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, 2002
--------------
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
-----------------
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, 2002: 10,985,046
PART I - FINANCIAL INFORMATION
--------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2002 June 30, 2001
-------------- -------------
(Unaudited) (Unaudited)
Assets
- ------
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
============== =============
See accompanying notes to consolidated financial statements
1
PART I - FINANCIAL INFORMATION
------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Mar 31 Nine Months Ended Mar 31
------------------------- ------------------------
2002 2001 2002 2001
---------- --------- ---------- ----------
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
========== ========== ========== ==========
See accompanying notes to consolidated financial statements
2
PART I - FINANCIAL INFORMATION
------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended March 31
---------------------------
2002 2001
--------- ---------
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
========= =========
See accompanying notes to consolidated financial statements
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 net
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, 2002 and June 30, 2001.
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"), an inactive corporation, 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. Admiral has been a plaintiff in
a AWinstar-type@ action against the United States government in the
United States Court of Federal Claims since 1993, wherein the Company
seeks damages for the government=s breach of a contract involving the
Supervisory Goodwill and Regulatory Capital granted in connection with
Admiral=s previous acquisition of an insolvent savings and loan
association in 1988.
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 AWinstar@-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 Asupervisory
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
5
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.
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 (AFHLBB@) Resolution
approving the acquisition of control of Haven by Admiral (the
AAgreement@) required that Admiral account for the acquisition of Haven
under the Apurchase@ method of accounting, whereby an asset in the nature
of AGoodwill" 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 (AFSLIC@) 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. Generally
accepted accounting principles would normally have required any losses
from the sale of the contributed assets to have been added to the balance
of supervisory goodwill, and amortized over the same twenty-five year
period. However, with the introduction of FIRREA and the disallowance of
all previously bargained for Supervisory Goodwill, the treatment became
moot. This loss, if added together with other operating losses and
goodwill amortization expenses, might have 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 net 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
6
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 Ano 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. Admiral's
Motion for Summary Judgment, together with several other motions, claims
and counter-claims filed by all the Parties to the litigation, were
argued in two hearings at the United States Court of Claims on December
18, 2001, and on January 10, 2002. A written opinion of the Court is
expected during the current fiscal year.
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 has little or no continuing value.
7
Liquidity and Capital Resources
- -------------------------------
Admiral is currently inactive, and awaiting the ultimate outcome and
results of the Company=s Winstar-type litigation against the United
States government for breach of contract. 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.
Comparison of Three Months Ended March 31. 2002 and 2001
- --------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during
the period.
Comparison of Nine Months Ended March 31. 2002 and 2001
- -------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during
the period.
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.
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: May 13, 2002 By: /s/ Wm. Lee Popham
----------------------------------------
Wm. Lee Popham, President
Date: May 13, 2002 By: /s/ Linda E. Baker
----------------------------------------
Linda E. Baker, Principal Financial
and Accounting Officer
10