UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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.
State of Florida I.R.S. No.
59-2806414
3166 Commodore Plaza
Coconut Grove, Florida 33133
Telephone Number: (305) 794-7707
(Former Address: 825 Arthur Godfrey Road, Miami Beach, Florida 33140)
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 twelve (12)
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
Common Stock $.001 Par Value
Outstanding Shares at September 30, 1998: 10,985,046
<PAGE>
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
FORM 10-Q
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 5
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets September 30, 1998 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash $ 0 $ 0
Prepaid expenses and other assets 0 0
Net assets of Haven Federal Savings and
Loan Association (notes 1 and 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 (notes 1 and 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> 1
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept 30
---------------------------
1998 1997
------- -------
<S> <C> <C>
Interest Income 0 0
Other income 0 0
------- -------
Total income 0 0
Expense
Employee Compensation 0 0
Other 0 0
------- -------
Total expense 0 0
Loss from discontinued
operation (note 2) 0 0
------- -------
Net loss $ 0 0
======= =======
Loss per share $ 0.00 $ 0.00
======= =======
Dividend per share -- --
======= =======
Weighted average number
of shares outstanding 10,985,046 10,985,046
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 2
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept 30
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ 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 0 0
Decrease in prepaid expenses and other assets 0 0
Decrease (increase) in net assets of
Haven Federal 0 0
(Decrease) in accrued expenses and other liabilities 0 0
(Decrease) Increase in net liabilities of
Haven Federal 0 0
Amortization of organization expenses 0 0
------------ ----------
Net cash provided (used) by operating activities 0 0
Cash and cash equivalents, beginning of year 0 0
------------ ----------
Cash and cash equivalents, end of quarter $ 0 $ 0
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 3
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. In the opinion of management, the accompanying
consolidated financial statements contain all the
adjustments (principally consisting of normal recurring
accruals and the prior confiscation of all the
principal assets of the Company by the United States
government) necessary to present fairly the financial
statements of Admiral Financial Corp. ('Admiral') and
Subsidiary.
Note 2. The net assets of Admiral's principal operating
subsidiary, Haven Federal Savings and Loan Association
('Haven'), were confiscated by the United States
government on March 2, 1990. Therefore, where
applicable, Haven's net assets and net liabilities are
presented in the balance sheets in the aggregate; and
its loss is shown in the aggregate in the Statements of
Operations for the three month period ended September
30, 1998 and 1997.
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations
General
ADMIRAL FINANCIAL CORP. ("ADMIRAL") IS CURRENTLY AN INACTIVE
CORPORATION, WITH NO ONGOING BUSINESS ACTIVITY. Admiral management is
currently seeking to recapitalize the Company in order to resume its
prior activities with respect to the acquisition and investment in
interest-earning assets and specialty real estate, as well as other new
lines of business, as yet unidentified.
This discussion may contain statements regarding future financial
performance and results. The realization of outcomes consistent with
these forward-looking statements is subject to numerous risks and
uncertainties to the Company including, but not limited to, the
availability of equity capital and financing sources, the availability
of attractive acquisition opportunities once such new equity capital and
financing is secured (if at all), the successful integration and
profitable management of acquired businesses, improvement of operating
efficiencies, the availability of working capital and financing for
future acquisitions, the Company's ability to grow internally through
expansion of services and customer bases without significant increases
in overhead, seasonality, cyclicality, and other risk factors.
Admiral Financial Corp. 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 of Winter Haven, Florida on June 16, 1988. In that
acquisition transaction, 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 a fair market value 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), for a net equity contribution of approximately $12
million. Admiral then contributed virtually all of these net assets and
liabilities to the capital of Haven, plus an additional 987,000 new
common shares of Admiral, which were simultaneously issued 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 or operations other than its investment in
Haven.
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 more stringent capital requirements
upon savings institutions than those previously in effect. Haven did
not meet these new capital requirements. 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. Admiral did not infuse any additional
capital, and the net assets of Haven were confiscated by the federal
authorities on March 2, 1990.
<PAGE> 5
In the agreement allowing Admiral to acquire Haven in the
supervisory acquisition, Haven was credited with new capital under
"Regulatory Accounting Principles" (RAP) then in effect 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.
A condition to the Federal Home Loan bank Board ("FHLBB")
Resolution approving the acquisition of control of Haven by Admiral (the
"Agreement") required that Admiral account for the acquisition of Haven
under the "purchase" method of accounting, whereby an asset in the
nature of "Goodwill" would be 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 regulatory goodwill of
approximately $20 million was, in accordance with the Agreement, to be
amortized against earnings over a period of twenty-five years.
Another condition to the same Agreement required that Admiral
execute a Regulatory Capital Maintenance/Dividend Agreement which
provided certain remedies if Haven and Admiral were unable to liquidate,
on a scheduled basis ending June 30, 1990, the real estate used by
Admiral to capitalize its acquisition of Haven. The remedies of the
Federal Savings and Loan Insurance Corporation ("FSLIC") agreed to by
Admiral in the Agreement included the right of the FSLIC to (I.) vote
the common stock of Haven; (ii.) remove the board of directors of Haven;
and/or (iii.) dispose of any or all of the voting securities of Haven
owned by Admiral.
The failure of Admiral and Haven to liquidate the real estate in
accordance with the agreement with the FHLBB could have caused the
forfeiture to the FSLIC of all shares of Haven. If the voting
securities of Haven were so forfeited, the stockholders of Admiral would
still hold their shares of Admiral. However, Admiral would have lost
substantially its only asset, and the shares of Admiral common stock,
after such forfeiture, could have had little or no value.
Under the same Agreement, Admiral was also obligated to cause the
regulatory capital of Haven to be maintained at a level at or above the
minimum regulatory capital requirement and, if necessary, infuse
additional equity capital into Haven.
At all times during Admiral's control, 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 in large part to losses sustained as a result of liquidating
the real estate under the "fire sale" conditions imposed by 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. Admiral
and Haven continued to abide by the Agreement entered into with the
FHLBB, to its financial detriment, in spite of the United States
government's assertion that the enactment of FIRREA retroactively
eliminated the need for the government (or any of its instrumentalities)
to live up to any express or implied agreements which may have been
contrary to the subsequent legislation, without the necessity of the
retroactive return of Admiral's $13+ million of net capital and expenses
invested in Haven.
Admiral was notified by the FHLBB on July 17, 1989 that Admiral was
in default of the Agreement and had 90 days (i.e. until October 16.
1989) to cure the default. Admiral had virtually no assets other than
the stock of Haven, and has had no other viable means available to cure
the default since the introduction of FIRREA. The net assets of Haven,
including Admiral's $13 million of contributed equity, were confiscated
on March 2, 1990.
<PAGE> 6
Admiral and Haven applied for relief from the requirements of the
Resolution and 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 also
applied for federal assistance payments under a FIRREA provision for
assistance which management believed was directly applicable to
Admiral/Haven's financial situation. Admiral received no notice of any
hearings prior to the confiscation of Haven on March 2, 1990.
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
substantially 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 was lifted by the United
States Court of Federal Claims, and Admiral filed its own Motion for
Summary Judgment on April 29, 1997. The United States has opposed the
motion, and alleged that there exist genuine issues of material fact and
that further discovery is necessary regarding contract formation and the
<PAGE> 7
Government's authority to enter into the contract with Admiral. The
Court is currently allowing pre-trial discovery proceedings to be
conducted, and such discovery is tentatively scheduled to be completed
by March 31, 1999.
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.
Since Haven was the only significant asset owned by Admiral, the
Admiral common stock may have little or no continuing value.
Liquidity and Capital Resources
Admiral has been reduced to a corporate "shell," with no operations
or current activity. There is no corporate liquidity, no immediately
foreseeable available capital resources, and no immediately foreseeable
prospects for the future improvement of Admiral's financial picture.
Admiral management is currently seeking to recapitalize the Company
in order to resume its prior activities with respect to the acquisition
and investment in interest-earning assets and specialty real estate, as
well as other new lines 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 of Haven.
Comparison of Three Months Ended September 30. 1998 and 1997
Admiral was inactive, and recorded no income or expenses during the
three months ended September 30, 1998 and 1997, respectively.
<PAGE> 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Admiral did not become involved in any new material legal
proceedings during the period covered by this report.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-k
Not applicable.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused the report to be signed on its
behalf by the undersigned thereunto duly authorized.
ADMIRAL FINANCIAL CORP.
(Registrant)
Date:November 12, 1998 By:/s/ Wm. Lee Popham
----------------------------------
Wm. Lee Popham, President
Date:November 12, 1998 By: /s/ Linda E. Baker
----------------------------------
Linda E. Baker, Principal Financial
and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 23,890
<BONDS> 0
0
0
<COMMON> 10,987
<OTHER-SE> (34,877)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
