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 December 31, 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.
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 December 31, 1997: 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 December 31, 1997 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.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec 31 Six Months Ended Dec 31
------------------------- -----------------------
1997 1996 1997 1996
------ ------ ------ ------
<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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31
----------------------------
1997 1996
------- -------
<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
3
<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 six
month periods ended December 31, 1997 and 1996.
4
<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.
5
<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
6
<PAGE>
Admiral's $13 million of contributed equity, were confiscated on March 2,
1990.
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."
7
<PAGE>
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.
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 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 December 31. 1997 and 1996
Admiral was inactive, and recorded no revenues or expenses during either
period.
Comparison of Six Months Ended December 31. 1997 and 1996
Admiral was inactive, and recorded no revenues or expenses during either
period.
8
<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.
9
<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: January 13, 1998 By: /s/ Wm. Lee Popham
-------------------------------
Wm. Lee Popham, President
Date: January 13, 1998 By: /s/ Linda E. Baker
-------------------------------
Linda E. Baker, Principal
Financial and Accounting Officer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<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>
