UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 December 31, 2002: 10,985,000
PART I - FINANCIAL INFORMATION
--------------------------------
ADMIRAL FINANCIAL CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
Assets December 31, 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
--------- ---------
Total assets $ 0 $ 0
========= =========
Liabilities and Stockholders' (Deficit) Equity
- ----------------------------------------------
Accrued expenses and other liabilities $ 23,890 $ 23,890
Net liabilities of Haven Federal Savings
and Loan Association (notes 1 and 2) 0 0
-------- ---------
Total liabilities 23,890 23,890
Preferred stock, $.01 par value, Authorized
6,000,000 shares, none outstanding
Common stock, $.001 par value,
50,000,000 shares authorized,
10,987,000 shares issued 10,987 10,987
Treasury stock, 1,954 and 1,954 shares, at cost 0 0
Additional paid-in capital 80,710 680,710
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 Dec 31 Six Months Ended Dec 31
------------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Interest Income 0 0 0 0
Other income 0 0 0 0
------ ------ ------ ------
Total income 0 0 0 0
Expense
Employee Compensation 0 0 0 0
Other 0 0 0 0
------ ------ ------ ------
Total expense 0 0 0 0
Loss from discontinued
operation (note 2) 0 0 0 0
------ ------ ------ ------
Net loss $ 0 0 0 0
====== ====== ====== ======
Loss per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
====== ====== ======= =======
Dividend per share --- --- --- ---
====== ====== ======= =======
Weighted average number
of shares outstanding 10,985,046 10,985,046 10,985,046 10,985,046
========== ========== ========== ==========
See accompanying notes to consolidated financial statements
2
PART I - FINANCIAL INFORMATION
------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended December 31
----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net loss $ 0 $ 0
Adjustments to reconcile net loss to net cash
provided by operating activities:
Decrease in deficit arising from confiscation of
Haven Federal after retroactive disallowance
of agreed supervisory goodwill and regulatory capital 0 0
Decrease in prepaid expenses and other assets 0 0
Decrease (increase) in net assets of
Haven Federal 0 0
(Decrease) in accrued expenses and other liabilities 0 0
(Decrease) Increase in net liabilities of
Haven Federal 0 0
Amortization of organization expenses 0 0
---------- -----------
Net cash provided (used) by operating activities 0 0
Cash and cash equivalents, beginning of year 0 0
---------- -----------
Cash and cash equivalents, end of quarter $ 0 $ 0
========== ===========
See accompanying notes to consolidated financial statements
3
PART I - FINANCIAL INFORMATION
------------------------------
ADMIRAL FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. In the opinion of management, the accompanying consolidated
financial statements contain all the adjustments (principally
consisting of normal recurring accruals and the confiscation of all
the principal assets of the Company by the United States
government) necessary to present fairly the financial statements of
Admiral Financial Corp. ('Admiral') and Subsidiary.
Note 2. The net assets of Admiral=s principal operating subsidiary, Haven
Federal Savings and Loan Association ('Haven'), were confiscated by
the United States government on March 2, 1990. Therefore, where
applicable, Haven's net assets and net liabilities are presented in
the balance sheets in the aggregate; and its loss is shown in the
aggregate in the Statements of Operations for the three and six
month periods ended December 31, 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 "Winstar-type" action
against the United States government in the United States Court of Federal
Claims since 1993, wherein the Company seeks damages for the government's
breach of a contract involving the Supervisory Goodwill and Regulatory
Capital granted in connection with Admiral's previous acquisition of an
insolvent savings and loan association in 1988. On October 16, 2002, the
Court of Federal Claims found the United States Government liable for
damages to Admiral, for a material breach of contract. Damage trial
hearings in the United States Court of Federal Claims during the period
from December 2 - 17, 2002, and the case is currently in the post-trial
briefing stage.
Admiral is presently conducting virtually no business operation, other
than its efforts to effect a merger, exchange of capital stock, asset
acquisition, recapitalization, or other similar business combination
(a "Recapitalization") with an operating or development stage business
which Admiral considers to have significant growth potential. Admiral has
neither engaged in any operations nor generated any revenue since the
confiscation of the Company's entire asset base by the United States
government in 1990 (See Admiral's "Winstar"-type breach of contract litigation
regarding Admiral's former supervisory goodwill position, discussed below).
It receives no cash flow. Admiral anticipates no capital infusions prior to
effectuating a Recapitalization. Until such time as Admiral effectuates a
Recapitalization, with the exception of certain other professional fees and
costs for such a transaction, Admiral expects that it will incur minimal
operating costs throughout the current fiscal year.
No officer or director of Admiral is paid any type of compensation by
Admiral and presently, there are no arrangements or anticipated arrangements
to pay any type of compensation to any officer or director in the near
future. Admiral expects that it will meet its cash requirements until such
time as a Recapitalization occurs. However, in the event Admiral depletes
its present cash reserves, Admiral may cease operations and a
Recapitalization may not occur. There are no agreements or understandings
of any kind with respect to any loans from officers or directors of Admiral
on the Company's behalf.
This discussion may contain statements regarding future financial
performance and results. The realization of outcomes consistent with these
forward-looking statements is subject to numerous risks and uncertainties
to the Company including, but not limited to, the availability of equity
capital and financing sources, the availability of attractive acquisition
opportunities once such new equity capital and financing is secured (if at
all), the successful integration and profitable management of acquired
businesses, improvement of operating efficiencies, the availability of
working capital and financing for future acquisitions, the Company's
ability to grow internally through expansion of services and customer
bases without significant increases in overhead, seasonality, cyclicality,
and other risk factors.
Admiral Financial Corp. was formed in 1987 to acquire an insolvent
savings and loan association in a supervisory acquisition solely with
private investment funds, and without the benefit of any federal
assistance payments. Admiral acquired Haven Federal Savings and Loan
Association of Winter Haven, Florida on June 16, 1988. In that
acquisition transaction, Admiral issued 8,000,000 new common shares in
exchange for assets (primarily real estate and a profitable business
engaged in the purchase and redemption of Florida tax sale certificates)
having a fair market value of approximately $40 million, subject to
approximately $27 million of mortgages and other liabilities, and less
approximately $1 million of fees and expenses (necessary to provide the
proper forms and documentation in accordance with government rules and
regulations), for a net equity contribution of approximately $12 million.
Admiral then contributed virtually all of these net assets and liabilities
to the capital of Haven, plus an additional 987,000 new common shares of
Admiral, which were simultaneously issued in exchange for 100% of the
outstanding shares of Haven in an approved 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
"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 Ano reason to question the Federal
Circuit's conclusion that the Government had express contractual obligations
to permit respondents to use goodwill and capital credits in computing their
regulatory capital reserves. When the law as to capital requirements
changed, the Government was unable to perform its promises and became
liable for breach under ordinary contract principles."
Subsequent to the United States Supreme Court decision in Winstar, the
stay on Admiral's litigation proceedings has been lifted. Admiral's Motion
for Summary Judgment, together with several other motions, claims and
counter-claims filed by all the Parties to the litigation, 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. Since Haven was the only
significant asset owned by Admiral, the Admiral common stock has little
or no continuing value.
7
Liquidity and Capital Resources
- -------------------------------
Admiral is currently inactive, and awaiting the ultimate outcome and results
of the Company's Winstar-type litigation against the United States government
for breach of contract. There is no corporate liquidity, no available
capital resources, and no immediately foreseeable prospects for the future
improvement of Admiral's financial picture.
Admiral management intends to seek a new line of business. as yet
unidentified. In connection therewith, Admiral's management believes
that a restructuring of Admiral may be necessary in order to raise
capital for new operations, and any such restructuring may have a
substantial dilutive effect upon Admiral's existing shareholders.
Admiral has no ongoing commitments or obligations other than with
respect to its obligations related to the acquisition and subsequent
confiscation of Haven.
Comparison of Three Months Ended December 31. 2002 and 2001
- -----------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during either
period.
Comparison of Six Months Ended December 31. 2002 and 2001
- ---------------------------------------------------------
Admiral was inactive, and recorded no revenues or expenses during either
period.
8
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Admiral did not become involved in any new material legal
proceedings during the period covered by this report.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-k
Not applicable.
9
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADMIRAL FINANCIAL CORP. (Registrant)
Date: February 10, 2003 By:/s/ Wm. Lee Popham
------------------------------------
Wm. Lee Popham, President
Date: February 10, 2003 By:/s/ Linda E. Baker
------------------------------------
Linda E. Baker, Principal Financial
and Accounting Officer
10