Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Liberté Investors Inc.

200 Crescent Court, Suite 1365, Dallas, Texas 75201
(Address of principal executive offices)

Registrant’s telephone number, including area code: (214) 871-5935
Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant of Section 12(g) of the Act:
None

     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.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Act.)

     The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of these shares on the New York Stock Exchange on December 31, 2002 was $41,767,900. For the purposes of this disclosure only, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of the registrant’s common stock are the affiliates of the registrant.

     As of September 22, 2003, there were outstanding 20,589,430 shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s Registration Statement and Proxy Statement to be furnished to stockholders in connection with the
2003 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report.

Table of Contents

LIBERTÉ INVESTORS INC.

FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2003

TABLE OF CONTENTS

2

Table of Contents

PART I

Item 1. Business

     Liberté Investors Inc. (the “Company”) is a Delaware corporation which was organized in April of 1996 in order to effect the reorganization of Liberté Investors, a Massachusetts business trust (the “Trust”), pursuant to which the Trust contributed its assets to the Company and received all of the Company’s outstanding common stock, par value $.01 per share. The Trust then distributed to its shareholders, in redemption of all outstanding shares of beneficial interest in the Trust, the Shares of the Company. The Company assumed all of the Trust’s assets and outstanding liabilities and obligations. Thereafter, the Trust was terminated.

     Since August of 1996, the Company has been actively pursuing opportunities to acquire one or more operating companies in order to increase value to existing stockholders and provide a new focus and direction for the Company. To that end, in July 2002, the Company’s Board of Directors elected Donald J. Edwards of Chicago, Illinois, President and Chief Executive Officer of the Company. Mr. Edwards has extensive experience in acquisitions and is employed by the Company pursuant to a five-year employment agreement.

Portfolio Review

     At June 30, 2003, the Company owned foreclosed real estate totaling $1.6 million, which was classified as nonearning.

     Foreclosed real estate consisted of three properties, all of which are held for sale. The foreclosed real estate held by the Company at June 30, 2003 consisted of undeveloped land located in Texas. Also see Notes 2 and 11 of Notes to Consolidated Financial Statements.

Competition

     In its ongoing efforts to liquidate its real estate assets, the Company competes with commercial banks, savings and loan associations, and other financial institutions that are seeking to sell their own portfolios of foreclosed real estate. The primary factors affecting competition when selling real estate are the value of the foreclosed real estate, the price at which the seller is willing to sell the asset, and the seller’s ability and willingness to provide or arrange financing for the prospective buyer.

     With regard to efforts to identify suitable acquisition candidates, the Company competes with numerous prospective buyers (many of which are much larger than the Company), including various investment funds, other companies in similar industries, corporate conglomerates and individual investors. Many potential acquisition candidates targeted by the Company for acquisition have been pursued by numerous prospective buyers and bidding has been competitive.

Federal Income Tax

     Effective July 1, 1993, the Trust no longer qualified as a real estate investment trust as defined by the Internal Revenue Code. Subsequently, the Company was organized in 1996 as a Delaware corporation in order to effect the reorganization of the Trust by merging the Trust into the Company. Accordingly, the Trust and the Company are subject to federal income taxes.

     At June 30, 2003, the Company had net operating loss carryforwards for federal income tax purposes of approximately $223 million, which are available to offset future federal taxable income.

3

Table of Contents

These carryforwards will expire in 2005 through 2023. Also see Note 6 of Notes to Consolidated Financial Statements.

Personnel

     At June 30, 2003, the Company had five employees. The Company engages real estate consultants as needed with regard to real estate-related matters and utilizes independent accountants and legal advisors as needed when evaluating potential acquisitions.

Item 2. Properties

     The Company’s principal executive offices are located at 200 Crescent Court, Suite 1365, Dallas, Texas and are occupied by the Company under a lease agreement expiring December 31, 2003. Following the Company’s hiring of Donald J. Edwards in July 2002, the Company leased additional office space in Chicago, Illinois. See Note 5 of Notes to Consolidated Financial Statements.

Item 3. Legal Proceedings

None.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

4

Table of Contents

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

Price Range of Common Stock

     The common stock of Liberté Investors Inc. is listed on the New York Stock Exchange (the “NYSE”) under the symbol “LBI.” The following table sets forth the high and low sales price per share for the common stock as reported on the NYSE Composite Transaction Tape for the periods indicated:

     The high and low sales price per share of common stock as reported on the NYSE Composite Transaction Tape on September 22, 2003, were $5.26 and $5.21, respectively. The approximate number of holders of record of common stock of the Company as of September 22, 2003 was 3,100.

Dividend Policy

     The Company paid no dividends during the fiscal year ended June 30, 2003. The Company paid special cash dividends of $0.006 and $0.125 per share on June 28, 2002 and June 29, 2001, respectively. Although the Company has paid dividends in two of the past three years, the Company does not anticipate paying cash dividends in the future as it intends to retain earnings for use in acquiring an operating business.

Stock Transfer Restrictions

     The Company’s certificate of incorporation (the “Charter”) contains prohibitions on the transfer of its common stock 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, without the prior approval of the Board of Directors of the Company, any transfer of common stock, any subsequent issue of voting stock or stock that participates in the earnings or growth of the Company, and certain options with respect to such stock, if the transfer of such stock would cause any group or person to own 4.9% or more of the outstanding shares of, increase the ownership position of any person that already owns 4.9% or more (by aggregate value) of the outstanding shares, or cause any person to be treated like the owner of 4.9% or more (by aggregate value) of the outstanding shares for tax purposes. Transfers in violation of this prohibition will be void, unless the Board of Directors of the Company 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

5

Table of Contents

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.

Item 6. Selected Financial Data (in thousands, except per share amount)

     The following table sets forth selected statement of operations and statement of financial condition data at and for the five years ended June 30, 2003. This information should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Statements contained in this Annual Report on Form 10-K 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 and involve a number of risks and uncertainties. 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.

General

     During the fiscal year ended June 30, 2003, 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 were made to identify

6

Table of Contents

quality acquisitions in fiscal 2003, the Company has not yet entered into any definitive acquisition agreements.

     In July 2002, the Company’s Board of Directors elected Donald J. Edwards of Chicago, Illinois, President and Chief Executive Officer of the Company. Mr. Edwards has extensive experience in acquisitions and is employed by the Company pursuant to a five-year employment agreement. Additionally, in connection with Mr. Edwards’ employment, the Company’s Board of Directors approved an initial annual expense budget of approximately $3,000,000 to cover the increased costs related to the search for suitable acquisitions and the associated diligence efforts.

2003 compared with 2002

     A net loss of $1.9 million was recorded for the year ended June 30, 2003 as compared to net income of $480,000 for the year ended June 30, 2002. This change in operating results is discussed below.

     Interest income on interest-bearing deposits in banks decreased to $1,098,000 for the year ended June 30, 2003 from $1,335,000 for the year ended June 30, 2002. This decrease is primarily due to a continued decrease in interest rates. Unrestricted cash increased from $56.5 million at June 30, 2002 to $56.8 million at June 30, 2003 primarily due to interest earned on unrestricted cash accounts, proceeds from the sale of foreclosed real estate and proceeds from the sale of shares of the Company’s common stock.

     Gains on the sales of foreclosed real estate were $233,000 for the year ended June 30, 2003 as compared to $139,000 for the year ended June 30, 2002. 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 year ended June 30, 2003 and 2002 were from the sale of 58.6 acres and 59.4 acres, respectively, in San Antonio, Texas.

     Insurance expense was $151,000 for the year ended June 30, 2003 as compared to $102,000 for the year ended June 30, 2002. The increase reflects higher premiums on the insurance policies carried by the Company, primarily on the insurance policy covering directors and officers.

     Compensation and benefit expense was $1,785,000 for the year ended June 30, 2003 as compared to $144,000 for the year ended June 30, 2002. The increased expense includes the addition of salary expense for the Company’s President and Chief Executive Officer, and two other new employees. In addition, the salary expense for two employees had been shared with another company until November 2002, at which time the Company began to record the entire associated expense. The expense also includes $546,000 in non-cash compensation resulting from the issuance of common stock to Donald J. Edwards at a price less than the then current market value, as well as the grant of in-the-money stock options to Mr. Edwards and one other employee. The transactions with Mr. Edwards occurred in July 2002 and June 2003, in connection with Mr. Edwards’ employment agreement with the Company. The grant of options to the other employee occurred in December 2002, under the Liberté Investors Inc. 2002 Long Term Incentive Plan. Compensation and benefit expense also includes an accrual of $300,000 for management bonuses.

     Legal, audit and advisory fees were $381,000 for the year ended June 30, 2003 as compared to $157,000 for the year ended June 30, 2002. Legal expenses were higher for the year ended June 30, 2003 due to the legal fees associated with (i) the drafting of documents related to the employment of Donald J. Edwards, (ii) the drafting of documents related to options granted under the Liberté Investors Inc. 2002 Long Term Incentive Plan, (iii) the implementation and compliance with certain regulations

7

Table of Contents

under the Sarbanes-Oxley Act of 2002 and (iv) the drafting and review of contracts for the sale of foreclosed real estate.

     Foreclosed real estate expenses decreased from $242,000 during the year ended June 30, 2002 to $202,000 for the same period in 2003. The higher expense in 2002 was primarily due to higher property taxes resulting from increases in tax value assessments on several of the Company’s properties.

     There was a loss on the write-down of foreclosed real estate of $142,000 for the year ended June 30, 2003. The Company recorded a write-down on the book values of certain parcels of land in San Antonio, Texas to adjust for decreased market values on the properties due to a softening of the local real estate market as well as the continued general economic downturn. No losses on write-downs of real estate were recognized in the same period in 2002.

     General and administrative expense increased from $224,000 during the year ended June 30, 2002 to $401,000 for the same period in 2003. The increase was primarily due to higher stockholder relations expense, increased expenses associated with travel for due diligence and additional rent expense for offices in New York and Chicago for the year ended June 30, 2003.

     Other assets increased from $235,000 at June 30, 2002 to $612,000 at June 30, 2003, primarily due to capitalized costs related to a proposed acquisition transaction. Also see Notes 1 and 11 of Notes to Consolidated Financial Statements.

2002 compared with 2001

     Net income for the year ended June 30, 2002 decreased to $480,000 from $2,516,000 for the year ended June 30, 2001. This change in operating results is discussed below.

     Interest income on interest-bearing deposits in banks decreased to $1,335,000 for the year ended June 30, 2002 from $2,923,000 for the year ended June 30, 2001. This decrease is primarily due to a substantial decrease in interest rates. Unrestricted cash increased from $56.1 million at June 30, 2001 to $56.5 million at June 30, 2002 primarily due to interest earned on unrestricted cash accounts and proceeds from the sale of foreclosed real estate.

     Gains on the sales of foreclosed real estate were $139,000 for the year ended June 30, 2002 as compared to $378,000 for the year ended June 30, 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 year ended June 30, 2002 and 2001 were from the sale of 59.4 acres and 37.7 acres, respectively, in San Antonio, Texas.

     There was no material other income for the year ended June 30, 2002, a decrease from $21,000 for the year ended June 30, 2001. Other income for the year ended June 30, 2001 represented 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.

     Legal, audit and consulting fees increased to $157,000 for the year ended June 30, 2002, from $123,000 incurred in the year ended June 30, 2001. The increase is primarily due to legal costs associated with the drafting of documents related to the employment of Donald J. Edwards, as well as legal costs associated with the drafting of the Liberté Investors Inc. 2002 Long Term Incentive Plan.

8

Table of Contents

     Franchise tax expense increased to $58,000 for the year ended June 30, 2002 from a credit of $21,080 for the year ended June 30, 2001. The credit in 2001 was due to the completion and settlement of an audit of Texas franchise tax returns for the years 1997 through 1999.

     Compensation and employee benefits expense was $144,000 for the year ended June 30, 2002, an increase from $83,000 for the year ended June 30, 2001. The increase in expense is due to the hiring of a contract employee.

     General and administrative expense increased to $224,000 for the year ended June 30, 2002 from $203,000 for the year ended June 30, 2001. The increase is primarily due to increased stockholder relations expense and increased business travel and meals expense.

Liquidity and Capital Resources

     The Company’s principal funding requirements are operating expenses, including legal, audit and consulting expenses incurred in connection with the evaluation of potential acquisition candidates and other strategic opportunities. The Company anticipates that its primary sources of funding operating expenses are proceeds from the sale of foreclosed real estate, interest income on cash and cash equivalents and cash on hand.

     Operating activities for the year ended June 30, 2003 used $1.1 million of cash compared to $231,000 and $2.3 million provided in 2002 and 2001, respectively. Net cash used in the year ended June 30, 2003 was primarily for operating expenses, partially offset by interest income on cash in banks. Net cash provided by operations in the years ended June 30, 2002 and 2001 was primarily from interest income on cash in banks, partially offset by operating expenses.

     Net cash provided by investing activities for the year ended June 30, 2003 was $478,000 compared to net cash provided of $298,000 for the year ended June 30, 2002 and net cash provided of $475,000 for the year ended June 30, 2001. Net cash provided for 2003, 2002 and 2001 was primarily from sales of foreclosed real estate.

     Net cash provided by financing activities totaled $1.0 million for the year ended June 30, 2003 due to the sale of 333,333 shares of the Company’s common stock to Donald J. Edwards, in accordance with the terms and conditions of Section 4(h) of Mr. Edwards’ Employment Agreement with the Company dated as of July 1, 2002. Net cash used in financing activities totaled $122,000 for the year ended June 30, 2002 due to a cash dividend paid on June 28, 2002. Net cash used in financing activities totaled $2.5 million for the year ended June 30, 2001 due to a cash dividend paid on June 29, 2001. Total cash and cash equivalents were $56.8 million at June 30, 2003.

     The Company plans to finance acquisitions with its cash and cash equivalents, borrowings, and private or public debt and equity financings. On August 17, 1999, certain restrictions on issuing additional shares of common stock expired, which allows the Company to issue additional common stock to fund an acquisition. Prior to August 17, 1999, the Company was effectively precluded from issuing any additional shares of common stock for three years after the sale of common stock to Hunter’s Glen/Ford, Ltd. (“Hunter’s Glen”) in order to avoid restricting the use of its net operating loss carryforwards.

Critical Accounting Policies

     Valuation of foreclosed real estate held for sale. Foreclosed real estate held for sale is recorded at the lower of cost or fair value less estimated costs to sell, and is evaluated for impairment when events or changes in circumstances indicate such an evaluation is warranted. Cost is the carrying

9

Table of Contents

amount of the receivable at the time of foreclosure net of any allowances. Valuation of foreclosed real estate held for sale is considered a “critical accounting estimate” because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value, and therefore, the carrying amounts of the Company’s real estate.

     The Company periodically reviews its portfolio of foreclosed real estate held for sale using current information including (i) independent appraisals, (ii) general economic factors affecting the area where the property is located, (iii) recent sales activity and asking prices for comparable properties and (iv) costs to sell and/or develop that would serve to lower the expected proceeds from the disposal of the real estate. Gains (losses) realized on liquidation are recorded directly to operations.

     Valuation of deferred tax asset. Income taxes are maintained by the Company in accordance with SFAS No. 109, “Accounting for Income Taxes,” whereby deferred income tax assets and liabilities result from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and operating loss and tax credit carryforwards and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. At June 30, 2003, the Company’s gross deferred tax asset was approximately $79.0 million and the Company had net operating loss carryforwards for federal income tax purposes of approximately $223.0 million. Valuation of the deferred tax asset is considered a “critical accounting estimate” because the determination of the Company’s ability to utilize the asset involves a number of management assumptions relating to future operations and acquisition transactions that could materially affect the determination of the ultimate value, and therefore, the carrying amount of the Company’s deferred tax asset.

     Based on current business activity and the current status of business acquisitions, 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. Also see Note 6 of Notes to Consolidated Financial Statements.

Off-Statement of Condition Arrangements

     The Company is not a party to any off-statement of condition arrangements.

Contractual Obligations

     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 approximately $1.6 million, 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 units to obtain title to the property. No response has been received. LNC Holdings Inc. has accrued property taxes and related penalties and interest for calendar years 1996 through 2002 and for the six month period ended June 30, 2003 totaling $373,000. Management believes that resolution of the delinquent tax issue with the taxing authorities will not result in a material adverse impact on the financial condition of the Company.

10

Table of Contents

     The Company entered into an operating lease dated May 16, 1997 relating to its principal executive offices in Dallas, Texas. On February 15, 2000, the Company signed a renewal option on the operating lease regarding its principal executive offices. The renewal expires December 31, 2003, contains an additional renewal option and requires the Company to pay a proportionate share of operating expenses of the building. Beginning January 1, 2003, the Company has been reimbursed for approximately 75% of its rental payments by Hunter’s Glen, an affiliate of the Company’s Chairman of the Board of Directors, for the use of its offices by Hunter’s Glen employees. In addition, the Company has entered into other operating leases for office equipment.

     The Company entered into an operating lease dated January 13, 2003 relating to additional executive offices in Chicago, Illinois. The lease commenced September 1, 2003 and expires July 31, 2008, contains an additional renewal option and requires the Company to pay a proportionate share of operating expenses of the building. The lease also contains a provision for the Company to lease temporary space, which began January 19, 2003 and continued until August 31, 2003. In addition, the Company has entered into other operating leases for office equipment in Chicago.

     Future minimum lease payments under these leases, including the amount expected to be reimbursed by Hunter’s Glen of approximately $30,000, are as follows:

     In July 2002, the Company’s Board of Directors elected Donald J. Edwards of Chicago, Illinois, President and Chief Executive Officer of the Company. Mr. Edwards is employed by the Company pursuant to a five-year employment agreement which provides for an annual base salary of $500,000, plus an annual bonus to be determined by the Company’s Board of Directors.

Related Party Transactions

     Hunter’s Glen and the Company have entered into a Registration Rights Agreement dated August 16, 1996, pursuant to which Hunter’s Glen and certain subsequent holders of the shares of common stock (the “Hunter’s Glen Shares”) were granted certain registration rights with respect to their shares until (i) such shares have been sold pursuant to a resale registration statement filed with the SEC, (ii) such shares have been sold under the safe-harbor provision of Rule 144 under the Securities Act of 1933, as amended, 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 of 1933 for its account or the account of its security holders, other than a registration

11

Table of Contents

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 until the holders of such shares own an aggregate of less than 5% of the outstanding shares of common stock 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. Hunter’s Glen owns 8,002,439 shares of common stock. Because Gerald J. Ford is one of two general partners of Hunter’s Glen and the sole shareholder of Ford Diamond Corporation, the other general partner of Hunter’s Glen, he is considered the beneficial owner of the shares of common stock that Hunter’s Glen owns.

     Jeremy B. Ford, a director of the Company, is the son of Gerald J. Ford, the Chairman of the Board of Directors of the Company. Jeremy B. Ford is also an employee of the Company. For the fiscal year ended June 30, 2003, Jeremy B. Ford’s annual salary was $100,000, with a bonus of $30.000.

     Brandon L. Jones is the Company’s Senior Vice President of Business Development and is the son-in-law of Edward W. Rose, III, a director of the Company. For the fiscal year ended June 30, 2003, Mr. Jones’ annual salary was $200,000 with a bonus of $60,000. On December 1, 2002, pursuant to the Liberté Investors 2002 Long Term Incentive Plan, the Company granted Mr. Jones an option to purchase 250,000 shares of common stock of the Company at a strike price of $3.00 per share.

     During the year ended June 30, 2003, the Company paid $41,000 to Golden State Management, Inc., which was, at that time, an affiliate of the Chairman of the Board of Directors of the Company as reimbursement for services provided by an employee of the affiliate.

     Beginning January 1, 2003, the Company has been reimbursed for approximately $30,000 or 75% of its rental payments on its office space in Dallas by Hunter’s Glen, an affiliate of the Company’s Chairman of the Board of Directors, for the use of its offices by Hunter’s Glen employees. The Company’s Board of Directors has determined that such arrangement is fair to the Company.

     A summary of the status of the Company’s 2002 Long Term Incentive Plan as of June 30, 2003 and changes during the year then ended is presented below:

Recent Accounting Pronouncements

     On July 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supersedes SFAS 121 and the portion of Accounting Principles Board Opinion No. 30 that deals with the disposal of a business segment. The implementation of SFAS 144 had no effect on the Company’s consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which is effective for fiscal years ending after December 15, 2002 and interim periods beginning after December 15, 2002. SFAS 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to the fair

12

Table of Contents

value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure provisions of Statement 123 to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements. As discussed below, the Company accounts for its stock-based compensation under Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and has provided the disclosures required under SFAS 148.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s financial instruments consist primarily of cash and cash equivalents. As described in Note 8 of Notes to Consolidated Financial Statements, the Company has approximately $56.8 million of its cash in interest bearing deposits in three 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, as was experienced in fiscal 2003, should rates fluctuate as it relates to interest income earned from these financial instruments. It is the intention of management ultimately to acquire a viable operating company in order to increase value to existing stockholders and provide a new focus and direction for the Company. These financial instruments would be used to fund such acquisitions.

Item 8. Financial Statements and Supplementary Data

     See “Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K” for a listing of the consolidated financial statements filed with this report. The response to this item is submitted in a separate section of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

     As of June 30, 2003, the Company carried out an evaluation, under the supervision and with participation of the chief executive officer and principal accounting officer of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the chief executive officer and principal accounting officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2003 to provide reasonable assurance that information required to be disclosed by the Company in its periodic Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company is accumulated and communicated to the Company’s management, including the chief executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

     There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the year ended June 30, 2003, that has materially affected the Company’s internal control over financial reporting.

13

Table of Contents

PART III

Item 10. Directors and Executive Officers of the Registrant

     The information concerning the directors and executive officers of the Company is set forth in the Proxy Statement (the “Proxy Statement”) to be filed with the Securities and Exchange Commission (the “SEC”) and sent to stockholders in connection with the Company’s Annual Meeting of Stockholders to be held November 6, 2003, under the headings “PROPOSAL ONE - ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” which information is incorporated herein by reference.

Item 11. Executive Compensation

     The information concerning executive compensation is set forth in the Proxy Statement under the headings “MANAGEMENT COMPENSATION,” “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” and “COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION,” which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the heading “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,” which information is incorporated herein by reference.

Equity Compensation Plan Information

     The following table sets forth information as of June 30, 2003, with respect to compensation plans under which shares of the Company’s common stock may be issued:

(1)

On November 8, 2002, the Company’s stockholders approved the Liberté Investors 2002 Long Term Incentive Plan (the “Plan”). Under the Plan, the Company may grant awards consisting of incentive stock options, nonqualified stock options, restricted stock and stock appreciation rights to employees, consultants and non-employee directors of the Company. The Company has reserved an aggregate 6,000,000 shares of common stock of the Company for issuance

14

Table of Contents

		under the Plan. The Plan terminates on July 9, 2012. The maximum term of an award under the Plan is 10 years from the date it is granted.
(2)		Reflects a grant to Mr. Edwards under his Employment Agreement, as an inducement to his employment with the Company, to purchase up to 333,333 shares of common stock of the Company within the first year of his employment with the Company at a price of $3.00 per share. As of June 30, 2003, Mr. Edwards had purchased all 333,333 shares of common stock of the Company under such grant.

Item 13. Certain Relationships and Related Transactions

     The information concerning certain relationships and related transactions is set forth in the Proxy Statement under the heading “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” which information is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

     Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A), the disclosure requirements of this Item are not effective until the Annual Report on Form 10-K for the first fiscal year ending after December 15, 2003.

15

Table of Contents

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

Documents filed as part of this Annual Report on Form 10-K.

	(1)		Consolidated Financial Statements: See Index to Consolidated Financial Statements on Page F-1.
	(2)		Exhibits:

16

Table of Contents