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 September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to ............
Commission File Number 0-17214
ADMIRAL FINANCIAL CORP.
State of Florida I.R.S. No. 59-2806414
7101 Southwest 67 Avenue
South Miami, Florida 33143
Telephone Number: (305) 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 $.001 Par Value
Outstanding Shares at September 30, 2002: 10,985,046
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
FORM 10-Q
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 5
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
PART I - FINANCIAL INFORMATION
--------------------------------
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
($Dollars)
Assets September 30, 2002 June 30, 2002
------------------ -------------
(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
------------ ------------
$ 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 Sept 30
----------------------------
2002 2001
--------- ---------
Interest Income 0 0
Other income 0 0
--------- ---------
Total income 0 0
Expense
Employee Compensation 0 0
Other 0 0
--------- ---------
Total expense 0 0
Loss from discontinued
operation (note 2) 0 0
--------- ---------
Net loss $ 0 0
========= =========
Loss per share $ 0.00 $ 0.00
========= =========
Dividend per share --- ---
========= =========
Weighted average number
of shares outstanding 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)
Three Months Ended Sept 30
--------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $ 0 $ 0
Adjustments to reconcile net loss to net cash
provided by operating activities:
Decrease in deficit arising from confiscation of
Haven Federal after retroactive disallowance
of agreed supervisory goodwill and regulatory capital 0 0
Decrease in prepaid expenses and other assets 0 0
Decrease (increase) in net assets of
Haven Federal 0 0
(Decrease) in accrued expenses and other liabilities 0 0
(Decrease) Increase in net liabilities of
Haven Federal 0 0
Amortization of organization expenses 0 0
--------- ---------
Net cash provided (used) by operating activities 0 0
Cash and cash equivalents, beginning of year 0 0
--------- ---------
Cash and cash equivalents, end of quarter $ 0 $ 0
========= =========
See accompanying notes to consolidated financial statements
3
PART I - FINANCIAL INFORMATION
------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. In the opinion of management, the accompanying consolidated
financial statements contain all the adjustments (principally
consisting of normal recurring accruals and the prior confiscation
of all the principal assets of the Company by the United States
government) necessary to present fairly the financial statements of
Admiral Financial Corp. ('Admiral') and Subsidiary.
Note 2. The net assets of Admiral=s principal operating subsidiary, Haven
Federal Savings and Loan Association ('Haven'), were confiscated by
the United States government on March 2, 1990. Therefore, where
applicable, Haven's net assets and net liabilities are presented in
the balance sheets in the aggregate; and its loss is shown in the
aggregate in the Statements of Operations for the three month
period ended September 30, 2002 and 2001.
4
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 2 - Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations
General
- -------
ADMIRAL FINANCIAL CORP. ("ADMIRAL"), an inactive corporation, is currently
seeking to recapitalize the Company in order to resume its prior activities
with respect to the acquisition and investment in interest-earning assets
and specialty real estate, as well as other new lines of business, as yet
unidentified. Admiral has been a plaintiff in a AWinstar-type@ action
against the United States government in the United States Court of Federal
Claims since 1993, wherein the Company seeks damages for the government's
breach of a contract involving the Supervisory Goodwill and Regulatory
Capital granted in connection with Admiral's previous acquisition of an
insolvent savings and loan association in 1988. 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.
Admiral is presently conducting virtually no business operation, other
than its efforts to effect a merger, exchange of capital stock, asset
acquisition, recapitalization, or other similar business combination
(a "Recapitalization") with an operating or development stage business which
Admiral considers to have significant growth potential. Admiral has neither
engaged in any operations nor generated any revenue since the confiscation
of the Company's entire asset base by the United States government in 1990
(See Admiral's AWinstar@-type breach of contract litigation regarding
Admiral's former supervisory goodwill position, discussed below). It receives
no cash flow. Admiral anticipates no capital infusions prior to effectuating
a Recapitalization. Until such time as Admiral effectuates a Recapitalization,
with the exception of certain other professional fees and costs for such a
transaction, Admiral expects that it will incur minimal operating costs
throughout the current fiscal year.
No officer or director of Admiral is paid any type of compensation by
Admiral and presently, there are no arrangements or anticipated arrangements
to pay any type of compensation to any officer or director in the near
future. Admiral expects that it will meet its cash requirements until such
time as a Recapitalization occurs. However, in the event Admiral depletes
its present cash reserves, Admiral may cease operations and a Recapitalization
may not occur. There are no agreements or understandings of any kind with
respect to any loans from officers or directors of Admiral on the
Company's behalf.
This discussion may contain statements regarding future financial
performance and results. The realization of outcomes consistent with these
forward-looking statements is subject to numerous risks and uncertainties to
the Company including, but not limited to, the availability of equity capital
and financing sources, the availability of attractive acquisition
opportunities once such new equity capital and financing is secured (if at
all), the successful integration and profitable management of acquired
businesses, improvement of operating efficiencies, the availability of
working capital and financing for future acquisitions, the Company's
ability to grow internally through expansion of services and customer
bases without significant increases in overhead, seasonality, cyclicality,
and other risk factors.
Admiral Financial Corp. was formed in 1987 to acquire an insolvent
savings and loan association in a supervisory acquisition solely with
private investment funds, and without the benefit of any federal assistance
payments. Admiral acquired Haven Federal Savings and Loan Association of
Winter Haven, Florida on June 16, 1988. In that acquisition transaction,
Admiral issued 8,000,000 new common shares in exchange for assets (primarily
real estate and a profitable business engaged in the purchase and redemption
of Florida tax sale certificates) having a fair market value of
approximately $40 million, subject to approximately $27 million of
mortgages and other liabilities, and less approximately $1 million of fees
and expenses (necessary to provide the proper forms and documentation in
accordance with government rules and regulations), for a net equity
contribution of approximately $12 million. Admiral then contributed
virtually all of these net assets and liabilities to the capital of Haven,
plus an additional 987,000 new common shares of Admiral, which were
simultaneously issued in exchange for 100% of the outstanding shares of
Haven in an approved Asupervisory acquisition" of an insolvent thrift
institution. Admiral has had substantially no assets or operations other
than its investment in Haven.
5
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 A
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.
6
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.
- ------------------------------------------
7
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 September 30. 2002 and 2001
- ------------------------------------------------------------
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.
8
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: November 13, 2002 By: /s/ Wm. Lee Popham
-------------------------
Wm. Lee Popham, President
Date: November 13, 2002 By: /s/ Linda E. Baker
--------------------------
Linda E. Baker, Principal Financial
and Accounting Officer
10