10-Q 1 d50684_10q.htm QUARTERLY REPORT Form 10Q

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, 2002

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
Liberté Investors Inc.
(Exact name of Registrant as specified in its Charter)


Delaware
(State or other jurisdiction
of incorporation or organization) 		75-1328153
(I.R.S. Employer
Identification No.)
 
200 Crescent Court, Suite 1365
Dallas, Texas
(Address of principal executive offices) 		75201
(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 |_|

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

     The number of shares outstanding of registrant’s common stock, $.01 par value, as of the close of business on May 13, 2002: 20,256,097 shares.



LIBERTÉ INVESTORS INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002

INDEX



PART I — FINANCIAL INFORMATION		 Page
 
         Item 1.   Financial Statements (Unaudited)    
 
            Consolidated Statements of Financial Condition  
            March 31, 2002 and June 30, 2001   3  
 
           Consolidated Statements of Operations  
           Nine Months Ended March 31, 2002 and 2001   4  
 
           Consolidated Statements of Operations  
           Three Months Ended March 31, 2002 and 2001   5  
 
           Consolidated Statements of Cash Flows  
           Nine Months Ended March 31, 2002 and 2001   6  
 
           Notes to Consolidated Financial Statements   7  
 
         Item 2.   Management’s Discussion and Analysis of Financial  
            Condition and Results of Operations   10  
 
         Item 3.   Quantitative and Qualitative Disclosures  
            About Market Risk   12  
 
PART II — OTHER INFORMATION  
 
         Item 6.   Exhibits and Reports on Form 8-K   13  

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


March 31, 2002 June 30, 2001
Assets      
Cash and cash equivalents  $   56,731,389   $   56,102,635  
Foreclosed real estate held for sale  2,175,137   2,359,334  
Accrued interest and other receivables  1,977   5,239  
Other assets, net  140,057   96,323  
      Total assets  $   59,048,560   $   58,563,531  
 
Liabilities and Stockholders’ Equity 
Liabilities — accrued and other liabilities  $        544,994   $        530,999  
 
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  309,392,398   309,392,398  
Accumulated deficit  (251,091,393 ) (251,562,427 )
     Total stockholders’ equity  58,503,566   58,032,532  
 
Commitments and contingencies 
 
     Total liabilities and stockholders’ equity  $   59,048,560   $   58,563,531  

See notes to consolidated financial statements.

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LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


Nine Months Ended
March 31,
2002 2001
Income      
  Interest on deposits in banks  $  1,067,097   $   2,354,203  
  Gains on sales of foreclosed real estate  138,605   110,725  
  Other  15   21,090  
Total income  1,205,717   2,486,018  
 
Expenses 
  Insurance  74,939   91,550  
  Compensation and employee benefits  113,621   67,257  
  Legal, audit and advisory fees  100,774   82,325  
  Franchise taxes  27,116   (38,208 )
  Foreclosed real estate operations  189,759   124,861  
  General and administrative  228,474   199,614  
Total expenses  734,683   527,399  
 
Net Income  $     471,034   $   1,958,619  
 
Basic and diluted net income per share of common stock  $           0.02   $            0.10  
 
Weighted average number of shares of 
  common stock  20,256,097   20,256,097  

See notes to consolidated financial statements.

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LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


Three Months Ended
March 31,
2002 2001
Income      
  Interest on deposits in banks  $     277,175   $     705,559  
  Gains on sales of foreclosed real estate  —   66,093  
  Other  —   250  
Total income  277,175   771,902  
 
Expenses 
  Insurance  24,731   29,922  
  Compensation and employee benefits  37,883   22,953  
  Legal, audit and advisory fees  41,265   32,977  
  Franchise taxes  8,700   8,775  
  Foreclosed real estate operations  51,777   45,958  
  General and administrative  96,629   73,779  
Total expenses  260,985   214,364  
 
Net Income  $       16,190   $     557,538  
 
Basic and diluted net income per share of common stock  $       0.0008   $       0.0275  
 
Weighted average number of shares of 
  common stock  20,256,097   20,256,097  

See notes to consolidated financial statements.

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LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


Nine Months Ended
March 31,
2002 2001
Cash flows from operating activities:      
  Net income  $      471,034   $   1,958,619  
  Adjustments to reconcile net income 
       to net cash provided by operating activities: 
    Depreciation and amortization  4,260   6,360  
    Gains from sales of foreclosed real estate  (138,605 ) (110,725 )
    (Increase) decrease in accrued interest and other receivables  3,262   (2,900 )
    (Increase) decrease in other assets  (47,994 ) 76,279  
    Increase (decrease) in accrued and other liabilities  13,995   (72,852 )
Net cash provided by operating activities  305,952   1,854,781  
 
Cash flows from investing activities: 
    Proceeds from sales of foreclosed real estate  322,802   216,451  
    Proceeds from sales of fixed assets  —   970  
    Additions to fixed assets  —   (5,424 )
Net cash provided by investing activities  322,802   211,997  
 
Net increase in cash and cash equivalents  628,754   2,066,778  
Cash and cash equivalents at beginning of period  56,102,635   55,887,941  
Cash and cash equivalents at end of period  $ 56,731,389   $ 57,954,719  

See notes to consolidated financial statements.

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LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)

Note A — Organization

Liberté Investors Inc., a Delaware corporation (the “Company”), was organized in April 1996 in order to effect the reorganization of Liberté 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 accounting principles generally accepted in the United States of America. 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, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2002.

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, 2002, the Company held foreclosed real estate for sale in the form of undeveloped land. The March 31, 2002 carrying amount of these assets was approximately $2,175,000. The foreclosed real estate for sale consists of land totaling approximately 399 acres in San Antonio, Texas and approximately 40 acres in Arlington, Texas.

In August 2000, the Company sold 6.46 acres of land in San Antonio, Texas to a developer for a price of $114,100, less associated selling costs of $1,966. A gain of approximately $45,000 was recorded as a result of this transaction. The proceeds from the sale of the 6.46 acres was reduced by $660 for property taxes paid by the purchaser, which is treated as a non-cash item in the consolidated statements of cash flows.

In February 2001, the Company sold a 0.94 acre tract of land in San Antonio, Texas to an individual for a price of $6,000, less associated selling costs of $162. A gain of approximately $2,000 was recorded as a result of this transaction. The proceeds from the sale of the 0.94 acres was reduced by $148 for property taxes paid by the purchaser, which is treated as a non-cash item in the consolidated statements of cash flows.

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In March 2001, the Company sold a 1.26 acre tract of land in San Antonio, Texas to a business owner for a price of $100,000, less associated selling costs of $1,521. A gain of approximately $64,000 was recorded as a result of this transaction.

In November 2001, the Company sold 59.39 acres of land in San Antonio, Texas to a developer for a price of $350,340, less associated selling costs of $27,538. A gain of approximately $138,600 was recorded 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 $1,441,000, including penalties and interest.

On April 16, 1997, LNC Holdings, Inc. received a notice of judgment from the City of Arlington with regard to the delinquent taxes through that date. On June 28, 2001, LNC Holdings, Inc. received an additional notice of judgment from the City of Arlington with regard to the delinquent taxes from 1997 through that date. 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 2002 totaling $293,000. 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- and nine-month periods ended March 31, 2002 and 2001, 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 — Franchise Taxes

During the second quarter of fiscal 2001, the Company adjusted its estimate of franchise taxes owed by reversing previously accrued amounts totaling $65,634 due to the completion and settlement of an audit of its 1997 through 1999 State of Texas franchise tax returns.

Note G — Concentration of Credit Risk

At March 31, 2002, the Company had certain concentrations of credit risk with two financial institutions in the form of cash, which amounted to approximately $56.7 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.

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Note H — New Accounting Pronouncement

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Lon-Lived Assets” (SFAS 144), establishing financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of SFAS 144 are effective for the Company beginning July 1, 2002. The Company is currently assessing the impact of such adoption and currently believes the effect, if any, will not be material to the Company’s consolidated financial position or results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

During the three- and nine-month periods ended March 31, 2002, Liberté 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 2002 to identify quality acquisitions, the Company has not yet entered into any definitive acquisition agreements.

Nine Months Ended March 31, 2002 versus Nine Months Ended March 31, 2001

Net income for the nine months ended March 31, 2002 was $471,000 compared to net income of $1,959,000 for the same period in 2001. 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 decreased to $1,067,000 for the nine months ended March 31, 2002 from $2,354,000 for the same period in 2001. This decrease is primarily due to substantially lower interest rates on the Company’s interest-bearing deposits during the nine months ended March 31, 2002 versus the nine months ended March 31, 2001. Cash and cash equivalents also decreased from $57,955,000 at March 31, 2001 to $56,731,000 at March 31, 2002 primarily due to a dividend payment to stockholders during June 2001.

Gains on the sales of foreclosed real estate were $139,000 for the nine months ended March 31, 2002 as compared to $111,000 for the nine months ended March 31, 2001. The gains on sales of real estate represent proceeds received from the sale of foreclosed real estate in excess of carrying value. The gain recognized for the nine months ended March 31, 2002 was from the sale of 59.39 acres in San Antonio, Texas and the gains recognized for the nine months ended March 31, 2001 were from three sales of property in San Antonio, Texas.

Other income for the nine months ended March 31, 2001 was $21,000, which was a distribution from a trust regarding an acquisition, development and construction loan made to Village Park Homes, Venture II, which was comprised of 55 lots in Fontana, California. The Company had foreclosed on the 55 lots in January 1998 and sold the 55 lots in September 1998.

Compensation and benefit expense was $113,000 for the nine months ended March 31, 2002 as compared to $67,000 for the nine months ended March 31, 2001. The increase in expense is due to the hiring of a contract employee, partially offset by the replacement of a full-time employee with a part-time employee.

Legal, audit and advisory fees were $101,000 for the nine months ended March 31, 2002 as compared to $82,000 for the nine months ended March 31, 2001. Legal expenses were higher for the nine months ended March 31, 2002 due to additional legal fees for review of real estate sale contracts.

Franchise tax expense was $27,000 for the nine months ended March 31, 2002 as compared to a credit of $38,000 for the same period in 2001. The credit was due to an adjustment of the State of Texas franchise tax liability during the second quarter of fiscal 2001 totaling $65,634 due to the completion and settlement of an audit of 1997 through 1999 Texas franchise tax returns.

Foreclosed real estate expenses increased from $125,000 during the nine months ended March 31, 2001 to $190,000 for the same period in 2002. The increase was primarily due to higher property taxes resulting

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from increased valuations of land owned by the Company, as well as additional spending for real estate consultations and studies.

General and administrative expense increased from $200,000 during the nine months ended March 31, 2001 to $228,000 for the same period in 2002. The increase was primarily due to higher spending for shareholder relations expenses for the nine months ended March 31, 2002.

Three Months Ended March 31, 2002 versus Three Months Ended March 31, 2001

Net income for the three months ended March 31, 2002 was $16,000 compared to net income of $558,000 for the same period in 2001. 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 $277,000 for the three months ended March 31, 2002 from $706,000 for the same period in 2001. This decrease is primarily due to substantially lower interest rates on the Company’s interest-bearing deposits during the three months ended March 31, 2002 versus the three months ended March 31, 2001. Cash and cash equivalents also decreased from $57,955,000 at March 31, 2001 to $56,731,000 at March 31, 2002 primarily due to a dividend payment to stockholders during June 2001.

There were no gains on the sales of foreclosed real estate for the three months ended March 31, 2002 as compared to $66,000 for the three months ended March 31, 2001. 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 March 31, 2001 were from the sale of 0.94 acres and 1.26 acres in San Antonio, Texas.

Compensation and benefit expense was $38,000 for the three months ended March 31, 2002 as compared to $23,000 for the three months ended March 31, 2001. The increase in expense is due to the hiring of a contract employee, partially offset by the replacement of a full-time employee with a part-time employee.

Legal, audit and advisory fees were $41,000 for the three months ended March 31, 2002 as compared to $33,000 for the three months ended March 31, 2001. Legal expenses were higher for the three months ended March 31, 2002 due to additional legal fees for review of contracts relating to the sale of foreclosed real estate.

Foreclosed real estate operations expense increased from $46,000 for the three months ended March 31, 2001 to $52,000 for the same period in 2002. Foreclosed real estate operations expense was higher for the three months ended March 31, 2002 primarily due to higher property taxes resulting from increased valuations of land owned by the Company.

General and administrative expense increased from $74,000 during the three months ended March 31, 2001 to $97,000 for the same period in 2002. The increase was primarily due to higher spending for shareholder relation expenses for the three months ended March 31, 2002.

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.

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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.

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.

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PART II. —OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K


(a) Exhibits:

  None

(b) Reports on Form 8-K:

  None

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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.




May 14, 2002		 LIBERTÉ INVESTORS INC.


By: /s/ Gerald J. Ford
——————————————
Gerald J. Ford
Chief Executive Officer and Chairman of the Board


May 14, 2002

By: /s/ Ellen V. Billings
——————————————
Ellen V. Billings
Controller and Principal Accounting Officer

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