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 March 31, 2000
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 May 12, 2000: 20,256,097 shares.
<PAGE>
LIBERTE INVESTORS INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
March 31, 2000 and June 30, 1999........................... 3
Consolidated Statements of Operations
Nine Months Ended March 31, 2000 and 1999.................. 4
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999................. 5
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999.................. 6
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..........................................11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, June 30,
2000 1999
------------ ------------
Assets
Unrestricted cash $ 57,220,604 $ 55,280,342
Foreclosed real estate held for sale 2,462,445 2,810,267
Accrued interest and other receivables 5,021 3,790
Other assets, net 45,311 121,160
------------ ------------
Total assets $ 59,733,381 $ 58,215,559
============ ============
Liabilities and Stockholders' Equity
Liabilities-accrued and other liabilities $ 390,285 $ 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 (250,251,864) (251,860,129)
------------ ------------
Total stockholders' equity 59,343,096 57,734,831
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 59,733,381 $ 58,215,559
============ ============
See notes to consolidated financial statements.
3
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Income
Interest on deposits in banks $ 2,061,160 $ 1,925,845
Gains on sales of foreclosed real estate 119,348 119,593
Other 85 12,279
----------- -----------
Total income 2,180,593 2,057,717
----------- -----------
Expenses
Insurance 91,306 92,912
Compensation and employee benefits 64,339 79,311
Legal, audit and advisory fees 100,200 46,396
Franchise taxes 26,837 66,491
Foreclosed real estate operations 104,302 117,673
General and administrative 185,344 225,245
----------- -----------
Total expenses 572,328 628,028
----------- -----------
Net Income $ 1,608,265 $ 1,429,689
=========== ===========
Basic and diluted net income per share of common stock $ 0.08 $ 0.07
=========== ===========
Weighted average number of shares of
common stock 20,256,097 20,256,097
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Income
Interest on deposits in banks $ 733,732 $ 603,393
Other -- 340
----------- -----------
Total income 733,732 603,733
----------- -----------
Expenses
Insurance 29,784 30,169
Compensation and employee benefits 21,613 28,145
Legal, audit and advisory fees 23,000 15,896
Franchise taxes 8,669 22,417
Foreclosed real estate operations 30,406 34,920
General and administrative 63,019 72,667
----------- -----------
Total expenses 176,491 204,214
----------- -----------
Net Income $ 557,241 $ 399,519
=========== ===========
Basic and diluted 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
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,608,265 $ 1,429,689
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 9,811 14,391
(Increase) decrease in accrued interest and other receivables (1,231) 422
Decrease in other assets 77,545 79,096
Decrease in accrued and other liabilities (90,443) (5,321)
Gains from sales of foreclosed real estate (119,348) (119,593)
------------ ------------
Net cash provided by operating activities 1,484,599 1,398,684
------------ ------------
Cash flows from investing activities:
Proceeds from sales of foreclosed real estate 467,170 331,154
Proceeds from liquidation of other assets -- 300,000
Additions to fixed assets (11,507) (758)
Increase in restricted cash and cash equivalents -- (2,117)
------------ ------------
Net cash provided by investing activities 455,663 628,279
------------ ------------
Net increase in unrestricted cash and cash equivalents 1,940,262 2,026,963
Unrestricted cash at beginning of period 55,280,342 53,998,721
------------ ------------
Unrestricted cash at end of period $ 57,220,604 $ 56,025,684
============ ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
LIBERTE INVESTORS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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 nine months ended March 31, 2000, 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 March 31, 2000, the Company held foreclosed real estate for sale in the form
of undeveloped land. The March 31, 2000 carrying amount of these assets was
approximately $2,462,000. The foreclosed real estate for sale consists of land
totaling approximately 496 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 of approximately
$119,000 was recognized as a result of this transaction. The buyer has an option
to purchase an additional tract totaling 58 acres of land adjacent to the 51.18
acres and has a $25,000 deposit with the Company for this option. The proceeds
from the sale of the 51.18 acres were increased by $186,000, which had been
deducted from a prior purchase to be used by the buyer to extend a road into the
property. The buyer had previously paid a $25,000 deposit on the 51.18 acres,
which is treated as a non-cash transaction in the statements of cash flows.
7
<PAGE>
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 $1,136,000, 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 authorities to obtain title to the
property. No response has yet been received. LNC Holdings, Inc. has accrued
property taxes for calendar years 1996 through 2000 totaling $167,000.
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 nine months ended March 31, 2000
and 1999, 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 March 31, 2000, the Company had certain concentrations of credit risk with
two financial institutions in the form of cash, which amounted to approximately
$57 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.
Note G - Reclassifications
Certain amounts have been reclassified in the 1999 financial statements to
conform to the 2000 presentation.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
During the nine months ended March 31, 2000, 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.
Nine Months Ended March 31, 2000 versus Nine Months Ended March 31, 1999
Net income for the nine months ended March 31, 2000 was $1,608,000 compared to
net income of $1,430,000 for the same period in 1999. The change in operating
results for the nine months was due to various factors discussed below.
Interest income related to interest-bearing deposits in banks increased to
$2,061,000 for the nine months ended March 31, 2000 from $1,926,000 for the same
period in 1999. This increase is due to an increase in interest rates and an
increase in the average balance outstanding on the Company's interest-bearing
deposits during the nine months ended March 31, 2000 versus the nine months
ended March 31, 1999. Unrestricted cash increased from $56,026,000 at March 31,
1999 to $57,221,000 at March 31, 2000 primarily due to interest earned on the
unrestricted cash accounts, proceeds from the sale of real estate, less a
dividend payment to stockholders during June 1999.
Gains on the sales of foreclosed real estate was $119,000 for the nine months
ended March 31, 2000 as compared to $120,000 for the nine months ended March 31,
1999. 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 nine months ended March 31, 2000 were from the sale of 51.18 acres in
San Antonio, Texas.
Other income for the nine months ended March 31, 1999 was $12,000, which was
primarily dividend payments received on RPI preferred stock. No dividend
payments on RPI preferred stock were received for the nine months ended March
31, 2000 due to the liquidation of the 300,000 shares of RPI preferred stock in
August 1998.
Insurance expense decreased to $91,000 for the nine months ended March 31, 2000,
as compared to $93,000 for the same period in 1999. The decrease was primarily
due to decreased premiums related to Directors' and Officers' insurance.
Compensation and employee benefits expense decreased to $64,000 for the nine
months ended March 31, 2000 from $79,000 for the same period in 1999. The
decrease was due to the Company only having one employee for a majority of the
nine months ended March 31, 2000 as compared to two employees for a majority of
the nine months ended March 31, 1999.
Legal, audit and advisory fees were $100,000 for the nine months ended March 31,
2000 as compared to $46,000 for the nine months ended March 31, 1999. Legal and
accounting expenses were higher for the nine months ended March 31, 2000 due to
additional legal and accounting fees for due diligence on a potential business
transaction and for contracts relating to the sale of foreclosed real estate.
Franchise tax expense decreased from $66,000 for the nine months ended March 31,
1999 to $27,000 for the nine months ended March 31, 2000. Franchise tax expense
for the nine months ended March 31, 2000 is lower due to the Company having to
pay minimal Texas state franchise tax for 1999.
9
<PAGE>
Foreclosed real estate operations expense decreased from $118,000 for the nine
months ended March 31, 1999 to $104,000 for the same period in 2000. Foreclosed
real estate operations expense was lower for the nine months ended March 31,
2000 due to a reduction in real estate consulting fees.
General and administrative expense decreased from $225,000 during the nine
months ended March 31, 1999 to $185,000 for the same period in 2000. The
decrease was primarily a reduction in shareholder relations expenses for the
nine months ended March 31, 2000 as compared to the nine months ended March 31,
1999 and due to the payment of a search fee for a new employee during the nine
months ended March 31, 1999.
Three Months Ended March 31, 2000 versus Three Months Ended March 31, 1999
Net income for the three months ended March 31, 2000 was $557,000 compared to
net income of $400,000 for the same period in 1999. 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
$734,000 for the three months ended March 31, 2000 from $603,000 for the same
period in 1999. This increase is due to an increase in interest rates and an
increase in the average balance outstanding on the Company's interest-bearing
deposits during the three months ended March 31, 2000 versus the three months
ended March 31, 1999. Unrestricted cash increased from $56,026,000 at March 31,
1999 to $57,221,000 at March 31, 2000 primarily due to interest earned on the
unrestricted cash accounts, proceeds from the sale of real estate, less a
dividend payment to stockholders during June 1999.
Legal, audit and advisory fees were $23,000 for the three months ended March 31,
2000 as compared to $16,000 for the three months ended March 31, 1999. Legal
expenses were higher for the three months ended March 31, 2000 due to additional
legal fees for due diligence on a potential business transaction and for
contracts relating to the sale of foreclosed real estate.
Franchise tax expense decreased from $22,000 for the three months ended March
31, 1999 to $9,000 for the three months ended March 31, 2000. Franchise tax
expense for the three months ended March 31, 2000 is lower due to the Company
having to pay minimal Texas state franchise tax for 1999.
Foreclosed real estate operations expense decreased from $35,000 for the three
months ended March 31, 1999 to $30,000 for the same period in 2000. Foreclosed
real estate operations expense was lower for the three months ended March 31,
2000 due to a reduction in real estate consulting fees.
General and administrative expense decreased from $73,000 during the three
months ended March 31, 1999 to $63,000 for the same period in 2000. The decrease
was primarily a reduction in shareholder relations expenses for the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999.
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
10
<PAGE>
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.
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 $57 million of its cash in interest
bearing deposits in two financial institutions, which are due 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.
11
<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
12
<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.
May 12, 2000 By: /s/ Gerald J. Ford
-------------------------------------------------
Gerald J. Ford
Chief Executive Officer and Chairman of the Board
May 12, 2000 By: /s/ Samuel C. Perry
-------------------------------------------------
Samuel C. Perry
Controller and Principal Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 57,220,604
<SECURITIES> 0
<RECEIVABLES> 50,332
<ALLOWANCES> 0
<INVENTORY> 2,462,445
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,733,381
<CURRENT-LIABILITIES> 390,285
<BONDS> 0
0
0
<COMMON> 202,561
<OTHER-SE> 59,140,535
<TOTAL-LIABILITY-AND-EQUITY> 59,733,381
<SALES> 0
<TOTAL-REVENUES> 2,180,593
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 572,328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,608,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,608,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,608,265
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
