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, 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
7101 Southwest 67 Avenue
South Miami, Florida 33143
Telephone Number: (305) 794-7707
(Former Address: 3166 Commodore Plaza, Coconut Grove, Florida 33133)
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, 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
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Assets December 31, 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
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Dec 31 Six Months Ended Dec 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> 2
PART I - FINANCIAL INFORMATION
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended December 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> 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 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, 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 acquire a new line
of business, as yet unidentified.
Admiral is presently conducting virtually no business operation, other
than its efforts to effect a merger, exchange of capital stock, asset
acquisition, recapitalization, or other similar business combination (a
"Recapitalization") with an operating or development stage business which
Admiral considers to have significant growth potential. Admiral has neither
engaged in any operations nor generated any revenue since the confiscation
of the Company's entire asset base by the United States government in 1990
(See Admiral's "Winstar"-type breach of contract litigation regarding
Admiral's former supervisory goodwill position, discussed below). It
receives no cash flow. Admiral anticipates no capital infusions prior to
effectuating a Recapitalization. Until such time as Admiral effectuates a
Recapitalization, with the exception of certain other professional fees and
costs for such a transaction, Admiral expects that it will incur minimal
operating costs throughout the current fiscal year.
No officer or director of Admiral is paid any type of compensation by
Admiral and presently, there are no arrangements or anticipated arrangements
to pay any type of compensation to any officer or director in the near
future. Admiral expects that it will meet its cash requirements until such
time as a Recapitalization occurs. However, in the event Admiral depletes
its present cash reserves, Admiral may cease operations and a
Recapitalization may not occur. There are no agreements or understandings
of any kind with respect to any loans from officers or directors of Admiral
on the Company's behalf.
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
<PAGE> 5
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.
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.
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
<PAGE> 6
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 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
<PAGE> 7
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. 1998 and 1997
Admiral was inactive, and recorded no revenues or expenses during either
period.
Comparison of Six Months Ended December 31. 1998 and 1997
Admiral was inactive, and recorded no revenues or expenses during either
period.
Year 2000
Year 2000 Issue. Many software applications, hardware and equipment
and embedded chip systems identify dates using only the last two digits of
the year. These products may be unable to distinguish between dates in the
year 2000 and dates in the year 1900. That inability (referred to as the
"Year 2000" issue), if not addressed, could cause applications, equipment
or systems to fail or provide incorrect information after December 31, 1999,
or when using dates after December 31, 1999. This in turn could have an
adverse effect on the Company due to a Company's direct dependence on its
own applications, equipment and systems and indirect dependence on those of
other entities with which a Company must interact.
Compliance Program. In order to address the Year 2000 issue, Admiral
has established a project team to assure that key automated systems and
related processes will remain functional through year 2000. The team will
address the project in the following stages: (i) awareness, (ii) assessment,
(iii) remediation, (iv) testing and (v) implementation of the necessary
modifications. The key automated systems consist of (a) management and
financial systems applications, (b) hardware and equipment, (c) embedded
chip systems and (d) third-party developed software. The evaluation of the
Year 2000 issue includes the evaluation of the Year 2000 exposure of third
parties material to the operations of Admiral. If necessary, Admiral will
retain a consulting firm to assist with the review of its systems for Year
2000 issues.
Company State of Readiness. The awareness phase of the Year 2000
project has begun with a corporate-wide awareness program which will
continue to be updated throughout the life of the project. The assessment
phase of the project involves, among other things, efforts to obtain
representations and assurances from third parties, including third party
vendors, that their hardware and equipment, embedded chip systems and
software being used by or impacting Admiral are or will be modified to be
Year 2000 compliant. To date, Admiral does not expect that responses from
such third parties will be conclusive. As a result, management cannot
predict the potential consequences of these or other third parties are not
Year 2000 compliant. The exposure associated with Admiral's interaction
with third parties is also currently being evaluated.
Management expects that the remediation, testing and implementation
phases will be completed prior to the year 1900.
Costs to Address Year 2000 Compliance Issues. While the total cost to
the Company of the Year 2000 project is still being evaluated, management
<PAGE> 8
currently estimates that the costs to be incurred by Admiral in 1999 and
1900 associated with assessing and testing applications, hardware and
equipment, embedded chip systems, and third party developed software will
be less than $100,000. The Company expects that planned capital
expenditures to replace existing financial system applications and hardware
will substantially address its existing Year 2000 issues with financial
system applications and hardware. To date, Admiral has not expended
significant funds related to its Year 2000 compliance assessment.
Risk of Non-Compliance and Contingency Plans. The major applications
which pose the greatest Year 2000 risks for Admiral if implementation of the
Year 2000 compliance program is not successful are the Company's management
systems, financial systems applications and related third-party software.
Potential problems if the Year 2000 compliance program is not successful
include disruptions of the Company's revenue gathering from and distribution
to its customers and vendors and the inability to perform its other
reporting, financial and accounting functions.
The goal of the Year 2000 project is to ensure that all of the critical
systems and processes which are under the direct control of the Company
remain functional. However, because certain systems and processes may be
interrelated with systems outside of the control of the Company, there can
be no assurance that all implementations will be successful. Accordingly,
as part of the Year 2000 project, contingency and business plans will be
developed to respond to any failures as they may occur. Such contingency
and business plans are scheduled to be completed during 1999. Management
does not expect the costs to Admiral of the Year 2000 project to have a
material adverse effect on the Company's financial position, results of
operations or cash flows. However, based on information available at this
time, Admiral cannot conclude that any failure of the Company or third
parties to achieve Year 2000 compliance will not adversely affect the
Company.
<PAGE> 9
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> 10
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: February 16, 1999 By:/s/ Wm. Lee Popham
--------------------------------
Wm. Lee Popham, President
Date: February 16, 1999 By:/s/ Linda E. Baker
--------------------------------
Linda E. Baker, Principal Financial
and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-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>
