FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1990
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-17214
ADMIRAL FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2806414
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(State of incorporation) (I.R.S. Employer
Identification No.)
825 ARTHUR GODFREY ROAD
MIAMI BEACH, FLORIDA 33140
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 305-672-5800
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Securities registered pursuant to Section12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K _____ .
Aggregate market value of the voting stock held by non-affiliates of
the Registrant was $0 on September 28, 1990.
Number of shares of common stock outstanding as of September 28, 1990, was
10,985,046.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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ADMIRAL FINANCIAL CORP.
FORM 10-K
TABLE OF CONTENTS
PAGE
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Part I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
Part II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 8
Item 6. Selected Consolidated Financial Data 8
Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 9
Item 8. Consolidated Financial Statements 12
Item 9. Disagreements on Accounting and Financial
Disclosure 12
Part III
Item 10. Directors and Executive Officers of the
Registrant 12
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Admiral Financial Corp. ("Admiral") is currently an inactive
corporation, with no ongoing business activity.
Admiral was formed in 1987 to acquire an insolvent savings and loan
association in a supervisory acquisition solely with private investment funds,
and without the benefit of any federal assistance payments. Admiral acquired
Haven Federal Savings and Loan Association ("Haven") on June 16, 1988. Admiral
had no prior operating history.
Haven was a Federally chartered stock savings and loan association that
had been conducting its business in Winter Haven, Florida, since 1964. In
addition to its main office, Haven had four branch offices in Polk County which
were located in central Florida. A large portion of the population of Polk
County consists of retired persons on fixed incomes so that the operations of
the Association are dependent primarily on the needs of this community and are
relatively unaffected by the prosperity of any of the businesses located in its
primary market area.
As a direct result of the enactment of The Financial Institution
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), the United States
government disregarded its prior commitments, obligations, and agreements with
Admiral and Haven, retroactively applied new capital standards to Haven,
declared Haven to be insolvent and in default of certain provisions of the very
agreement that the federal government refused to further recognize and abide by,
and confiscated the net assets of Haven on March 2, 1990.
Admiral's sole significant asset was its investment in Haven, and
Admiral has been reduced to an inactive corporate shell.
THE HAVEN ACQUISITION
Admiral acquired Haven on June 16, 1988. The acquisition occurred
through a contributed property exchange, whereby Admiral issued 8,000,000 new
common shares in exchange for assets (primarily real estate and a profitable
business engaged in the purchase and redemption of Florida tax sale
certificates) having fair market values of approximately $40 million, subject to
approximately $27 million of mortgages and other liabilities, and less
approximately $1 million of fees and expenses (necessary to provide the proper
forms and documentation in accordance with government rules and regulations)
during the ensuing sixteen month application and negotiation process with
federal regulatory authorities, for a net fair value equity contribution of
approximately $12 million. Admiral then contributed virtually all of these net
assets and liabilities to the capital of Haven, while simultaneously issuing an
additional 987,000 new common shares of Admiral to the former Haven
shareholders, in exchange for 100% of the outstanding shares of Haven in an
approved "supervisory acquisition" of an insolvent thrift institution. Admiral
has had substantially no assets, and no operations other than its investment in
Haven, and all active business operations were carried on through Haven.
Prior to the consideration of any of the equity capital contributed by
Admiral in the exchange, the fair value of Haven's liabilities assumed by
Admiral, plus the cost of acquisition, was determined to have exceeded the fair
market value of Haven's tangible assets acquired by approximately $14,902,000,
of which approximately $5,374,000 was attributable to the estimated intangible
value of Haven's deposit base and approximately $548,000 to the estimated
intangible value of Haven's mortgage loan servicing portfolio. The balance of
approximately $8,980,000 was recorded under generally accepted accounting
principles (GAAP) by
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Haven as excess cost over net assets acquired ("Goodwill"). The acquisition was
accounted for as if it occurred on June 30, 1988. The purchase method of
accounting was used to record the acquisition and, accordingly, all assets and
liabilities of Haven were adjusted to their estimated fair value as of the
acquisition date.
By way of a Resolution (the "Agreement") dated April 26, 1988, the
Federal Home Loan Bank Board ("FHLBB") approved the acquisition of control of
Haven by Admiral. A condition of the Agreement authorizing the acquisition
required that Admiral account for the acquisition of Haven under the "purchase"
method of accounting, whereby an asset in the nature of "Supervisory Goodwill"
would be calculated in accordance with the "Regulatory Accounting Principles"
(RAP) then in effect. Supervisory Goodwill was realized, generally, to the
extent of any previous negative net worth of the acquired insolvent thrift, plus
the excess of the fair market values of the contributed assets over their
respective historical costs. Haven's Supervisory Goodwill of approximately $20
million was, in accordance with the Agreement, to be amortized against future
earnings over a period of twenty-five years.
Also in accordance with the Agreement, Haven was credited with new
capital under RAP accounting, equal to $11 million. This amount was computed by
taking into account the $13 million fair market value of the net assets
contributed by Admiral to Haven, less the $1 million of fees and costs incurred,
and less an additional $1 million resulting from reduced valuations of certain
of the contributed assets for purposes of calculating Haven's RAP equity by the
appraisal division of the Federal Home Loan Bank Board.
In accordance with GAAP, however, the contributed equity values
reported to Admiral's shareholders was the net historical book value of
$596,812, net of approximately $1.05 million of out-of-pocket professional fees,
expenses, and other transaction costs associated with the supervisory
acquisition, and not the appraised net fair market equity values of $13 million.
As an integral part of Admiral's application to acquire Haven, Admiral
filed a Business Plan of proposed operations calling for a significant growth of
earning assets, and an increase in low-cost deposits and other lower-cost
liabilities to refinance Haven's relatively high cost of funds. This growth was
to be generated both internally, and by acquisitions of other branches and
thrifts. The FHLBB Agreement approved Admiral's Business Plan.
In exchange for the favorable accounting treatments regarding the
Supervisory Goodwill and the resulting calculation of RAP equity, the Agreement
imposed a number of conditions upon Admiral. Specifically:
Admiral was required to record the supervisory acquisition transaction
utilizing the "purchase" method of accounting, resulting in the
recognition of the maximum amount of Supervisory Goodwill possible
(approximately $20 million) under any allowable method of current
accounting theory.
Admiral agreed that it would cause the regulatory capital of Haven to
be maintained at a level at or above the quarterly minimum regulatory
capital requirement and, if necessary, infuse additional equity capital
sufficient to comply with this requirement.
Should Admiral default in this provision and be unable to cure the
default within 90 days, the FSLIC could exercise any right or remedy
available to it by law, equity, statute or regulation. In addition to
the rights that were available to the FSLIC by virtue of the Agreement,
whenever any savings and loan association fails to meet its regulatory
capital requirement, the FHLBB and the FSLIC (or their successors)
could take such actions as they deem appropriate to protect the
Association, its depositors and the FSLIC.
Admiral agreed that it would cause Haven to liquidate all of the
contributed real estate according to a schedule specified by the FHLBB
as follows: 37.5%
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of the market value of the properties (as determined by the FHLBB's
District Appraiser) by March 31, 1989, an additional 12.5% by June 30,
1989, and an additional 12.5% during each succeeding quarter.
If Admiral defaulted in this regard, it could be subject to forfeiture
of 100% of its Haven stock. The FSLIC would have the right to vote the
Haven stock, remove Haven's Board of Directors and/or dispose of the
stock of Haven.
Admiral acquired Haven solely with private equity capital. At no point
in time during the sixteen month application process were any discussions held
with FHLBB personnel regarding offers or requests for federal assistance
payments, capital assistance notes, or any other form of federal payments (which
had been made available to many other purchasers of insolvent thrifts), to
compensate Admiral or Haven in connection with Admiral having recapitalized an
insolvent thrift with a $15 million negative net worth on the supervisory
acquisition date.
HAVEN OPERATIONS SUBSEQUENT
TO THE ACQUISITION
After three consecutive pre-acquisition years of operating losses
averaging more than $3 million per year, Haven reported a regulatory profit for
the month of December, 1988, merely six months after Admiral's supervisory
acquisition and contribution of equity capital. Earning assets increased by more
than $50 million, high-cost liabilities were successfully refinanced, an
unprofitable branch was closed, high-interest commercial loans and credit card
lending were introduced, a profitable contributed business that invested in
Florida tax sale certificates was producing relatively high interest yields, the
contributed real estate required to be sold was being marketed and liquidated in
a timely manner, and an application was filed to acquire a one-branch thrift in
Dade County, Florida.
On June 20, 1988, four days after the successful completion and closing
of the Haven acquisition, Admiral filed an application to acquire a one-branch
troubled thrift with assets of approximately $50 million, in Dade County,
Florida. Such application was made in accordance with the Business Plan
previously filed and agreed to by the FHLBB, in order to achieve a timely growth
of earning assets by acquisition, and to gain access to a market where Admiral
management might be able to attract a new, and possibly significant, low-cost
deposit base. Admiral management never received any written acknowledgment or
response to this application from the FHLBB, but was informed in a September
1988 telephone conversation that (contrary to its previous approval of the
Business Plan) no action would be taken until all of the contributed assets were
sold by Haven. Despite the projections and assumptions contained in the approved
Business Plan of Haven, it became apparent to Admiral management that it might
be two years before Haven would be allowed to grow into profitability.
In October 1988, Haven requested permission from the appropriate FHLBB
supervisory personnel to provide arm's-length seller financing to a prospective
purchaser of a significant portion of the contributed property, at terms and
rates that would have been favorable to Haven. In December 1988 Haven was
informed in writing by FHLBB supervisory personnel that they could think of "no
circumstances" where, in the opinion of Haven's Supervisory Agent, it would be
appropriate for a real estate lending institution like Haven to provide a
secured purchase money first mortgage in connection with the sale of any of the
contributed real estate. Immediately thereafter, Admiral management was summoned
to a meeting with FHLBB supervisory personnel in Atlanta, and informed that
despite deteriorating economic conditions,the FHLBB would not hesitate to cause
Admiral to forfeit Haven at the first opportunity, should Haven fail to meet the
real estate liquidation schedule contained in the Agreement. These conditions
included (1) a rising trend in mortgage rates; (2) a softening trend in the
commercial real estate market due to a general tightening of regulatory controls
with respect to commercial real estate loans; and (3) Haven's inability to offer
any seller mortgage financing with respect to any real estate to be sold.
Furthermore, while Admiral and Haven had the right
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to request a hearing with the FHLBB, Admiral management was told that the
Hearing Officer would be the same supervisory person attending the current
meeting, and any request for extensions of time (or any other form of leniency)
would be immediately denied, with no other remedy or form of appeal available.
In October and November 1988, Haven acquired, for investment purposes,
$50 million of government-insured GNMA securities, collateralized by 30-year
government- insured mortgage loans, with average yields approaching 10% per
annum, and financed these purchases with short-term borrowings in the form of
30-day renewable repurchase agreements ("repo's"), at annualized interest rates
of approximately 7%. These loans were anticipated to be reduced as Haven's
deposit base grew. In January 1989, however, as repo interest rates climbed
above 9% per annum, Haven and Admiral management were ordered in writing to
immediately sell the GNMA securities, because the financing of long-term loans
with short-term liabilities (almost as short-term as demand deposits) was
considered to be an "unsafe and unsound business practice." These highly-liquid
securities were sold (at a small profit) the same day that the letter was
received from the Supervisory Agent. Had they been retained in accordance with
Haven management's business and investment decision, management estimates that
Haven would have earned an additional $1.5 million by June 30, 1989 (including
unrealized gains resulting from a generally falling interest rate environment),
thereby further offsetting losses required to be recognized from the "fire sale"
of certain of the contributed real estate assets, discussed below. By this time,
it had become clear to Admiral and Haven management that the FHLBB supervisory
personnel were in control of the day-to-day business and economic decisions
affecting the future profitability of Haven.
In spite of (1) Admiral having published a prospectus/proxy statement
and several other public documents containing the terms of the Agreement with
respect to the forced sale schedule for the contributed real estate (and the
resulting penalties for failure to liquidate the real estate according to the
schedule), so that potential purchasers would wait until the last minute before
making extremely low offers on Haven's real estate for sale (and knowing that
some offer would have to be accepted); (2) the United States economy having
entered a "real estate recession" as a direct result of unfavorable changes in
the federal income tax laws affecting real estate ownership; (3) changes in
federal commercial banking regulations allowing commercial banks to commit less
capital and surplus to residential mortgage loans than virtually any other form
of commercial loan; and (4) Admiral and Haven's determination to make every
effort to comply with all provisions of the Agreement even if the federal
government refused to acknowledge their own obligations, Haven was successful in
meeting the real estate liquidation requirements imposed by the Agreement,
including any extensions of time granted thereunder. However, Haven experienced
a $4.3 million erosion of its regulatory capital due to losses sustained as a
result of liquidating one single, large commercial property included in the
stated real estate under what can only be described as "fire sale" conditions,
on the last possible day under the Agreement, in order to meet the time
schedules mandated by the FHLBB in the Agreement. This loss, together with other
operating losses and goodwill amortization expenses, caused Haven to fail to
meet its minimum capital requirement as of March 31, 1989, and at all times
thereafter.
For the fiscal year ended June 30, 1989, Haven experienced a "Net
Interest Income" (similar to a "Gross Profit" for commercial business
operations) of $1.635 million, as opposed to a Net Interest Expense of ($.163
million) for the fiscal year immediately preceding Admiral's supervisory
acquisition of Haven. These results represented a significant turnaround for
Haven during the first year of post- supervisory acquisition operations, even
though Admiral and Haven management were only allowed to make their own major
business and investment decisions for the first six months of operations
following the supervisory acquisition of Haven.
EFFECTS OF FIRREA
The Financial Institution Reform, Recovery and Enforcement Act of 1989
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("FIRREA") was introduced on February 5, 1989, and enacted into law on August 9,
1989. FIRREA mandated changes to the existing law governing depository
institutions in general and, more specifically, the laws governing savings
associations and their holding companies.
FIRREA abolished both the FHLBB and the FSLIC, and vested their powers
and authorities in three entities--the Office of Thrift Supervision ("OTS"), the
Federal Housing Finance Board ("FHFB") and the Federal Deposit Insurance
Corporation ("FDIC"). OTS, established as an office in the Department of
Treasury, assumed all of the FHLBB's (and certain of the FSLIC'S) regulatory,
rulemaking and supervisory authorities. The FDIC assumed corporate and
receivership capacities with respect to savings associations, and acts as the
administrator of the Savings Association Insurance Fund ("SAIF"), which is the
insurer of savings associations' deposits formerly insured by the FSLIC. The
FDIC continues to insure bank deposits in a separate fund and has the authority
to conduct special examinations of all insured institutions in certain
circumstances. The 12 regional Federal Home Loan Banks will be supervised by the
FHFB, will no longer serve in a supervisory capacity for savings associations,
but will continue to provide credit to their members.
FIRREA imposed, by no later than December 7, 1989, more stringent
capital requirements upon savings institutions than those previously in effect.
In addition, FIRREA includes provisions for changes in the Federal regulatory
structure for institutions including a new deposit insurance system, increased
deposit insurance premiums and restricted investment activities with respect to
non-investment grade corporate debt and certain other investments. FIRREA also
increases the required ratio of housing-related assets in order to qualify as an
insured institution.
FIRREA contained provisions for new capital standards that required
institutions to have a minimum regulatory tangible capital equal to 1.5% of
total assets and a minimum 3.0% leverage capital ratio by no later than December
7, 1989. The ability to include qualifying supervisory goodwill for purposes of
the leverage capital ratio requirement would be phased out by January 1, 1995.
In addition, institutions were required to meet a risk-based capital
requirement. In all cases, the capital standards were also required to be no
less stringent than standards applicable to national banks. Currently, national
banks are required to maintain a primary capital-to-assets ratio of 5.5% and a
total capital-to-assets ratio of 6.0%. Because of these provisions of FIRREA
relating primarily to the treatment of Supervisory Goodwill and other intangible
assets, management estimates that Admiral would have been required under the
Agreement to infuse additional capital of approximately $18 million by December
7, 1989. Had FIRREA been in existence on the date Admiral acquired Haven, Haven
would have had a tangible capital deficiency of approximately $15 million. To
meet the minimum regulatory capital requirement as of the original acquisition
date, Admiral would have been required to fund approximately $14 million, in
addition to the assets which were originally contributed with an appraised
equity value of approximately $11 million for regulatory capital purposes.
With nearly $20 million of Supervisory Goodwill on the books and only
$11 million of contributed capital (thereby resulting in a negative tangible net
worth in excess of $8 million, and an immediate shortfall of qualifying capital
in excess of nearly $15 million) on the date of the supervisory acquisition of
Haven by Admiral, Haven did not meet these new capital requirements imposed by
FIRREA.
The FHLBB, in a supervisory letter dated March 31, 1989, designated the
Association as a "troubled institution" subject to the requirements of the
office of Regulatory Activities Regulatory Bulletin 3a ("RB3a"). A troubled
institution under RB3a is subject to various growth restrictions concerning
deposit accounts and lending activities. Haven was directed to "shrink" its
asset and deposit base, thereby assuring future operating losses.
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REGULATORY CAPITAL DEFICIENCY AND DEFAULT
As of March 31, 1989, Haven's regulatory capital fell approximately
$580,000 below its minimum regulatory capital requirement. As of June 30, 1989,
Haven's regulatory capital was approximately $2.3 million below the minimum
regulatory requirement. This regulatory capital deficiency was a result of the
Association's substantial operating losses incurred as a result of the directive
from FHLBB supervisory personnel to "shrink" the assets and deposits of Haven,
and the sale of certain parcels of contributed real estate, under circumstances
that could only be described as a "fire sale," at amounts which approximated
predecessor cost, rather than at the substantially higher appraised values
(which had previously been reviewed and approved by the appropriate regulatory
authorities). In addition, due to Haven's inability to continue operations
without a significant capital infusion or other source of recapitalization, the
value of the Association's excess cost over net assets acquired (Goodwill) was
considered permanently impaired and, accordingly, the entire balance was written
off at June 30, 1989.
Admiral was notified by the FHLBB on July 17, 1989, that since the
regulatory capital deficiency had not been corrected, Admiral was in default of
the Agreement and had 90 days (i.e., until October 18, 1989) to cure the
default. Admiral management was directed to resign any positions held at Haven,
Haven personnel were directed to cease communications with Admiral, and to
abandon any efforts to meet the contributed real estate liquidation schedule
contained in the Agreement. Admiral did not infuse the additional capital
required, and the net assets of Haven were confiscated by the federal government
on March 2, 1990.
Due to the regulatory capital requirements imposed by FIRREA, even if
Admiral were able to infuse the approximate $2.3 million June 30, 1989
regulatory capital deficiency and cure the default, the cure would have only
been temporary. Because of certain provisions of FIRREA relating primarily to
the treatment of intangible assets, management estimates that Admiral would have
been required to infuse additional capital of approximately $18 million by the
December 7, 1989 date specified by the new law. Had the FIRREA requirements been
effective and fully phased in at the time of the acquisition, Haven would have
had a tangible capital deficiency of approximately $18 million as of the
acquisition date; and to meet the capital requirements, Admiral would have had
to fund approximately $14 million, in addition to the assets which were
contributed with an appraised equity value of approximately $11 million for
regulatory capital purposes.
As of September 30, 1989, Haven had not met the contributed real estate
sale schedule. On September 27, 1989, the Association received a letter from its
Supervisory Agent in which the Supervisory Agent agreed not to enforce its
rights upon a default in the real estate sale schedule until November 1, 1989.
The net assets of Haven were confiscated by the federal government on March 2,
1990.
DISCONTINUED OPERATIONS
Because of FIRREA, discussed below, and the impact of certain
requirements imposed by the Federal Home Loan Bank Board ("FHLBB") and the
Federal Savings and Loan insurance Corporation ("FSLIC") upon Admiral and upon
the operations of Haven, Admiral's management determined that the initial
economic decisions leading to the acquisition, recapitalization and operation of
Haven had been frustrated by FIRREA, and the only remaining alternative
available to Admiral was to sell or merge Haven, and withdraw from the savings
and loan business. Once Haven was divested, Admiral would have no other
operations.
In the meantime, Admiral and Haven applied, immediately after the
enactment of FIRREA, for relief from the requirements of the Agreement. Haven
also applied for regulatory relief from sanctions imposed by FIRREA for failing
to meet the minimum regulatory capital requirements. Furthermore, Admiral and
Haven applied for federal assistance payments under a FIRREA relief provision
which management believed was intended to be applicable to prior acquirers of
insolvent thrift
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institutions in supervisory acquisitions, where a significant amount of
"supervisory goodwill" is involved, and those acquirers were being treated by
the effects of the new legislation as if they had been the persons who had
caused the thrift to become insolvent in the first place. Admiral management was
never notified of any action taken or hearing scheduled in connection with the
various forms of relief being sought.
Because of all of the circumstances enumerated above, Admiral attempted
to dispose of its Haven common stock and to secure a release of its obligations
under the Agreement either through a merger, an acquisition or a tender of its
Haven common stock to the FHLBB or its successor in the event that the
Association's applications for specific relief were not approved.
The net assets of Haven were confiscated on March 2, 1990.
Due to Admiral's intent to dispose of its control of Haven, by merger,
sale or tender of the shares to the FHLBB, and since Haven no longer existed
after March 2, 1990, the net assets and net liabilities of the Association have
been segregated and presented as individual line items in the June 30, 1990,
1989 and 1988 consolidated balance sheets.
ITEM 2. PROPERTIES.
Admiral Financial Corp.'s principal office is located in Miami,
Florida. The Company is currently being allowed to share, free of charge,
certain office facilities and office equipment located at 825 Arthur Godfrey
Road, Miami Beach, Florida 33140. Admiral does not have any lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
As of June 30, 1990, Admiral was not involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
On June 21, 1988, Admiral's common stock began trading on the National
Association of Securities Dealers Automatic Quotation System (NASDAQ) under the
symbol ADFC. During the year, Admiral was notified by NASDAQ that Admiral's net
worth did not meet the minimum standards for listing on the NASDAQ System and
that Admiral's stock would begin trading in the "over-the-counter" market after
September 30, 1989, if the minimum capital standards were not met.
Since September 30, 1989, Admiral's shares have been listed in the
"over-the-counter market on the OTC Bulletin Board. There is no firm currently
making a market in Admiral's stock.
The following table sets forth, for the periods indicated, the high and
low sales prices as reported by NASDAQ.
ASK BID
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HIGH LOW HIGH LOW
---- --- ---- ---
1989:
First Quarter 1 3/8 1 1/4 1 7/8
Second Quarter 1-1/4 7/8 1 1/2
Third Quarter 1-1/4 1/2 3/4 1/4
Fourth Quarter 1/2 3/16 1/4 3/32
1990:
First Quarter 3/16 1/16 1/8 1/32
Second Quarter 0 0 0 0
Third Quarter 0 0 0 0
Fourth Quarter 0 0 0 0
As of June 30, 1990, there were 492 stockholders of record.
The Company has not paid cash dividends since inception. The Company
anticipates that for the foreseeable future any earnings from future operations
will be retained for use in its business and no cash dividends will be paid on
its common stock. Declaration of dividends in the future will remain within the
discretion of the Company's Board of Directors, which will review its dividend
policy from time to time on the basis of the company's financial condition,
capital requirements, cash flow, profitability, business outlook and other
factors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Admiral was formed in 1987 for the purpose of effecting the Contributed
Property Exchange Offer and Merger with Haven and has no operating history.
Admiral's acquisition of Haven occurred on June 16, 1988, and has been accounted
for as if it occurred on June 30, 1988. Therefore, the following table sets
forth selected consolidated financial data for the operations of Haven, the
predecessor company, for the three years ended June 30, 1988, and for Admiral
for the two years ended June 30, 1990. In addition, selected consolidated
financial data on the financial position of Admiral is shown as of June 30,
1990, 1989 and 1988. Such information is qualified in its entirety by the more
detailed information set forth in the consolidated financial statements and the
notes thereto included elsewhere herein.
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------
1990 1989 1988 1987 1986
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Admiral income $ 2 -- -- -- --
Haven:
Interest income -- 19,816 16,107 18,968 21,038
Interest expense -- 17,939 15,302 17,720 20,843
Net interest income ------ ------- ------- ------- -------
before provision
for loan losses
(expense) 2 1,877 805 1,248 195
Provision for loan losses -- (242) (968) (623) (4,100)
Net interest income ------ ------- ------- ------- -------
(expense) after
provision for
loan losses 2 1,635 (163) 625 (3,905)
Loss before extraordinary
item and cumulative effect
of change in accounting
principle (79) (13,937) (3,434) (2,885) (3,421)
Extraordinary item 124 -- -- --
Cumulative effect of change in
accounting principle -- -- -- -- 250
------ ------- ------- ------- -------
Net earnings (loss) $ (79) (13,813) (3,434) (2,885) (3,172)
====== ======= ======= ======= =======
Earnings (loss) per share $(0.01) (1.26) (3.48) (2.92) (3.21)
</TABLE>
YEAR ENDED JUNE 30,
-------------------
1990 1989 1988
---- ---- ----
(Dollars in thousands except per share data)
Net assets of Haven $-- 196,801 220,881
Total assets 61 196,886 221,084
Net liabilities of Haven -- 209,964 220,263
Total liabilities 24 210,008 220,263
Total stockholders' equity (deficit) 37 (13,122) 692
Book value (deficit) per common share .01 (1.19) .06
Number of offices of Admiral 1 1 1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Admiral was formed in 1987 and had no operations until its acquisition of
Haven on June 16, 1988. the acquistion was accounted for as though it had
occured on June 30, 1988, so that the two years ended June 30, 1990 and 1989 are
the first years during which Admiral reported operations. Admiral's only
significant asset is its investment in Haven and, therefore, the opreations
being reported on are primarily those of its subsidiary, the predecessor
registrant Haven.
9
<PAGE>
COMPARISON OF YEARS ENDED JUNE 30, 1990 AND 1989
GENERAL. Net loss for 1990 was $79,030 or $0.01 per share. this
compares to a net loss for 1989 of $13,316 or $41.26 per share. the significant
decrease in the net loss in 1990 compared to 1989 is due primarily to the 1989
write-off of the entire remaining balance of the excess cost over net assets
acquired (Goodwill), as well as the anticipation of losses from the fire-sale of
the contributed real estate, totaling more than $11,500,000. loss from
operations in 1989 of $2.3 million was incurred primarily as a result of
business and investment decisions and directives from Supervisory Authorities to
"shrink" earning asset base. The following illustrates the major differences
between 1990 and 1989:
YEAR ENDED JUNE 30,
-------------------
1990 1989
---- ----
Loss from operations $79,030 $ 2,303,726
Amortization of goodwill and deposit
base intangible 0 1,749,070
(Income) from real estate operations
including gain from sales and
early extinguishment of debt 0 (72,554)
Provision for estimated loss on real
estate sales 0 2,065,000
Goodwill write-off 0 7,768,074
------- ------------
Net loss $79,030 $ 13,813,316
======= ============
TOTAL INCOME. Income increased slightly in 1990 to $2,335 from $1,504
in 1989. Admiral sold its furniture and equipment during 1990.
COMPENSATION EXPENSE. Compensation expenditures were eliminated during
fiscal 1990, when all employees were terminated. Consequently, compensation
expense decreased from $60,080 in 1989 to $26,731 in 1990.
TOTAL OTHER EXPENSE. Other expense items were eliminated during fiscal
1990, when all employees were terminated, Admiral's offices were vacated, and
Admiral became inactive. Consequently, other expense decreased from $66,530 in
1989 to $54,634 in 1990.
COMPARISON OF YEARS ENDED JUNE 30, 1989 (ADMIRAL)
AND 1988 (HAVEN, THE PREDECESSOR REGISTRANT)
GENERAL. Net loss for 1989 was $13,813,316 or $1.26 per share. This
compares to a net loss for 1988 of $3,434,454 or $3.48 per Haven share. The
increased net loss in 1989 compared to 1988 is due primarily to the 1989
write-off of the entire remaining balance of the excess cost over net assets
acquired (Goodwill), as well as the anticipation of losses from the "fire-sale"
of the contributed real estate, totaling more than $11,500,000. Haven's loss
from operations in 1989 of $2.3 million, while significantly less than the 1988
loss from operations in the amount of $3,126,972, was negatively impacted
primarily as a result of business and investment decisions and directives from
Supervisory Authorities to "shrink" earning asset base. The following
illustrates the major differences between 1989 and 1988:
10
<PAGE>
YEAR ENDED JUNE 30,
-------------------
1989 1988
---- ----
(ADMIRAL) (HAVEN)
Loss from operations $ 2,303,726 3,126,972
Amortization of goodwill and deposit
base intangible 1,749,070 307,482
(Income) from real estate operations
including gain from sales and
early extinguishment of debt (72,554) -
Provision for estimated loss on real
estate sales 2,065,000 -
Goodwill write-off 7,768,074 -
----------- ---------
Net loss $13,813,316 3,434,454
=========== =========
INTEREST INCOME AND EXPENSE. Interest income increased to $19,815,893
in 1989 from $16,107,742 in 1988. This was primarily due to interest earned on
mortgage-backed securities which were purchased during the second quarter in
order to increase ratio of interest-earning assets to interest-bearing
liabilities. Interest expense increased to $17,939,099 in 1989 from $15,302,254
in 1988. This was due to increased interest rates on deposits resulting from an
increase in the bank borrowing rate and other deposit rates. There was also
additional interest expense associated with reverse repurchase agreements
utilized primarily to fund the acquisition of mortgage-backed securities.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased from
$968,417 in 1988 to $241,651 in 1989. The provision for loan losses in 1988
resulted primarily from losses on consumer loans. The 1989 loan loss provision
represents a ratio of approximately 1.3% of the outstanding balance of
non-mortgage loans.
TOTAL OTHER INCOME. Other income decreased slightly in 1989 to
$1,026,189 from $1,168,048 in 1988. There was a decline in revenue recognized
from loan fees due to the implementation of FASB No. 91 which was primarily
offset by gains on the sale of mortgage-backed and investment securities.
TOTAL OTHER EXPENSE. Other expense increased substantially to
$8,830,295 in 1989 from $4,439,573 in 1988. This was due in part to the
provision for estimated losses on real estate held for resale of $2,065,000 and
increased employee compensation and benefits and occupancy expenses of $534,790.
Another major factor was the increase of $1,441,588 in the amortization of
goodwill and deposit base intangible which resulted from the increase in
goodwill generated by Admiral's acquisition of Haven.
LIQUIDITY AND CAPITAL RESOURCES
Admiral is inactive and has no current liquidity or capital resources
to draw upon. Admiral management intends to investigate the possibility of any
continuing rights that Admiral or its shareholders may have under the Agreement.
When that has been done, Admiral intends to enter into a new business,
as yet unidentified. In connection therewith, Admiral's management believes that
a restructuring of Admiral will be necessary in order to raise capital for new
operations. Admiral has no ongoing commitments or obligations other than with
respect to its obligations related to the acquisition of Haven.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14 hereof and
included in this report on Pages F-1 through F-9 are incorporated herein by
reference.
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of June 30, 1990, certain
information with respect to the directors and executive officers continuing in
office until their successors have been elected and qualified.
OFFICER
AND/OR
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----
Wm. Lee Popham 39 Chairman of the Board, 1987
Chief Executive Officer
and President
Linda E. Baker 51 Director, Vice President, 1987
Secretary, and Treasurer
Charles E. Fancher, Jr. 40 Director 1988
Certain background information for each director is set forth below.
WM. LEE POPHAM has served as Chairman of the Board and President of
Admiral since its inception in 1987. He had also served as Chairman of the Board
and President of Caesar Creek Holdings, Inc. (CCH), Miami, Florida (a financial
acquisition company) since June 1985, and in various other officer and director
positions with several subsidiaries and affiliates of CCH, until its liquidation
in December 1989. He has also served as a Director and Secretary-Treasurer of
Jeanne Baker, Inc., a real estate brokerage company located in Dade County,
Florida, since 1973, and has been actively employed by that Company since 1990.
He previously served as President of First Atlantic Capital Corporation, Miami,
Florida (an investment company) from July 1983 to May 1985. Prior thereto, he
was a partner in the accounting firm of KPMG Peat Marwick, LLP, Miami, Florida,
where he practiced as a Certified Public Accountant. He also served as a
director of Cruise America, Inc., Miami, Florida (a recreational vehicle rental
and sales corporation), which shares are traded on the American Stock Exchange,
from 1984 until 1991.
LINDA E. BAKER has served as Vice President, Secretary and Treasurer of
Admiral since its inception in April 1987. She has also served as Vice
President, Secretary and Treasurer of CCH, Miami, Florida (a financial
acquisition company) from June 1985 until its liquidation in December 1989, and
in various other officer and director positions with several subsidiaries and
affiliates of CCH. She was
12
<PAGE>
Vice President and Secretary of First Atlantic Capital Corporation, Miami,
Florida (an investment company) from October 1983 to June 1985. Prior thereto,
she was a Manager with the accounting firm of KPMG Peat Marwick, LLP, Miami,
Florida. Ms. Baker is a Certified Public Accountant and a licensed Florida real
estate broker.
CHARLES E. FANCHER, JR. has served as Senior Vice President and Chief
Operating Officer of General Development Utilities, Inc., Miami, Florida (a
water, waste water, and liquid propane gas utility company) since January 1986
and Vice President of General Development Corporation, Miami, Florida (a real
estate development company) since January 1986. Prior thereto, he served as a
Vice President of General Development Utilities, Inc. in the areas of finance
and operations.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth certain information with respect to the
Chief Executive Officer, and each other executive officer of Admiral and/or
Haven whose total cash compensation exceeded $60,000 during the year ended June
30, 1990.
ANNUAL COMPENSATION AWARDS
------ -------------------
NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS OTHER
------------------ ---- ------ ----- ------
Wm. Lee Popham 1990 $13,333 --- ---
Chairman and President 1989 91,482 --- ---
Chief Executive Officer 1988 --- --- ---
INCENTIVE BONUS PLAN
Admiral has a policy of paying discretionary bonuses to eligible
officers and employees based upon the individual's performance. Under the plan,
Admiral and its subsidiaries distribute approximately 20% of Admiral's
consolidated pre-tax profits in the form of cash bonuses awarded by the
Compensation Committee of the Board of Directors, based on management's
recommendations and evaluations of performance. No bonuses have been paid since
Admiral's inception in 1987.
RETIREMENT PLAN
No Admiral employee is currently covered under any form of retirement
plan.
In prior years, Haven employees were covered under a noncontributory
trusteed pension plan, which was replaced by a contributory Section 401(k) plan
for Admiral and Haven employees on March 31, 1989. Employees were permitted to
contribute amounts up to 6% of their annual salary to this plan, with the
employer providing matching contributions at a rate of 50% of such employee's
contributions (to a maximum of 3% of such employee's salary), together with a
discretionary contribution amount not exceeding 1% of covered compensation.
The Section 401(k) contribution plan was suspended when the net assets
of Haven were confiscated, and all Admiral employees were removed from their
employment positions by the federal regulators.
13
<PAGE>
STOCK COMPENSATION PROGRAM
The Board of Directors and shareholders of Admiral adopted the 1988
Stock Compensation Program (the "Program"), effective December 19, 1988, for the
benefit of directors, officers and other employees of Admiral and its
subsidiaries, including Haven, who are deemed to be responsible for the future
growth of Admiral. Under the Program, Admiral has reserved 1,100,000 shares of
authorized but unissued Common Stock for the future issuance of option grants.
Options granted under the Program can be in the form of incentive options,
compensatory options, stock appreciation rights, performance shares, or any
combination thereof.
There have been no grants of any rights or options to any director,
officer or employee of Admiral or any affiliate.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and shareholders of Admiral approved the 1988
Employee Stock Purchase Program on December 19, 1988, enabling the directors,
officers and employees of Admiral and its affiliates to acquire a proprietary
interest in Admiral's Common Stock through a payroll deduction program. To date,
this plan has not been implemented by Admiral.
EMPLOYMENT AGREEMENTS
There are no employment agreements between Admiral and any of Admiral's
employees.
Haven had established a practice of entering into employment agreements
with its executive officers, which generally are of two years' duration and
automatically renew on an annual basis thereafter. The agreements are terminable
by Haven for just cause at any time, or in certain events specified by the
appropriate regulatory authorities. The persons subject to an agreement may be
entitled to severance pay equal to the remaining period of the agreement, but
not less than six months.
INDEBTEDNESS OF MANAGEMENT
Admiral makes no loans to its directors, officers or employees.
Some directors and officers of Admiral or Haven had previously borrowed
money from Haven, in accordance with policy of making mortgage and consumer
loans to the directors, officers and employees of Haven and Admiral, in
accordance with the rules and regulatory guidelines set forth from time to time
by the appropriate regulatory authorities.
COMPENSATION OF DIRECTORS
While each Director is entitled to receive $500 plus reasonable
out-of-pocket expenses for attending each meeting, each Director volunteered to
suspend the receipt of all director fees due to Admiral's current financial
condition, beginning with the meeting held during the third fiscal quarter of
the fiscal year ended June 30, 1989. No additional compensation is paid for
attendance of committee meetings.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Admiral's Common Stock as of June 30, 1990 by (I) each person who
is known by Admiral to own beneficially 5% or more of Admiral's Common Stock,
(ii) each Director and/or officer of the Company, and (iii) all Directors and
executive officers of Admiral as a group. Except as indicated below, each person
has sole dispositive and voting power with respect to the shares of Common Stock
indicated.
AMOUNT AND PERCENT
NATURE OF OF
NAME AND ADDRESS OF BENEFICIAL COMMON
BENEFICIAL OWNER OWNERSHIP STOCK
------------------- ---------- ------
Wm. Lee Popham (l) 2,119,385 19.29%
825 Arthur Godfrey Road
Miami Beach, Florida 33140
Ti-Aun Plantations, N.V. 889,007 8.09%
Suite 600
600 Brickell Avenue
Miami, Florida 33131
David C. Popham (2) 668,651 6.09%
3166 Commodore Plaza
Coconut Grove, Florida 33133
Linda E. Baker (3) 150,120 1.37%
Suite 800
2665 South Bayshore Drive
Coconut Grove, Florida 33133
Charles E. Fancher, Jr. 12,000 *
2844 Chucunantah Road
Coconut Grove, Florida 33133
All directors and
executive officers as a group (7 persons) 2,281,505 20.77%
- --------
* Less than one percent
(1) Includes 63,695 shares held in a testamentary trust for members of Mr.
Wm. Lee Popham's family, for which Mr. Popham disclaims beneficial
ownership. Does not include any shares directly or beneficially owned
by David C. Popham (his brother) or Jeanne M. Baker (his mother).
(2) Includes 11,693 shares held jointly by David C. Popham and Valerie P.
Popham, his wife. Also includes 119,928 shares held jointly by David
C. Popham and Jeanne M. Baker, the mother of David C. Popham and Wm.
Lee Popham. Does not include any shares beneficially owned by Wm. Lee
Popham.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Wm. Lee Popham, the Chairman and President of Admiral, was previously
also the Chairman, President and controlling stockholder of CCH. Mr. Popham's
mother, Jeanne M. Baker, was also a director of CCH. While CCH did not receive
any fees or other compensation from Admiral or Haven during the fiscal year, CCH
did receive a consulting, management and organizational fee in connection with
the acquisition of
15
<PAGE>
Haven by Admiral of $354,286, plus expense reimbursements payable in cash during
fiscal 1988. CCH and its affiliates were liquidated in December 1989.
Wm. Lee Popham, together with certain members of his family (including
David C. Popham and Jeanne M. Baker) and certain affiliates including CCH and
CCTSC, participated in a transaction which capitalized Admiral in order to
effect the acquisition of Haven in a contributed property exchange offer. The
total historical cost of the property contributed by Wm. Lee Popham, his family
and affiliates in the exchange was $1,228,227, the aggregate appraised value of
such contributed property was $12,586,553, and the net contribution value was
$7,022,965. Mr. Popham and his family and affiliates received an aggregate of
4,330,208 shares of Admiral Common Stock in the exchange, which occurred on June
16, 1988.
Linda E. Baker, a director, officer and stockholder of Admiral was also
an officer, director and stockholder of CCH prior to its liquidation, as
described above. She is not related to Jeanne M. Baker.
In accordance with the approved supervisory acquisition Agreement,
Haven was contractually obligated to pay Admiral a management fee of $25,000 per
quarter for financial and operational advice, budgeting, business planning,
marketing and public relations. Haven was directed by FHLBB supervisory
personnel to cease in honoring this approved contractual obligation, beginning
with the January 1990 payment.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
ADMIRAL FINANCIAL CORP.
INDEX
Admiral Financial Corp.: PAGE
Statement Regarding Sec. 210.3-11 of Regulation S-K F-1
Consolidated Balance Sheets as of June 30, 1990 and 1989 F-2
Consolidated Statement of Operations for the two years
ended June 30, 1990 F-3
Consolidated Statement of Stockholders' (Deficit) Equity
for the two years ended June 30, 1990 F-4
Consolidated Statement of Cash Flows for the two years
ended June 30, 1990 F-5
Notes to Consolidated Financial Statements F-6
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ADMIRAL FINANCIAL CORP.
By /s/ WM. LEE POPHAM
-----------------------------
Wm. Lee Popham, President and
Date: September 4, 1996 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ WM. LEE POPHAM September 4, 1996
- ------------------ Chairman of the Board
Wm. Lee Popham Of Directors, Chief
Chairman and President Executive Officer, and
Principal Executive Officer President
/s/ LINDA E. BAKER September 4,1996
- ------------------ Director, Vice President,
Linda E. Baker Secretary And Treasurer
Principal Financial Officer
/s/ CHARLES E. FANCHER, JR. Director September 4, 1996
- --------------------------
Charles E. Fancher, Jr.
17
<PAGE>
FINANCIAL STATEMENTS OF AN INACTIVE REGISTRANT
Pursuant to Sec. 210.3-11 of Regulation S-X, Admiral Financial Corp.
qualifies as an inactive entity, meeting all of the following conditions:
(A) Gross receipts from all sources for the fiscal year are not in
excess of $100,000;
(B) Admiral has not purchased or sold any of its own stock,
granted options therefor, or levied assessments upon
outstanding stock;
(C) Expenditures for all purposes for the fiscal year are not in
excess of $100,000;
(D) No material change in the business has occurred during the
fiscal year, including any bankruptcy, reorganization,
readjustment or succession or any material acquisition or
disposition of plants, mines, mining equipment, mine rights or
leases; and
(E) No exchange upon which the shares are listed, or governmental
authority having jurisdiction, requires the furnishing to it
or the publication of audited financial statements.
Accordingly, the attached financial statements of Admiral Financial
Corp. are unaudited.
F-1
<PAGE>
<TABLE>
<CAPTION>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, 1990 JUNE 30, 1989
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash $ 850 2,262
Prepaid expenses and other assets 60,580 83,170
Net assets of Haven Federal Savings and
Loan Association (note 2) 0 196,801,331
------------- ------------
Total assets $ 61,430 $196,886,763
============= ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accrued expenses and other liabilities $ 23,890 44,276
Net liabilities of Haven Federal Savings
and Loan Association (note 2) 0 209,964,106
------------- ------------
Total liabilities 23,890 210,008,382
Preferred stock, $.01 par value. Authorized
6,000,000 shares, none outstanding
Common stock, $.001 par value,
50,000,000 shares authorized
10,987,000 shares issued 10,987 10,987
Treasury stock, 1,954 and 1,954 shares, at cost 0 0
Additional paid-in capital 680,710 680,710
Deficit (654,157) (13,813,316)
------------- ------------
Total stockholders' (deficit) equity 37,540 (13,121,619)
------------- ------------
Total liabilities and stockholders'
(deficit) equity $ 61,430 $196,886,763
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
YEARS ENDED JUNE 30,
----------------------------
1990 1989
-------- --------
REVENUES:
Interest Income $ 795 $ 1,504
Other income 1,540 --
------------ ------------
Total income 2,335 1,504
EXPENSES:
Employee Compensation 26,731 60,080
Other Expense 54,634 66,530
------------ ------------
Total expense 81,365 126,610
Loss from discontinued operation (note 2) 0 (13,688,210)
------------ ------------
Net loss $ (79,030) $(13,813,316)
============ ============
Loss per share $ (0.01) $ (1.26)
============ ============
Dividend per share -- --
============ ============
Weighted average number
of shares outstanding 10,985,046 10,985,046
============ ============
See accompanying notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
(DEFICIT) EQUITY
FOR THE YEAR ENDED JUNE 30, 1990
COMMON STOCK ADDITIONAL RETAINED
ISSUED AND OUTSTANDING PAID-IN EARNINGS
-----------------------
SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1988 10,985,046 $10,987 $ 680,710 $ --
Net loss for the year -- -- (13,813,316)
---------- ------- ------------ ------------
Balance at June 30, 1989 10,985,046 10,987 680,710 (13,813,316)
Confiscation of Subsidiary
Net Assets and Liabilities -- -- 13,238,189
Net loss for the year -- -- (79,030)
---------- ------- ------------ ------------
Balance at June 30, 1990 10,985,046 $10,987 $ 680,710 $ (654,157)
========== ======= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
YEAR ENDED JUNE 30
------------------------------
1990 1989
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (79,030) $(13,813,316)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Decrease in deficit arising from confiscation of
Haven Federal after retroactive disallowance
of agreed supervisory goodwill and regulatory capital 13,238,189 0
Decrease in prepaid expenses and other assets 22,590 31,309
Decrease (increase) in net assets of
Haven Federal 196,801,331 24,058,209
(Decrease) in accrued expenses and other liabilities (20,386) (85,078)
(Decrease) Increase in net liabilities of
Haven Federal (209,964,106) (10,298,622)
----------- ----------
Net cash provided (used) by operating activities (1,41) (107,498)
Cash and cash equivalents, beginning of year 2,262 109,760
----------- ----------
Cash and cash equivalents, end of year $ 850 $ 2,262
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1990 AND 1989
(1) ORGANIZATION AND REGULATORY MATTERS
On June 16, 1988, Admiral Financial Corp. ("Admiral") acquired Haven
Federal Savings and Loan Association ("Haven"). For financial reporting
purposes, the acquisition has been accounted for as if it occurred on
June 30, 1988, and the results of operations of the Association from
June 16, 1988, to June 30, 1988, are considered to be immaterial.
Admiral was a newly formed savings and loan holding company that was
capitalized through the contribution of various parcels of real estate,
investment securities and a tax sale certificate business ("Contributed
Property") recorded at its net predecessor cost of $596,812, net of
transaction costs. The Association was acquired by Admiral through the
exchange of common stock which was accounted for under the purchase
method of accounting and, accordingly, the assets and liabilities were
adjusted to their estimated fair market values as of the date of
acquisition.
In connection with the acquisition, the Federal Home Loan Bank Board
("FHLBB"), which was abolished by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and was succeeded by the Office of
Thrift Supervision ("OTS") of the Treasury Department, issued a
resolution (the "Agreement") on April 26, 1988, requiring that Admiral
must comply with certain conditions. Those conditions included a
Regulatory Capital Maintenance/Dividend Agreement (the "Capital
Agreement") dated June 15, 1988, by and between the Federal Savings and
Loan Insurance Corporation "FSLIC" and Admiral:
(a) No dividends will be paid by the Association until all of
the real estate included in the Contributed Property is
liquidated and the cash proceeds recorded on the
Association's books. Any dividends that are a result of
income from the sale of real estate are restricted to the
sales price less the regulatory appraised value minus any
carrying costs paid by the Association. In addition,
unless prior approval has been obtained from the FHLBB,
dividends paid by the Association shall be limited to 50%
of its income for that fiscal year as reflected in its
quarterly reports to the FHLBB, except for the fiscal year
of acquisition when dividends paid by the Association shall
be limited to 50% of its net income earned after the
effective date of the acquisition, provided that any
dividends permitted under this limitation may be deferred
and paid in a subsequent year, and the payment of dividends
would not reduce the regulatory capital of the Association
below the required level.
(b) If the Association fails to meet its regulatory capital
requirements, then Admiral must infuse sufficient equity
capital, in a form satisfactory to the FHLBB, into the
Association during the subsequent quarter. Admiral was
permitted to cure any default within 90 days.
Failure to do so will allow the FSLIC to exercise its legal or
equitable rights under the Capital Agreement to enforce the
terms of the Capital Agreement. Admiral was deemed by the
FHLBB on July 17, 1989, to have defaulted on its obligation to
infuse capital under the Capital Agreement and was given until
October 18, 1989, to cure such defaults. Failure to cure such
default by that date will permit the FSLIC (or its successor)
to seek its legal or equitable remedy as set forth in the
Capital Agreement, which includes specific performance or
administrative or judicial enforcement proceedings.
F-6
<PAGE>
(c) Admiral shall cause the Association to liquidate all of the
real estate contributed as regulatory capital within two
years after consummation of the transaction according to
the following schedule: at least 37.5% of the market value
of the properties as determined by the FHLBB District
Appraiser by the end of the third quarter after
consummation and thereafter at least 12.5% each subsequent
quarter. The Association shall not provide financing to
facilitate the liquidation of the real estate contributed
as regulatory capital without the prior written approval of
the Association's Supervisory Agent. If Admiral does not
meet this real estate liquidation schedule, the FSLIC shall
have the right to vote the Association's stock, remove the
Association's Board of Directors and/or dispose of any or
all of the common stock of the Association owned by
Admiral. On September 27, 1989, the Association received a
letter from its Supervisory Agent in which the Supervisory
Agent agreed that should a default arise under the Capital
Agreement due to the Association's failure to cause the
real estate sales schedule to be met, then the Supervisory
Agent agreed not to exercise its rights under the Capital
Agreement until November 1, 1989. The Association applied
for further relief from the requirements of the Resolution
and Capital Agreement which mandate the sale of real estate
in accordance with the schedule above, but was never given
the opportunity for a hearing, or the benefit of a
response.
For regulatory purposes, the Association must comply with minimum
regulatory capital requirements. During the year ended June 30, 1989,
the Association incurred substantial operating losses and sold certain
parcels of Contributed Property at amounts which approximated
predecessor cost, rather than at the substantially higher regulatory
appraised values. These factors contributed to the Association's
failure to meet its minimum regulatory capital requirement on June 30,
1989 (see note 20). At June 30, 1989, such minimum regulatory capital
requirement amounted to approximately $6,642,000. When an association
fails to meet its regulatory capital requirement, the FHLBB and the
FSLIC (and their successors) may take such actions as they deem
appropriate to protect the Association; its depositors; the FSLIC; and
its successor, Savings Association Insurance 'Fund ("SAIF").
The FHLBB, in a supervisory letter dated March 31, 1989, designated the
Association as a "troubled institution" subject to the requirements of
the Office of Regulatory Activities Regulatory Bulletin 3a ("RB3a"). A
troubled institution under RB3a is subject to various growth
restrictions concerning deposit accounts and lending activities.
Admiral did not have the ability to infuse sufficient equity capital
into the Association in accordance with the Agreement and Capital
Agreement. Due to the inability to continue operations without a
significant capital infusion or other source of recapitalization, the
value of the Association's excess cost over net assets acquired was
considered permanently impaired and, accordingly, was written off at
June 30, 1989.
On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") was signed into law. FIRREA imposed,
by no later than December 7, 1989, more stringent capital requirements
upon savings institutions than those currently in effect. In addition,
FIRREA included provisions for changes in the Federal regulatory
structure for institutions including a new deposit insurance system,
increased deposit insurance premiums and restricted investment
activities with respect to non-investment grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets in order to qualify as an insured institution.
However, the biggest impact on Admiral and Haven was FIRREA's
provisions for new capital standards that require institutions to have
a minimum regulatory TANGIBLE capital equal to 1.5% of total assets and
a minimum 3.0% leverage capital ratio by no later than December 7,
1989. The ability to include qualifying supervisory goodwill for
purposes of the leverage capital ratio requirement will be phased out
by January 1, 1995. In addition, institutions will be required to
F-7
<PAGE>
meet a risk-based capital requirement. In all cases, the capital
standards are also required to be no less stringent than standards
applicable to national banks. Currently, national banks are required to
maintain a primary capital-to-assets ratio of 5.5% and a total
capital-to-assets ratio of 6.0%.
The Association did not meet these new capital requirements imposed by
FIRREA, and the net assets of Haven were seized by the federal
government on March 2, 1990.
The Association sought regulatory relief from sanctions imposed by
FIRREA for failing to meet the minimum regulatory capital requirements,
and applied for financial assistance to the FDIC. There was no response
or hearing prior to the seizure of Haven.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying balance sheets as of June 30, 1990 and 1989, include
the accounts of Admiral and the net assets and net liabilities of its
wholly-owned subsidiary, Haven Federal Savings and Loan Association
(see note 10). Due to Admiral's intent to dispose of its control of the
Association, as discussed in note 1, the Association's net assets and
net liabilities are presented in the aggregate. The consolidated
statements of operations, stockholders' (deficit) equity and cash flows
for the year ended June 30, 1989, include the accounts of Admiral and
the Association. All significant intercompany transactions have been
eliminated in consolidation.
(b) OFFICE PROPERTIES AND EQUIPMENT
Depreciation is computed using the straight-line method over the
esti-mated useful lives of the related assets. Estimated lives are five
to twelve years for furniture, fixtures and equipment and thirty to
fifty years for buildings. Renewals and betterments which materially
increase the value of the property are capitalized.
(c) ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is charged to operations based on
management's evaluation of the potential losses in its loan portfolio.
Such evaluation includes a review of all loans for which full
collectibility appears doubtful and considers the estimated value of
the underlying collateral on the loan and such other factors which, in
management's judgment, deserve recognition under existing economic
conditions in estimating loan losses.
(d) INCOME TAXES
Admiral and its wholly-owned subsidiary file a consolidated tax return.
Taxes are provided on all income and expense items included in
earnings, regardless of the period in which such items are recognized
for tax purposes, except for income representing a permanent difference
there are no income tax related assets or liabilities on Admiral's
consolidated balance sheet, the effect of FAS No. 96 is not expected to
have a significant effect on Admiral's financial condition, results of
operations or cash flows.
F-8
<PAGE>
(e) REAL ESTATE
Loss from real estate operations includes rental income, operating
expenses, interest expense on the related mortgages payable, gains on
sales, net and provision for estimated losses to reflect subsequent
declines in the net realizable value below predecessor cost.
Provisions for estimated losses on real estate are charged to earnings
when, in the opinion of management, such losses are probable. While
management uses the best information available to make evaluations,
future adjustments to the allowances may be necessary if economic
conditions change substantially from the assumptions used in making the
evaluations.
(f) EXCESS COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLES
The excess cost over net assets acquired was amortized by the interest
method over the estimated lives of the long-term, interest-bearing
assets acquired. The remaining unamortized excess cost over net assets
acquired was written off at June 30, 1989 (see note 1).
(g) CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and cash
equivalents include the accounts of Admiral and the Association. Cash
equivalents include the Association's interest-bearing deposits and
Federal funds sold, which have original maturities of less than 90
days.
(3) PURCHASE ACCOUNTING
At June 30, 1989, the remaining unamortized excess cost over net assets
acquired of $7,768,074 was written off and charged to operations (see
note 1).
(4) INCOME TAXES
At June 30, 1990 and 1989, the Association has net operating loss
carryforwards of approximately $18,728,000 and $20,997,000 for Federal
income tax purposes, and $18,203,000 and $20,428,000, respectively, for
state income tax purposes to offset future taxable income.
These carryforwards were scheduled to expire in future years as
follows:
YEAR ENDING
JUNE 30, FEDERAL STATE
-------- ------- -----
1990 $2,348,000 $2,304,000
1991 2,984,000 2,941,000
1992 5,360,000 5,230,000
2001 1,549,000 1,537,000
2002 1,288,000 1,288,000
2004 7,468,000 7,128,000
----------- -----------
Net operating loss carryforwards,
June 30, 1989: 20,997,000 20,428,000
Less: Expirations (2,348,000) (2,304,000)
2005 79,000 79,000
----------- -----------
Net operating loss carryforwards,
June 30, 1990: $18,728,000 $18,203,000
=========== ===========
F-9
<PAGE>
The net operating loss carryforwards expiring through 2002 were
generated by the Association prior to its acquisition by Admiral
Financial Corp. and have been carried over at their original amounts
for income tax purposes. For financial statement purposes, these
purchased loss carryforwards will not be used to offset the future tax
expense of Admiral. They will be accounted for as an adjustment to
equity if and when a tax benefit is realized. At June 30, 1990 and
1989, such purchased loss carryforwards remaining amounted to
approximately $8,163,000 and $13,529,000, respectively.
(5) DISPOSAL OF THE ASSOCIATION
The net assets and net liabilities of the Association have been
segregated in the June 30, 1989 and 1988 consolidated balance sheets
due to Admiral's intent to dispose of its control of the Association,
until the date of its seizure by the federal authorities.
(6) RELATED PARTY TRANSACTIONS
The Association paid Admiral a management fee of $25,000 per quarter
during fiscal 1989, and for the first two fiscal quarters of 1990.
These payments between affiliates have been eliminated, reducing the
recognized loss from discontinued operations.
(7) COMMITMENTS AND CONTINGENCIES
Admiral is not involved with any material legal proceedings.
F-10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1990
<PERIOD-START> JUL-01-1989
<PERIOD-END> JUN-30-1990
<CASH> 850
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,430
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,430
<CURRENT-LIABILITIES> 23,890
<BONDS> 0
0
0
<COMMON> 10,987
<OTHER-SE> 26,553
<TOTAL-LIABILITY-AND-EQUITY> 61,430
<SALES> 0
<TOTAL-REVENUES> 2,335
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 81,365
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (79,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (79,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,030)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
