UNITED STATES
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, 1998
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 13, 1998: 20,256,097 shares.
<PAGE>
LIBERTE INVESTORS INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 1998 and June 30, 1998................... 3
Consolidated Statements of Operations
Three Months Ended September 30, 1998 and 1997......... 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997......... 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................... 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................... 11
Item 2. Changes in Securities.................................. 11
Item 3. Defaults upon Senior Securities........................ 11
Item 4. Submission of Matters to a Vote of Security Holders.... 11
Item 5. Other Information...................................... 11
Item 6. Exhibits and Reports on Form 8-K....................... 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Assets
Unrestricted cash $ 55,117,901 $ 53,998,721
Restricted cash and cash equivalents 65,084 64,310
------------- -------------
Total cash and cash equivalents 55,182,985 54,063,031
Foreclosed real estate held for sale 2,810,267 3,028,273
Accrued interest and other receivables 4,441 4,343
Other assets 117,612 438,951
------------- -------------
Total assets $ 58,115,305 $ 57,534,598
============= =============
Liabilities and Stockholders' Equity
Liabilities-accrued and other liabilities $ 481,051 $ 507,356
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 (251,960,706) (252,567,718)
------------- -------------
Total stockholders' equity 57,634,254 57,027,242
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 58,115,305 $ 57,534,598
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
Income
Interest-bearing deposits in banks $ 688,421 $ 676,508
Interest income on notes receivable -- 31
Gains on sales of foreclosed real estate 119,593 --
Other 11,939 22,014
----------- -----------
Total income 819,953 698,553
----------- -----------
Expenses
Insurance 31,343 39,644
Compensation and employee benefits 23,188 11,306
Legal, audit and advisory fees 17,750 18,734
Franchise taxes 22,327 13,681
Foreclosed real estate operations 35,376 61,281
General and administrative 82,957 68,387
----------- -----------
Total expenses 212,941 213,033
----------- -----------
Net Income $ 607,012 $ 485,520
=========== ===========
Basic net income per share of common stock $ 0.03 $ 0.02
=========== ===========
Weighted average number of shares of
common stock 20,256,097 20,256,097
=========== ===========
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,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 607,012 $ 485,520
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,010 4,250
Amortization of discount on notes receivable -- (93)
Increase in accrued interest and other receivables (98) (177)
Decrease (increase) in other assets 318,087 (9,142)
(Decrease) increase in accrued and other liabilities (19,860) 93,522
Gains from sales of foreclosed real estate (119,593) --
------------ ------------
Net cash provided by operating activities 789,558 573,880
------------ ------------
Cash flows from investing activities:
Collections of notes receivable -- 903
Proceeds from sales of foreclosed real estate 331,154 --
Additions to fixed assets (758) --
Increase in restricted cash investments (774) (796)
------------ ------------
Net cash provided by investing activities 329,622 107
------------ ------------
Net increase in unrestricted cash and cash equivalents 1,119,180 573,987
Unrestricted cash at beginning of period 53,998,721 52,474,290
------------ ------------
Unrestricted cash at end of period $ 55,117,901 $ 53,048,277
============ ============
Schedule of non-cash activities:
Payment of property taxes by buyers
of foreclosed real estate $ 6,445 $ --
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
Note A - Organization
Liberte Investors Inc., a Delaware corporation (the "Company"), was organized in
April 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.
Note B - Basis of Presentation
The accompanying unaudited 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, 1998, are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1999.
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, 1998, the Company held foreclosed real estate for sale in the
form of undeveloped land. The September 30, 1998 carrying amount of these assets
was approximately $2,810,000. The foreclosed real estate for sale consists of
land totaling approximately 546 acres in San Antonio, Texas and approximately 40
acres in Arlington, Texas.
In August 1998, the Company sold 56.6 acres of land in San Antonio, Texas to a
single-family homebuilder for $339,600. A gain of approximately $117,000 was
recognized as a result of this transaction. The buyer also has an option to
purchase two additional tracts totaling 109 acres of land adjacent to the 56.6
acres and has made a $50,000 deposit to the Company for this option to purchase.
The proceeds from the sale of the 56.6 acres were reduced by $186,000 to be used
by the buyer to extend a road into the property. The sales price of the second
tract of land will be increased by $186,000. This amount is treated as a
non-cash transaction in the statement of cash flows.
In September 1998, the Company sold 55 lots in Fontana, California to a
single-family homebuilder for $229,000. The 55 lots were written-down by
approximately $407,000 at June 30, 1998 to more accurately
6
<PAGE>
reflect the value of the lots based upon the selling price less costs to
complete. A gain of approximately $2,000 was recognized as a result of this
transaction.
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 $1,090,000 including penalties and interest. There is no carrying
value of the property due to the encumbrances.
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 yet been received. LNC Holdings, Inc. has accrued property taxes
for calendar years 1998, 1997 and 1996 totaling $131,000. 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, 1998, included restricted cash of
approximately $65,000 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 financial condition or results of operations.
Note E - Federal Income Taxes
Although the Company had taxable income for the three months ended September 30,
1998 and 1997, no tax liability has been recognized due to a reduction in the
valuation allowance related to its net operating loss carryforwards. Based on
current business activity, management believes it is more likely than not that
the Company will not realize the benefits of the loss carryforwards. Therefore,
a full valuation allowance has been established. In the event the Company
expands its business operations through an acquisition, the ability to use the
loss carryforwards may change.
Note F - Reclassifications
Certain 1997 amounts have been reclassified to conform with 1998
classifications.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
During the fiscal year ended June 30, 1998, Liberte Investors Inc. continued to
explore the potential acquisition of a viable operating company in order to
increase value to existing stockholders and provide a new focus and direction
for the Company. Although substantial efforts have been made in fiscal 1999 to
identify quality acquisitions, the Company has not yet entered into any
definitive acquisition agreements.
Three Months Ended September 30, 1998 versus Three Months Ended September 30,
1997
Net income for the three months ended September 30, 1998 was $607,000 compared
to net income of $486,000 for the same period in 1997. 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
$688,000 for the three months ended September 30, 1998 from $677,000 for the
same period in 1997. This increase is due to a higher average daily balance of
interest-bearing deposits during the three months ended September 30, 1998
versus the three months ended September 30, 1997. Unrestricted cash increased
from $53.0 million at September 30, 1997 to $55.1 million at September 30, 1998
primarily due to interest earned on the unrestricted cash accounts, proceeds
from the sales of foreclosed real estate and the liquidation of 300,000 shares
of Resurgence Properties, Inc. preferred stock.
There was no interest income on notes receivable for the three months ended
September 30, 1998 as compared to $31 for the same period in 1997. There were no
outstanding balances on notes receivables as of September 30, 1998.
There were no gains on the sales of foreclosed real estate for the three months
ended September 30, 1997 as compared to $120,000 for the three months ended
September 30, 1998. The gains on sales of real estate represent proceeds
received from the sale of foreclosed real estate in excess of its carrying
value. The gains recognized for the three months ended September 30, 1998 are
from the sale of 56.6 acres in San Antonio, Texas and from the sale of 55 lots
in Fontana, California.
Other income decreased to $12,000 for the three months ended September 30, 1998
as compared to $22,000 for the three months ended September 30, 1997. Other
income for the three months ended September 30, 1997 and for the three months
ended September 30, 1998 are primarily dividend payments received on RPI
preferred stock.
Insurance expense decreased to $31,000 for the three months ended September 30,
1998, as compared to $40,000 for the same period in 1997. The decrease is
primarily due to decreased premiums related to Directors' and Officers'
insurance.
Compensation and employee benefits expense increased to $23,000 for the three
months ended September 30, 1998 from $11,000 for the same period in 1997. The
increase is due to the Company having just one employee for a majority of the
three months ended September 30, 1997. The Company had two employees for the
three months ended September 30, 1998.
Legal, audit and advisory fees were $18,000 for the three months ended September
30, 1998 as compared to $19,000 for the three months ended September 30, 1997.
Legal expenses are primarily related to the review of contracts relating to the
sale of foreclosed real estate owned by the Company.
8
<PAGE>
Franchise tax expense increased from $14,000 for the three months ended
September 30, 1997 to $22,000 for the three months ended September 30, 1998.
Franchise tax expense for the three months ended September 30, 1998 is higher
due to increased Delaware and Texas franchise tax expense as compared to the
three months ended September 30, 1997.
Foreclosed real estate operations expense decreased $26,000 from $61,000 for the
three months ended September 30, 1997 to $35,000 for the same period in 1998.
The decrease is due to lower property tax expense for the three months ended
September 30, 1998 due to lower appraised values on land owned in San Antonio,
Texas and due to the sale of 56.6 acres in San Antonio, Texas and the sale of 55
lots in Fontana, California.
General and administrative expense increased by $15,000 from $68,000 during the
three months ended September 30, 1997 to $83,000 for the same period in 1998.
The increase is attributed primarily to additional expense for the three months
ended September 30, 1998 relating to the annual listing fee for the New York
Stock Exchange, which was not included for the three months ended September 30,
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.
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. Words or phrases when used in this Form 10-Q or
other filings with the Securities and Exchange Commission, such as "does not
believe" and "believes", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Year 2000 Issue
The Company recognized that the arrival of the Year 2000 poses a unique
challenge to the ability of an entity's information technology system and
non-information technology systems to recognize the date change from December
31, 1999 to January 1, 2000. The Company is continuing to assess and has made
certain changes to provide for continued functionality of its systems. An
assessment of the readiness of the Company's external entities, such as vendors,
customers, payment systems and others is ongoing. Due to the nature and extent
of the Company's operations that are effected by Year 2000 issues, the Company
does not believe that Year 2000 issues will have a material adverse effect on
the business operation or the financial performance of the Company. There can be
no assurance, however, that Year 2000 issues will not adversely effect the
Company or its business. The Company believes that the cost to make appropriate
9
<PAGE>
changes to its internal and external systems will not be significant and that
such costs will be funded completely through operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required is not yet applicable to the Company.
10
<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
11
<PAGE>
SIGNATURES
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 13, 1998 By: /s/ Gerald J. Ford
----------------------------------
Gerald J. Ford
Chief Executive Officer and
Chairman of the Board
November 13, 1998 By: /s/ Samuel C. Perry
----------------------------------
Samuel C. Perry
Controller and
Principal Accounting Officer
12
<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, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 55,182,985
<SECURITIES> 0
<RECEIVABLES> 123,499
<ALLOWANCES> 0
<INVENTORY> 2,810,267
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,115,305
<CURRENT-LIABILITIES> 481,051
<BONDS> 0
0
0
<COMMON> 202,561
<OTHER-SE> 57,431,693
<TOTAL-LIABILITY-AND-EQUITY> 58,115,305
<SALES> 0
<TOTAL-REVENUES> 819,953
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 212,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 607,012
<INCOME-TAX> 0
<INCOME-CONTINUING> 607,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 607,012
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
