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, 2004
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) 669-6117
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, 2004: 10,985,046
PART I - FINANCIAL INFORMATION
--------------------------------
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
Assets March 31,2004 June 30, 2003
------- -------------- -------------
(Unaudited) (Unaudited)
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
------------------------- ------------------------
2004 2003 2004 2003
------- ------- ------- -------
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
--------------------------
2004 2003
------- -------
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,
2004 and June 30, 2003.
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 Winstar-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.On October 16, 2002, the Court granted
the Admiral Motion for Summary Judgment in part, by finding that
the United States Government liable for damages for breach of
contract, pending the taking of testimony regarding a possible
prior material breach by Admiral. A trial was conducted during
December, 2002, and testimony was taken regarding the value of
the assets originally contributed by Admiral, and the
Government's arguments regarding Admiral's prior material breach
were heard by the Court. On August 1, 2003, the Court held in
favor of the United States Government, stating that Admiral had
committed a prior material breach when the Company did not meet
the minimum capital requirement at March 31, 1989, despite the
fact that FIRREA was enacted (on August 9, 1989) prior to the end
of Admiral's "cure period" (October 16, 1989), thereby making
such a cure impossible to perform. Admiral management strongly
disagrees with the findings of the Court, and a Notice of Appeal
was filed in September 2003, followed by Oral Arguments in a
Hearing held on May 6, 2004, from which a decision of the Court
is pending. 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.
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,
5
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.
6
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.
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. 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 contributed equity, were confiscated on
March 2, 1990.
7
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. Admiral's Motion for Summary Judgment, together with
several other motions, claims and counter-claims filed by all the
Parties to the litigation, was heard at the United States Court
of Claims on December 18, 2001, and on January 10, 2002. On
October 16, 2002, the Court of Federal Claims found the United
States Government liable for damages to Admiral, for a material
breach of contract. Damage trial hearings are currently
scheduled to begin on December 2, 2002.
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 and the recent ruling of the Court of
Federal Claims in the Admiral case, 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.
The Admiral decision can be found on the Court of Federal Claims
website at http://www.uscfc.uscourts.gov/winstar.htm.
8
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 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. 2003 and 2002
- --------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses
during the period.
Comparison of Nine Months Ended March 31. 2003 and 2002
- -------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses
during the period.
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 12, 2004 By:/s/ Wm. Lee Popham
-------------------------
Wm. Lee Popham, President
Date: May 12, 2004 By:/s/ Wm. Lee Popham
---------------------------
Wm. Lee Popham, Principal Financial
and Accounting Officer