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 March 31, 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 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1998 June 30, 1997
(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>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Mar 31 Nine Months Ended Mar 31
------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income 0 0 0 0
Other income 0 0 0 0
--------- --------- -------- ---------
Total income 0 0 0 0
Expense
Employee Compensation 0 0 0 0
Other 0 0 0 0
--------- --------- -------- ---------
Total expense 0 0 0 0
Loss from discontinued
operation (note 2) 0 0 0 0
--------- --------- -------- ---------
Net loss $ 0 0 0 0
========= ========= ======== =========
Loss per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
========= ========= ======== =========
Dividend per share --- --- --- ---
========= ========= ======== =========
Weighted average number
of shares outstanding 10,985,046 10,985,046 10,985,046 10,985,046
========= ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31
----------------------------
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>
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 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 and nine month periods ended March 31,
1998 and 1997.
<PAGE>
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 acquire a new line 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>
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>
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 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
<PAGE>
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 has 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 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 of Haven.
Comparison of Three Months Ended March 31. 1998 and 1997
Admiral was inactive, and recorded no revenues or expenses
during the period.
Comparison of Nine Months Ended March 31. 1998 and 1997
Admiral was inactive, and recorded no revenues or expenses
during the period.
<PAGE>
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>
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: May 11, 1998 By:/s/ Wm. Lee Popham
----------------------------
Wm. Lee Popham, President
Date: May 11, 1998 By:/s/ Linda E. Baker
-----------------------------
Linda E. Baker, Principal
Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<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>
