-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVZAJDTmrf2llbMGPvpWsWrPybgbu4POwQUWxfLH1v2mqOpkct/+JvNlAFNr+jT+ 1jFdtqCNedwfYxPp3IliTQ== 0000930661-97-001290.txt : 19970515 0000930661-97-001290.hdr.sgml : 19970515 ACCESSION NUMBER: 0000930661-97-001290 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTE INVESTORS INC CENTRAL INDEX KEY: 0001017907 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 751328153 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12117 FILM NUMBER: 97605565 BUSINESS ADDRESS: STREET 1: 600 N PEARL STREET 2: SUITE 420 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147208950 MAIL ADDRESS: STREET 1: 600 N PEARL SUITE 420 CITY: DALLAS STATE: TX ZIP: 75201 10-Q 1 FORM 10-Q 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, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO ---------- ---------- COMMISSION FILE NUMBER 1-6802 LIBERTE INVESTORS INC. (Exact name of Registrant as specified in its Charter) DELAWARE 75-1328153 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 600 N. PEARL ST., SUITE 420 75201 DALLAS, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (214) 720-8950 ------------------------ (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 13, 1997: 20,256,097 shares. LIBERTE INVESTORS INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition March 31, 1997 and June 30, 1996................... 3 Consolidated Statements of Operations Nine Months Ended March 31, 1997 and 1996.......... 4 Consolidated Statements of Operations Three Months Ended March 31, 1997 and 1996......... 5 Consolidated Statements of Cash Flows Nine Months Ended March 31, 1997 and 1996.......... 6 Notes to Consolidated Financial Statements......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................. 14 Item 2. Changes in Securities.............................. 14 Item 3. Defaults upon Senior Securities.................... 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information.................................. 14 Item 6. Exhibits and Reports on Form 8-K................... 14 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LIBERTE INVESTORS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, June 30, 1997 1996 ------------- ------------ Assets Unrestricted cash and cash equivalents $ 51,657,737 $ 27,245,594 Restricted cash and cash equivalents 60,456 58,325 ------------- ------------ Total cash and cash equivalents 51,718,193 27,303,919 Notes receivable, net 414,036 1,331,390 Foreclosed real estate held for sale 3,435,621 3,475,790 Accrued interest and other receivables 27,856 63,875 Other assets 396,775 1,179,277 ------------- ------------ Total assets $ 55,992,481 $ 33,354,251 ============= ============ Liabilities and Stockholders' Equity Liabilities Accrued and other liabilities $ 246,296 $ 502,078 Stockholders' Equity Common stock, $.01 par value, 50,000,000 shares authorized, 20,256,097 shares issued and outstanding 202,561 -- Shares of Beneficial Interest, no par value, unlimited authorization, 12,423,208 shares issued, 12,153,658 shares outstanding, net of 269,550 shares held in treasury -- 32,852,173 Additional paid-in capital 309,391,520 -- Retained earnings (253,847,896) -- ------------- ------------ Total stockholders' equity 55,746,185 32,852,173 ------------- ------------ Total liabilities and stockholders' equity $ 55,992,481 $ 33,354,251 ============= ============
See notes to unaudited consolidated financial statements. 3 LIBERTE INVESTORS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended March 31, ------------------------ 1997 1996 ----------- ----------- Income Interest-bearing deposits in banks $ 1,715,108 $ 917,002 Notes receivable interest 97,064 370,558 Gains on sales of foreclosed real estate 11,310 552,652 Other 34,146 458,525 ----------- ----------- Total income 1,857,628 2,298,737 ----------- ----------- Expenses Insurance 238,677 160,868 Foreclosed real estate operations 166,124 106,952 Legal, audit and advisory fees 155,422 507,400 Franchise tax 113,934 -- Compensation and employee benefits 111,405 512,931 Provision for loan losses 380 -- General and administrative 221,317 196,109 ----------- ----------- Total expenses 1,007,259 1,484,260 ----------- ----------- Net income $ 850,369 $ 814,477 =========== =========== Net income per share of Common Stock (Beneficial Interest in 1996) $ .05 $ .07 Weighted average number of shares of Common Stock (Beneficial Interest in 1996) 18,895,834 12,153,658
See notes to unaudited consolidated financial statements. 4 LIBERTE INVESTORS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, ------------------------ 1997 1996 ----------- ----------- Income Interest-bearing deposits in banks $ 625,386 $ 305,519 Notes receivable interest 27,325 119,717 Gains on sales of foreclosed real estate -- 106,652 Other 14,250 178,190 ----------- ----------- Total income 666,961 710,078 ----------- ----------- Expenses Insurance 78,938 52,831 Foreclosed real estate operations 40,915 16,888 Legal, audit and advisory fees 90,264 52,622 Franchise tax 113,934 -- Compensation and employee benefits 22,597 266,829 Provision for loan losses -- -- General and administrative 84,060 53,150 ----------- ----------- Total expenses 430,708 442,320 ----------- ----------- Net income $ 236,253 $ 267,758 =========== =========== Net income per share of Common Stock (Beneficial Interest in 1996) $ .01 $ .02 Weighted average number of shares of Common Stock (Beneficial Interest in 1996) 20,256,097 12,153,658
See notes to unaudited consolidated financial statements. 5 LIBERTE INVESTORS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income $ 850,369 $ 814,477 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of discount on notes receivable (13,166) -- Decrease (increase) in accrued interest and other receivables 36,019 (29,208) Decrease (increase) in other assets 362,317 (202,897) (Decrease) increase in accrued and other liabilities (255,782) 80,758 Income from impaired loans -- (444,075) Gains from sales of foreclosed real estate (11,310 ) (552,652) Non-cash interest on executive stock option loan -- (14,969) ----------- ----------- Net cash provided by (used in) operating activities 968,447 (348,566) ----------- ----------- Cash flows from investing activities: Collections on notes receivable 930,520 501,602 Collections on RPI note receivable -- 1,148,144 Proceeds from sales of foreclosed real estate 51,479 759,214 (Increase) decrease in restricted cash investments (2,131) 870 ----------- ----------- Net cash provided by investing activities 979,868 2,409,830 ----------- ----------- Cash flows from financing activities: Issuance of newly issued shares of Common Stock to Hunter's Glen 23,091,951 -- Capitalization of reorganization costs (628,123) -- ----------- ----------- Net cash provided by financing activities 22,463,828 -- ----------- ----------- Net increase in unrestricted cash and cash equivalents 24,412,143 2,061,264 Unrestricted cash and cash equivalents at beginning of period 27,245,594 20,576,517 ----------- ----------- Unrestricted cash and cash equivalents at end of period $51,657,737 $22,637,781 =========== =========== Schedule of non-cash activities: Reclassification of reorganization costs to additional paid-in capital $ 420,185 $ -- Charge-offs to allowance for possible losses, net -- 10,429,640 Sales of foreclosed real estate financed by mortgage loans -- 1,076,800 Write-up of value of impaired note -- 71,950 Write-up of value of long-lived assets to be disposed -- 53,751
See notes to unaudited consolidated financial statements. 6 LIBERTE INVESTORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED MARCH 31, 1997) Note A - Organization In April 1996, Liberte Investors, a Massachusetts business trust (the "Trust"), formed Liberte Investors Inc., a Delaware corporation (the "Company"). At a special meeting of the shareholders of the Trust held on August 15, 1996 (the "Special Meeting"), the Trust's shareholders approved the reorganization of the Trust into the Company (the "Reorganization"). To effect the Reorganization, the Trust contributed its assets to the Company and received all of the Company's common stock, par value $.01 per share ("Shares" or "Common Stock") outstanding at the time of the Reorganization, which the Trust then distributed to its shareholders in redemption of all outstanding shares of beneficial interest in the Trust (a "Beneficial Share"). The Company assumed all of the Trust's outstanding liabilities and obligations. Thereafter, the Trust was terminated. Unless otherwise indicated, the information contained in the Form 10-Q which relates to periods prior to August 16, 1996 is information relating to the Trust, and information relating to periods on and after August 16, 1996 is information relating to the Company. Note B - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes necessary for a fair presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended March 31, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 1997. 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 - Stock Purchase Agreement On January 16, 1996, the Trust entered into a Stock Purchase Agreement (as amended, the "Stock Purchase Agreement") with Hunter's Glen/Ford, Ltd., a Texas limited partnership ("Hunter's Glen"), pursuant to which the Trust agreed to sell 8,102,439 newly issued Shares to Hunter's Glen for $23,091,951, representing a purchase price of $2.85 per Share (the "Purchase"). The Purchase was approved by the Trust's shareholders at the Special Meeting and consummated on August 16, 1996. After the Purchase, Hunter's Glen owns 40% of the outstanding Shares. Mr. Gerald J. Ford is a general partner of Hunter's Glen and is the sole shareholder of Ford Diamond Corporation, the only other general partner of Hunter's Glen. Immediately prior to the sale of the Shares pursuant to the Stock Purchase Agreement, the Trust reorganized into the Company, which succeeded to all of the Trust's assets and liabilities. Upon such reorganization, shareholders of the Trust became shareholders of the Company on a share for share basis and Mr. Ford became the Chief Executive Officer and Chairman of the Board of the Company. 7 Note D - Registration Rights In connection with the Purchase, Hunter's Glen and the Company entered into a Registration Rights Agreement (the "Purchaser Registration Rights Agreement"), pursuant to which Hunter's Glen and certain subsequent holders of the shares of Common Stock (the "Hunter's Glen Shares") acquired in the Purchase were granted certain registration rights with respect to such shares until (i) such shares have been sold pursuant to a resale registration statement filed with the Securities and Exchange Commission, (ii) such shares have been sold under the safe-harbor provision of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or (iii) such shares have been otherwise transferred and the Company has issued new stock certificates representing such shares without a legend restricting further transfer. The holders of not less than 20% of the Hunter's Glen Shares may require the Company to file a shelf registration statement registering their sale of such shares. The Company will be required to maintain the effectiveness of such registration statement for two years. In addition, the holders of not less than 20% of the Hunter's Glen Shares may make two demands upon the Company to register their sale of such shares in underwritten offerings, provided that the shares to be sold have a fair market value in excess of $5.0 million. Finally, the holders of the Hunter's Glen Shares may require the Company to register the sale of their shares if the Company proposes to file a registration statement under the Securities Act for its account or the account of its securityholders, other than a registration statement concerning a business combination, an exchange of securities or an employee benefit plan. The holders of these registration rights may exercise them at any time during the period beginning on August 16, 1997 and ending when the holders of such shares own an aggregate of less than 5% of the outstanding Shares and are no longer affiliates of the Company under the United States federal securities laws. The Company will bear all of the expenses of these registrations, except any underwriters' commissions, discounts and fees, and the fees and expenses of any legal counsel to the holders of the Hunter's Glen Shares. At the closing of the Purchase, Hunter's Glen, the Company and certain other persons entered into an Agreement Clarifying Registration Rights (the "Agreement Clarifying Registration Rights"). Under this agreement, the registration rights that the Trust had previously extended to 400,000 Beneficial Shares owned by the Enloe Descendants' Trust were extended to the 759,000 Shares that the Enloe Descendants' Trust, Mr. Robert Ted Enloe, III and his wife owned upon the consummation of the Reorganization and the Purchase. The Agreement Clarifying Registration Rights also defined the relationship between these registration rights and the registration rights extended under the Purchaser Registration Rights Agreement. The Agreement Clarifying Registration Rights generally permits Hunter's Glen to require the Company to register the sale of its shares in connection with any exercise of demand registration rights by the Enloe Descendants' Trust, and permits the Enloe Descendants' Trust, Mr. Enloe and his wife to require the Company to register the sale of their shares in connection with any exercise of demand registration rights by Hunter's Glen. In addition, this Agreement provides that the Enloe Descendants' Trust, Mr. Enloe, his wife and Hunter's Glen will not publicly sell their Shares during the period beginning ten days before the filing of a registration statement in connection with certain underwritten offerings and ending ninety days after the effective date of such registration statement. Finally, The Agreement Clarifying Registration Rights provides that the registration rights with respect to the Shares held by the Enloe Descendants' Trust, Mr. Enloe and his wife will be transferable to the subsequent holders of such shares. NOTE E - Share Transfer Restrictions The Company's Certificate of Incorporation (the "Charter") contains prohibitions on the transfer of the Shares to avoid limitations on the use of the net operating loss carryforwards and other federal income tax attributes that the Company inherited from the Trust. The Charter generally prohibits any transfer of Shares, any other subsequently issued voting stock or stock that participates in the earnings or growth of the Company, and certain options with respect to such Shares or stock, if the transfer of such Shares or stock would cause any group or person to own 4.9% or more of the outstanding shares of, increase the ownership 8 position of any person that already owns 4.9% or more (by aggregate value) of the outstanding shares of such stock, or cause any person to be treated like the owner of 4.9% or more (by aggregate value) of the outstanding shares of such stock for tax purposes. Transfers in violation of this prohibition will be void, unless the Board of Directors consents to the transfer. If void, upon demand by the Company, the purported transferee must return the shares to the Company's agent to be sold, or if already sold the purported transferee must forfeit some, or possibly all, of the sale proceeds. In addition, in connection with certain changes in the ownership of the holders of the Company's shares, the Company may require the holder to dispose of some or all of such shares. For this purpose, "person" is defined broadly to mean any individual, corporation, estate, debtor, association, company, partnership, joint venture, or similar organization. Note F - Foreclosed Real Estate Held For Sale At March 31, 1997, the Company held assets to be disposed of consisting of foreclosed real estate in the form of single-family lots and land. The March 31, 1997 carrying amount of these assets was $3,436,000. The carrying value of the single-family lots was $620,000 at March 31, 1997. The remaining balance of the Company's foreclosed real estate consists of 14 parcels of land totaling approximately 603 acres in San Antonio, Texas. Note G - Reclassifications Certain reclassifications were made in previously issued financial statements to conform to the March 31, 1997 presentation. Note H - Commitments and Contingencies At March 31, 1997, the Company had commitments for indemnification of development bond issuers and other guarantees totaling $102,400. The Company's wholly owned subsidiary, LNC Holdings, Inc., is the owner of approximately 40 acres of land located in Arlington, Texas which is encumbered by local property tax liens of $930,000. The Company believes that the tax liens will ultimately be repaid from the proceeds of the sale of all or a portion of the encumbered property. Cash and cash equivalents at March 31, 1997, included restricted cash of $60,456 for unpaid claims related to the Trust's previous bankruptcy. At June 30, 1996, restricted cash included $58,325 for such claims. 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, results of operations, or cash flows. Note I - Federal Income Taxes Though the Company had net income for the nine months ended March 31, 1997, no tax liability has been recognized. At June 30, 1996, the Company had, for federal tax purposes, net operating loss carryforwards in excess of $225 million which expire at various times between the years 2005 and 2011 and which are in sufficient amount to mitigate any significant tax liability for fiscal year 1997. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations NINE MONTHS ENDED MARCH 31, 1997 VERSUS NINE MONTHS ENDED MARCH 31, 1996 Net income for the nine months ended March 31, 1997 was $850,000 compared to net income of $814,000 for the same period in 1996. 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 $1,715,000 for the nine months ended March 31, 1997 from $917,000 for the same period in 1996. This increase is due to a growth in the balance of unrestricted cash and cash equivalents to $51.7 million on March 31, 1997, from $22.6 million on March 31, 1996. The increase in unrestricted cash and cash equivalents is primarily due to the repurchase of the Resurgence Properties, Inc. ("RPI") note receivable by RPI for $4.1 million on June 27, 1996, the sale of 8,102,439 shares of newly issued Common Stock for $23.1 million to Hunter's Glen on August 16, 1996 (See Note C - Notes to Consolidated Financial Statements), and payments on the notes receivable of $931,000 during the nine months ended March 31, 1997. Notes receivable interest income decreased to $97,000 for the nine months ended March 31, 1997 from $371,000 for the same period in 1996, as a result of a lower outstanding balance of notes receivable. The notes receivable balance decreased to $414,000 on March 31, 1997 from $5.6 million on March 31, 1996. The reduction in notes receivable is primarily due to the repurchase of the RPI note receivable by RPI for $4.1 million on June 27, 1996 representing 98.75% of the outstanding balance of the RPI note in a negotiated transaction between the Trust and RPI, and repayments of indebtedness by borrowers. The gains on sales of foreclosed real estate decreased to $11,000 for the nine months ended March 31, 1997 from $553,000 for the same period in 1996. The gains on sales of real estate represents proceeds received from the sale of foreclosed real estate in excess of its carrying value. The gain recognized during the nine months ended March 31, 1997 resulted from the sale of single- family lots in San Antonio, Texas. The gain during the nine months ended March 31, 1996 was primarily due to the sale of single- family lots in Murrieta, California. Other income decreased to $34,000 for the nine months ended March 31, 1997 from $459,000 for the same period in 1996. Other income for the nine months ended March 31, 1996 primarily consisted of cash collections on impaired loans which had no carrying value. There were no such collections during the nine months ended March 31, 1997. Insurance expense increased to $239,000 for the nine months ended March 31, 1997, as compared to $161,000 for the same period in 1996. The increase is primarily due to increased premiums related to Directors' and Officers' insurance resulting from an increase in the coverage amount as required by the Stock Purchase Agreement. Foreclosed real estate operations expense increased $59,000 from $107,000 for the nine months ended March 31, 1996 to $166,000 for the same period in 1997. The increase is primarily due to an accrual established for 1996 property taxes related to the 40 acres of land located in Arlington, Texas held by LNC Holdings, Inc. and an increase in the accrual for 1997 property taxes. Legal, audit and advisory fees were $155,000 for the nine months ended March 31, 1997, a decrease of $352,000 from the same period in 1996. Prior period activity included expenses incurred by the Trust related to potential acquisitions. 10 Franchise tax expense for the nine months ended March 31, 1997 represents Delaware franchise tax for the 1996 tax year, as a result of the reorganization of the Trust into the Company, a Delaware corporation. There was no such expense during the nine months ended March 31, 1996. Compensation and employee benefits expense decreased by $402,000 from $513,000 during the nine months ended March 31, 1996 to $111,000 for the same period in 1997. The decrease is due to a reduced compensation package for the Trust's Chief Executive Officer, Robert Ted Enloe III, beginning in the last quarter of fiscal 1996, as well as, the resignations of six of the Company's employees, including Mr. Enloe, on August 31, 1996. General and administrative expense increased by $25,000 from $196,000 during the nine months ended March 31, 1996 to $221,000 for the same period in 1997. The increase is attributed to an increase in shareholder services expense for costs related to the annual stockholder's meeting and to the renewal of the listing of the Company's Common Stock on the New York Stock Exchange ("NYSE"), offset by a decrease in trustee's fees and expense. Trustee's fees and expense for the nine months ended March 31, 1996 included an accrual for trustee retirement benefits, as well as increased fees for meetings related to potential acquisitions by the Trust. THREE MONTHS ENDED MARCH 31, 1997 VERSUS THREE MONTHS ENDED MARCH 31, 1996 Net income for the three months ended March 31, 1997 was $236,000 compared to net income of $268,000 for the same period in 1996. The change in operating results for the three months was due to various factors discussed below. Interest income related to interest-bearing deposits in banks increased to $625,000 for the three months ended March 31, 1997 from $306,000 for the same period in 1996. This increase is due to a growth in the balance of unrestricted cash and cash equivalents to $51.7 million on March 31, 1997, from $22.6 million on March 31, 1996. The increase in unrestricted cash and cash equivalents is primarily due to the repurchase of the RPI note receivable by RPI for $4.1 million on June 27, 1996, the sale of 8,102,439 shares of newly issued Common Stock for $23.1 million to Hunter's Glen on August 16, 1996 (See Note C - Notes to Consolidated Financial Statements), and principal repayments of $309,000 on notes receivable. Notes receivable interest income decreased to $27,000 for the three months ended March 31, 1997 from $120,000 for the same period in 1996, as a result of a lower outstanding balance of notes receivable. The notes receivable balance decreased to $414,000 on March 31, 1997 from $5.6 million on March 31, 1996. The reduction in notes receivable is primarily due to the repurchase of the RPI note receivable by RPI for $4.1 million on June 27, 1996 representing 98.75% of the outstanding balance of the RPI note in a negotiated transaction between the Trust and RPI, and repayments of indebtedness by borrowers. The gains on sales of foreclosed real estate for the three months ended March 31, 1996 represents proceeds received from the sale of foreclosed real estate in excess of its carrying value. The gain during the three months ended March 31, 1996 was primarily due to the sale of single-family lots in Murrieta, California. Other income decreased to $14,000 for the three months ended March 31, 1997 from $178,000 for the same period in 1996. Other income for the three months ended March 31, 1996 primarily consisted of cash collections on impaired loans, which had no carrying value. There were no such collections during the three months ended March 31, 1997. Insurance expense increased to $79,000 for the three months ended March 31, 1997, as compared to $53,000 for the same period in 1996. The increase is primarily due to increased premiums related to 11 Directors' and Officers' insurance resulting from an increase in the coverage amount as required by the Stock Purchase Agreement. Foreclosed real estate operations expense increased $24,000 from $17,000 for the three months ended March 31, 1996 to $41,000 for the same period in 1997. The increase is primarily due to an accrual established for 1996 property taxes related to the 40 acres of land located in Arlington, Texas held by LNC Holdings, Inc. Legal, audit and advisory fees were $90,000 for the three months ended March 31, 1997, an increase of $37,000 from the same period in 1996. Current period activity included expenses incurred by the Company related to potential acquisitions. Franchise tax expense for the three months ended March 31, 1997 represents Delaware franchise tax for the 1996 tax year, as a result of the reorganization of the Trust into the Company, a Delaware corporation. There was no such expense during the three months ended March 31, 1996. Compensation and employee benefits expense decreased by $244,000 from $267,000 during the three months ended March 31, 1996 to $23,000 for the same period in 1997. The decrease is due to a reduced compensation package for the Trust's Chief Executive Officer, Robert Ted Enloe III, beginning in the last quarter of fiscal 1996, as well as, the resignations of six of the Company's employees, including Mr. Enloe, on August 31, 1996. General and administrative expense increased by $31,000 from $53,000 during the three months ended March 31, 1996 to $84,000 for the same period in 1997. The increase is attributed to an increase in shareholder services expense for costs related to the annual stockholder's meeting and to the renewal of the listing of the Company's Common Stock on the NYSE. 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 principal and interest collections on notes receivable, proceeds from the sale of foreclosed real estate, income on cash and cash equivalents, and cash on hand. As described in Note C to the financial statements, the Trust entered into an agreement and subsequently consummated the sale of newly issued Shares to Hunter's Glen. The proceeds from this sale were $23.1 million. Management believes that the additional cash will assist the Company in its efforts to expand its business through acquisitions. Hunter's Glen is an affiliate of Mr. Gerald J. Ford, who became the Chief Executive Officer and Chairman of the Board of the Company following the Trust's reorganization into the Company and the sale of the Shares to Hunter's Glen. Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements. In addition, the Company, through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and performance, including its ability to acquire businesses in the future, and other developments. Such forward-looking statements are necessarily estimates reflecting the Company's best judgment based upon current information, involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by the Company include, but are not limited to, the uncertainty as to whether the Company will be able to make future business acquisitions or that any such acquisitions will be successful, the Company's ability to obtain financing for any possible 12 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. SHARE TRANSFER RESTRICTIONS In order to avoid limitations on the use of the Company's tax attributes, the Company's Certificate of Incorporation prohibits the transfer of the Shares, any other subsequently issued voting stock or stock that participates in the earnings or growth of the Company, and certain options with respect to such Shares or stock, if the transfer of such Shares or stock would cause any group or person to own 4.9% or more of the outstanding shares, or increase the ownership position of any person or group that already owns 4.9% or more of the outstanding shares of such stock, or cause any person or group to be treated like the owner of 4.9% or more of the outstanding shares of such stock for tax purposes. For this purpose, "person" is defined broadly to mean any individual, corporation, estate, debtor, association, company, partnership, joint venture, or similar organization. See Note E - Notes to Consolidated Financial Statements. 13 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 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. LIBERTE INVESTORS INC. May 13, 1997 By: /s/ Gerald J. Ford --------------------------------------------------- Gerald J. Ford Chief Executive Officer and Chairman of the Board May 13, 1997 By: /s/ Melinda G. Heika --------------------------------------------------- Melinda G. Heika Principal Accounting Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 51,718,193 0 838,667 0 3,435,621 0 0 0 55,992,481 246,296 0 0 0 202,561 55,543,624 55,992,481 11,310 1,857,628 0 0 1,006,879 380 0 850,369 0 850,369 0 0 0 850,369 .05 0
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