
|
|
21
|
Schedule
of Subsidiaries
|
|
31.1
|
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
99.1
|
Report
of the Special Committee of the Company's Board of Directors, dated May
10, 2003, and adopting resolutions (filed as Exhibit 99.2 to Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2003, and
incorporated by reference herein).
|
_________________
*
|
Indicates
that exhibit is a management contract or compensatory plan or
arrangement.
|
ITEM
14. PRINCIPAL ACCOUNTANT 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 Form 10-QSB and
services that were provided in connection with statutory and regulatory filings
or engagements were
$
57,808
for the
fiscal year ended December 31, 2007 and $63,838 for the fiscal year ended
December 31, 2006.
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, 2007 and $0 for the fiscal year ended December
31, 2006.
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 $
41,763
for the
fiscal year ended December 31, 2007 and $45,023 for the fiscal year ended
December 31, 2006.
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, 2007 and $0 for the fiscal year ended December
31, 2006.
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 2007 along
with the proposed fees for such services were reviewed and approved by the
Company's Audit Committee.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
REGENCY
AFFILIATES, INC.
|
|
|
|
|
|
|
By:
|
/s/
Laurence
S. Levy
|
|
Date
|
|
Laurence
S. Levy, President and
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Neil
N. Hasson
|
|
Date
|
|
Neil
N. Hasson, Chief Financial
Officer
|
|
|
|
|
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
|
By:
|
/s/
Laurence
S. Levy
|
|
Date
|
|
Laurence
S. Levy, President,
Chief
Executive Officer and Director
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Neil
N. Hasson
|
|
Date
|
|
Neil
N. Hasson, Chief Financial
Officer
and Director
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Errol
Glasser
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
Exhibit
No.
|
Description
of Document
|
|
|
3.1(i)(a)
|
Restated
Certificate of Incorporation of the Company (filed as exhibit 3.1(i)(a) to
the Company's Form 10-Q dated November 19, 2002, and incorporated herein
by reference).
|
3.1(i)(b)
|
Corrected
Certificate of Amendment reflecting amendment to Restated Certificate of
Incorporation of the Company (filed as exhibit 3.1(i)(b) to the Company's
Form 10-Q, dated November 19, 2002, and incorporated herein by
reference).
|
3.1(i)(c)
|
Certificate
of Amendment to Restated Certificate of Amendment (filed as Exhibit A to
the Company's Information Statement on Schedule 14C filed on October 27,
2003).
|
3.1(i)(d)
|
Certificate
of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
herein by reference).
|
3.1(i)(e)
|
Amended
and Restated Certificate of Designation, Series C Preferred Stock, $100
Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
Current Report on Form 8-K filed on October 18, 2002, and incorporated
herein by reference).
|
Exhibit
No.
|
Description
of Document
|
|
|
3.1(i)(f)
|
Certificate
of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference).
|
3.1(i)(g)
|
Certificate
of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
value (filed as Exhibit 4.1 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 at page E-1, and incorporated herein by
reference).
|
3.1(ii)(a)
|
By-laws
of the Company (filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No. 2-86906, and incorporated herein
by reference).
|
3.1(ii)(b)
|
Amendment
No. 1 to By-Laws of the Company (filed as exhibit 3.1(ii)(b) to the
Company's Form 10-Q dated November 19, 2002, and incorporated herein by
reference).
|
10.1
|
2003
Stock Incentive Plan of the Company (filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-KSB for the year ended 2002 filed on
April 15, 2003, and incorporated herein by reference)
*
|
10.2
|
Amendment
No. 1 to 2003 Stock Incentive Plan (filed as Exhibit 8 to Amendment No. 3
to Schedule 13D filed by Royalty Holdings LLC, Royalty Management, Inc.,
Laurence Levy and Neil Hasson on October 3, 2003, and incorporated herein
by reference.) *
|
10.3
|
Amendment
No. 2 to 2003 Stock Incentive Plan (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB on August 23, 2004, and incorporated
herein by reference.) *
|
10.4
|
Stock
Option Agreement, dated April 1, 2003, between the Company and Stanley
Fleishman (filed as Exhibit 10.2 to the Company's Annual Report on Form
10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated
herein by reference). *
|
10.5
|
Stock
Option Agreement, dated April 1, 2003, between the Company and Errol
Glasser (filed as Exhibit 10.3 to the Company's Annual Report on Form
10-KSB for the year ended 2002 filed on April 15, 2003, and incorporated
herein by reference). *
|
10.6
|
Stock
Option Agreement, dated April 1, 2003, between the Company and Laurence
Levy (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-KSB
for the year ended 2002 filed on April 15, 2003, and incorporated herein
by reference). *
|
10.7
|
Stock
Option Agreement, dated April 1, 2003, between the Company and Neil Hasson
(filed as Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for
the year ended 2002 filed on April 15, 2003, and incorporated herein by
reference). *
|
Exhibit
No.
|
Description
of Document
|
|
|
10.8
|
Stock
Option Agreement, dated October 1, 2003 between the Company and Laurence
Levy (filed as Exhibit 11 to Amendment No. 3 to Schedule 13D filed by
Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil
Hasson on October 3, 2003, and incorporated herein by reference).
*
|
10.9
|
Stock
Option Agreement, dated October 1, 2003 between the Company and Neil
Hasson (filed as Exhibit 12 to Amendment No. 3 to Schedule 13D filed by
Royalty Holdings LLC, Royalty Management, Inc., Laurence Levy and Neil
Hasson on October 3, 2003, and incorporated herein by reference).
*
|
10.10
|
Stock
Option Agreement, dated October 1, 2003 between the Company and Errol
Glasser (filed as Exhibit 10.9 to the Company's Annual Report on Form
10-KSB filed on April 14, 2004, and incorporated herein by reference).
*
|
10.11
|
Stock
Option Agreement, dated October 1, 2003 between the Company and Stanley
Fleishman (filed as Exhibit 10.10 to the Company's Annual Report on Form
10-KSB filed on April 14, 2004, and incorporated herein by reference).
*
|
10.12
|
Stock
Option Agreement, dated as of August 13, 2004 between the Company and
Laurence Levy (filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-QSB filed on August 23, 2004, and incorporated herein by
reference). *
|
10.13
|
Stock
Option Agreement, dated as of August 13, 2004 between the Company and Neil
Hasson (filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB filed on August 23, 2004, and incorporated herein by reference).
*
|
10.14
|
License
Agreement, dated March 17, 2003, between the Company and Royalty
Management, Inc. (filed as Exhibit 10.1 to the Company's Annual Report on
Form 10-KSB for the year ended 2002 filed on April 15, 2003, and
incorporated herein by reference).
|
10.15
|
Demand
Note from the Company in favor of Royalty Holdings LLC (filed as Exhibit
10.1 to the Company's Annual Report on Form 10-KSB for the year ended 2002
filed on April 15, 2003, and incorporated herein by
reference).
|
10.16
|
Redemption
Agreement, dated October 16, 2002, between the Company and Statesman
(filed as exhibit 99.1 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
10.17
|
Call
Option Agreement, dated October 16, 2002, between the Company and
Statesman (filed as exhibit 99.2 to Company's Current Report on Form 8-K
filed October 18, 2002, and incorporated herein by
reference).
|
10.18
|
Contingent
Payment Agreement, dated October 16, 2002, between the Company and William
R. Ponsoldt, Sr. (filed as exhibit 99.3 to Company's Current Report on
Form 8-K filed October 18, 2002, and incorporated herein by
reference).*
|
Exhibit
No.
|
Description
of Document
|
|
|
10.19
|
Amended
and Restated Certificate of Designations of the Series C Preferred Stock
(filed as exhibit 99.4 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
10.20
|
Note
Purchase Agreement, dated October 16, 2002, between the Company Royalty
Holdings LLC (filed as exhibit 99.5 to Company's Current Report on Form
8-K filed October 18, 2002, and incorporated herein by
reference).
|
10.21
|
5%
Convertible Promissory Note of the Company (filed as exhibit 99.6 to
Company's Current Report on Form 8-K filed October 18, 2002, and
incorporated herein by reference).
|
10.22
|
9%
Promissory Note of the Company (filed as exhibit 99.7 to Company's Current
Report on Form 8-K filed October 18, 2002, and incorporated herein by
reference).
|
10.23
|
Amended
and Restated Promissory Note of the Company (filed as exhibit 99.8 to
Company's Current Report on Form 8-K filed October 18, 2002, and
incorporated herein by reference).
|
10.24
|
Amendment
No. 1 to Pledge Agreement (filed as exhibit 99.9 to Company's Current
Report on Form 8-K filed October 18, 2002, and incorporated herein by
reference).
|
10.25
|
Letter
Agreement, dated October 16, 2002, between the Company and Statesman
(filed as exhibit 99.10 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by
reference).
|
10.26
|
Employment
Agreement, dated October 16, 2002, between Laurence S. Levy and the
Company (filed as exhibit 99.11 to Company's Current Report on Form 8-K
filed October 18, 2002, and incorporated herein by reference).
*
|
10.27
|
Employment
Agreement, dated October 16, 2002, between Neil N. Hasson and the Company
(filed as exhibit 99.12 to Company's Current Report on Form 8-K filed
October 18, 2002, and incorporated herein by reference).
*
|
10.28
|
Employment
Agreement dated June 3, 1997, between Regency Affiliates, Inc. and William
R. Ponsoldt, Sr., and Agreement dated June 3, 1997, between Regency
Affiliates, Inc. and Statesman Group, Inc. (filed as exhibits 10(a) and
(b) to the Company's report on Form 8-K dated June 13, 1997, and
incorporated herein by reference).
*
|
Exhibit
No.
|
Description
of Document
|
|
|
10.29
|
Asset
Purchase and Sale Agreement dated February 27, 1997, between Rustic Crafts
Co., Inc. and certain individuals, as Sellers, and Regency Affiliates,
Inc., as Purchaser, and Assignment and Assumption of Purchase Agreement
dated March 17, 1997, between Regency Affiliates, Inc., and Rustic Crafts
International, Inc. (filed as exhibit 10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 at page E-1, and
incorporated herein by reference).
|
10.30
|
Amended
and Restated Agreement between Regency Affiliates, Inc. and the Statesman
Group, Inc., dated March 24, 1998 (filed as exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, at page
E-36, and incorporated herein by
reference).
|
10.31
|
Loan
Agreement and Pledge and Security Agreement with KBC Bank N.V., dated June
24, 1998 (filed as exhibits 10.1 and 10.2 to the Company's report on Form
10-Q for the quarter ended June 30, 1998, and incorporated herein by
reference).
|
10.32
|
Security
Land And Development Company Limited Partnership Agreement, as amended by
Amendment Nos. 1 through 6 (filed as Exhibit 1(a) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
|
10.33
|
Seventh
Amendment to Partnership Agreement of Security Land and Development
Company Limited Partnership dated June 24, 1998 (filed as exhibit 10.3 to
the Company's report on Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference).
|
10.34
|
Eighth
Amendment to Partnership Agreement of Security Land and Development
Company Limited Partnership, dated April 8, 2003 (filed as Exhibit 10.27
to the Company report on Form 10-KSB for the year ended December 31, 2002,
filed on April 15, 2003, and incorporated herein by
reference).
|
10.35
|
Purchase
Agreement for a 5% Limited Partnership Interest in 1500 Woodlawn Limited
Partnership, the General Partner of Security (filed as exhibit 10.2 to the
Company's report on Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference).
|
10.36
|
Glas-Aire
Redemption Agreement (incorporated herein by reference to the Company's
Current Report on Form 8-K filed on October 16,
2001).
|
10.37
|
Statesman
exercise agreement (incorporated herein by reference to the Company's
Current Report on Form 8-K filed on October 25,
2001).
|
Exhibit
No.
|
Description
of Document
|
|
|
10.38
|
Ninth
Amendment to Security Land and Development Company Limited Partnership
Amended and Restated Limited Partnership Agreement (filed as Exhibit 10.1
to the Company's Form 8-K filed on June 25, 2003, and incorporated herein
by reference).
|
10.39
|
Seventh
Amendment to First Amended and Restated Limited Partnership Agreement of
1500 Woodlawn Limited Partnership (filed as Exhibit 10.2 to the Company's
Form 8-K filed on June 25, 2003, and incorporated herein by
reference).
|
10.40
|
Assignment
and Assumption Agreement, dated as of April 30, 2004, between DTE Mobile,
LLC and Regency Power Corporation (incorporated by reference from the
Company's Current Report on 8-K filed on May 11,
2004).
|
10.41
|
Membership
Interest Purchase Agreement, dated as of January 30, 2004, between MESC
Capital, LLC and Mobile Energy Services Holdings, Inc. (incorporated by
reference from the Company's Current Report on 8-K filed on May 11,
2004).
|
10.42
|
Stock
Option Agreement, dated as of June 14, 2005 between the Company and
Laurence S. Levy (incorporated by reference from an Amendment to Schedule
13D filed on June 24, 2005). *
|
10.43
|
Stock
Option Agreement, dated as of June 14, 2005 between the Company and Neil
Hasson (incorporated by reference from an Amendment to Schedule 13D filed
on June 24, 2005). *
|
10.44
|
Stock
Option Agreement, dated as of April 1, 2006 between the Company and
Laurence S. Levy (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB filed on May 19, 2006).
*
|
10.45
|
Stock
Option Agreement, dated as of August 14, 2007 between the Company and
Laurence S. Levy (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB filed on October 5, 2007).
*
|
21
|
Schedule
of Subsidiaries
|
31.1
|
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
99.1
|
Report
of the Special Committee of the Company's Board of Directors, dated May
10, 2003, and adopting resolutions (filed as Exhibit 99.2 to Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2003, and
incorporated by reference herein).
|
__________________
*
|
Indicates
that exhibit is a management contract or compensatory plan or
arrangement.
|
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Financial Statements
December
31, 2007 and 2006
Regency
Affiliates, Inc. and Subsidiaries
Index
to the Financial Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Financial
Statements
|
|
|
|
Consolidated
Balance Sheets
|
F-2 –
F-3
|
|
|
Consolidated
Statements of Operations
|
F-4
|
|
|
Consolidated
Statements of Ch
anges
in Shareholders' Equity
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
– F-7
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
– F-23
|
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders
of
Regency Affiliates, Inc. and Subsidiaries
We have
audited the consolidated balance sheets of Regency Affiliates, Inc. and
Subsidiaries as of December 31, 2007 and 2006 and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the years ended December 31, 2007 and 2006. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Regency
Affiliates, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the
results of its consolidated operations, changes in shareholder's equity and cash
flows for the years ended December 31, 2007 and 2006, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Rosenberg Rich Baker Berman & Company
Bridgewater,
New Jersey
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
253,566
|
|
|
$
|
613,253
|
|
Marketable
securities
|
|
|
9,782,234
|
|
|
|
9,485,300
|
|
Accrued interest
receivable, net of allowance of $644,109 in both
years
|
|
|
-
|
|
|
|
-
|
|
Other current
assets
|
|
|
344,539
|
|
|
|
141,151
|
|
|
|
|
|
|
|
|
|
|
Total Current
Assets
|
|
|
10,380,339
|
|
|
|
10,239,704
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
13,117
|
|
|
|
4,004
|
|
|
|
|
|
|
|
|
|
|
Investment in
partnerships / LLC
|
|
|
9,563,717
|
|
|
|
8,072,374
|
|
|
|
|
|
|
|
|
|
|
Deferred
t
ax
asset
|
|
|
1,245,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,300
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
21,203,973
|
|
|
$
|
18,317,382
|
|
See
notes to the consolidated financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued expenses
|
|
$
|
391,651
|
|
|
$
|
473,926
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
391,651
|
|
|
|
473,926
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serial preferred
stock, Series C and D, not subject to mandatory redemption, 234,544 shares
in 2007 and 605,291 shares in 2006 outstanding; (Maximum
liquidation
preference $21,141,940 in 2007 and $24,849,410 in
2006)
|
|
|
486,076
|
|
|
|
1,052,988
|
|
|
|
|
|
|
|
|
|
|
Common stock, par
value $0.01; 8,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
3,531,812 in 2007
and 3,103,078 in 2006 issued;
3,465,544
in 2007 and 3,036,810 in 2006 outstanding
|
|
|
35,319
|
|
|
|
31,031
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
|
7,112,199
|
|
|
|
6,417,739
|
|
Readjustment
resulting from quasi-reorganization at December
1987
|
|
|
(1,670,596
|
)
|
|
|
(1,670,596
|
)
|
Retained
earnings
|
|
|
15,258,17
4
|
|
|
|
12,421,144
|
|
Note receivable-sale
of stock, net of allowance of $2,440,000
|
|
|
-
|
|
|
|
-
|
|
Treasury stock,
66,268 shares at cost
|
|
|
(408,850
|
)
|
|
|
(408,850
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders'
Equity
|
|
|
20,812,322
|
|
|
|
17,843,456
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,203,973
|
|
|
$
|
18,317,382
|
|
See
notes to the consolidated financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Consolidated Statements of
Operations
|
|
Year
s
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
General and
administrative expenses
|
|
|
(1,426,370
|
)
|
|
|
(2,276,666
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,426,370
|
)
|
|
|
(2,276,666
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Income
from equity investment in partnerships
|
|
|
2,695,978
|
|
|
|
3,004,241
|
|
Interest
expense
|
|
|
-
|
|
|
|
(63,863
|
)
|
Impairment
of loans
|
|
|
-
|
|
|
|
(644,109
|
)
|
Interest
and dividend income
|
|
|
431,552
|
|
|
|
631,590
|
|
Unrealized
investment gains (losses)
|
|
|
(3,957
|
)
|
|
|
2,525
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
1,697,203
|
|
|
|
653,718
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(1,139,827
|
)
|
|
|
112,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,837,030
|
|
|
$
|
541,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income per
common share
|
|
$
|
0.82
|
|
|
$
|
0.17
|
|
Weighted
average number of shares
|
|
|
3,475,932
|
|
|
|
3,110,209
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net income per
common share
|
|
$
|
0.76
|
|
|
$
|
0.14
|
|
Weighted
average number of shares
|
|
|
3,710,303
|
|
|
|
3,822,732
|
|
See
notes to the consolidated financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Statements of Changes in Shareholders' Equity
Years
Ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Resulting
|
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid
in
|
|
|
from
Quasi-
|
|
|
Retained
|
|
|
Receivable
|
|
|
Treasury
Stock
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reorganization
|
|
|
Earnings
|
|
|
Sale
of Stock
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– January 1, 2006
|
|
|
605,291
|
|
|
$
|
1,052,988
|
|
|
|
3,121,412
|
|
|
$
|
31,204
|
|
|
$
|
8,737,321
|
|
|
$
|
(1,670,596
|
)
|
|
$
|
11,880,077
|
|
|
$
|
(2,440,000
|
)
|
|
|
55,000
|
|
|
|
(337,795
|
)
|
|
$
|
17,253,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
30
|
|
|
|
9,570
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
to officer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
to directors
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
20
|
|
|
|
12,286
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase treasury
shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,602
|
|
|
|
(222,726
|
)
|
|
|
(222,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,440,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,440,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,334
|
)
|
|
|
(233
|
)
|
|
|
(151,438
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,334
|
)
|
|
|
151,671
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
541,067
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
541,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
605,291
|
|
|
|
1,052,988
|
|
|
|
3,103,078
|
|
|
|
31,031
|
|
|
|
6,417,739
|
|
|
|
(1,670,596
|
)
|
|
|
12,421,144
|
|
|
|
-
|
|
|
|
66,268
|
|
|
|
(408,850
|
)
|
|
|
17,843,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
-
|
|
|
|
-
|
|
|
|
13,000
|
|
|
|
130
|
|
|
|
22,145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
to officer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
197,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
197,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
preferred shares
|
|
|
(370,747
|
)
|
|
|
(566,912
|
)
|
|
|
430,473
|
|
|
|
4,305
|
|
|
|
562,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase treasury
shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,739
|
|
|
|
(88,189
|
)
|
|
|
(88,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,739
|
)
|
|
|
(147
|
)
|
|
|
(88,042
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,739
|
)
|
|
|
88,189
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,837,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,837,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2007
|
|
|
234,544
|
|
|
$
|
486,076
|
|
|
|
3,531,812
|
|
|
$
|
35,319
|
|
|
$
|
7,112,199
|
|
|
$
|
(1,670,596
|
)
|
|
$
|
15,258,174
|
|
|
$
|
-
|
|
|
|
66,268
|
|
|
$
|
(408,850
|
)
|
|
$
|
20,812,322
|
|
See
notes to the consolidated financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
Years
Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,837,030
|
|
|
$
|
541,067
|
|
Adjustments to
reconcile net income to net cash used in
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
|
|
|
|
|
|
Income from equity
investment in partnerships
|
|
|
(2,695,978
|
)
|
|
|
(3,004,241
|
)
|
Stock-based
compensation
|
|
|
197,750
|
|
|
|
262,306
|
|
Depreciation and
amortization
|
|
|
3,476
|
|
|
|
138
|
|
Impairment of notes
receivable
|
|
|
-
|
|
|
|
644,109
|
|
Deferred
income
tax expense (benefit)
|
|
|
(1,245,500
|
)
|
|
|
-
|
|
Changes in assets
and liabilities
|
|
|
|
|
|
|
|
|
Increase in
accrued interest receivable
|
|
|
-
|
|
|
|
(144,876
|
)
|
Increase in other
current assets
|
|
|
(203,388
|
)
|
|
|
130,430
|
|
Decrease in accounts
payable and accrued expenses
|
|
|
(82,275
|
)
|
|
|
(919,207
|
)
|
Net cash used in
operating activities
|
|
|
(1,188,885
|
)
|
|
|
(2,751,134
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of
property and equipment
|
|
|
(12,589
|
)
|
|
|
(4,142
|
)
|
Distribution of
earnings from partnership
|
|
|
1,204,635
|
|
|
|
1,428,177
|
|
Purchases of
marketable securities
|
|
|
(104,796,934
|
)
|
|
|
(112,993,310
|
)
|
Proceeds from sales
of marketable securities
|
|
|
104,500,000
|
|
|
|
109,500,000
|
|
Net cash provided by
(used in) investing activities
|
|
|
895,112
|
|
|
|
(2,069,275
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from the
exercise of stock options
|
|
|
22,275
|
|
|
|
9,600
|
|
Purchase of treasury
stock
|
|
|
(88,189
|
)
|
|
|
(222,726
|
)
|
Net cash used in
financing activities
|
|
|
(65,914
|
)
|
|
|
(213,126
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease)
in cash and cash equivalents
|
|
$
|
(359,687
|
)
|
|
$
|
(5,033,535
|
)
|
Cash
and cash equivalents – beginning
|
|
|
613,253
|
|
|
|
5,646,788
|
|
Cash
and cash equivalents – ending
|
|
$
|
253,566
|
|
|
$
|
613,253
|
|
See
notes to the consolidated financial statements.
Regency
Affiliates, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows (continued)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
Cash paid during the
year for:
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
63,863
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
44,200
|
|
|
$
|
169,158
|
|
Supplemental
disclosures of non-cash investing and financing activities:
None.
See
notes to the consolidated financial statements.
Note 1.
Summary of Significant Accounting Policies
Principles
of Consolidation
- The consolidated financial statements include the
accounts of Regency Affiliates, Inc. (the "Company"), its wholly owned
subsidiary, Regency Power Inc. (“Regency Power”), its wholly owned
subsidiary, Rustic Crafts, Inc. ("Rustic Crafts"), its 75% owned
subsidiary, Iron Mountain Resources, Inc. (“Iron Mountain”) and its 80% owned
subsidiary, National Resource Development Corporation ("NRDC"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Nature of Operations -
The
Company has limited operations through its subsidiaries, Iron Mountain, Rustic
Crafts, and NRDC. Iron Mountain is currently an inactive
entity. Rustic Crafts was a manufacturer of decorative woods, cast
marble fireplaces, and other home furnishings. Its assets were sold
in 2002, to a buyer who has since defaulted on the note (refer to Note 5
- Note Receivable). Except for its collection efforts from
the buyer, Rustic Crafts has not engaged in any significant operations since
2002. NRDC’s principal asset consists of previously quarried and stockpiled rock
(“Aggregate”) inventory located at a mine site in Michigan. The
Company has never consummated sales of significant amounts of the
Aggregate. In 2005, based on a fair value appraisal, the Aggregate
was deemed to have no value and a full valuation was taken against the
asset. There have been only limited sales of Aggregate in
recent years.
Regency
Power owns a 50% interest in MESC Capital, LLC, a Delaware limited liability
company (“MESC Capital”). MESC Capital owns a 100% interest in Mobile
Energy Services, Company, LLC, an Alabama limited liability company (“Mobile
Energy”), which owns an on-site energy facility that supplies steam and
electricity to a Kimberly-Clark tissue mill in Mobile, Alabama. Also
refer to Note 4, “Investment in MESC Capital LLC,” for additional
information.
In
addition, the Company holds a limited partnership interest in Security Land and
Development Company Limited Partnership (“Security Land”), which owns and
operates 34.3 acres of land and rental property of approximately 717,000 square
feet in Woodlawn, Maryland, which is occupied by the United States Social
Security Administration’s Office of Disability and International Operations. In
November, 2000, the Company acquired a 5% limited partnership interest in 1500
Woodlawn Limited Partnership, the general partner of Security
Land. Also refer to Note 3, “Investment in Security Land and
Development Company Limited Partnership,” for additional
information.
Earnings
Per Share
- Basic earnings per share is computed by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the year.
Diluted
earnings per share of common stock reflects the maximum potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock and would then share in the net income
of the Company. Also refer to Note 11, "Basic and Diluted Earnings
Per Share," for additional information.
Stock
Based Compensation -
The Company accounts for stock and stock options
issued for services and compensation by employees under the fair value method.
For non-employees, the fair market value of the Company’s stock is measured on
the date of stock issuance or the date an option/warrant is granted. The Company
determined the fair market value of the options issued under the Black-Scholes
Pricing Model. Effective January 1, 2006, the Company adopted the provisions of
SFAS 123(R), “Share-based Payment,” which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS
123(R), share-based compensation cost is measured at the grant date, based on
the fair value of the award, and is recognized as an expense over the employee's
requisite service period (generally the vesting period of the equity
grant).
Fair
Value of Financial Instruments
- The fair values of cash, other current
assets, accounts payable and accrued expenses approximate their carrying
values because of the short maturity of these financial instruments.
Limitations
– Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial statement. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Cash
and Cash Equivalents
- Cash and cash equivalents represent cash and
short-term highly liquid investments with original maturities of three months or
less. The Company places its cash and cash equivalents with high credit quality
financial institutions that may exceed federally insured amounts at
times.
Property,
Plant and Equipment
- Property, plant and equipment are carried at cost.
Depreciation is provided over the estimated useful lives of the assets by the
use of the straight-line and declining balance methods.
These
items consist of the following at December 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Machinery and
equipment
|
|
$
|
50,697
|
|
|
$
|
47,850
|
|
Leasehold
improvements
|
|
|
9,742
|
|
|
|
-
|
|
|
|
|
60,439
|
|
|
|
47,850
|
|
Accumulated
depreciation
|
|
|
47,322
|
|
|
|
43,846
|
|
|
|
$
|
13,117
|
|
|
$
|
4,004
|
|
Depreciation
expense for the years ended December 31, 2007 and 2006 was $3,476 and $138,
respectively.
Investments
– The Company uses the equity method of accounting for investments in equity
securities in which it has more than a 20% interest, but does not have a
controlling interest and is not the primary beneficiary. The Company uses the
cost method of accounting for investments in equity securities in which it has a
less than 20% equity interest and virtually no influence over the investee’s
operations.
Aggregate
Inventory
- Inventory, which consists of 70+ million short tons of
previously quarried and stockpiled aggregate rock located at the site of the
Groveland Mine in Dickinson County, Michigan, is stated at lower of cost or
market. The Company is also subject to a royalty agreement which requires the
payment of certain royalties to a previous owner of the aggregate inventory upon
sale of the aggregate.
In
December, 2001 the aggregate inventory was sold to Iron Mountain, a 75% owned
subsidiary of the company. The purchase price was $18,200,000 and was payable,
with interest of 2.46%, in ninety-six equal payments of principal and interest
commencing in December, 2003. The intercompany gain on this transaction was
eliminated in the consolidation process resulting in the aggregate inventory
being carried at its historical cost. On February 9, 2005, in lieu of
foreclosure, Iron Mountain reconveyed the aggregate inventory back to NRDC and
the note was deemed satisfied. Based upon a subsequent fair market value
appraisal, the aggregate inventory
was
deemed to have
no value,
and as
such a full valuation
allowance of $832,427 was taken in
2005.
Income
Taxes
- The Company utilizes Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires an asset and
liability approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax basis of assets and
liabilities is determined annually. Deferred income tax assets and liabilities
are computed for those temporary differences that have future tax consequences
using the current enacted tax laws and rates that apply to the periods in which
they are expected to affect taxable income. In some situations SFAS 109 permits
the recognition of expected benefits of utilizing net operating loss and tax
credit carryforwards. Valuation allowances are established based upon
management's estimate, if necessary. Income tax expense (benefit) is the
current tax payable or refundable for the period plus or minus the net exchange
in the deferred tax assets and liabilities.
Evaluation
of Long Lived Assets
- Long-lived assets are assessed for recoverability
on an ongoing basis. In evaluating the fair value and future benefits of
long-lived assets, their carrying value would be reduced by the excess, if any
of the long-lived asset over management's estimate of the anticipated
undiscounted future net cash flows of the related long-lived
asset.
Use
of Estimates
- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Note 2.
Marketable Securities
The cost
and fair value of the Company's investments in marketable securities are as
follows:
Trading
securities:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
9,800,000 US
Treasury bills
|
|
$
|
9,786,191
|
|
|
$
|
-
|
|
|
$
|
3,957
|
|
|
$
|
9,782,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,500,000 US
Treasury bills
|
|
$
|
9,482,775
|
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
9,485,300
|
|
Note 3.
Investment in Security Land and Development Company Limited
Partnership
In
November 1994, the Company purchased, for $350,000, a limited partnership
interest in Security Land, which owns and operates an office complex. The
Company has limited voting rights and is entitled to allocations of the profit
and loss of Security Land and operating cash flow distributions, as amended (see
below).
Security
Land was organized to own and operate two buildings containing approximately
717,000 net rentable square feet consisting of a two-story office building and a
connected six-story office tower. The buildings were purchased by Security Land
in 1986 and are located on approximately 34.3 acres of land which is also owned
by Security Land. The buildings have been occupied by the United States Social
Security Administration's Office of Disability and International Operations for
approximately 30 years under leases between the United States of America, acting
by and through the General Services Administration ("GSA"). Effective November
1, 1994, Security Land and the GSA entered into a nine-year lease for 100% of
the building. In March 2003, the GSA agreed to extend the terms of the lease
through October 31, 2018. Security Land has received an opinion of the Assistant
General Counsel to the GSA that lease payments are not subject to annual
appropriation by the United States Congress and the obligations to make such
payments are unconditional general obligations of the United States
Government.
In April
2003, the Company entered into an amendment to the Security Land partnership
agreement. The amendment provides for the distribution of the net proceeds of a
loan to Security Land to the Company and the non-Company partners on a 50/50
basis, provided that such allocation would result in a minimum distribution to
the Company of $39,000,000 (a "qualified financing"). This qualified financing
was obtained in June 2003 (see below). The amendment also provides that,
following the qualified financing, the Company will be entitled to (i) 95% of
Security Land's distributions of cash flow until it has received $2,000,000 of
such distributions, and thereafter 50% of such distributions, and (ii) once it
has received $2,000,000 of cash flow distributions, it will receive $180,000
annual management fee from Security Land. The foregoing percentages are
inclusive of the Company's interest as a limited partner in 1500 Woodlawn
Limited Partnership, the general partner of Security Land.
The
refinancing of Security Land's property at 1500 Woodlawn Drive, Woodlawn,
Maryland closed on June 24, 2003. US SSA LLC (a single purpose entity owned by
Security Land) borrowed $98,500,000 through a public debt issue underwritten by
CTL Capital, LLC. Proceeds of the refinancing were used to repay the outstanding
balance of Security Land's 1994 indebtedness, to establish reserves to make
capital improvements to the property, to provide reserves required by the new
debt, to pay costs and expenses related to issuing the debt, to pay fees related
to the lease extension with the GSA and the financing, and to make a
distribution to the partners of Security Land. The debt is for a term of 15.3
years maturing October 31, 2018 at which time the loan will have been paid down
to a balance of $10,000,000. Security Land also obtained residual value
insurance for approximately $10,000,000. The interest cost of the financing is
4.63%. The financing is non-recourse to the Company. The Company received
$41,018,943 from the Security Land distribution. In connection with the Security
Land refinancing and distribution, the Company was required to repay its KBC
Bank loan. The payoff amount was $14,145,410, which included a release fee and
make-whole premium.
For the
years ended December 31, 2007 and 2006 the Company's income from its equity
investment in Security Land was $1,516,455 and $1,615,800, respectively. These
funds, however, are principally committed to the amortization of the outstanding
principal balance on Security Land's real estate mortgage. Security Land does
not currently provide liquidity to the Company.
Summarized
financial information for Security Land is as follows:
|
|
2007
|
|
|
2006
|
|
Balance Sheet
Data
|
|
|
|
|
|
|
Cash and
receivables
|
|
$
|
1,109,104
|
|
|
$
|
1,098,135
|
|
Restricted
cash
|
|
|
2,254,315
|
|
|
|
2,142,313
|
|
Real estate,
net
|
|
|
30,456,122
|
|
|
|
32,916,330
|
|
Deferred charges,
net
|
|
|
7,172,186
|
|
|
|
8,069,382
|
|
Other
assets
|
|
|
350,681
|
|
|
|
322,160
|
|
Total
Assets
|
|
|
41,342,408
|
|
|
|
44,548,320
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued expenses
|
|
|
350,425
|
|
|
|
235,552
|
|
Project note
payable
|
|
|
78,459,228
|
|
|
|
83,152,857
|
|
Other
liabilities
|
|
|
161,591
|
|
|
|
171,258
|
|
Total
Liabilities
|
|
|
78,971,244
|
|
|
|
83,559,667
|
|
|
|
|
|
|
|
|
|
|
Partners'
capital:
|
|
|
|
|
|
|
|
|
Regency Affiliates,
Inc.
|
|
|
3,274,894
|
|
|
|
143,360
|
|
Other
partners
|
|
|
(40,903,730
|
)
|
|
|
(39,154,707
|
)
|
Total Partners'
Capital
|
|
|
(37,628,836
|
)
|
|
|
(39,011,347
|
)
|
Total Liabilities
and Partner's Capital
|
|
|
41,342,408
|
|
|
|
44,548,320
|
|
|
|
|
|
|
|
|
|
|
Statement of
Operations Data
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
13,250,867
|
|
|
$
|
13,250,710
|
|
Expenses
|
|
|
8,033,403
|
|
|
|
8,124,183
|
|
Net operating
income
|
|
|
5,217,464
|
|
|
|
5,126,527
|
|
Other
expenses
|
|
|
(3,621,196
|
)
|
|
|
(3,425,685
|
)
|
Net
income
|
|
$
|
1,596,268
|
|
|
$
|
1,700,842
|
|
Effective
November 30, 2000 the Company invested $10,000 for a 5% limited partnership
interest in 1500 Woodlawn Limited Partnership, the general partner of Security
Land. The Company recognized income of $3,991 in 2007 and $4,253 in 2006 from
this investment.
Note 4.
Investment in MESC Capital LLC
On April
30, 2004, the Company, through a newly-formed, wholly-owned subsidiary called
Regency Power Corporation, a Delaware corporation, acquired a 50% membership
interest in MESC Capital from DTE Mobile, LLC (“DTE Mobile”), pursuant to an
Assignment and Assumption Agreement dated as of April 30, 2004. The purchase
price for the 50% membership interest was $3,000,000 and was funded from
Regency's working capital. The terms of the Assignment and Assumption Agreement
were negotiated on an arms'-length basis between Regency and DTE Mobile. DTE
Mobile, which is owned by an unregulated subsidiary of a large energy company
that has significant experience in owning, managing and operating electric
generation and on-site energy facilities, owns the other 50% membership interest
in MESC Capital.
MESC
Capital was formed to acquire all of the membership interests in Mobile Energy.
Mobile Energy owns an on-site energy facility that supplies steam and
electricity to a Kimberly-Clark tissue mill in Mobile, Alabama. The acquisition
of Mobile Energy was also consummated on April 30, 2004 pursuant to a Membership
Interest Purchase Agreement, dated as of January 30, 2004, between MESC Capital
and Mobile Energy Services Holdings, Inc. The purchase price under the
Membership Interest Purchase Agreement, after certain pre-closing adjustments,
was $33,600,000, and is subject to certain post-closing adjustments. The
purchase price and working capital reserves were funded by the issuance of
$28,500,000 of non-recourse debt, a total equity contribution by MESC Capital of
$8,600,290, $4,300,145 of which was funded by Regency Power and $4,300,145 of
which was funded by DTE Mobile, and a credit of $1,000,000 on account of
existing and continuing tax-exempt indebtedness of Mobile Energy. The terms of
the Membership Interest Purchase Agreement were negotiated on an arms'-length
basis between MESC Capital and Mobile Energy. The Company did not participate in
negotiations with respect to the Membership Interest Purchase
Agreement.
The
$28,500,000 acquisition indebtedness was obtained from Allied Irish Banks,
P.L.C., which may assign or participate the loan in accordance with the terms of
the loan agreement. The loan will be amortized over the fifteen-year term. In
connection with the acquisition of the 50% membership interest in MESC Capital,
Regency Power and DTE Mobile entered into an Operating Agreement, dated April
30, 2004, which sets forth their respective rights and obligations as members of
MESC Capital as well as the duties and authority of DTE Mobile as the managing
member of MESC Capital. Under the Operating Agreement, Regency Power will
receive 50% of all distributions. Neither Regency Power nor DTE Mobile is
obligated to contribute additional capital, or loan or otherwise advance funds,
to MESC Capital, and neither member can sell or transfer its interest in MESC
Capital without the consent of the other and without first complying with a
right of first offer in favor of the non-selling member.
The
Company accounts for the Investment in Partnerships using the equity method,
whereby the carrying value of these investments are increased or decreased by
the Company's allocable share of book income or loss. The Company recognized
income of $1,175,532 in 2007 and $1,384,188 in 2006 from this
investment.
Summarized
financial information for MESC Capital is as follows:
|
|
2007
|
|
|
2006
|
|
Balance Sheet
Data
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
7,347,784
|
|
|
$
|
2,820,687
|
|
Restricted
cash
|
|
|
1,298,930
|
|
|
|
1,759,631
|
|
Trade
receivable
|
|
|
1,534,313
|
|
|
|
2,099,264
|
|
Current portion of
net investment in direct financing lease
|
|
|
1,312,055
|
|
|
|
1,212,266
|
|
Inventory
|
|
|
3,469,905
|
|
|
|
3,428,940
|
|
Prepaid expenses and
other current assets
|
|
|
208,546
|
|
|
|
232,235
|
|
Total current
assets
|
|
|
15,171,533
|
|
|
|
11,553,023
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
and derivative instruments, net
|
|
|
935,278
|
|
|
|
1,626,328
|
|
Property and
equipment, net
|
|
|
17,287
|
|
|
|
53,902
|
|
Investment in direct
financing lease, net of current portion
|
|
|
21,789,234
|
|
|
|
23,101,289
|
|
Total
assets
|
|
|
37,913,332
|
|
|
|
36,334,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
4,711,825
|
|
|
|
1,289,754
|
|
Accrued
liabilities
|
|
|
29,846
|
|
|
|
559,602
|
|
Current portion of
long term debt
|
|
|
1,350,900
|
|
|
|
1,219,800
|
|
Total current
liabilities
|
|
|
6,092,571
|
|
|
|
3,069,156
|
|
Current portion of
long term debt
|
|
|
24,612,250
|
|
|
|
25,963,150
|
|
Total
liabilities
|
|
|
30,704,821
|
|
|
|
29,032,306
|
|
|
|
|
|
|
|
|
|
|
Members’
equity
|
|
|
7,208,511
|
|
|
|
7,302,236
|
|
Total liabilities
and members’ equity
|
|
|
37,913,332
|
|
|
|
36,334,542
|
|
|
|
|
|
|
|
|
|
|
Statement of
Operations Data
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,893,320
|
|
|
$
|
14,460,440
|
|
Expenses
|
|
|
11,196,293
|
|
|
|
10,225,793
|
|
Net operating
income
|
|
|
3,697,027
|
|
|
|
4,234,647
|
|
Other income
(expense)
|
|
|
(1,345,963
|
)
|
|
|
(1,466,272
|
)
|
Net
income
|
|
$
|
2,351,064
|
|
|
$
|
2,768,375
|
|
Note 5.
Notes Receivable
Pursuant
to the sale of the net operating assets of the Company's subsidiary, Rustic
Crafts, on September 30, 2002, obtained notes receivable. At December 31, 2003,
these notes consisted of the following:
|
|
2003
|
|
Note
receivable, 5% per annum, with monthly payments
of
principal and interest of $13,342, due 9/30/07
|
|
$
|
707,000
|
|
|
|
|
|
|
Note
receivable, 7.5% per annum, with monthly
payments
of principal and interest of $5,032, with a
balloon
payment due 9/8/06
|
|
|
422,271
|
|
Total
|
|
$
|
1,129,271
|
|
In March
2004, these notes were deemed to be uncollectible due to the lack of cash flows
generated and the continual default on payment terms by the RCI Wood Products,
Inc. (
“
RCI
”
).
The
Company
determined to record full impairment of the notes and any accrued interest
thereon which totaled $1,182,626.
In
December 2005, a stipulation of settlement was entered into in which the Company
agreed to accept a total of $125,000 payable over three years in full settlement
of the notes detailed above.
No gain
or income was recognized as a result of this settlement due to the uncertainty
that the amount will actually be realized. Such recovery will be recognized upon
receipt. During 2006
,
the
Company received $3,264 of such settlement which is included in other income. In
April 2006
,
RCI
defaulted on the note. The Company has initiated an action for collection
against RCI and a personal guarantor on the
note
.
RCI
has filed for protection under
Chapter
11 of the United States Bankruptcy Code and
the
Company
received
a judgment on the personal guarantee.
The
Company has
initiated collection against the personal guarantee
.
Note 6.
Serial Preferred Stock
At
December 31, 2007 and 2006, the Company had 2,000,000 of authorized shares of
$.10
par value serial preferred stock. Serial preferred stock at December 31, 2007
and 2006, all of which is convertible and cumulative, consists of:
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Designated
|
|
|
Outstanding
|
|
|
Carrying
|
|
|
Liquidation
|
|
|
Liquidation
|
|
Series
C, $100 stated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value,
cumulative
|
|
|
210,000
|
|
|
|
208,850
|
|
|
$
|
229,136
|
|
|
$
|
20,885,000
|
(a)
|
|
$
|
20,885,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B, $10 stated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value, 6%
cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
3,707,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior
Series, D, $10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated value,
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
26,000
|
|
|
|
25,694
|
|
|
|
256,940
|
|
|
|
256,940
|
(b)
|
|
|
256,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,000
|
|
|
|
234,544
|
|
|
$
|
486,076
|
|
|
$
|
21,141,940
|
|
|
$
|
24,849,410
|
|
Series C
- The Series C shares were issued on July 7, 1993 as part of the transaction to
acquire an 80% interest in NRDC. The cumulative dividend right is equal to 20%
(not to exceed $500,000) of annual after tax earnings of NRDC. At the Company's
option, the Series C may be redeemed at the lesser of (a) the stated value plus
accrued and unpaid dividends or (b) the fair market value of the common stock
interest acquired by the Company in NRDC. At the Company's option, the
redemption price may be satisfied by the delivery of the shares in NRDC owned by
the Company.
Also, on
October 16, 2002, the Company entered into agreements with Statesman providing
for the amendment to the Company's Series C Preferred Stock and certain
restrictions relating to Statesman's future ownership of an interest in the
Company and Statesman's ability to issue or transfer beneficial interests in
Statesman, in exchange for a payment to Statesman of $2,730,000. The payment was
recorded as a reduction in paid-in capital in the accompanying financial
statements.
Series B
- The Series B shares were issued in 1991 as part of a restructuring plan
limited to senior lenders and was issued in exchange for all obligations and any
claims or causes of action relating to the Company's obligations and guarantees.
Such preferred stock includes, among other provisions and preferences, the
following:
(a) A 6%
cumulative dividend right commencing on the 24th month from the consummation of
a defined "initial business combination transaction" (which occurred with the
acquisition of Rustic Crafts in 1997 (see Note 6) and if the Company has reached
a defined ratio of earnings to fixed charges. In addition, dividends accrue for
a period of 35 additional months without cash payment.
(b) At
the Company's option, the shares may be redeemed, subject to certain
limitations, by cash payment or by exchanging shares of its common stock at 77%
of its stated value divided by the quoted market value of its common
stock.
(c) A
contingent conversion provision which conversion right, and the Company common
shares to be issued in connection with the conversion, would be based on the
stated value divided by the average bid and asked price for the 90 days
preceding the conversion date of the Company's common shares. In addition, the
number of the Company's common shares to be received upon conversion is subject
to certain limitations.
Junior
Series D - The junior preferred stock was issued in 1992 in exchange for the
Company's Restructuring Serial Promissory Notes. This preferred stock is
redeemable, at the Company's option, at the stated value plus accrued and unpaid
dividends and is contingently convertible into common at the fair market value
of the common as determined by the average of the bid and asked price for the
thirty (30) day period preceding the conversion date.
Generally,
no dividends can be paid on the Company's common stock until all cumulative
dividends on the serial preferred stock have been paid. Additionally, no
dividends on the Company's common shares can be paid if the Company is in
default or in arrears with respect to any sinking or analogous fund or any call
or tenders or other agreement for the purchase, redemption or other retirement
of shares of preferred stock. No provision for dividends has been made for the
Company's Series B and C "increasing rate preferred stock," as defined in Staff
Accounting Bulletin Topic 5Q, due to the contingent nature of dividends on such
shares.
Generally
the preferred shares have limited voting rights. However, in the event dividends
payable on the Series C shares are accumulated and unpaid for seven quarterly
dividends (whether or not declared and whether or not consecutive), the holders
of record of the Series C shares, shall thereafter have the right to elect two
directors (each) until all arrears in required cash dividends (whether or not
declared) on such shares have been paid. The Company's bylaws provide for eight
members on its Board of Directors.
On
February 16, 2007, the Company exercised its right to redeem all of the 370,747
issued and outstanding shares of Series B Stock, payable on March 15, 2007. The
aggregate redemption price of 430,473 shares of the Company’s common stock, at
$6.65 per share, was $
2,862,645
.
As this amount is less than the original debt obligations exchanged with the
preferred stockholders, which represented their investment in 1991 of
$3,707,470, no deemed dividend or beneficial conversion feature has been
recognized by the Company in the current period. This transaction resulted in
the retirement by the Company of all issued and outstanding Series B
stock.
Note 7.
Stock Option and Note Receivable - Statesman
Effective
June 3, 1997, the Company issued options to purchase 6.1 million (pre-2002 10-1
reverse split) shares of common stock to Statesman Group, Inc.
(“Statesman”).
The options were issued to Statesman in order to secure the release of Mr.
William R. Ponsoldt, Sr. to serve as President and Chief Executive Officer of
the Company and to recognize in part, the amendment to the Series C preferred
shares under which Statesman forfeited certain common stock conversion rights
with respect thereto. Statesman also agreed to provide loan guarantees not to
exceed the sum of $300,000 upon the request of the Company and a showing of
reasonable need. Statesman and/or its affiliated interests have provided loan
guarantees and/or unsecured prime interest rate direct loans to the Company
exceeding $2,000,000 since June 1997.
On
October 15, 2001 Statesman exercised in full its option, which had been granted
in 1997, to acquire 610,000 post-reverse-split shares of the Company's common
stock. The exercise was made pursuant to an agreement which provided for (1) a
purchase price at $0.40 per share (par value) rather than the formula price in
the option, which would have yielded 25% less to the Company, (2) the execution
of a note from Statesman to the Company in the principal amount of $2,440,000
payable in five years with interest to accrue at the prevailing prime rate and
(3) the obligation to be collateralized by the 610,000 post-reverse-split common
shares of the Company purchased upon exercise of the option as well as the 20%
remaining interest in the Company's 80% owned subsidiary, NRDC.
On
October 16, 2002, in Amendment No. 1 to the Pledge Agreement dated as of October
15, 2001, the Pledge Agreement was amended to provide the obligation to be
collateralized by 208,650 shares of the Company’s Series C preferred shares in
lieu of the 610,000 post-reverse-split common shares, as well as the 20%
remaining interest in the Company’s 80% owned subsidiary, NRDC.
In
addition, the Company acquired from Statesman a three-year option to acquire
Statesman's 20% interest in NRDC exercisable by delivery to Statesman of the
aforementioned $2,440,000 note. The Company acquired the option by paying
Statesman $250,000, amending the note (and underlying pledge agreement) to limit
recourse and transferring to Statesman certain office furniture and equipment.
This option expired in 2005 and was therefore recorded as an
expense.
As of December 31, 2007,
through the date of this Form 10-KSB, the Company has not collected the
$2,440,000 note and accrued interest of approximately $644,000
which was
due on September 30, 2006 from Statesman
. The Company has sent demand and
default notices to Statesman but has not received a response to date. Per the
terms of the Pledge Agreement, upon event of default, overdue principal and
overdue interest will bear interest, payable upon demand, at a rate of twelve
percent (12%) per annum, and the pledged securities may be transferred into the
Company’s name, or sold for proceeds to satisfy the obligation and collection
costs incurred. As of December 31, 2007, t
he
Company has
reserved the receivable balance in full while it continues
its collection efforts. The reserve adjustment included a charge to impairment
of loans as other expense, and an allowance against the note
during
the year ended December 31 2006.
Note 8.
Stock Based Compensation
2003
Incentive Stock Plan
Effective
as of March 17, 2003, the Company’s Board of Directors and Stockholders approved
and adopted the 2003 Stock Incentive Plan (the “2003 Plan”). The 2003 Plan
allows the Administrator (as defined in the 2003 Plan), currently the
Compensation Committee, to determine the issuance of incentive stock options,
non-qualified stock options and restricted stock to eligible employees and
outside directors and consultants of the Company. The Company has reserved
500,000 shares of common stock for issuance under the 2003 Plan. The exercise
price of any option granted under the 2003 Plan is determined by the
Administrator, and no option or award exercise date can exceed ten years from
the grant date.
On August
14, 2007, the Company granted 50,000 stock options to the Company’s Chief
Executive Officer under the 2003 Plan. The options granted have a term of 10
years and vest immediately. On April 1, 2006, the Company granted 50,000 stock
options to the Company’s Chief Executive Officer. These options have a term of
10 years and vest immediately.
The fair
value of the stock options granted during 2007 and 2006, respectively, under the
2003 Plan was $197,750 and $250,000. Each stock option award is estimated as of
the date of grant using a Black-Scholes option valuation model that uses the
assumptions noted below. The risk-free rate for the expected term of the option
is based on the U.S. Treasury yield curve in effect at the time of grant.
The fair
value of the Company's stock-based compensation was estimated using the
Black-Scholes option pricing model which requires highly subjective assumptions
including the expected stock price volatility. The fair value of the Company's
stock options was estimated using the following assumptions: no expected
dividends, risk free interest rate of 4.73% and 3.5%, expected average life of
10 years and an expected stock price volatility of 67% and 90%, for each of the
years ended December 31, 2007 and 2006, respectively. The weighted average fair
value of options granted was $3.96 during 2007 and $5.00 during
2006.
The
following is a summary of the status of the Company's options for the years
ended
December
31, 2007 and 200
6:
|
|
Exercise
Price
Range
|
|
|
Options
|
|
|
Average
Exercise
Price
|
|
|
Average
Contract
Life
|
|
Outstanding
at 1/1/06
|
|
$
|
.40
- 2.40
|
|
|
|
302,000
|
|
|
$
|
2.12
|
|
|
|
10
|
|
Issued
|
|
|
6.27
|
|
|
|
50,000
|
|
|
|
6.27
|
|
|
|
10
|
|
Exercised,
forfeited or expired
|
|
|
1.60-4.00
|
|
|
|
(8,000
|
)
|
|
|
.40
|
|
|
|
10
|
|
Outstanding
at 12/31/06
|
|
$
|
.40
– 6.27
|
|
|
|
344,000
|
|
|
$
|
2.76
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
Range
|
|
|
Options
|
|
|
Average
Exercise
Price
|
|
|
Average
Contract
Life
|
|
Outstanding
at 1/1/07
|
|
$
|
.40
- 6.27
|
|
|
|
344,000
|
|
|
$
|
2.12
|
|
|
|
10
|
|
Issued
|
|
|
5.10
|
|
|
|
50,000
|
|
|
|
5.10
|
|
|
|
10
|
|
Exercised,
forfeited or expired
|
|
|
.40-2.40
|
|
|
|
(14,000
|
)
|
|
|
.40
|
|
|
|
10
|
|
Outstanding
at 12/31/07
|
|
$
|
1.35–
6.27
|
|
|
|
380,000
|
|
|
$
|
3.08
|
|
|
|
10
|
|
Note 9.
Income Taxes
As
referred to in Note 1, the Company accounts for income taxes under SFAS 109,
“Accounting for Income Taxes”. The deferred taxes are the result of long-term
temporary differences between financial reporting and tax reporting for
depreciation, earnings from the Company’s partnership investment in Security
Land and Development Company Limited Partnership related to depreciation and
amortization and the recognition of income tax carryforward items.
At
December 31, 2007 and 2006, the Company’s net deferred tax asset, utilizing a
34% effective tax rate, respectively, consists of:
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
2,491,000
|
|
|
|
1,992,000
|
|
Valuation
allowance
|
|
|
(1,245,500
|
)
|
|
|
(1,992,000
|
)
|
Subtotal
|
|
$
|
1,245,500
|
|
|
$
|
--
|
|
The
valuation allowance reduces the net deferred tax asset to the amount that will
more likely than not be realized. This reduction is necessary due to uncertainty
of the Company’s ability to utilize the net operating loss (“NOL”) and tax
credit carryforwards before they expire. The primary income of the Company is
derived from its investments in Security Land (Note 3) and MESC Capital (Note
4), and future utilization of the carryforwards against this income cannot be
determined with certainty.
As of
December 31, 2006, both investments generated book income, but were insufficient
to generate taxable income
.
F
or the
year ended December 31, 2006, the NOL increased
to
approximately $5,859,000
.
As a
result,
the
Company
was
unable to determine if the deferred tax assets were more likely than not to
be realized
.
A
ccordingly,
a valuation allowance of 10
0% was
deemed to be appropriate as of December 31, 2006.
For the
year ended December 31, 2007, the income from these investments, coupled with
declines in general and administrative expenses were sufficient to generate
taxable income for the year.
As a
result
,
the
Company
reconsidered the need for a valuation adjustment to the NOL’s. To analyze the
need for a valuation allowance, estimates of future taxable income were made
using estimates of continuing income from Security Land and MESC Capital
and future general and administrative expenses. The result of these analyses
were that
the
Company
estimates that as of December 31, 2007, approximately 50% of the NOL’s will be
utilized prior to their expiration. In making these estimates,
the
Company
was
required to make certain assumptions regarding future events in both entities,
which are managed by third parties. The future profitability of Security
Land and MESC Capital are dependent on future events outside the control of
management; future events often do not occur as anticipated and the deviations
from estimated earnings can be material.
The 50%
adjustment to the valuation allowance of the deferred tax asset yields a
$1,245,500 net deferred tax asset, as reflected on the balance sheet at December
31, 2007, for use in future periods.
For
regular federal income tax purposes, the Company has remaining net operating
loss carryforwards of approximately $7,327,000. These losses can be carried
forward to offset future taxable income and, if not utilized, will expire in
varying amounts beginning in 2024. The Company’s tax returns have not recently
been examined by the Internal Revenue Service (“Service”) and there is no
assurance that the Service would not attempt to limit the Company’s use of its
net operating loss and tax credit carry forwards.
The
Company and the general partner of Security Land are in disagreement as to the
manner in which taxable income of Security Land is to be allocated pursuant to
the partnership agreement and applicable law, and for years 2004 through 2007,
the Company has reported taxable income (loss) from Security Land in a manner it
believes is proper, but which was different than the manner reported by Security
Land.
For the
years ended December 31, 2007 and 2006, the tax effect of net operating loss
carryforwards reduced the current provision for regular Federal income taxes by
approximately $541,000 and $206,000, respectively. At December 31, 2007 and
2006, the Company has provided $105,673 and $112,651, respectively, for taxes
which relate to state income taxes.
The
provision
(benefit
)
for income taxes is as follows for the years ended December 31,:
|
|
2007
|
|
|
2006
|
|
Current
|
|
$
|
105,673
|
|
|
$
|
112,651
|
|
Deferred
|
|
|
(
1,245,500
|
)
|
|
|
-
|
|
|
|
$
|
(
1,139,827
|
)
|
|
$
|
112,651
|
|
The
difference between income tax benefits in the financial statements and the tax
benefit computed at the applicable statutory rates of 34% at December 31, 2007
and 2006 is as follows:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Federal
expense (benefit) at the statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
tax expense
|
|
|
6
.
2
|
|
|
|
3
.
8
|
|
Benefit
of net operating loss carry forward
|
|
|
(34.0
|
)
|
|
|
(34.0
|
)
|
Valuation
Allowance
|
|
|
(73.4
|
)
|
|
|
-0-
|
|
Effective
tax rate of income tax expense (benefit)
|
|
|
(67.2
|
)%
|
|
|
3.8
|
%
|
As of
December 31, 2007, approximately $332,800 of state taxes were remitted on the
Company’s behalf by its Security Land limited partnership interest. These
prepaid taxes are included in Other Current Assets on the Balance
Sheet.
Note 10.
Employment Agreements
In
connection with the 2002 redemption of Statesman's interest, each of the
Company's directors resigned effective October 28, 2002 with successors
appointed by Royalty Management, LLC (“Royalty”), the holder of certain notes
payable. Simultaneously, all officers of the Company resigned and were replaced
by Laurence S. Levy (an affiliate of Royalty) as CEO and Neil Hasson (an
affiliate of Royalty) as CFO and Secretary. On October 16, 2002, the Company
entered into Employment Agreements with Mr. Levy and Mr. Hasson, with terms as
follows:
Laurence S. Levy - base
annual salary of no less than $150,000 per annum, discretionary annual bonus,
options to purchase 25,000 shares of common stock at an exercise price of $1.35
per share, benefits, expense reimbursement and insurance (including, but not
limited to, life, travel accident, health).
Effective
April 1, 2006, Mr. Levy’s salary is $200,000 per
annum.
Neil
Hasson - base annual salary of no less than $50,000 per annum, discretionary
annual bonus, options to purchase 25,000 shares of common stock at an exercise
price of $1.35 per share, benefits, expense reimbursement and insurance
(including, but not limited to, life, travel accident, health).
On
November 22, 2002, Mr. Hasson resigned as Secretary of the Company and the
position was filled by Carol Zelinski.
Note
11. Basic and Diluted Earnings Per Share
Net
income per common share is determined in accordance with Statement of Financial
Accounting Standards ("FAS") No. 128, "Earnings per Share" ("FAS
128"). Under the provisions of FAS 128, basic net income per common
share is computed by dividing the net income applicable to common shares by the
weighted average number of common shares outstanding during the
period. Weighted average common shares include shares of the
Company's stock. Diluted net income per common share adjusts basic
net income per common share for the effects of convertible preferred stock,
outstanding stock options and any other potentially dilutive instruments, only
in the periods in which such effect is dilutive under the treasury stock
method.
A reconciliation of the numerators and
denominators of basic and diluted earnings per share as of December 31,
2007 and 2006
consists of the following:
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Basic
|
|
|
Dilutive
|
|
|
Basic
|
|
|
Dilutive
|
|
Weighted
average number of shares outstanding
|
|
|
3,475,932
|
|
|
|
3,475,932
|
|
|
|
3,110,209
|
|
|
|
3,110,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
shares Series D
|
|
|
-
|
|
|
|
44,841
|
|
|
|
-
|
|
|
|
41,576
|
|
Preferred
shares Series B
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
469,286
|
|
Options
(treasury stock method)
|
|
|
-
|
|
|
|
189,530
|
|
|
|
-
|
|
|
|
201,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
weighted average and equivalent shares
|
|
|
3,475,932
|
|
|
|
3,710,303
|
|
|
|
3,110,209
|
|
|
|
3,822,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,837,030
|
|
|
$
|
2,837,030
|
|
|
$
|
541,067
|
|
|
$
|
541,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share, basic and dilutive
|
|
$
|
0.82
|
|
|
$
|
0.76
|
|
|
$
|
0.17
|
|
|
$
|
0.14
|
|
Options
to purchase 380,000 and 344,000 shares of common stock at varying prices were
outstanding at December 31, 2007 and 2006,
respectively. The options were issued pursuant to the 2003 Stock
Incentive Plan, as amended, and expire at varying dates through August
2017.
Options
to purchase shares of common stock at an exercise price greater than the average
market price of the common stock during the reporting period are antidilutive
and therefore not included in the computation of diluted net income per common
share. For the years ended December 31, 2007 and 2006, 50,000 of such
options have been excluded from the above computations for each
year.
Convertible
preferred Series D stock outstanding at December 31, 2007 and 2006 were
converted to 44,841 and 41,576 shares of common stock for the above dilutive
earnings per share computations, respectively.
Convertible
preferred Series B shares were converted into 430,473 shares of common stock
during 2007. As of December 31, 2006, the preferred Series B shares
were converted to 469,286 shares of common stock equivalents for the dilutive
earnings per share computations, assumed effective as of January 1,
2006.
Note 12.
Related Party Transactions
Pursuant
to a License Agreement entered into in March 2003, Royalty Management, Inc.,
which is wholly-owned by Laurence Levy, the Company's President and a director,
provides New York City office space, office supplies and services to the Company
for $126,000 per year.
During
the year ended December 31, 2007, a director of the Company exercised 2,500
stock options at an exercise price of $2.40 per share and 2,500 stock options at
an exercise price of $1.53 per share. Also during the year two former directors
of the Company each exercised stock options to purchase 1,000 shares of the
Company’s common stock at an exercise price of $1.60 per share.
During
the year ended December 31, 2007, the Company purchased 5,439 shares of its
common stock from a consultant of the Company at a cost of $5.10 per share, or
$27,739, and subsequently retired such shares of common stock from treasury. The
Company also issued 6,000 shares of common stock to the consultant upon the
exercise of 1,000 stock options at an exercise price of $1.60 per share and
5,000 stock options at an exercise price of $1.53 per share.
During
the year ended December 31, 2007, the Company issued options to an officer of
the Company to purchase 50,000 shares of its common stock, pursuant to the
Issuer’s 2003 Stock Incentive Plan, as amended. The options expire on August 14,
2017 and have an exercise price of $5.10 per share.
During
the year ended December 31, 2007, the Company repurchased 9,300 shares of its
outstanding common stock at a cost of $60,450. The shares of common stock were
then subsequently retired from the treasury.
During
the year ended December 31, 2007, the Company accrued directors’ fees of $50,500
for services rendered.
During
the year ended December 31, 2007, the Company exercised its right to redeem all
outstanding shares of Series B preferred stock in exchange for 430,473 shares of
the Company’s common stock.
During
the year ended December 31, 2006, the Company repurchased the shares of common
stock of a former director as part of a legal settlement. The stock was
purchased at a price of $6.50 per share at a total cost of $189,371.
Subsequently, the Company retired 23,334 of these shares from the
treasury.
During
the year ended December 31, 2006, two directors of the Company received 1,000
shares each for services at a total cost of $12,306.
During
the year ended December 31, 2006, two directors of the Company were paid $15,000
each for directors’ fees and services rendered to the Company in such
capacity.
During
2006, two former officers of the Company exercised stock options to purchase
3,000 shares of common stock. Two thousand shares were purchased at an exercise
price of $4.00 per share, and one thousand shares were purchased at an exercise
price of $1.60 per share.
Note 13.
Contingencies, Risks and Uncertainties
The
Company is subject to numerous contingencies, risks and uncertainties including,
but not limited to, the following that could have a severe impact on the
Company:
(i) The
Company currently lacks the necessary infrastructure at the site of the
Groveland Mine in order to permit the Company to make more than casual sales of
the aggregate (See Note 1).
(ii) A
default in the Lease or sudden catastrophe to the Security West Building from
uninsured acts of God or war could have a materially adverse impact upon the
Company's investment in Security Land and Development Company Limited
Partnership and, therefore, its financial position and results of operations
(See Note 4).
(iii) On
January 20, 2004, a purported derivative and class action lawsuit was filed by
two dissident Company shareholders, Edward E. Gatz and Donald D. Graham, in the
New Castle County Court of Chancery, Delaware (the "Court"), captioned Gatz, et
al. v. Ponsoldt, Sr., et al., (C.A. No. 174-N) naming as defendants certain
current and former directors of the Company, Royalty and certain of its
affiliates, Statesman and, nominally, the Company (the "Delaware Action"). The
complaint alleged various breaches of fiduciary duties by the former directors
and Statesman, and that Royalty and its affiliates knowingly participated in
certain of the alleged breaches. In November 2004 the Court dismissed all but
one claim alleged in the complaint. The Company was not a defendant with respect
to the sole surviving claim, which related to the 2001 sale of a cache of
previously quarried and piled aggregate rock by NRDC to Iron Mountain (the
"Aggregate Sale"). On October 16, 2005, the Court dismissed plaintiffs' sole
remaining claim for failure to state a claim for relief. The dismissal was
without prejudice and the plaintiffs were given leave to file an amended
complaint attacking the Aggregate Sale.
On
January 30, 2006, plaintiffs filed an amended complaint challenging the
Aggregate Sale and alleging that the Aggregate Sale negatively impacted the
consideration the Company received in connection with the October 2002
restructuring transactions. The Company was not a defendant with respect to this
claim. Plaintiffs sought damages in excess of $5,400,000 with respect to the
claim related to the Aggregate Sale. On May 16, 2006, the Court dismissed the
sole remaining complaint alleged in the complaint determining that the sole
remaining complaint was derivative in nature and could therefore not be
maintained by the plaintiffs. On June 14, 2006, the plaintiffs filed a Notice of
Appeal appealing the Court's rulings. In its April 16, 2007 decision, citing an
intervening legal development in the area of direct and derivative claims
arising while the appeal was pending, the Supreme Court of the State of Delaware
reversed the Court's decision and remanded the case to the Court for further
proceedings.
The
defendants in the Delaware Action, other than Statesman, are entitled to be
indemnified by the Company for damages, if any, and expenses, including legal
fees, they may incur as a result of the lawsuit, subject to certain
circumstances under which such indemnification is not available. In addition,
other than with respect to the claims against the current director defendants in
their capacities as such, the claims contained in the Delaware Action are not
covered by insurance, as the Company's carrier has declined coverage on the
basis of the "insured vs. insured" exclusion since one of the named plaintiffs,
Donald D. Graham, was previously a director of the Company. The Company has
submitted a claim to its carrier with respect to the claims in the Delaware
Action against the current director defendants. No assurance can be given as to
the position that the carrier will take with respect to such
claims.
On April
28, 2008, the parties executed a memorandum of understanding (the "MOU")
reflecting an agreement in principle to settle that class action. If the
settlement is consummated, the Company will pay $3,000,000 plus interest (as
provided in the MOU) to the plaintiff class. The plaintiff class is defined in
the MOU as all record and beneficial owners of the Company’s 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 the Company’s common stock or options to purchase the Company’s
common stock. The Company will make that payment pursuant to its obligation to
indemnify the defendants who are former directors of the Company. The MOU
provides that the Company will undertake an appropriate process to determine if
indemnification of its former directors is appropriate under Delaware law. The
MOU expressly provides that the defendants admit no wrongdoing but have agreed
to the MOU to eliminate the uncertainty, distraction, burden and expense of
further litigation. The settlement will not occur if the Company determines that
no such indemnification is appropriate or the Court of Chancery refuses to
approve the settlement. There can be no assurance that the settlement will
occur.
(iv) The
Company has significant tax loss and credit carryforwards and no assurance can
be provided that the Internal Revenue Service would not attempt to limit or
disallow altogether the Company's use, retroactively and/or prospectively, of
such carryforwards, due to ownership changes or any other reason. The
disallowance of the utilization of the Company's net operating loss would
severely impact the Company's financial position and results of operations due
to the significant amounts of taxable income (generated by the Company's
investment in Security Land and MESC Capital) that has in the past been,
and may in the future be, offset by the Company's net operating loss
carryforwards (See Note 9).
(v)
Royalty, an affiliate of the company's management, beneficially owns
approximately
52
%
of the Company's common stock. As a result, Royalty has the ability to control
the outcome of all matters requiring shareholder approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of the Company's assets.
(vi) The
Company does not expect to pay dividends in the foreseeable future.
(vii)
There are many public and private companies that are also searching for
operating businesses and other business opportunities as potential acquisition
or merger candidates. The Company will be in direct competition with these other
companies in its search for business opportunities. Many of these entities have
significantly greater financial and personnel resources than the
Company.
(viii)
The Company and the general partner of Security Land are in disagreement as to
the manner in which taxable income of Security Land is to be allocated pursuant
to the partnership agreement and applicable law, and for 2004, 2005 and 2006,
the Company reported taxable income (loss) from Security Land in a manner the
Company believes is proper, but which was different than the manner reported by
Security Land.
Note 14.
Lease Commitments
Regency
leases office space and is committed to minimum lease payments through June 30,
2009 under an operating lease for premises, as follows:
2008
|
|
$
|
21,600
|
|
2009
|
|
|
10,800
|
|
Total
|
|
$
|
32,400
|
|
Rent
expense was $20,325 and $18,511 for the years ended December 31, 2007 and 2006,
respectively.
Note
15. Simplified Employee Pension – Individual Retirement Account
(SEP-IRA)
The
Company had adopted a SEP-IRA Plan in 2004. During the years ended
December 31, 2007 and 2006, the Company made contributions of $74,250 and
$67,375, respectively, to the SEP-IRA Plan. The SEP-IRA Plan covers
all employees who received compensation from the Company during the
year. Employer contributions are discretionary and determined
annually. In addition, the SEP-IRA Plan allows participants to make
elective deferral contributions through payroll deductions.
Note 16.
Filing of Going Private Proxy Statement
On
December 14, 2005, the Company filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending the Company’s certificate of incorporation to provide for a 1-for-100
reverse stock split (the “Reverse Stock Split”) followed immediately by a
50-for-1 forward stock split of the Company’s common stock (the “Forward Stock
Split”), which would result in the reduction of the number of common
stockholders of record of the Company to fewer than 300. This will permit the
Company to discontinue the obligations of filing annual and periodic reports and
make other filings with the SEC. Once the Schedule 13E-3 Transaction Statement
and Schedule 14A Proxy Statement are approved in a definitive form by the SEC,
the Company will mail copies to all of its stockholders describing all of the
material terms of the Reverse Stock Split and Forward Stock Split. The Company
currently intends to effect the Reverse Stock Split and Forward Stock Split as
soon as possible thereafter.
Note 17.
New Accounting Standards
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which
defines fair value, creates a framework for measuring fair value in generally
accepted accounting principles (“GAAP”), and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007.
The
Company
will
adopt SFAS 157 as of January 1, 2008, as required. SFAS 157 is not expected to
have a material impact on
the
Company’s
financial statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”, including an amendment of SFAS 115. SFAS 159
permits all entities to choose to measure financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value at specified election dates. SFAS 159 does not affect any existing
accounting literature that requires certain assets and liabilities to be carried
at fair value. The objective of SFAS 159 is to improve financial reporting by
providing companies with the opportunity to mitigate the volatility in reported
earnings caused by measuring related and liabilities differently without having
to apply complex hedge accounting provisions. The associated unrealized gains
and losses on the items for which the fair value option has been elected shall
be reported in earnings. SFAS 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. We will adopt SFAS 159 on
its effective date. Based on the provisions of SFAS 159, the difference between
the carrying value and fair value will be recognized at the adoption date as a
cumulative-effect adjustment to the opening balance of retained earnings. SFAS
159 is not expected to have a
material
effect
on
the
Company’s
financial statements.
In
December 2007, the FASB issued SFAS 141(R), “Business Combinations”. SFAS 141(R)
establishes principles and requirements for an acquirer, which improves the
relevance, representational faithfulness and comparability of information
provided by a reporting entity in its financial reports about business
combinations and its effects. SFAS 141(R) is effective prospectively to business
combinations with an acquisition date on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008.
The
Company is
unable
to currently estimate the impact of SFAS 141(R) on
its
financial statements.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements (an amendment of ARB No. 51)”. SFAS
1
6
0
establishes accounting and reporting standards designed to improve the
relevance, comparability and transparency of the financial information provided
in a reporting entity’s consolidated financial statements. SFAS 160 requires
that ownership interests in subsidiaries held by parties, other than the parent,
to be clearly identified, labeled and presented in the consolidated balance
sheet within the equity, but separate from the parent’s equity; net income
attributable to the parent and the noncontrolling interest to be clearly
identified and presented on the face of the consolidated statement of
operations; changes in the parent’s ownership interest to be accounted for as
equity transactions, if a subsidiary is deconsolidated and any retained
noncontrolling equity investment to be measured at fair value; and that entities
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and noncontrolling owners.
SFAS 160
is effective for fiscal years and interim periods beginning on or after December
15, 2008.
The
Company
is unable
to
currently estimate the impact of SFAS 160 on
its
financial statements.