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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2806414
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(State of incorporation) (I.R.S. Employer
Identification No.)
7101 Southwest 67 Avenue
South Miami, Florida 33143
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 305-794-7707
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
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 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ___ .
Aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 26, 2000 (based on the last closing sale price
as reported on the OTC Bulletin Board on such date) was $10,985.
Number of shares of common stock outstanding as of September 26, 2000, was
10,985,046.
DOCUMENTS INCORPORATED BY REFERENCE
None
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ADMIRAL FINANCIAL CORP.
FORM 10-K
TABLE OF CONTENTS
Page
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Part I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 6
Part II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 7
Item 6. Selected Consolidated Financial Data 7
Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 8
Item 8. Consolidated Financial Statements 9
Item 9. Disagreements on Accounting and Financial
Disclosure 9
Part III
Item 10. Directors and Executive Officers of the
Registrant 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12
Item 13. Certain Relationships and Related Transactions 13
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 14
PART I
ITEM 1. BUSINESS.
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.
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 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 currently
expects that it will incur minimal future operating costs.
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.
Admiral 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 ("Haven") on June 16,
1988. Admiral had no prior operating history.
Haven was a Federally chartered stock savings and loan association
that had been conducting its business in Winter Haven, Florida, since 1964.
In addition to its main office, Haven had four branch offices in Polk
County which were located in central Florida. A large portion of the
population of Polk County consists of retired persons on fixed incomes so
that the operations of the Association were dependent primarily on the
needs of this community and were relatively unaffected by the prosperity of
any of the businesses located in its primary market area.
As a result of the enactment of The Financial Institution Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), the United States government
1
retroactively applied new capital standards to Haven, declared Haven to be
insolvent and in default of certain provisions of an agreement that the federal
government itself had disregarded, and confiscated the net assets of Haven on
March 2, 1990.
Admiral's sole significant asset was its investment in Haven, and
Admiral has been reduced to an inactive corporate shell.
Admiral acquired Haven on June 16, 1988. The acquisition occurred
through a contributed property exchange, whereby 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 fair market values 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) during the ensuing sixteen month application and
negotiation process with federal regulatory authorities, for a net fair
value equity contribution of approximately $12 million. Admiral then
contributed virtually all of these net assets and liabilities to the
capital of Haven, while simultaneously issuing an additional 987,000 new
common shares of Admiral to the former Haven shareholders, 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, and no operations other than its investment in
Haven, and all active business operations were carried on through Haven.
Prior to the consideration of any of the equity capital contributed by
Admiral in the exchange, the fair value of Haven's liabilities assumed by
Admiral, plus the cost of acquisition, was determined to have exceeded the
fair market value of Haven's tangible assets acquired by approximately
$14,902,000, of which approximately $5,374,000 was attributable to the
estimated intangible value of Haven's deposit base and approximately
$548,000 to the estimated intangible value of Haven's mortgage loan
servicing portfolio. The balance of approximately $8,980,000 was recorded
under generally accepted accounting principles (GAAP) by Haven as excess
cost over net assets acquired (Goodwill). The acquisition was accounted
for as if it occurred on June 30, 1988. The purchase method of accounting
was used to record the acquisition and, accordingly, all assets and
liabilities of Haven were adjusted to their estimated fair value as of the
acquisition date.
By way of a Resolution (the Agreement) dated April 26, 1988, the
Federal Home Loan Bank Board (FHLBB) approved the acquisition of control of
Haven by Admiral. A condition of the Agreement authorizing the acquisition
required that Admiral account for the acquisition of Haven under the
purchase method of accounting, whereby an asset in the nature of
Supervisory Goodwill would be calculated in accordance with the Regulatory
Accounting Principles (RAP) then in effect. Supervisory Goodwill was
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
Supervisory Goodwill of approximately $20 million was, in accordance with
the Agreement, to be amortized against future earnings over a period of
twenty-five years.
Also in accordance with the Agreement, Haven was credited with new
capital under RAP accounting, 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.
In accordance with GAAP, however, the contributed equity values
reported to Admiral's shareholders was the net historical book value of
$596,812, net of approximately $1.05 million of out-of-pocket professional
fees, expenses, and other transaction costs associated with the supervisory
acquisition, and not the appraised net fair market equity values of $13
million.
As an integral part of Admiral's application to acquire Haven, Admiral
filed a Business Plan of proposed operations calling for a significant growth
2
of earning assets, and an increase in low-cost deposits and other lower-cost
liabilities to refinance Haven's relatively high cost of funds. This growth
was to be generated both internally, and by acquisitions of other branches and
thrifts. The FHLBB Agreement approved Admiral's Business Plan.
In exchange for the favorable accounting treatments regarding the
Supervisory Goodwill and the resulting calculation of RAP equity, the
Agreement imposed a number of conditions upon Admiral. Specifically:
Admiral was required to record the supervisory acquisition transaction
utilizing the purchase method of accounting, resulting in the
recognition of Supervisory Goodwill of approximately $20 million.
Admiral agreed that it would cause the regulatory capital of Haven to
be maintained at a level at or above the quarterly minimum regulatory
capital requirement and, if necessary, infuse additional equity capital
sufficient to comply with this requirement.
Should Admiral default in this provision and be unable to cure the
default within 90 days, the FSLIC could exercise any right or remedy
available to it by law, equity, statute or regulation. In addition to
the rights that were available to the FSLIC by virtue of the Agreement,
whenever any savings and loan association fails to meet its regulatory
capital requirement, the FHLBB and the FSLIC (or their successors)
could take such actions as they deem appropriate to protect the
Association, its depositors and the FSLIC.
Admiral agreed that it would cause Haven to liquidate all of the
contributed real estate according to a schedule specified by the FHLBB
as follows: 37.5% of the market value of the properties (as determined
by the FHLBB's District Appraiser) by March 31, 1989, an additional
12.5% by June 30, 1989, and an additional 12.5% during each succeeding
quarter.
If Admiral had defaulted in this regard, it could have been subject to
forfeiture of 100% of its Haven stock. The FSLIC would have the right
to vote the Haven stock, remove Haven's Board of Directors and/or
dispose of the stock of Haven.
Admiral acquired Haven solely with private equity capital. There were
no federal assistance payments, capital assistance notes, or any other form of
federal payments (which had been made available to other purchasers of
insolvent thrifts), involved in the acquisition Agreement negotiations. The
only elements of the Agreement that Admiral specifically bargained for was the
allowance of Supervisory Goodwill, with its twenty-five year amortization
period, to compensate Admiral for its recapitalization of an insolvent thrift
with a $15 million negative net worth on the supervisory acquisition date.
For the fiscal year ended June 30, 1989, Haven experienced a Net
Interest Income (similar to a Gross Profit for commercial business operations)
of $1.635 million, as opposed to a Net Interest Expense of ($.163 million) for
the fiscal year immediately preceding Admiral's supervisory acquisition of
Haven. These results represented a significant turnaround for Haven during the
first year of post-supervisory acquisition operations.
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 to losses sustained as a result of liquidating one single, large
commercial property included in the stated real estate under what can only be
described as "fire sale" conditions, on the last possible day under the
Agreement, in order to meet the time schedules mandated by the FHLBB in 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.
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") was introduced on February 5, 1989, and enacted into law on
3
August 9, 1989. FIRREA imposed, by no later than December 7, 1989, more
stringent capital requirements upon savings institutions than those previously
in effect. These capital requirements were applied to Haven on a retroactive
basis. Haven did not meet these new capital requirements on the date of
enactment, or on the earlier date of Haven's acquisition by Admiral. 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. Had FIRREA been in effect on the date of
Haven's acquisition by Admiral, Haven would have fallen short of the capital
requirements by approximately $14 million, after taking into account Admiral's
contribution of $11 million of new regulatory capital. Admiral did not infuse
any additional capital, and the net assets of Haven were confiscated by the
federal authorities on March 2, 1990.
With nearly $20 million of Supervisory Goodwill on the books and only
$11 million of contributed capital (thereby resulting in a negative tangible
net worth in excess of $8 million, and an immediate shortfall of qualifying
capital in excess of nearly $15 million) on the date of the supervisory
acquisition of Haven by Admiral, Haven did not meet these new capital
requirements imposed by FIRREA.
The FHLBB, in a supervisory letter dated March 31, 1989, designated the
Association as a "troubled institution" subject to the requirements of the
office of Regulatory Activities Regulatory Bulletin 3a ("RB3a"). A troubled
institution under RB3a is subject to various growth restrictions concerning
deposit accounts and lending activities. Haven was directed to shrink its
asset and deposit base, thereby assuring future operating losses.
As of March 31, 1989, Haven's regulatory capital fell approximately
$580,000 below its minimum regulatory capital requirement, as the direct result
of a $4.3 million real estate loss recorded on March 31, 1989. As of June 30,
1989, Haven's regulatory capital was approximately $2.3 million below the
minimum regulatory requirement. This regulatory capital deficiency was a
result of the Association's substantial operating losses incurred as a result
of the directive from FHLBB supervisory personnel to shrink the assets and
deposits of Haven, and the sale of certain parcels of contributed real estate,
under circumstances that could only be described as a fire sale, at amounts
which approximated predecessor cost, rather than at the substantially higher
appraised values (which had previously been reviewed and approved by the
appropriate regulatory authorities). In addition, due to Haven's inability
to continue operations without a significant capital infusion or other source
of recapitalization, the value of the Association's excess cost over net assets
acquired (Goodwill) was considered permanently impaired and, accordingly, the
entire balance was written off at June 30, 1989.
Admiral was notified by the FHLBB on July 17, 1989, that since the
regulatory capital deficiency had not been corrected, Admiral was in default of
the Agreement and had 90 days (i.e., until October 18, 1989) to cure the
default. Admiral management was directed to resign any positions held at
Haven, Haven personnel were directed to cease communications with Admiral, and
to abandon any efforts to meet the contributed real estate liquidation schedule
contained in the Agreement. Admiral did not infuse the additional capital
required, and the net assets of Haven were confiscated by the federal
government on March 2, 1990.
Due to the regulatory capital requirements imposed by FIRREA, even if
Admiral were able to infuse the approximate $2.3 million June 30, 1989
regulatory capital deficiency and cure the default, the cure would have only
been temporary. Because of certain provisions of FIRREA relating primarily to
the treatment of intangible assets, management estimates that Admiral would
have been required to infuse additional capital of approximately $18 million by
the December 7, 1989 date specified by the new law. Had the FIRREA
requirements been effective and fully phased in at the time of the acquisition,
Haven would have had a tangible capital deficiency of approximately $14 million
as of the acquisition date; and to meet the capital requirements, Admiral would
have had to fund approximately $14 million, in addition to the assets which
were contributed with an appraised equity value of approximately $11 million
for regulatory capital purposes.
4
At all times prior to the enactment of FIRREA, Haven had met the
contributed real estate sale schedule. On September 27, 1989, the Association
received a letter from its Supervisory Agent in which the Supervisory Agent
agreed not to enforce its rights upon a default in the real estate sale
schedule until after hearings were conducted regarding various applications
requesting administrative relief that were filed by Haven could be conducted.
The net assets of Haven were confiscated by the federal government on March 2,
1990.
Because of the effects of FIRREA, and the impact of certain
requirements imposed by the Federal Home Loan Bank Board ("FHLBB") and the
Federal Savings and Loan insurance Corporation ("FSLIC") upon Admiral and upon
the operations of Haven, Admiral's management determined that the initial
economic decisions leading to the acquisition, recapitalization and operation
of Haven had been frustrated by FIRREA, and the only remaining alternative
available to Admiral was to sell or merge Haven, and withdraw from the savings
and loan business. Once Haven was divested, Admiral would have no other
operations.
In the meantime, Admiral and Haven applied, immediately after the
enactment of FIRREA, for relief from the requirements of 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 applied for federal assistance payments under a FIRREA relief provision
which management believed was intended to be applicable to prior acquirers of
insolvent thrift institutions in supervisory acquisitions, where a significant
amount of "supervisory goodwill" is involved, and those acquirers were being
treated by the effects of the new legislation as if they had been the persons
who had caused the thrift to become insolvent in the first place. Admiral
management was never notified of any action taken or hearing scheduled in
connection with the various forms of relief being sought.
Because of all of the circumstances enumerated above, Admiral attempted
to dispose of its Haven common stock and to secure a release of its obligations
under the Agreement either through a merger, an acquisition or a tender of its
Haven common stock to the FHLBB or its successor in the event that the
Association's applications for specific relief were not approved.
The net assets of Haven were confiscated on March 2, 1990.
ITEM 2. PROPERTIES.
Admiral Financial Corp.'s principal office is located in South Miami,
Florida. The Company is currently being allowed to share, free of charge,
certain office facilities and office equipment located at 7101 Southwest 67
Avenue, South Miami, Florida 33143. Admiral does not have any lease
obligations.
ITEM 3. LEGAL PROCEEDINGS.
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
5
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 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 was lifted by the United States Court
of Federal Claims, and Admiral filed its own Motion for Summary Judgment on
April 29, 1997. The United States has opposed the motion, and alleged that
there exist genuine issues of material fact and that further discovery is
necessary regarding contract formation and the Government's authority to enter
into the contract with Admiral. The Court is currently allowing pre-trial
discovery proceedings to be conducted.
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.
Admiral is not a party to any other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Admiral's common stock currently trades on the Over-The-Counter Market
(often referred to as the Pink Sheets) under the symbol ADFK.
On June 21, 1988, Admiral's common stock began trading on the National
Association of Securities Dealers Automatic Quotation System (NASDAQ) under the
symbol ADFC. In 1989, Admiral was notified by NASDAQ that Admiral's net worth
did not meet the minimum standards for listing on the NASDAQ National Market
System and that Admiral's stock would begin trading in the "over-the-counter"
market after September 30, 1989, if the minimum capital standards were not met.
From September 30, 1989 until October 1999, Admiral's shares were
listed in the over-the-counter market on the OTC Bulletin Board. Admiral was
notified in October 1999 that as an inactive Company, trading on the OTC
Bulletin Board would no longer be allowed. There is currently no firm making
an active market in Admiral's stock. The Company was notified of a change in
the stock symbol from ADFC to ADFK in January 1999.
The following table sets forth, for the periods indicated, the high and
low sales prices as reported on the OTC Bulletin Board.
Ask Bid
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High Low High Low
---- --- ---- ---
1999:
First Quarter 5/8 31/64 7/16 1/4
Second Quarter 17/32 31/64 9/32 1/32
Third Quarter 1/2 1/4 7/16 1/4
Fourth Quarter 17/32 1/4 1/4 1/8
2000:
First Quarter 3/8 1/8 1/4 N/A
Second Quarter 3/8 N/A 5/32 0.01
Third Quarter 0.01 0.001 0.01 0.001
Fourth Quarter 0.01 0.001 0.001 0.001
As of June 30, 2000, there were 497 stockholders of record.
The Company has not paid cash dividends since inception. The Company
anticipates that for the foreseeable future any earnings from future operations
will be retained for use in its business and no cash dividends will be paid on
its common stock. Declaration of dividends in the future will remain within
the discretion of the Company's Board of Directors, which will review its
dividend policy from time to time on the basis of the company's financial
condition, capital requirements, cash flow, profitability, business outlook and
other factors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Admiral was formed in 1987 for the purpose of effecting the Contributed
Property Exchange Offer and Merger with Haven and had no prior operating
history. Admiral's acquisition of Haven occurred on June 16, 1988, and has
7
been accounted for as if it occurred on June 30, 1988. The following table sets
forth selected consolidated financial data for Admiral for the five years ended
June 30, 2000. In addition, selected financial data on the financial position
of Admiral is shown as of June 30, 2000, 1999, 1998, 1997, and 1996. Such
information is qualified in its entirety by the more detailed information set
forth in the financial statements and the notes thereto included elsewhere
herein.
Year ended June 30,
---------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
Admiral income $ 0 0 0 0 0
Haven:
Interest income - - - - -
Interest expense - - - - -
------- ------- ------- ------- -------
Net interest income
before provision
for loan losses
(expense) 0 0 0 0 0
Provision for loan losses - - - - -
------- ------- ------- ------- -------
Net interest income
(expense) after
provision for
loan losses 0 0 0 0 0
Loss before extraordinary
item and cumulative effect
of change in accounting
principle 0 0 0 0 0
Extraordinary item - - - - -
Cumulative effect of change in
accounting principle - - - - -
------- ------- ------- ------- -------
Net earnings (loss) $ 0 0 0 0 0
======= ======= ======= ======= =======
Earnings (loss) per share $ 0.00 0.00 0.00 0.00 0.00
Year ended June 30,
-------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
Net assets of Haven $ - - - - -
Total assets 0 0 0 0 0
Net liabilities of Haven - - - - -
Total liabilities 24 24 24 24 24
Total stockholders' equity (deficit) (24) (24) (24) (24) (24)
Book value (deficit) per common share (.00) (.00) (.00) (.00) (.00)
Number of offices of Admiral 1 1 1 1 1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
- ---------------------
Admiral was formed in 1987 and had no operations until its acquisition
of Haven on June 16, 1988. Admiral's only significant asset was its investment
in Haven. Admiral has been inactive since 1990.
8
Comparison of Years Ended June 30, 2000 and 1999
- ------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during
either period.
Comparison of Years Ended June 30, 1999 and 1998
- ------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during
either period.
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.
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 have caused 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 had 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
had established a project team to assure that key automated systems and related
processes will remain functional through year 2000. The team addressed 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 consisted 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 included the evaluation of the Year 2000 exposure of third parties
material to the operations of Admiral. If necessary, Admiral would have
retained 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 began with a corporate-wide awareness program which continued to be
updated throughout the life of the project. The assessment phase of the
project involved, 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 had been modified to be Year 2000 compliant. Admiral did
9
not expect that responses from such third parties would be conclusive. As a
result, management could not predict the potential consequences of these or
other third parties that were not Year 2000 compliant. The exposure associated
with Admiral's interaction with third parties is still currently being
evaluated.
Costs to Address Year 2000 Compliance Issues. While the total cost to
the Company of the Year 2000 project is still being evaluated, management
currently estimates that the costs incurred by Admiral during 1999 and 1900
associated with assessing and testing applications, hardware and equipment,
embedded chip systems, and third party developed software was less than $10.
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. To date, no such disruptions have been
encountered, and none are expected.
The goal of the Year 2000 project was to ensure that all of the
critical systems and processes which were under the direct control of the
Company remained functional. However, because certain systems and processes
may have been interrelated with systems outside of the control of the Company,
there can be no assurance that all implementations will continue to be
successful. Accordingly, as part of the Year 2000 project, contingency and
business plans were developed to respond to any failures as they may occur.
Such contingency and business plans were scheduled to be completed during 1999.
The costs to Admiral of the Year 2000 project have not had 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 prospective failure of the Company or third parties to
achieve Year 2000 compliance will not adversely affect the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14 hereof and
included in this report on Pages F-1 through F-11 are incorporated herein by
reference.
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of June 30, 2000, certain
information with respect to the directors and executive officers continuing in
office until their successors have been elected and qualified.
Officer
And/or
Director
Name Age Position Since
---- --- --------------------- -----
Wm. Lee Popham 49 Chairman of the Board, 1987
Chief Executive Officer
and President
Linda E. Baker 61 Director, Vice President, 1987
Secretary, and Treasurer
Charles E. Fancher, Jr. 50 Director 1988
Certain background information for each director is set forth below.
WM. LEE POPHAM has served as Chairman of the Board and President of
Admiral since its inception in 1987. He has also been an independent corporate
planning and acquisition consultant since 1996, as well as the Chief Financial
Officer of Daniel Electrical Contractors, Inc., Miami, Florida, (a wholly-owned
electrical contractor subsidiary of Integrated Electrical Services, Inc.,
Houston, Texas, NYSE-IEE) since January 1999, and a Senior Sales Associate with
Arvida Realty, Miami, Florida, since 1997. He had also served as Chairman of
the Board and President of Caesar Creek Holdings, Inc. (CCH), Miami, Florida
(a financial acquisition company) since June 1985, and in various other officer
and director positions with several subsidiaries and affiliates of CCH, until
its liquidation in December 1989. He has also served as a Director and
Secretary-Treasurer of Jeanne Baker, Inc., a real estate brokerage company
located in Dade County, Florida, since 1973, and was actively employed by that
Company from 1990 until its sale in 1996. He previously served as President of
First Atlantic Capital Corporation, Miami, Florida (an investment company) from
July 1983 to May 1985. Prior thereto, he was a partner in the accounting firm
of KPMG Peat Marwick, LLP, Miami, Florida, where he practiced as a Certified
Public Accountant. He also served as a director of Cruise America, Inc.
(AMEX-RVR), Mesa, Arizona (a recreational vehicle rental and sales
corporation), which shares were traded on the American Stock Exchange until
its sale to Budget Group, Inc.(NYSE-BD), from 1984 until 1991.
LINDA E. BAKER has served as Vice President, Secretary and Treasurer of
Admiral since its inception in April 1987. She has also served as Vice
President, Secretary and Treasurer of CCH, Miami, Florida (a financial
acquisition company) from June 1985 until its liquidation in December 1989, and
in various other officer and director positions with several subsidiaries and
affiliates of CCH. Ms. Baker has been employed as Office/Personnel Manager at
Trivest, Inc., Miami, Florida, an investment holding company, since January
1990. She was Vice President and Secretary of First Atlantic Capital
Corporation, Miami, Florida (an investment company) from October 1983 to June
1985. Prior thereto, she was a Manager with the accounting firm of KPMG Peat
Marwick, LLP, Miami, Florida. Ms. Baker is a Certified Public Accountant.
CHARLES E. FANCHER, JR. has served as President and Chief Operating
Officer of Fancher Management Group, Inc., Miami, Florida (a water, waste
water, and liquid propane gas utility consulting company), since April 1996.
He previously served as President and Chief Operating Officer of General
Development Utilities, Inc., Miami, Florida (a water, waste water, and liquid
propane gas utility company) from June 1991 until March 1996, and Vice
President of Atlantic Gulf Communities Corporation (f/k/a General Development
Corporation), in Miami, Florida (a real estate development company) from
January 1986 until March 1996. Mr. Fancher was also previously Senior Vice
President of General Development Utilities, Inc., from January 1986 until June
1991. Prior thereto, he served as a Vice President of General Development
Utilities, Inc. in the areas of finance and operations.
11
ITEM 11. EXECUTIVE COMPENSATION
Cash Compensation
The following table sets forth certain information with respect to the
Chief Executive Officer, and each other executive officer of Admiral and/or
Haven whose total cash compensation exceeded $100,000 during the year ended
June 30, 2000.
Name and Annual Compensation Awards
--------------------------
Principal Position Year Salary Bonus Other
------------------ ---- ------ ----- -----
Wm. Lee Popham 2000 $ --- --- ---
Chairman and President 1999 --- --- ---
Chief Executive Officer 1998 --- --- ---
Incentive Bonus Plan
Admiral has a policy of paying discretionary bonuses to eligible
officers and employees based upon the individual's performance. Under the
plan, Admiral and its subsidiaries distribute approximately 20% of Admiral's
consolidated pre-tax profits in the form of cash bonuses awarded by the
Compensation Committee of the Board of Directors, based on management's
recommendations and evaluations of performance. No bonuses have been paid
since Admiral's inception in 1987.
Retirement Plan
No Admiral employee is currently covered under any form of retirement
plan.
In prior years, Haven employees were covered under a non-contributory
trusteed pension plan, which was replaced by a contributory Section 401(k) plan
for Admiral and Haven employees on March 31, 1989. Employees were permitted to
contribute amounts up to 6% of their annual salary to this plan, with the
employer providing matching contributions at a rate of 50% of such employee's
contributions (to a maximum of 3% of such employee's salary), together with a
discretionary contribution amount not exceeding 1% of covered compensation.
The Section 401(k) contribution plan was suspended when the net assets
of Haven were confiscated, and all Admiral employees were removed from their
employment positions by the federal regulators.
Stock Compensation Program
The Board of Directors and shareholders of Admiral adopted the 1988
Stock Compensation Program (the "Program"), effective December 19, 1988, for
the benefit of directors, officers and other employees of Admiral and its
subsidiaries, including Haven, who are deemed to be responsible for the future
growth of Admiral. Under the Program, Admiral has reserved 1,100,000 shares of
authorized but unissued Common Stock for the future issuance of option grants.
Options granted under the Program can be in the form of incentive options,
compensatory options, stock appreciation rights, performance shares, or any
combination thereof.
There have been no grants of any rights or options to any director,
officer or employee of Admiral or any affiliate. The Company expects to
distribute such option grants in the event of any Recapitalization transaction.
Employee Stock Purchase Plan
The Board of Directors and shareholders of Admiral approved the 1988
12
Employee Stock Purchase Program on December 19, 1988, enabling the directors,
officers and employees of Admiral and its affiliates to acquire a proprietary
interest in Admiral's Common Stock through a payroll deduction program. To
date, this plan has not been implemented by Admiral.
Employment Agreements
There are no employment agreements between Admiral and any of Admiral's
employees.
Indebtedness of Management
Admiral has made no loans to its directors, officers or employees.
Compensation of Directors
While each Director is entitled to receive $500 plus reasonable out-of-
pocket expenses for attending each meeting, each Director volunteered to
suspend the receipt of all director fees due to Admiral's current financial
condition, beginning with the meeting held during the third fiscal quarter
of the fiscal year ended June 30, 1989. No additional compensation is paid
for attendance of committee meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Admiral's Common Stock as of June 30, 2000 by (i.) each person who
is known by Admiral to own beneficially 5% or more of Admiral's Common Stock,
(ii.) each Director and/or officer of the Company, and (iii.) all Directors and
executive officers of Admiral as a group. Except as indicated below, each
person has sole dispositive and voting power with respect to the shares of
Common Stock indicated.
Amount and Percent
Nature of of
Name and Address of Beneficial Common
Beneficial Owner Ownership Stock
------------------- --------- -----
Wm. Lee Popham (l) 1,923,684 17.51%
7101 Southwest 67 Avenue
South Miami, Florida 33143
Ti-Aun Plantations, N.V. 889,007 8.09%
Suite 600
600 Brickell Avenue
Miami, Florida 33131
David C. Popham (2) 668,651 6.09%
3166 Commodore Plaza
Coconut Grove, Florida 33133
Linda E. Baker 150,120 1.37%
Suite 800
2665 South Bayshore Drive
Coconut Grove, Florida 33133
Charles E. Fancher, Jr. 12,000 *
2844 Chucunantah Road
Coconut Grove, Florida 33133
All directors and
executive officers as a group (3 persons) 2,085,804 18.99%
13
- --------
* Less than one percent
(1) Includes 46,278 shares held in a testamentary trust for members of Wm.
Lee Popham's family, for which Mr. Popham disclaims beneficial
ownership. Does not include any shares directly or beneficially owned
by David C. Popham (his brother) or Jeanne M. Baker (his mother).
(2) Includes 76,185 shares held jointly by David C. Popham and Valerie P.
Popham, his wife. Also includes 119,928 shares held jointly by David
C. Popham and Jeanne M. Baker, the mother of David C. Popham and Wm.
Lee Popham. Does not include any shares beneficially owned by Wm. Lee
Popham, the brother of David C. Popham.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Wm. Lee Popham, the Chairman and President of Admiral, was previously
also the Chairman, President and controlling stockholder of CCH. Mr. Popham's
mother, Jeanne M. Baker, was also a director of CCH. While CCH did not receive
any fees or other compensation from Admiral or Haven during the fiscal year,
CCH did receive a consulting, management and organizational fee in connection
with the acquisition of Haven by Admiral of $354,286, plus expense
reimbursements payable in cash during fiscal 1988. CCH and its affiliates,
including Caesar Creek TSC, Ltd. (CCTSC) were liquidated in December 1989.
Wm. Lee Popham, together with certain members of his family (including
David C. Popham and Jeanne M. Baker) and certain affiliates including CCH and
CCTSC, participated in a transaction which capitalized Admiral in order to
effect the acquisition of Haven in a contributed property exchange offer. The
total historical cost of the property contributed by Wm. Lee Popham, his family
and affiliates in the exchange was $1,228,227, the aggregate appraised value of
such contributed property was $12,586,553, and the net contribution value was
$7,022,965. Mr. Popham and his family and affiliates received an aggregate of
4,330,208 shares of Admiral Common Stock in the exchange, which occurred on
June 16, 1988.
Linda E. Baker, a director, officer and stockholder of Admiral was also
an officer, director and stockholder of CCH prior to its liquidation, as
described above. She is not related to Jeanne M. Baker.
In accordance with the approved supervisory acquisition Agreement,
Haven was contractually obligated to pay Admiral a management fee of $25,000
per quarter for financial and operational advice, budgeting, business planning,
marketing and public relations. Haven was directed by FHLBB supervisory
personnel to cease in honoring this approved contractual obligation, beginning
with the January 1990 payment.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ADMIRAL FINANCIAL CORP.
INDEX
(a.) 1. Admiral Financial Corp.: Page
----
Statement Regarding Sec. 210.3-11 of Regulation S-K F-1
14
Consolidated Balance Sheets as of June 30, 2000 and 1999 F-2
Consolidated Statement of Operations for the three years
ended June 30, 2000 F-3
Consolidated Statement of Stockholders' (Deficit) Equity
for the three years ended June 30, 2000 F-4
Consolidated Statement of Cash Flows for the three years
ended June 30, 2000 F-5
Notes to Consolidated Financial Statements F-6
(a.) 2. There are no financial statement schedules required to be filed
by Item 8 of this Form 10-K, or by paragraph (d) of Item 14.
(a.) 3. Exhibits
(3) The Articles of Incorporation and By-Laws of Admiral are
incorporated herein by reference to Exhibits 3.1 and 3.2 of
Admiral's Form S-4 Registration Statement filed with the
Securities and Exchange Commission on January 22, 1988.
(4) A specimen copy of Admiral's common stock certificate is
incorporated herein by reference to Exhibit 4.1 in Amendment
No. 1 of Admiral's Form S-4 Registration Statement filed with
the Securities and Exchange Commission on April 5, 1988.
(9) Not applicable.
(10) Admiral hereby incorporates by reference the sections entitled
Appendix A - Agreement and Plan of Reorganization, as amended,
dated October 26, 1987, and related Agreement and Plan of
Merger, as amended and Contributed Property Exchange Offer
contained in Haven's Prospectus/Proxy Statement filed pursuant
to Section 14(a) of the Securities Exchange Act of 1934 in
connection with Haven's special meeting held on June 3, 1988.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(16) Not applicable.
(18) Not applicable.
(21) Admiral's sole subsidiary has been Haven Federal Savings and
Loan Association. The assets and liabilities of Haven were
confiscated by the federal government on March 2, 1990.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial Data Schedule attached.
(28) Not applicable.
15
(99) Not applicable.
(b.) Admiral filed no reports on Form 8-K during the fiscal year ended
June 30, 2000.
(c.) The exhibits required by Item 601 of Regulation S-K are included in
(a) (3) above.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
ADMIRAL FINANCIAL CORP.
By /s/ Wm. Lee Popham
------------------------
Wm. Lee Popham, President and
Date: September 26, 2000 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wm. Lee Popham Chairman of the Board September 26, 2000
- ----------------------------
Wm. Lee Popham Of Directors, Chief
Chairman and President Executive Officer, and
Principal Executive Officer President
/s/ Linda E. Baker Director, Vice President, September 26, 2000
- ----------------------------
Linda E. Baker Secretary And Treasurer
Principal Financial Officer
/s/ Charles E. Fancher, Jr. Director September 26, 2000
- ----------------------------
Charles E. Fancher, Jr.
17
FINANCIAL STATEMENTS OF AN INACTIVE REGISTRANT
Pursuant to Sec. 210.3-11 of Regulation S-X, Admiral Financial Corp.
qualifies as an inactive entity, meeting all of the following conditions:
(A.) Gross receipts from all sources for the fiscal year are not in
excess of $100,000;
(B.) Admiral has not purchased or sold any of its own stock, granted
options therefor, or levied assessments upon outstanding stock;
(C.) Expenditures for all purposes for the fiscal year are not in
excess of $100,000;
(D.) No material change in the business has occurred during the
fiscal year, including any bankruptcy, reorganization,
readjustment or succession or any material acquisition or
disposition of plants, mines, mining equipment, mine rights
or leases; and
(E.) No exchange upon which the shares are listed, or governmental
authority having jurisdiction, requires the furnishing to it or
the publication of audited financial statements.
Accordingly, the attached financial statements of Admiral Financial
Corp. are unaudited.
F-1
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
Assets June 30, 2000 June 30, 1999
------ ------------- -------------
(Unaudited) (Unaudited)
Cash $ 0 $ 0
Prepaid expenses and other assets 0 0
Net assets of Haven Federal Savings and
Loan Association (note 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 (note 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.
F-2
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Years Ended June 30,
---------------------------------------
2000 1999 1998
------- ------- -------
REVENUES:
Interest Income $ 0 $ 0 $ 0
Other income -- -- --
--------- --------- ---------
Total income 0 0 0
EXPENSES:
Employee Compensation -- -- --
Other Expense 0 0 0
--------- --------- ---------
Total expense 0 0 0
Loss from discontinued operation (note 2) 0 0 0
--------- --------- ---------
Net loss $ 0 $ 0 $ 0
========= ========= =========
Loss per share $ 0.00 $ 0.00 $ 0.00
========= ========= =========
Dividend per share -- -- --
========= ========= =========
Weighted average number
of shares outstanding 10,985,046 10,985,046 10,985,046
========== ========== ===========
See accompanying notes to consolidated financial statements
F-3
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Statement of Stockholders'
(Deficit) Equity
For the years ended June 30, 2000
Common Stock Additional Retained
Issued and Outstanding Paid-In Earnings
----------------------
Shares Amount Capital (Deficit)
------ ------ ------- ---------
Balance at June 30, 1988 10,985,046 $ 10,987 $ 680,710 $ -
Net loss for the year - - (13,813,316)
---------- ------ ------- -----------
Balance at June 30, 1989 10,985,046 10,987 680,710 (13,813,316)
Confiscation of Subsidiary
Net Assets and Liabilities - - 13,238,189
Net loss for the year - - (79,030)
---------- ------ ------- -----------
Balance at June 30, 1990 10,985,046 $ 10,987 $ 680,710 $ (654,157)
Net loss for the year (21,043)
---------- ------ ------- -----------
Balance at June 30, 1991 10,985,046 $ 10,987 $ 680,710 $ (675,200)
Net loss for the year (20,194)
---------- ------ ------- -----------
Balance at June 30, 1992 10,985,046 $ 10,987 $ 680,710 $ (695,394)
Net loss for the year (20,193)
---------- ------ ------- -----------
Balance at June 30, 1993, 1994,
1995, 1996, 1997 , 1998,
1999, and 2000 10,985,046 $ 10,987 $ 680,710 $ (715,587)
========== ====== ======= ==========
See accompanying notes to consolidated financial statements.
F-4
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Year Ended June 30
------------------------------------------
2000 1999 1998
------- ------- -------
Cash flows from operating activities:
Net loss $ 0 $ 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
Decrease in prepaid expenses and other assets
Decrease (increase) in net assets of
Haven Federal
(Decrease) in accrued expenses and other liabilities
(Decrease) Increase in net liabilities of
Haven Federal
Amortization of organization expenses 0 0 0
------- ------- -------
Net cash provided (used) by operating activities 0 0 0
Cash and cash equivalents, beginning of year 0 0 0
------- ------- -------
Cash and cash equivalents, end of year $ 0 $ 0 $ 0
======= ======= ======
See accompanying notes to consolidated financial statements
F-5
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Organization and Regulatory Matters
-----------------------------------
Admiral Financial Corp. ("Admiral") is inactive.
On June 16, 1988, Admiral acquired Haven Federal Savings and Loan
Association ("Haven"). Admiral was a newly formed savings and loan
holding company that was capitalized through the contribution of
various parcels of real estate, investment securities and a tax sale
certificate business ("Contributed Property") recorded at its net
predecessor cost of $596,812, net of transaction costs. The
Association was acquired by Admiral through the exchange of common
stock which was accounted for under the purchase method of accounting
and, accordingly, the assets and liabilities were adjusted to their
estimated fair market values as of the date of acquisition.
In connection with the acquisition, the Federal Home Loan Bank Board
("FHLBB"), which was abolished by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and was succeeded by the Office of
Thrift Supervision ("OTS") of the Treasury Department, issued a
resolution (the "Agreement") on April 26, 1988, requiring that Admiral
must comply with certain conditions. Those conditions included a
Regulatory Capital Maintenance/Dividend Agreement (the "Capital
Agreement") dated June 15, 1988, by and between the Federal Savings
and Loan Insurance Corporation "FSLIC" and Admiral:
(a.) No dividends will be paid by the Association until all of the
real estate included in the Contributed Property is liquidated
and the cash proceeds recorded on the Association's books. Any
dividends that are a result of income from the sale of real
estate are restricted to the sales price less the regulatory
appraised value minus any carrying costs paid by the
Association. In addition, unless prior approval has been
obtained from the FHLBB, dividends paid by the Association
shall be limited to 50% of its income for that fiscal year as
reflected in its quarterly reports to the FHLBB, except for the
fiscal year of acquisition when dividends paid by the
Association shall be limited to 50% of its net income earned
after the effective date of the acquisition, provided that any
dividends permitted under this limitation may be deferred and
paid in a subsequent year, and the payment of dividends would
not reduce the regulatory capital of the Association below the
required level.
(b.) If the Association fails to meet its regulatory capital
requirements, then Admiral must infuse sufficient equity
capital, in a form satisfactory to the FHLBB, into the
Association during the subsequent quarter. Admiral was
permitted to cure any default within 90 days. Failure to do
so will allow the FSLIC to exercise its legal or equitable
rights under the Capital Agreement to enforce the terms of the
Capital Agreement. Admiral was deemed by the FHLBB on July 17,
1989, to have defaulted on its obligation to infuse capital
under the Capital Agreement and was given until October 18,
1989, to cure such defaults. Failure to cure such default by
that date would permit the FSLIC (or its successor) to seek its
legal or equitable remedy as set forth in the Capital
Agreement, which included specific performance or
administrative or judicial enforcement proceedings.
F-6
(c.) Admiral shall cause the Association to liquidate all of the
real estate contributed as regulatory capital within two years
after consummation of the transaction according to the
following schedule: at least 37.5% of the market value of the
properties as determined by the FHLBB District Appraiser by the
end of the third quarter after consummation and thereafter at
least 12.5% each subsequent quarter. The Association shall not
provide financing to facilitate the liquidation of the real
estate contributed as regulatory capital without the prior
written approval of the Association's Supervisory Agent. If
Admiral does not meet this real estate liquidation schedule,
the FSLIC shall have the right to vote the Association's stock,
remove the Association's Board of Directors and/or dispose of
any or all of the common stock of the Association owned by
Admiral. The Association applied for relief from the
requirements of the Resolution and Capital Agreement which
mandate the sale of real estate in accordance with the schedule
above, but was never given the opportunity for a hearing, or
the benefit of a response.
For regulatory purposes, the Association was required to comply with
minimum regulatory capital requirements. During the year ended June
30, 1989, the Association incurred substantial operating losses and
sold certain parcels of Contributed Property at amounts which
approximated predecessor cost, rather than at the substantially higher
regulatory appraised values. These factors contributed to the
Association's failure to meet its minimum regulatory capital
requirement on June 30, 1989. At June 30, 1989, such minimum
regulatory capital requirement amounted to approximately $6,642,000.
When an association fails to meet its regulatory capital requirement,
the FHLBB and the FSLIC (and their successors) may take such actions
as they deem appropriate to protect the Association; its depositors;
the FSLIC; and its successor, Savings Association Insurance 'Fund
("SAIF").
The FHLBB, in a supervisory letter dated March 31, 1989, designated the
Association as a "troubled institution" subject to the requirements of
the Office of Regulatory Activities Regulatory Bulletin 3a ("RB3a").
A troubled institution under RB3a is subject to various growth
restrictions concerning deposit accounts and lending activities.
Admiral did not have the ability to infuse sufficient equity capital
into the Association in accordance with the Agreement and Capital
Agreement. Due to the inability to continue operations without a
significant capital infusion or other source of recapitalization, the
value of the Association's excess cost over net assets acquired was
considered permanently impaired and, accordingly, was written off at
June 30, 1989.
On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") was signed into law. FIRREA
imposed, by no later than December 7, 1989, more stringent capital
requirements upon savings institutions than those currently in effect.
In addition, FIRREA included provisions for changes in the Federal
regulatory structure for institutions including a new deposit
insurance system, increased deposit insurance premiums and
restricted investment activities with respect to non-investment
grade corporate debt and certain other investments. FIRREA also
increases the required ratio of housing- related assets in order to
qualify as an insured institution.
FIRREA's provisions for new capital standards required institutions to
have a minimum regulatory tangible capital equal to 1.5% of total
assets and a minimum 3.0% leverage capital ratio by no later than
December 7, 1989. The ability to include qualifying supervisory
goodwill for purposes of the leverage capital ratio requirement will
be phased out by January 1, 1995. In addition, institutions were
required to meet a risk-based capital requirement. In all cases, the
capital standards were also required to be no less stringent than
standards applicable to national banks. Currently, national banks are
required to maintain a primary capital-to-assets ratio of 5.5% and a
total capital-to-assets ratio of 6.0%.
F-7
The Association did not meet these new capital requirements imposed by
FIRREA.
The Association sought regulatory relief from sanctions imposed by
FIRREA for failing to meet the minimum regulatory capital
requirements, and applied for financial assistance to the FDIC.
There was no response or hearing prior to the seizure of Haven.
The net assets of Haven were seized by the federal government on March
2, 1990.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Presentation
---------------------
The accompanying balance sheets as of June 30, 2000 and 1999, include
references to the accounts of Admiral and the net assets and net
liabilities of its wholly-owned subsidiary, Haven Federal Savings and
Loan Association. Due to Haven's status as a discontinued operation,
as discussed in note 1, the Association's net assets, net liabilities,
and net losses from operations have been presented in the aggregate.
The consolidated statements of operations, stockholders' (deficit)
equity and cash flows for the years prior to 1990 included the accounts
of Admiral and the Association. All significant intercompany
transactions have been eliminated in consolidation.
(b) Office Properties and Equipment
-------------------------------
All office properties and equipment were sold when the offices of the
Company were closed during the fiscal year ended June 30, 1990, and the
proceeds from such sales are reflected as "other income."
(c) Income Taxes
------------
Admiral and its wholly-owned subsidiary file a consolidated tax return.
Taxes are provided on all income and expense items included in
earnings, regardless of the period in which such items are recognized
for tax purposes, except for income representing a permanent
difference.
(d) Real Estate
-----------
Loss from real estate operations includes rental income, operating
expenses, interest expense on the related mortgages payable, gains on
sales, net and provision for estimated losses to reflect subsequent
declines in the net realizable value below predecessor cost.
Provisions for estimated losses on real estate are charged to earnings
when, in the opinion of management, such losses are probable. While
management uses the best information available to make evaluations,
future adjustments to the allowances may be necessary if economic
conditions change substantially from the assumptions used in making
the evaluations.
(e) Excess Cost Over Net Assets Acquired and Other Intangibles
----------------------------------------------------------
The excess cost over net assets acquired was amortized by the interest
method over the estimated lives of the long-term, interest-bearing
assets acquired. The remaining unamortized excess cost over net assets
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acquired was written off at June 30, 1989 (see note 1).
(g) Cash and Cash Equivalents
-------------------------
For the purpose of the statement of cash flows, cash and cash
equivalents include the accounts of Admiral.
(3) Purchase Accounting
-------------------
At June 30, 1989, the remaining unamortized excess cost over net assets
acquired of $7,768,074 was written off and charged to operations
(see note 1).
(4) Income Taxes
------------
At June 30, 2000 and 1999, the Company has estimated net operating loss
carryforwards of approximately $10,447,000 and $10,447,000,
respectively, for Federal income tax purposes, and $10,095,000 and
$10,095,000, respectively, for state income tax purposes to offset
future taxable income.
These carryforwards were scheduled to expire in future years as
follows:
Year ending
June 30, Federal State
-------- ------- -----
1990 $ 2,348,000 $ 2,304,000
1991 2,984,000 2,941,000
1992 5,360,000 5,230,000
2001 1,549,000 1,537,000
2002 1,288,000 1,288,000
2004 7,468,000 7,128,000
------------- -------------
Net operating loss
carryforwards, June 30, 1989: 20,997,000 20,428,000
Less: 1990 Expirations (2,348,000) (2,304,000)
2005 79,000 79,000
------------- --------------
Net operating loss
carryforwards, June 30, 1990: 18,728,000 18,203,000
Less: 1991 Expirations (2,984,000) (2,941,000)
2006 21,000 21,000
------------- --------------
Net operating loss
carryforwards, June 30, 1991 15,765,000 15,283,000
Less: 1992 Expirations (5,360,000) (5,230,000)
2007 21,000 21,000
------------- ---------------
Net operating loss
carryforwards, June 30, 1992 $10,426,000 $10,074,000
2008 21,000 21,000
------------- ---------------
Net operating loss
carryforwards, June 30,
1993, 1994, 1995, 1996,
1997, 1998, 1999 and 2000 $10,447,000 $10,095,000
============= ===============
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The Company has not filed its federal or Florida income tax returns
for the fiscal years ended June 30, 2000, 1999, 1998, 1997, 1996, 1995,
1994, 1993, 1992, 1991 and 1990. While the confiscation of the assets
and liabilities of Haven may have resulted in a taxable event,
management believes that any taxable income resulting from such
confiscation of assets and liabilities should not exceed the available
net operating loss carryforwards.
The net operating loss carryforwards expiring through 2002 were
generated by the Association prior to its acquisition by Admiral
Financial Corp. and have been carried over at their original amounts
for income tax purposes. For financial statement purposes, these
purchased loss carryforwards will not be used to offset the future tax
expense of Admiral. They will be accounted for as an adjustment to
equity if and when a tax benefit is realized. At June 30, 2000 and
1999, such purchased loss carryforwards remaining amounted to
approximately $2,837,000 and $2,837,000, respectively.
(5) Disposal of the Association Assets and Liabilities
--------------------------------------------------
The net assets and net liabilities of Haven were confiscated by the
federal government on March 2, 1990.
(6) Commitments and Contingencies
-----------------------------
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 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
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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
filed its own Motion for Summary Judgment on April 29, 1997. The
United States has opposed the motion, and alleged that there exist
genuine issues of material fact and that further discovery is
necessary regarding contract formation and the Government's authority
to enter into the contract with Admiral. The Court is currently
allowing pre-trial discovery proceedings to be conducted.
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.
Admiral is not a party to any other legal proceedings.
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