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, 1999
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
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
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 10, 1999: 20,256,097 shares.
<PAGE>
LIBERTE INVESTORS INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 1999 and June 30, 1999 ....................... 3
Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998 ............. 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1999 and 1998 ............. 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 .......................................... 9
PART II - OTHER INFORMATION
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)
September 30, June 30,
1999 1999
------------- -------------
Assets
Unrestricted cash $ 55,740,704 $ 55,280,342
Foreclosed real estate held for sale 2,810,267 2,810,267
Accrued interest and other receivables 4,287 3,790
Other assets, net 112,008 121,160
------------- -------------
Total assets $ 58,667,266 $ 58,215,559
============= =============
Liabilities and Stockholders' Equity
Liabilities-accrued and other liabilities $ 513,499 $ 480,728
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 (251,441,193) (251,860,129)
------------- -------------
Total stockholders' equity 58,153,767 57,734,831
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 58,667,266 $ 58,215,559
============= =============
See notes to consolidated financial statements.
3
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
---------------------------
1999 1998
----------- -----------
Income
Interest on deposits in banks $ 639,058 $ 688,421
Gains on sales of foreclosed real estate -- 119,593
Other -- 11,939
----------- -----------
Total income 639,058 819,953
----------- -----------
Expenses
Insurance 30,499 31,343
Compensation and employee benefits 21,303 23,188
Legal, audit and advisory fees 59,200 17,750
Franchise taxes 9,575 22,327
Foreclosed real estate operations 39,332 35,376
General and administrative 60,213 82,957
----------- -----------
Total expenses 220,122 212,941
----------- -----------
Net Income $ 418,936 $ 607,012
=========== ===========
Basic net income per share of common stock $ 0.02 $ 0.03
=========== ===========
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,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 418,936 $ 607,012
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,377 4,010
Increase in accrued interest and other receivables (497) (98)
Decrease in other assets 17,282 318,087
Increase (decrease) in accrued and other liabilities 32,771 (19,860)
Gains from sales of foreclosed real estate -- (119,593)
------------ ------------
Net cash provided by operating activities 471,869 789,558
------------ ------------
Cash flows from investing activities:
Proceeds from sales of foreclosed real estate -- 331,154
Additions to fixed assets (11,507) (758)
Increase in restricted cash and cash equivalents -- (774)
------------ ------------
Net cash (used in) provided by investing activities (11,507) 329,622
------------ ------------
Net increase in unrestricted cash and cash equivalents 460,362 1,119,180
Unrestricted cash at beginning of period 55,280,342 53,998,721
------------ ------------
Unrestricted cash at end of period $ 55,740,704 $ 55,117,901
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 2000.
The accompanying consolidated 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, 1999, the Company held foreclosed real estate for sale in the
form of undeveloped land. The September 30, 1999 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 October 1999, the Company sold 51.18 acres of land in San Antonio, Texas to a
single-family homebuilder for a price of $307,080. A gain will be recorded as a
result of this transaction subsequent to September 30, 1999.
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 $1,116,000, 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 authorities to obtain title to the
property. No response has yet been received. LNC Holdings, Inc. has accrued
property taxes for calendar years 1999, 1998, 1997 and 1996 totaling $154,000.
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.
The Company is from time to time involved in routine litigation arising in the
normal course of business, which, in the opinion of management, will not result
in a material adverse impact on the Company's consolidated financial condition
or results of operations.
Note E - Federal Income Taxes
Although the Company had taxable income for the three months ended September 30,
1999 and 1998, 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 - Concentrations of Credit Risk
At September 30, 1999, the Company had certain concentrations of credit risk
with two financial institutions in the form of cash, which amounted to
approximately $56 million. For purposes of evaluating credit risk, the stability
of financial institutions conducting business with the Company is periodically
reviewed. If the financial institutions failed to completely perform under the
terms of the financial instruments, the exposure for credit loss would be the
amount of the financial instruments less amounts covered by regulatory
insurance.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
During the three months ended September 30, 1999, 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
2000 to identify quality acquisitions, the Company has not yet entered into any
definitive acquisition agreements.
Three Months Ended September 30, 1999 versus Three Months Ended September 30,
1998
Net income for the three months ended September 30, 1999 was $419,000 compared
to net income of $607,000 for the same period in 1998. 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 decreased to
$639,000 for the three months ended September 30, 1999 from $688,000 for the
same period in 1998. This decrease is due to a decline in interest rates on the
Company's interest-bearing deposits during the three months ended September 30,
1999 versus the three months ended September 30, 1998. Unrestricted cash
increased from $55,118,000 at September 30, 1998 to $55,741,000 at September 30,
1999 primarily due to interest earned on the unrestricted cash accounts, less a
dividend payment to stockholders during June 1999.
There were no gains on the sales of foreclosed real estate for the three months
ended September 30, 1999 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 carrying value.
The gains recognized for the three months ended September 30, 1998 were from the
sale of 56.6 acres in San Antonio, Texas and from the sale of 55 lots in
Fontana, California.
Other income for the three months ended September 30, 1998 was $12,000, which
was primarily dividend payments received on RPI preferred stock. No dividend
payments on RPI preferred stock were received for the three months ended
September 30, 1999 due to the liquidation of the 300,000 shares of RPI preferred
stock in August 1998.
Insurance expense decreased to $30,000 for the three months ended September 30,
1999, as compared to $31,000 for the same period in 1998. The decrease was
primarily due to decreased premiums related to Directors' and Officers'
insurance.
Compensation and employee benefits expense decreased to $21,000 for the three
months ended September 30, 1999 from $23,000 for the same period in 1998. The
decrease was due to the Company only having one employee for a majority of the
three months ended September 30, 1999 as compared to two employees for a
majority of the three months ended September 30, 1998.
Legal, audit and advisory fees were $59,000 for the three months ended September
30, 1999 as compared to $18,000 for the three months ended September 30, 1998.
Legal and accounting expenses were higher for the three months ended September
30, 1999 due to additional legal and accounting fees for due diligence on a
potential business transaction.
Franchise tax expense decreased from $22,000 for the three months ended
September 30, 1998 to $10,000 for the three months ended September 30, 1999.
Franchise tax expense for the three months ended September 30, 1999 is lower due
to the Company having to pay minimal Texas state franchise tax for 1999.
8
<PAGE>
Foreclosed real estate operations expense increased from $35,000 for the three
months ended September 30, 1998 to $39,000 for the same period in 1999.
Foreclosed real estate operations expense was lower for the three months ended
September 30, 1998 due to a one-time reduction in property tax expense
associated with the sale of the 55 lots in Fontana, California during September
1998.
General and administrative expense decreased from $83,000 during the three
months ended September 30, 1998 to $60,000 for the same period in 1999. The
decrease was primarily a reduction in shareholder relations expenses for the
three months ended September 30, 1999 as compared to the three months ended
September 30, 1998 and due to the payment of a search fee for a new employee
during the three months ended September 30, 1998.
Liquidity and Capital Resources
The Company's principal funding requirements are operating expenses, including
legal, audit, and advisory expenses incurred in connection with evaluation of
potential acquisition candidates and other strategic opportunities. The Company
anticipates that its primary sources of funding for operating expenses will be
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 recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of computer systems to recognize the date change from
December 31, 1999 to January 1, 2000. The Company presently has a general ledger
accounting system that is compliant with Year 2000 issues. The Company's two
largest vendors, who are large financial institutions, have made public
disclosures stating their systems are Year 2000 compliant, although the Company
can make no assurances that problems will not be encountered due to a vendor
Year 2000 problem. The most likely worst case scenario is currently considered
by the Company to be the lack of access to funds held by the two financial
institutions, although the Company believes this occurrence would be of a short
duration and not have a material financial impact on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's financial instruments consists primarily of cash and cash
equivalents. The Company has approximately $56 million of its cash in interest
bearing deposits in two financial institutions, which are due
9
<PAGE>
on demand. Fair value of these financial instruments approximates carrying value
due to the liquidity and short-term nature of these instruments. The Company is
subject to interest rate risk should rates fluctuate as it relates to interest
income earned from these financial instruments. It is the intention of
management to ultimately acquire a viable operating company in order to increase
value to existing shareholders and provide a new focus and direction for the
Company. These financial instruments would be used to fund such acquisitions.
10
<PAGE>
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule (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 10, 1999 By: /s/ Gerald J. Ford
------------------------------------------------
Gerald J. Ford
Chief Executive Officer and Chairman of the
Board
November 10, 1999 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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,740,704
<SECURITIES> 0
<RECEIVABLES> 116,295
<ALLOWANCES> 0
<INVENTORY> 2,810,267
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,667,266
<CURRENT-LIABILITIES> 513,499
<BONDS> 0
0
0
<COMMON> 202,561
<OTHER-SE> 57,951,206
<TOTAL-LIABILITY-AND-EQUITY> 58,667,266
<SALES> 0
<TOTAL-REVENUES> 639,058
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 220,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 418,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 418,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 418,936
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
