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, 1997
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.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2806414
(State of incorporation) (I.R.S. Employer
Identification No.)
825 Arthur Godfrey Road
Miami Beach, Florida 33140
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 305-861-7998
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(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 as of September 26, 1997 (based on the last closing sale price as
reported on the OTC Bulletin Board on such date) was $4,391,012.
Number of shares of common stock outstanding as of September 27, 1996, was
10,985,046.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
ADMIRAL FINANCIAL CORP.
FORM 10-K
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 6
Part II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 7
Item 6. Selected Consolidated Financial Data 7
Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 8
Item 8. Consolidated Financial Statements 9
Item 9. Disagreements on Accounting and Financial
Disclosure 9
Part III
Item 10. Directors and Executive Officers of the
Registrant 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12
Item 13. Certain Relationships and Related Transactions 13
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 14
<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 were dependent primarily on the needs of this
community and were relatively unaffected by the prosperity of any of the
businesses located in its primary market area.
As a result of the enactment of The Financial Institution Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), the United States government
retroactively applied new capital standards to Haven, declared Haven to be
insolvent and in default of certain provisions of an agreement that the
federal government itself had disregarded, 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.
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 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.
<PAGE>
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
Supervisory Goodwill of approximately $20 million.
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%
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.
<PAGE>
If Admiral had defaulted in this regard, it could have been 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. There were no
federal assistance payments, capital assistance notes, or any other form of
federal payments (which had been made available to other purchasers of
insolvent thrifts), involved in the acquisition Agreement negotiations. The
only elements of the Agreement that Admiral specifically bargained for was the
allowance of Supervisory Goodwill, with its twenty-five year amortization
period, to compensate Admiral for its recapitalization of an insolvent thrift
with a $15 million negative net worth on the supervisory acquisition date.
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.
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.
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") was introduced on February 5, 1989, and enacted into law on August
9,1989. FIRREA imposed, by no later than December 7, 1989, more stringent
capital requirements upon savings institutions than those previously in
effect. These capital requirements were applied to Haven on a retroactive
basis. Haven did not meet these new capital requirements on the date of
enactment, or on the earlier date of Haven's acquisition by Admiral. Because
of certain provisions of FIRREA relating primarily to the disallowance of
supervisory goodwill and certain other intangible assets in the calculation
of required net capital, 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 effect on the date of
Haven's acquisition by Admiral, Haven would have fallen short of
the capital requirements by approximately $14 million, after taking into
account Admiral's contribution of $11 million of new regulatory capital.
Admiral did not infuse any additional capital, and the net assets of Haven
were confiscated by the federal authorities on March 2, 1990.
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.
<PAGE>
As of March 31, 1989, Haven's regulatory capital fell approximately
$580,000 below its minimum regulatory capital requirement, as the direct
result of a $4.3 million real estate loss recorded on March 31, 1989. 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 $14 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.
Because of the effects of FIRREA, 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 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
<PAGE>
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.
ITEM 2. PROPERTIES.
Admiral Financial Corp.'s principal office is located in Miami Beach,
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.
On August 5, 1993, Admiral filed a Complaint against the United States of
America in the United States Court of Federal Claims, arising in part out of
contractual promises made to Admiral by the United States' Government, acting
through the Federal Home Loan Bank Board ("FHLBB") and the Federal Savings and
Loan Insurance Corporation ("FSLIC") pursuant to their statutory supervisory
authority over federally insured savings and loan institutions and savings
banks (hereinafter referred to a "thrifts" or "thrift institutions"), and in
part out of takings of property by the FHLBB and FSLIC in the course of
exercising that authority. In this action, Admiral seeks (1) a declaration
that the government's actions constitute a repudiation and material breach of
their contractual obligations to Admiral and, thereby, effect a taking of
Admiral's property without just compensation and a deprivation of Admiral's
property without due process of law, in violation of the Fifth Amendment, and
(2) compensatory damages for the United States' breach of contract, or (3)
rescission of the contract and restitutionary relief, or (4) compensation for
the taking of Admiral's property, or (5) damages for the deprivation of
Plaintiffs' property without due process of law."
This action was stayed by order of the Court dated September 3, 1993,
pending the en banc decision on rehearing of the Court of Appeal for the
Federal Circuit in Winstar Corp., et al. v. United States, a pending action
which Admiral management believes to contain a similar fact pattern.
On August 30, 1995, the United States Court of Appeals for the Federal
Circuit, in an en banc decision, affirmed the summary judgment decisions by
the Court of Federal Claims on the liability portion of the breach of contract
claims against the United States in Winstar, and in two other similar cases
(Statesman and Glendale) which had been consolidated for purposes of the
appeal. In its Winstardecisions, the Court of Federal Claims found that an
implied-in-fact contract existed between the government and Winstar, and that
the government breached this contract when Congress enacted FIRREA. In
Statesman and Glendale, that Court found that the Plaintiffs had express
contracts with the government which were breached by the enactment of FIRREA.
<PAGE>
The federal government appealed the Winstar decisions to the United
States Supreme Court. On November 14, 1995, Admiral's action (and all other
similar actions) was stayed by order of the Court, pending the outcome of that
appeal.
On July 1, 1996, the United States Supreme Court concluded in Winstar
that the United States is liable for damages for breach of contract, affirmed
the summary judgment decisions in Winstar, and remanded the cases to the Court
of Federal Claims for further hearings on the calculation of damages. The
majority of the Court found "no reason to question the Federal Circuit's
conclusion that the Government had express contractual obligations to permit
respondents to use goodwill and capital credits in computing their regulatory
capital reserves. When the law as to capital requirements changed, the
Government was unable to perform its promises and became liable for breach
under ordinary contract principles."
Subsequent to the United States Supreme Court decision in Winstar, the
stay on Admiral's litigation proceedings has been lifted. While the Supreme
Court's ruling in U.S. v. Winstar Corp., et al., serves to support Admiral's
legal claims in its pending lawsuit against the federal government, it is not
possible at this time to predict what effect the Supreme Court's ruling, and
the subsequent rulings of a lower court concerning damages, will have on the
outcome of Admiral's lawsuit. Notwithstanding the Supreme Court's ruling,
there can be no assurance that Admiral will be able to recover any funds
arising out of its claim and, if any recovery is made, the amount of such
recovery.
Admiral is not a party to any other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
<PAGE>
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. In 1989, Admiral was notified by NASDAQ that Admiral's net
worth did not meet the minimum standards for listing on the NASDAQ National
Market 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 was no firm making
a market in Admiral's stock until June 27, 1997, at which time active trading
resumed.
The following table sets forth, for the periods indicated, the high and
low sales prices as reported on the OTC Bulletin Board.
<TABLE>
<CAPTION>
Ask Bid
High Low High Low
<S> <C> <C> <C> <C>
1996:
First Quarter 0 0 0 0
Second Quarter 0 0 0 0
Third Quarter 0 0 0 0
Fourth Quarter 0 0 0 0
1997:
First Quarter 0 0 0 0
Second Quarter 0 0 0 0
Third Quarter 0 0 0 0
Fourth Quarter 5/8 0 3/8 0
</TABLE>
As of June 30, 1997, there were 498 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 had no prior 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. The following table
sets forth selected consolidated financial data for Admiral for the five years
ended June 30, 1997. In addition, selected financial data on the financial
position of Admiral is shown as of June 30, 1997, 1996, 1995, 1994, and 1993.
Such information is qualified in its entirety by the more detailed information
set forth in the financial statements and the notes thereto included elsewhere
herein.
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Admiral income $ 0 0 0 0 0
Haven:
Interest income - - - - -
Interest expense - - - - -
Net interest income
before provision
for loan losses
(expense) 0 0 0 0 0
Provision for loan losses - - - - -
Net interest income
(expense) after
provision for
loan losses 0 0 0 0 0
Loss before extraordinary
item and cumulative effect
of change in accounting
principle 0 0 0 0 (20)
Extraordinary item - - - -
- -
Cumulative effect of change in
accounting principle - - - - -
Net earnings (loss) $ 0 0 0 0 (20)
======= ====== ======= ======= =======
Earnings (loss) per share $ 0.00 0.00 0.00 0.00 (0.00)
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net assets of Haven $ - - - - -
Total assets 0 0 0 0 20
Net liabilities of Haven - - - - -
Total liabilities 24 24 24 24 24
Total stockholders' equity
(deficit) (24) (24) (24) (4) (4)
Book value (deficit) per
common share (.00) (.00) (.00) (.00) (.00)
Number of offices of Admiral 1 1 1 1 1
</TABLE>
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. Admiral's only significant asset was its investment
in Haven. Admiral has been inactive since 1990.
<PAGE>
Comparison of Years Ended June 30, 1997 and 1996
Admiral was inactive, and recorded no revenues or expenses during either
period.
Comparison of Years Ended June 30, 1996 and 1995
Admiral was inactive, and recorded no revenues or expenses during either
period.
Liquidity and Capital Resources
Admiral has been reduced to a corporate "shell," with no operations or
current activity. There is no corporate liquidity, no available capital
resources, and no immediately foreseeable prospects for the future improvement
of Admiral's financial picture.
Admiral management intends to seek a new line of business. as yet
unidentified. In connection therewith, Admiral's management believes that a
restructuring of Admiral may be necessary in order to raise capital for new
operations, and any such restructuring may have a substantial dilutive effect
upon Admiral's existing shareholders. Admiral has no ongoing commitments or
obligations other than with respect to its obligations related to the
acquisition and subsequent confiscation of Haven.
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-11 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, 1997, certain information
with respect to the directors and executive officers continuing in office
until their successors have been elected and qualified.
<PAGE>
<TABLE>
<CAPTION>
Officer
And/or
Director
Name Age Position Since
<S> <C> <C> <C>
Wm. Lee Popham 46 Chairman of the Board, 1987 Chief Executive Officer
and President
Linda E. Baker 58 Director, Vice President, 1987
Secretary, and Treasurer
Charles E. Fancher, Jr. 47 Director 1988
</TABLE>
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 has also been an independent
corporate planning and acquisition consultant since 1996, as well as a Senior
Sales Associate with the Prudential Florida Realty, Miami, Florida, since
1997. 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 was actively employed by that Company from 1990 until its
sale in 1996. 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., Mesa,
Arizona (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. Ms. Baker has been employed as Office/Personnel
Manager at Trivest, Inc., Miami, Florida, an investment holding company,
since January 1990. She was 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 President and Chief Operating
Officer of Fancher Management Group, Inc., Miami, Florida (a water, waste
water, and liquid propane gas utility consulting company), since April 1996.
He previously served as President and Chief Operating Officer of General
Development Utilities, Inc., Miami, Florida (a water, waste water, and liquid
propane gas utility company) from June 1991 until March 1996, and Vice
President of Atlantic Gulf Communities Corporation (f/k/a General Development
Corporation), in Miami, Florida (a real estate development company) from
January 1986 until March 1996. Mr. Fancher was also previously Senior Vice
President of General Development Utilities, Inc., from January 1986 until
June 1991. Prior thereto, he served as a Vice President of General
Development Utilities, Inc. in the areas of finance and operations.
<PAGE>
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 $100,000 during the year ended
June 30, 1997.
<TABLE>
<CAPTION>
Name and Annual Compensation Awards
Principal Position Year Salary Bonus Other
<S> <C> <C> <C> <C>
Wm. Lee Popham 1997 $ --- --- ---
Chairman and President 1996 --- --- ---
Chief Executive Officer 1995 --- --- ---
</TABLE>
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.
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
<PAGE>
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.
Indebtedness of Management
Admiral makes no loans to its directors, officers or employees.
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.
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, 1997 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.
<TABLE>
Amount and Percent
Nature of of
Name and Address of Beneficial Common
Beneficial Owner Ownership Stock
<S> <C> <C>
Wm. Lee Popham (l) 2,040,901 18.58%
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 150,120 1.37%
Suite 800
2665 South Bayshore Drive
Coconut Grove, Florida 33133
<PAGE>
Charles E. Fancher, Jr. 12,000 *
2844 Chucunantah Road
Coconut Grove, Florida 33133
All directors and
executive officers as a group (3 persons) 2,203,021 20.05%
* Less than one percent
(1) Includes 63,695 shares held in a testamentary trust for members of 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 76,185 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, the brother
of David C. 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 Haven by Admiral of $354,286, plus expense
reimbursements payable in cash during fiscal 1988. CCH and its affiliates,
including Caesar Creek TSC, Ltd. (CCTSC) 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 describ
ed 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.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
ADMIRAL FINANCIAL CORP.
INDEX
(a.)1. Admiral Financial Corp.: Page
Statement Regarding Sec. 210.3-11 of
Regulation S-K F-1
Consolidated Balance Sheets as of June 30,
1997 and 1996 F-2
Consolidated Statement of Operations for the
three years ended June 30, 1997 F-3
Consolidated Statement of Stockholders'
(Deficit) Equity for the three years ended
June 30, 1997 F-4
Consolidated Statement of Cash Flows for the
three years ended June 30, 1997 F-5
Notes to Consolidated Financial Statements F-6
(a.)2. There are no financial statement schedules required to
be filed by Item 8 of this Form 10-K, or by paragraph
(d) of Item 14.
(a.)3. Exhibits
(3) The Articles of Incorporation and By-Laws of Admiral are incorporated
herein by reference to Exhibits 3.1 and 3.2 of Admiral's Form S-4
Registration Statement filed with the Securities and Exchange
Commission on January 22, 1988.
(4) A specimen copy of Admiral's common stock certificate is
incorporated herein by reference to Exhibit 4.1 in Amendment No. 1 of
Admiral's Form S-4 Registration Statement filed with the Securities
and Exchange Commission on April 5, 1988.
(9) Not applicable.
(10) Admiral hereby incorporates by reference the sections entitled
"Appendix A - Agreement and Plan of orgnization, as amended, dated
October 26, 1987, and related Agreement and Plan of Merger, as
amended" and "Contributed Property Exchange Offer" contained in
Haven's Prospectus/Proxy Statement filed pursuant to Section 14(a)
of the Securities Exchange Act of 1934 in connection with Haven's
special meeting held on June 3, 1988.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(16) Not applicable.
<PAGE>
(18) Not applicable.
(21) Admiral's sole subsidiary has been Haven Federal Savings and Loan
Association. The assets and liabilities of Haven were confiscated
by the federal government on March 2, 1990.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial Data Schedule attached.
(28) Not applicable.
(99) Not applicable.
(b.) On June 27, 1997, Admiral filed a reports on Form 8-K with respect to
the resumption of trading of the Admiral common stock on the OTC
Bulletin Board, and a copy of the press release relating thereto.
(c.) The exhibits required by Item 601 of Regulation S-K are included in
(a)(3) above.
<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 Chief Executive
Date: September 29, 1997 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 Chairman of the Board 09/29/97
Wm. Lee Popham Of Directors, Chief
Chairman and President Executive Officer, and
Principal Executive Officer President
/s/ Linda E. Bake Director, Vice President, 09/29/97 Linda E.
Baker Secretary And Treasurer
Principal Financial Officer
/s/ Charles E. Fancher, Jr. Director 09/29/97
Charles E. Fancher, Jr.
<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.
<PAGE>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
</TABLE>
<TABLE>
<CAPTION>
Assets June 30, 1997 June 30, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash $ 0 $ 0
Prepaid expenses and other assets 0 0
Net assets of Haven Federal Savings and
Loan Association (note 2) 0 0
--------- ---------
Total assets $ 0 $ 0
========= =========
Liabilities and Stockholders' (Deficit)Equity
Accrued expenses and other liabilities $ 23,890 $ 23,890
Net liabilities of Haven Federal Savings
and Loan Association (note 2) 0 0
--------- ---------
Total liabilities 23,890 23,890
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 (715,587) (715,587)
---------- ---------
Total stockholders'
(deficit) equity (23,890) (23,890)
---------- ---------
Total liabilities and stockholders'
(deficit) equity $ 0 $ 0
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION)
Years Ended June 30,
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Interest Income $ 0 $ 0 $ 0
Other income -- -- --
---------- ---------- ----------
Total income 0 0 0
EXPENSES:
Employee Compensation -- -- --
Other Expense 0 0 0
---------- ----------
- ----------
Total expense 0 0 0
Loss from discontinued
operation (note 2) 0 0 0
---------- ---------- ----------
Net loss $ 0 $ 0 $ 0
========== ========== ==========
Loss per share $ 0.00 $ 0.00 $ 0.00
========== ========== ==========
Dividend per share -- -- --
========== ========== ==========
Weighted average number
of shares outstanding 10,985,046 10,985,046 10,985,046
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Statement of Stockholders'
(Deficit) Equity
For the years ended June 30, 1997
<TABLE>
<CAPTION>
Common Stock Addt'l 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)
Net loss for the year (21,043)
Balance at June 30, 1991 10,985,046 $ 10,987 $ 680,710 $ (675,200)
Net loss for the year (20,194)
---------- --------- --------- ----------
Balance at June 30, 1992 10,985,046 $ 10,987 $ 680,710 $ (695,394)
Net loss for the year (20,193)
---------- --------- --------- ----------
Balance at June 30, 1993
1994, 1995, 1996 and 1997 10,985,046 $ 10,987 $ 680,710 $ (715,587)
========== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Year Ended June 30
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ 0 $ 0 $ 0
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
Decrease in prepaid expenses and other
assets
Decrease (increase) in net assets of
Haven Federal
(Decrease) in accrued expenses and
other liabilities
(Decrease) Increase in net liabilities
of Haven Federal
Amortization of organization expenses 0 0 0
------- ------ -----
Net cash provided (used) by operating
activities 0 0 0
Cash and cash equivalents, beginning
of year 0 0 0
------- ------ -----
Cash and cash equivalents,
end of year $ 0 $ 0 $ 0
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Organization and Regulatory Matters
Admiral Financial Corp. ("Admiral") is inactive.
On June 16, 1988, Admiral acquired Haven Federal Savings and Loan Association
("Haven"). 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
<PAGE>
defaults. Failure to cure such default by that date would permit the FSLIC
(or its successor) to seek its legal or equitable remedy as set forth in the
Capital Agreement, which included specific performance or administrative or
judicial enforcement proceedings.
(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. The Association applied for
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 was required to 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. 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.
FIRREA's provisions for new capital standards required institution
<PAGE>
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 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%.
The Association did not meet these new capital requirements imposed by FIRREA.
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.
The net assets of Haven were seized by the federal government on March 2,
1990.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying balance sheets as of June 30, 1997 and 1996, include
references to the accounts of Admiral and the net assets and net liabilities
of its wholly-owned subsidiary, Haven Federal Savings and Loan Association.
Due to Haven's status as a discontinued operation, as discussed in note 1, the
Association's net assets, net liabilities, and net losses from operations
have been presented in the aggregate. The consolidated statements of
operations, stockholders' (deficit) equity and cash flows for the years prior
to 1990 included the accounts of Admiral and the Association. All significant
intercompany transactions have been eliminated in consolidation.
(b) Office Properties and Equipment
All office properties and equipment were sold when the offices of the
Company were closed during the fiscal year ended June 30, 1990, and the
proceeds from such sales are reflected as "other income."
(c) 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.
(d) Real Estate
Loss from real estate operations includes rental income, operating
expenses, interest expense on the related mortgages
<PAGE>
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.
(e)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.
(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, 1997 and 1996, the Company has estimated net operating loss
carryforwards of approximately $10,447,000 and $10,447,000, respectively, for
Federal income tax purposes, and $10,095,000 and $10,095,000, respectively,
for state income tax purposes to offset future taxable income.
These carryforwards were scheduled to expire in future years as follows:
<TABLE>
<CAPTION>
Year ending
June 30, Federal State
<S> <C> <C> <C>
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: 1990 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
Less: 1991 Expirations (2,984,000) (2,941,000)
2006 21,000 21,000
----------- -----------
Net operating loss
carryforwards, June 30, 1991 15,765,000 15,283,000
Less: 1992 Expirations (5,360,000) (5,230,000)
2007 21,000 21,000
----------- -----------
Net operating loss
carryforwards, June 30, 1992 $10,426,000 $10,074,000
2008 21,000 21,000
----------- -----------
Net operating loss
carryforwards, June 30, 1993, 1994
1995, 1996 and 1997 $10,447,000 $10,095,000
=========== ===========
</TABLE>
The Company has not filed its federal or Florida income tax returns for the
fiscal years ended June 30, 1995, 1994, 1993, 1992, 1991 and 1990. While the
confiscation of the assets and liabilities of Haven may have resulted in a
taxable event, management believes that any taxable income resulting from such
confiscation of assets and liabilities should not exceed the available net
operating loss carryforwards.
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,
1996 and 1995, such purchased loss carryforwards remaining amounted to
approximately $2,837,000 and $2,837,000, respectively.
(5) Disposal of the Association Assets and Liabilities
The net assets and net liabilities of Haven were confiscated by the federal
government on March 2, 1990.
(6) Commitments and Contingencies
On August 5, 1993, Admiral filed a Complaint against the United States of
America in the United States Court of Federal Claims, arising in part out of
contractual promises made to Admiral by the United States' Government, acting
through the Federal Home Loan Bank Board ("FHLBB") and the Federal Savings and
Loan Insurance Corporation ("FSLIC") pursuant to their statutory supervisory
authority over federally insured savings and loan institutions and savings
banks (hereinafter referred to a "thrifts" or "thrift institutions"), and in
part out of takings of property by the FHLBB and FSLIC in the course of
exercising that authority. In this action, Admiral seeks (1) a declaration
that the government's actions constitute a repudiation and material breach of
their contractual obligations to Admiral and, thereby, effect a taking of
Admiral's property without just compensation and a deprivation of Admiral's
property without due process of law, in violation of the Fifth
<PAGE>
Amendment, and (2) compensatory damages for the United States' breach of
contract, or (3) rescission of the contract and restitutionary relief, or (4)
compensation for the taking of Admiral's property, or (5) damages for the
deprivation of Plaintiffs' property without due process of law."
This action was stayed by order of the Court dated September 3, 1993, pending
the en banc decision on rehearing of the Court of Appeal for the Federal
Circuit in Winstar Corp., et al. v. United States, a pending action which
Admiral management believes to contain a similar fact pattern.
On August 30, 1995, the United States Court of Appeals for the Federal
Circuit, in an en banc decision, affirmed the summary judgment decisions by
the Court of Federal Claims on the liability portion of the breach of contract
claims against the United States in Winstar, and in two other similar cases
(Statesman and Glendale) which had been consolidated for purposes of the
appeal. In its Winstar decisions, the Court of Federal Claims found that an
implied-in-fact contract existed between the government and Winstar, and that
the government breached this contract when Congress enacted FIRREA. In
Statesman and Glendale, that Court found that the Plaintiffs had express
contracts with the government which were breached by the enactment of FIRREA.
The federal government appealed the Winstar decisions to the United States
Supreme Court. On November 14, 1995, Admiral's action (and all other similar
actions) was stayed by order of the Court, pending the outcome of that appeal.
On July 1, 1996, the United States Supreme Court concluded in Winstar that the
United States is liable for damages for breach of contract, affirmed the
summary judgment decisions in Winstar, and remanded the cases to the Court of
Federal Claims for further hearings on the calculation of damages. The
majority of the Court found "no reason to question the Federal Circuit's
conclusion that the Government had express contractual obligations to permit
respondents to use goodwill and capital credits in computing their regulatory
capital reserves. When the law as to capital requirements changed, the
Government was unable to perform its promises and became liable for breach
under ordinary contract principles."
Subsequent to the United States Supreme Court decision in Winstar, the stay on
Admiral's litigation proceedings has been lifted. While the Supreme Court's
ruling in U.S. v. Winstar Corp., et al., serves to support Admiral's legal
claims in its pending lawsuit against the federal government, it is not
possible at this time to predict what effect the Supreme Court's ruling, and
the subsequent rulings of a lower court concerning damages, will have on the
outcome of Admiral's lawsuit. Notwithstanding the Supreme Court's ruling,
there can be no assurance that Admiral will be able to recover any funds
arising out of its claim and, if any recovery is made, the amount of such
recovery.
Admiral is not a party to any other legal proceedings.
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