SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Transition Period From __________ To __________
Commission File Number 1-6802
Liberte Investors Inc.
(Exact name of Registrant as specified in its Charter)
Delaware 75-1328153
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Crescent Court, Suite 1365 75201
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 871-5935
----------
(Former name, former address, and former fiscal year,
if changed since last report)
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 (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 90 days.
YES __X__ NO _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES __X*_ NO _____
* The registrant's confirmed plan of reorganization under Chapter 11 of the
Bankruptcy code did not provide for the distribution of securities.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, $.01 par value,
as of the close of business on November 3, 1997: 20,256,097 shares.
<PAGE>
LIBERTE INVESTORS INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 1997 and June 30, 1997....................... 3
Consolidated Statements of Operations
Three Months Ended September 30, 1997 and 1996............. 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996............. 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 10
Item 2. Changes in Securities...................................... 10
Item 3. Defaults upon Senior Securities............................ 10
Item 4. Submission of Matters to a Vote of Security Holders........ 10
Item 5. Other Information.......................................... 10
Item 6. Exhibits and Reports on Form 8-K........................... 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, June 30,
1997 1997
------------- -------------
Assets
Unrestricted cash $ 53,048,277 $ 52,474,290
Restricted cash and cash equivalents 62,033 61,237
------------- -------------
Total cash and cash equivalents 53,110,310 52,535,527
Foreclosed real estate held for sale 3,435,621 3,435,621
Notes receivable, net 883 1,693
Accrued interest and other receivables 4,684 4,507
Other assets 472,768 467,876
------------- -------------
Total assets $ 57,024,266 $ 56,445,224
============= =============
Liabilities and Stockholders' Equity
Liabilities-Accrued and other liabilities $ 333,067 $ 239,545
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized,
20,256,097 shares issued and outstanding 202,561 202,561
Additional paid-in capital 309,392,399 309,392,399
Accumulated deficit (252,903,761) (253,389,281)
------------- -------------
Total stockholders' equity 56,691,199 56,205,679
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 57,024,266 $ 56,445,224
============= =============
See notes to consolidated financial statements.
3
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
----------------------------
1997 1996
----------- -----------
Income
Interest-bearing deposits in banks $ 676,508 $ 480,519
Interest income on notes receivable 31 39,499
Other 22,014 12,671
----------- -----------
Total income 698,553 532,689
----------- -----------
Expenses
Insurance 39,644 80,189
Compensation and employee benefits 11,306 66,291
Legal, audit and advisory fees 24,388 52,752
Franchise tax 13,681 --
Foreclosed real estate operations 55,627 34,671
Provision for loan losses -- 380
General and administrative 68,387 42,448
----------- -----------
Total expenses 213,033 276,731
----------- -----------
Net Income $ 485,520 $ 255,958
=========== ===========
Net income per share of common stock $ 0.02 $ 0.02
=========== ===========
Weighted average number of shares of
common stock 20,256,097 16,204,878
=========== ===========
See notes to consolidated financial statements.
4
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 485,520 $ 255,958
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of discount on notes receivable (93) (4,730)
Increase in accrued interest receivable (177) (4,424)
(Increase) decrease in other assets (4,892) 71,252
Increase (decrease) in accrued and other liabilities 93,522 (154,488)
------------ ------------
Net cash provided by operating activities 573,880 163,568
------------ ------------
Cash flows from investing activities:
Collections of notes receivable 903 4,039
Proceeds from sales of foreclosed real estate -- 25,642
Increase in restricted cash investments (796) (369)
------------ ------------
Net cash provided by investing activities 107 29,312
------------ ------------
Cash flows from financing activities:
Issuance of common stock -- 23,091,951
Stock issuance costs -- (529,498)
------------ ------------
Net cash provided by financing activities -- 22,562,453
------------ ------------
Net increase in unrestricted cash and cash equivalents 573,987 22,755,333
Unrestricted cash at beginning of period 52,474,290 27,245,594
------------ ------------
Unrestricted cash at end of period $ 53,048,277 $ 50,000,927
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
LIBERTE INVESTORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
Note A - Organization
Liberte Investors Inc., a Delaware corporation (the "Company"), was organized in
April of 1996 in order to effect the reorganization of Liberte Investors, a
Massachusetts business trust (the "Trust"). At a special meeting of the
shareholders of the Trust held on August 15, 1996, (the "Special Meeting"), the
Trust's shareholders approved a plan of reorganization whereby the Trust
contributed its assets to the Company and received all of the Company's
outstanding common stock, par value $.01 per share ("Shares" or "Common Stock").
The Trust then distributed to its shareholders in redemption of all outstanding
shares of beneficial interest in the Trust (the "Beneficial Shares") the Shares
of the Company. The Company assumed all of the Trust's assets and outstanding
liabilities and obligations. Thereafter, the Trust was terminated.
Unless otherwise indicated, the information contained in the Form 10-Q which
relates to periods prior to August 16, 1996 is information relating to the
Trust, and information relating to periods on and after August 16, 1996 is
information relating to the Company.
Note B - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X and therefore do not include all of the information and footnotes
necessary for a fair presentation of financial condition, results of operations,
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended September 30, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 1998.
The accompanying financial statements include the accounts of the Company and
LNC Holdings, Inc., a wholly-owned subsidiary whose sole asset is approximately
40 acres of land located in Arlington, Texas. All intercompany balances and
transactions have been eliminated.
Note C - Foreclosed Real Estate Held For Sale
At September 30, 1997, the Company held assets to be disposed of consisting of
foreclosed real estate in the form of single-family lots and land. The September
30, 1997 carrying amount of these assets was $3,435,621. The carrying value of
the single-family lots was $620,400 at September 30, 1997. The remaining balance
of the Company's foreclosed real estate consists of land totaling approximately
603 acres in San Antonio, Texas, and approximately 40 acres in Arlington, Texas.
Note D - Commitments and Contingencies
The Company's wholly-owned subsidiary, LNC Holdings, Inc., owns approximately 40
acres of land located in Arlington, Texas which is encumbered by property tax
liens totaling $975,000 including penalties and interest. There is no carrying
value of the property due to the encumbrances.
6
<PAGE>
On April 16, 1997, LNC Holdings, Inc. received a notice of final judgment from
the City of Arlington with regard to the delinquent taxes. On May 27, 1997, LNC
Holdings, Inc. notified the City of Arlington that it would execute a deed
without warranty to allow the taxing units to obtain title to the property. No
response has been received. LNC Holdings, Inc. has accrued property taxes for
calendar year 1996 and for the nine month period ended September 30, 1997
totaling $69,000. Management believes that resolution of the delinquent tax
issue with the taxing authorities will not result in a material adverse impact
on the consolidated financial statements.
Cash and cash equivalents at September 30, 1997, included restricted cash of
$62,000 for claims due to bankruptcy. On June 30, 1997, the court issued an
Administrative Closing Order and Final Decree with regard to the bankruptcy
case. The claims remaining represent unclaimed dividend checks dated May 20,
1994. Any check not claimed will be voided after five years.
The Company is involved in routine litigation incidental to its business, which,
in the opinion of management, will not result in a material adverse impact on
the Company's consolidated financial condition, results of operations, or cash
flows.
Note E - Federal Income Taxes
Though the Company had net income for the three months ended September 30, 1997
and 1996, no tax liability has been recognized due to a reduction in the
valuation allowance related to its net operating loss carryforwards. At
September 30, 1997, the Company had net operating loss carryforwards for federal
income tax purposes of approximately $227 million which expire in 2005 through
2011 and which are in sufficient amount to mitigate any significant tax
liability for fiscal year 1998. The Company also has capital loss carryforwards
of approximately $4.8 million which are available to offset future capital
gains, if any, through 2001. In addition, the Company has alternative minimum
tax credit carryforwards of $14,000 which are available to reduce future federal
income taxes, if any, over an indefinite period.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 1997 versus Three Months Ended September 30,
1996
Net income for the three months ended September 30, 1997 was $486,000 compared
to net income of $256,000 for the same period in 1996. The change in operating
results for the three months was due to various factors discussed below.
Interest income related to interest-bearing deposits in banks increased to
$677,000 for the three months ended September 30, 1997 from $481,000 for the
same period in 1996. This increase is due to growth in the unrestricted cash
balance available for interest-bearing deposits. Unrestricted cash increased by
$23.1 million due to the sale of newly-issued shares of common stock on August
16, 1996, thereby increasing the cash balance available to invest in
interest-bearing deposits. This increase in unrestricted cash resulted in a
higher average daily balance of interest-bearing deposits during the three
months ended September 30, 1997 verses the three months ended September 30,
1996. Unrestricted cash increased from $50.0 million at September 30, 1996 to
$53.0 million at September 30, 1997 primarily due to collections on the notes
receivable of $1.3 million and interest earned on the unrestricted cash
accounts.
Notes receivable interest income decreased to $31 for the three months ended
September 30, 1997 from $39,000 for the same period in 1996 as a result of a
lower outstanding balance of notes receivable. The notes receivable balance
decreased to $883 at September 30, 1997 from $1.3 million at September 30, 1996
due to the pay off of a $1.3 million note receivable.
Other income increased to $22,000 for the three months ended September 30, 1997
from $13,000 for the same period in 1996. Other income for the three months
ended September 30, 1997 consisted primarily of dividends on Resurgence
Properties, Inc. preferred stock. Other income for the three months ended
September 30, 1996 consisted primarily of dividends on Resurgence Properties,
Inc. preferred stock.
Insurance expense decreased to $40,000 for the three months ended September 30,
1997, as compared to $80,000 for the same period in 1996. The decrease is
primarily due to decreased premiums related to Directors' and Officers'
insurance.
Compensation and employee benefits expense decreased by $55,000 from $66,000
during the three months ended September 30, 1996 to $11,000 for the same period
in 1997. The decrease is due to a decrease in the number of employees from six
to two.
Legal, audit and advisory fees were $24,000 for the three months ended September
30, 1997, a decrease of $29,000 from the same period in 1996. Prior period
activity included additional legal expenses related to the collection of
deficiency notes that had been previously written-off.
Franchise tax expense for the three months ended September 30, 1997 represents
Delaware and Texas franchise taxes due as a result of the reorganization of the
Trust into the Company. No amount was accrued for such expense during the three
months ended September 30, 1996.
Foreclosed real estate operations expense increased $21,000 from $35,000 for the
three months ended September 30, 1996 to $56,000 for the same period in 1997.
The increase is due to consulting, engineering, and appraisal fees relating to
potential sales of foreclosed real estate and an increase in the accrual for
1997 property taxes.
General and administrative expense increased by $26,000 from $42,000 during the
three months ended September 30, 1996 to $68,000 for the same period in 1997.
The increase is attributed to an increase in director's fees and rent expense
for the three months ended September 30, 1997. Director fees increased
8
<PAGE>
due to an increase in the number of directors of the Company, and rent expense
increased when the Company relocated into new office space in July 1997.
Liquidity and Capital Resources
The Company's principal funding requirements are operating expenses, including
legal, audit, and advisory expenses expected to be incurred in connection with
evaluation of potential acquisition candidates and other strategic
opportunities. The Company anticipates that its primary sources of funding
operating expenses are proceeds from the sale of foreclosed real estate,
interest income on cash and cash equivalents, and cash on hand.
The proceeds from the sale of newly-issued shares of stock to Hunter's
Glen/Ford, Ltd. ("Hunter's Glen") in August of 1996 for $23.1 million
substantially increased cash available to the Company. Management believes that
the additional cash will assist the Company in its efforts to expand its
business through acquisitions. Hunter's Glen is an affiliate of Mr. Gerald J.
Ford, who became the Chief Executive Officer and Chairman of the Board of the
Company following the Trust's reorganization into the Company and the sale of
the shares of stock to Hunter's Glen.
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance, including
its ability to acquire businesses in the future, and other developments. Such
forward-looking statements are necessarily estimates reflecting the Company's
best judgment based upon current information, involve a number of risks and
uncertainties, and there can be no assurance that other factors will not affect
the accuracy of such forward-looking statements. While it is impossible to
identify all such factors, factors which could cause actual results to differ
materially from those estimated by the Company include, but are not limited to,
the uncertainty as to whether the Company will be able to make future business
acquisitions or that any such acquisitions will be successful, the Company's
ability to obtain financing for any possible acquisitions, general conditions in
the economy and capital markets, and other factors which may be identified from
time to time in the Company's Securities and Exchange Commission filings and
other public announcements.
9
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedules (included only in the EDGAR filing).
(b) Reports on Form 8-K:
None
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
LIBERTE INVESTORS INC.
November 3, 1997 By: /s/ Gerald J. Ford
-------------------------------------------------
Gerald J. Ford
Chief Executive Officer and Chairman of the Board
November 3, 1997 By: /s/ Samuel C. Perry
-------------------------------------------------
Samuel C. Perry
Controller and Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 53,110,310
<SECURITIES> 0
<RECEIVABLES> 478,335
<ALLOWANCES> 0
<INVENTORY> 3,435,621
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,024,266
<CURRENT-LIABILITIES> 333,067
<BONDS> 0
0
0
<COMMON> 202,561
<OTHER-SE> 56,488,638
<TOTAL-LIABILITY-AND-EQUITY> 57,024,266
<SALES> 0
<TOTAL-REVENUES> 698,553
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 213,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 485,520
<INCOME-TAX> 0
<INCOME-CONTINUING> 485,520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485,520
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
